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The  Service 


J.  This  Federal  Income  Tax  Service  when  sent  you  is 
complete  to  the  time  of  subscription.  It  is  kept  up- 
to-date  by  the  insertion  of  new  pages  as  often  as  new 
regulations,  rulings  or  decisions  are  released. 

2.  Reports  of  new  matter  are  sent  by  first-class  mail 
with  a Report  Letter  which  lists  the  pages  included 
in  the  report.  The  report  letters  are  consecutively 
numbered.  If  the  number  of  a new  report  indicates 
the  non-receipt  of  the  preceding  report.,  or  if  pages 
are  found  missing,  notice  thereof  should  be  sent  us 
that  we  may  forward  duplicates. 

3.  The  six  divisions  of  this  Service,  indicated  and  sep- 
arated by  guide  cards,  report  THE  LAW  with  right- 
hand  margin  references  to  THE  COMPILATION 
which  is  a compiled  topical  arrangement  of  the  law, 
decisions,  regulations,  and  rulings  in  force  and  effect 
January  1,  1922;  1922  NEW  MATTERS  with  which 
contact,  is  effected  by  means  of  the  CUMULATIVE 
INDEX;  COURT  DECISIONS;  and  SUPPLE- 
MENTARY MATTERS  consisting  of  Reproduc- 
tions of  Forms,  List  of  Collectors,  T.  D.  Finder, 
Running  Table  of  Contents,  etc.,  and  the  General 
Index. 

4.  All  paragraphs  are  numbered  for  reference  purposes. 
The  paragraph  numbers  appear  in  boldface  print  in 
the  left  margin.  Small  numbers  below  the  para- 
graph numbers  are  references  to  other  paragraphs 
bearing  on  the  same  subject.  When  new  matter  is 
inserted,  the  Service  should  be  kept  fully  cross- 
referenced  by  the  entry  of  the  new  paragraph  num- 
bers opposite  the  respective  preceding  paragraphs  to 
which  back  reference  is  shown. 

5.  The  numbering  cf  paragraphs  and  pages  is  consecu- 
tive throughout  the  Sendee.  The  page  numbers  of 
the  first  three  divisions  of  the  Service  are  of  one  series. 
Separate  series  of  page  numbers  are  provided  for 
each  of  the  remaining  divisions  of  the  Service. 

The  Corporation  Trust 

37  W.hJI  Street,  New  York 

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The  Corporation  Trust  Company’s 
1913-1922 

INCOME  TAX  SERVICE 


To  Subscribers . 


The  Revenue  Act  of  1921  became  law  November  23,  1921.  it  contain* 
many  entirely  new  provisions.  Moreover,  many  of  the  old  provisions  of  law 
which  broadly  may  be  said  to  have  been  carried  into  the  1921  Act,  have  been 
so  modified  in  the  process  that  fundamental  differences  in  principle,  appli- 
cation, or  scope  are  evident.  Minor  differences  between  the  1918  and  the 
1921  laws  are  many. 

The  regulations  based  on  the  new  law  have  not  been  issued  by  the  Govern- 
ment. Several  more  weeks  will  have  passed,  undoubtedly,  before  the 
regulations  are  in  final  form. 

You  will  receive  the  new  regulations  from  us  at  the  earliest  possible 
moment. 

In  the  meantime  you  have,  herein,  the  new  law,  (white  pages  5 to  90)  in 
Service  style,  comprehensive  notes  (blue  pages  91  to  106,  following  the  law) 
showing  differences  between  the  old  and  the  new  income-tax  laws,  and  an 
index  of  the  law  (pink  pages  107  to  128).  Also,  at  the  back  of  the  binder, 
the  Supreme  Court  decisions.  (“Court  Decisions”  guide  card.) 

You  have,  in  the  1921  Service  book,  the  old  law,  and  all  the  old  regulations, 
Treasury  Decisions,  special  rulings,  etc. 

You  have  all  of  the  special  Supplementary  Income  Tax  Rulings  issued  in 
the  Bureau  of  Internal  Revenue  Bulletins,  (indexed  in  our  Cumulative  Index, 
1921  Service, — “Reg.,'45,'tRev. — T.  D.  Finder’Yguide  card). 

The  new  Service  will  be  kept  fully  up  to  date,  at  all  times  [see  yellow  guide 
card  marked  “1922  New  Matters”j.  Such  Treasury  Decisions,  rulings,  and 
other  matters,  as  are  reproduced  for  the  Service  before  the  complete  new  Ser- 
vice is  sent  (after  the  regulations  have  been  issued)  will  be  reprinted  then,  in 
place  or  otherwise,  according  to  developments, 
f No  one  can  supply  more  and  no  one  can  have  more. 

‘ As  soon  after  the  regulations  are  promulgated  by  the  Government  as  is 
possible,  the  complete  Service — law,  compilation,  digest-index  to  the  Bulletin 
and  other  rulings,  supplementary  matters,  and  index — will  be  sent  to  you  to 
be  inserted  herein,  in  lieu  of  the  temporary  matters. 

We  regret  that  the  facts  and  circumstances  are,  as  they  are.  Subscribers 
may  be  confident  that  we  shall  meet  the  situation  to  the  best  of  our  resources 
and  ability,  which  we  sincerely  trust  will  prove  so  ample  and  adequate,  that 
the  difficulties  and  embarrassment  in  which  Congress,  by  its  belated  action, 
has  involved  the  taxpayers  of  the  country,  will  be  reduced  to  a minimum. 


January  2,  1922. 


The  Corporation  Trust  Company. 


Copyright  1922  by 

37  Wall  Street,  New  York 
Affiliated  with 


(Eurpnration  Gtruat  (Enuipany 
SYSTEM 


Organized  1892 


Jersey  City,  15  Exchange  Place 
Boston,  53  State  Street 


Washington,  D.  C.,  Color-do  Bldg. 
Philadelphia,  Land  Title  Bldg. 
Portland,  Me.,  281  St.  John  Street 
St.  Louis,  Federal  Reserve  Bank  Bldg. 
Wilmington,  duPon:  Bldg. 

(Corporation  Trust  Co.  of  America) 
Street 


(Corporation  Regi~tration  Company) 
Chicago,  112  W.  Adams  Street 
Los  Angeles,  Title  Insurance  Bldg. 
Pittsburgh,  Oliver  Bldg. 


Albany  Agency,  158  State 


In  blank. 


•> 


Olmpnratinu  ®ntsi  (ttnmpatuj 

SERVICE  DEPARTMENT 

3T  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  75- 
JANUARY  4,  1923. 

FINAL  REPORT  FOR  THE  1922  SERVICE. 

Enclosed  herewith,  for  substitution,  are  pages  for 
insertion  in  your  1922  Service  book. 

/ 

“1922 Matters”  division; 

v 791  (New  matter  at  <i  3543.) 

“T.  D.  Finder”  division: 


(//Supplementary  Pago  3b 
y Supplementary  Pages  37 


This  f 
necessarily 
52  did  not 
2.  The  ne 
subscriptio 


(See  notice  on  the  pink: 

page  91. ) 


“Course  Decisions”  division: 

Supplementary  Pages  yf5  to  lie 

*/  # * 

523  SERVICE. 


rt  (for  the  1922  Service)  is  late, 
a Internal  Revenue  Bulletin  No. 
the  Government  presses  until  January 
ort  (to  those  who  have  renewed  their 
will  go  forward  tomorrow,  being  Report 
No.  1 for  the  1923  Service  book  distribution  of  which 
began  on  January  1. 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


' 


I 


. 1 1 6 : «• 





©!;?  Cfepantfum  Sruat  fflompanj 

SERVICE  DEPARTMENT 

37  WALL  STREET.  SEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO..  74- 
DECEMBER  21,  1922. 

Enclosed  herewith  are  pages  designated  as  fo#fowe: 

‘1922  Yew  Matters’*  tiivisioa: 

v 785  to  791  (For  substitution  for  page  ?j^5,  new  cat- 
ter  beginning  at  f 3519.) 

T.  Dy  Finder”  division; 

•^Supplementary  Page  35  (New,) 

\/  Supplementary  Pages  37  to  43  (FoiYsuhstitution  for 
Supplementary  Pages  37  to  42.  - See  notice  on 
the  pink  page  facing  page^l.) 

* * # 

Carl  A.  Mapes,  Solicitor  of /Internal  Revenue,  has 
resigned  effective  or,  the  confirmation  of  his  succeesoj 
Nelson  T.  Hartson  has  been  nominated  b/  the  President 
for  the  position.  Mr.  Mapes^  resignation  will  create 
a vacancy  on  the  Tax  Simplification  Board, 

/ * */  * 

/ THE  1923/SERVICE. 

Or,  December  31,  192(2  the  preeent  subscription  period 
for  our  Inca  Be  and  Way  Tax  Services  ends.  If  you  have 
not  already  done  so  suggest,  that  you  give  attention 
to  the  matter  of  re/ewing  your  subscription,  for  the 
year  1923. 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


I / 


. 


VOnsosv  a :{ 


©Ip  fflorporatinu  OJniBt  (Enmpang 

SERVICE  DEPARTMENT 

3?  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

• / 

-REPORT  NO.  73- 

DECEMBER  18,  1922/ 

Enclosed  herewith  are  pages/Uesignated  as  follows:  .• 

/ 

“TUe  Compilation'  division:  / 

^/pink  page  to  face  page  (For  substitution  for  the 
pink  page  now  fading  page  91.  As  originally 
distributed  the/holes  were  on  the  wrong  mar- 
gin.) 

“1922  Njfcw  Matters"  division: 

/ 7^3  to  785  (For  substitution  for  page  783.  - New 
! matter  begyfns  at  cj  3513.) 

“T.  D.  Finder”  division: 

■J  ^upplementarW^Pages  33-34  (For  substitution.) 

' * * * 

FORMS  1096  AND  1099. 

1 J 

(These  in/orraation  at  the  source  return  forms  (sal- 
aries, wages'  interest,  etc.)  for  use  next  year  are  be- 
ing /releasee.  by  the  Government  to-day.  Barring  change 
of  daktes  i/nese  forma  are  the  same  as  those  for  use  this 
year,\j3£«ctically . 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY . 


* 


r 


,an/o^  vieV 


(Eorpnratintt  Struct  ffinmpatuj 

SERVICE  DEPARTMENT 

37  V4U  STREET.  NEW  TOHI 


FEDERAL  INCOME  TAX  3ERV 


-REPORT  NO , 72- 
DECEMBER  13,  1922. 

Enclosed  herewith  are  pages  designated  as  follows, 
all  for  substitution. 


■).922  New  Matters”  division; 


/ 

783  (New  matter  ait  q 3512  - though  same  wopT'given 
/on  Report  Letter  No.  7QXDec.  6.) 


1.10.  Finder”  division: 


/ 


j Supplementary' Pages  33  to  42  (No^fstatement  on  the 

pink  sheet  iigidCdiately  following  ^ 


«The  CompiLfftion’1  guide  card.) 


‘Coui  t Decisions”  division; 

^Supplementary  Pages  1^5  to  118  (Revised  to  date.) 


THE  NEW  1923. 


* * 

AND  INCOME  TAX  SERVICES. 


The  complete  new  Service  hooks  will  he  ready  for 
distribution  to  subscribers  at  the  expiration  of  the 
present  subscription  period,  December  31,  1922.  Have 
you  renewed? 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


v . eJ-j eJb  oi  5s  £■  i 4 o j 


* 


* 


©he  (Corporation  Sruot  (Eompang 

SERVICE  DEPARTMENT 

37  WALL  STREET,  MEW  TOllH 


FEDERAL  INCOME  TAX  SERVICE 


-REPORT  NO.  71- 


EECEMBER  9,  1922 
Enclosed  herewith  are  pages  designated  as  follows 

“1922/New  Matters”  division:  , 

1/  769  to  783  (For  substitutiopHfor  pages  769-770. 

New  matter  begins  at  q 3439.) 


Attention  is  called  Jco  the  "Court  Decisions  and 
Cases"  statement  sent  herewith.  As  this  is  not  for 
insertion  in  the  Service  it  is  printed  on  unpunched 
paper. 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


©It?  (EnrpBratum  ©rcust  (Eomjiang 

SERVICE  DEPARTMENT 

37  VALi.  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  y6- 
DEC EMBER  6/1922. 

Enclosed  herewith  aref  pages  designated  as  follows 

/he  Compilation”  division: 

New  pink  page  to  /ace  page  91. 


•‘l 

M 


122  Now-  Matters”  divisio/ 

765  to  770  (Fc / substitution  for  page  765.  New 

matters  begin  at  q 3417.) 


“T.  D.  Finder”  division 

J 


J 


Supplei lenta/y  Pages  33-34  to  36  (One  sheet.  For 

substitution . ) 

Supple  nen^ry  Pages  37  to  41  (For  substitution  for 

Supplementary  Pages  37  to  40.) 
See  n w/ pink  page  sent  herewith  to  face  page  91. 

* * * 

COMMITTEE  ON  AFPEALS  AND  REVIEW. 


The  chairman  of  the  Committee,  Mr.  N.  T.  Johnson, 
has  resigned,  effective  December  15,  1922,  to  enter 
private  business.  He  will  be  succeeded  b./  Mr.  Kingman 
Brewster,  special  attorney  of  the  office  of  the  Solic- 
itor of  Internal  Revonue . 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


* 


, 


<• 


SERVICE  DEPARTMENT 


ar  WALL  STREET,  NEW  VO  ILK 


REPORT  NO.  69- 


NOVEMBER  29,  1922. 


Enclosed  herewith  are  pages  for  substitution  as  in- 

rl  ■!  no  + Vial  rvt»7  • 


During  the  remainder  of  1922  the  Cumulative  Index- 
Digests  will  appear  in  the  Service  beginning  on  Supple- 
mentary Page  37.  -The  Article  number  is  the  key  number. 
All  rulings  bearing  on  a particular  Article  will  be 
placed  under  that  particular  Article's  number.  The  Ar- 
ticle numbers  (to  the  extent  that  they  appear  at  all) 
run  sequentially,  beginning  with  number  1. 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


' 


« 


V 


- 


(Eorpar^tim:  Struct  (Emtuiany 

SERVICE  DEPARTMENT 

37  WALL  STREET.  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  63- 
NOVEMBER  27,  1922. 


Enclosed  herewith  are  pages  designated^ as  follows, 

all  for  substitution  unless  otherwise  indicated: 

“Th^  Compilation”  division: 

j 93-94  (Reference  to  amended  Art ./134 . ) 

t “192^ New  Matters”  division: 

/765  (New.  - Amendment  to  Art/  134. 

“T.  D.  Finder”  division: 

Vj  Supplementary  Pages  33-36/(0ne  sheet. 

3er 

di/ated  oy  told  faced  stars.)* 


k Supp: 

/ Supplementary  Pages  57-3 £ (New  matters  being  in- 


“Conrt  Decision  ” division: 

/ Supplementary  Pages  1A5  to  118  (Recent  reporter 

fcitatione  added.) 


♦CUMULATIVE  INDEX-DIGESTS. 

During  the  remainder  of  1922  the  Cumulative  Index- 
Digests  wil\L  appeal/  in  the  Service  beginning  on  Supple 
mentary  Page  37.  /The  Article  number  is  the  key  number 
All  rulings  beafing  on  a particular  Article  will  be 
placed  under  that  particular  Article’s  number.  The  Ar 
tide  numbers  (to  the  extent  that  they  appear  at  all) 
run  sequentially,  beginning  with  number  1. 

Very  truly  your3 , 


THE  CORPORATION  TRUST  COMPANY . 


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©!je  fflorporaRnn  ©rust  (Enrapattg 

SERVICE  DEPARTMENT 

8T  WALL  STREET,  NEW  'YORK 


FEDERAL  INCOME  TAX  SERVICE 


-REPORT  NO.  67- 
NOVEMBER  22,  1922. 


/ 

/ 


Enclosed  herewith  are  pages,  for  substitution,  des- 
ignated aa  follows: 


THE  CO? -ORATION  TRUST  COMPANY. 


1 


JjJfye  taltxui  U/tUBt  (Emuiiaug 

SERVICE  DEPA R T M ENT 

3?  VAIL  SHIEST,  SEW  YOILK 

FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  66- 


NOVEMBER  15,  1922. 

Enclosed  herewith  are  pages  designated  as  follows 


•Th«  Compilation”  division: 

99-100  (For  substitution.) 


/ 


“192fe  New  Matters”  division: 

761  to  764  (For  substitution  for  pages  761-762. 

New  matter  begins  at  q 3406.  At- 
tention is  ceiled  to  the  revision  of 
the  footnote  on  page  761  showing  that 
Mr.  LeRoy/Russell  has  become  a member 
of  the  Cjhmmitteo  on  Appeals  and  Re- 
view. ) 


/ 


“i.  Vi.  Finder  ’ division: 

/ /Suppl jmentary 


Lges  33  to  35  (Single  sheet,  for 
substitution.) 
n Supplementary /Pages  37  to  39  (For  substitution 
v flor  Supplementary  Pages  37-3S,  new 

Satters  being  indicated  by  the  use 
/of  hold  faced  stars.)* 

* * * 

CUMULATIVE  INDEX-DIGESTS . 

During  the  remainder  of  1922  the  Cumulative  Index- 
Digests  will  appear  in  the  Service  beginning  on  Sup- 
plementary Page  37.  The  Article  number  is  the  key 
number.  All  rulings  bearing  on  a particular  Article 
will  be  placed  under  that  particular  Article’s  number. 
The  Article  numbers  (to  the  extent  that  they  appear  at 
all)  run  sequentially,  beginning  with  number  1. 


Ve>~y  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


-r  • JC 


* 


* 


-y 


©lj?  ©mptuamin  ©mat  (Eompattif 

SER  iCE  DEPARTMENT 

37  WAIL  STREET,  NEW  YORK 

FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  65- 
NOVEMBER  9,  1922. 

Enclosed  herewith  are  pages  designed  as  follows: 

“1922  Now  Matters”  division:  , 

|yj/  761-762  (For  substitution  foiypage  761.  Hew  matter 
begins  at  Si  3£v7.) 

“T.  D.  Finder”  division:  , 

\J  Supplementary  Pages  33/fo  36  (This  is  a single  sheet 
so  designated  and  is  for  substitution 
for  Supplementary  Page  33.) 
Supplementary  Page j 37-38  (New.)' 

/*  * * 

•CmsULiTIVE  INDEX-DIGESTS. 

On  Supplemental  ry  Pages  37-38,  sent  herewith,  are 
printed  indexydi^ests  of  the  rulings  in  Internal  Revenue 
Bulletin  No.  iy  of  tho  1922  Series,  and  of  new  matters 
in  the  Service.  During  the  remainder  of  1922  the 
Cumulative  Index  Digests  will  be  furnished  in  this  form. 
The  Article  number  is  the  key  number.  All  rulings  bear- 
ing on  a particular  Article  will  be  placed  under  that 
particular  Article's  number.  The  Article  numbers  (to 
the  extent  that  they  appear  at  all)  ran  sequentially, 
beginning  with  number  1. 


Vary  truly  yours 


THE  CORPORATION  TRUST  COMPANY. 


TH3MT9Aqaa  3DIV 

: ewol. 
lesSsm 

■ ano 

eiolitk  erlT  .n  ic  a 


— — 


(Hlj?  Corporation  ©root  (Eompang 


SERVICE  DEPARTMENT 

37  WALL  STREET,  SEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 


-REPORT  NO.  64-* 


NOVEMBER  6,  1922. 


Enclosed  herewith  are  pages  designated  as  follows; 

’ Compilation"  division:  . 


“1922  New  Matters”  division: 

J 757  to  761  (For  substitution  for  page  757.  - New 

matter  begins  at  q 3378.) 

“T.  v.  Finder”  division: 

Supplementary  Page  33  (For  substitution.) 


*Report  No.  63  (pages  for  substitution  incident  to 
the  publication  of  Cumulative  Bulletin  No.  6,  or  1-1  as 
it  is  called,  and  which  will  go  forward  to  you  from 
Washington  as  soon  as  it  is  bound  and  punched),  also 
dated  November  6,  1922,  is  on  its  way  to  you.  The  pages 
accompanying  either  report  letter  may  be  inserted  first, 
as  there  are  no  duplications. 


91-92  (For  substitution.) 


Very  truly  yours. 


THE  CORPORATION  TRUST  COMPANY. 


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5 93£.;;  erfT  .1/0^.  o.J  i£6w  eJ  no  ,S£C  J c narfifiovc  b-  ofib 
iaT;  i be  T9^nr  so  lead’s >:  * -oqe-  serl-j  • • gni\-.r  oo.u 

. 8fio x J bo x ic sib  on  st*  e re.',i  as 


(.13  bn  id  iuov  in  won  aogeq  baiadrnun.vhclifme  lol  /: 

Sliyr  (ttorpcratixm  ©rust  Company 


SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 

l£-Ur.  . V'  J,'  £££-!££  " 


;r-?t 


FEDERAL  INCOME  TAX 

-REPORT  NO.  63- 

Obfi-QSc.  * 4c I -He  I 

November  6,  1922. 

bc£-cc£  ^ dOb-cOSN  8£I-T£l\ 

Cumulative  Bulletin  1-1  (June  1922)  will  soon  be  on  its  way  to  you 
from  Washington,  for  substitution  for  the  first  26  weekly  issues  of  the 
Internal  Revenue  Bulletin  for  1922,  as  stated  on  the  blue  sheet  ac- 
companying this  report. 

Because  appropriate,  we  reprint  below  two  paragraphs  from  our 
Report  Letter  No.  27  (April  10,  1922)  sent  to  subscribers  at  the  time  of 
the  publication  of  Cumulative  Bulletin  No.  5 (December  1921): 

“Subscribers  have  long  since  realized  the  advantage  of  having 
within  one  volume  all  of  the  rulings  printed  in  26  separate  weekly 
issues.  It  was  our  appreciation  of  this  marked  advantage  to  our 
subscribers  that  prompted  us,  from  the  beginning,  to  supply  the 
semi-annual  Cumulative  Bulletin  for  substitution  each  time  for 
the  26  weekly  issues  previously  furnished  currently  during  the  6 
months  period.” 

“Unfortunately,  but  necessarily,  the  references  in  an  index  to 
matters  in  26  weekly  pamphlets,  each  of  which  is  paged  as  a unit, 
will  not  serve  for  the  permanent  combined  and  compiled  volume. 

It  follows  that  if  the  advantage  of  the  compact  semi-annual  Cum- 
ulative Bulletin  is  to  be  realized,  the  26  weekly  issues  being  dis- 
carded, the  references  in  indexes  to  the  subject  matter  (which 
remains  the  same)  which  are  to  pages  in  the  little  chaps  must  be 
changed  to  agree  with  the  paging  of  the  big  fellow.  There  is  but 
one  way  to  accomplish  this,  and  that  is  to  revise  and  reprint  the 
indexes.  This  we  have  done  as  reflected  on  the  pages  sent  herewith 
for  substitution  for  the  pages  similarly  numbered  now  in  your 
binder.” 

References  to  rulings  in  weekly  Bulletins  No.  41  to  44  of  the  1922 
Series  appear  on  certain  of  the  accompanying  sheets.  Each  such  refer- 
ence, in  the  index-digests,  is  marked  prominently  with  a star  on  the  left. 

The  pages  sent  herewith  for  substitution  are  listed  on  the  reverse 
of  this  sheet. 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


(OVER) 


(The  pages  accompanying  this  Report,  as  listed 
stilution  for  similarly  numbered  pages  now  in  your  1; 

^241-242 
7/43-244 
V245-246 
j #247-248 
//  249-250 
251-252 


for  sub- 


-1 16 
-120 


151-1 


7-168 


173-174 


-180 

-182 


J 


*.201- 
* 203- 
■'  205- 


. 213-2 
A 2 15-2 
/ 217-2 


-226 

-228 

-230 


235-2 


/ <365  366 
7367  368 
#369-370 
/37 1-372 


5-514 


* 253-254 


V" 


0257-258 
//59-260 
/ 261-262 


279-280 


/, 


#287-288 
#289-290 

Z293-294 
^ 95-296 
/ 297-298 
/299-300 

^3 03-304 

/ 311-312 
7313-314 
/315-316 
, /3 1 7—3 1 8 
/3 19-320 
732 1-322 
#323-324 
/ / 325-326 
J*  327-328 
7329-330 
/ 331-332 

/ 335-336 

V *,339-340 
V/341-tS42 

* 359-360 


'375-376 
f*  377-378 

/ <381-382 
'383-384 

/39 1-392 
/ 393-394 
7395-396 
/ 397-398 
7399-400 

(M03-404 
v #05-406 
#407-408 

7415-416 

j lUiii  . 

7 * 421-422 
\/  A23-424 
/ 425-426 

# * 433-434 

f 

Ij  * 449-450 

/'A 

7453/154 
7455-456 
-458 
459  460 
-1—462 
'463-464 

7 / 467-468 
•7  * 469-470 
^ 471-472 

7 475-476 

J 479-480 

J,  483-484 

487-488 
y 489-490 


-526 

-528 

-530 


-564 

-566 


#569- 
j 571- 


7*  ;75-576 

/ 579-580 
7=  <581-582 
#583-584 
/ 585-586 
$87-588 

1/607-608 

/*  /611-612 

/ 615-616 

|/7 19-620 
Y 621-622 

7,627-628 
629-630 
/63 1-632 


/637-638 

y * / > r* ; 

7 663-664 
| 665-666 


7: 


703-704 


ul; 


*Pass  starred  numbers  at  first.  The  pages  so  designated  are  grouped 


at  the  back. 


©!;?  (Jurpuratiun  ©rust  ffiumpauy 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  62- 
OCTOBER  21,  1922. 

Enclosed  herewith  are  pages  as  listed  helow: 


ence  at  Art . 39 . ) 


‘The  Compilation”  division: 

l//93-94  (For^ubstitut 
‘1922  New 

/ 755 


luixuvron  for  page  755.  - New 
flatter  begins  at  <3  3372.  ) 


‘T.  D.  Fiijper”  division: 

^/Sn/plementary ^Jte'ge  33  (New.) 


Very  truly  yours. 


THE  CORPORATION  TRUST  COMPANY. 


t 


Miwe-ierf  ' iso  o : 


u -10^  s <;e  j 


(i"r  to1?)  ?5  V i ' ! 


: no;.-.  />  .-; 

.)"'<C  e%M  Y'lBJ'nec  M 


nirr.  i 


3tjr  (ttorjmraltntt  ®nmt  (Enmpamj 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NSW  YORK 


~J\  federal  income  tax  service  / 

r i.  ST* 

-REPORT  NO.  61- 


OCTOBER  18,  1922. 


Enclosed  herewith  are  pages  for  the  Servijj^'ae 

listed  below: 

“1922  New  Matters”  division:  X ...  .. 

”-•1/749  to  755  (For  substitution  frrf-  page  749.  New 
'matter  begins  &yk  3355.) 

“T.  D.  Finder”  division: 

/ Supplementary, Pages  3/^32  (For  substitution  for 
^upplemp/tary  Pages  31-32,  and  33.) 

“Supplementary  Matters”  cU^sion: 

Supplementan/Pages  115  to  118  (For  substitution 


Very  truly  yours, 


THB  CORPORATION  TRUST  COMPANY . 


1 


: I <3c  Derail 


(Enrpnratixm  Enmt  fflmnpang 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  60- 
0CT0BER  17,  1922. 


Enclosed  herewith  are  pages  designated  as  follows 


for  substitution  unless  otherwise  indicated: 

“TljK^Compilation”  division: 

99-100 

“19^2  New  Mailers”  division: 

749  (New.) 

'“T.  p.  Finder”  division: 

J Supplementary  Page  33. 

* * 

U.  S.  SUPREME/  COURT. 


/ 


Yesterday  the  Supreme 
of  the  Ciruit  Court  of  AppeaL 
(*S  880  of  the  Service).  The 
Justice,  will  be  included  ir 
available . 


rt  affirmed  the  judgment 
s in  Lederer  vs.  Stockton 
opinion,  /by  the  Chief 
the  Service  as  soon  as 


CUMULATIVE  BULLS 

(January  - June, 


IN  m.  6. 
522. ) 


Cumulative  Bulletin  No.  6 (or  1-1  as  it  is  to  be 
called)  is  not  yet  off  the  Government  presses. 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


■ 


* 


1 


> 


1 


. 


V 


A ’I 


2%  (Eorpnratinn  3ruat  fflnntpang 

SERVICE  DEPARTMENT 


,K  FEDERAL  INCOME  TAX  SERVICE 


igi 

th« 

th< 

Eai 

ed 

“Ti 


37  WALL  STREET,  NEW  YORK 


-REPORT  NO.  58- 


Supplementary  Page  33  (For  substitution.) 


Finder”  division:' 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


& 


u 


5s?e  dJorporattmi  intsi  ©niMpang 

SERVICE  DEPARTMENT 

37  WAIX  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  57- 
SEPTEMBER  27 , 1922.  / 

Enclosed  herewith,  for  substitution,  are  pages  des- 
ignated as  follows.  The  cumulative'  index-digests  on 
these  pages  have  been  revised  tc  carry  references  to 
new  matters  and  to  rulings  in/Bulletin  No.  39  of  the 
1922  Series.  Each  such  new/reference,  in  the  index- 
digests,  is  martyed  prominently  with  a star  on  the  left. 


•The  Compilation”  division: 


/ 563- 


564 


339-340 . 


^ 449-450 
/'469-470 


*^607-608 
/631-632 
>^649-650 
/ 659-660 


Also  enclosed  are  the  pages  listed  below,  for  sub- 
stitution . 

“1922, New  Matters”  division: 
t/  747  (New  matter  at  *2  3343.*) 

• T.  D.  Cinder’’  division: 


L ■ U . l l tU  Ol  U1  V lOiOil  • 

^/Supplementary  Page  33 


*'TAX  SIMPLIFICATION  BOARD 
Mr.  Moorhead  is  a member  of  the  law  firm  of  Moorhead 
and  Knox,  Pittsburgh,  and  Mr.  Hilton  of  the  school  book 
publishing  firm  of  Ginn  & Co . , Boston. 

Very  truly  yours. 


THE  CORPORATION  TRUST  COMPANY. 


- 


©rust  (Somuanu 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 

FEDERAL  INCOME  TAX  SERVICE 


-REPORT  NO.  56- 


SEPTEMBER  20,  1922. 

Enclosed  herewith  are  pages,  for  substitution,  as 
designated  below.  These  "law"  pages  have  tejfr.  re- 
printed to  show  forward  references  to  the  amendments 
to  the  law  effected  by  "The  China  Trade  A£t"  (f  3158 
herewith)  which  became  law  yesterday. 

/ 

“The  Law”  division: 

/ 5-6  / 45-46 

y 23-24  / 49-50 

/ 29-30  ✓ 57-58 


f / 59-60 
/ / 75-76 


Also  encloeed,  for  substitution,  are  the  pages 
listed  below.  Those  in  "The  Compilation"  division  were 
reprinted  to  show  forward  references  to  "The  China 
Trade  Act",  and  to  insert  references  in  the  cumulative 
index-digests  to  rulings  ii/ Bulletin  No.  38  of  the  1922 
Series  (bold  face  stars). 


‘The  Compilation”  division 

J 175-176 
^207-20& 

J 249-250 
J 269-270 
\i  387-388 


‘19£2  New  Matters  ’’ 


93-394 
-404 
455-456 
461-462 
463-464 


'1 467-468 
y/ 47 1-472 
t/555-556 
V 559-560 
/ 567-568 


705  to  708  (E&r  substitution  for  the  pages  705  to 
70&S one  sheet,  now  in  the  binder.  The 
China  Trade  Act  begins  on  page  705,  <J  3158.) 


i.  ID.  Finder” 

, i Supplen 


division: 

Supplementary  Page  33 


Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY 


L 


. 


Uilfp  ffluriuuatuin  ®n*at  (Homuauu 


SERVICE  DEPARTMENT 


:1T  NVAU.  S'l'UKliT,  XEW  VOKIv 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  55- 
SEPTEMBER  15.  1922. 

‘ ows , 


CUMULATIVE  BULLETIN  NO.  6 - JAN.  TO  JUNE,  1922. 


•Cumulative  Bulletin  No.  6,  covering  the  weekly 
issues  of  the  Internal  Revenue  Bulletin  for  the  first 
3ix  months  of  this  year,  has  not  yet  heen  printed  by 
the  Government.  It  will  not  be  ready  for  distribution 
much,  if  any,  before  October  15.  When  available  it 
will  be  sent  to  subscribers,  punched,  for  substitution 
for  weekly  bulletins  Volume  I,  Nos.  1 to  26,  now  in  the 
shoe-string  binder. 


Very  truly  yours . 


THE  CORPORATION  TRUST  COMPANY 


■ 

noiJ-ucT  xtfan  -ro  1 vbi  < . i ; • I .ts\  ...  & jd  ,j 

erii  ni  won  ,dS  oJ  I .aoK 


■ YKA1MG0  T CJHT  HOITAH03H0!  IH 


Stye  Qlntporatton  ©rust  ©otttpuujj 


SERVICE  DEPARTMENT 


:J7  wall  wtkjbet,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  HO.  54- 
SEPTEMBER  13,  1922. 

Enclosed  herewith,  for  substitution,  are  pages  des- 
ignated as  follows.  The  cumulative  index -digests  on 
these  pages  have  been  revised  to  carry  references  to 
rulings  in  Bulletin  No.  37  of  the  1922  Series.  Each 
such  new  reference,  in  the  index-digests,  is  marked 
prominently  with  a star  on  the  left.  ^ 

a 

“The  i 


T.  D 


Supplementary  Page  33  (New. ) 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


aoiarvxb  "noiJnltqm'  ) »rtT*‘ 


SWE-IV  i; 
085- 


axa-vid^4 


@l?i»  (Enrpnratum  SJrrnst  (Emngang 


SERVICE  DEPARTMENT 


37  WALL  STJKEIiT,  NEW  YOKE 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  53- 
SEPTEMBER  Qs  1922. 

Enclosed  herewith,  for  substitution,  are  pages  des- 
ignated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  refer©nces^&€r 
new  matters  and  to  rulings  in  Bulletin  No.  the 

ex- 

i i left. 


' “1922  New  Matters”  division: 

U 743  (New  matter  at  «3  3331  - to  show  the  vacancy 
created  by  the  death  of  Mr.  Beal.) 


“1  Finder”  division: 


Supplementary  Pages  31-32 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


' 


J 


ijjlj e (Empnraiion  ®rnsl  ©mnuaitg 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  52- 
SEPTEMBER  1,  1922. 

Enclosed  herewith,  for  substitution,  are/fcges  des 
ignated  as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
rulings  in  Bulletin  No.  35  of  the  1922/eries.  Each 
euch  new  reference,  in  the  index-digits , is  marked 
prominently  with  a star  on  the  lef t 


“The  Compilation”  divisiop: 

/ 153-154 
/197-19? 

J 317-318 
V 371-372 

Also  enc/losed  are 
stitution : 


f411-412 
</ 469-470 

J 501-502 
J 575-576 

(e  pages  listed  below,  for  3ub 


‘T.  D.  /Finder’"/  division: 

supplfmentary/tage  31 


Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


Cl! 


( 


! pom  jAfiaaa^ 


i 


Sl|p  (Knrpnratinn  Sroat  (Ennuiami 


SERVICE  DEPARTMENT 


:tr  WALL  STKIiKT,  XKW  YORK 


FEDERAL  INCOME  TAX  SERVICE  r 


-REPORT  NO.  51- 


AUGUST  28,  1922 


Enclosed  herewith,  for  substitution,  are  v&gee  des 
ignated  as  follows.  The  cumulative  index- digests  on 
these  pages  have  been  revised  to  carry  references  to 
new  matters.  Each  such  new  ref erence , ih  the  index- 
digests,  is  marked  prominently  with  a/btar  on  the  left 

"The  Compilation”  division:  y 


/ 469-470  / 

^477-478  / 

Also  enclosed  are  ttfe  pages  listed  below,  for  sub- 
stitution: / / 

“1922  New  Matters”  divisiy<£ 

>/737  to/743  (Substitute  for  pages  737-738.  - New 


/ Supplementary  Page  31 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


3DSVH32  XAT  3MOOWI  JAH3Q33 

-«Bt  , 1J»GJ8  .0  .9 

OVf^-edt 
BVfc-VV->  - 

■ 


,fUSO\  'llu'ii  'CieV 
. YMA^MOO  T2UHT  HOITASOSHOO  SB. 


®ljf  (tfnrynratunt  alrust  (Company 


SERVICE  DEPARTMENT 


!IT  WAU.  STUKKT,  NKW  YORK 


FEDERAL  INCOME  TAX  SERVICE 


-REPORT  NO.  50- 


AUGUST  24,  1922 . 


Enclosed  herewith  for  substitution,  are  pages  des-  i 
ignated  as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
new  matters  and  to  ruling's  in  Bulletin  No.  34  of  the 
1922  Series.  Each  such  new  reference,  in  the  index- 
digests,  is  marked  prominently  with  a star  on  the  left 


,^385-386 

*No  change  o/ner  than  insertion  of  omitted  cross 
reference  from  <j  4156,  opposit^the  bold  face  star. 

Also  enclosed  are  th4  pages  listed  below,  for  sub- 
stitution: / y/' 

“1922  New  A/atters”  division : 

l/ 137-738  (N^v  matter  at,  q 3305.) 

"T.  D.  Finder”  division: 

l/  Supplementary  Page  31 

Very  truly  yours, 
i’HE  CORPORATION  TRUST  COMPANY. 


• ‘.Ji 


QJ1|?  (Enrpnratirm  Sfntst  (Cmupaug 


SERVICE  DEPARTMtNT 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  49- 
AUGUST  17,  1922. 

Enclosed  herewith,  for  substitution,  are  pages  des- 
ignated as  follows.  The  cumulative  index-digests  on 
* " nces  to 

Each 

{ marked 

] 


^Supplementary  Page  31  (For  substitution.)  *-l 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


®I)i>  dJiu^mratum  Snust  (Smugaug 

SERVICE  DEPARTMENT 


-REPORT  NO.  48-/ 

/ 


AUGUST  10,  19£2. 

Enclosed  herewith,  for  substitution,  are  pages  des- 
ignated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
rulings  in  Bulletin  No.  32  Of  the  1922  Series.  Each 


such  new  reference,  in  the/index-digests,  is  marked 
prominently  with  a star  on  the  left. 

/ 


pages  listed  below: 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY 


st  .onuHosaa 

. . ;0  t - . i 

?i  BtiJ  16  SC  .Off  nlJelfuS  n i agnilin 


!!■ 


oex-ae:  t 

OOS-U’i  , 
60S- VOS 


i feH  ea§.'  9riJ  stb  oa  1/ 


\ 


\ 


ffiorpnratton  0niat  (Smupaug 

SERVICE  DEPARTMENT 

;tr  WALL  STUKKT,  XHW  YORK. 

federal  income  tax  service 

-REPORT  NO.  47- 


AUGUST  3,  1922. 

Enclosed  herewith,  for  substitution,  are  pages  des- 
ignated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  tc 
new  matters  and  to  rulings  in  Bulletin  No.  31  o(  the 
1922  Series.  Each  such  new  reference,  in  the  index- 
dlgeste,  is  marked  prominently  with  a star,  pn  the  leu 

“The  Compilation”  division 

Z 289-290 


S 321-322 
*✓325-32 
✓ 347-3 
/ 355-256 
/ 375-^76 


*^607-608 
jZ  663-664 


Also  enclosed  are  the  pages  listed  below: 


“T.  D.  Finder”  division: 

/Supplementary  Pages  29-30  (For  substitution  lor 
Y Supplementary  Pages  29-30,  and  31 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


r ' 


•arcN 


*■ 

■ 


elfp  fflmynntltmt  ®rual  (Company 

SERVICE  DEPARTMENT 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  46-  / 


JULY  27,  1922 


/ 


Enclosed  herewith,  for  substitution,.-  are  pages  des- 
ignated as  follows.  The  cumulative  ind^x-dig©3ts  on 
these  pages  have  been  revised  to  carry/ references  to 
new  matters  and  to  rulings  in  Bulletyf  No.  30  of  the 
1922  Series.  Each  such  new  reference,  in  the  index - 
digests,  is  marked  prominently  with'  a star  on  the  left 


"The  Compilation”  division: 

/ 161-162 
/ 199-200 
/ 207-208 
/ 231-232 
/ 349-350 
✓ 355-356 
/ 367-368 

Also  enclose 
stitution : 


^ 403-404 
*^411-412 
/ 467-468 
/ 489-490 
✓ 493-494 
y 501-502 


pages  listed  below,  for  sub 


"1  22  New  Matters”  division: 

'i  737-758  (Ne\*i  mat/er  at  <J  3304.) 

“T.  I).  Finder”  division: 

Supplementary  Pago  31 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


: iJ’B 


- 


©li?  OJarpanttinn  ©rust  fflontpauy 

SERVICE  DEPARTMENT 

:JT  WALL  STREET,  NI4W  YORK 

F >1AL  INCOME  TAX  SERVICE 

-REPORT  NO.  45- 
JULY  20,  1922. 

Enclosed  herewith,  for  substitution,  are  pages  de- 
signated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
new  matters  and  to  rulings  in  Bulletin  No.  29  of  the 
1922  Series.  Each  such  new  reference,  in  the  index- 
digests,  is  marked  prominently  with  a star  on  the^jft. 


7 


“The  Coinpilaiii  ' ' division: 

/l95-196 
V 215-216 
v 343-344 
/ 355-356 
/ 371-372 
(/  399-400 

*No  chang/  other  tha 


/6^>612 
^#15-616  * 

’/629-630* 

^653-654 
l/  659-660 
he  insertion  of  the  general 


cross  refere/ce  opposite  the  bold  face  star. 


Also  e/closed  a^e  the  pages  listed  below: 

!/2z  N e » Ml i tors’  ^vision : 

737 


T.  iy  Kindt  r"  dvidion: 

1/  Supplementary  Page  31  (For  substitution.) 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


SS|r  (Scryoralum  iruHi  (Enrapany 

SERVICE  DEPARTMENT 

iiT  WAU,  HTRJSKT,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  44-  * 

JULY  12,  1922. 

Enclosed  herewith,  for  substitution,  are  pages  de- 
signated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
the  rulings  in  Bulletin  No.  28  of  the  1922  Serjes. 
Each  such  new  reference,  in  the  index-dig^ets , is  ma 
ed  prominently  wroh  a star  on  the  left. 


'The  Compilation”  division: 

/ 207-208 
’/ 225 -226* 

/ 245-246 
/ 321-322 
/351-352 


A2f>3-354 
*355-356 
V371-372 
A415-416 
/ 481-482 
A633-634 


if  /* The  chang4  is  showi/'by  the  star  in  the  last  line 
^ of  | 115* 

Also  enclosed  ane  the  pages  listed  below. 

•'U;22  New  M niters"  division: 

/ 733  t <f>  736  (Jvur  substitution  for  page  733.  - New 
'matter  begins  on  page  734.) 

“T.  II.  Findfi"  uiysion; 

l/  SuppLe^ntai y Page  31  (For  substitution.) 

“Court  Decisions”  division:  . 

J Supplementary  Pages  115-116  (For  substitution.) 

• Very  truly  youre, 


THE  CORPORATION  TRUST  COMPANY. 


ir 


A ■:  • 1'  taduv  Ti  'I 
3 M.  \lll  it 


- I' 


Sip  (Em^iuratmn  SntHt  (Cimt|nutg 

SERVICE  DEPARTMENT 


l«T  WALL  STREET,  NEW  YOKE 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  43- 
JULY  7,  1922. 

Enclosed  herewith,  for  substitution,  are  'pages  de- 
signated as  follows.  The  cumulative  index-digests  on 
these  pages  have  heen  revised  to  carry  references  to 
the  rulings  in  Bulletin  No.  27  of  the  1922  Series. 

Each  such  new  ef erence , in  the  indexrdigests , is  mark- 
ed prominently  with  a star  on  the  left. 

“The  Compilation”  division : 

151-152  ^ 

153-154 
155-156  ^ 

305-304  ‘S 


•306 


jy 

311-31^ 

313-314*  * 
31^-316  ^ 
^47-348  X 


^349-350 


365-366  ^ 
397-398  ^ 
453-454  ^ 
487-488  ^ 
493-494  ^ 


/ 

No  change  ot£er  than  shifting  of  lines  from  bottom 
of  page  31£f'to  top  of  page  313. 

“X  p.  Finder”  division: 


\ Supplementary  Page  31  (New.) 


The  Circuit  Court  of  Appeals,  Third  Circuit,  has 
affirmed  the  decision  of  the  District  Court  in  U.  S. 
vs . Mellon,  q 1145. 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


I 


* 

68£-V8£ 


8£S- ' 


f 


- 


uJlir  Qlmpnnttiim  3rust  fflnutjKuig 

SERVICE  DEPARTMENT 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  42- 


JUNE  30,  1922. 

Enclosed  herewith,  for  substitution,  are  page'  de- 
signated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
the  rulings  in  Bulletin  No.  26  of  the  1922  Series. 

Each  such  new  reference,  in  the  index-digests,  is  mark- 
ed prominently  with  a star  on  the  left. 


The  Compilation”  division: 

/ 129-130 
*<205-206 
S 213-214 
,/233- 
/^5- 
/32 


1 22 : New  Ma 
703-70 


65-366 
>"407-408 
^ 423-424 
529-530 
^569-570 
^62 3-624 
^ 631-632 


substitution.  - See  the  added  note  at 
bottom  of  page  704.) 


“T.  1).  Finder”  division: 

/^Supplementary  Pages  29-30 


For  substitution  for  Sup- 
plementary Page  29.) 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


-S*  .OH  THOqaH- 

' 

(.  ‘S-T  > 

.noi^u^ iJ-ao'U8>^ai-  wT-SOV  H 

/ 


I 


(ftarpuratwn  derust  (Company 

SERVICE  DEPARTMENT 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  41- 
JUNE  26,  1922. 

/ 

Enclosed  herev/ith,  for  substitution,  are  pages  da- 
signated  as  follows.  The  cumulative  index-digests  on  / 
these  pages  have  been  revised  to  carry  reference?  to 
the  new  matters  and  to  the  rulings  in  Bulletin  No.  25  ol 
the  1922  Series.  Each  such  new  reference,  in  the  index - 
digests,  is  marked  prominently  with  a star  on  the  left. 


‘The  Compilation”  division: 

,453-154 
/173-174 
/22 1-222 
✓245-246 


Also  end 


•J  ;>22  New  Matte 

/ 727  to 


" i’.  1),  Finder” 


-250 
-312 
345-346 
-378 
395-396 


/ 403-404 
✓415-416 
i/501-502 
t/  585-586 


the  pages  listed  below: 


substitution  for  pages  727-728. 
New  matter  begins  at  <3  3266.) 


/Supplementary  Page  29  (For  substitution.) 

uri  Decisions”  division: 

Supplementary  Pages  115-118  (For  substitution. 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


jam®  lmn®  n to ...  j<  > 


.sser  ,as  a;  • ' 

. 

aifc-xefcni  flVxlaljau/o  9riT 


!2-eQgN> 


03S- 
SIC- 

SV£-YV£- 

s? 


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- s&  eaxaed  teJ'vf .•  »©>. 


, " 


■.  aiuay.  y.lu\  f 

.yKAqtfOO  T3UHT  KOr;  .iO'IHOC  . 


®hi>  flliirjjimtttnn  3r n&t  Qlmrqjang 

SERVICE  DEPARTMENT 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  40- 
JtlNE  16,  1922, 

Enclosed  herewith,  for  substitution,  are  pages  de- 
signated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
the  new  matters  and  to  the  rulings  in  Bulletin  No.  24  of 
the  1922  Series.  Each  such  new  reference/ in  the  index- 
digests,  ie  marked  prominently  with  a s/ir  on  the  left. 


The  Compilation”  division: 

;'/.67-168 
V 195-196 
199-200 
f /89-290 
/ 629-330 
/345-346 
.j/ 347-348 


i/  365-366 
/39 1-392 
V 395-396 
^405-40^ 
^453 -4£4 
/489-/90 
502 


V 513-514 
y 607-608 
t/bZ  3-624 
^627-628 
/ 631-632 
633-634 
/" 639-640 


Also  enclosed  are  p^es  as  listed  below 
, 2” y.\t«  Matters”  division : 

f 723  to  7J18  ( For  /Substitution  for  page  723.  New 

matter  beginning  at  «j  3238.) 

IL  Finder”  dlSmidC: 

\J Supplementary  Page  29  (New.) 


Very  truly  yours . 


THE  CORPORATION  TRUST  COMPANY. 


. 


1 


(ftmrpnraiinn  Snwt  (Umitpang 

SERVICE  DEPARTMENT 

liZ  WALL  STlUillT,  NKW  VOHIv 

FEDERAL  INCOME  TAX  SER  VL.Cfc. 

-REPORT  NO.  39- 


JUNB  9,  1S22. 


/ 


Enclosed  herewith,  for  substitution,  are  pages  de- 
signated as  follows.  The  cumulative  indrfx-digesta  on 
these  pages  have  been  revised  to  car^£  of 

the  new  matters  and  to  the  rulings  xj/Bullet..  .i  Ko  - - 
the  1922  Series.  Each  such  new  reference,  m 
digests,  is  marked  prominently  witti  a star  on 


left 


“The  Compilation”  division: 

155-156  S 
159-160  ^ 
209-210  u 
"•  257-258  ^ 
279-280  ^ 
295-296  ^ 
327-328  / 


•330, 


329-J 
353-35; 
355-3/6  s 
375-j576  ^ 
4 S 
40^-404  / 
)5-406  * 


501-502 
513-514  ^ 
611-612 
615-616  ^ 
629-630  ^ 
653-654 


Also  enclosed  are/pages  as  listed  belo w: 

“1322  New  Matters”  division 

/721  to  723  (Fo t substitution  for  page  721 - Hew 

' ; I matter  beginning  at  <3  - 


‘T.  jD.  Finder’ 

/ Suppleden/ry  Pages  27  28  (For  substitution  for 
\*S  Supplementary  Pages  2/  to 

“Supplementary  Matters”  division: 

/ Supplementary  Pages  203-204  (For  substitution.  ■ 
./Supplementary  Pages  293  to  296  (For  wt.vit-v.vfl 
1/  for  Supplementary  Pages  - ' ■ - ■ 

Showing  new  Form  1040E. ) 

Very  truly  yours. 

THE  CORPORATION  TRUST  COM  PAN 'i 


. 

} 


I 

■ 


31|e  (Enrpnratum  ©rust  (Eompang 

SERVICE  DEPARTMENT 

3T  WALL  STREET,  NKW  VORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  38- 


JUNE  2,  1922. 


Enclosed  herewith,  for  substitution,  are  pages  de- 
signated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
the  rulings  in  Bulletin  NpC  22  of  the  1922  Series. 

Each  such  new  reference  yAn  the  index-digests,  is  mark- 
ed prominently  with  a s'tar  on  tne  left. 

“The  Compilation”  division:  , 

'/ 195-196  / 1 k 415-416 

/ 205-206/  //469-470 

/ 209 -Zl/6  /501-502 

/217-218  /521-522 

/251-1252  y 615-616 

- 341-342  / 637-638 

j/359-360  y 665-666 


Very  truly  yours 


THE  CORPORATION  TRUST  COMPANY, 


-8£  .OH  THO^aa- 


, aoiJuJitadija  -rol  .rfJlwe^rf  fieaoloaa 


31)?  (Enr^mratton  (Eru^t  (Eontpaiuj 


SERVICE  DEPARTMENT 


«T  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  37- 

follows 

g cated: 


ar . ) 


.) 


Court  Decisions”  division: 


f Supplementary  Pages  115-116 


Very  truly  youra, 


THE  CORPORATION  TRUST  COMPANY. 


{.t£  d 90J31  Mod  nvori1  ajjfio  von)  StS-I>§  V 


C‘ 


( • 8 • .V  i r .)  : ., 


• Bi  Y . r, . n . ' i s>  * c j * 


c 


0lj?  ©oqjflratinu  3ntst  fllnmpaug 

SERVICE  DEPARTMENT 

Jtr  WAUL  !S'l' KJiKT,  NJiW  VOltlv 


'I 

>'  i 


FEDERAL  INCOME  TAX  SERVICE 


-REPORT  NO.  36- 
MAY  26,  1922. 


/ 


Enclosed  herewith,  for  substitution,  ar/  pages  de- 
signated as  follows.  The  cumulative  indeiy^digests  on 
these  pages  have  been  revised  to  carry  iVferences  to 
the  rulings  in  Bulletin  No.  21  of  the  Lt?22  Series. 

Each  such  new  reference,  in  the  indexyaigests , is  mark 
ed  prominently 'Witr/  a star  on  the  left. 


».  “The  Compilation”  divisio 

S 159-160 
^195-198 
//341-342 
^349-350 
>^355-35^ 


369-370 
S 375-376 
391-392 
^529-530 


Also  enclosed,  v&^r^ubstitution  except  as  otherwis 
noted,  are  pages  as  listed  below: 

“1922  New  Matters”  division: 
l/ 717  (New  matter  at  «j|  3216.) 

“T.  D.  Finder”  division: 

V Supplementary  Page  29 

“Supplementary  Matters”  division: 

Supplementary  Pages  203-204 

1/  Supplementary  Pages  289  to  294  (New.  - Forms  1065A 

and  1087 . ) 


Very  truly  yours. 


THE  CORPORATION  TRUST  COMPANY. 


I 


f 


01}F  fflnrpnrattnn  (Sruut  (Unntpaug 

SERVICE  DEPARTMENT 

3T  WALL  STREET,  NEW  "YORK 


FEDERAL  INCOME  TAX  SERVICE 


-REPORT  NO.  35- 


MAY  19,  1922. 


/ 


is  mark- 


y 

*> 

Enclosed  herewith,  for  substitution,  are  pace's  de- 
signated as  follows.  The  cumulative  index-dip€sts  on 
these  pages  have  been  revised  to  carry  references  to 
the  rulings  in  Bulletin  No.  20  of  the  192^' Series. 

Each  such  new  reference,  in  the  index-digests,  J - 
ed  prominently  with  a star  on  the  left". 

/ 3? 1-372 
✓4P7-408 
^15-416 
^87 -488 
/501-502 
^07-508 
/517-518 
521-522 
^611-612 
/631-632 


^.31-132 
/187-188 
^193-194 
/209-210 
t/215-216 
t 225-226 
/229-230 
l / 341-342 
,,^43-344 
/ 345-346 
^49-550 


/ 


/ 


Als6  enclosed,  for  substitution  except  as  otherwise 
noted,  are  page®  as  listed  below; 

J' 715-716  (New  matter  beginning  at  ^ 3209.) 
i/717  (New.) 

1/  Supplementary  Page  29 
^-'Supplementary  Pages  115  to  118 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


■so  od  bye  > e.  cwrf  . t 


o - 


. wV  1 


31je  (Enrpnratinn  3ruat  (Snmpang 


SERVICE  DEPARTMENT 


3T  WALL  STliEKT,  NEW  VOKK 


FEDERAL  INCOME  TAX  SERVICE, 


Enclosed  herewith,  for  substitution,  ar©  pages  de- 
signated as  follows'.  The  cumulative  index-digests  on 
these  pages  have  been  revised  to  carry  references  to 
the  rulings  in  Bulletin  Mo.  19  of  the  1922  Series. 

Each  such  new  referencb\  in  the  index-digests,  is  mark- 
ed prominently  with  a/star  on  the  left. 


Also  enclosed  is  Supplementary  Page  29  (New.) 


Bulletin  No.  19  of  the  1922  Series,  and  all  sub- 
sequent weekly  issues,  will  reach  you  unpunche>  (no 
holes),  as  fully  explained  on  the  blue  sheet  which  ac- 
companied Report  No.  33.  Bulletin  No.  19  is  being 
mailed  from  Washington  to-day. 


* * * 


INTERNAL  REVENUE  BULLETIN  NO.  19. 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


a U>C  OHS.  . 11.  V.u  O TH 


-i*5  . OK'  THO  i . ■ : - 


aos-eos 

OIS-COS 


.61  -ok  HiTajjja  aunavaa  jahh3thi 


' 

. aria  ai/Icf  arij-  no-  fHniJsXqxe  yIXjjI  oe  .(soXori 


©Ip  fflorporatU^rt  ©ntst  (Eimtpamj 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  VO  UK 

FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO,  33- 
MAY  8,  1922. 

Enclosed  herewith,  for  substitution,  are  pages  de- 
signated as  follows.  The  cumulative  index-digest  on 
these  pages  have  been  revised  to  carry  references  to 
the  rulings  in  Bulletin  No.  18  of  tne  j-922  b-g/ies. 

Each  such  new  reference,  in  the  index-digests , is  mark- 
ed prominently  with  a star  on  the  left. 


•J 181-182 

/207-208 
/209-210 
/251-252. 
J 293-294 
43-344 
51-352 


353-354 
/ 355-356 
/375-376 
^77-378 
^529-530 

i/611-612 

^635-636 


Also  enclosed  are  pages  ,as  noted  below. 

J 91-92  (Revised  to  eliminate'  the  statement  that  the 
weekly  Internal  Revenue  Bulletins  go  to  you 
punched . ) 

v Supplementary  Pages  27-/3  (Revised  for  substitution.) 

I /supplementary  Pages  20^-204  (Revised  for  substitution.) 

! /supplementary  Pages  285  288  (New.  - Reproduction  of  new 
Form  1065B.)  / 

/ * * * 

NO  HOLES'  IN  WEEKLY  BULLETINS  HEREAFTER. 

Special  attention  is  called  to  the  enclosed  brue 
sheet  (not  J>r  insertion  in  your  binder)  which  carries 
the  word  that  beginning  with  to-day’s  issue  (no.  19) 
the  weekly  Internal  Revenue  Bulletins  will  go  forward 
to  you  unpunched  (i.e.,  without  holes),  with  recital 
of  the  reason  for  the  change  from  holes  to  no  holes. 


Very  truly  yours. 

THE  CORPORATION  TRUST  COMPANY. 


[ 

' 

{ 


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TH3MTJRA' Id  IOIV  ,32 


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aoiss  ■ ' ■■  r • r . .... 


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.YHAqUOO  T3UHT  WOITAfioqHOO  SHT 


®luv  (Eiirjuuatum  0Jnu4  (Cnmiumu 


SERVICE  DEPARTMENT 


:*7  M ALI.  STKKKT,  M-W  YORK 


FEDERAL  INCOME  TAX  SERVICE 

REPORT  NO.  31- 
APRIL  28,  1922. 

Enclosed  herewith  for  substitution,  are  pages  de- 
signated as  follows.  The  cumulative  index-digests  on 
these  pages  have  teen  revised  to  carry  references  to 
the  rulings  in  Bulletin  No.  17  of  the  1922  Series. 

Each  such  new  reference,  in  the  index-digests,  is  mark- 
ed prominently  vjrith  a star  on  the  left. 


, 115-116 
■S  137-138 
/159-160 
/ 167-168 
/ 205-206 
/ 293-294 


/ 325-326 
S 347-348 
j/349-350 
/ 517-518 
i- '565-566 
v 083-584 


/ 


Also  enclosed  are  pages  as  noted  below: 

^/Supplementary  Pagbs  203-204  (For  substitution.) 
ij  Supplementary  Pages  275  to  282  (For  substitution  for 

Supplementary  Pages  275-276.  Reproducing 
F/rm  1120A,  reprinting  Form  1119,  and  re- 
'producing  the  January,  1921  edition  of  Form 
1078  of  which,  we  are  advised,  no  immediate 
revision  is  contemplated.) 

yery  truly  yours . 


THE  CORPORATION  TRUST  COMPANY. 


■*a:'  81  n*  i 


m-£Ps  • 


r tio 


Corporation  ©rust  Company 

SERVICE  DEPARTMENT 


UT  WALL  8IKKBT,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 


-KBFORT  NO.  30- 


-KBF0RT  NO.  30- 


APRIL  21,  192° 


Enclosed  herewith,  for  substitution,  are  pages  de- 
signated as  follows.  The  cumulative  index-digests  on 
these  pages  have  been  revised  tcy  carry  references  to 
Bulletin  No.  16  of  the  1922  Series,  and  to  all  new  cur- 
rent matters  in  the  Service,  isach  such  new  reference, 
in  the  index-digests,  is  marked  with  an  asterisk,  on 
the  left. 


ing  in  1922iYhae  been  released  and  is  now  being  repro- 
duced for  the  Service. 

Cumulative  Bulletin  No.  5 has  been  mailed  to  sub- 
scribers, from  Washington. 


Very  truly  youra, 


THE  CORPORATION  TRUST  COMPANY. 


. 


c 


dd£-235 


lav/ollol  as  -s  atgsq-  ©is  fceao'jtons  oelA 


V 

V 


©!}*>  (ttcrpcratinu  ®mst  &mttpaug 


SERVICE  DEPARTMENT 


LIT  WALL  STIiEKT,  NEW  VOKK 


FEDERAL  INCOME  TAX  SERVICE 


Enclosed  herewith,  for  substitution  are  pages  do- 
j signaled  as  folLows.  The  cumulative  index-digests  on 
i these  pages  have  been  revised  to  car.fy  references  to 
j Bulletin  No,  15  of  the  1922  Series/^ ard  to  all  new  cur- 
i rQnt  matters  in  the  Service.  Each  such  new  reference  ^ 

yia  marked  with  an  asterisk,  on  tire  left. 


j' .Supplementary -Page  27  /(For  substitution.) 

V Supplementary  Pages  1/15  to  117  (For  substitution.) 

/ Supplementary  Pages y£71  to  276  (For  substitution  for 


We  did  not  count  our  chickens  before  they  were 
hatched  (Report  Letter  No.  27),  but  we  did  count  the 
chicks  before  tb6y  had  done  very  much  scratching.  In 
other  words  Cumulative  Bulletin  No.  5 has  been  printed 
j but  the  Government  has  been  forced  to  delay  the  binding, 
punching,  and  mailing.  So  the  Bulletin  is  not  "on  its 
way  to  you",  but  will  be  soon. 


/ 129-130 
7 197-198 


Also  enclosed  are 
V/697  to  701  (Fc/r  substi 


,-,237-238 
7 257-258 
=/ 329-330 


Also  enclosed  are 


Very  trulv  youre, 

THE  CORPORATION  TRUST  COMPANY. 


sis- vi : 


2Ki£  ®urjmraiu3U  ©mat  (minpmif 

SERVICE  DEPARTMENT 


C.7  WALL  STREET,  NEW  AO RIv 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  28- 
APRIL  14  1922. 

Enclosed  herewith  are  pages  designated  as  follows, 
all  for  substitution  except  as  otherwise  noted: 

J 91-92  (Beprintfed  because  of  publication  of  Cumulative 
j Bulletin  No.  5.) 

l/ 93-94  (Reprinted  to  correct  typographical  errors,  mere 
ly.  in  (the  column  of  paragraph  reference  num- 
/ bers.)1 

•/  97  to  102 


below  have  been  revised  to  carry  references  to  Bulletin 
No.  14  of  the  19^2  £»eries,  and  to  all  new  current  mat- 
ters in  the  Service,;  Each  such  new  reference  is  marked 
with  an  asterisk,  op  the  left. 


■he  cumulative  index-digests  on  the  pages  listed 


»/ ,153-154 
1/167-168 


4/487-483 


^'499  to  502 


,;-^21-622 
>'£29-630 
697-698  (New. ) 


Very  truly  yours , 

THE  CORPORATION  TRUST  COMPANY. 


' 


> ..  adi  j - 


’ 

| 


- 


. 


©If?  (Enrpnratum  ©rust  Cfnmpaug 

SERVICE  DEPARTMENT 

3T  WALL  STREET  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

— Report  No.  27  — 

April  10,  1922. 

Cumulative  Bulletin  No.  5 (December  1921)  is  now  on  its  way 
to  you  from  Washington,  for  substitution  for  the  last  26  weekly 
issues  of  the  Internal  Revenue  Bulletin  for  1921,  as  stated  in  con- 
nection with  our  Report  No.  25  and  on  Report  Letter  No.  26. 

Subscribers  have  long  since  realized  the  advantage  of  having 
within  one  volume  all  of  the  rulings  printed  in  26  separate  weekly 
issues.  It  was  our  appreciation  of  this  marked  advantage  to  our 
subscribers  that  prompted  us,  from  the  beginning,  to  supply  the 
semi-annual  Cumulative  Bulletin  for  substitution  each  time  for 
the  26  weekly  issues  previously  furnished  currently  during  the  6 
months  period. 

M't*--'  < rh  1 Q | 0*1'  \ \ ' 

Unfortunately,  but  necessarily,  the  references  in  an  index  to  mat- 
ters in  26  weekly  pamphlets,  each  of  which  is  paged  as  a unit,  will  not 
serve  for  the  permanent  combined  and  compiled  volume.  It  fol- 
lows that  if  the  advantage  of  the  compact  semi-annual  Cumulative 
Bulletin  is  to  be  realized,  the  26  weekly  issues  being  discarded, 
the  references  in  indexes  to  the  subject  matter  (which  remains  the 
same)  which  are  to  pages  in  the  little  chaps  must  be  changed  to 
agree  with  the  paging  of  the  big  fellow.  There  is  but  one  way  to 
accomplish  this,  and  that  is  to  revise  and  reprint  the  indexes.  This 
we  have  done  as  reflected  on  the  pages  sent  herewith  for  substitu- 
tion for  the  pages  similarly  numbered  now  in  your  binder. 

All  of  the  weekly  Bulletins  of  the  1922  Series,  to  and  including 
Bulletin  No.  13,  are  now  indexed  in  the  Cumulative  Indexes  in 
the  Service. 

Now  that  the  big  revision  necessitated  by  the  publication  of 
Cumulative  Bulletin  No.  5 is  out  of  the  way,  the  Cumulative 
Indexes  in  the  Service  will  be  kept-up-to-date  week  by  week  as 
the  weekly  Bulletins  issue  and  as  new  matter  is  published  in  the 
Service  proper. 

The  pages  sent  herewith  for  substitution  are  listed  on 
the  reverse  of  this  sheet. 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


(over) 


(The1  pages  accompanying  1 his  Rc 
substitution  for  similarly  numbere 

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249-250  t/ 
251-252  S 


port,  as  listed  below  are  for 
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151-152  / , 
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155-156  / 

159-160  t/ 
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163-164  / 

/ 


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173-174 

177-178 
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181-182 

187-188 
189-190 
191-192 

195-196  v 
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267-268 


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275-276  / 

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287-288 


293-294 


297- 

299 

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319- 

321- 

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399-400  ts 
401-402  S 
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463-464 

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Gttjr  (fnrpnrattim  ©rust  (Eampang 

SERVICE  DEPARTMENT 


3T  WAUL  STREET,  NEW  YORK. 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  26- 
APRIL  7 , 19 22. 

Enclosed  herewith  are  pages  designated  as  follows: 

j i/695  -696  (For  substitution  for  page  695.) 

^/Supplementary  Page  27  (For  substitution.) 

* * * 

CUMULATIVE  BULLETIN  NO.  5. 

As  stated  in  our  Report  No.  25  of  yesterday,  dis- 
j tribution  of  Cumulative  Bulletin  No.  5 to  our  sub- 
, scribers  will  be  begun  from  Washington  early  next  week 
On  Monday,  April  10,  we  shall  forward  pages  of  the  Ser 
vice,  for  substitution,  on  which,  in  the  Cumulative  In 
dexes,  all  references  to  weekly  Bulletins  27-21  to  52- 
21,  will  have  been  changed  to  "Dec.  1921  Cum.  Bull.," 
i.e.,  to  Cumulative  Bulletin  No.  5. 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


gjjjp  ©myurattan  ®ruat  GJmntiatiij 

SERVICE  DEPARTMENT 

ar  WALE  STREET,  NEW  YORK. 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  25- 
APRIL  6,  1922. 

Enclosed  herewith  are  pages  designated  as  follows: 

j 693-694  (For  substitution.  - Reprinted  to  snow  at 

«j  3109  further  ruling  relative  to  tne  con- 
tinued use  of  old  ownership  certificates.) 

*j  695 

> Supplementary  Page  27  (New.) 

/Supplementary  Pages  115  to  118  (Revised  for  substitu- 
tion. ) 


* * * 

CUMULATIVE  BULLETIN  NO.  5. 

Please  note  the  enclosed  blue  sheet  relating  spec- 
ifically to  Cumulative  Bulletin  No.  5,  just  off  ^he 
Government  presses,  and  which  will  be  mailed  to  you 

next  week. 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


' 


^ ■ r w. 


31}?  ffior^nratimt  Sruat  Cnm|iang 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK. 

FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  24- 


MARCH  30 , 1922. 


/ 


Enclosed  herewith  are  pages  designated  as  follows, 
all  for  substitution  except  as  otherwise  noted 


l/  501-502 
/ 507-508 
J 521-522 
J/  561  to  564 
J 571-572 
/ 579-580 
^611-612 
/ 629-630 
\j653-654 

^693-694  (For  substitution  for 

/'Supplementary  Pages  25-26 
Supplementary  Pkges  115  to  1 
imnediately  fol 
narlked  "Court 


/ 


CUM 


>age  693 . ) 


(New,  - For  insertion 
'Wing  the  yellow  guide  card 
isions" . ) 


New  references  in  the/ Cumulative  Indexes  on  pages 
reprinted  for \ substituti/n  in  the  body  of  the  book  are 
marked  with  an  Asterisk/*)  in  the  left  margin. 


* * 

IE  BULLETIN  NO.  5 


Cumulative  Bulletin  No.  5 (last  six  months  of  1921) 
is  not  yet  ready  for  distribution  by  the  Government. 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


. 




®i?r  (EurpnrattDn  ©rust  (Emttpamj 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK. 


all 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  23- 
MARCH  22.  1922. 

Enclosed  herewith  are  pages  designated  as  follows, 
fur  substitution  except  as  o/herwiee  indicated 

1 167-168 

U459-460 
/ 501-502 
/521-522 
>529-530 
/575-576 
/641-642 

(/691-693  (For  substitution  for  page  691.) 

! //Supplementary  Pages  £5-26 
! /Supplementary  Page?'  203-204 

jVsupplementary ''Pages  263-266  (The  form  page  originally 

on  Supplementary  Page  264  should  have  been  on 
Supplementary  Page  266,  and  vice  versa.) 
Supplementary  Pages  267  to  271  (All  for  substitution 
for  Supplementary  Page  267 . ) 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


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®tjc  (Enrpnralion  Srust  Cnntpang 

SERVICE  DEPARTMENT 

3T  WA1.L  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 


-REPORT  NO.  22- 


/ 


MARCH  20,  1922.  / 

J 

Enclosed  herewith  are  pages  designated  as  follows 

/ 

1/517-518  (For  substitution.)  j 
1/561  to  564  (For  substitution.)  f 
! /571-572  (For  substitution.)  j 

j / 579-580  (For  substitution.)  / 

| / 689  to  691  (For  substitution  for  pages  689-690.) 

| J Supplementary  Pages  1 to  26  (All  for  substitution  for 

Supplementary  Pages  1-2,  now  in  the  binder, 
following  the  yellow  guide  card  marked  "T. 
D.  Finder”.) 

Supplementary  Pages  259  to  267  (All  for  substitution 
for  Supplementary  Page  259.) 


,/S 


Vehj 


y truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


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®ip>  fflarpnralum  ®ruat  ©ampany 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK. 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  21- 
/mARCH  16,  1923< 

Enclosed  herewith  are  pages  designated  as  follows 

/Supplementary  Pages  203-204  (For  substitution.) 
^Supplementary  Page  259  (New.) 

Very  truly  yours , 


TH&  CORPORATION  TRUST  COMPANY. 


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Si}?  (Eorjinratum  ©rust  (Hompamj 


SERVICE  DEPARTMENT 


or  WALL  STREET,  NEW  YOU 


/ 

FEDERAL  INCOME  TAX  SERVICE 
-REPORT  l/o.  20- 
MARCH  14.  1922. 

Enclosed  herewith  are  /pages  designated  as  follows 


/ 203-204 
j/333  to  336 
'/619-620 


All  for  substitution,  having  been 
reprinted  to  give  forward  reference 
to  new  matters.  New  references  are 
designated  by  an  asterisk  (*). 


/689-690  (New.) 
^/Supplementary  Pages  1-2 


for  substitution. 
Vejry  truly  yours, 


THE 


ORATION  TRUST  COMPANY. 


. 


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£!•?  ©nquiralimt  ©rust  (Tompattg 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE  a 

-REPORT  NO.  19-* 

MARCH  10,  1922. 

"Report  No.  18  consists  of  the  rep-inted  Law 
with  the  paragraph  numbers  filled  in  on  the 
right,  the  Compilation,  and  reprinted  ^1922  New 
Matters."  Deliver/  of  these  matter-^  has  not  yet 
been  completed,  'pnerefore  your, fast  report  MAY 
be  No.  17.  However  the  pages, -sent  herewith  fit 
into  their  proper  places  in/xhe  book  even  though 
Report  No.  18  has  not  yetyveen  received  by  you; 
and  Report  No,  18  will  similarly  fall  into  its 
proper  place  in  the  Service.  Delivery  of  Re- 
port No.  18  will  be  completed  in  a few  days. 


/ «■ 


Enclosed 


rwith  are  pages  designated  as  follows: 


687-688  (For  substitution  for  page  687.) 

//Supplementary  Pages  1-2  (For  substitution.) 
yBlue  Index  Pages  1 to  50  (For  insertion  at  the  back  of 
the  binder,  following  Supplementary  Page  306.) 

* # * 

THE  DECEMBER  1921  CUMULATIVE  BULLETIN  (#  5) 

This  may  be  expected  in  about  ten  days  or  two 
weeks.  We  shall  advise  you  definitely  when  the  mailing 
begins  from  Washington. 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


i iS  v jsJn©ti)9lqqcja 


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♦ :V  T HOITAHOTQO  SR? 


0%  (Cnrpnratiou  ©rust 


SERVICE  DEPARTMENT 


37  WALL  STREET  NEW  "V  ORK 


THE  FEDERAL  INCOME  TAX  SERVICE 


*The  date  when  distribution  is  begun.  Several  d lys  will  have  passed 
before  distribution  is  completed,  because  of  the  punching  of  the  holes. 

Enclosed  herewith  are  pages  designated  as  follows:  1 to  680.  (The 
Law,  the  Compilation,  and  reprinted  current  matters.) 

[A  comprehensive  Index  is  being  sent  to  you  under  separate 


If  these  simple  thoitgh  minutely  detailec  structions  are  fol- 
lowed the  transfer  may  be  made,  correctly,  in  less  than  two  min- 
utes. 


Opei  l 

Open  tne  rings.  1 

Remove  everything  on  the  left — i.e.,  wages  1 to  346,  and  the  three 
yellow  guide  cards,  on  the  left^-cverything. — Do  not  destroy 
or  cast  aside,  yet. 

Put  back  the  black  flipper  if  moved  it. 

Pick  up  the  first  half  (rough  e compilation,  and  insert  it  on 


Pick  up  the  second  half  (ro  i.e.,  the  rest,  of  the  compila- 


Law,”  which  was  remov  seconds  ago.  Close  the  rings. 

Open  the  book  so  that  page  the  left  and  page  91  is  on  the 

right.  Open  the  rings.  the  yellow  guide  card  marked 

“The  Compilation”(rem  w seconds  ago).  Close  the  rings. 

Open  the  book  so  that  page  in  the  left  and  page  667  is  on 

the  right.  Open  the  rings.  Insert  the  remaining  yellow 
guide  card  marked  “1922  New  Matters.”  Close  the  rings. 


Should  you  desire  to  retain,  temporarily,  the  blue  page  follow- 
ing page  150  and  pages  151  to  340  (of  the  matters  just  removed 
from  the  binder,  and  now  in  front  of  you  on  the  desk),  on  which  is 
reprinted  Regulations  62,  as  a unit  (it  is  all  in  the  compilation,  of 
course),  the  enclosed  punched  paper  cover  may  be  used  as  a con- 
tainer. That  is  what  the  saved  brass  McGill  fastener  is  for.  In  any 
event  none  of  the  -pages  now  out  of  the  hinder  is  a part  of  the  Service. 

Note:  The  date,  2-27-22,  on  the  compilation,  throughout,  is  no  more  than 
that  of  a few  days  after  that  on  which  we  began  to  print. 


—REPORT  No.  18- 
March  8,  1922.* 


cover  and  should  reach  you  concurrently.] 

Important. 


Open  the  book  so  that  page  4 ■ left  and  page  5 is  on  the  right. 

Open  the  rings.  Insert  low  guide  card  marked  “The 


the  left. 


Regulations  62  as  a Unit. 


Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


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. 

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y v.  1: 1 ir. 0 ) T-'.'j ht  zoitahoiaoq  a ht 


(Enrpnratiim  ®ru#t  (Cnmimny 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 

FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  17- 
MARCH  7,  1922. 

j Enclosed  herewith  are  pages  designated  as  follows; 
Z345-346  (For  substitution, ) 

/Pink  pages  681-682  (New  - to  follow  page  346.) 

.683-687  (New.) 

iy Supplementary  Pages  1-2  (For  substitution.) 
^Supplementary  Pages  203-204  (For  substitution.  ) 
^/Supplementary  Pages  257-258  (For  substitution  for  Sup- 
plementary Page  257.) 

* * » 

THE  COMPILED  1922  SERVICE. 

The  new  1922  Service  compilation  (680  pages)  fully 
] indexed,  is  off  press.  We  begin  mailing  tomorrow,  as 
Report  No.  18.  We  mail  to  the  most  distant  points 
first.  Several  days  will  elapse  before  distribution  * 
can  be  completed. 

* * * 

NO  GENERAL  EXTENSION  FOR  FILING  FORMS  1040A  and  1040. 

We  understand  there  is  to  be  no  general  extension 
of  time  for  filing  individual  returns  on  Forms  1040A 
and  1040. 

Please  note  that  applications  for  extensions  on  ac- 
count of  sickness  or  absence  are  to  be  filed  with  the  [ 
collector  prior  to  the  due  date  of  the  return  (not 
within  the  30-day  period  of  the  extension,  as  hereto-  i 
fore) . See  <1  1254. 

* * * 

REVENUE  STAMPS  ON  POWERS -OF- ATTORNEY. 

The  pcwer-of-attorney  given  by  a taxpayer  to  an 
attorney,  or  other  person  to  represent  him  (or  it) 

: before  the  Bureau  must  carry  a 25^  Internal  Revenue 

stamp,  properly  cancelled.  If  the  power-cf -attorney 
is  not  stamped  (tax- paid)  everything  stops. 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


TM3MTflA33a  3DIVH38 

( .noii-u^iJecfwa  io1*)  d*5-5&5 


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.0  K)I  6n« 

-os  no  enox 
V -oioi 


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&i  & \d  nevi§  Y0mo<JjB-‘lo-':e-.  .q  erfT 
Jrcesoiqei  oJ  noei9i  lert+o  iz  0:110 tt& 


? 


CJflrpiirattatt  (Ln\Bt  Cfnm^aug 

SERVICE  DEPARTMENT 

3T  WALL  STREET,  NEW  YORJ1 


FEDERAL  INCOME  TAX  SERVICE 
-REPORT  NO.  16- 
MARCH  2,  1922. 

Herewith  are  /£iges  designated  as  follows: 

341  to  345 

TJ Supplementary  Pag^s  1-2  (F 'wf  substitution.) 


COMMITTEE 


'*  # * 

APPEALS  AND  REVIEW, 


Messrs . A/  W, y^aumer  and  R.  G.  Stetson  have  been 
designated  mek&j&'s  of  the  Committee  on  Appeals  and  Re 
view,  effective  March  1,  1922.  The  Committee  now  con 
sists  of  10  members. 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


m 


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Wm B 


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Utlj?  Corporation  (Stmt 


SERVICE  DEPARTMENT 


at  WAiJL  STREET  NEW  YORE 


THE  FEDERAL  INCOME  TAX  SERVICE 

—REPORT  No.  15— 

February  24-28,  1922.* 

*This  report  letter,  with  its  accompanying  pages,  will  be  mailed  by  us  day  by  day 
so  as  to  reach  subscribers  in  the  continental  United  States  on  the  day  of  release,  March 
1, 1922. 

Regulations  62  released  March  1,  1922. 

/ 

Enclosed  herewith  are  pages  as  indicated,  to  be  inserted  immediately 
following  page  150  in  “New  Matters.” 

/ Blue  sheet  of  comparative  tables,  to  face  page  150. 

/ 151  to  340  (Regulations  62,  complete,  except  those  Articles  which  relate 
specifically  to  the  Excess-Profits  Tax,  for  which  see  the  War 
Tax  Service,  pages  431  to  459.) 

‘Re- 


Please  insert  release  date,  March  1,  1922,  following  the  words 
leased  for  publication”  on  page  151. 

The  1922  Compilation. 


The  complete  1922  Service — law,  law  compiled  with  the  new  Regula- 
tions 62,  etc.,  etc. — is  now  on  press. 

We  knew  that  it  would  be  impossible  for  us  to  prepare  the  big  com- 
pilation, print  it,  punch  it,  and  mail  it  to  subscribers  in  time  to  reach 
them  on  the  release  jdate  of  the  regulations,  which  were  completed  by 
the  Government  draftsmen,  signed  by  Secretary  Mellon  and  Commis- 
sioner Blair,  and  sent  tp  the  Government  Printing  Office  for  plating  and 
printing  less  than  ten  days  ago.  Therefore  we  printed  Regulations  62 
as  a unit  (sent  herewith)  so  that  there  should  not  be  a moment’s  delay. 

The  complete  service  will  follow  as  soon  as  it  is  possible,  physically, 
to  print  and  dispatch.  The  complete  Service  when  sent  will  be  for 
substitution  for  all  matters  now  in  your  binder  (including  the  enclosed 
pages),  except  the  forms  and  Supreme  Court  decisions  at  the  back 
of  the  book.  In  the  mean  time  you  have  the  official  regulations 
interpreting  the  new  law. 

Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


jWjjtpitnjD  tain®  fmttjnatpuID 


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fn  gnoisbsb  tiuo:  amsiqug  bm  sraiof  ad,t  fqaoz9  (gasocr 

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©nrporaitmt  ®ntal  (Enmpamj 


SERVICE  DEPARTMENT 

or  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  14- 
FE3RUARY  2-4,  1922  . 

Enclosed  herewith  are  pages  designated  as  follows: 

1^9-150  (New.)  (T.  D.  3291,  is  that  to  which  we  called 
attention  in  Report  Letter  No.  13.) 
^/Supplementary  Pages  1-2  (For  substitution.) 

* * • 

REGULATIONS  62  RELEASED  MARCH  1,  1922. 

The  big  Regulations,  interpreting  the  new  law  (the 
"Regulations  45"  of  the  1921  Act)  will  be  released  by 
the  Government  on  March  A,  1922.  Your  copy,  in  Service 
form,  will  be  in  your  hands  the  first  thing  on  the  morn- 
ing of  that  day  j-  Wednesday  next. 

Very  truly  yours, 

?PO 


THE  CORPORATION  TRUST  COMPANY. 

V 7 


’■  v ■ 


■ 


1 5 ‘ ' - t.  f.  - ■ : 0 


0 


&>t  ©nrjutratimi  ®rur»t  GJfimpang 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK. 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  13- 
FE3RUARY  23,  1.922/ 

EXTENSION  OF  TIME  FOR  FILING /^ORPORATION  RETURNS. 

Our  Washington  office  telephones  us  that  hy  Treasury 
Decision  3291,  dat&3d  FatTuar}p21  but  not  released  until 
this  afternoon,  an  extension/of  time  to  June  15,  1922  is 
granted  tor  riling  returns  by  domestic  corporations  on 
Form  1120  for  the  calendar  /year  1921,  and  for  the  fiscal 
year  ended  January  M,  19^2  or  ending  February  28.  1922. 


Tentative  returiji 
lector  on  Form  1120, 


is  yo  be  made  to  the  proper  col- 
mar/<ed  "Tentative  Return",  giving 
name,  address,  and  estimated  amount  of  tax,  accompanied 
by  a statement  giving  reasons  why  complete  return,  on 
time,  is  impossible , a formal  request  for  an  extension, 
and  one-quarter  of  the  /estimated  amount  of  tax.  Inter- 
est at  6%  per  annum  on/ any  deficiency  will  begin  to  run 
from  Marcn  15,  April  1/5 , or  May  15,  as  the  case  may  be. 

fhe  full  Treasury {Decision  will  go  forward  to  sub- 
scribers tomorrow. 


Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


ntra  aen? 

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v&fA  M'.o  raosT  moitahchhoo  hht 


- 


5!Jjr  (ttorpnratimt  Struat  Compang 

SERVICE  DEPARTMENT 

3T  WALL  STREET,  NEW  YORK 


Enclosed  herewith  are  pages  designated  as  follows 

//^47-148  (For  substitution  for  page  147.) 
//Supplementary  Pages  1-2  (For  substitution.) 
Supplementary  Pages  203-204  (For  substitution.) 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


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aoivn-is 

AMor  wtvi  .thsjit#  j.uv/  th 


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(* 

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1 1 


(Sip  (ttorpnratiim  Erast  ©nm-pang 


SERVICE  DEPARTMENT 


iiT  W ALL  SXliEEX,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

/ 

-REPORT  NO.  11- 


, 1922. 


FEBRUARY  17, 

Enclosed  herewith  are  pages  designated  as  follows; 

/ 

, Supplementary  Page  203-204  (For  substitution.) 
^^Supplementary  Pages  251  to  257  (New.  ) 


Forms  1013  and  1042  (reproductions  sent  herewith) 
were  released  February  15.  Forms  1012,  1096A,  1096B 
and  1126  (reproductions  herewith)  were  released  to-day. 


# * in 

REGULATIONS  62. 


The  indications,  now,  are  that  Regulations  62  (the 
Regulations  45  of  the  1921  Act)  will  be  released  within 
a day  or  two  after  March  1,  192 

\ i 

Verjt  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


. 

. 

I 


SERVICE  DEPARTMENT 


ar  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 


4 

/s 


-REPORT  NO.  10- 
FEBRUARY  15,  1922. 

Enclosed  herewith  are  pages  designated  as  follows 
47  (For  substitution.) 


Supplementary  Page  1 (For  substitution. 
/'Supplementary  Pages  249-250  (New.  ) 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


p&f 

}rs 


* 


( i 


■ 


( 


r^t'' 


V .!  -'»• 


©jr  (SorporatiDn  ©rust  ffiumpattg 

SERVICE  DEPARTMENT 

QT  WALL  STREET,  NEW  York 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO,  9- 
FEBRUARY  12,  1922. 

Enclosed  herewith  are  pages  designated  as  follows 

1 145  to  147  (For  substitution  for  pages  145-146.) 
/Supplementary  Page  1 (For  substitution  ) 

/ Supplementary  Pages  203-204  (For  substitution  ) 
y SuPPl9“entary  Pages  229  to  248  (New.  - Forma  1041 

1065,  1086,  1120,  1122,  1001B,  and  1115, 

13  T?o?rleaBe  f°r  311  °f  the8e  fo™3  is  February 
reieased'Febru^y's . °f  ^ 1041-  "hloh  »33 

lOeS^anrnM.^19  °°PieS  °f  Forme  10«- 


^ary  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


. 

- 

o . ' ' . .. 

' 

. , t*  : • »:  is 

. 


i 


dnrjjnraticn  ©rust  (Emttpattij 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK. 

FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  8- 
FEBRUARY  9,  1922. 

Enclosed  herewith  are  pages  designated  as  follows: 

^/i.41  to  146  (For  substitution  for  pagoa  141-142.) 
i/ Supplementary  /Page  1 (For  substitution,  at  "T.D.  Find- 
I <>r".) 

//Supplementary; Pages  £03-204  (For  substitution,  at  "Sup- 
plementary Matters''^) 

y/  Supplementary  Fages  205-206  (For  substitution.  - Form 

843,  which  supersedes  Forms  46, 

| , ‘47,  and  47A  . ) 

/ Supplementary  Pages  207-208  (For  substitution.  - Forms 

1000  and7 1001.) 

y Supplementary  Pages  209-210/ (For  substitution.  - Forms 

1001A  and  1099. ) 

l/  Supplementary  Pages  227-228  (For  substitution  for  page 

227.  - Form  1127.) 

# # # 

FORM  1120  - CORPORATION  RETURN. 


on 


This  form  will  be  released  by  the  Government 

Monday,  February  13 1 

/ 

# * * 

REGULATIONS  62.  (INCOME  AND  PROFITS  TAXES,  1921  ACT.) 

The  indications  now  are  that  the  Regulations  will 
be  completed  and  released  by  the  Government  about  March 
1,  1922. 


Very  truly  yours , 


THE  CORPORATION  TRUST  COMPANY. 


' 

> 

. 

II  xv/  anoi: 


©!|f  (Enrporation  (Trust  Company 

SERVICE  DEPARTMENT 

3T  WALL  STREET,  NEW  YORK. 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  7- 
JANUARY  28,  1922. 

Enclosed  herewith  are  pages  designated  as  follows: 

^"137  to  142  (For  substitution  for  page  137.) 

^ Supplementary  Page  1 (For  substitution  following  guide 

card  "T.  D.  Finder".) 

1/  Supplementary  Pages  301  to  306  (For  substitution  at  the 

back  of  the  book.) 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


.oh  "no. 


i 


alp?  (Earporatum  ($xmt  Sampany 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 


/ 


FEDERAL  INCOME  TAX  SERVICE 

I- 


-REPORT  NO, 


/ 


JANUARY  28,  '922. 

Enclosed  herewith  are  pages  designated  as  follows, 
all  for  insertion  immediately  following  the  yellow 
guide  card  marked  "Supplementary  Matters". 


\/  Supplementary  Pages  203-204  (For  substitution.) 

^/Supplementary  rages  221  to  22?  (For  substitution  for 

Supplementary  Page  221.  On  these 
page^  new  Form  1040  is  reproduced 
and  Form  1099  is  rep-inted.) 

# * # 

FORM  1040. 


A full  size  copy  of  Form  1040  (Individual  Return; 
Over  $5,000)  is  enclosed.  The  release  date  for  this 
Form  1040  is  January  30,  1922. 


* * « 

FORM  1120. 

It  seems  improbable,  at  this  writing,  that  the  cor- 
poration return  Form  1120  will  be  ready  much  if  any  be- 
fore February  14. 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


ynuqmai)  itmtsititpiiX'  'i  ll 


30IVR  18  XAT  3MOOM1  JAH3C333 

f)60Uf)0iq9i  8i  OtOI  in'! o*I  sa  ^egsq 
( .be-trrr  qet  ai  g$Ql  ano’J  Jons 


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. ykaimoo  rii  :it  1 m -roiHoo  an: 


Wl}S  (£m'”oratt0tt  ©rust  Cmnpatuj 


SERVICE  DEPARTMENT 


3T  WALL  STREET,  NEW  YORK 


/ 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  N /.  5- 
JANUAEY/24,  1922. 

Enclosed  herewith  are  pages  designated  as  follows 


^137-138  (For  substitution,) 

/ Supplementary  Page  1 '(For  substitution.) 


Very  truly  youre. 

THE  CORPORATION  TRUST  COMPANY. 


/ 


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. YHASldOD  T2UHT  MOITAHOTHOO  3HT 


\\ 


'•Life  (Unrpnraiiim  ©ruat  (Enmpattg 

SERVICE  DEPARTMENT 

3T  wall  sxhset,  new  yore 

FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  4- 
JANUARY  20,  1922. 

Enclosed  herewith  are  pages  designated  as  follows: 
Pace  13?  (New  ) 

Supplementary  page  1 (For  substitution;  immediately 

following  the  guide  card  marked  "T.  D. 
Finder" . ) 

* * # 

CONTENTS  OF  SHOE-STRING  BULLETIN  BINDER. 

Your  shoe-string  Government-Bulletin  hinder  should 
contain  the  following  — and  nothing  more: 

Cumulative  Bulletin  No.  1 (1919.) 

Cumulative  Bulletin  No,  2 (Jan.  to  June  1920.) 

Cumulative  Bulletin  No.  3 (July  to  Dec.  1920.) 

Cumulative  Bulletin  No.  4 (Jan.  to  June  1921.) 

We^k  y Bulletins  27  to  52,  i.e.  27-21  to  52-21  (July 

to  Dec.  1921. ) 
and 

Voli  me  I,  No  1 'dated  January  2,  1922),  and 
Volume  I,  No.  2 (dated  January  9,  1922),  being  the 

first  two  issues  of  the  weekly  Bul- 
letins of  the  1922  series.  (It  is 
possible  that  No.  2 is  still  on  its 
way  to  you. ) 

There  se^ms  to  be  no  occasion  to  use  a second  or 
duplicate  shoe-string  container.  On  the  contrary,  all  I 
considerations  dictate  that  the  Bulletins  should  be 
kept  in  one  binder. 

Cumulative  Bulletin  No.  5 (July  to  Dec.  1921)  to 
displace  weekly  Bulletins  27-21  to  52-21  will  probably 
not  be  ready  much,  if  any,  before  March  15,  1922. 

Verv  truly  veur*. 

THE  CORPORATION  TRUST  COMPANY. 


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mO0  T3UHT  KOITAHOaHOO  3HT 





— . 


®!t?  Cnrjrtraltmt  Slruat  (SJompang 

* / 

SERVICE  DEPARTMENT 

3T  WALL  STREET,  NEW  YORK 


/ / . 

FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  3- 
JANUARY  19,  1922.  / 

I / 

Enclosed  herewith  ?re  pages  designated  as  folloi 
ail  for  insertion  following  the/yellow  guide  ca-d 
marked  "Supplementary  Matters" , 

/ Supplementary  Pages  203-204  (For  substitution.) 

/^Supplementary  Pages  215-218  (Form  1040F. ) 
.^Supplementary  Pages  219-220  {Form  1096.) 
^Supplementary  Page  22 1 (Form  1099  ) 

j . . . 

FORMS  1040  AND  1120. 

Form  1040  (individual  return  - over  $5,000)  will 
be  ready,  it  is  believed,  in  about  ten  days. 

Form  1120  (corporation  return)  will  not  be  readv 
apparently,  for  three  weeks  at  least. 

* * * 

REGULATIONS . 

The  present  outlook  is  that  the  Regulations  will 
be  available  about  February  15. 


Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY 


I 


TV13  MTfl  A^H  C 

■ 


.SFOitAjusaa 





Qil]t  (Eorpnratum  ©rust  (Enmpang 

SERVICE  DEPARTMENT 

ST  WALL  STREET,  NEW  YORK 

/ 

/ 

/ 


/ 

I I 

FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  2- 

JANUARY  17,  1922, 

/ 

Enclosed  are  pages  designated  as  follows,  for  in- 
sertion in  the  19 22  took  immediately  after  the  yellow 
| guide  card  marked  "Supplementary  Matters". 

Supplementary  PagBS  203-204 
1 / Supplementary  Pages  205-206  (Form  46) 

!/  Supplementary  Pages  207-208  (Form  47) 

| / Supplementary  Pages  209-210  (Form  47A) 

f Supplementary  Pages  211-214  (Form  1040A) 

/ 

Also  enclosed  i-e^full  size  copy  of  Form  1040A, 
the  official  release  date  for  which  is  January  18 
1922. 


Very  truly  yours, 


THE  CORPORATION  TRUST  COMPANY. 


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» 


Otlj?  (Eorparatton  ®rast  Company 

SERVICE  DEPARTMENT 

37  WALL  STREET,  NEW  YORK 


FEDERAL  INCOME  TAX  SERVICE 

-REPORT  NO.  1-  1922  SERVICE. 

JANUARY  6,  1922. 

Enclosures  are  for  the  1922  Service, 

Enclosed  herewith,  for  insertion  in  your  new  1922 
Income  Tax  Service,  are  pages  designated  as  follows; 

135-136  (For  substitution  in  "1922  New  Matters"  divi- 

/ * sion. ) 

Supplementary  Page  1 (For  substitution  in  "T.  D.  Fin- 
der" division. ) 

Very  truly  yours, 

THE  CORPORATION  TRUST  COMPANY. 


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Stiff  (Hnrjinrattnn  Struat  (fnmpamj'a 

1913-1922 


INCOME  FAX  SERVICE 


IN  THREE  PARTS 


PART  I.— 1913-1921. 
The  Income  Tax  Law 
of 

The  Revenue  Act  of  1921 
Compiled  with 


Official  Interpreting  and  Administrative  Regulations 
Including  Regulations  62  (1922  Edition) 


Also 

Cumulative  Index-Digests 


Of  all  past  and  current  weekly  Bulletins  of  Bureau  Rulings 


Of  all  current  regulations,  decisions,  etc. 


Treasury  Decisions,  etc.,  Issued  During  1922. 


Supplementary  Matters  Including  Forms 


(SJlj?  (Corporation  (Croat  (Company 


and 


PART  II.— 1922. 


PART  III. 


and 

A General  Index. 


COPYRIGHT  1922  BY 


37  Wall  Street,  New  York 
Affiliated  with 


(New  Jersey) 
Organized  1892 


Boston,  53  State  Street 


Washington,  D.  C.,  Colorado  Bldg. 
Philadelphia,  Land  Title  Bldg. 
Portland,  Me.,  281  St.  John  Street 
St.  Louis  Federal  Reserve  Bank  Bldg. 
Wilmington,  duPont  Bldg. 


(The  Corporation  Company) 
Pittsburgh,  Oliver  Bldg. 
Albany  Agency,  158  State  Stre 


Los  Angeles,  Title  Insurance  Bldg. 

/TVio  — il ry > 


igency,  158  State  Street 


(Corporation  Trust  Co.  of  America) 
Buffalo  Agency,  Ellicott  Square  Bldg. 


2-27-22. 


TABLE  OF  CONTENTS. 
PART  I. 

The  Income  Tax  Law,  as  a unit 


. Page  5 


THE  COMPILATION.-  1913-1921. 


Income  tax  liability.  4703 
Normal  tax  and  surtax  on  indi- 
viduals. 4710 

Evasion  of  surtaxes  by  incorpo- 
ration . . 733 

Individuals  liable  to  tax.  4746 
Resident  and  non-resident  aliens 
...4754 

Citizens  and  residents  of  Porto 
Rico,  Philippine  Islands  and 
Virgin  Island.  . ^[766 
Partnerships  and  personal  service 
corporations.  4778 
Fiscal  years  1920-1921  and  1921- 
1922.  4861 

Estates  and  trusts.  4873 
Tax  on  corporations.  4972 
Net  income.  .*[1040 
Gross  income.  41067 
Dividends. . 4 1077 
Taxes  on  insurance  companies 
. 41309 

Tax  on  foreign  corporations.  41405 
Basis  for  determining  gain  or  loss 
.41433 

Capital  net  gain.  41491 
Inventories.  41509 
Net  losses.  41527 
Exempt  income.  41550 
Deductions  — Expenses . 41615, 
If  1640 

Items  not  deductible.  41622 
Deductions — Interest.  41684 
Deductions — Taxes.  41697 
Credit  for  taxes.  41733 
Deductions — Losses.  41777 
Deductions — Bad  debts.  41806 


Deductions — Dividends.  41824 
Deductions — Depreciation.  41827 
Deductions — Amortization.  41860 
Deductions — Depletion.  41881 
Deductions — Contributions.  42001 
Deductions — Property  compulsorily 
or  involuntarily  converted  into 
cash.  42022 

Credits  to  individuals.  42038 

Specific  exemption.  42044 
Credits  to  corporations.  42056 
Income  of  citizens  and  domestic 
corporations  from  U.  S.  pos- 
sessions. 42070 

Tax  on  non-resident  aliens.  42086 
Withholding  at  the  source.  42190 
Returns  of  information  at  source 
. 42336 

Foreign  items.  42356 
Returns.  42382 
Consolidated  returns.  . 42539 
Extensions  of  time.  42562 
Returns  for  period  of  less  than  12 
months.  42567 

Penalties — Returns  ^[2577:  Tax 

payments.  42727 

Examinations,  second  assessments; 
etc..  42592 

Appeals  and  hearings.  42757 
Inspection  of  returns.  42659 
Payment  of  tax.  42712 
Abatement,  credit  refund  claims 
.42811 

Suits  for  recovery  of  taxes.  42882 
Committee  on  Appeals  and  Review 
. 42923 

Supreme  Court  Decisions.  42971 


PART  H.— 1922. 

Regulations,  etc.,  officially  issued  during  1922. 


43007 


PART  HI. — (At  the  back  of  the  book.) 

Forms,  Treasury  Decision  Finder,  and  Supreme  Court  Opinions  in  Full. 
A Comprehensive  General  Index. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
2 


<£ 


2-27-22. 


Sin'  (Enrjuiralimt  ®ntHl  (Enmpattij'a 

1913-1922 

INCOME  TAX  SERVICE 
PART  I. 

1913-1921 

The  Income  Tax  Law 
of 

The  Revenue  Act  of  1921 
Compiled  with 

Official  Interpreting  and  Administrative  Regulations. 

CALENDAR 

Annual  returns  by  taxpayers  other  than  nonresident  alien  individuals  and 

sSSSSK?  - 

Calendar  year  basis — on  or  before  March  15. 

Annual  returns  by  nonresident  alien  individual-:  nn,i 

-T  . Calendar  year  basis — on  or  before  June  15. 

turn"  tlh ^ *3  d* 'month  after  Thedile 
due  date'of  XertT’  °n  7 ^ 15th  day  °f  the  6th’month  after  the 

9th  month  after  thedJe  °"  bef°rC  ^ °f  the 

AU  of  the  tax  may  be  paid  on  or  before  the  due  date  for  filing  the  return. 

Annual  returns  of  information  at  the  source:  On  or  before  March  l s 

3KS3sa?Asa 

lax:  No  tax  to  be  paid. 

annually:  i.  e.,  on  or  before  June  15.  P d h Govcrnment 

C0PyrierJ^lyJhe  C°'P°rati°»  Trust  Company. 

the  federal  income  tax  service 


2-27-22. 


COMMENT 

In  the  copy  of  the  law  printed  herein,  the  official  wording,  punc- 
tuation and  capitalization  have  been  carefully  followed.  However, 
it  has  been  considered  advisable  to  introduce  a scheme  of  spacing 
and  indentation,  numbering  the  arbitrary  paragraphs  consecutively, 
which  it  is  hoped  will  make  the  various  provisions  mere  accessible. 

When  the  law  paragraphs  are  repeated  in  their  proper  places  among 
the  regulations,  they  are  given,  in  addition  to  the  Law-paragraph  num- 
bers which  they  bear,  bold  face  general  paragraph  numbers  to  fit  them 
in  properly  with  the  paragraphs  of  the  regulations  which  precede  and 
follow  them.  This  will  be  found  to  be  an  advantage  in  utilizing  the 
cross  references  and  the  general  index.  Ihe  law  section  of  which  each 
paragraph,  so  repeated,  is  a part,  is  indicated. 

Each  Article  of  Regulations  62,  1922  Edition,  is  clearly  designated 
as  such  in  bold  face  type.  Ihe  “1922  Edition”  of  Regulations  62  was 
promulgated  February  15,  1922,  though  not  released  for  publication 
until  about  two  weeks  later.  Ihe  date  and  designation  of  each  other 
ruling  or  regulation  appearing  in  the  compilation  are  given. 

The  regulations,  decisions,  special  letters,  etc.,  explaining,  enlarg- 
ing  or  giving  specific  directions  for  the  enforcement  of  the  provisions 
of  the  lav/  in  a particular  paragraph  or  group  of  paragraphs  of  the  law, 
are  printed  immediately  following  such  law  paragraph  or  group  of 
paragraphs. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

4 


2-27-22. 


COMMENT 

In  the  copy  of  the  law  printed  herein,  the  official  wording,  punc- 
tuation and  capitalization  have  been  carefully  followed.  However, 
it  has  been  considered  advisable  to  introduce  a scheme  of  spacing 
and  indentation,  numbering  the  arbitrary  paragraphs  consecutively, 
which  it  is  hoped  will  make  the  various  provisions  mere  accessible. 

When  the  law  paragraphs  are  repeated  in  their  proper  places  among 
the  regulations,  they  are  given,  in  addition  to  the  Law-paragraph  num- 
bers which  they  bear,  bold  face  general  paragraph  numbers  to  fit  them 
in  properly  with  the  paragraphs  of  the  regulations  which  precede  and 
follow  them.  This  will  be  found  to  be  an  advantage  in  utilizing  the 
cross  references  and  the  general  index.  The  lav/  section  of  which  each 
paragraph,  so  repeated,  is  a part,  is  indicated. 

Each  Article  of  Regulations  62,  1922  Edition,  is  clearly  designated 
as  such  in  bold  face  type.  The  “1922  Edition”  of  Regulations  62  was 
promulgated  February  15,  1922,  though  not  released  for  publication 
until  about  two  weeks  later.  The  date  and  designation  of  each  other 
ruling  or  regulation  appearing  in  the  compilation  are  given. 

The  regulations,  decisions,  special  letters,  etc.,  explaining,  enlarg- 
ing  or  giving  specific  directions  for  the  enforcement  of  the  provisions 
of  the  lav/  in  a particular  paragraph  or  group  of  paragraphs  of  the  law, 
are  printed  immediately  following  such  law  paragraph  or  group  of 
paragraphs. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

4 


! 


5-1-22. 


WAJ  XAT  3MOQKI  3HT 

FEDERAL  INCOME  TAX  LAW. 

BEING  TITLE  II 
of  the 

REVENUE  ACT  OF  1921  * 

To  Which  Have  Been  Added 
Title  I — General  Definitions 
and  Parts  of 

Title  XIII— General  Administrative  Provisions 
and 

Title  XIV — General  Provisions 

of  the  Revenue  Act  of  1921. 

¥ [Amendments  by  the  “China  Trade  Act,  1922”  noted  in  place. 
There  have  been  no  other  amendments.] 


The  arbitrary  paragraphs  are  numbered  consecutively  on 
the  left.  Each  paragraph  will  be  found  repeated,  followed  by  the 
provisions  of  the  regulations,  if  any,  relating  to  it,  in  the  body 
of  the  book,  beginning  on  page  103  at  the  running  paragraph,  the 
number  of  which  has  been  placed  on  the  right  opposite  that 
particular  paragraph  in  the  reprint  below. 

The  headings  are  a part  of  the  Act  as  passed,  except  when 
shown  in  brackets. 

(See  Law  and  Regulations,  Page  103.) 

Be  it  enacted  by  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assembled, 

TITLE  I.— GENERAL  DEFINITIONS. 

Law  Repeated 

Paragraph  ^ 

Hi  Section  1.  That  this  Act  may  be  cited  as  the  “Revenue 

Act  of  1921.”  2770 

H 2 Sec.  2.  That  when  used  in  this  Act — 

1)3  (1)  The  term  “person”  includes  partnerships  and  corpora-  705 

tions,  as  well  as  individuals; 

H4  (2)  The  term  “corporation”  includes  associations,  joint-  986 

stock  companies,  and  insurance  companies; 

HA  (3)  The  term  ‘ domestic”  when  applied  to  a corporation  or  2059 

partnership  means  created  or  organized  in  the  United  States; 

Copyright  1922,  by  '1  he  Corporation  Trust  Company , 

THE  FEDERAL  INCOME  TAX  SERVICF  , ~ 

<5 


4200. 


THE  INCOME  TAX  LAW. 


6-1-22. 


L«w  Repeated 

Paragraph  f 

116  (4)  The  term  “foreign”  when  applied  to  a corporation  or  1398 

partnership  means  created  or  organized  outside  the  United 
States; 

117  (5)  I he  term  “United  States”  when  used  in  a geographical  1399 

sense  includes  only  the  States,  the  Territories  of  Alaska  and 
Hawaii,  and  the  District  of  Columbia; 

118  (6)  The  term  “Secretary”  means  the  Secretary  of  the  740 

Treasury; 

11 9 (7)  The  term  “Commissioner”  means  the  Commissioner  of  741 
Internal  Revenue; 

H10  (8)  The  term  “collector”  means  collector  of  internal  742 

revenue; 

til  (9)  The  term  “taxpayer”  includes  any  person,  trust  or  703 

estate  subject  to  a tax  imposed  by  this  Act; 

If  12  (10)  The  term  “military  or  naval  forces  of  the  United  States”  1556 

includes  the  Marine  Corps,  the  Coast  Guard,  the  Army  Nurse 
Corps,  Female,  and  the  Navy  Nurse  Corps,  Female,  but  this 
shall.  not  be  deemed  to  exclude  other  units  otherwise  included 
within  such  terms;  and 

If  13  (Tl)  The  term  “Government  contract”  means  (a)  a contract  820 

made  with  the  United  States,  or  with  any  department,  bureau, 
officer,  commission,  board,  or  agency,  under  the  United  States 
and  acting  in  its  behalf,  or  with  any  agency  controlled  by  any 
of  the  above  if  the  contract  is  for  the  benefit  of  the  United 
States,  or  (b)  a subcontract  made  with  a contractor  performing 
such  a contract  if  the  products  or  services  to  be  furnished  under 
the  subcontract  are  for  the  benefit  of  the  United  States.  The 
term  “Government  contract  or  contracts  made  between  April  6, 

1917,  and  November  11,  1918,  both  dates  inclusive”  when 
applied  to  a contract  of  the  kind  referred  to  in  clause  (a)  of  this 
subdivision,  includes  all  such  contracts  which,  although  entered 
into  during  such  period,  were  originally  not  enforceable,  but 
which  have  been  or  may  become  enforceable  by  reason  of 
subsequent  validation  in  pursuance  of  law. 

* [New  paragraph  (12)  added;  China  Trade  Act  corpo- 
rations,' 53171.] 

TITLE  II.— INCOME  TAX. 

Part  I. — General  Provisions. 

Definitions. 

514  Sec.  200.  That  when  used  in  this  title — 

il  15  (1)  The  termj“taxable  year”Tneans  the  calendar  year,  or  the  1060 

fiscal  year  ending  during  such  calendar  year,  upon  the  basis  of 

Copyright  1922,  by  The  Corporation  Trust  Company. 

< ,__i  THE  FEDERAL  INCOME  TAX  SERVICE 


6 


2-27-22. 


THE  INCOME  TAX  LAW. 


§201. 


L»w 

Paragraph 


Repeated 
at  H 


(If  15)  which  the  net  income  is  computed  under  section  212  or  section  1060 
232. 


116  The  term  “fiscal  year”  means  an  accounting  period  of  twelve  1062 
months  ending  on  the  last  day  of  any  month  other  than 
December. 


* 

il 


18 


The  first  taxable  year,  to  be  called  the  taxable  year  1921,  shall  1063 
be  the  calendar  year  1921  or  any  fiscal  year  ending  during  the 
calendar  year  1921; 

(2)  The  term  “fiduciary”  means  a guardian,  trustee,  execu-  922 
tor,  administrator,  receiver,  conservator,  or  any  person  acting  in 

any  fiduciary  capacity  for  any  person,  trust  or  estate; 

(3)  The  term  “withholding  agent”  means  any  person  re-  2226 
quired  to  deduct  and  withhold  any  tax  under  the  provisions  of 
section  221  or  section  237; 

(4)  The  term  “paid,”  for  the  purposes  of  the  deductions  and  1047 
credits  under  this  title,  means  “paid  or  accrued”  or  “paid  or 
incurred,”  and  the  terms  “paid  or  incurred”  and  “paid  or 
accrued”  shall  be  construed  according  to  the  method  of  account- 
ing upon  the  basis  of  which  the  net  income  is  computed  under 
section  212;  and 

(5)  The  term  “personal  service  corporation”  means  a corpo-  815 
ration  whose  income  is  to  be  ascribed  primarily  to  the  activities 

of  the  principal  owners  or  stockholders  who  are  themselves 
regularly  engaged  in  the  active  conduct  of  the  affairs  of  the 
corporation  and  in  which  capital  (whether  invested  or  borrowed) 
is  not  a material  income-producing  factor; 


1122  but  does  not  include  any  foreign  corporation, 


816 


nor  any  corporation  50  per  centum  or  more  of  whose  gross 
income  consists  either 

(1)  of  gains,  profits,  or  income  derived  from  trading  as 
a principal,  or 

(2)  of  gains,  profits,  commissions,  or  other  income, 
derived  from  a Government  contract  or  contracts  made 
between  April  6,  1917,  and  November  11,  1918,  both 
dates  inclusive. 

Dividends. 


817 

818 
819 


126 


Sec.  201.  (a)  That  the  term  “dividend”  when  used  in  this  1077 

title  (except  in  paragraph  (10)  of  subdivision  (a)  of  section  234 
and  paragraph  (4)  of  subdivision  (a)  of  section  245)  means  any 
distribution  made  by  a corporation  to  its  shareholders  or  mem- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


7 


§201. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law  Repeated 

Paragraph  at  5 

(^j 26)  bcrs,  whether  in  cash  or  in  other  property,  out  of  its  earnings  or  1077 
profits  accumulated  since  February  28,  1913, 

1127  except  a distribution  made  by  a personal  service  cor-  1078 

poration  out  of  earnings  or  profits  accumulated  since 
December  31,  1917,  and  prior  to  January  1,  1922. 

1j28  (b)  For  the  purposes  of  this  Act  every  distribution  is  made  1104 

out  of  earnings  or  profits,  and  from  the  most  recently  accumu- 
lated earnings  or  profits,  to  the  extent  of  such  earnings  or 
profits  accumulated  since  February  28,  1913; 

1)29  but  any  earnings  or  profits  accumulated  or  increase  in  value  of  1112 
property  accrued  prior  to  March  1,  1913,  may  be  distributed 
exempt  from  the  tax  after  the  earnings  and  profits  accumulated 
since  February  28,  1913,  have  been  distributed. 

1j30  If  any  such  tax-free  distribution  has  been  made  the  distributee  1114 
shall  not  be  allowed  as  a deduction  from  gross  income  any  loss 
sustained  from  the  sale  or  other  disposition  of  his  stock  or  shares 
unless,  and  then  only  to  the  extent  that,  the  basis  provided  in 
section  202  exceeds  the  sum  of 

1J31  (1)  the  amount  realized  from  the  sale  or  other  disposi-  1115 

tion  of  such  stock  or  shares,  and 

Tf32  (2)  the  aggregate  amount  of  such  distributions  received  1116 

by  him  thereon. 

^[33  (c)  Any  distribution  (whether  in  cash  or  other  property) 

made  by  a corporation  to  its  shareholders  or  members  other-  1119 
wise  than  out  of 

H34  (1)  earnings  or  profits  accumulated  since  February  1120 

28,  1913,  or 

1J35  (2)  earnings  or  profits  accumulated  or  increase  in  1121 

value  of  property  accrued  prior  to  March  1,  1913, 

1|36  shall  be  applied  against  and  reduce  the  basis  provided  in  section  1 122 
202  for  the  purpose  of  ascertaining  the  gain  derived  or  the  loss 
sustained  from  the  sale  or  other  disposition  of  the  stock  or  shares 
by  the  distributee. 

*[37  (d)  A stock  dividend  shall  not  be  subject  to  tax  but  if  after  1127 

the  distribution  of  any  such  dividend  the  corporation  proceeds  to 
cancel  or  redeem  its  stock  at  such  time  and  in  such  manner  as 
to  make  the  distribution  and  cancellation  or  redemption 
essentially  equivalent  to  the  distribution  of  a taxable  dividend, 
the  amount  received  in  redemption  or  cancellation  of  the„stock 
shall  be  treated  as  a taxable  dividend  to  the  extent  of  the 
earnings  or  profits  accumulated  by  such  corporation  after 
February  28,  1913. 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 

8 


2-27-22. 


THE  INCOME  TAX  LAW. 


§202 


Law  Repeated 

Paragrupb  gt  H 

1J38  ( c)  I'’or  the  purposes  of  this  Act,  a taxable  distribution  made  1081 

by  a corporation  to  its  shareholders  or  members  shall  be  included 
in  the  gross  income  of  the  distributees  as  of  the  date  when  the 
cash  or  other  property  is  unqualifiedly  made  subject  to  their 
demands. 

adT  -noijieiupoG  Hdub  To  amit  3rir  ra  yJrjqoiq  rbue-lo  sulnv  io 

*[39  (f)  Any  distribution  made  during  the  first  sixty  days  of  any  1 105 

taxable  year  shall  be  deemed  to  have  been  made  from  earnings 
or  profits  accumulated  during  preceding  taxable  rears; 

*[40  but  any  distribution  made  during  the  remainder  of  the  taxable  1106 
year  shall  be  deemed  to  have  been  made  from  earnings  or  profits 
accumulated  between  the  close  of  the  preceding  taxable  year 
and  the  date  of  distribution,  to  the  extent  of  such  earnings  or 
profits,  and  if  the  books  of  the  corporation  do  not  show  the 
amount  of  such  earnings  or  profits,  the  earnings  or  profits  for 
the  accounting  period  within  which  the  distribution  was  made 
shall  be  deemed  to  have  been  accumulated  ratably  during  such 
period.  This  subdivision  shall  not  be  in  effect  after  December 
31,  1921. 

Basis  for  Determining  Gain  or  Loss. 

^[41  Sec.  202.  (a)  That  the  basis  for  ascertaining  the  gain  1431 

derived  or  loss  sustained  from  a sale  or  other  disposition  of 
property,  real,  personal,  or  mixed,  acquired  after  February  28, 

1913,  shall  be  the  cost  of  such  property;  except  that — 

*42  _ (1)  In  the  case  of  such  property,  which  should  be  included  1432' 

m the  inventory,  the  basis  shall  be  the  last  inventory  value 
thereof; 

^43  (2)  In  the  case  of  such  property,  acquired  by  gift  after  1449 

L cccmber  31,  1920,  the  basis  shall  be  the  same  as  that  which  it 
would  have  in  the  hands  of  the  donor  or  the  last  preceding  owner 
by  whom  it  was  not  acquired  by  gift. 

^44  If  the  facts  necessary  to  determine  such  basis  are  un- 

known to  the  donee,  the  Commissioner  shall,  if 
possible,  obtain  such  facts  from  such  donor  or  last 
preceding  owner,  or  any  other  person  cognizant 
thereof. 

*[45  If  the  Commissioner  finds  it  impossible  to  obtain  such 

facts,  the  basis  shall  be  the  value  of  such  property 
as  found  by  the  Commissioner  as  of  the  date  or  approxi- 
mate date  at  which,  according  to  the  best  information 
the  Commissioner  is  able  to  obtain,  such  property  was 
acquired  by  such  donor  or  last  preceding  owner. 

^[46  In  the  case  of  such  property  acquired  by  gift  on  [or  [before  1453 
December  31,  1920,  the  basis  for  ascertaining  gain  or  loss  from  a 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 

9 


1450 


1451 


THE  INCOME  TAX  LAW. 


2-27-22. 


{20 2. 


I’arnxrnph 


Ue|>ent«d 
at  H 

1453 


(1(46)  sale  or  other  disposition  thereof  shall  be  the  fair  market  price 
or  value  of  such  property  at  the  time  of  such  acquisition; 

*47  (3)  In  the  case  of  such  property,  acquired  by  bequest,  1454 

devise,  or  inheritance,  the  basis  shall  be  the  fair  market  price 
or  value  of  such  property  at  the  time  of  such  acquisition.  The 
provisions  of  this  paragraph  shall  apply  to  the  acquisition  of 
such  property  interests  as  are  specified  in  subdivision  (c)  or 
( e ) of  section  402  [of  the  Federal  estate-tax  law:  distributions 

in  contemplation  of  death,  etc.,  and  property  passing  under  a 
general  power  of  appointment  exercised  by  a decedent]. 

*48  (b)  The  basis  for  ascertaining  the  gain  derived  or  loss  1433 

sustained  from  the  sale  or  other  disposition  of  property,  real, 
personal,  or  mixed,  acquired  before  March  1,  1913,  shall  be  the 
same  as  that  provided  by  subdivision  (a);  but — 

*49  (1)  If  its  fair  market  price  or  value  as  of  March  1,  1913,  is  in  1434 

excess  of  such  basis,  the  gain  to  be  included  in  the  gross  income 
shall  be  the  excess  of  the  amount  realized  therefor  over  such  fair 
market  price  or  value; 

1f50  (2)  If  its  fair  market  price  or  value  as  of  March  1,  1913,  is  1435 

lower  than  such  basis,  the  deductible  loss  is  the  excess  of  the  fair 
market  price  or  value  as  of  March  1,  1913,  over  the  amount 
realized  therefor;  and 

1|51  (3)  If  the  amount  realized  therefor  is  more  than  such  basis  1436 

but  not  more  than  its  fair  market  price  or  value  as  of  March  1, 

1913,  or  less  than  such  basis  but  not  less  than  such  fair  market 
price  or  value,  no  gain  shall  be  included  in  and  no  loss  deducted 
from  the  gross  income. 

1f52  (c)  For  the  purposes  of  this  title,  on  an  exchange  of  property,  1456 

real,  personal  or  mixed,  for  any  other  such  property,  no  gain  or 
loss  shall  be  recognized  unless  the  property  received  in  exchange 
has  a readily  realizable  market  value; 

1f53  but  even  if  the  property  received  in  exchange  has  a readily  1459 
realizable  market  value,  no  gain  or  loss  shall  be  recognized — 

\ 

^[54  (1)  When  any  such  property  held  for  investment,  1460 

or  for  productive  use  in  trade  or  business  (not  including 
stock-in-trade  or  other  property  held  primarily  for 
sale),  is  exchanged  for  property  of  a like  kind  or  use; 

%55  (2)  When  in  the  reorganization  of  one  or  more  1461 

corporations  a person  receives  in  place  of  any  stock  or 
securities  owned  by  him,  stock  or  securities  in  a corpo- 
ration a party  to  or  resulting  from  such  reorganization. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


10 


2-27-22. 


THE  INCOME  TAX  LAW. 


§202 


Law 

Paragraph 

^56  The  word  “reorganization,”  as  used  in  this  paragraph, 

includes  a merger  or  consolidation  (including  the  ac- 
quisition by  one  corporation  of  at  least  a majority 
of  the  voting  stock  and  at  least  a majority  of  the  total 
number  of  shares  of  all  other  classes  of  stock  of  another 
corporation,  or  of  substantially  all  the  properties 
of  another  corporation),  recapitalization,  or  mere 
change  in  identity,  form,  or  place  of  organization  of  a 
corporation,  (however  effected);  or 

^57  (3)  When  (A)  a person  transfers  any  property,  real, 

personal  or  mixed,  to  a corporation,  and  immediately 
after  the  transfer  is  in  control  of  such  corporation,  or 

1f58  (B)  two  or  more  persons  transfer  any  such  property 

to  a corporation,  and  immediately  after  the  transfer 
are  in  control  of  such  corporation,  and  the  amounts  of 
stock,  securities,  or  both,  received  by  such  persons  are 
in  substantially  the  same  proportion  as  their  interests 
in  the  property  before  such  transfer. 


^[59  For  the  purposes  of  this  paragraph,  a person  is,  or  two 

or  more  persons  are,  “in  control”  of  a corporation 
when  owning  at  least  80  per  centum  of  the  voting 
stock  and  at  least  80  per  centum  of  the  total  number 
of  shares  of  all  other  classes  of  stock  of  the  corporation. 


Repeated 
at  1 

1462 


1463 

1464 


1465 


^60  (d)  (1)  Where  property  is  exchanged  for  other  property  1474 

and  no  gain  or  loss  is  recognized  under  the  provisions  of  sub- 
division (c),  the  property  received  shall,  for  the  purposes  of  this 
section,  be  treated  as  taking  the  place  of  the  property  exchanged 
therefor,  except  as  provided  in  subdivision  (e); 


^[61  (2)  Where  property  is  compulsorily  or  involuntarily  con-  1475 

verted  into  cash  or  its  equivalent  in  the  manner  described  in 
paragraph  (12)  of  subdivision  (a)  of  section  214  and  paragraph 
(14)  of  subdivision  (a)  of  section  234,  and  the  taxpayer  proceeds 
in  good  faith  to  expend  or  set  aside  the  proceeds  of  such  con- 
version in  the  form  and  in  the  manner  therein  provided  the 
property  acquired  shall,  for  the  purpose  of  this  section,  be 
treated  as  taking  the  place  of  a like  proportion  of  the  property 
converted; 


^[62  (3)  Where  no  deduction  is  allowed  for  a loss  or  a part  1476 

thereof  under  the  provisions  of  paragraph  (5)  of  subdivision  (a) 
of  section  214  and  paragraph  (4)  of  subdivision  (a)  of  section  234, 
that  part  of  the  property  acquired  with  relation  to  which  such 
loss  is  disallowed  shall  for  the  purposes  of  this  section  be  treated 
as  taking  the  place  of  the  property  sold  or  disposed  of. 

^[63  (e)  Where  property  is  exchanged  for  other  property  which  1480 

has  no  readily  realizable  market  value,  together  with  money  or 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


11 


5204. 


THE  INCOME  TAX  LAW. 


2-27-22, 


I. aw 

Paragraph 


Repeated 
at  U 

1480 


(If63)  0,^er  property  which  has  a readily  realizable  market,  value,  then 
tlie  money  or  the  fair  market  value  of  the  property  having  such 
readily  realizable  market  value  received  m exchange  shall  be 
applied  agamst  and  reduce  the  basis,  provided  in  this  section,  of 
the  property  exchanged,  and  if  in  excess  of  such  basts,  shall  be 
taxable  to  the  extent  of  the  excess; 

*64  but  when  property  is  exchanged  for  property  specified  in  para-  1481 
graphs  (1),  (2),  and  (3)  of  subdivision  (c)  as  rcceited  in  ex- 
change, together  with  rnoneyr  or  other  property  of  a readily 
realizable  market  value  other  than  that  specified  in  such  oara'- 
graphs,  the  money  or  the  fair  market  value  of  such  other 
property  received  in  exchange  shall  be  applied  against  and 
reduce  the  basis,  pro\ided  in  this  section,  of  the  property  ex- 
changed, and  if  in  excess  of  such  basis,  shall  be  taxable  to  the 
extent  of  the  excess. 

^65  _ (f)  Nothing  in  this  section  shall  be  construed  to  prevent  1488 

(in  the  case  of  property  sold  under  contract  providing  for  pay- 
ment in  installments)  the  taxation  of  that  portion  of  any  in- 
stallment payment  representing  gain  or  profit  in  the  year  in 
which  such  payment  is  received. 


T66 


1167 


168 


1i69 


"70 


171 


(including  losses  sustained  from  the  sale  or  other  dis- 
position of  real  estate,  machinery,  and  other  capital 
assets,  used  in  the  conduct  of  such  trade  or  business); 


1509 


Inventories. 

Sec.  203.  lhat  whenever  in  the  opinion  of  the  Commis- 
sioner the  use  of  inventories  is  necessary  in  order  clearly  to 
determine  the  income  of  any  taxpayer,  inventories  shall  be 
taken  by  such  taxpayer  upon  such  basis  as  the  Commissioner, 
with  the  approval  of  the  Secretary,  may  prescribe  as  conforming 
as  nearly  as  may  be  to  the  best  accounting  practice  in  the  trade 
or  business  and  as  most  clearly  reflecting  the  income. 

Net  Losses. 

Sec.  204.  (a)  That  as  used  in  this  section  the  term  “net  loss”  1527 

means  only  net  losses  resulting  from  the  operation  of  any  trade 
or  business  regularly  carried  on  by  the  taxpayer 


1528 


and  when  so  resulting  means  the  excess  of  the  deductions  1529 
allowed  by  section  214  or  234,  as  the  case  may  be,  over  the  sum 
of  the  following: 

(1)  The  gross  income  of  the  taxpayer  for  the  taxable  1530 

year, 

(2)  the  amount  by  which  the  interest  received  free  from  1531 

taxation  under  this  title  exceeds  so  much  of  thepnterest 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


12 


2-27-22. 


THE  INCOME  TAX  LAW. 


§205. 


Law 

Paragraph 

(1f71)  paid  or  accrued  within  the  taxable  year  on  indebted- 
ness as  is  not  permitted  to  be  deducted  by  paragraph 
(2)  of  subdivision  (a)  of  section  214  or  by  paragraph 
(2)  of  subdivision  (a)  of  section  234, 

* 72  (3)  the  amount  by  which  the  deductible  losses  not 

sustained  in  such  trade  or  business  exceed  the  taxable 
gains  or  profits  not  derived  from  such  trade  or  business, 

■miillel  boiioq  ri ouz  )o  : ,■  itioq  aril  rbiri //  ,!£<?!  te?>v 

%73  (4)  amounts  received  as  dividends  and  allowed  as  a 

deduction  under  paragraph  (6)  of  subdivision  (a)  of 
section  234,  and 

174  (5)  so  much  of  the  depletion  deduction  allowed  with 

respect  to  any  mine,  oil  or  gas  well  as  is  based  upon 
discovery  value  in  lieu  of  cost. 

^|75  (b)  If  for  any  taxable  year  beginning  after  December  1542 

31,  1920,  it  appears  upon  the  production  of  evidence  satisfactory 
to  the  Commissioner  that  any  taxpayer  has  sustained  a net  loss, 
the  amount  thereof  shall  be  deducted  from  the  net  income  of 
the  taxpayer  for  the  succeeding  taxable  year; 

f76  and  if  such  net  loss  is  in  excess  of  the  net  income  for  such  1543 
succeeding  taxable  year,  the  amount  of  such  excess  shall  be 
allowed  as  a deduction  in  computing  the  net  income  for  the  next 
succeeding  taxable  year; 

If 77  the  deduction  in  all  cases  to  be  made  under  regulations  pre-  1544 
scribed  by  the  Commissioner  with  the  approval  of  the  Secretary. 

^[78  (c)  The  benefit  of  this  section  shall  be  allowed  to  the  1546 

members  of  a partnership  and  the  beneficiaries  of  an  estate  or 
trust,  and  to  insurance  companies  subject  to  the  tax  imposed 
by  section  243  or  246,  under  regulations  prescribed  by  the 
Commissioner  with  the  approval  of  the  Secretary. 

179  (d)  If  it  appears,  upon  the  production  of  evidence  satis-  1548 

factory  to  the  Commissioner,  that  a taxpayer  having  a fiscal 
year  beginning  in  1920  and  ending  in  1921  has  sustained  a net 
loss  during  such  fiscal  year,  such  taxpayer  shall  be  entitled  to 
the  benefits  of  this  section  in  respect  to  the  same  proportion  of 
such  net  loss  which  the  portion  of  such  fiscal  year  falling  within 
the  calendar  year  1921  is  of  the  entire  fiscal  year. 

Fiscal  Years  1920-1921  and  1921-1922. 

If 80  Sec.  205.  (a)  That  if  a taxpayer  makes  return  for  a 861 

fiscal  year  beginning  in  1920  and  ending  in  1921,  his  tax  under 
this  title  for  the  taxable  year  1921  shall  be  the  sum  of: 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


Repeated 

at 

1531 


1532 


1533 


1534 


13 


§205. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 


18  2 


I!  83 


Repeated 

atl 

862 


181  (1)  the  same  proportion  of  a tax  for  the  entire  period 

computed  under  I itle  II  of  the  Revenue  Act  of  1918 
at  the  rates  for  the  calendar  year  1920  which  the 
portion  of  such  period  falling  within  the  calendar 
year  1920  is  of  the  entire  period,  and 

(2)  the  same  proportion  of  a tax  for  the  entire  period  863 

computed  under  this  title  at  the  rates  for  the  calendar 
year  1921,  which  the  portion  of  such  period  falling 
within  the  calendar  year  1921  is  of  the  entire  period. 

Any  amount  paid  before  or  after  the  passage  of  this  Act  on  864 
account  of  the  tax  imposed  for  such  fiscal  year  by  Title  II  of  the 
Revenue  Act  of  1918  shall  be  credited  toward  the  payment  of  the 
tax  imposed  for  such  fiscal  year  by  this  Act,  and  if  the  amount  so 
paid  exceeds  the  amount  of  such  tax  imposed  by  this  Act,  the 
excess,  shall  be  credited  or  refunded  in  accordance  with  the 
provisions  of  section  252. 

184  (b)  If  a taxpayer  makes  return  for  a fiscal  year  beginning  in  865 

1921  and  ending  in  1922,  his  tax  under  this  title  for  the  taxable 
year  1922  shall  be  the  sum  of: 

^85  (1)  the  same  proportion  of  a tax  for  the  entire  period  866 

computed  under  this  title  (as  in  force  on  December 
31,  1921)  at  the  rates  for  the  calendar  year  1921  which 
the  portion  of  such  period  falling  within  the  calendar 
year  1921  is  of  the  entire  period,  and 

186  (2)  the  same  proportion  of  a tax  for  the  entire  period  867 

computed  under  this  title  (as  in  force  on  January  1, 

1922)  at  the  rates  for  the  calendar  year  1922  which  the 
portion  of  such  period  falling  within  the  calendar  year 
1922  is  of  the  entire  period: 

187  Provided,  That  in  the  case  of  a personal  service  corpo-  868 

ration  the  amount  to  be  paid  shall  be  only  that  specified 

in  clause  (2). 

188  . (c)  If  a fiscal  year  of  a partnership  begins  in  1920  and  ends  808 

in  1921,  or  begins  in  1921  and  ends  in  1922,  then 

189  (1)  the  rates  for  the  calendar  year  during  which  such  809 

fiscal  year  begins  shall  apply  to  an  amount  of  each 
partner’s  share  of  such  partnership  net  income  (de- 
termined under  the  law  applicable  to  such  year)  equal 

to  the  proportion  which  the  part  of  such  fiscal  year 
falling  within  such  calendar  year  bears  to  the  full  fiscal 
year,  and 

190  (2)  the  rates  for  the  calendar  year  during  which  such  810 

fiscal  year  ends  shall  apply  to  an  amount  of  each 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


14 


2-27-22. 


THE  INCOME  TAX  LAW. 


§206. 


Law 

Paragraph 

(H90)  partner’s  share  of  such  partnership  net  income  (de- 
termined under  the  law  applicable  to  such  calendar 
year)  equal  to  the  proportion  which  the  part  of  such 
fiscal  year  falling  within  such  calendar  year  bears  to 
the  full  fiscal  year. 

Capital  Gain. 

H91  Sec.  206.  (a)  That  for  the  purpose  of  this  title:  1491 

^92  (1)  The  term  “capital  gain”  means  taxable  gain  from  the  1492 

sale  or  exchange  of  capital  assets  consummated  after  December 

31,  1921; 

^[93  (2)  The  term  “capital  loss”  means  deductible  loss  resulting  1493 

from  the  sale  or  exchange  of  capital  assets  consummated  after 
December  31,  1921 ; 

H94  (3)  The  term  “capital  deductions”  means  such  deductions  1494 

as  are  allowed  under  this  title  for  the  purpose  of  computing  net 
income  and  are  proper!/  allocable  to  or  chargeable  against 
items  of  capital  gain  as  defined  in  this  section; 

H95  (4)  The  term  “capital  net  gain”  means  the  excess  of  the  total  1495 

amount  of  capital  gain  over  the  sum  of  the  capital  deductions 
and  capital  losses; 

1f96  (5)  The  term  “ordinary  net  income”  means  the  net  income,  1496 

computed  in  accordance  with  the  provisions  of  this  title,  after 
excluding  all  items  of  capital  gain,  capital  loss,  and  capita! 
deductions;  and 

H97  (6)  The  term  “capital  assets”  as  used  in  this  section  means  1497 

property  acquired  and  held  by  the  taxpayer  for  profit  or  invest- 
ment for  more  than  two  years  (whether  or  not  connected  with 
his  trade  or  business), 

H98  but  does  not  include  property  held  for  the  personal  1498 

use  or  consumption  of  the  taxpayer  or  his  family,  or 
stock  in  trade  of  the  taxpayer  or  other  property  of  a 
kind  which  would  properly  be  included  in  the  inventory 
of  the  taxpayer  if  on  hand  at  the  close  of  the  taxable 
year. 

^99  (b)  In  the  case  of  any  taxpayer  (other  than  a corporation)  1499 

who  for  any  taxable  year  derives  a capital  net  gain,  there  shall 
(at  the  election  of  the  taxpayer)  be  levied,  collected  and  paid, 
in  lieu  of  the  taxes  imposed  by  sections  210  and  211  of  this 
title,  a tax  determined  as  follows: 

UlOO  A partial  tax  shall  first  be  computed  upon  the  basis  of  the  1500 
ordinary  net  income  at  the  rates  and  in  the  manner  provided 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


Repeated 
at  1 

810 


15 


§211. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 


(*[  1 00)  in  sections  210  and  211,  and  the  total  tax  shall  be  this  amount 
plus  123^  per  centum  of  the  capital  net  gain; 


Repeated 
at  H 

1500 


1p01  but  if  the  taxpayer  elects  to  be  taxed  under  this  section  1501 
the  total  tax  shall  in  no  such  case  be  less  than  123^ 
per  centum  of  the  total  net  income. 


11102  The  total  tax  thus  determined  shall  be  computed,  collected  and  1502 
paid  in  the  same  manner,  at  the  same  time  and  subject  to  the 
same  provisions  of  law,  including  penalties,  as  other  taxes  under 
this  title. 

If  103  (c)  In  the  case  of  a partnership  or  of  an  estate  or  trust,  the  1507 

proper  part  of  each  share  of  the  net  income  which  consists, 
respectively,  of  ordinary  net  income  and  capital  net  gain,  shall  be 
determined  under  rules  and  regulations  to  be  prescribed  by  the 
Commissioner  with  the  approval  of  the  Secretary,  and  shall  be 
separately  shown  in  the  return  of  the  partnership  or  estate  or 
trust,  and  shall  be  taxed  to  the  member  or  beneficiary  or  to  the 
estate  or  trust  as  provided  in  sections  218  and  219,  but  at  the 
rates  and  in  the  manner  provided  in  subdivision  (b)  of  this 
section. 


Part  II. — Individuals. 

Normal  Tax. 

If  104  Sec.  210.  That.  in  lieu  of  the  tax  imposed  by  section  210  710 

of  the  Revenue  Act  of  1918,  there  shall  be  levied,  collected,  2087 

and  paid  for  each  taxable  year  upon  the  net  income  of  every 
individual  a normal  tax  of  8 per  centum  of  the  amount  of  the 
net  income  in  excess  of  the  credits  provided  in  section  216: 

If  105  Provided , That  in  the  case  of  a citizen  or  resident  of  the  711 

United  States  the  rate  upon  the  first  $4,000  of  such 
excess  amount  shall  be  4 per  centum. 

Surtax. 

If  1 06  Sec.  211.  (a)  That,  in  lieu  of  the  tax  imposed  by  section  713 

211  of  the  Revenue  Act  of  1918,  but  in  addition  to  the  normal  2088 

tax  imposed  by  section  210  of  this  Act,  there  shall  be  levied, 
collected,  and  paid  for  each  taxable  year  upon  the  net  income 
of  every  individual — 

If  107  (1)  For  the  calendar  year  1921,  a surtax  equal  to  the  sum  722 

of  the  following: 

1 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$5,000  and  does  not  exceed  $6,000; 

2 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$6,000  and  does  not  exceed  $8,000; 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


16 


2-27-22. 


THE  INCOME  TAX  LAW. 


§211. 


Law 

Paragraph 

(fl07)'-- 


Repeated 
at  U 

3 per  centum  of  the  amount  by  which  the  net  income  exceeds  722 

$8,000  and  does  not  exceed  $10,000; 

4 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$10,000  and  does  not  exceed  $12,000; 

5 per  centum  of  the  amount  by  whi"h  the  net  income  exceeds 

$12,000  and  does  not  exceed  $14,000; 

6 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$14,000  and  does  not  exceed  $16,000; 

7 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$16,000  and  does  not  exceed  $18,000; 

*8  per  centum  of  the  amount  by  which  the  net  income  exceeds 
$18,000  and  does  not  exceed  $20,000; 

9 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$20,000  and  does  not  exceed  $22,000; 

10  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $22,000  and  does  not  exceed  $24,000; 

11  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $24,000  and  does  not  exceed  $26,000; 

12  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $26,000  and  does  not  exceed  $28,000; 

13  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $28,000  and  does  not  exceed  $30,000; 

14  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $30,000  and  does  not  exceed  $32,000; 

15  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $32,000  and  does  not  exceed  $34,000; 

16  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $34,000  and  does  not  exceed  $36,000; 

17  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $36,000  and  does  not  exceed  $38,000; 

18  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $38,000  and  does  not  exceed  $40,000; 

19  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $40,000  and  does  not  exceed  $42,000; 

20  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $42,000  and  does  not  exceed  $44,000; 

21  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $44,000  and  does  not  exceed  $46,000; 

22  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $46,000  and  does  not  exceed  $48,000; 

23  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $48,000  and  does  not  exceed  $50,000; 

24  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $50,000  and  does  not  exceed  $52,000; 

25  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $52,000  and  does  not  exceed  $54,000; 

26  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $54,000  and  does  not  exceed  $56,000; 

27  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $56,000  and  does  not  exceed  $58,000; 

28  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $58,000  and  does  not  exceed  $60,000; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


17 


§211. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 

(Hi  07 ) 


Repeated 
at  t 

29  per  centum  of  the  amount  by  which  the  net  income  722 

exceeds  $60,000  and  does  not  exceed  $62,000; 

30  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $62,000  and  docs  not  exceed  $64,000; 

31  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $64,000  and  does  not  exceed  $66,000; 

32  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $66,000  and  does  not  exceed  $68,000; 

33  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $68,000  and  does  not  exceed  $70,000; 

34  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $70,000  and  does  not  exceed  $72,000; 

35  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $72,000  and  does  not  exceed  $74,000; 

36  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $74,000  and  does  not  exceed  $76,000; 

37  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $76,000  and  does  not  exceed  $78,000; 

38  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $78,000  and  does  not  exceed  $80,000; 

39  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $80,000  and  does  not  exceed  $82,000; 

40  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $82,000  and  does  not  exceed  $84,000; 

41  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $84,000  and  does  not  exceed  $86,000; 

42  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $86,000  and  does  not  exceed  $88,000; 

43  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $88,000  and  does  not  exceed  $90,000; 

44  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $90,000  and  does  not  exceed  $92,000; 

45  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $92,000  and  does  not  exceed  $94,000; 

46  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $94,000  and  does  not  exceed  $96,000; 

47  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $96,000  and  does  not  exceed  $98,000; 

48  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $98,000  and  does  not  exceed  $100,000; 

52  per  centum  of  the  amount  by  which  the  net  income 
exceeds  $100.00U  and  does  not  exceed  $150,000; 

56  per  centum  of  the  amount  by  which  the  net  income 
exceeds  $150,000  and  does  not  exceed  $200,000; 

60  per  centum  of  the  amount  by  which  the  net  income 
exceeds  $200,000  and  does  not  exceed  $300,000; 

63  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $300,000  and  does  not  exceed  $500,000; 

64  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $500,000  and  does  not  exceed  $1,000,000; 

65  per  centum  of  the  amount  by'  which  the  net  income 

exceeds  $1,000,000; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


18 


2-27-22. 


THE  INCOME  TAX  LAW. 


§211. 


Law 

Paragraph 

If  108 


Repeated 

atl 

(2)  For  the  calendar  year  1922  and  each  calendar  year  there-  727 
after,  a surtax  equal  to  the  sum  of  the  following: 

1 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$6,000  and  does  not  exceed  $10,000; 

2 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$10,000  and  does  not  exceed  $12,000; 

3 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$12,000  and  does  not  exceed  $14,000; 

4 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$14,000  and  does  not  exceed  $16,000; 

5 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$16,000  and  does  not  exceed  $18,000; 

6 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$18,000  and  does  not  exceed  $20,000; 

8 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$20,000  and  does  not  exceed  $22,000; 

9 per  centum  of  the  amount  by  which  the  net  income  exceeds 

$22,000  and  does  not  exceed  $24,000; 

10  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $24,000  and  does  not  exceed  $26,000; 

11  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $26,000  and  does  not  exceed  $28,000; 

12  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $28,000  and  does  not  exceed  $30,000; 

13  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $30,000  and  does  not  exceed  $32,000; 

15  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $32,000  and  does  not  exceed  $36,000; 

16  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $36,000  and  does  not  exceed  $38,000; 

17  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $38,000  and  does  not  exceed  $40,000; 

18  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $40,000  and  does  not  exceed  $42,000; 

19  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $42,000  and  does  not  exceed  $44,000; 

20  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $44,000  and  does  not  exceed  $46,000; 

21  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $46,000  and  does  not  exceed  $48,000; 

22  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $48,000  and  does  not  exceed  $50,000; 

23  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $50,000  and  does  not  exceed  $52,000; 

24  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $52,000  and  does  not  exceed  $54,000; 

25  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $54,000  and  does  not  exceed  $56,000; 

26  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $56,000  and  does  not  exceed  $58,000; 

27  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $58,000  and  does  not  exceed  $60,000; 

Copyright  1922,  by  The  Corporation'  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


19 


§211. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

J’araKraph 

1108 


Repeated 

at  ^1 

28  per  centum  of  the  amount  by  which  the  net  income  727 

exceeds  $60,000  and  does  not  exceed  $62,000; 

29  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $62,000  and  docs  not  exceed  $64,000; 

30  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $64,000  and  does  not  exceed  $66,000; 

31  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $66,000  and  does  not  exceed  $68,000; 

32  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $68,000  and  does  not  exceed  $70,000; 

33  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $70,000  and  does  not  exceed  $72,000; 

34  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $72,000  and  does  not  exceed  $74,000; 

35  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $74,000  and  does  not  exceed  $76,000; 

36  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $76,000  and  does  not  exceed  $78,000; 

37  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $78,000  and  does  not  exceed  $80,000; 

38  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $80,000  and  does  not  exceed  $82,000; 

39  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $82,000  and  does  not  exceed  $84,000; 

40  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $84,000  and  does  not  exceed  $86,000; 

41  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $86,000  and  does  not  exceed  $88,000. 

42  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $88,000  and  does  not  exceed  $90,000; 

43  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $90,000  and  does  not  exceed  $92,000; 

44  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $92,000  and  does  not  exceed  $94,000; 

45  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $94,000  and  does  not  exceed  $96,000; 

46  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $96,000  and  does  not  exceed  $98,000; 

47  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $98,000  and  does  not  exceed  $100,000; 

48  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $100,000  and  does  not  exceed  $150,000; 

49  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $150,000  and  does  not  exceed  $200,000; 

50  per  centum  of  the  amount  by  which  the  net  income 

exceeds  $200,000. 


^[109  (b)  In  the  case  of  a bona  fide  sale  of  mines,  oil  or  gas  wells,  or 

any  interest  therein,  where  the  principal  value  of  the  property 
has  been  demonstrated  by  prospecting  or  exploration  and 
discovery  work  done  by  the  taxpayer,  the  portion  of  the  tax 
imposed  by  this  section  attributable  to  such  sale  shall  not  exceed, 


730 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


20 


2-27-22. 


THE  INCOME  TAX  LAW. 


§213. 


Law  Repeated 

Paragraph  at  “ 

(U 109)  for  the  calendar  year  1921,  20  per  centum,  and  for  each  calendar  730 
year  thereafter  16  per  centum,  of  the  selling  price  of  such  pro- 
perty or  interest. 

Net  Income  of  Individuals  Defined. 

Hi  10  Sec.  212.  (a)  That  in  the  case  of  an  individual  the  term  1040 

“net  income”  means  the  gross  income  as  defined  in  section  213, 
less  the  deductions  allowed  by  section  214. 

Hill  (b)  The  net  income  shall  be  computed  upon  the  basis  of  the  1044 

taxpayer’s  annual  accounting  period  (fiscal  year  or  calendar 
year,  as  the  case  may  be)  in  accordance  with  the  method  of 
accounting  regularly  employed  in  keeping  the  books  of  such 
taxpayer; 

Hi  12  but  if  no  such  method  of  accounting  has  been  so  em-  1045 

ployed,  or  if  the  method  employed  does  not  clearly 
reflect  the  income,  the  computation  shall  be  made  upon 
such  basis  and  in  such  manner  as  in  the  opinion  of  the 
Commissioner  does  clearly  reflect  the  income. 

Hi  13  If  the  taxpayer’s  annual  accounting  period  is  other  than  a fiscal  1059 
year  as  defined  in  section  200  or  if  the  taxpayer  has  no  annual 
accounting  period  or  does  not  keep  books,  the  net  income  shall 
be  computed  on  the  basis  of  the  calendar  year. 

Hi  14  (c)  If  a taxpayer  changes  his  accounting  period  from  fiscal  1065 

year  to  calendar  year,  from  calendar  year  to  fiscal  year,  or  from 
one  fiscal  year  to  another,  the  net  income  shall,  with,  the 
approval  of  the  Commissioner,  be  computed  on  the  basis  of 
such  new  accounting  period,  subject  to  the  provisions  of 
section  226. 

Gross  Income  Defined. 

Hi  1 5 Sec.  213.  That  for  the  purposes  of  this  title  (except, as  1067 

otherwise  provided  in  section  233)  the  term  “gross  income” 

Hi  16  (a)  Includes  gains,  profits,  and  income  derived  from  1068 

salaries,  wages,  or  compensation  for  personal  service  (including 
in  the  case  of  the  President  of  the  United  States,  the  judges  of 
the  Supreme  and  inferior  courts  of  the  United  States,  and  all 
other  officers  and  employees,  whether  elected  or  appointed,  of 
the  United  States,  Alaska,  Hawaii,  or  any  political  subdivision 
thereof,  or  the  District  of  Columbia,  the  compensation  received 
as  such),  of  whatever  kind  and  in  whatever  form  paid,  or 

111  17  from  professions,  vocations,  trades,  businesses,  commerce,  or  1069 
sales,  or  dealings  in  property,  whether  real  or  personal,  growing 
out  of  the  ownership  or  use  of  or  interest  in  such  property; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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§213. THE  INCOME  TAX  LAW.  z-27-22. 

Paragraph  Repeated 

* 118  also  from  interest,  rent,  dividends,  securities,  or  the  transaction  1070 

of  any  business  carried  on  for  gain  or  profit,  or 

* 119  gains  or  profits  and  income  derived  from  any  source  whatever.  1071 


f 1 20  The  amount  of  all  such  items  (except  as  provided  in  subdivision  1 072 
(e)  of  section  201)  shall  be  included  in  the  gross  income  for  the 
taxable  year  in  which  received  by  the  taxpayer,  unless,  under 
methods  of  accounting  permitted  under  subdivision  (b)  of 
section  212,  any  such  amounts  are  to  be  properly  accounted  for 
as  of  a different  period;  but 

'121  (b)  Does  not  include  the  following  items,  which  shall  be  1550 

exempt  from  taxation  under  this  title: 

^ 1 22  (1)  The  proceeds  of  life  insurance  policies  paid  upon  the  1553 

death  of  the  insured; 

r123  (2)  The  amount  received  by  the  insured  as  a return  of  1554 

premium  or  premiums  paid  by  him  under  life  insurance,  endow- 
ment, or  annuity  contracts,  either  during  the  term  or  at  the 
maturity  of  the  term  mentioned  in  the  contract  or  upon  sur- 
render of  the  contract; 

*1124  (3)  The  value  of  property  acquired  by  gift,  bequest,  devise  1558 

or  descent  (but  the  income  from  such  property  shall  be  included 
in  gross  income); 

1fl25  (4)  Interest  upon  (a)  the  obligations  of  a State,  Territory,  or  1560 

any  political  subdivision  thereof,  or  the  District  of  Columbia;  or 

M26  (b)  securities  issued  under  the  provisions  of  the  Federal  1561 

Farm  Loan  Act  of  July  17,  1916;  or 

* 127  (c)  the  obligations  of  the  United  States  or  its  posses-  1562 

sions;  or 

^[128  (d)  bonds  issued  by  the  War  Finance  Corporation.  1563 

tl29  In  the  case  of  obligations  of  the  United  States  issued  after  1567 

September  1,  1917  (other  than  postal  savings  certificates  of 
deposit),  and  in  the  case  of  bonds  issued  by  the  War  Finance 
Corporation,  the  interest  shall  be  exempt  only  if  and  to  the 
extent  provided  in  the  respective  Acts  authorizing  the  issue 
thereof  as  amended  and  supplemented,  and  shall  be  excluded 
from  gross  income  only  if  and  to  the  extent  it  is  wholly  exempt  to 
the  taxpayer  from  income,  war-profits  and  excess-profits  taxes; 

T 1 30  _ (5)  The  income  of  foreign  governments  received  from  1594 

investments  in  the  United  States  in  stocks,  bonds,  or  other 
domestic  securities,  owned  by  such  foreign  governments,  or 
from^interest  on  deposits  in  banks  in  the  United  States  of 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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5-1-22 


THE  INCOME  TAX  LAW. 


$213. 


Law  Repeated 

Paragraph  at  1 

(If  130)  moneys  belonging  to  such  foreign  governments,  or  from  any  1594 
other  source  within  the  United  States; 

1[131  (6)  Amounts  received,  through  accident  or  health  insurance  1552 

or  under  workmen’s  compensation  acts,  as  compensation  for 
personal  injuries  or  sickness,  plus  the  amount  of  any  damages 
received  whether  by  suit  or  agreement  on  account  of  such 
injuries  or  sickness; 

If  132  (7)  Income  derived  from  any  public  utility  or  the  exercise  1596 

of  any  essential  governmental  function  and  accruing  to  any 
State,  Territory,  or  the  District  of  Columbia,  or  any  political 
subdivision  of  a State  or  Territory,  or  income  accruing  to  the 
Government  of  any  possession  of  the  United  States,  or  any 
political  subdivision  thereof. 

1fl33  Whenever  any  State,  Territory,  or  the  District  of  Columbia,  1597 
or  any  political  subdivision  of  a State  or  Territory,  prior  to  Sep- 
tember 8,  1916,  entered  in  good  faith  into  a contract  with  any 
person,  the  object  and  purpose  of  which  is  to  acquire,  construct, 
operate,  or  maintain  a public  utility,  no  tax  shall  be  levied  under 
the  provisions  of  this  title  upon  the  income  derived  from  the 
operation  of  such  public  utility,  so  far  as  the  payment  thereof 
will  impose  a loss  or  burden  upon  such  State,  Territory,  District 
of  Columbia,  or  political  subdivision;  but  this  provision  is  not 
intended  and  shall  not  be  construed  to  confer  upon  such  person 
any  financial  gain  or  exemption  or  to  relieve  such  person  from 
the  payment  of  a tax  as  provided  for  in  this  title  upon  the  part  or 
portion  of  such  income  to  which  such  person  is  entitled  under 
such  contract; 

If  134  (8)  The  income  of  a nonresident  alien  or  foreign  corporation  2098 

which  consists  exclusively  of  earnings  derived  from  the  opera- 
tion of  a ship  or  ships  documented  under  the  laws  of  a foreign 
country  which  grants  an  equivalent  exemption  to  citizens  of 
the  United  States  and  to  corporations  organized  in  the  United 
States; 

If  135  (9)  Amounts  received  as  compensation,  family  allotments  1555 

and  allowances  under  the  provisions  of  the  War  Risk  Insurance 
and  the  Vocational  Rehabilitation  Acts,  or  as  pensions  from  the 
United  States  for  service  of  the  beneficiary  or  another  in  the 
military  or  naval  forces  of  the  United  States  in  time  of  war; 

11136  (10)  So  much  of  the  amount  received  by  an  individual  after  1603 

December  31,  1921,  and  before  January  1,  1927,  as  dividends  or 
interest  from  domestic  building  and  loan  associations,  operated 
exclusively  for  the  purpose  of  making  loans  to  members,  as  does 
not  exceed  $300; 

1]  137  (11)  The  rental  value  of  a dwelling  house  and  appurtenances  1604 

thereof  furnished  to  a minister  of  the  gospel  as  part  of  his  com- 
pensation; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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(214. 


THE  INCOME  TAX  LAW. 


5-1-22. 


Law 

Paragraph 


Repeated 


at  H 

1605 


1(138  (12)  The  receipts  of  shipowners’  mutual  protection  and 


indemnity  associations,  not  organized  for  profit,  and  no  part  of 
the  net  earnings  of  which  inures  to  the  benefit  of  any  private 
stockholder  or  member,  but  such  corporations  shall  be  subject 
as  other  persons  to  the  tax  upon  their  net  income  from  interest, 
dividends,  and  rents. 

* [New  paragraph  (13)  added;  China  Trade  Act  corpo- 
rations, ^[3 172.] 

(c)  In  the  case  of  a nonresident  alien  individual,  gross 
income  means  only  the  gross  income  from  sources  within  the 
United  States,  determined  under  the  provisions  of  section  217 


1(140  Sec.  214.  (a)  That  in  computing  net  income  there  shall  be  1615 
allowed  as  deductions: 

If  141  (1)  All  the  ordinary  and  necessary  expenses  paid  or  incurred  1618 

during  the  taxable  year  in  carrying  on  any  trade  or  business, 

If  142  including  a reasonable  allowance  for  salaries  or  other  compensa-  1648 
tion  for  personal  services  actually  rendered; 

1(143  traveling  expenses  (including  the  entire  amount  expended  for  1677 
meals  and  lodging)  while  away  from  home  in  the  pursuit  of  a 
trade  or  business;  and 

1(144  rentals  or  other  payments  required  to  be  made  as  a condition  1681 
to  the  continued  use  or  possession,  for  purposes  of  the  trade  or 
business,  of  property  to  which  the  taxpayer  has  not  taken  or  is 
not  taking  title  or  in  which  he  has  no  equity; 

K145  (2)  All  interest  paid  or  accrued  within  the  taxable  year  on  1684 

indebtedness, 


chase  or  carry  obligations  or  securities  (other  than  ob- 
ligations of  the  United  States  issued  after  September 
24,  1917,  and  originally  subscribed  for  by  the  taxpayer) 
the  interest  upon  which  is  wholly  exempt  from  tax- 
ation under  this  title. 


Deductions  Allowed  Individuals. 


1(146  except  on  indebtedness  incurred  or  continued  to  pur-  1685 


1(147  (3)  Taxes  paid  or  accrued  within  the  taxable  year  except  1697 


K148  (a)  income,  war-profits,  and  excess-profits  taxes  1698 

imposed  by  the  authority  of  the  United  States, 


* 


1(149  (b)  so  much  of  the  income,  war-profits  and  excess-  1699 


profits  taxes,  imposed  by  the  authority  of  any  foreign 
country  or  possession  of  the  United  States,  as  is 
allowed  as  a credit  under  section  222, 


1(150  (c)  taxes  assessed  against  local  benefits  of  a kind  tend-  1714 

ing  to  increase  the  value  of  the  property  assessed,  and 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


* 


24 


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THE  INCOME  TAX  LAW. 


§214. 


Law 

Paragraph 

If  151  (d)  taxes  imposed  upon  the  taxpayer  upon  his  interest 

as  shareholder  or  member  of  a corporation,  which  are 
paid  by  the  corporation  without  reimbursement  from 
the  taxpayer. 


Repeated 
at  1 

1717 


If  152  For  the  purpose  of  this  paragraph  estate,  inheritance,  legacy,  1726 
and  succession  taxes  accrue  on  the  due  date  thereof  except 
as  otherwise  provided  by  the  law  of  the  jurisdiction  imposing 
such  taxes; 


1fl53  (4)  Losses  sustained  during  the  taxable  year  and  not  com-  1776 

pensated  for  by  insurance  or  otherwise,  if  incurred  in  trade  or 
business; 


If  154  (5)  Losses  sustained  during  the  taxable  year  and  not  com-  1778 

pensated  for  by  insurance  or  otherwise,  if  incurred  in  any  trans- 
action entered  into  for  profit,  though  not  connected  with  the 
trade  or  business; 

If  155  but  in  the  case  of  a nonresident  alien  individual  only  2163 

if  and  to  the  extent  that  the  profit,  if  such  transaction 
had  resulted  in  a profit,  would  be  taxable  under  this 
title. 

If  156  No  deduction  shall  be  allowed  under  this  paragraph  for  any  1787 
loss  claimed  to  have  been  sustained  in  any  sale  or  other  dis- 
position of  shares  of  stock  or  securities  made  after  the  passage 
of  this  Act  where  it  appears  that  within  thirty  days  before  or 
after  the  date  of  such  sale  or  other  disposition  the  taxpayer 
has  acquired  (otherwise  than  by  bequest  or  inheritance)  sub- 
stantially identical  property,  and  the  property  so  acquired  is 
held  by  the  taxpayer  for  any  period  after  such  sale  or  other 
disposition. 

If  157  If  such  acquisition  is  to  the  extent  of  part  only  of  1788 

substantially  identical  property,  then  only  a propor- 
tionate part  of  the  loss  shall  be  disallowed; 

^f  1 58  (6)  Losses  sustained  during  the  taxable  year  of  property  1779 

not  connected  with  the  trade  or  business 


1fl59  (but  in  the  case  of  a nonresident  alien  individual  only  2164 

property  within  the  United  States) 

If  160  if  arising  from  fires,  storms,  shipwreck,  or  other  casualty,  or  1780 
from  theft,  and  if  not  compensated  for  by  insurance  or  other- 
wise. 

1fl61  Losses  allowed  under  paragraphs  (4),  (5),  and  (6)  of  this  sub-  1784 
division  shall  be  deducted  as  of  the  taxable  year  in  which 
sustained  unless,  in  order  to  clearly  reflect  the  income,  the  loss 


Copyright  1922,  by  The  Corporation  Trust  Company. 

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$214. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Paragraph  ^a?V** 

(IT  161 ) should,  in  the  opinion  of  the  Commissioner,  be  accounted  for  as  1784 
of  a different  period. 

1|I62  In  case  of  losses  arising  from  destruction  of  or  damage  to  1781 
property,  where  the  property  so  destroyed  or  damaged  was 
acquired  before  March  1,  1913,  the  deduction  shall  be  computed 
upon  the  basis  of  its  fair  market  price  or  value  as  of  March  1 
1913; 

1fl63  _ (7)  Debts  ascertained  to  be  worthless  and  charged  off  1806 

within  the  taxable  year 

If  164  (or,  in  the  discretion  of  the  Commissioner,  a reason-  1820 

able  addition  to  a reserve  for  bad  debts); 

1fl65  and  when  satisfied  that  a debt  is  recoverable  only  in  part,  the  1808 
Commissioner  may  allow  such  debt  to  be  charged  off  in  part; 

11166  (8)  A reasonable  allowance  for  the  exhaustion,  wear  and  1827 

tear  of  property  used  in  the  trade  or  business,  including  a 
reasonable  allowance  for  obsolescence. 

H167  In  the  case  of  such  property  acquired  before  March  1,  1913,  this  1828 
deduction  shall  be  computed  upon  the  basis  of  its  fair  market 
price  or  value  as  of  March  1,  1913; 

H168  (9)  In  the  case  of  buildings,  machinery,  equipment,  or  1860 

other  facilities,  constructed,  erected,  installed,  or  acquired,  on 
or  after  April  6,  1917,  for  the  production  of  articles  contributing 
to  the  prosecution  of  the  war  against  the  German  Government, 
and  in  the  case  of  vessels  constructed  or  acquired  on  or  after  such 
date  for  the  transportation  of  articles  or  men  contributing  to  the 
prosecution  of  such  war,  there  shall  be  allowed,  for  any  taxable 
year  ending  before  March  3,  1924  (if  claim  therefor  was  made 
at  the  time  of  filing  return  for  the  taxable  year  1918,  1919,  1920, 
or  1921)  a reasonable  deduction  for  the  amortization  of  such  part 
of  the  cost  of  such  facilities  or  vessels  as  has  been  borne  by  the 
taxpayer,  but  not  again  including  any  amount  otherwise  allowed 
under  this  title  or  previous  Acts  of  Congress  as  a deduction  in 
computing  net  income. 

1fl69  At  any  time  before  March  3,  1924,  the  Commissioner  may,  1862 
and  at  the  request  of  the  taxpayer  shall,  reexamine  the  return, 
and  if  he  then  finds  as  a result  of  an  appraisal  or  from  other 
evidence  that  the  deduction  originally  allowed  was  incorrect, 
the  income,  war-profits,  and  excess-profits  taxes  for  the  year  or 
years  affected  shall  be  redetermined;  and  the  amount  of  tax 
due  upon  such  redetermination,  if  any,  shall  be  paid  upon  notice 
and  demand  by  the  collector,  or  the  amount  of  tax  overpaid,  if 
any,  shall  be  credited  or  refunded  to  the  taxpayer  in  accordance 
with  the  provisions  of  section  252; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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§214. 


Law  Repeated 

Paragraph  at  U 

^[170  (10)  In  the  case  of  mines,  oil  and  gas  wells,  other  natural  1881 

deposits,  and  timber,  a reasonable  allowance  for  depletion  and 
for  depreciation  of  improvements,  according  to  the  peculiar 
conditions  in  each  case,  based  upon  cost  including  cost  of 
development  not  otherwise  deducted: 

1l  171  Provided , That  in  the  case  of  such  properties  acquired  1883 

prior  to  March  1,  1913,  the  fair  market  value  of  the 
property  (or  the  taxpayer's  interest  therein)  on  that  date 
shall  be  taken  in  lieu  of  cost  up  to  that  dale: 

^[172  Provided  further,  That  in  the  case  of  mines,  oil  and  gas  1885 

wells,  discovered  by  the  taxpayer,  on  or  after  March  1, 

1913,  and  not  acquired  as  the  result  of  purchase  of  a 
proven  tract  or  lease,  where  the  fair  market  value  of  the 
properly  is  materially  disproportionate  to  the  cost , the 
depletion  allowance  shall  be  based  upon  the  fair  market 
value  of  the  property  at  the  date  of  the  discovery,  or  within 
thirty  days  thereafter: 

1T173  And  provided  further,  That  such  depletion  allowance  1887 

based  on  discovery  value  shall  not  exceed  the  net  income, 
computed  without  allowance  for  depletion,  from  the 
property  upon  which  the  discovery  is  made,  except  where 
such  net  income  so  computed  is  less  than  the  depletion 
allowance  based  on  cost  or  fair  market  value  as  of  March 
1,  1913; 

H174  such  reasonable  allowance  in  all  the  above  cases  to  be  made  1889 
under  rules  and  regulations  to  be  prescribed  by  the  Commis- 
sioner, with  the  approval  of  the  Secretary. 

175  In  the  case  of  leases  the  deductions  allowed  by  this  paragraph  1891 
shall  be  equitably  apportioned  between  the  lessor  and  lessee; 

176  (11)  Contributions  or  gifts  made  within  the  taxable  year  to  2001 
or  for  the  use  of:  (A)  The  United  States,  any  State,  Territory,  or 

any  political  subdivision  thereof,  or  the  District  of  Columbia, 
for  exclusively  public  purposes;  (B)  any  corporation,  or  com- 
munity chest,  fund,  or  foundation,  organized  and  operated 
exclusively  for  religious,  charitable,  scientific,  literary,  or 
educational  purposes,  including  posts  of  the  American  Legion 
or  the  Women’s  Auxiliary  units  thereof,  or  for  the  prevention  of 
cruelty  to  children  or  animals,  no  part  of  the  net  earnings  of 
which  inures  to  the  benefit  of  any  private  stockholder  or  in- 
dividual; or  (C)  the  special  fund  for  vocational  rehabilitation 
authorized  by  section  7 of  the  Vocational  Rehabilitation  Act; 
to  an  amount  which  in  all  the  above  cases  combined  does  not 
exceed  15  per  centum  of  the  taxpayer’s  net  income  as  computed 
without  the  benefit  of  this  paragraph. 

If  177  In  case  of  a nonresident  alien  individual  this  deduction  2165 

shall  be  allowed  only  as  to  contributions  or  gifts  made 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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§214. 


to  domestic  corporations,  or  to  community  chests, 
funds,  or  foundations,  created  in  the  United  States, 
or  to  such  vocational  rehabilitation  fund. 

*178  Such  contributions  or  gifts  shall  be  allowable  as  deductions 
only  if  verified  under  rules  and  regulations  prescribed  by  the 
Commissioner,  with  the  approval  of  the  Secretary; 


Law 

Paragraph 

(11177) 


*J79 


(12)  If  property  is  compulsorily  or  involuntarily  converted 
into  cash  or  its  equivalent  as  a result  of 


r 180 
11181 
If  182 


(A)  its  destruction  in  whole  or  in  part, 

(B)  theft  or  seizure,  or 

(C)  an  exercise  of  the  power  of  requisition  or  condemna- 
tion, or  the  threat  or  imminence  thereof; 


1fl83  and  if  the  taxpayer  proceeds  forthwith  in  good  faith,  under 
regulations  prescribed  by  the  Commissioner  with  the  approval 
of  the  Secretary,  to  expend  the  proceeds  of  such  conversion  in  the 
acquisition  of  other  property  of  a character  similar  or  related  in 
service  or  use  to  the  property  so  converted,  or  in  the  acquisition 
of  80  per  centum  or  more  of  the  stock  or  shares  of  a corporation 
owning  such  other  property,  or  in  the  establishment  of  a 
replacement  fund,  then  there  shall  be  allowed  as  a deduction 
such  portion  of  the  gain  derived  as  the  portion  "of  the  proceeds  so 
expended  bears  to  the  entire  proceeds. 

1S4  fhe  provisions  of  this  paragraph  prescribing  the  conditions 
under  which  a deduction  may  be  taken  in  respect  of  the  proceeds 
or  gains  derived  from  the  compulsory  or  involuntary  conversion 
of  property  into  cash  or  its  equivalent,  shall  apply  so  far  as  may 
be  practicable  to  the  exemption  or  exclusion  of  such  proceeds  or 
gains  from  gross  income  under  prior  income,  war-profits  and 
excess-profits  tax  acts. 


1fl8o  _ (b)  In  the  case  of  a nonresident  alien  individual  the  deduc- 
tions allowed  in  subdivision  (a),  except  those  allowed  in  para- 
graphs (5),  (6),  and  (11),  shall  be  allowed  only  if  and  to  the 
extent  that  they  are  connected  with  income  from  sources 
within  the  United  States; 

1i  186  and  the  proper  apportionment  and  allocation  of  the  deductions 
with  respect  to  sources  of  income  within  and  without  the 
United  States  shall  be  determined  as  provided  in  section  217 
under  rules  and  regulations  prescribed  by  the  Commissioner 
with  the  approval  of  the  Secretary. 


r18-  In  the  case  of  a citizen  entitled  to  the  benefits  of  section  262 
the  deductions  shall  be  the  same  and  shall  be  determined  in 
the  same  manner  as  in  the  case  of  a nonresident  alien  individual. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


Repeated 
at  D 

2165 

2002 

2022 

2023 

2024 

2025 

2026 


2027 

2162 

2169 

2170 


28 


S-l-22. 

THE  INCOME  TAX  LAW. 

§216. 

Law 

Repeated 

Paragraph 

at  1 

Items  not  Deductible. 

If  188 

Sec.  215.  (a)  That  in  computing  net  income  no  deduction 

shall  in  any  case  be  allowed  in  respect  of — 

1620 

If  189 

(1)  Personal,  living,  or  family  expenses; 

1622 

If  190 

(2)  Any  amount  paid  out  for  new  buildings  or  for  perma- 
nent improvements  or  betterments  made  to  increase  the  value 
of  any  property  or  estate; 

1628 

If  191 

(3)  Any  amount  expended  in  restoring  property  or  in  making 
good  the  exhaustion  thereof  for  which  an  allowance  is  or  has 
been  made;  or 

1629 

If  192 

(4)  Premiums  paid  on  any  life  insurance  policy  covering  the 

1638 

life  of  any  officer  or  employee,  or  of  any  person  financially  in- 
terested in  any  trade  or  business  carried  on  by  the  taxpayer, 
when  the  taxpayer  is  directly  or  indirectly  a beneficiary  under 
such  policy. 

If  193  (b)  Amounts  paid  under  the  laws  of  any  State,  Territory,  914 

District  of  Columbia,  possession  of  the  United  States,  or  foreign 
country  as  income  to  the  holder  of  a life  or  terminable  interest 
acquired  by  gift,  bequest,  or  inheritance  shall  not  be  reduced  or 
diminished  by  any  deduction  for  shrinkage  (by  whatever  name 
called)  in  the  value  of  such  interest  due  to  the  lapse  of  time, 
nor  by  any  deduction  allowed  by  this  Act  for  the  purpose  of 
computing  the  net  income  of  an  estate  or  trust  but  not  allowed 
under  the  laws  of  such  State,  Territory,  District  of  Columbia, 
possession  of  the  United  States,  or  foreign  country  for  the  pur- 
pose of  computing  the  income  to  which  such  holder  is  entitled. 

Credits  Allowed  Individuals. 

If  194  Sec.  216.  That  for  the  purpose  of  the  normal  tax  only  there  2038 
shall  be  allowed  the  following  credits: 

(a)  The  amount  received  as  dividends  2039 

¥ (1)  from  a domestic  corporation  other  than  a corpora-  2040 

tion  entitled  to  the  benefits  of  section  262,  [Amended; 

China  Trade  Act  corporations,  ^[3 173]  or 

(2)  from  a foreign  corporation  when  it  is  shown  to  the  2041 

satisfaction  of  the  Commissioner  that  more  than  50  per 
centum  of  the  gross  income  of  such  foreign  corporation 
for  the  three-year  period  ending  with  the  close  of  its 
taxable  year  preceding  the  declaration  of  such  divi- 
dends (or  for  such  part  of  such  period  as  the  corpora- 
tion has  been  in  existence)  was  derived  from  sources 
within  the  United  States  as  determined  under  the 
provisions  of  section  217; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAI.  INCOME  TAX  SERVICE 


If  195 
If  196 

11197 


29 


THE  INCOME  TAX  LAW. 


6-1-22. 


4217. 


Law 

Paragraph 


Repeated 


at  II 

2042 


If  198  (b)  The  amount  received  as  interest  upon  obligations  of  the 

United  States  and  bonds  issued  by  the  War  Finance  Corpora- 
tion, which  is  included  in  gross  income  under  section  213; 


If  199  (c)  In  the  case  of  a single  person,  a personal  exemption  of 


$1,000; 


2044 


If 200  or  in  the  case  of  the  head  of  a family  or  a married  person  living  2045 
with  husband  or  wife,  a personal  exemption  of  $2,500,  unless 
the  net  income  is  in  excess  of  $5,000,  in  which  case  the  personal 
exemption  shall  be  $2,000. 

If 20 1 A husband  and  wife  living  together  shall  receive  but  one  personal  2046 
exemption.  The  amount  of  such  personal  exemption  shall  be 
$2,500,  unless  the  aggregate  net  income  of  such  husband  and 
wife  is  in  excess  of  $5,000,  in  which  case  the  amount  of  such 
personal  exemption  shall  be  $2,000.  If  such  husband  and  wife 
make  separate  returns,  the  personal  exemption  may  be  taken  by 
either  or  divided  between  them. 

11202  In  no  case  shall  the  reduction  of  the  personal  exemption  from  2047 
$2,500  to  $2,000  operate  to  increase  the  tax,  which  would  be 
payable  if  the  exemption  were  $2,500,  by  more  than  the  amount 
of  the  net  income  in  excess  of  $5,000; 

1(203  (d)  $400  for  each  person  (other  than  husband  or  wife)  2051 

dependent  upon  and  receiving  his  chief  support  from  the  tax- 
payer if  such  dependent  person  is  under  eighteen  years  of  age 
or  is  incapable  of  self-support  because  mentally  or  physically 
defective; 

lf204  (e)  In  the  case  of  a nonresident  alien  individual  or  of  a 2175 

citizen  entitled  to  the  benefits  of  section  262,  the  personal  exemp- 
tion shall  be  only  $1,000,  and  he  shall  not  be  entitled  to  the 
credit  provided  in  subdivision  (d). 

H205  (f)  The  credits  allowed  by  subdivisions  (c),  (d),  and  (e)  of  2053 

this  section  shall  be  determined  by  the  status  of  the  taxpayer 


lf206  but  in  the  case  of  an  individual  who  dies  during  the  taxable  2054 
year,  such  credits  shall  be  determined  by  his  status  at  the 
time  of  his  death,  and  in  such  case  full  credits  shall  be  allowed 
to  the  surviving  spouse,  if  any,  according  to  his  or  her  status 
at  the  close  of  the  period  for  which  such  survivor  makes  return 
of  income. 


on  the  last  day  of  the  period  for  which  the  return  of  income  is 
made; 


Net  Income  of  Nonresident  Alien  Individuals. 


If 207  Sec.  217.  (a)  That  in  the  case  of  a nonresident  alien  2102 

individual  or  of  a citizen  entitled  to  the  benefits  of  section  262, 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


30 


2-27-22. 


THE  INCOME  TAX  LAW. 


§217. 


Law  Repeated 

Paragraph  at  U 

(1[207)  the  following  items  of  gross  income  shall  be  treated  as  income  2102 
from  sources  within  the  United  States: 

r208  (1)  Interest  on  bonds,  notes,  or  other  interest-bearing  ob-  2103 

ligations  of  residents,  corporate  or  otherwise,  not  including 

r2C9  (A)  interest  on  deposits  with  persons  carrying  on  the  2104 

banking  business  paid  to  persons  not  engaged  in  busi- 
ness within  the  United  States  and  not  having  an  office 
or  place  of  business  therein,  or 


r210 


r 2 1 1 
r212 

r213 


(B)  interest  received  from  a resident  alien  individual 
or  a resident  foreign  corporation  when  it  is  shown  to 
the  satisfaction  of  the  Commissioner  that  less  than 
20  per  centum  of  the  gross  income  of  such  resident 
payor  has  been  derived  from  sources  within  the 
United  Sta'tes,  as  determined  under  the  provisions 
of  this  section,  for  the  three-year  period  ending  with 
the  close  of  the  taxable  year  of  such  payor,  or  for 
such  part  of  such  period  immediately  preceding  the 
close  of  such  taxable  year  as  may  be  applicable; 

(2)  The  amount  received  as  dividends 

(A)  from  a domestic  corporation  other  than  a cor- 
poration entitled  to  the  benefits  of  section  262,  or 

(B)  from  a foreign  corporation  unless  less  than  50 
per  centum  of  the  gross  income  of  such  foreign  cor- 
poration for  the  three-year  period  ending  with  the 
close  of  its  taxable  year  preceding  the  declaration  of 
such  dividends  (or  for  such  part  of  such  period  as  the 
corporation  has  been  in  existence)  was  derived  from 
sources  within  the  United  States  as  determined 
under  the  provisions  of  this  section; 


2105 


2110 

2111 

2112 


r214  (3)  Compensation  for  labor  or  personal  services  performed  2117 

in  the  United  States; 

r215  (4)  Rentals  or  royalties  from  property  located  in  the  2110 

United  States  or  from  any  interest  in  such  property,  including 
rentals  or  royalties  for  the  use  of  or  for  the  privilege  of  using 
in  the  United  States,  patents,  copyrights,  secret  processes 
and  formulas,  good  will,  trade-marks,  trade  brands,  franchises, 
and  other  like  property;  and 

r216  (5)  Gains,  profits,  and  income  from  the  sale  of  real  property  2121 

located  in  the  United  States. 

r2 1 7 (b)  From  the  items  of  gross  income  specified  in  subdivision  2123 

(a)  there  shall  be  deducted  the  expenses,  losses,  and  other 
deductions  properly  apportioned  or  allocated  thereto  and  a 
ratable  part  of  any  expenses,  losses,  or  other  deductions  which 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


31 


§217. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law  Repeated 

Paragraph  at  ^ 

(If 217)  can  not  definitely  be  allocated  to  some  item  or  class  of  gross  2123 
income.  The  remainder,  if  any,  shall  be  included  in  full  as 
net  income  from  sources  within  the  United  States. 


^[218  (c)  The  following  items  of  gross  income  shall  be  treated  2124 

as  income  from  sources  without  the  United  States: 

1f219  (1)  Interest  other  than  that  derived  from  sources  within  212.5 

the  United  States  as  provided  in  paragraph  (1)  of  subdivision 
(a); 

H220  (2)  Dividends  other  than  those  derived  from  sources  within  2126 

the  United  States  as  provided  in  paragraph  (2)  of  subdi- 
vision (a); 

11221  (3)  Compensation  for  labor  or  personal  service  performed  2127 

without  the  United  States;  • 

1[222  ' (4)  Rentals  or  royalties  from  property  located  without  the  2128 

United  States  or  from  any  interest  in  such  property,  including 
rentals  or  royalties  for  the  use  of  or  for  the  privilege  of  using 
without  the  United  States,  patents,  copyrights,  secret  processes 
and  formulas,  good  will,  trade-marks,  trade  brands,  franchises, 
and  other  like  property;  and 

1[223  (5)  Gains,  profits,  and  income  from  the  sale  of  real  property  2129 

located  without  the  United  States. 

1f224  (d)  From  the  items  of  gross  income  specified  in  subdivision  2130 

(c)  there  shall  be  deducted  the  expenses,  losses,  and  other 
deductions  properly  apportioned  or  allocated  thereto,  and  a 
ratable  part  of  any  expenses,  losses,  or  other  deductions  which 
can  not  definitely  be  allocated  to  some  item  or  class  of  gross 
income.  The  remainder,  if  any,  shall  be  treated  in  full  as  net 
income  from  sources  without  the  United  States. 

11225  (e)  Items  of  gross  income,  expenses,  losses  and  deductions,  2137 

other  than  those  specified  in  subdivisions  (a)  and  (c),  shall  be 
allocated  or  apportioned  to  sources  within  or  without  the  United 
States  under  rules  and  regulations  prescribed  by  the  Com- 
missioner with  the  approval  of  the  Secretary. 

'1f226  Where  items  of  gross  income  are  separately  allocated  to  sources  2138 
within  the  United  States,  there  shall  be  deducted  (for  the 
purpose  of  computing  the  net  income  therefrom)  the  expenses, 
losses  and  other  deductions  properly  apportioned  or  allocated 
thereto  and  a ratable  part  of  other  expenses,  losses  or  other 
deductions  which  can  not  definitely  be  allocated  to  some  item 
or  class  of  gross  income.  The  remainder,  if  any,  shall  be 
included  in  full  as  net  income  from  sources  within  the  United 
States. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


* 


32 


2-27-22. 


THE  INCOME  TAX  LAW. 


§217. 


Law  Repeated 

Paragraph  at  ^ 

^[227  In  the  case  of  gross  income  derived  from  sources  partly  within  2142 
and  partly  without  the  United  States,  the  net  income  may 
first  be  computed  by  deducting  the  expenses,  losses  or  other 
deductions  apportioned  or  allocated  thereto  and  a ratable 
part  of  any  expenses,  losses  or  other  deductions  which  can  not 
definitely  be  allocated  to  some  item  or  class  of  gross  income; 
and  the  portion  of  such  net  income  attributable  to  sources 
within  the  United  States  may  be  determined  by  processes  or 
formulas  of  general  apportionment  prescribed  by  the  Com- 
missioner with  the  approval  of  the  Secretary. 

^|228  Gains,  profits  and  income  from  2144 

^[229  (1)  transportation  or  other  services  rendered  partly  2145 

within  and  partly  without  the  United  States,  or 

^ 230  (2)  from  the  sale  of  personal  property  produced  (in  2146 

whole  or  in  part)  by  the  taxpayer  within  and  sold 
without  the  United  States,  or  produced  (in  whole  or  in 
part)  by  the  taxpayer  without  and  sold  within  the 
United  States, 

<[231  shall  be  treated  as  derived  partly  from  sources  within  and  2147 
partly  from  sources  without  the  United  States. 

If 232  Gains,  profits  and  income  derived  from  the  purchase  of  personal  2158 
property  within  and  its  sale  without  the  United  States  or 
from  the  purchase  of  personal  property  without  and  its  sale 
within  the  United  States,  shall  be  treated  as  derived  entirely 
from  the  country  in  which  sold. 

^1 233  (f)  As  used  in  this  section  the  words  “sale”  or  “sold”  2160 

include  “exchange”  or  “exchanged”;  and  the  word  “produced” 
includes  “created,”  “fabricated,”  “manufactured,”  “ex- 
tracted,” “processed,”  “cured,”  or  “aged.” 

^f 234  (g)  A nonresident  alien  individual  or  a citizen  entitled  to  the  2177 

benefits  of  section  262  shall  receive  the  benefit  of  the  deduc- 
tions and  credits  allowed  in  this  title  only  by  filing  or  causing  to 
be  filed  with  the  collector  a true  and  accurate  return  of  his 
total  income  received  from  all  sources  corporate  or  otherwise 
in  the  United  States,  in  the  manner  prescribed  in  this  title; 
including  therein  all  the  information  which  the  Commissioner 
may  deem  necessary  for  the  calculation  of  such  deductions 
and  credits: 

^f 235  Provided , That  the  benefit  of  the  credit  allowed  in  sub-  2179 

division  (e)  of  section  216  may,  in  the  discretion  of  the 
Commissioner,  be  received  by  filing  a claim  therefor 
with  the  withholding  agent. 

236  In  case  of  failure  to  file  a return,  the  collector  shall  collect  the  2188 
tax  on  such  income,  and  all  property  belonging  to  such  non- 
resident alien  individual  or  foreign  trader  [sic]  shall  be  liable  to 
distraint  for  the  tax. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


33 


§218. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 


Partnerships  and  Personal  Service  Corporations. 


Repeated 
at  t 


778 


798 


799 


806 


* 237  Sec.  218.  (a)  That  individuals  carrying  on  business  in 

partnership  shall  be  liable  for  income  tax  only  in  their  individ- 
ual capacity. 

* 238  f here  shall  be  included  in  computing  the  net  income  of 

each  partner  his  distributive  share,  whether  distributed  or  not, 
of  the  net  income  of  the  partnership  for  the  taxable  year,  or, 

*|239  if  his  net  income  for  such  taxable  year  is  computed  upon  the 
basis  of  a period  different  from  that  upon  the  basis  of  which 
the  net  income  of  the  partnership  is  computed,  then  his  dis- 
tributive share  of  the  net  income  of  the  partnership  for  any 
accounting  period  of  the  partnership  ending  within  the  fiscal 
or  calendar  year  upon  the  basis  of  which  the  partner’s  net 
income  is  computed. 

^240  (b)  The  partner  shall,  for  the  purpose  of  the  normal  tax, 

be  allowed  as  credits,  in  addition  to  the  credits  allowed  to  him 
under  section  216,  his  proportionate  share  of  such  amounts 
specified  in  subdivisions  (a)  and  (b)  of  section  216  as  are 
received  by  the  partnership. 

^241  (c)  The  net  income  of  the  partnership  shall  be  computed  in 

the  same  manner  and  on  the  same  basis  as  provided  in  section 
212  except  that  the  deduction  provided  in  paragraph  (11)  of 
subdivision  (a)  of  section  214  shall  not  be  allowed. 

1f242  (d)  Personal  service  corporations  shall  not  be  subject  to 

taxation  under  this  title,  but  the  individual  stockholders 
thereof  shall  be  taxed  in  the  same  manner  as  the  members  of 
partnerships. 

1j243  All  the  provisions  of  this  title  relating  to  partnerships  and  the 
members  thereof  shall  so  far  as  practicable  apply  to  personal 
service  corporations  and  the  stockholders  thereof: 

*j244  Provided , That  for  the  purpose  of  this  subdivision 

amounts  distributed  by  a personal  service  corporation 
during  its  taxable  year  shall  be  accounted  for  by  the 
distributees',  and  any  portion  of  the  net  income  remain- 
ing undistributed  at  the  close  of  its  taxable  year  shall 
be  accounted  for  by  the  stockholders  of  such  corporation 
at  the  close  of  its  taxable  year  in  proportion  to  their 
respective  shares. 

1f245  This  subdivision  shall  not  be  in  effect  after  December  31,  839 

1921. 


786 


836 


837 


838 


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34 


2-27-22. 

THE  INCOME  TAX  LAW. 

$219. 

Law 

Paragraph 

Repeated 

at  H 

1f246  In  the  case  of  a personal  service  corporation  having  a fiscal  840 
year  beginning  in  1921  and  ending  in  1922,  amounts  distri- 
buted prior  to  January  1,  1922,  to  its  stockholders  out  of 
earnings  or  profits  accumulated  after  December  31,  1920, 
shall  be  taxed  to  the  distributees;  and  the  stockholders  of  record 
on  December  31,  1921,  shall  be  taxed  upon  their  distributive 
shares  of  the  difference  (if  any)  between  such  distributive  profits 
and  the  portion  of  the  corporation’s  net  income  assignable  to 
the  calendar  year  1921,  determined  in  the  manner  provided  in 
clause  (1)  of  subdivision  (c)  of  section  205  of  this  Act. 

Estates  and  Trusts. 

^247  Sec.  219.  (a)  That  the  tax  imposed  by  sections  210  and  873 
211  shall  apply  to  the  income  of  estates  or  of  any  kind  of 
property  held  in  trust,  including — 

^248  (1)  Income  received  by  estates  of  deceased  persons  during  874 

the  period  of  administration  or  settlement  of  the  estate; 

11249  (2)  Income  accumulated  in  trust  for  the  benefit  of  unborn  876 

or  unascertained  persons  or  persons  with  contingent  interests; 

1f250  (3)  Income  held  for  future  distribution  under  the  terms  of  877 

the  will  or  trust;  and 

1f251  (4)  Income  which  is  to  be  distributed  to  the  beneficiaries  889 

periodically,  whether  or  not  at  regular  intervals,  and  the 
income  collected  by  a guardian  of  an  infant  to  be  held  or 
distributed  as  the  court  may  direct. 

H252  (b)  The  fiduciary  shall  be  responsible  for  making  the  return  935 

of  income  for  the  estate  or  trust  for  which  he  acts. 

^253  The  net  income  of  the  estate  or  trust  shall  be  computed  in  the  896 
same  manner  and  on  the  same  basis  as  provided  in  section  212, 

U254  except  that  (in  lieu  of  the  deduction  authorized  by  898 

paragraph  (11)  of  subdivision  (a)  of  section  214)  there 
shall  also  be  allowed  as  a deduction,  without  limita- 
tion, any  part  of  the  gross  income  which,  pursuant  to 
the  terms  of  the  will  or  deed  creating  the  trust,  is 
during  the  taxable  year  paid  or  permanently  set  aside 
for  the  purposes  and  in  the  manner  specified  in  para- 
graph (11)  of  subdivision  (a)  of  section  214. 

1f255  In  cases  in  which  there  is  any  income  of  the  class  described  ; 938  j 
in  paragraph  (4)  of  subdivision  (a)  of  this  section  the  fiduciary 
shall  include  in  the  return  a statement  of  the  income  of  the 
estate  or  trust  which,  pursuant  to  the  instrument  or  order 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


35 


§219. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 

(1255)  governing  the  distribution,  is  distributable  to  each  beneficiary, 
whether  or  not  distributed  before  the  close  of  the  taxable  year 
for  which  the  return  is  made. 


Repeated 
at  H 

938 


1256  (c)  In  cases  under  paragraphs  (1),  (2),  or  (3)  of  subdivision  878 

(a)  or  in  any  other  case  within  subdivision  (a)  of  this  section 
except  paragraph  (4)  thereof  the  tax  shall  be  imposed  upon  the 
net  income  of  the  estate  or  trust  and  shall  be  paid  by 
the  fiduciary, 


1257  except  that  in  determining  the  net  income  of  the  estate  899 

of  any  deceased  person  during  the  period  of  admin- 
istration or  settlement  there  may  be  deducted  the 
amount  of  any  income  properly  paid  or  credited  to 
any  legatee,  heir,  or  other  beneficiary 


1258  In  such  cases  the  estate  or  trust  shall,  for  the  purpose  of  the  919 

normal  tax,  be  allowed  the  same  credits  as  are  allowed  to 
single  persons  under  section  216. 


% 


% 


* 


1259  (d)  In  cases  under  paragraph  (4)  of  subdivision  (a).  890 

1260  and  in  the  case  of  any  income  of  an  estate  during  the  period  of  891 

administration  or  settlement  permitted  by  subdivision  (c)  to  be 
deducted  from  the  net  income  upon  which  tax  is  to  be  paid  by 

the  fiduciary, 

1261  the  tax  shall  not  be  paid  by  the  fiduciary,  but  there  shall  be  892 
included  in  computing  the  net  income  of  each  beneficiary  that 

part  of  the  income  of  the  estate  or  trust  for  its  taxable  year 
which,  pursuant  to  the  instrument  or  order  governing  the 
distribution,  is  distributable  to  such  beneficiary,  whether 
distributed  or  not,  or, 


1262  if  his  taxable  year  is  different  from  that  of  the  estate  or  trust,  893 
then  there  shall  be  included  in  computing  his  net  income  his 
distributive  share  of  the  income  of  the  estate  or  trust  for  its 
taxable  year  ending  within  the  taxable  year  of  the  beneficiary. 

1263  In  such  cases  the  beneficiary  shall,  for  the  purpose  of  the  normal  917 
tax,  be  allowed  as  credits,  in  addition  to  the  credits  allowed  to 

him  under  section  216,  his  proportionate  share  of  such  amounts 
specified  in  subdivisions  (a)  and  (b)  of  section  216  as  are  received 
by  the  estate  or  trust. 

1264  (e)  In  the  case  of  an  estate  or  trust  the  income  of  which  910 
consists  both  of  income  of  the  class  described  in  paragraph  (4) 

of  subdivision  (a)  of  this  section  and  other  income,  the  net 
income  of  the  estate  or  trust  shall  be  computed  and  a return 
thereof  made  by  the  fiduciary  in  accordance  writh  subdivision 
(b)  and  the  tax  shall  be  imposed,  and  shall  be  paid  by  the 
fiduciary  in  accordance  with  subdivision  (c), 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


V 


36 


2-27-22. 


THE  INCOME  TAX  LAW. 


§221. 


Law  Repeated 

Paragraph  at  f 

^[281  a tax  equal  to  8 per  centum  thereof:  2196 

K282  Provided , That  the  Commissioner  may  authorize  such  2232 

tax  to  be  deducted  and  withheld  from  the  interest  upon 
any  securities  the  owners  of  zvhich  are  not  known  to  the 
withholding  agent. 

1T283  (b)  In  any  case  where  bonds,  mortgages,  or  deeds  of  trust,  2240 

or  other  similar  obligations  of  a corporation  contain  a contract 
or  provision  by  which  the  obligor  agrees 

*284  to  pay  any  portion  of  the  tax  imposed  by  this  title  upon  the  2241 
obligee,  or 

1T285  to  reimburse  the  obligee  for  any  portion  of  the  tax,  or  2242 

*286  to  pay  the  interest  without  deduction  for  any  tax  which  the  2243 
obligor  may  be  required  or  permitted  to  pay  thereon,  or  to 
retain  therefrom  under  any  law  of  the  United  States, 

10  % * ■ ' > 7 : ' 

^f287  the  obligor  shall  deduct  and  withhold  a tax  equal  to  2 per  2244 
centum  of  the  interest  upon  such  bonds,  mortgages,  deeds  of 
trust,  or  other  obligations,  whether  such  interest  is  payable 
annually  or  at  shorter  or  longer  periods  and 

*288  whether  payable  to  a nonresident  alien  individual  or  to  an  2245 
individual  citizen  or  resident  of  the  United  States  or  to  a part- 
nership: 

*289  Provided,  That  the  Commissioner  may  authorize  such  tax  2248 

to  be  deducted  and  withheld  in  the  case  of  interest  upon 
any  such  bonds,  mortgages,  deeds  of  trust,  or  other  obli- 
gations, the  owners  of  which  are  not  knozun  to  the  with- 
holding agent. 

*290  Such  deduction  and  withholding  shall  not  be  required  in  the  case  2251 
of  a citizen  or  resident  entitled  to  receive  such  interest,  if  he  files 
with  the  withholding  agent  on  or  before  February  1 a signed 
notice  in  writing  claiming  the  benefit  of  the  credits  provided 
in  subdivisions  (c)  and  (d)  of  section  216; 

*291  nor  in  the  case  of  a nonresident  alien  individual  if  so  provided  for  2253 
in  regulations  prescribed  by  the  Commissioner  under  sub- 
division (g)  of  section  217. 

*292  (c)  Every  individual,  corporation,  or  partnership  required  2320 

to  deduct  and  withhold  any  tax  under  this  section 

*293  shall  make  return  thereof  on  or  before  March  1 of  each  year  and  2321 

If 294  shall  on  or  before  June  15  pay  the  tax  to  the  official  of  the  2322 
United  States  government  authorized  to  receive  it. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THjj  FEDERAL  INCOME  TAX  SERVICE 


39 


$222. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 


ltepeatad 
at  H 


1(295  Every  such  individual,  corporation,  or  partnership  is  hereby  2324 
made  liable  for  such  tax  and 

11296  is  hereby  indemnified  against  the  claims  and  demands  of  any  2325 
individual,  corporation,  or  partnership  for  the  amount  of  any 
payments  made  in  accordance  with  the  provisions  of  this  section. 

1(297  (d)  Income  upon  which  any  tax  is  required  to  be  withheld  at  2326 

the  source  under  this  section  shall  be  included  in  the  return  of 
the  recipient  of  such  income, 

1(298  but  any  amount  of  tax  so  withheld  shall  be  credited  against  the  2327 
amount  of  income  tax  as  computed  in  such  return. 

1(299  (e)  If  any  tax  required  under  this  section  to  be  deducted  and  2328 

withheld  is  paid  by  the  recipient  of  the  income,  it  shall  not  be 
re-collected  from  the  withholding  agent; 

1(300  nor  in  cases  in  which  the  tax  is  so  paid  shall  any  penalty  be  2329 
imposed  upon  or  collected  from  the  recipient  of  the  income  or 
the  withholding  agent  for  failure  to  return  or  pay  the  same, 
unless  such  failure  was  fraudulent  and  for  the  purpose  of 
evading  payment. 


Credit  for  Taxes  in  Case  of  Individuals. 

1(301  Sec.  222.  (a)  That  the  tax  computed  under  Part  II  of  this  1733  ^ 

title  shall  be  credited  with: 


1(302  (1)  In  the  case  of  a citizen  of  the  United  States,  the  amount  1734 

of  any  income,  war-profits  and  excess-profits  taxes  paid  during 
the  taxable  year  to  any  foreign  country  or  to  any  possession 
of  the  United  States;  and 


1(303  (2)  In  the  case  of  a resident  of  the  United  States,  the  amount  1735 

of  any  such  taxes  paid  during  the  taxable  year  to  any  possession 
of  the  United  States;  and 


1(304  (3)  In  the  case  of  an  alien  resident  of  the  United  States,  the  1736 


amount  of  any  such  taxes  paid  during  the  taxable  year  to  any 
foreign  country,  if  the  foreign  country  of  which  such  alien  resi- 
dent is  a citizen  or  subject,  in  imposing  such  taxes,  allows  a 
similar  credit  to  citizens  of  the  United  States  residing  in  such 
country;  and 


V 


K305  (4)  In  the  case  of  any  such  individual  who  is  a member  of  a 1738 


partnership  or  a beneficiary  of  an  estate  or  trust,  his  propor- 
tionate share  of  such  taxes  of  the  partnership  or  the  estate 
or  trust  paid  during  the  taxable  year  to  a foreign  country  or 
to  any  possession  of  the  United  States,  as  the  case  may  be. 


V 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


40 


2-27-22. 


THE  INCOME  TAX  LAW 


§223. 


Law  Repeated 

Paragraph  at 

11306  (5)  The  above  credits  shall  not  be  allowed  in  the  case  of  a 1739 

citizen  entitled  to  the  benefits  of  section  262; 

1)307  and  in  no  other  case  shall  the  amount  of  credit  taken  under  this  1740 
subdivision  exceed  the  same  proportion  of  the  tax,  against 
which  such  credit  is  taken,  which  the  taxpayer’s  net  income 
(computed  without  deduction  for  any  income,  war-profits  and 
excess-profits  taxes  imposed  by  any  foreign  country  or  possession 
of  the  United  States)  from  sources  without  the  United  States 
bears  to  his  entire  net  income  (computed  without  such  deduc- 
tion) for  the  same  taxable  year. 

1f308  (b)  If  accrued  taxes  when  paid  differ  from  the  amounts  1741 

claimed  as  credits  by  the  taxpayer,  or  if  any  tax  paid  is  refunded 
in  whole  or  in  part,  the  taxpayer  shall  notify  the  Commissioner, 
who  shall  redetermine  the  amount  of  the  tax  due  under  Part 
II  of  this  title  for  the  year  or  years  affected,  and  the  amount 
of  tax  due  upon  such  redetermination,  if  any,  shall  be  paid  by 
the  taxpayer  upon  notice  and  demand  by  the  collector,  or  the 
amount  of  tax  overpaid,  if  any,  shall  be  credited  or  refunded 
to  the  taxpayer  in  accordance  with  the  provisions  of  section 
252. 

1)309  In  the  case  of  such  a tax  accrued  but  not  paid,  the  Commissioner  1 742 
as  a condition  precedent  to  the  allowance  of  this  credit  may 
require  the  taxpayer  to  give  a bond  with  sureties  satisfactory 
to  and  to  be  approved  by  the  Commissioner  in  such  penal  sum 
as  the  Commissioner  may  require,  conditioned  for  the  payment 
by  the  taxpayer  of  any  amount  of  tax  found  due  upon  any  such 
redetermination;  and  the  bond  herein  prescribed  shall  contain 
such  further  conditions  as  the  Commissioner  may  require. 

1)310  (c)  These  credits  shall  be  allowed  only  if  the  taxpayer  1743 

furnishes  evidence  satisfactory  to  the  Commissioner  showing 
the  amount  of  income  derived  from  sources  without  the  United 
States,  and  all  other  information  necessary  for  the  verification 
and  computation  of  such  credits. 

1)311  _ (d)  If  the  taxpayer  makes  a return  for  a fiscal  year  beginning  1744 

in  1920  and  ending  m 1921,  the  credit  for  the  entire  fiscal  year 
shall,  notwithstanding  any  provision  of  this  Act,  be  deter- 
mined under  the  provisions  of  this  section; 

1)312  and  the  Commissioner  is  authorized  to  disallow,  in  whole  or  part,  1745 
any  such  credit  which  he  finds  has  already  been  taken  by  the 
taxpayer. 

Individual  Returns. 

1)313  Sec.  223.  (a)  That  the  following  individuals  shall  each  2382 

make  under  oath  a return  stating  specifically  the  items  of  his 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


41 


§225. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Paragraph  Repeated 

(1)313)  gross  income  and  the  deductions  and  credits  allowed  under  2382 
this  title — 

1I3I4  (I)  Every  individual  having  a net  income  for  the  taxable  2383 

year  of  $1,000  or  over,  if  single,  or  if  married  and  not  living  with 
husband  or  wife; 

1)315  (2)  Every  individual  having  a net  income  for  the  taxable  2384 

year  of  $2,000  or  over,  if  married  and  living  with  husband  or 
wife;  and 

1[316  (3)  Every  individual  having  a gross  income  foi  the  taxable  2385 

year  of  $5,000  or  over,  regardless  of  the  amount  of  his  net 
income. 

'1)317  (b)  If  a husband  and  wife  living  together  have  an  aggregate  2386 

net  income  for  the  taxable  year  of  $2,000  or  over, 

1f318  or  an  aggregate  gross  income  for  such  year  of  $5,000  or  over — 2387 

1)319  (1)  Each  shall  make  such  a return,  or  2388 

1)320  (2)  The  income  of  each  shall  be  included  in  a single  joint  2320 

return,  in  which  case  the  tax  shall  be  computed  on  the  aggre- 
gate income. 

1)321  (c)  If  the  taxpayer  is  unable  to  make  his  own  return,  the  re-  925 

turn  shall  be  made  by  a duly  authorized  agent  or  by  the  guardian 
or  other  person  charged  with  the  care  of  the  person  or  property 
of  such  taxpayer. 

Partnership  Returns. 

1)322  Sec.  224.  That  every  partnership  shall  make  a return  for  789 

each  taxable  year,  stating  specifically  the  items  of  its  gross  in-  to 
come  and  the  deductions  allowed  by  this  title,  and  shall  include  793 
in  the  return  the  names  and  addresses  of  the  individuals  who 
would  be  entitled  to  share  in  the  net  income  if  distributed  and 
the  amount  of  the  distributive  share  of  each  individual.  The 
return  shall  be  sworn  to  by  any  one  of  the  partners. 

Fiduciary  Returns. 

^jf323  Sec.  225.  (a)  That  every  fiduciary  (except  a receiver  ap-  921 

pointed  by  authority  of  law  in  possession  of  part  only  of  the 
property  of  an  individual) 

1f324  shall  make  under  oath  a return  for  any  of  the  following  indi-  928 
viduals,  estates,  or  trusts  for  which  he  acts, 

^325  stating  specifically  the  items  of  gross  income  thereof  and’the  937 
deductions  and  credits  allowed  under  this  title — 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


42 


2-27-22. 


THE  INCOME  TAX  LAW. 


§226. 


Law  R'PMte* 

Paragraph  * 

1f326  (1)  Every  individual  having  a net  income  for  the  taxable  929 

year  of  $1,000  or  over,  if  single,  or  if  married  and  not  living 
with  husband  or  wife; 

1f327  (2)  Every  individual  having  a net  income  for  the  taxable  930 

year  of  $2,000  or  over,  if  married  and  living  with  husband  or 
wife; 

1f328  (3)  Every  individual  having  a gross  income  for  the  taxable  931 

year  of  $5,000  or  over,  regardless  of  the  amount  of  his  net 
income; 

1f329  (4)  Every  estate  or  trust  the  net  income  of  which  for  the  tax-  932 

able  year  is  $1,000  or  over;  and 

1f330  (5)  Every  estate  or  trust  of  which  any  beneficiary  is  a non-  933 

resident  alien. 

1f331  (b)  Under  such  regulations  as  the  Commissioner  with  the  936 

approval  of  the  Secretary  may  prescribe  a return  made  by  one 
of  two  or  more  joint  fiduciaries  and  filed  in  the  office  of  the 
collector  of  the  district  where  such  fiduciary  resides  shall  be 
sufficient  compliance  with  the  above  requirement. 

H332  Such  fiduciary  shall  make  oath  (1)  that  he  has  sufficient  knowl-  934 
edge  of  the  affairs  of  the  individual,  estate  or  trust  for  which 
the  return  is  made,  to  enable  him  to  make  the  return,  and  (2) 
that  the  return  is,  to  the  best  of  his  knowledge  and  belief,  true 
and  correct. 

H333  Any  fiduciary  required  to  make  a return  under  this  Act  shall  be  966 
subject  to  all  the  provisions  of  this  Act  which  apply  to  in- 
dividuals. 

Returns  for  a Period  of  Less  than  Twelve  Months. 

1f334  Sec.  226.  (a)  That  if  a taxpayer,  with  the  approval  of  the  2567 

Commissioner,  changes  the  basis  of  computing  net  income  from 
fiscal  year  to  calendar  year  a separate  return  shall  be  made 
for  the  period  between  the  close  of  the  last  fiscal  year  for  which 
return  was  made  and  the  following  December  31. 

1f335  If  the  change  is  from  calendar  year  to  fiscal  year,  a separate  2568 
return  shall  be  made  for  the  period  between  the  close  of  the 
last  calendar  year  for  which  return  was  made  and  the  date 
designated  as  the  close  of  the  fiscal  year. 

11336  If  the  change  is  from  one  fiscal  year  to  another  fiscal  year  a 2569 
separate  return  shall  be  made  for  the  period  between  the  close 
of  the  former  fiscal  year  and  the  date  designated  as  the  close  of 
the  new  fiscal  year. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

43 


{228. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 

1f337  (b)  In  all  cases  where  a separate  return  is  made  for  a part 

of  a taxable  year  the  net  income  shall  be  computed  on  the  basis 
of  such  period  for  which  separate  return  is  made,  and  the  tax 
shall  be  paid  thereon  at  the  rate  for  the  calendar  year  in  which 
such  period  is  included. 

^338  (c)  In  the  case  of  a return  for  a period  of  less  than  one  year 

the  net  income  shall  be  placed  on  an  annual  basis  by  multiplying 
the  amount  thereof  by  twelve  and  dividing  by  the  number  of 
months  included  in  such  period; 

11339  and  the  tax  shall  be  such  part  of  a tax  computed  on  such  annual 
basis  as  the  number  of  months  in  such  period  is  of  twelve 
months. 

Time  and  Place  for  Filing  Individual,  Partnership,  and  Fiduciary 

Returns. 

1l  340  Sec.  227.  (a)  That  returns  (except  in  the  case  of  non- 

resident aliens)  shall  be  made  on  or  before  the  fifteenth  day  of 
the  third  month  following  the  close  of  the  fiscal  year,  or, 

H341  if  the  return  is  made  on  the  basis  of  the  calendar  year,  then  the 
return  shall  be  made  on  or  before  the  15th  day  of  March. 

1i342  In  the  case  of  a nonresident  alien  individual  returns  shall  be 
made  on  or  before  the  fifteenth  day  of  the  sixth  month  following 
the  close  of  the  fiscal  year,  or, 

H343  if  the  return  is  made  on  the  basis  of  the  calendar  year,  then  the 
return  shall  be  made  on  or  before  the  15th  day  of  June. 

1f344  The  Commissioner  may  grant  a reasonable  extension  ot  time  for 
filing  returns  whenever  in  his  judgment  good  cause  exists  and 
shall  keep  a record  of  every  such  extension  and  the  reasont  here- 
for.  Except  in  the  case  of  taxpayers  who  are  abroad,  no  such 
extension  shall  be  for  more  than  six  months. 

1[345  (b)  Returns  shall  be  made  to  the  collector  for  the  district  in 

which  is  located  the  legal  residence  or  principal  place  of  business 
of  the  person  making  the  return,  or, 

1f346  if  he  has  no  legal  residence  or  principal  place  of  business  in  the 
United  States,  then  to  the  collector  at  Baltimore,  Maryland. 

Understatement  in  Returns. 

1f347  Sec.  228.  That  if  the  collector  or  deputy  collector  has  reason 
to  believe  that  the  amount  of  any  income  returned  is  under- 
stated, he  shall  give  due  notice  to  the  taxpayer  making  the 
return  to  show'cause  why  the  amount  of  the  return  should  not 


Copyright  1922,  by  The  Corporation  Trust  Company 
THE  FEDERAL  INCOME  TAX  SERVICE 


Repeated 
at  1 

2570 


2571 

* 


2572 


* 


2524 


2525 

2526 

2527 

2563 


2530 

2531 

V 

2577 

(V 


44 


a- 1-22. 


THE  INCOME  TAX  LAW. 


$229. 


Law 

Paragraph 

(If 347)  be  increased,  and  upon  proof  of  the  amount  understated,  may 
increase  the  same  accordingly. 


Repeated 
at  H 


2577 


1f348  Such  taxpayer  may  furnish  sworn  testimony  to  prove  any  2578 
relevant  facts  and  if  dissatisfied  with  the  decision  of  the  col- 
lector may  appeal  to  the  Commissioner  for  his  decision,  under 
such  rules  of  procedure  as  may  be  prescribed  by  the  Commis- 
sioner with  the  approval  of  the  Secretary. 


Incorporation  of  Individual  or  Partnership  Business. 

1f349  Sec.  229.  That  in  the  case  of  the  organization  as  a corpora-  995 
tion  within  four  months  after  the  passage  of  this  Act  of  any 
trade  or  business  in  which  capital  is  a material  income-produc- 
ing factor, 

1f350  and  which  was  previously  owned  by  a partnership  or  individual,  996 

1f351  the  net  income  of  such  trade  or  business  from  January  1,  1921,  997 

to  the  date  of  such  organization  may  at  the  option  of  the  in- 
dividual or  partnership  be  taxed  as  the  net  income  of  a corpora- 
tion is  taxed  under  Titles  II  and  III; 

1f352  in  which  event  the  net  income  and  invested  capital  of  such  998 
trade  or  business  shall  be  computed  as  if  such  corporation  had 
been  in  existence  on  and  after  January  1,  1921, 

1f353  and  the  undistributed  profits  or  earnings  of  such  trade  or  busi-  999 
ness  shall  not  be  subject  to  the  surtaxes  imposed  in  section  211, 

11354  but  amounts  distributed  on  and  after  January  1,  1921,  from  the  1000 
earnings  or  profits  of  such  trade  or  business  accumulated  after 
December  31,  1920,  shall  be  taxed  to  the  recipients  as  divi- 
dends; 

H355  and  all  the  provisions  of  Titles  II  and  III  relating  to  corporations  1001 
shall  so  far  as  practicable  apply  to  such  trade  or  business: 

H356  Provided,  That  this  section  shall  not  apply  to  any  trade  1002 

or  business,  the  net  income  of  which  for  the  taxable  year 
1921  was  less  than  20  per  centum  of  its  invested  capital 
for  such  year: 

H357  Provided  further,  That  any  taxpayer  who  takes  advantage  1003 

of  this  section  shall  pay  the  lax  imposed  by  section  1000 
of  the  Revenue  Act  of  1918  as  if  such  taxpayer  had  been 
a corporation  on  and  after  January  1,  1921. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

the  federal  income  tax  service 


45 


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6-1-22 


Law 

Paragraph 


(• 


Tax  on  Corporations. 


*;358 


Sec.  230-  That,  in  lieu  of  the  tax  imposed  by  section  230  972 


of  the  Revenue  Act  of  1918,  there  shall  be  levied,  collected, 
and  paid  for  each  taxable  year  upon  the  net  income  of  every 
corporation  a tax  at  the  following  rates: 

,|359  fa)  For  the  calendar  year  1921,  10  per  centum  of  the  973 

amount  of  the  net  income  in  excess  of  the  credits  provided  in 
section  236;  and 

1|360  * (b)  For  each  calendar  year  thereafter,  12^  per  centum  of  974 

such  excess  amount.  [Amended;  China  Trade  Act  corpo- 
rations, ^[3168.] 

Conditional  and  Other  Exemptions  of  Corporations. 

^361  Sec.  231.  That  the  following  organizations  shail  be  1004 

exempt  from  taxation  under  this  title — 

i.362  fn  Labor,  agricultural,  or  horticultural  organizations;  1005 

*]363  (2)  Mutual  savings  banks  not  having  a capital  stock  repre-  1006 

sented  by  shares; 

*[364  (3)  Fraternal  beneficiary  societies,  orders,  or  associations,  1007 

(a)  operating  under  the  lodge  system  or  for  the  exclusive 
benefit  of  the  members  of  a fraternity  itself  operating  under 
the  lodge  system;  and  (b)  providing  for  the  payment  of  life, 
sick,  accident,  or  other  benefits  to  the  members  of  such  societ1-, 
order,  or  association  or  their  dependents; 

1(365  (4)  Domestic  building  and  loan  associations  substantially  a!i  1008 

the  business  of  which  is  confined  to  making  loans  to  members: 
and  co-operative  banks  without  capital  stock  organized  anJ 
operated  for  mutual  purposes  and  without  profit; 

* 366  (5)  Cemetery  companies  owned  and  operated  exclusively  1009 

for  the  benefit  or  their  members  or  which  are  no;  operated 
for  profit;  and  any  corporation  chartered  solely  for  burial 
purposes  as  a cemetery  corporation  and  not  permitted  by  its 
charter  to  engage  in  any  business  not  necessarily  incident 
to  that  purpose,  no  part  of  the  net  earnings  of  which  inures 
to  the  benefit  of  any  private  stockholder  or  individual; 

’367  (6)  Corporations,  and  any  community  chest,  fund  or  1010 

foundation,  organized  and  operated  exclusively  for  religious, 
charitable,  scientific,  literary,  or  educational  purposes,  or  for 
the  prevention  of  cruelty  to  children  or  animals,  no  part  of 
the  net  earnings  of  which  mures  to  the  benefit  of  any  private 


stockholder  or  individual; 


Copyright  1922.  by  1 he  Corporation  trust  Company. 

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46 


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§232. 


Law  Repeated 

Paragraph  8t  H 

1368  (7)  Business  leagues,  chambers  of  commerce,  or  boards  of  1011 
trade,  not  organized  for  profit  and  no  part  of  the  net  earnings  of 
which  inures  to  the  benefit  of  any  private  stockholder  or 
individual; 

1369  (8)  Civic  leagues  or  organizations  not  organized  for  profit  1012 
but  operated  exclusively  for  the  promotion  of  social  welfare; 

1370  (9)  Clubs  organized  and  operated  exclusively  for  pleasure,  1013 
recreation,  and  other  nonprofitable  purposes,  no  part  of  the 

net  earnings  of  which  inures  to  the  benefit  of  any  private 
stockholder  or  member; 

1371  (10)  Farmers’  or  other  mutual  hail,  cyclone,  or  fire  insur-  1014 
ance  companies,  mutual  ditcn  or  irrigation  companies,  mutual 

or  co-operative  telephone  companies,  or  like  organizations  of 
a purely  local  character,  the  income  of  which  consists  solely 
of  assessments,  dues,  and  fees  collected  from  members  for  the 
sole  purpose  of  meeting  expense#; 

1372  (11)  Farmers’,  fruit  growers’,  or  like  associations,  organized  1015 
and  operated  as  sales  agents  for  the  purpose  of  marketing  the 
products  of  members  and  turning  back  to  them  the  proceeds 

of  sales,  less  the  necessary  selling  expenses,  on  the  basis  of  the 
quantity  of  produce  furnished  by  them;  or  organized  and 
operated  as  purchasing  agents  for  tne  purpose  of  purchasing 
supplies  and  equipment  for  the  use  oi  members  and  turning 
over  such  supplies  and  equipment  to  such  members  at  actual 
cost,  plus  necessary  expenses; 

1373  (12)  Corporations  organized  for  the  exclusive  purpose  1016 
of  holding  title  to  property,  collecting  income  therefrom,,  and 
turning  over  the  entire  amount  thereof,  less  expenses,  to  an 
organization  which  itself  is  exempt  from  the  tax  imposed  by 

this  title; 

1374  (13)  Federal  land  banks  and  national  farm-loan  associations  1017 
as  provided  in  section  26  of  the  Act  approved  July  17,  1916, 
entitled  “An  Act  to  provide  capital  for  agricultural  develop- 
ment, to  create  standard  forms  of  investment  based  upon 

farm  mortgage,  to  equalize  rates  of  interest  upon  farm  loans,  to 
furnish  a market  for  United  States  bonds,  to  create  Govern- 
ment depositaries  and  financial  agents  for  the  United  States, 
and  for  other  purposes”; 

1375  (14)  Personal  service  corporations.  This  subdivision  shall  1018 
not  be  in  effect  after  December  31,  192’ 

Net  Income  of  Corporations  Defined. 

1376  oec.  232.  That  in  the  case  of  a corporation  subject  to  the  1041 
tax  imposed  by  section  230  the  term  “net  income’  means  the 
gross  income  as  defined  in  section  233  less  the  deductions 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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§234. 


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2-27-22. 


L»w  Repeated 

Paragraph  at  TI 

(1(376)  allowed  by  section  234,  and  the  net  income  shall  be  computed  1041 
on  the  same  basis  as  is  provided  in  subdivision  (b)  of  section 
212  or  in  section  226. 

1(377  In  the  case  of  a foieign  corporation  or  of  a corporation  entitled  1406 
to  the  benefits  of  section  262  the  computation  shall  also  be 
made  in  the  manner  provided  in  section  217. 

Gross  Income  of  Corporations  Defined. 

1J378  Sec.  233.  (a)  That  in  the  case  of  a corporation  subject  to  1073 

the  tax  imposed  by  section  230  the  term  “gross  income”  means 
the  gross  income  as  defined  in  sections  213  and  217, 

1f379  except  that  mutual  marine  insurance  companies  shall  include  in  1356 
gross  income  the  gross  premiums  collected  and  received  by 
them  less  amounts  paid  for  reinsurance. 

1(380  (b)  In  the  case  of  a foreign  corporation,  gross  income  means  1407 

only  gross  income  from  sources  within  the  United  States, 
determined 

1(381  (except  in  the  case  of  insurance  companies  subject  1408 

to  the  tax  imposed  by  section  243  or  246) 

1(382  in  the  manner  provided  in  section  217.  1409 

Deductions  Allowed  Corporations. 

1(383  Sec.  234.  (a)  That  in  computing  the  net  income  of  a 1616 

corporation  subject  to  the  tax  imposed  by  section  230  there 
shall  be  allowed  as  deductions: 

1(384  (1)  All  the  ordinary  and  necessary  expenses  paid  or  in-  1619 

curred  during  the  taxable  year  in  carrying  on  any  trade  or 
business, 

1(385  including  a reasonable  allowance  for  salaries  or  other  com-  1649 
pensation  for  personal  services  actually  rendered,  and 

1(386  including  rentals  or  other  payments  required  to  be  made  as  1682 
a condition  to  the  continued  use  or  possession  of  property 
to  which  the  corporation  has  not  taken  or  is  not  taking  title, 
or  in  which  it  has  no  equity; 

1(387  (2)  All  interest  paid  or  accrued  within  the  taxable  year  on  1686 

its  indebtedness, 

1(388  except  on  indebtedness  incurred  or  continued  to  pur-  1687 

chase  or  carry  obligations  or  securities  (other  than 
obligations  of  the  United  States  issued  after  September 
24,  1917,  andjoriginally  subscribed  for  by  the  tax- 

Copyright  1922,  by  The  Corporation  Trust  Company . 

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ft-1-22. 


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§234 


* 

L8W  Repeated 

Paragraph  U 

(^1 388)  payer)  the  interest  upon  which  is  wholly  exempt  from  1687 

taxation  under  this  title; 

11389 

(3)  Taxes  paid  or  accrued  within  the  taxable  year  except 

1700 

1390 

(a)  income,  war-profits,  and  excess-profits  taxes  im- 
posed by  the  authority  of  the  United  States, 

1701 

• 

11391 

(b)  so  much  of  the  income,  war-profits  and  excess- 
profits  taxes  imposed  by  the  authority  of  any  foreign 
country  or  possession  of  the  United  States  as  is  allowed 
as  a credit  under  section  238,  and 

1702 

• 

1392 

(c)  taxes  assessed  against  local  benefits  of  a kind  tend- 
ing to  increase  the  value  of  the  property  assessed. 

1715 

1393 

In  the  case  of  obligors  specified  in  subdivision  (b) 
of  section  221  no  deduction  for  the  payment  of  the 
tax  imposed  by  this  title,  or  any  other  tax  paid  pur- 
suant to  the  contract  or  provision  referred  to  in  that 
subdivision,  shall  be  allowed 

1722 

1394 

nor  shall  such  tax  be  included  in  the  gross 
income  of  the  obligee. 

1724 

• 

1395 

The  deduction  allowed  by  this  paragraph  shall  be  allowed  in 
the  case  of  taxes  imposed  upon  a shareholder  or  member  of  a 
corporation  upon  his  interest  as  shareholder  or  member,  which 
are  paid  by  *he  corporation  without  reimbursement  from  the 
shareholder  or  member, 

1719 

1396 

but  in  suen  cases  no  deduction  shall  be  allowed  the 
shareholder  or  member  for  the  amount  of  such  taxes. 

1720 

• 

1397 

For  the  purpose  of  this  paragraph,  estate,  inheritance,  legacy, 
and  succession  taxes  accrue  on  the  due  date  thereof  except  as 
otherwise  provided  by  the  law  of  the  jurisdiction  imposing  such 
taxes; 

1727 

1398 

(4)  Losses  sustained  during  the  taxable  year  and  not  com- 
pensated for  by  insurance  or  otherwise; 

1777 

• 

1399 

unless,  in  order  to  clearly  reflect  the  income,  the  loss 
should  in  the  opinion  of  the  Commissioner  be  ac- 
counted for  as  of  a different  period. 

1785 

• 

(400 

No  deduction  shall  be  allowed  for  any  loss  claimed  to  have  been 
sustained  in  any  sale  or  other  disposition  of  shares  of  stock 
or  securities  made  after  the  passage  of  this  Act  where  it  ap- 
pears that  within  30  days  before  or  after  the  date  of  such  sale 
or  other  disposition  the  taxpayer  has  acquired  (otherwise  than 
by  bequest  or  inheritance)  substantially  identical  property. 

1789 

Copyright  1922,  by  The  Corporation  Trust  Company. 
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6-1-21;. 


Law 

Paragraph 

(1(400)  and  the  property  so  acquired  is  held  by  the  taxpayer  for  any 
period  after  such  sale  or  other  disposition, 

1H0I  unless  such  claim  is  made  by  a dealer  in  rtock  or 

securities  and  with  respect  to  a transaction  made  in 
the  ordinary  course  of  its  business. 

1(402  If  such  acquisition  is  to  the  extent  of  part  only  of  substantially 
identical  property,  then  only  a proportionate  part  of  the  loss 
shall  be  disallowed. 

1(403  In  case  of  losses  arising  from  destruction  of  or  damage  to 
property,  where  the  property  so  destroyed  or  damaged  was 
acquired  before  March  1,  1913,  the  deduction  shall  be  computed 
upon  the  basis  of  its  fair  market  price  or  value  as  of  March 
1,  1913; 

1(404  (5)  Debts  ascertained  to  be  worthless  and  charged  off 

within  the  taxable  year 

1(405  (or  in  the  discretion  of  the  Commissioner,  a reasonable 

addition  to  a reserve  for  bad  debts); 

1(406  and  when  satisfied  that  a debt  is  recoverable  only  in  part,  the 
Commissioner  may  allow  such  debt  to  be  charged  off  in  part; 

1(407  (6)  The  amount  received  as  dividends 

1(408  * (A)  from  a domestic  corporation  other  than  a corpora- 

tion entitled  to  the  benefits  of  section  262,  [Amended; 
China  Trade  Act  corporations,  1(3173.]  or 

1(409  (B)  from  any  foreign  corporation  when  it  is  shown 

to  the  satisfaction  of  the  Commissioner  that  more 
than  50  per  centum  of  the  gross  income  of  such  foreign 
corporation  for  the  three-year  period  ending  with  the 
clos.e  of  its  taxable  year  preceding  the  declaration  of 
such  dividends  (or  for  such  part  of  such  period  as  the 
foreign  corporation  has  been  in  existence)  was  derived 
from  sources  within  the  United  States  as  determined 
under  section  217; 

* 

K410  (7)  A reasonable  allowance  for  the  exhaustion,  wear  and 

tear  of  property  used  in  the  trade  or  business,  including  a 
reasonable  allowance  for  obsolescence. 

1(41 1 In  the  case  of  such  property  acquired  before  March  1,  1913,  this 
deduction  shall  be  computed  upon  the  basis  of  its  fair  market 
price  or  value  as  of  March  1,  1913; 

K412  (8)  In  the  case  of  buildings,  machinery,  equipment,  or 

other  facilities,  constructed,  erected,  installed,  or  acquired,  on 

Lupyiiglit  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


Repeated 
at  H 

1789 

1790 

1791 
1782 

1807 

1821 

1809 

1824 

1825 

1826 


1829 

1830 
1861 


50 


2-27-22. 


THE  INCOME  TAX  LAW. 


§234. 


Law 

Paragraph 

(^412)  or  after  April  6,  1917,  for  the  production  of  articles  contribut- 
ing to  the  prosecution  of  the  war  against  the  German  Govern- 
ment, and  in  the  case  of  vessels  constructed  or  acquired  on  or 
after  such  date  for  the  transportation  of  articles  or  men  con- 
tributing to  the  prosecution  of  such  war,  there  shall  be  allowed, 
for  any  taxable  year  ending  before  March  3,  1924  (if  claim 
therefor  was  made  at  the  time  of  filing  return  for  the  taxable 
year  1918,  1919,  1920,  or  1921)  a reasonable  deduction  for  the 
amortization  of  such  part  of  the  cost  of  such  facilities  or  vessels 
as  has  been  borne  by  the  taxpayer,  but  not  again  including 
any  amount  otherwise  allowed  under  this  title  or  previous  Acts 
of  Congress  as  a deduction  in  computing  net  income. 

H413  At  any  time  before  March  3,  1924,  the  Commissioner  may,  and 
at  the  request  of  the  taxpayer  shall,  re-examine  the  return,  and 
if  he  then  finds  as  a result  of  an  appraisal  or  from  other  evidence 
that  the  deduction  originally  allowed  was  incorrect,  the  income, 
war-profits,  and  excess-profits  taxes  for  the  year  or  years  affected 
shall  be  redetermined  and  the  amount  of  tax  due  upon  such 
redetermination,  if  any,  shall  be  paid  upon  notice  and  demand 
by  the  collector,  or  the  amount  of  tax  overpaid,  if  any,  shall  be 
credited  or  refunded  to  the  taxpayer  in  accordance  with  the 
provisions  of  section  252; 

1(414  (9)  In  the  case  of  mines,  oil  and  gas  wells,  other  natural 

deposits,  and  timber,  a reasonable  allowance  for  depletion  and 
for  depreciation  of  improvements,  according  to  the  peculiar 
conditions  in  each  case,  based  upon  cost  including  cost  of 
development  not  otherwise  deducted: 

1(415  Provided , That  in  die  case  of  such  properties  acquired 

prior  to  March  1,  1913,  the  fair  market  value  of  the 
property  {or  the  taxpayers  interest  therein ) on  that 
date  shall  be  taken  in  lieu  of  cost  up  to  that  date; 

1416  Provided  further,  Thai  in  the  case  of  mines,  oil  and  gas 
wells,  discovered  by  the  taxpayer , on  or  after  March 
1,  1913,  and  not  acquired  as  the  result  of  purchase  of 
a proven  tract  or  lease , where  the  fair  market  value  of 
the  property  is  materially  disproportionate  to  the  cost, 
the  depletion  allowance  shall  be  based  upon  the  fair 
market  value  of  the  property  at  the  date  of  the  discovery, 
or  within  thirty  days  thereafter; 

1417  And  provided  further,  That  such  depletion  allowance 
based  on  discovery  value  shall  not  exceed  the  net  income, 
computed  without  allowance  for  depletion,  from  the 
property  upon  which  the  discovery  is  made,  except  where 
such  net  income  so  computed  is  less  than  the  depletion 
allowance  based  on  cost  or  fair  market  value  as  of  March 
1,  1913: 


Repeated 

at  51 

1861 


1863 


1882 


1884 


1886 


1888 


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2-72-22. 


Paragraph  Repeated 

11418  such  reasonable  allowance  in  all  the  above  cases  to  be  made  1890 
under  rules  and  regulations  to  be  prescribed  by  the  Com- 
missioner with  the  approval  of  the  Secretary. 

11419  In  the  case  of  leases  the  deductions  allowed  by  this  paragraph  1892 
shall  be  equitably  apportioned  between  the  lessor  and  lessee; 

1(420  . (10)  In  the  case  of  insurance  companies  (other  than  life  1351 

insurance  companies),  in  addition  to  the  above  ("unless  other- 
wise allowed):  (A)  The  net  addition  required  by  law  to  be 
made  within  the  taxable  year  to  reserve  funds  (including  in 
the  case  of  assessment  insurance  companies  the  actual  deposit 
of  sums  with  State  or  Territorial  officers  pursuant  to  law  as 
additions  to  guarantee  or  reserve  funds);  and  (B)  the  sums 
other  than  dividends  paid  within  the  taxable  year  on  policy 
and  annuity  contracts.  After  December  31,  1921,  this  sub- 
division shall  apply  only  to  mutual  insurance  companies 
other  than  life  insurance  companies; 

1(421  (11)  In  the  case  of  corporations  (except  those  taxed  under  1354 

section  243)  issuing  policies  covering  life,  health,  and  accident 
insurance  combined  in  one  policy  issued  on  the  weekly  premium 
payment  plan  continuing  for  life  and  not  subject  to  cancella- 
tion, in  addition  to  the  above,  such  portion  of  the  net  addition 
(not  required  by  law)  made  within  the  taxable  year  to  reserve 
funds  as  the  Commissioner  finds  to  be  required  for  the  protec- 
tion of  the  holders  of  such  policies  only.  This  subdivision 
shall  not  be  in  effect  after  December  31,  1921; 

1(422  (1  2)  In  the  case  of  mutual  marine  insurance  companies,  1357 

there  shall  be  allowed,  in  addition  to  the  deductions  allowed 
in  paragraphs  (1)  to  (10),  inclusive,  and  paragraph  (14),  unless 
otherwise  allowed,  amounts  repaid  to  policyholders  on  account 
of  premiums  previously  paid  by  them,  and  interest  paid 
upon  such  amounts  between  the  ascertainment  and  the  pay- 
ment thereof; 

1(423  . (13)  In  the  case  of  mutual  insurance  companies  (including  1359 

interinsurers  and  reciprocal  underwriters,  but  not  including 
mutual  life  or  mutual  marine  insurance  companies)  requiring 
their  members  to  make  premium  deposits  to  provide  for  losses 
and  expenses,  there  shall  be  allowed,  in  addition  to  the  deduc- 
tions allowed  in  paragraphs  (1)  to  (10),  inclusive,  and  paragraph 
(14),  unless  otherwise  allowred,  the  amount  of  premium  deposits 
returned  to  their  policyholders  and  the  amount  of  premium 
deposits  retained  for  the  payment  of  losses,  expenses,  and 
reinsurance  reserves; 

1(424  . (14)  If  property  is  compulsorily  or  involuntarily  converted  2028 

into  cash  or  its  equivalent  as  a result  of 

1(425  (A)  its  destruction  in  wffiole  or  in  part,  2029 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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52 


2-27-22. 


THE  INCOME  TAX  LAW. 


§236. 


Law 

Paragraph 

11426 


(B)  theft  or  seizure,  or 


Repeated 
at  II 

2030 


1f427  (C)  an  exercise  of  the  power  of  requisition  or  con-  2031 

demnation,  or  the  threat  or  imminence  thereof; 

^[428  and  if  the  taxpayer  proceeds  forthwith  in  good  faith,  under  2032 
regulations  prescribed  by  the  Commissioner  with  the  approval 
of  the  Secretary,  to  expend  the  proceeds  of  such  conversion  in 
the  acquisition  of  other  property  of  a character  similar  or 
related  in  service  or  use  to  the  property  so  converted,  or  in 
the  acquisition  of  80  per  centum  or  more  of  the  stock  or  shares 
of  a corporation  owning  such  other  property,  or  in  the  estab- 
lishment of  a replacement  fund,  then  there  shall  be  allowed  as 
a deduction  such  portion  of  the  gain  derived  as  the  portion  of 
the  proceeds  so  expended  bears  to  the  entire  proceeds. 


^429  The  provisions  of  this  paragraph  prescribing  the  conditions  2033 
under  which  a deduction  may  be  taken  in  respect  of  the  proceeds 
or  gains  derived  from  the  compulsory  or  involuntary  conver- 
sion of  property  into  cash  or  its  equivalent,  shall  apply  so  far 
as  may  be  practicable  to  the  exemption  or  exclusion  of  such 
proceeds  or  gains  from  gross  income  under  prior  income, 
war-profits  and  excess-profits  tax  Acts. 

11430  (b)  In  the  case  of  a foreign  corporation  or  of  a corporation  1412 

entitled  to  the  benefits  of  section  262  the  deductions  allowed  in 
subdivision  (a)  shall  be  allowed  only  if  and  to  the  extent  that 
they  are  connected  with  income  from  sources  within  the  United 
States; 

H431  and  the  proper  apportionment  and  allocation  of  the  deductions  1413 
with  respect  to  sources  within  and  without  the  United  States 
shall  be  determined  as  provided  in  section  217  under  rules  and 
regulations  prescribed  by  the  Commissioner  with  the  approval 
of  the  Secretary. 

Items  Not  Deductible  by  Corporations. 

H432  Sec.  235.  That  in  computing  net  income  no  deduction  shall  1621 

in  any  case  be  allowed  in  respect  of  any  of  the  items  specified 
in  section  215. 

Credits  Allowed  Corporations. 

H433  Sec.  236.  That  for  the  purpose  only  of  the  tax  imposed  by  2056 

section  230  there  shall  be  allowed  the  following  credits: 

1f434  (a)  The  amount  received  as  interest  upon  obligations  of  the  2057 

United  States  and  bonds  issued  by  the  War  Finance  Corpora- 
tion,Uvhich  is  included  in  gross  income  under  section  233;  fg 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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53 


§237. 


THE  INCOME  TAX  LAW. 


2-27-22. 


P.r^.pb  *epe.t*« 

Tf435  (b)  In  the  case  of  a domestic  corporation  the  net  income  of  2058 

which  is  $25,000  or  less,  a specific  credit  of  $2,000; 

*[436  but  if  the  net  income  is  more  than  $25,000  the  tax  2061 
imposed  by  section  230  shall  not  exceed  the  tax  which 
would  be  payable  if  the  $2,000  credit  were  allowed, 
plus  the  amount  of  the  net  income  in  excess  of  $25,000; 
and 

1f437  . (c)  The  amount  of  any  war-profits  and  excess-profits  taxes  2062 

imposed  by  Act  of  Congress  for  the  same  taxable  year.  The 
credit  allowed  by  this  subdivision  shall  be  determined  as  follows: 

1[438  (1)  In  the  case  of  a corporation  which  makes  return  for  a 2063 

fiscal  year  beginning  in  1920  and  ending  in  1921,  in  computing 
the  income  tax  as  provided  in  subdivision  (a)  of  section  205, 

*1439  the  portion  of  the  war-profits  and  excess-profits  tax  computed  2064 
for  the  entire  period  under  clause  (1)  of  subdivision  (a)  of 
section  335  shall  be  credited  against  the  net  income  computed 
for  the  entire  period  as  provided  in  clause  (1)  of  subdivision  (a) 
of  section  205,  and 

11440  the  portion  of  the  war-profits  and  excess-profits  tax  computed  2065 
for  the  entire  period  under  clause  (2)  of  subdivision  (a)  of  section 
335  shall  be  credited  against  the  net  income  computed  for  the 
entire  period  as  provided  in  clause  (2)  of  subdivision  (a)  of 
section  205. 

r441  (2)  In  the  case  of  a corporation  which  makes  return  for  a 2066 

fiscal  year  beginning  in  1921  and  ending  in  1922,  in  computing 
the  income  tax  as  provided  in  subdivision  (b)  of  section  205, 
th^  war-profits  and  excess-profits  tax  computed  under  sub- 
division (b)  of  section  335  shall  be  credited  against  the  net  in- 
come computed  for  the  entire  period  as  provided  in  clause  (1) 
of  subdivision  (b)  of  section  205. 

Payment  of  Corporation  Income  Tax  at  Source. 

*,442  Sec.  237.  That  in  the  case  of  foreign  corporations  subject  2220 
to  taxation  under  this  title  not  engaged  in  trade  or  business 
within  the  United  States  and  not  having  any  office  or  place  of 
business  therein, 

1[443  there  shall  be  deducted  and  withheld  at  the  source  in  the  same  2221 
manner  and  upon  the  same  items  of  income  as  is  provided  ii 
section  221  a tax  equal  to  12j^  per  centum  thereof 

1i444  (but  during  the  calendar  year  1921  only  10  per  centum),  2222 

*[445  and  such  tax  shall  be  returned  and  paid  in  the  same  manner  2223 
and  subject  to  the  same  conditions  as  provided  in  that  section: 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


54 


2-27-22. 


THE  INCOME  TAX  LAW. 


§238. 


Law 

Paragraph 

11446 


11447 


If  448 


If  449 


1f450 


If  451 


If  452 


Provided,  That  in  the  case  of  interest  described  m sub- 
division (h)  of  that  section  the  deduction  and  withholding 
shall  be  at  the  rate  of  2 -per  centum. 

Credit  for  Taxes  in  Case  of  Corporations. 

Sec.  238.  (a)  That  in  the  case  of  a domestic  corporation  the 
tax  imposed  by  this  title,  plus  the  war-profits  and  excess- 
profits  taxes,  if  any,  shall  be  credited  with  the  amount  of  any 
income,  war-profits,  and  excess-profits  taxes  paid  during  the 
same  taxable  year  to  any  foreign  country,  or  to  any  possession 
of  the  United  States: 

Provided,  That  the  amount  of  credit  taken  under  this 
subdivision  shall  in  no  case  exceed  the  same  proportion 
of  the  taxes,  against  which  such  credit  is  taken,  which  the 
taxpayer's  net  income  {computed  without  deduction  jor 
any  income,  war-profits,  and  excess-profits  taxes  imposed 
by  any  foreign  country  or  possession  of  the  United  States) 
from  sources  without  the  United  States  bears  to  its  entire 
net  income  {computed  without  such  deduction ) jor  the 
same  taxable  year. 

In  the  case  of  domestic  insurance  companies  subject  to?the 
tax  imposed  by  section  243  or  246,  the  term  net  income  as 
used  in  this  subdivision  means  net  income  as  defined  in  sections 
245  and  246,  respectively. 

(b)  If  accrued  taxes  when  paid  differ  from  the  amounts  claim- 
ed as  credits  by  the  corporation,  or  if  any  tax  paid  is  i refV'nd!<  'n 
whole  or  in  part,  the  corporation  shall  at  once  notify  the  Com- 
missioner, who  shall  redetermine  the  amount  of  the  >ncoine, 
war-profits  and  excess-profits  taxes  for  the  year  or  years  affected, 
and  the  amount  of  taxes  due  upon  such  ^determination,  if  any, 
shall  be  paid  by  the  corporation  upon  notice  and  demand  by 
the  collector,  or  the  amount  of  taxes  overpaid,  if  any,  shall  be 
credited  or  refunded  to  the  corporation  in  accordance  with 
the  provisions  of  section  252. 

In  the  case  of  such  a tax  accrued  but  not  paid,  the  Commissioner 
as  a condition  precedent  to  the  allowance  of  this  credit  may 
require  the  corporation  to  give  a bond  with  sureties  satisfactory 
to  and  to  be  approved  by  him  in  such  penal  sum  as  he  may 
require,  conditioned  for  the  payment  by  the  taxpayer,  of  any 
amount  of  taxes  found  due  upon  any  such  redetermination, 
and  The  bond  herein  prescribed  shall  contain  such  further  con- 
ditions^ the  Commissioner  may  require. 

(c)  These  credits  shall  be  allowed  only  if  the  taxpayer 
furnishes  evidence  satisfactory  to  the  Commissioner  shewing 
the  amount  of  income  derived  from  sources  without  the  United 


Repeated 

at  1 

2246 


1752 


1753 


1754 


1755 


1756 


1757 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


§238. 


THE  INCOME  TAX  LAW. 


2-27-22, 


Paragraph  Repealed 

("452)  States,  and  all  other  information  necessary  for  the  verification  1757 
and  computation  of  such  credit. 

1J453  (d)  If  a domestic  corporation  makes  a return  for  a fiscal  1760 

year  beginning  in  1920  and  ending  in  1921,  the  credit  for  the 
entire  fiscal  year  shall,  notwithstanding  any  provision  of  this 
Act,  be  determined  under  the  provisions  of  this  section; 

H454  and  the  Commissioner  is  authorized  to  disallow,  in  whole  or  1761 
in  part,  any  such  credit  which  he  finds  has  already  been  taken 
by  the  taxpayer. 

1,455  (e)  For  the  purposes  of  this  section  a domestic  corporation  1762 

which  owns  a majority  of  the  voting  stock  of  a foreign  corpora- 
tion from  which  it  receives  dividends  (not  deductible  under 
section  234)  in  any  taxable  year  shall  be  deemed  to  have  paid 
the  same  proportion  of  any  income,  war-profits,  or  excess- 
profits  taxes  paid  by  such  foreign  corporation  to  any  foreign 
country  or  to  any  possession  of  the  United  States,  upon  or 
with  respect  to  the  accumulated  profits  of  such  foreign  cor- 
poration from  which  such  dividends  were  paid,  which  the 
amount  of  such  dividends  bears  to  the  amount  of  such  accumu- 
lated profits: 

"456  Provided,  That  the  credit  allowed  to  any  domestic  corpora-  1763 
lion  under  this  subdivision  shall  in  no  case  exceed  the  same 
proportion  of  the  taxes  against  which  it  is  credited, 
which  the  amount  of  such  dividends  bears  to  the  amount 
of  the  entire  net  income  of  the  domestic  corporation  in 
which  such  dividends  are  included. 

*[457  The  term  “accumulated  profits”  when  used  in  this  subdivision  1764 
in  reference  to  a foreign  corporation,  means  the  amount  of  its 
gains,  profits,  or  income  in  excess  of  the  income,  war-profits, 
and  excess-profits  taxes  imposed  upon  or  wnth  respect  to  such 
profits  or  income; 

1(458  and  the  Commissioner  with  the  approval  of  the  Secretary  shall  1765 
have  full  power  to  determine  from  the  accumulated  profits  of 
what  year  or  years  such  dividends  were  paid;  treating  dividends 
paid  in  the  first  sixty  days  of  any  year  as  having  been  paid 
from  the  accumulated  profits  of  the  preceding  year  or  years 
(unless  to  his  satisfaction  shown  otherwise),  and  in  other  respects 
treating  dividends  as  having  been  paid  from  the  most  recently 
accumulated  gains,  profits,  or  earnings. 

"459  In  the  case  of  a foreign  corporation,  the  income,  war-profits,  1766 
and  excess-profits  taxes  of  which  are  determined  on  the  basis 
of  an  accounting  period  of  less  than  one  year,  the  word  “year” 
as  used.  in  this  subdivision  shall  be  construed  to  mean  such 
accounting  period. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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§240. 


Law 

Paragraph 

<J460  * (f)  For  the  purposes  of  this  section  a corporation  entitled 

to  the  benefits  of  section  262  shall  be  treated  as  a foreign 
corporation.  [Amended;  China  Trade  Act  corporations, 
113169.] 


Repeated 
at  U 

1768 


Corporation  Returns. 

*]461  Sec.  239.  (a)  That  every  corporation  subject  to  taxation  2487 

under  this  title  and  every  personal  service  corporation  shall 
make  a return,  stating  specifically  the  items  of  its  gross  income 
and  the  deductions  and  credits  allowed  by  this  title. 

V 

If 462  The  return  shall  be  sworn  to  by  the  president,  vice-president.  2510 
or  other  principal  officer  and  by  the  treasurer  or  assistant 
treasurer. 

1f463  If  any  foreign  corporation  has  no  office  or  place  of  business  in  1420 
the  United  States  but  has  an  agent  in  the  United  States,  the 
return  shall  be  made  by  the  agent. 

f 464  In  cases  where  receivers,  trustees  in  bankruptcy,  or  assignees  2499 
are  operating  the  property  or  business  of  corporations,  such 
receivers,  trustees,  or  assignees  shall  make  returns  for  such 
corporations  in  the  same  manner  and  form  as  corporations  are 
required  to  make  returns.  Any  tax  due  on  the  basis  of  such 
returns  made  by  receivers,  trustees,  or  assignees  shall  be 
collected  in  the  same  manner  as  if  collected  from  the  corpora- 
tions of  whose  business  or  property  they  have  custody  and 
control . 

U465  (b)  Returns  made  under  this  section  shall  be  subject  to  2488 

the  provisions  of  sections  226  and  228. 

1f466  When  return  is  made  under  section  226  the  credit  provided  in  2573 
subdivision  (b)  of  section  236  shall  be  reduced  to  an  amount 
which  bears  the  same  ratio  to  the  full  credit  therein  provided 
as  the  number  of  months  in  the  period  for  which  such  return 
is  made  bears  to  twelve  months. 


11467  (c)  There  shall  be  included  in  the  return  or  appended  there-  2508 

to  a statement  of  such  facts  as  will  enable  the  Commissioner 
to  determine  the  portion  of  the  earnings  or  profits  of  the  cor- 
poration (including  gains,  profits  and  income  not  taxed) 
accumulated  during  the  taxable  year  for  which  the  return  is 
made,  which  have  been  distributed  or  ordered  to  be  distributed, 
respectively,  to  its  stockholders  or  members  during  such  year. 

Consolidated  Returns  of  Corporations. 

1[468  Sec.  240.  (a)  That  corporations  which  are  affiliated  with-  2539 

in  the  meaning  of  this  section  may,  for  any  taxable  year  begin- 
ning on  or  after  January  1,  1922,  make  separate  returns 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


57 


|240. 


THE  INCOME  TAX  LAW. 


5-1-22. 


Law 

Paragraph 

f 469  or,  under  regulations  prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary,  make  a consolidated  return  of 
net  income  for  the  purpose  of  this  title,  in  which  case  the  taxes 
thereunder  shall  be  computed  and  determined  upon  the  basis 
of  such  return. 


Repeated 
at  ^ 

2540 


^|470  If  return  is  made  on  either  of  such  bases,  all  returns  thereafter  2541 
made  shall  be  upon  the  same  basis  unless  permission  to  change 
the  basis  is  granted  by  the  Commissioner. 

H471  (b)  In  any  case  in  which  a tax  is  assessed  upon  the  basis  of  2549 

a consolidated  return,  the  total  tax  shall  be  computed  in  the 
first  instance  as  a unit  and  shall  then  be  assessed  upon  the 
respective  affiliated  corporations  in  such  proportions  as  may 
be  agreed  upon  among  them,  or,  in  the  absence  of  any  such  agree- 
ment, then  on  the  basis  of  the  net  income  properly  assignable  to 
each. 

^472  There  shall  be  allowed  in  computing  the  income  tax  only  one  2550 
specific  credit  computed  as  provided  in  subdivision  (b)  of  section 
236. 

^[473  (c)  For  the  purpose  of  this  section  two  or  more  domestic  2552 

corporations  shall  be  deemed  to  be  affiliated 

1f474  (1)  if  one  corporation  owns  directly  or  controls  through  closely  2553 

affiliated  interests  or  by  a nominee  or  nominees  substantially 
all  the  stock  of  the  other  or  others,  or 

^475  (2)  if  substantially  all  the  stock  of  two  or  more  corporations  i?  2554 

owned  or  controlled  by  the  same  interests. 

* [Sentence  added  here,  relating  to  China  Trade  Act  corpo- 
rations, 1|3170.] 

^476  (d)  For  the  purposes  of  this  section  a corporation  entitled  to  2558 

the  benefits  of  section  262  shall  be  treated  as  a foreign  corpora- 
tion: 

^477  Provided , Thai  in  any  case  of  two  or  more  related  trades  2560 

or  businesses  ( whether  unincorporated  or  incorporated 
and  whether  organized  in  the  United  States  or  not) 
owned  or  controlled  directly  or  indirectly  by  the  same 
interests , the  Commissioner  may  consolidate  the  accounts 
of  such  related  trades  and  businesses,  m any  proper  case , 
for  the  purpose  of  making  an  accurate  distribution  or 
apportionment  of  gains,  profits,  income,  deductions,  or 
capital  between  or  among  such  related  trades  or  businesses. 

^478  (e)  Corporations  which  are  affiliated  within  the  meaning  of  2542 

this  section  shall  make  consolidated  returns  for  any  taxable  year 
beginning  prior  to  January  1,  1922,  in  the  same  manner  and 
subject  to  the  same  conditions  as  provided  by  the  Revenue 
Act  of  1918. 

Copyright  1922,  by  1 he  Corporation  Trust  Company. 

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58 


6-1-22. 


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§244. 


Law  Repealed 

Paragraph  at  U 

Time  and  Place  for  Filing  Corporate  Returns. 

1]479  Sec.  241.  (a)  That  returns  cf  corporations  shall  be  made  at  2523 

the  same  time  as  is  provided  in  subdivision  (a)  of  section  227, 

1|480  except  that  in  the  case  of  foreign  corporations  not  1419 

having  any  office  or  place  of  business  in  the  United 
States  returns  shall  be  made  at  the  same  time  as 
provided  in  section  227  in  the  case  of  a nonresident 
alien  individual. 

11481  (b)  Returns  shall  be  made  to  the  collector  of  the  district  in  1421 

which  is  located  the  principal  place  of  business  or  principal  2532 
office  or  agency  of  the  corporation,  or. 

1|482  if  it  has  no  principal  place  of  business  or  principal  office  or  1422 
agency  in  the  United  States,  then  to  the  collector  at  Baltimore  1533 
Maryland. 

[Tax  on  Life  Insurance  Companies.] 

H433  Sec-  242.  That  when  used  in  this  title  the  term  "life  in-  1309 

surance  company”  means  an  insurance  company  engaged  in  the 
business  of  issuing  life  insurance  and  annuity  contracts  (includ- 
ing contracts  of  combined  life,  health,  and  accident  insurance), 
the  reserve  funds  of  which  held  for  the  fulfillment  of  such 
contracts  comprise  more  than  50  per  centum  of  its  total  reserve 
funds. 

1[484  Sec.  243.  That  in  lieu  of  the  taxes  imposed  by  sections  230  1310 

and  1000  and  by  Title  III,  there  shall  be  levied,  collected,  and 
paid  for  the  calendar  year  1921  and  for  each  taxable  year 
thereafter  upon  the  net  income  of  every  life  insurance  company 
a tax  as  follows: 

1[485  (1)  In  the  case  of  a domestic  life  insurance  company,  the  1311 

same  percentage  of  its  net  income  as  is  imposed  upon  other 
corporations  by  section  230; 

H486  (2)  In  the  case  of  a foreign  life  insurance  company,  the  1312 

same  percentage  of  its  net  income  from  sources  within  the 
United  States  as  is  imposed  upon  the  net  income  of  other  cor- 
porations by  section  230. 

1)487  Sec.  244.  (a)  That  in  the  case  of  a life  insurance  company  1314 

the  term  "gross  income”  means  the  gross  amount  of  income 
received  during  the  taxable  year  from  interest,  dividends,  and 
rents 

U438  (b)  The  term  "reserve  funds  required  by  law”  includes,  in  1319 

the  case  of  assessment  insurance,  sums  actually  deposited 
by  any  companv  or  association  with  State  or  Territorial  officers 

Copyright  1V22,  by  The  Corporiitiui'  Tru.  t Coi”pany 

THE  FEDERAL  INCOME  TAX  SERVICE 

5V 


5245. 


THE  INCOME  TAX  LAW. 


480 


r490 


* 49 1 


11492 


Law 

Paragraph 

(1488)  pursuant  to  law  as  guaranty  or  reserve  funds,  and  any  funds 
maintained  under  the  charter  or  articles  of  incorporation  of 
t he  company  or  association  exclusively  for  the  payment  of  claims 
arising  under  certificates  of  membership  or  "policies  issued 
upon  the  assessment  plan  and  not  subject  to  any  other  use. 

Sec.  245.  (a)  I hat  in  the  case  of  a life  insurance  company 

tiic  term  net  income  ’ means  the  gross  income  less — 

0)  1 he  amount  of  interest  received  during  the  taxable  year 
which  under  paragraph  (4)  of  subdivision  (b)  of  section  213  is 
exempt  from  taxation  under  this  title; 

(2)  An  amount  equal  to  the  excess,  if  any,  over  the  deduction 
specified  in  paragraph  (1)  of  this  subdivision,  of  4 per  centum 
ot  the  mean  of  the  reserve  funds  required  by  law  and  held  at 
the  beginning  and  end  of  the  taxable  year,  plus  (in  case  of  life 
insurance  companies  issuing  policies  covering  life,  health,  and 
accident  insurance  combined  in  one  policy  issued  on  the  weekly 
premium  payment  plan,  continuing  for  life  and  not  subject  to 
cancellation)  4 per  centum  of  the  mean  of  such  reserve  funds  (not 
required  by  law)  held  at  the  beginning  and  end  of  the  taxable 
year,  as  the  Commissioner  finds  to  be  necessary  for  the  pro- 
tection of  the  holders  of  such  policies  only; 

* (3)  The  amount  received  as  dividends  (A)  from  a domestic 
corporation  other  than  a corporation  entitled  to  the  benefits  of 
section  262  or  (B)  from  any  foreign  corporation  when  it  is  shown 
to  the  satisfaction  of  the  Commissioner  that  more  than  50  per 
centum  of  the  gross  income  of  such  foreign  corporation  for  the 
three-year  period  ending  with  the  close  of  its  taxable  year  pre- 
ceding the  declaration  of  such  dividends  (or  for  such  part  of  such 
period  as  the  foreign  corporation  has  been  in  existence)  was 
derived  from  sources  within  the  United  States  as  determined 
under  section  217;  [Amended;  China  Trade  Act  corporations, 
i|3173.J 

(4)  An  amount  equal  to  2 per  centum  of  any  sums  held  at 
the  end  of  the  taxable  year  as  a reserve  for  dividends  (other 
than  dividends  payable  during  the  year  following  the  taxable 
year)  the  payment  of  which  is  deferred  for  a period  of  not  less 
than  five  years  from  the  date  of  the  policy  contract; 

(5)  Investment  expenses  paid  during  the  taxable  year: 

Provided , That  if  any  general  expenses  are  in  part 
assigned  to  or  included  in  the  investment  expenses , the 
total  deduction  under  this  paragraph  shall  not  exceed 
one-fourth  of  1 per  centum  of  the  hook  value  of  the  mean 
of  the  invested  assets  held  at  the  beginning  and  end  of  the 
taxable  year ; 

(6)  Taxes  and  other  expenses  paid  during  the  taxable  year 
exclusively  upon  or  with  respect  to  the  real  estate  owned  by 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
60 


1)493 


1(494 

1(495 


1496 


6-1-22. 

Repeated 

1319 

1316 

1317 

1318 
1321 


1323 

1325 

1326 


1328 


2-27-22. 


THE  INCOME  TAX  LAW. 


§245. 


Law 
Paragraph 


( ^[496)  the  company,  not  including  taxes  assessed  against  local  benefits 
of  a kind  tending  to  increase  the  value  of  the  property  assessed 
and  not  including  any  amount  paid  out  for  new  buildings,  or 
tor  permanent  improvements  or  betterments  made  to  increase 
the  value  of  any  property. 


Repeated 
at  U 

1328 


<|497 


If  498 


*1499 


1f500 


<[501 


!f502 


<[503 


1[504 


1[505 


The  deduction  allowed  by  this  paragraph  shall  be  allowed  in 
the  case  of  taxes  imposed  upon  a shareholder  or  member  of  a com- 
pany upon  his  interest  as  shareholder  or  member,  which  are  paid 
by  the  company  without  reimbursement  from  the  shareholder  or 
member, 

but  in  such  cases  no  deduction  shall  be  allowed  the 
shareholder  or  member  for  the  amount  of  such  taxes; 

(7)  A reasonable  allowance  for  the  exhaustion,  wear  and 
tear  of  property,  including  a reasonable  allowance  for  obso- 
lescence. 


1329 


1330 


1332 


In  the  case  of  property  acquired  before  March  1,  1913,  this  de-  1333 
duction  shall  be  computed  upon  the  basis  of  its  fair  market  price 
or  value  as  of  March  1,  1913; 

All  interest  paid  or  accrued  within  the  taxable  year  on  1334 
its  indebtedness, 


except  on  indebtedness  incurred  or  continued  to  pur-  1335 

chase  or  carry  obligations  or  securities  (other  than  obli- 
gations of  the  United  States  issued  after  September  24 
1917,  and  originally  subscribed  for  by  the  taxpayer)  the 
interest  upon  which  is  wholly  exempt  from  taxation 
under  this  title; 

(9)  In  the  case  of  a domestic  life  insurance  company  the  1338 
net  income,  of  which  (computed  without  the  benefit  of’ this 
paragraph)  is  $25,000  or  less,  the  sum  of  $2,000; 

but  if  the  net  income  is  more  than  $25,000  the  tax  im-  1339 

posed  by  section  243  shall  not  exceed  the  tax  which 
would  be  payable  if  the  $2,000  credit  were  allowed 
plus  the  amount  of  the  net  income  in  excess  of  $25,000. 

,7s  ^ No  deduction  shall  be  made  under  paragraphs  (6)  and  1342 
(/)  of  subdivision  (a)  on  account  of  any  real  estate  owned  and 
occupied  in  whole  or  in  part  by  a life  insurance  company  unless 
there  is  included  in  the  return  of  gross  income  the  rental  value 
ot  the  space  so  occupied.  Such  rental  value  shall  be  not  less 
than  a sum  which  in  addition  to  any  rents  received  from  other 
tenants  shall  provide  a net  income  (after  deducting  taxes  de- 
preciation, and  all  other  expenses)  at  the  rate  of  4 per  centum 
per  annum  of  the  book  value  at  the  end  of  the  taxable  year  of 
the  real  estate  so  owned  or  occupied. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

61 


§246. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Repeated 

at! 

1J506  (c)  In  the  case  of  a foreign  life  insurance  company  the  1344 

amount  of  its  net  income  for  any  taxable  year  from  sources 
within  the  United  States  shall  be  the  same  proportion  of  its  net 
income  for  the  taxable  year  from  sources  within  and  without 
the  United  States,  which  the  reserve  funds  required  by  law  and 
held  by  it  at  the  end  of  the  taxable  year  upon  business  trans- 
acted within  the  United  States  is  of  the  reserve  funds  held  by  it 
at  the  end  of  the  taxable  year  upon  all  business  transacted. 

[Taxes  on  Insurance  Companies  other  than  Life  and  Mutual 
Insurance  Companies.] 

1J507  Sec.  246.  (a)  That,  in  lieu  of  the  taxes  imposed  by  sections  1366 
230  and  1000,  there  shall  be  levied,  collected  and  paid  for  the  cal- 
endar year  1922,  and  for  each  taxable  year  thereafter,  upon  the 
net  income  of  every  insurance  company  (other  than  a life  or 
mutual  insurance  company)  a tax  as  follows: 

T508  (1)  In  the  case  of  such  a domestic  insurance  company  the  1367 

same  percentage  of  its  net  income  as  is  imposed  upon  other  cor- 
porations by  section  230; 

1[509  (2)  In  the  case  of  such  a foreign  insurance  company  the  1368 

same  percentage  of  its  net  income  from  sources  within  the  United 
States  as  is  imposed  upon  the  net  income  of  other  corporations  by 
section  230. 

1[510  . (b)  In  the  case  of  an  insurance  company  subject  to  the  tax  1370 

imposed  by  this  section — 

1[511  (1)  The  term  “gross  income”  means  the  combined  gross  1371 

amount,  earned  during  the  taxable  year,  from  investment  in- 
come and  from  underwriting  income  as  provided  in  this  sub- 
division, computed  on  the  basis  of  the  underwriting  and  in- 
vestment exhibit  of  the  annual  statement  approved  by  the 
National  Convention  of  Insurance  Commissioners; 

ITS  12  (2)  The  term  “net  income”  means  the  gross  income  as  de-  1372 

fined  in  paragraph  (1)  of  this  subdivision  less  the  deductions 
allowed  by  section  247; 

1T513  (3)  The  term  “investment  income”  means  the  gross  amount  1373 

of  income  earned  during  the  taxable  year  from  interest,  divi- 
dends and  rents,  computed  as  follows: 

1T514  To  all  interest,  dividends  and  rents  received  during  the  1374 
taxable  year,  add  interest,  dividends  and  rents  due  and  accrued 
at  the  end  of  the  taxable  year,  and  deduct  all  interest,  dividends 
and  rents  due  and  accrued  at  the  end  of  the  preceding  taxable 
year; 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 

' 62 


Law 

Paragraph 


2-27-22. 


THE  INCOME  TAX  LAW. 


§247. 


_ k*w  , Repeated 

Paragraph  at  ^ 

1515  (4)  The  term  “underwriting  income”  means  the  premiums  1375 

earned  on  insurance  contracts  during  the  taxable  year  less 
losses  incurred  and  expenses  incurred; 

1f5 16  (5)  The  term  “premiums  earned  on  insurance  contracts  1376 

during  the  taxable  year”  means  an  amount  computed  as  follows: 

1517  From  the  amount  of  gross  premiums  written  on  insurance  1377 
contracts  during  the  taxable  year,  deduct  return  premiums 

and  premiums  paid  for  reinsurance.  To  the  result  so  obtained 
add  unearned  premiums  on  outstanding  business  at  the  end 
of  the  preceding  taxable  year  and  deduct  unearned  premiums 
on  outstanding  business  at  the  end  of  the  taxable  year; 

1518  (6)  The  term  “losses  incurred”  means  losses  incurred  during  1386 
the  taxable  year  on  insurance  contracts,  computed  as  follows: 

1519  To  losses  paid  during  the  taxable  year,  add  salvage  and  rein-  1387 
surance  recoverable  outstanding  at  the  end  of  the  preceding  tax- 
able year,  and  deduct  salvage  and  reinsurance  recoverable 
outstanding  at  the  end  of  the  taxable  year.  To  the  results  so 
obtained  add  all  unpaid  losses  outstanding  at  the  end  of  the 
taxable  year  and  deduct  unpaid  losses  outstanding  at  the  end 

of  the  preceding  taxable  year; 

1520  (7)  The  term  “expenses  incurred”  means  all  expenses  shown  1381 
on  the  annual  statement  approved  by  the  National  Convention 

of  Insurance  Commissioners,  and  shall  be  computed  as  follows: 

1521  To  all  expenses  paid  during  the  taxable  year  add  expenses  1382 
unpaid  at  the  end  of  the  taxable  year  and  deduct  expenses 
unpaid  at  the  end  of  the  preceding  taxable  year.  For  the  pur- 
pose of  computing  the  net  income  subject  to  the  tax  imposed  by 

this  section  there  shall  be  deducted  from  expenses  incurred  as 
defined  in  this  paragraph  all  expenses  incurred  which  are  not 
allowed  as  deductions  by  section  247. 


1522 

Sec.  247.  (a)  That  in  computing  the  net  income  of  an 

insurance  company  subject  to  the  tax  imposed  by  section  246 
there  shall  be  allowed  as  deductions: 

1379 

1523 

(1)  A11  ordinary  and  necessary  expenses  incurred,  as  pro- 
vided in  paragraph  (1)  of  subdivision  (a)  of  section  234; 

1380 

1524 

(2)  All  interest  as  provided  in  paragraph  (2)  of  subdivision 
(a)  of  section  234; 

1383 

1525 

(3)  Taxes  as  provided  in  paragraph  (3)  of  subdivision  (a) 
of  section  234; 

1384 

1526 

(4)  Losses  incurred; 

1385 

Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

63 


§250. 


THE  INCOME  TAX  LAW. 


2-27-22. 


, ,-aw'  , Repeated 

Paragraph  at  11 

*[527  (5)  Bad  debts  in  the  nature  of  agency  balances  and  bills  1388 

receivable  ascertained  to  be  worthless  and  charged  off  within 
the  taxable  year; 

*[528  (6)  The  amount  received  as  dividends  from  corporations  as  1389 

provided  in  paragraph  (6)  of  subdivision  (a)  of  section  234; 

1(529  (7)  The  amount  of  interest  earned  during  the  taxable  year  1390 

which  under  paragraph  (4)  of  subdivision  (b)  of  section  213  is 
exempt  from  taxation  under  this  title,  and  the  amount  of 
interest  allowed  as  a credit  under  subdivision  (a)  of  section  236; 

1(530  (8)  A reasonable  allowance,  for  the  exhaustion,  wear  and  1391 

tear  of  property,  as  provided  in  paragraph  (7)  of  subdivision  (a) 
of  section  234; 

1[53 1 (9)  In  the  case  of  such  a domestic  insurance  company,  the  1392 

net  income  of  which  (computed  without  the  benefit  of  this 
paragraph)  is  $25,000  or  less,  the  sum  of  $2,000; 

11532  but  if  the  net  income  is  more  than  $25,000  the  tax  im-  1393 
posed  by  section  246  shall  not  exceed  the  tax  which 
would  be  payable  if  the  $2,000  credit  were  allowed, 
plus  the  amount  of  the  net  income  in  excess  of  $25,000. 

1(533  (b)  In  the  case  of  a foreign  corporation  the  deductions  1395 

allowed  in  this  section  shall  be  allowed  to  the  extent  provided 
in  subdivision  (b)  of  section  234. 

1f534  (c)  Nothing  in  this  section  or  in  section  246  shall  be  con-  1396 

strued  to  permit  the  same  item  to  be  twice  deducted. 

Part  IV. — Administrative  Provisions. 

Payment  of  Taxes. 

1(535  Sec.  250.  (a)  That  except  as  otherwise  provided  in  this  2712 

section  and  sections  221  and  237  the  tax  shall  be  paid  in  four 
installments,  each  consisting  of  one-fourth  of  the  total  amount 
of  the  tax. 

1(536  The  first  installment  shall  be  paid  at  the  time  fixed  by  law  for  2713 
filing  the  return,  and 

K537  the  second  nstallment  Tall  be  paid  on  the  fifteenth  day  of  the  2714 
third  month, 

1(538  the  third  installment  on  the  fifteenth  day  of  the  sixth  month,  2715 
and 

1(539  the  fourth  installment  on  the  fifteenth  day  of  the  ninth  month,  2716 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


64 


2-27-22.  THE  INCOME  TAX  LAW.  §250. 


Law  Repeated 

Paragraph  at  H 

^[540  after  the  time  fixed  by  law  for  filing  the  return.  2717 


If  541  Where  an  extension  of  time  for  filing  a return  is  granted  the  time  2722 
for  payment  of  the  first  installment  shall  be  postponed  until  the 
date  of  the  expiration  of  the  period  of  the  extension,  but  the 
time  for  payment  of  the  other  installments  shall  not  be  post- 
poned unless  the  Commissioner  so  provides  in  granting  the 
extension. 

1f542  In  any  case  in  which  the  time  for  the  payment  of  any  installment  2724 
is  at  the  request  of  the  taxpayer  thus  postponed,  there  shall  be 
added  as  part  of  such  installment  interest  thereon  at  the  rate 
of  one-half  of  1 per  centum  per  month  from  the  time  it  would 
have  been  due  if  no  extension  had  been  granted,  until  paid. 

If 543  If  any  installment  is  not  paid  when  due,  the  whole  amount  2731 
of  the  tax  unpaid  shall  become  due  and  payable  upon  notice 
and  demand  by  the  collector. 

If 544  The  tax  may  at  the  option  of  the  taxpayer  be  paid  in  a single  2719 
payment  instead  of  in  installments,  in  which  case  the  total 
amount  shall  be  paid  on  or  before  the  time  fixed  by  law  for  filing 
the  return,  or,  where  an  extension  of  time  for  filing  the  return 
has  been  granted,  on  or  before  the  expiration  of  the  period  of 
such  extension. 

f 545  (b)  As  soon  as  practicable  after  the  return  is  filed,  the  Com-  2597 

missioner  shall  examine  it.  If  it  then  appears  that  the  correct 
amount  of  the  tax  is  greater  or  less  than  that  shown  in  the 
return,  the  installments  shall  be  recomputed. 

if546  If  the  amount  already  paid  exceeds  that  which  should  have  been  2598 
paid  on  the  basis  of  the  installments  as  recomputed,  the  excess 
so  paid  shall  be  credited  against  the  subsequent  installments; 
and  if  the  amount  already  paid  exceeds  the  correct  amount  of  the 
tax,  the  excess  shall  be  credited  or  refunded  to  the  taxpayer  in 
accordance  with  the  provisions  of  section  252. 

if547  If  the  amount  already  paid  is  less  than  that  which  should  2599 
have  been  paid,  the  difference,  to  the  extent  not  covered  by  any 
credits  due  to  the  taxpayer  under  section  252  (hereinafter  called 
“deficiency”),  together  with  interest  thereon  at  the  rate  of  one- 
half  of  1 per  centum  per  month  from  the  time  the  tax  was 
due  (or,  if  paid  on  the  installment  basis,  on  the  deficiency  of 
each  installment  from  the  time  the  installment  was  due),  shall 
be  paid  upon  notice  and  demand  by  the  collector. 

If 548  If  any  part  of  the  deficiency  is  due  to  negligence  or  intentional  2600 
disregard  of  authorized  rules  and  regulations  with  knowledge 
thereof,  but  without  intent  to  defraud,  there  shall  be  added  as 
part  of  the  tax  5 per  centum  of  the  total  amount  of  the  deficiency 
in  the  tax,  and  interest  in  such  a case  shall  be  collected  at  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


65 


§250. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Ijflw  Repeated 

Paragraph  at  ^ 

(^[548)  rate  of  1 per  centum  per  month  on  the  amount  of  such  deficiency  2600 
in  the  tax  from  the  time  it  was  due  (or,  if  paid  on  the  install- 
ment basis,  on  the  amount  of  the  deficiency  in  each  installment 
from  the  time  the  installment  was  due),  which  penalty  and 
interest  shall  become  due  and  payable  upon  notice  and  demand 
by  the  collector. 

1{549  If  any  part  of  the  deficiency  is  due  to  fraud  with  intent  to  evade  2601 
tax,  then,  in  lieu  of  the  penalty  provided  by  section  3176  of  the 
Revised  Statutes,  as  amended,  for  false  or  fraudulent  returns 
willfully  made,  but  in  addition  to  other  penalties  provided  by 
law  for  false  or  fraudulent  returns,  there  shall  be  added  as  part 
of  the  tax  50  per  centum  of  the  total  amount  of  the  deficiency 
in  the  tax.  In  such  case  the  whole  amount  of  the  tax  unpaid, 
including  the  penalty  so  added,  shall  become  due  and  payable 
upon  notice  and  demand  by  the  collector. 

*{550  (c)  If  the  return  is  made  pursuant  to  section  3176  of  the  2623 

Revised  Statutes  as  amended,  the  amount  of  tax  determined  to 
be  due  under  such  return  shall  be  paid  upon  notice  and  demand 
by  the  collector. 

^[551  (d)  The  amount  of  income,  excess-profits,  or  war-profits  2742 

taxes  due  under  any  return  made  under  this  Act  for  the  taxable 
year  1921  or  succeeding  taxable  years 

1{552  shall  be  determined  and  assessed  by  the  Commissioner  2743 

within  four  years  after  the  return  was  filed,  and 

1f553  the  amount  of  any  such  taxes  due  under  any  return  made  2744 
under  this  Act  for  prior  taxable  years  or  under  piior  income, 
excess-profits,  or  war-profits  tax  Acts,  or  under  section  38  of 
the  Act  entitled  “An  Act  to  provide  revenue,  equalize  duties, 
and  encourage  the  industries  of  the  United  States,  and  for 
other  purposes,”  approved  August  5,  1909, 

11554  shall  be  determined  and  assessed  within  five  years  after  2745 

the  return  was  filed, 

1{555  unless  both  the  Commissioner  and  the  taxpayer  consent  in  2746 
writing  to  a later  determination,  assessment,  and  collection 
of  the  tax; 

1{556  and  no  suit  or  proceeding  for  the  collection  of  any  such  taxes  2749 
due  under  this  Act  or  under  prior  income,  excess-profits,  or 
war-profits  tax  Acts,  or  of  any  taxes  due  under  section  38  of 
such  Act  of  August  5,  1909,  shall  be  begun,  after  the  expiration 
of  five  years  after  the  date  when  such  return  was  filed, 

1{557  but  this  shall  not  affect  suits  or  proceedings  begun  at  the  time  2750 
of  the  passage  of  this  Act: 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


66 


2-27-22. 


THE  INCOME  TAX  LAW. 


§250. 


Law  Repeats 

Paragraph  _ ‘ 

1(558  Provided. , That  in  the  case  of  income  received  during  the  2753 

lifetime  of  a decedent,  all  taxes  due  thereon  shall  he  deter- 
mined and  assessed  by  the  Commissioner  within  one 
year  after  written  request  therefor  by  the  executor, 
administrator,  or  other  fiduciary  representing  the  estate 
of  such  decedent : 

If 559  Provided  further,  That  in  the  case  of  a false  or  fraudulent  2754 

return  with  intent  to  evade  tax,  or  of  a failure  to  file  a re- 
quired return , the  amount  of  tax  due  may  be  determined, 
assessed,  and  collected,  and  a suit  or  proceeding  for 
the  collection  of  such  amount  may  be  begun,  at  any  time 
after  it  becomes  due: 

1f560  Provided  further,  That  in  cases  coming  within  the  scope  of  2755 

paragraph  (9)  of  subdivision  (a)  of  section  214,  or  of  par- 
agraph (8)  of  subdivision  (a)  of  section  234,  or  in 
cases  of  final  settlement  of  losses  and other  deductions 
tentatively  allowed  by  the  Commissioner  pending  a 
determination  of  the  exact  amount  deductible,  the 
amount  of  tax  or  deficiency  in  tax  due  may  be  determined, 
assessed,  and  collected  at  any  time; 

1(561  but  prior  to  the  assessment  thereof  the  taxpayer  shall  be  2757 
notified  and  given  a period  of  not  less  than  thirty  days  in  which 
to  file  an  appeal  and  be  heard  as  hereinafter  provided  in  this 
subdivision. 

If  562  If  upon  examination  of  a return  made  under  the  Revenue  Act  2758 

of  1916,  the  Revenue  Act  of  1917,  the  Revenue  Act  of  1918,  or 
this  Act,  a tax  or  a deficiency  in  tax  is  discovered,  the  tax- 
payer shall  be  notified  thereof  and  given  a period  of  not  less 
than  thirty  days  after  such  notice  is  sent  by  registered  mail 
in  which  to  file  an  appeal  and  show  cause  or  reason  why  the 
tax  or  deficiency  should  not  be  paid. 

1f563  Opportunity  for  hearing  shall  be  granted  and  a final  decision  2759 
thereon  shall  be  made  as  quickly  as  practicable. 

1(564  Any  tax  or  deficiency  in  tax  then  determined  to  be  due  shall  be  2760 
assessed  and  paid,  together  with  the  penalty  and  interest,  if  any, 
applicable  thereto,  within  ten  days  after  notice  and  demand  by 
the  collector  as  hereinafter  provided, 

K565  and  in  such  cases  no  claim  in  abatement  of  the  amount  so  2761 
assessed  shall  be  entertained: 

K566  Provided,  That  in  cases  where  the  Commissioner  believes  2762 
that  the  collection  of  the  amount  due  will  be  jeopardized 
by  such  delay  he  may  make  the  assessment  without  giving 
such  notice  or  awaiting  the  conclusion  of  such  hearing. 

Copyright  1922,  by  Tht  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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§250. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Paragraph 

1F567  (e)  If  any  tax  remains  unpaid  after  the  date  when  it  is  due,  2725 

and  for  ten  days  after  notice  and  demand  by  the  collector,  then, 
except  in  the  case  of  estates  of  insane,  deceased,  or  insolvent 
persons,  there  shall  be  added  as  part  of  the  tax  the  sum  of 
5 per  centum  on  the  amount  due  but  unpaid,  plus  interest 
at  the  rate  of  1 per  centum  per  month  upon  such  amount  from 
the  time  it  became  due: 

H 568  Provided,  Thai  as  to  any  such  amount  which  is  the  2726 

subject  of  a bona  fide  claim  for  abatement  filed  within  ten 
days  after  notice  and  demand  by  the  collector , where  the 
taxpayer  has  not  had  the  benefit  of  the  provisions  of 
subdivision  (d),  such  sum  of  5 per  centum  shall  not  be 
added  and  the  interest  from  the  time  the  amount  was  due 
until  the  claim  is  decided  shall  be  at  the  rale  of  one-half 
of  1 per  centum  per  month  on  that  part  of  the  claim 
rejected. 

If  569  In  the  case  of  the  first  installment  provided  for  in  sub-  2728 
division  (a)  the  instructions  printed  on  the  return  shall  be 
sufficient  notice  of  the  date  when  the  tax  is  due  and  sufficient 
demand,  and  the  taxpayer’s  computation  of  the  tax  on  the 
return  shall  be  sufficient  notice  of  the  amount  due. 

1[570  In  the  case  of  each  subsequent  installment  the  collector  may,  2729 
within  thirty  days  and  not  later  than  ten  days  before  the  in- 
stallment becomes  due,  mail  to  the  taxpayer  notice  of  the 
amount  of  the  installment  and  the  date  on  which  it  is  due  for 
payment.  Such  notice  of  the  collector  shall  be  sufficient  notice 
and  sufficient  demand  under  this  section. 

H57 1 _ (f)  In  the  case  of  any  deficiency  (except  where  the  deficiency  2604 

is  due  to  negligence  or  to  fraud  with  intent  to  evade  tax)  where 
it  is  shown  to  the  satisfaction  of  the  Commissioner  that  the 
payment  of  such  deficiency  would  result  in  undue  hardship  to 
the  taxpayer,  the  Commissioner  may,  with  the  approval  of  the 
Secretary,  extend  the  time  for  the  payment  of  such  deficiency 
or  any  part  thereof  for  such  period  not  in  excess  of  eighteen 
months  from  the  passage  of  this  Act  as  the  Commissioner  may 
determine. 

If572  In  such  case  the  Commissioner  may  require  the  taxpayer  to  2605 
furnish  a bond  with  sufficient  sureties  conditioned  upon  the 
payment  of  the  deficiency  in  accordance  with  the  terms  of 
the  extension  granted. 

1f573  There  shall  be  added  in  lieu  of  other  interest  provided  by  law,  2606 
as  a part  of  such  deficiency,  interest  thereon  at  the  rate  of  two- 
thirds  of  1 per  centum  per  month  from  the  time  such  extension 
is  granted;  except  where  such  other  interest  provided  by  law 
is  in  excess  of  interest  at  the  rate  of  two-thirds  of  1 per  centum 
per  month. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


68 


2-27-22. 

THE  INCOME  TAX  LAW. 

§250. 

Law 

• 

Repeated 

Paragraph 

at  U 

1[574  If  the  deficiency  or  any  part  thereof  is  not  paid  in  accordance  2607 
with  the  terms  of  the  extension  granted,  there  shall  be  added 
as  part  of  the  deficiency,  in  lieu  of  other  interest  and  penalties 
provided  by  law,  the  sum  of  5 per  centum  of  the  deficiency  and 
interest  on  the  deficiency  at  the  rate  of  1 per  centum  per  month 
from  the  time  it  becomes  payable  in  accordance  with  the  terms 
of  such  extension. 

1[575  (g)  if  the  Commissioner  finds  that  a taxpayer  designs  2782 

quickly  to  depart  from  the  United  States  or  to  remove  his 
property  therefrom,  or  to  conceal  himself  or  his  property  therein, 
or  to  do  any  other  act  tending  to  prejudice  or  to  render  wholly 
or  partly  ineffectual  proceedings  to  collect  the  tax  for  the 
taxable  year  then  last  past  or  the  taxable  year  then  current 
unless  such  proceedings  be  brought  without  delay,  the  Com- 
missioner shall  declare  the  taxable  period  for  such  taxpayer 
immediately  terminated  and  shall  cause  notice  of  such  finding 
and  declaration  to  be  given  the  taxpayer,  together  with  a 
demand  for  immediate  payment  of  the  tax  for  the  taxable 
period  so  declared  terminated  and  of  the  tax  for  the  preceding 
taxable  year  or  so  much  of  said  tax  as  is  unpaid,  whether  or 
not  the  time  otherwise  allowed  by  law  for  filing  return  and 
paying  the  tax  has  expired;  and  such  taxes  shall  thereupon 
become  immediately  due  and  payable.  In  any  action  or  suit 
brought  to  enforce  payment  of  taxes  made  due  and  payable  by 
virtue  of  the  provisions  of  this  subdivision  the  finding  of  the 
Commissioner,  made  as  herein  provided,  whether  made  after 
notice  to  the  taxpayer  or  not,  shall  be  for  all  purposes  presump- 
tive evidence  of  the  taxpayer’s  design.  A taxpayer  who  is  not 
in  default  in  making  any  return  or  paying  income,  war-profits, 
or  excess-profits  tax  under  any  act  of  Congress  may  furnish  to 
the  United  States,  under  regulations  to  be  prescribed  by  the 
Commissioner  with  the  approval  of  the  Secretary,  security 
approved  by  the  Commissioner  that  he  will  duly  make  the 
return  next  thereafter  required  to  be  filed  and  pay  the  tax  next 
thereafter  required  to  be  paid.  The  Commissioner  may  approve 
and  accept  in  like  manner  security  for  return  and  payment 
of  taxes  made  due  and  payable  by  virtue  of  the  provisions  of 
this  subdivision,  provided  the  taxpayer  has  paid  in  full  all  other 
income,  war-profits,  or  excess-profits  taxes  due  from  him  under 
any  act  of  Congress.  If  security  is  approved  and  accepted 
pursuant  to  the  provisions  of  this  subdivision  and  such  further 
or  other  security  with  respect  to  the  tax  or  taxes  covered  thereby 
is  given  as  the  Commissioner  shall  from  time  to  time  find  neces- 
sary and  require,  payment  of  such  taxes  shall  not  be  enforced  by 
any  proceedings  under  the  provisions  of  this  subdivision  prior 
to  the  expiration  of  the  time  otherwise  allowed  for  paying 
such  respective  taxes. 

11576  In  the  case  of  a citizen  of  the  United  States  about  to  depart  2783 
from  the  United  States  the  Commissioner  may,  at  his  discretion, 


Copyright  1922,  by  The  Corporation  Trust  Company 

THE  FEDERAL  INCOME  TAX  SERVICE 

69 


{252. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law  . 

Paragraph 

(1(576)  waive  any  or  all  of  the  requirements  placed  on  the 
by  this  subdivision. 


Repeated 
at  U 

taxpayer  2783 


H577  No  alien  shall  depart  from  the  United  States  unless  he  first 

secures  from  the  collector  or  agent  in  charge  a certificate  that  2784 
he  has  complied  with  all  the  obligations  imposed  upon  him  by 
the  income,  war-profits,  and  excess-profits  tax  laws. 


1(578  If  a taxpayer  violates  or  attempts  to  violate  this  subdivision  2785 
there  shall,  in  addition  to  all  other  penalties,  be  added  as  part 
of  the  tax  25  per  centum  of  the  total  amount  of  the  tax  or 
deficiency  in  the  tax,  together  with  interest  at  the  rate  of  1 
per  centum  per  month  from  the  time  the  tax  became  due. 

J579  (h)  The  provisions  of  subdivisions  (e),  (f)  and  (g)  of  this  2787 

section  shall  apply  to  the  assessment  and  collection  of  taxes 
which  have  accrued  or  may  accrue  under  the  Revenue  Act  of 
1917,  the  Revenue  Act  of  1918  or  this  Act. 

Receipts  for  Taxes. 

t580  Sec.  251.  That  every  collector  to  whom  any  payment  of  2798 
any  tax  is  made  under  the  provisions  of  this  title  shall  upon  re- 
quest give  to  the  person  making  such  payment  a full  written 
or  printed  receipt,  stating  the  amount  paid  and  the  particular 
account  for  which  such  payment  was  made;  and 

K581  whenever  any  debtor  pays  taxes  on  account  of  payments  made  2810 
or  to  be  made  by  him  to  separate  creditors  the  collector  shall, 
if  requested  by  such  debtor,  give  a separate  receipt  for  the 
tax  paid  on  account  of  each  creditor  in  such  form  that  the 
debtor  can  conveniently  produce  such  receipts  separately  to  his 
several  creditors  in  satisfaction  of  their  respective  demands 
up  to  the  amounts  stated  in  the  receipts;  and  such  receipt 
shall.be  sufficient  evidence  in  favor  of  such  debtor  to  justify 
him  in  withholding  from  his  next  payment  to  his  creditor  the 
amount  therein  stated;  but  the  creditor  may,  upon  giving  to  his 
debtor  a full  written  receipt  acknowledging  the  payment  to  him 
of  any  sum  actually  paid  and  accepting  the  amount  of  tax  paid 
as  aforesaid  (specifying  the  same)  as  a further  satisfaction  of 
the  debt  to  that  amount,  require  the  surrender  to  him  of  such 
collector’s  receipt. 


Refunds. 

?582  Sec.  252.  That  if,  upon  examination  of  any  return  of  in-  2825 
come  made  pursuant  to  this  Act,  the  Act  of  August  5,  1909, 
entitled  “An  Act  to  provide  revenue,  equalize  duties,  and  en- 
courage the  industries  of  the  United  States,  and  for  other 
purposes,”  the  Act  of  October  3, 1913,  entitled  “An  Act  to  reduce 
tariff  duties  and  to  provide  revenue  for  the  Government,  and 


Copyright  1922,  by  Tht  Corporation  Trust  Company. 
THE  jrXBEEAL  INCOME  TAX  8 IE  TICS 

70 


2-27-22. 

THE  INCOME  TAX  LAW. 

(253. 

Law 

Paragraph 

Repeated 

•t  1 

(11582)  for  other  purposes,”  the  Revenue  Act  of  1916,  as  amended,  the  2825 
Revenue  Act  of  1917,  or  the  Revenue  Act  of  1918,  it  appears  that 
an  amount  of  income,  war-profits  or  excess-profits  tax  has  been 
paid  in  excess  of  that  properly  due,  then,  notwithstanding  the 
provisions  of  section  3228  of  the  Revised  Statutes,  the  amount 
of  the  excess  shall  be  credited  against  any  income,  war-profits 
or  excess-profits  taxes,  or  installment  thereof,  then  due  from 
the  taxpayer  under  any  other  return,  and  any  balance  of  such 
excess  shall  be  immediately  refunded  to  the  taxpayer: 

4i|583  Provided,  That  no  such  credit  or  refund  shall  be  allowed  2826 

or  made  after  five  years  from  the  date  when  the  return 
was  due,  unless  before  the  expiration  of  such  five  years 
a claim  therefor  is  filed  by  the  taxpayer : 

1(584  Provided  further,  That  if  upon  examination  of  any  2850 

return  of  income  made  pursuant  to  the  Revenue  Act  of 
1917,  the  Revenue  Act  of  1918,  or  this  Act,  the  invested 
capital  of  a taxpayer  is  decreased  by  the  Commissioner, 
and  such  decrease  is  due  to  the  fact  that  the  taxpayer  failed 
to  take  adequate  deductions  in  previous  years,  with  the 
result  that  an  amount  of  income  tax  in  excess  of  that 
properly  due  was  paid  in  any  previous  year  or  years, 
then,  notwithstanding  any  other  provision  of  law  and 
regardless  of  the  expiration  of  such  five-year  period,  the 
amount  of  such  excess  shall,  without  the  filing  of  any 
claim  therefor,  be  credited  or  refunded  as  provided  in 
this  section: 

1(585  And  provided  further,  That  nothing  in  this  section  shall  2852 

be  construed  to  bar  from  allowance  claims  for  refund  filed 
prior  to  the  passage  of  the  Revenue  Act  of  1918  under 
subdivision  (a)  of  section  14  of  the  Revenue  Act  of  1916, 
or  filed  prior  to  the  passage  of  this  Act  under  section 
252  of  the  Revenue  Act  of  1918. 

Penalties. 

1(586  Sec.  253.  That  any  individual,  corporation,  or  partner-  2627 
ship  required  under  this  title  to  pay  or  collect  any  tax,  to  make 
a return  or  to  supply  information,  who  fails  to  pay  or  collect 
such  tax,  to  make  such  return,  or  to  supply  such  information 
at  the  time  or  times  required  under  this  title,  shall  be  liable 
to  a penalty  of  not  more  than  $1,000. 

K587  Any  individual,  corporation,  or  partnership,  or  any  officer  or  2628 
employee  of  any  corporation  or  member  or  employee  of  a part- 
nership, who  willfully  refuses  to  pay  or  collect  such  tax,  to 
make  such  return,  or  to  supply  such  information  at  the  time 
or  times  required  under  this  title,  or  who  willfully  attempts  in 
any  manner  to  defeat  or  evade  the  tax  imposed  by  this  title, 
shall  be  guilty  of  a misdemeanor  and  shall  be  fined  not  more 

Copyright  1922,  by  Tht  Corporation  Trust  Company. 

THE  rKEEXAL  INCOME  TAX  SERVICE 

71 


§256. 


THE  INCOME  TAX  LAW. 


2-27-22. 


i.  u Repeated 

Paragraph  ,t  ^ 

(1(587)  than  $10,000  or  imprisoned  for  not  more  than  one  year,  or  both,  2628 
together  with  the  costs  of  prosecution. 

Returns  of  Payments  of  Dividends. 

1(588  Sec.  254.  That  every  corporation  subject  to  the  tax  im-  2378 

posed  by  this  title  and  every  personal  service  corporation  shall, 
when  required  by  the  Commissioner,  render  a correct  return, 
duly  verified  under  oath,  of  its  payments  of  dividends,  stating 
the  name  and  address  of  each  stockholder,  the  number  of  shares 
owned  by  him,  and  the  amount  of  dividends  paid  to  him. 

Returns  of  Brokers. 

1(589  Sec.  255.  That  every  individual,  corporation,  or  partner-  2380 

ship  doing  business  as  a broker  shall,  when  required  by  the 
Commissioner,  render  a correct  return  duly  verified  under  oath, 
under  such  rules  and  regulations  as  the  Commissioner,  with 
the  approval  of  the  Secretary,  may  prescribe,  showing  the 
names  of  customers  for  whom  such  individual,  corporation,  or 
partnership  has  transacted  any  business,  with  such  details  as 
to  the  profits,  losses,  or  other  information  which  the  Commis- 
sioner may  require,  as  to  each  of  such  customers,  as  will  enable 
the  Commissioner  to  determine  whether  all  income  tax  due  on 
profits  or  gains  of  such  customers  has  been  paid. 

Information  at  Source. 

1(590  Sec.  256.  That  all  individuals,  corporations,  and  part-  2336 
nerships,  in  whatever  capacity  acting,  including  lessees  or 
mortgagors  of  real  or  personal  property,  fiduciaries,  and  em- 
ployers, 

1(591  making  payment  to  another  individual,  corporation,  or  part-  2337 
nership, 

1(592  of  interest,  rent,  salaries,  wages,  premiums,  annuities,  com-  2338 
pensations,  remunerations,  emoluments,  or  other  fixed  or 
determinable  gains,  profits,  and  income  (other  than  payments 
described  in  sections  254  and  255), 

1(593  of  $1,000  or  more  in  any  taxable  year,  2339 

K594  or,  in  the  case  of  such  payments  made  by  the  United  States,  2340 
the  officers  or  employees  of  the  United  States  having  infor- 
mation as  to  such  payments  and  required  to  make  returns 
in  regard  thereto  by  the  regulations  hereinafter  provided  for, 

1(595  shall  render  a true  and  accurate  return  to  the  Commissioner,  2341 
under  such  regulations  and  in  such  form  and  manner  and  to 
such  extent  as  may  be  prescribed  by  him  with  the  approval 
of  the  Secretary,  setting  forth  the  amount  of  such  gains,  profits, 

Copyright  1922 , by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

72 


2-27-22.  THE  INCOME  TAX  LAW.  §257. 


Law  • Repeated 

Paragraph  at  U 

(1f595)  and  income,  and  the  name  and  address  of  the  recipient  of  such  2341 
payment. 

^[596  Such  returns  may  be  required,  regardless  of  amounts,  2353 


^[597  (1)  in  the  case  of  payments  of  interest  upon  bonds,  mortgages,  2354 

deeds  of  trust,  or  other  similar  obligations  of  corporations,  and 

^[598  (2)  in  the  case  of  collections  of  items  (not  payable  in  the  United  2356 

States)  of  interest  upon  the  bonds  of  foreign  countries  and 
interest  upon  the  bonds  of  and  dividends  from  foreign  corpora- 
tions by  individuals,  corporations,  or  partnerships,  under- 
taking as  a matter  of  business  or  for  profit  the  collection  of 
foreign  payments  of  such  interest  or  dividends  by  means  of 
coupons,  checks,  or  bills  of  exchange. 

If 599  When  necessary  to  make  effective  the  provisions  of  this  sec-  2369 
tion  the  name  and  address  of  the  recipient  of  income  shall  be 
furnished  upon  demand  of  the  individual,  corporation,  or 
partnership  paying  the  income. 

1f600  The  provisions  of  this  section  shall  apply  to  the  calendar  2342 
year  1921  and  each  calendar  year  thereafter, 

^601  but  shall  not  apply  to  the  payment  of  interest  on  2351 

obligations  of  the  United  States. 

Returns  to  be  Public  Records. 

^[602  Sec.  257.  That  returns  upon  which  the  tax  has  been  2659 
determined  by  the  Commissioner  shall  constitute  public 
records ; 

^[603  but  they  shall  be  open  to  inspection  only  upon  order  of  the  2662 
President  and  under  rules  and  regulations  prescribed  by  the 
Secretary  and  approved  by  the  President: 

*[604  Provided,  That  the  proper  officers  of  any  State  imposing  2682 

an  income  tax  may , upon  the  request  of  the  governor 
thereof , have  access  to  the  returns  of  any  corporation,  or 
to  an  abstract  thereof  showing  the  name  and  income  of  the 
corporation,  at  such  times  and  in  such  manner  as  the 
Secretary  may  prescribe : 

^f 605  Provided  further.  That  all  bona  fide  stockholders  of  2691 

record  owning  1 per  centum  or  more  of  the  outstanding 
slock  of  any  corporation  shall,  upon  making  request  of 
the  Commissioner,  be  allowed  to  examine  the  annual 
income  returns  of  such  corporation  and  of  its  sub- 
sidiaries. 

5f606  Any  stockholder  who  pursuant  to  the  provisions  of  this  2692 

section  is  allowed  to  examine  the  return  of  any  corpo- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


73 


§260. 


THE  INCOME  TAX  LAW. 


8-2T-M. 


Paragraph  Repeated 

(11606)  ration , and,  who  makes  known  in  any  manner  whatever  2692 

not  provided  by  Law  the  amount  or  source  of  income, 
profits,  losses,  expenditures,  or  any  particular  thereof, 
set  forth  or  disclosed  in  any  such  return,  shall  be  guilty  of 
a misdemeanor  and  be  punished  by  a fine  not  exceeding 
$ 1,000,  or  by  imprisonment  not  exceeding  one  year , 
or  both. 

H607  The  Commissioner  shall  as  soon  as  practicable  in  each  2706 
year  cause  to  be  prepared  and  made  available  to  public  in- 
spection in  such  manner  as  he  may  determine,  in  the  office 
of  the  collector  in  each  internal-revenue  district  and  in  such 
other  places  as  he  may  determine,  lists  containing  the  names 
and  the  post-office  addresses  of  all  individuals  making  income- 
tax  returns  in  such  district. 

Publication  of  Statistics. 

1f608  Sec.  258.  That  the  Commissioner,  with  the  approval  of  2707 

the  Secretary,  shall  prepare  and  publish  annually  statistics 
reasonably  available  with  respect  to  the  operation  of  the 
income,  war-profits  and  excess-profits  tax  laws,  including 
classifications  of  taxpayers  and  of  income,  the  amounts  allowed 
as  deductions,  exemptions,  and  credits,  and  any  other  fact* 
deemed  pertinent  and  valuable. 

Collection  of  Foreign  Items. 

H609  Sec.  259.  That  all  individuals,  corporations,  or  partner-  2371 

ships  undertaking  as  a matter  of  business  or  for  profit  the 
collection  of  foreign  payments  of  interest  or  dividends  by 
means  of  coupons,  checks,  or  bills  of  exchange 

H610  shall  obtain  a license  from  the  Commissioner  and  shall  be  2372 
subject  to  such  regulations  enabling  the  Government  to  obtain 
the  information  required  under  this  title  as  the  Commissioner, 
with  the  approval  of  the  Secretary,  shall  prescribe; 

H611  and  whoever  knowingly  undertakes  to  collect  such  payments  2373 
without  having  obtained  a license  therefor,  or  without  com- 
plying with  such  regulations,  shall  be  guilty  of  a misdemeanor 
and  shall  be  fined  not  more  than  $5,000,  or  imprisoned  for  not 
more  than  one  year,  or  both. 

Citizens  of  Possessions  of  the  United  States. 

H612  Sec.  260.  That  any  individual  who  is  a citizen  of  any  766 
possession  of  the  United  States  (but  not  otherwise  a citizen 
of  the  United  States)  and  who  is  not  a resident  of  the  United 
States,  shall  be  subject  to  taxation  under  this  title  only  as  to 
income  derived  from  sources  within  the  United  States, 

Copyright  1922,  by  Tht  Corporation  Trust  Company. 

THE  FEDEJtAL  INCOME  TAX  8KETICS 

n 


5-1-22 


THE  INCOME  TAX  LAW. 


§262. 


Law  Repeated 

Paragraph  at  D 

1|6 1 3 and  in  such  case  the  tax  shall  be  computed  and  paid  in  the  same  767 
manner  and  subject  to  the  same  conditions  as  in  the  case  of  other 
persons  who  are  taxable  only  as  to  income  derived  from  such 
sources. 

1(614  Nothing  in  this  section  shall  be  construed  to  alter  or  amend  768 
the  provisions  of  the  Act  entitled  “An  Act  making  appropriations 
for  the  naval  service  for  the  fiscal  year  ending  June  30,  1922,  and 
for  other  purposes,”  approved  July  12,  1921,  relating  to  the 
imposition  of  income  taxes  in  the  Virgin  Islands  of  the  United 
States. 

Porto  Rico  and  Philippine  Islands. 

U615  Sec.  261.  That  in  Porto  Rico  and  the  Philippine  Islands  771 

the  income  tax  shall  be  levied,  assessed,  collected,  and  paid  as 
provided  by  law  prior  to  the  passage  of  this  Act. 

^616  The  Porto  Rican  or  Philippine  Legislature  shall  have  772 
power  by  due  enactment  to  amend,  alter,  modify,  or  repeal  the 
income  tax  laws  in  force  in  Porto  Rico  or  the  Philippine  Islands, 
respectively. 

Income  From  Sources  Within  the  Possessions  of  the 
United  States. 

^[6 1 7 Sec.  262.  (a)  That  in  the  case  of  citizens  of  the  United  2070 

States  or  domestic  corporations,  satisfying  the  following  con- 
ditions, gross  income  means  only  gross  income  from  sources  with- 
in the  United  States — 

H618  (1)  If  80  per  centum  or  more  of  the  gross  income  of  such  2071 

citizen  or  domestic  corporation  (computed  without  the  benefit  of 
this  section)  for  the  three-year  period  immediately  preceding  the 
close  of  the  taxable  year  (or  for  such  part  of  such  period  im- 
mediately preceding  the  close  of  such  taxable  year  as  may  be  ap- 
plicable) was  derived  from  sources  within  a possession  of  the 
United  States;  and 

1[619  (2)  If,  in  the  case  of  such  corporation,  50  per  centum  or  2072 

more  of  its  gross  income  (computed  without  the  benefit  of  this 
section)  for  such  period  or  such  part  thereof  was  derived  from 
the  active  conduct  of  a trade  or  business  within  a possession  of 
the  United  States;  or 

^620  (3)  If,  in  the  case  of  such  citizen,  50  per  centum  or  more  of  2073 

his  gross  income  (computed  without  the  benefit  of  this  section) 
for  such  period  or  such  part  thereof  was  derived  from  the  active 
conduct  of  a trade  or  business  within  a possession  of  the  United 
States  either  on  his  own  account  or  as  an  employee  or  agent  of 
another. 


Copyright  1922,  by  The  Corporation  'Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


75 


r 


§1307. 


THE  INCOME  TAX  LAW. 


5-1-22. 


Uw 

Paragraph  Repeated 

;l^'*  the  provisions  of  subdivision  (a)  tliere  2074 

shall  be  included  in  gross  income  all  amounts  received  by  such 
citizens  or  corporations  within  the  United  States,  whether 
derived  from  sources  within  or  without  the  United  States 


1|622 


..  .(c),  us^,‘n  l*‘‘s  section  the  term  “possession  of  the  2075 
United  States  does  not  include  the  Virgin  Islands  of  the  United 
States. 


Effective  Date  of  [Income  Tax]  Title. 

Sec.  263.  1 hat  this  title  shall  take  effect  as  of  January  1,  1921.  3004 


China  Trade  Act  Corporations. 

?®c"  ^64.  raxation  of  China  trade  Act  Corporations, 

TITLE  XIII.— general  administrative  provisions. 

[Of  the  Revenue  Act  of  1921.] 

Laws  Made  Applicable. 

Sec.  1300.  (Revenue  Act  of  1921.)  That  all  adininistiative,  2709 
special,  or  stamp  provisions  of  law,  including  the  law  relating  to 
th^  assessment  of  taxes,  so  far  as  applicable,  are  hereby  extended 
to  and  made  a part  of  this  Act,  and  every  person  liable  to  any  tax 
imposed  by  this  Act,  or  for  the  collection  thereof,  shall  keep  such 
records  and  render,  under  oath,  such  statements  and  returns, 
and  shall  comply  with  such  regulations  as  the  Commissioner’ 
with  the  approval  of  the  Secretary,  may  from  time  to  time  pre- 
scribe. 


f 

* 


♦ 


Rules  and  Regulations. 

■ u*ef’  (Rever>oe  Act  of  1921.)  1 hat  the  Commissioner,  2942 

with  the  approval  of  the  Secretary,  is  hereby  authorized  to  make 
all  needful  rules  and  regulations  for  the  enforcement  of  the  pro- 
visions of  this  Act.  * * * 


Fractional  Parts  of  a Cent. 

1626  Sec.  1306.  (Revenue  Act  of  1921.)  That  in  the  pay-  2788 

ment  of  any  tax  under  this  Act  not  payable  by  stamp  a frac- 
tional part  of  a cent  shall  be  disregarded  unless  it  amounts 
to  one-half  cent  or  more,  in  which  case  it  shall  be  increased  to 
1 cent. 

■S  ‘jf 

Returns. 

1[627  Sec.  1307.  (Revenue  Act  of  1921.)  That  whenever  in  2592 

the  judgment  of  the  Commissioner  necessary  he  may  require 
any  person,  by  notice  served  upon  him,  to  make  a return  or 
such  statements  as  he  deems  sufficient  to  show  whether  or 
not  such  person  is  liable  to  tax. 

Copyright  1922,  by  Thr  Corporation  Trust  Company. 

Tl-IE  FEDERAL  INCOME  TAX  SERVICE 


76 


2-27-22. 


THE  INCOME  TAX  LAW. 


§1310. 


Law 

Paragraph 


Repeated 
at  H 


Examination  of  Books  and  Witnesses. 


If 628  Sec.  1308.  (Revenue  Act  of  1921.)  That  the  Commis-  2593 
sioner,  for  the  purpose  of  ascertaining  the  correctness  of  any 
return  or  for  the  purpose  of  making  a return  where  none  has 
been  made,  is  hereby  authorized,  by  any  revenue  agent  or 
inspector  designated  by  him  for  that  purpose,  to  examine  any 
books,  papers,  records,  or  memoranda  bearing  upon  the  mat- 
ters required  to  be  included  in  the  return,  and  may  require 
the  attendance  of  the  person  rendering  the  return  or  of  any 
officer  or  employee  of  such  person,  or  the  attendance  of  any 
other  person  having  knowledge  in  the  premises,  and  may  take 
his  testimony  with  reference  to  the  matter  required  by  law  to 
be  included  in  such  return,  with  power  to  administer  oaths  to 
such  person  or  persons. 


^[629  Sec.  1309.  (Revenue  Act  of  1921.)  That  no  taxpayer  2594 
shall  be  subjected  to  unnecessary  examinations  or  investigations, 
and  only  one  inspection  of  a tax  payer’s  books  of  account  shall 
be  made  for  each  taxable  year  unless  the  taxpayer  requests  other- 
wise or  unless  the  Commissioner,  after  investigation,  notifies 
the  taxpayer  in  writing  that  an  additional  inspection  is  nec- 
essary. 


1[630  Sec.  1310.  (Revenue  Act  of  1921.)  (a)  That  if  any  person  2595 

is  summoned  under  this  Act  to  appear,  to  testify,  or  to  produce 
books,  papers  or  other  data,  the  district  court  of  the  United 
States  for  the  district  in  which  such  person  resides  shall  have 
jurisdiction  by  appropriate  process  to  compel  such  attendance, 
testimony,  or  production  of  books,  papers,  or  other  data. 

If631-  (b)  The  district  courts  of  the  United  States  at  the  instance  2596 

of  the  United  States  are  hereby  invested  with  such  jurisdiction 
to  make  and  issue,  both  in  actions  at  law  and  suits  in  equity, 
writs  and  orders  of  injunction,  and  of  ne  exeat  republica,  orders 
appointing  receivers,  and  such  other  orders  and  process,  and 
to  render  such  judgments  and  decrees,  granting  in  proper  cases 
both  legal  and  equitable  relief  together,  as  may  be  necessary 
or  appropriate  for  the  enforcement  of  the  provisions  of  this 
Act.  The  remedies  hereby  provided  are  in  addition  to  and 
not  exclusive  of  any  and  all  other  remedies  of  the  United 
States  in  such  courts  or  otherwise  to  enforce  such  provisions. 


II 632  (c)  Paragraph  Twentieth  of  section  24  of  the  Judicial  Code  2915 

is  amended  by  adding  at  the  end  thereof  the  following  new 
paragraph: 


Unnecessary  Examinations, 


Jurisdiction  of  Courts, 


[Suits  Against  the  United  States  in  District  Courts.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


77 


51311. 


THE  INCOME  TAX  LAW. 


8-27-22. 


I. aw 

Paragraph 


Repeated 
at  V 


(H632)  Concurrent  with  the  Court  of  Claims,  of  any  suit  or  pro-  2915 
ceedmg,  commenced  after  the  passage  of  the  Revenue  Act  of 
1921,  for  the  recovery  of  any  internal-revenue  tax  alleged  to  have 
been  erroneously  or  illegally  assessed  or  collected,  or  of  any 
penalty  claimed  to  have  been  collected  without  authority  or 
any  sum  alleged  to  have  been  excessive  or  in  any  manner 
wrongfully  collected,  under  the  internal-revenue  laws,  even 
if  the  claim  exceeds  $10,000,  if  the  collector  of  internal-revenue 
by  whom  such  tax,  penalty,  or  sum  was  collected  is  dead  at 
the  time  such  suit  or  proceeding  is  commenced. ** 


i|634  . Sec.  3164.  It  shall  be  the  duty  of  every  collector  of  2777 

internal  revenue  haying  knowledge  of  any  willful  violation 
of  any  law  of  the  United  States  relating  to  the  revenue,  within 
thirty  days  after  coming  into  possession  of  such  knowledge 
to  file  with  the  district  attorney  of  the  district  in  which  any 
fine  penalty,  or  forfeiture  may  be  incurred,  a statement  of 
all  the  facts  and  circumstances  of  the  case  within  his  knowledge, 
together  with  the  names  of  the  witnesses,  setting  forth  the 
provisions  of  law  believed  to  be  so  violated  on  which  reliance 
may  be  had  for  condemnation  or  conviction. 


1,635  ' Sec.  3165.  Every  collector,  deputy  collector,  internal-  2710 

revenue  agent,  and  internal-revenue  officer  assigned  to  duty 
under  an  internal-revenue  agent,  is  authorized  to  administer 
oaths  and  to  take  evidence  touching  any  part  of  the  adminis-  . 
tration  of  the  internal-revenue  laws  with  which  he  is  charged 
or  where  such  oaths  and  evidence  are  authorized  by  law  or 
regulation  authorized  by  law  to  be  taken. 

[Disclosure  of  Information  Made  Available  to  Internal  Revenue 

Officers.] 

.636  Sec.  3167.  It  shall  be  unlawful  for  any  collector,  deputy  2696 
collector,  agent,  clerk,  or  other  officer  or  employee  of  the  United 
States  to  divulge  or  to  make  known  in  any  manner  whatever 
not  provided  by  law  to  any  person  the  operations,  style  of  work, 
or  apparatus  of  any  manufacturer  or  producer  visited  by  him  in 
the  discharge  of  his  official  duties,  or  the  amount  or  source  of 
income,  profits,  losses,  expenditures,  or  any  particular  thereof, 
set  forth  or  disclosed  in  any  income  return,  or  to  permit  any 
income  returnjor  copy  thereof  or  any  book  containing  any 
abstract  or  particulars  thereof  to  be  seen  or  examined  by  any 


Amendments  to  Revised  Statutes. 


U1W,  oi/o,  ana  oi/o  or  tne  Kevised  bta 

as  amended,  are  reenacted,  without  change,  as  follows: 

[Duty  of  Collectors  to  Report  Violations  of  Law.] 


[Revenue  Officers  Who  May  Administer  Oaths.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THB  FEDERAL  INCOME  TAX  SERVICE 

76 


2-27-22. 


THE  INCOME  TAX  LAW. 


§1311. 


n . Repeated 

Paragraph  £t  ^ 

(1f636)  person  except  as  provided  by  law;  and  it  shall  be  unlawful  for  2696 
any  person  to  print  or  publish  in  any  manner  whatever  not 
provided  by  law  any  income  return,  or  any  part  thereof  or 
source  of  income,  profits,  losses,  or  expenditures  appearing  in 
any  income  return;  and  any  offense  against  the  foregoing  pro- 
vision shall  be  a misdemeanor  and  be  punished  by  a fine  not 
exceeding  $1,000  or  by  imprisonment  not  exceeding  one  year, 
or  both,  at  the  discretion  of  the  court;  and  if  the  offender  be  an 
officer  or  employee  of  the  United  States  he  shall  be  dismissed 
from  office  or  discharged  from  employment. 

[Canvas  of  Districts  by  Collectors.] 

1(637  . “Sec.  3172.  Every  collector  shall,  from  time  to  time,  cause  2583 

his  deputies  to  proceed  through  every  part  of  his  district  and 
inquire  after  and  concerning  all  persons  therein  who  are  liab  e 
to  pay  any  internal-revenue  tax,  and  all  persons  owning  or 
having  the  care  and  management  of  any  objects  liable  to  pay 
any  tax,  and  to  make  a list  of  such  persons  and  enumerate  said 
objects. 

“Sec.  3173.  ************** 
[Penalties  for  Failure  to  Make  Return  and  for  False  Returns.] 

1(638  . “Sec.  3176.  If  any  person,  corporation,  company,  or  asso-  2612 

ciation  fails  to  make  and  file  a return  or  list  at  the  time  pre- 
scribed by  law  or  by  regulation  made  under  authority  of  law, 
or  makes,  willfully  or  otherwise,  a false  or  fraudulent  return 
or  list, 

1(639  the  collector  or  deputy  collector  shall  make  the  return  or  list  2613 
from,  his  own  knowledge  and  from  such  information  as  he  can 
obtain  through  testimony  or  otherwise. 

1(640  In  any  such  case  the  Commissioner  may,  from  his  own  knowl-  2614 
edge  and  from  such  information  as  he  can  obtain  through 
testimony  or  otherwise,  make  a return  or  amend  any  return 
made  by  a collector  or  deputy  collector. 

1(641  Any  return  or  list  so  made  and  subscribed  by  the  Commissioner,  2615 
or  by  a collector  or  deputy  collector  and  approved  by  the  Com- 
missioner, shall  be  prima  facie  good  and  sufficient  for  all  legal 
purposes. 

1(642  “If  the  failure  to  file  a return  or  list  is  due  to  sickness  or  2562 
absence,  the  collector  may  allow  such  further  time’  not  exceed- 
ing thirty  days,  for  making  and  filing  the  return  or  list  as  he 
deems  proper. 

1(643  The  Commissioner  of  Internal  Revenue  shall  determine  and  2617 

assess  all  taxes,  other  than  stamp  taxes,  as  to  which  returns  'or 
lists  are  so  made  under  the  provisions  of  this  section. 

Copyright  1922,  by  Tht  Corporation  Trust  Company, 

THE  FEDEEAL  INCOME  TAX  SK8TICE 

79 


§1313. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 

If  644 


Repeated 
at  1 

2618 


In  case  of  any  failure  to  make  and  file  a return  or  list  within  the 
time  prescribed  by  law,  or  prescribed  by  the  Commissioner  of 
Internal  Revenue  or  the  collector  in  pursuance  of  law,  the  Com- 
missioner of  Internal  Revenue  shall  add  to  the  tax  25  per  centum 
of  its  amount, 

If 645  except  that  when  a return  is  filed  after  such  time  and  it  is  shown  2619 
that  the  failure  to  file  it  was  due  to  a reasonable  cause  and  not 
to  willful  neglect,  no  such  addition  shall  be  made  to  the  tax. 

11646  In  case  a false  or  fraudulent  return  or  list  is  willfully  made,  the  2620 
Commissioner  of  Internal  Revenue  shall  add  to  the  tax  50  per 
centum  of  its  amount. 

11647  “The  amount  so  added  to  any  tax  shall  be  collected  at  the  2621 
same  time  and  in  the  same  manner  and  as  part  of  the  tax 

11648  unless  the  tax  has  been  paid  before  the  discovery  of  the  neglect,  2622 
falsity,  or  fraud,  in  which  case  the  amount  so  added  shall  be 
collected  in  the  same  manner  as  the  tax.” 

Final  Determinations  and  Assessments. 

H649  Sec.  1312.  (Revenue  Act  of  1921.)  That  if  after  a deter-  2862 
mination  and  assessment  in  any  case  the  taxpayer  has  without 
protest  paid  in  whole  any  tax  or  penalty,  or  accepted  any  abate- 
ment, credit,  or  refund  based  on  such  determination  and  assess- 
ment, and  an  agreement  is  made  in  writing  between  the  tax- 
payer and  the  Commissioner,  with  the  approval  of  the  Secretary, 
that  such  determination  and  assessment  shall  be  final  and  con- 
clusive, then 

1j650  (except  upon  a showing  of  fraud  or  malfeasance  or  mis-  2863 
representation  of  fact  materially  affecting  the  de- 
termination or  assessment  thus  made) 

11651  (1)  the  case  shall  not  be  reopened  or  the  determination  and  2864 

assessment  modified  by  any  officer,  employee,  or  agent  of  the 
United  States,  and 

H652  (2)  no  suit,  action,  or  proceeding  to  annul,  modify,  or  set  aside  2865 

such  determination  or  assessment  shall  be  entertained  by  any 
court  of  the  United  States. 


Administrative  Review. 

11653  Sec.  1313.  (Revenue  Act  of  1921.)  That  in  the  absence  of  2866 
fraud  or  mistake  in  mathematical  calculation,  the  findings  of 
facts  in  and  the  decision  of  the  Commissioner  upon  (or  in  case 
the  Secretary  is  authorized  to  approve  the  same,  then  after 
such  approval)  the  merits  of  any  claim  presented  under  or 
authorized  by  the  internal-revenue  laws  shall  not  be  subject 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


80 


2-27-22. 


THE  INCOME  TAX  LAW. 


§1317. 


Law 

Paragraph 


(1f653)  to  review  by  any  other  administrative  officer,  employee, 
agent  of  the  United  States. 


Repeated 
at  H 

or  2866 


Retroactive  Regulations. 

11654  Sec.  1314.  (Revenue  Act  of  1921.)  That  in  case  a regulation  2944 
or  Treasury  decision  relating  to  the  internal-revenue  laws  made 
, by  the  Commissioner  or  the  Secretary,  or  by  the  Commissioner 
with  the  approval  of  the  Secretary,  is  reversed  by  a subsequent 
regulation  or  Treasury  decision,  and  such  reversal  is  not  im- 
mediately occasioned  or  required  by  a decision  of  a court  of  com- 
petent jurisdiction,  such  subsequent  regulation  or  Treasury 
decision  may,  in  the  discretion  of  the  Commissioner,  with  the  ap- 
proval of  the  Secretary,  be  applied  without  retroactive  effect. 


Refunds. 


^655  Sec.  1315.  (Revenue  Act  of  1921.)  That  section  3220  of  the  2811 

Revised  Statutes,  as  amended,  is  reenacted  without  change,  as 
follows : 

“Sec.  3220.  The  Commissioner  of  internal  Revenue,  subject 
to  regulations  prescribed  by  the  Secretary  of  the  Treasury,  is 
authorized  to  remit,  refund,  and  pay  back  all  taxes  erroneously  or 
illegally  assessed  or  collected,  all  penalties  collected  without  au- 
thority, and  all  taxes  that  appear  to  be  unjustly  assessed  or  ex- 
cessive in  amount,  or  in  any  manner  wrongfully  collected;  also 
to  repay  to  any  collector  or  deputy  collector  the  full  amount  of 
such  sums  of  money  as  may  be  recovered  against  him  in  any 
court,  for  any  internal  revenue  taxes  collected  by  him,  with  the 
cost  and  expenses  of  suit;  also  all  damages  and  costs  recovered 
against  any  assessor,  assistant  assessor,  collector,  deputy  collect- 
or, agent,  or  inspector,  in  any  suit  brought  against  him  by  reason 
of  anything  done  in  the  due  performance  of  his  official  duty,  and 
shall  make  report  to  Congress  at  the  beginning  of  each  regular 
session  of  Congress  of  all  transactions  under  this  section.” 

1656  Sec.  1316.  That  section  3228  of  the  Revised  Statutes  is  2827 
amended  to  read  as  follows: 

“Sec.  3228.  All  claims  for  the  refunding  or  crediting  of  any 
internal  revenue  tax  alleged  to  have  been  erroneously  or  illegally 
assessed  or  collected,  or  of  any  penalty  alleged  to  have  been 
collected  without  authority,  or  of  any  sum  alleged  to  have  been 
excessive  or  in  any  manner  wrongfully  collected,  must  be  pre- 
sented to  the  Commissioner  of  Internal  Revenue  within^ four 
years  next  after  payment  of  such  tax,  penalty,  or  sum.” 

H657  This  section,  except  as  modified  by  section  252,  shall  apply  2828 
retroactively  to  claims  for  refund  under  the  Revenue  Act  of 
1916,  the  Revenue  Act  of  1917,  and  the  Revenue  Act  of  1918. 

^658  Sec.  1317.  (Revenue  Act£of£l921.)  1 hat  theE  paragraph!  of  2919 
section  3689  of  the  Revised  Statutes,  as  amended,  reading^as 

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Law 

Paragraph 

(1i 658)  follows:  “Refunding  taxes  illegally  collected  (internal  revenue): 
lo  refund  and  pay  back  duties  erroneously  or  illegally  assessed 
or  collected  under  the  internal  revenue  laws,”  is  repealed  from 
and  after  June  30,  1920;  and  the  Secretary  of  the  Treasury  shall 
submit  for  the  fiscal  year  1921,  and  annually  thereafter,  an  esti- 
mate of  appropriations  to  refund  and  pay  back  duties  or  taxes 
erroneously  or  illegally  assessed  or  collected  under  the  internal- 
revenue  laws,  and  to  pay  judgments,  including  interest  and 
costs,  rendered  for  taxes  or  penalties  erroneously  or  illegally 
assessed  or  collected  under  the  internal-revenue  laws. 

Limitations  Upon  Suits  and  Prosecutions. 

H659  Sec.  1318.  (Revenue  Act  of  1921.)  That  section  3226  of 
the  Revised  Statutes  is  amended  to  read  as  follows: 

Sec.  3226.  No  suit  or  proceeding  shall  be  maintained  in 
any  court  for  the  recovery  of  any  internal-revenue  tax  alleged 
to  have  been  erroneously  or  illegally  assessed  or  collected,  or  of 
any  penalty  claimed  to  have  been  collected  without  authority, 
or  of  any  sum  alleged  to  have  been  excessive  or  in  any  manner 
wrongfully  collected,  until  a claim  for  refund  or  credit  has  been 
duly  filed  with  the  Commissioner  of  Internal  Revenue,  according 
to  the  provisions  of  law  in  that  regard,  and  the  regulations. of  the 
Secretary  of  the  Treasury  established  in  pursuance  thereof.  No 
such  suit  or  proceeding  shall  be  begun  before  the  expiration  of  six 
months  from  the  date  of  filing  such  claim  unless  the  Commis- 
sioner renders  a decision  thereon  within  that  time,  nor  after  the 
expiration  of  five  years  from  the  date  of  the  payment  of  such 
tax,  penalty,  or  sum.” 

5[660  . This  section  shall  not  affect  any  suit  or  proceeding  instituted 

prior  to  the  passage  of  this  Act,  but  shall  apply  to  all  suits  and 
proceedings  instituted  after  the  passage  of  this  Act,  whether  or 
not  barred  by  prior  Acts  of  Congress. 

1f661  Sec.  1319.  (Revenue  Act  of  1921.)  That  section  3227  of  the 
Revised  Statutes  is  hereby  repealed  but  such  repeal  shall  not 
affect  any  suit  or  proceeding  instituted  prior  to  the  passage  of 
this  Act. 

1|662  Sec.  1320.  (Revenue  Act  of  1921.)  That  no  suit  or  pro- 

ceeding for  the  collection  of  any  internal  revenue  tax  shall  be 
begun  after  the  expiration  of  five  years  from  the  time  such  tax 
was  due,  except  in  the  case  of  fraud  with  intent  to  evade  tax. 
or  willful  attempt  in  any  manner  to  defeat  or  evade  tax.  This 
»ection  shall  not  apply  to  suits  or  proceedings  for  the  collection 
of  taxes  under  section  250  of  this  Act,  nor  to  suits  or  proceeding# 
begun  at  the  time  of  the  passage  of  this  Act. 

H663  Sec.  1321.  (Revenue  Act  of  1921.)  (a)  That  the  Act 

entitled  “An  Act  to  limit  the  time  within  which  prosecutions 

Copyright  1922,  by  Tht  Corporation  Trust  Company. 

THK  7KBSZAL  I H CO  MS  TAX  I15KTIOE 

82 


Repeated 
at  t 

2919 


2882 


2883 


2885 


2751 


2630 


2-27-22. 


THE  INCOME  TAX  LAW. 


§1324 


Repeated 
at  H 


Law 

Paragraph 

(H663)  may  be  instituted  against  persons  charged  with  violating  2630 
internal-revenue  laws,”  approved  July  5,  1884,  is  amended 
to  read  as  follows: 

“That  no  person  shall  be  prosecuted,  tried,  or  punished 
tor  any  of  the  various  offenses  arising  under  the  internal- 
revenue  laws  of  the  United  States  unless  the  indictment  is 
found  or  the  information  instituted  within  three  years  next 
after  the  commission  of  the  offense:  Provided , That  the  time 
during  which  the  person  committing  the  offense  is  absent  from 
the  district  wherein  the  same  is  committed  shall  not  be  taken 
a?  an'T  Par*"  °*  jhe  time  limited  by  law  for  the  commencement 
of  such  proceedings:  Provided  further,  That  the  provisions  of  this 
Act  shall  not  apply  to  offenses  committed  prior  to  its  passage: 

/ rovided  further,  That  where  a complaint  shall  be  instituted 
before  a commissioner  of  the  United  States  within  the  period 
above  limited,  the  time  shall  be  extended  until  the  discharge 
of  the  grand  jury  at  its  next  session  within  the  district-  4%d 
provided  further , That  this  Act  shall  not  apply  to  offenses 
committed  by  officers  of  the  United  States.” 


H664 


11665 


1f666 


11667 


(b)  Any  prosecution  or  proceeding  under  an  indictment  2631 
found^ or  information  instituted  prior  to  the  passage  of  this 
Act  shall  not  be  affected  in  any  manner  by  this  amendment 
but  such  prosecution  or  proceeding  shall  be  subject  to  the 
imitations  imposed  by  law  prior  to  the  passage  of  this  Act. 

Fraudulent  Returns. 

r ^c.  *323  (RevenuefA«  °f  1921.)  That  section  3225  2881 
of  the  Revised  Statutes  of  the  United  States,  as  amended  is 
reenacted  without  change  as  follows: 

“Sec.  3225.  When  a second  assessment  is  made  in  case  of 
any  list,  statement,  or  return,  which  in  the  opinion  of  the 
collector  or  deputy  collector  was  false  or  fraudulent,  or  con- 
tained any  understatement  or  undervaluation,  such  assess- 
ment shall  not  be  remitted,  nor  shall  taxes  collected  under 
such  assessment  be  refunded,  or  paid  back,  or  recovered  bv 
any  suit,  unless  it  is  proved  that  such  list,  statement,  or  return 
was  not  willfully  false  or  fraudulent  and  did  not  contain  anv 
willtul  understatement  or  undervaluation.” 

Interest  on  Refunds  and  Judgments. 

Sec.  1324.  (Revenue  Act  of  1921.)  (a)  That  upon  the  2854 

allowance  of  a claim  for  the  refund  of  or  credit  for  mternal 
revenue  taxes  paid  interest  shall  be  allowed  and  paid  upon 
the  tota!  amount  of  such  refund  or  credit  at  the  rate  of  one- 

L foHowsP:er  CCntUm  PCr  m°nth  t0  the  datC  °f  SUch  all°^nce, 

tetctSTr^  Pfa'd  ,Under  a sj>ecific  Potest  setting  2855 
torth  in  detail  the  basis  of  and  reasons  for  such  protest,  from 
the  time  when  such  tax  was  paid,  or 

Copyright  1922,  by  The  Corporation  'trust  Company 
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2-27-22. 


I.aw  Repeated 

Paragraph  at  ^ 

^[668  (2)  if  such  amount  was  not  paid  under  protest  hut  pursuant  2856 

to  an  additional  assessment,  from  the  time  such  additional 
assessment  was  paid,  or 

^669  (3)  if  no  protest  was  made  and  the  tax  was  not  paid  pursuant  2857 

to  an  additional  assessment,  from  six  months  after  the  date  of 
filing  of  such  claim  for  refund  or  credit. 

^[670  The  term  “additional  assessment”  as  used  in  this  section  means  2858 
a further  assessment  for  a tax  of  the  same  character  previously 
paid  in  part. 

TJ67 1 (b)  Section  177  of  the  Judicial  Code  is  amended  to  read  as  2916 

follows: 

“Sec.  177.  No  interest  shall  be  allowed  on  any  claim 
up  to  the  time  of  the  rendition  of  judgment  by  the  Court  of 
Claims,  unless  upon  a contract  expressly  stipulating  for  the 
payment  of  interest, 

^[672  except  that  interest  may  be  allowed  in  any  judgment  2917 

of  any  court  rendered  after  the  passage  of  the  Revenue 
Act  of  1921  against  the  United  States  for  any  internal- 
revenue  tax  erroneously  or  illegally  assessed  or  col- 
lected, or  for  any  penalty  collected  without  authority  or 
any  sum  which  was  excessive  or  in  any  manner  wrong- 
fully collected,  under  the  internal-revenue  laws.” 

Payment  of  Taxes  by  Check  or  United  States  Securities. 

^673  Sec.  1325.  (Revenue  Act  of  1921.)  That  collectors  may  2789 
receive,  at  par  with  an  adjustment  for  accrued  interest,  notes 
or  certificates  of  indebtedness  issued  by  the  United  States 
and  uncertified  checks  in  payment  of  income,  war-profits  and 
excess-profits  taxes  and  any  other  taxes  payable  other  than 
by  stamp,  during  such  time  and  under  such  regulations  as 
the  Commissioner,  with  the  approval  of  the  Secretary,  shall 
prescribe;  but  if  a check  so  received  is  not  paid  by  the  bank 
on  which  it  is  drawn  the  person  by  whom  such  check  has  been 
tendered  shall  remain  liable  for  the  payment  of  the  tax  and 
for  all  legal  penalties  and  additions  the  same  as  if  such  check 
had  not  been  tendered. 

Tax  Simplification  Board. 

*6~4  Sec.  1327.  (Revenue  Act  of  1921.)  (a)  That  there  is  2961 

hereby  established  in  the  Department  of  the  Treasury  a board 
to  be  known  as  the  “Tax  Simplification  Board”  (hereinafter  in 
this  section  called  the  “Board”),  to  be  composed  as  follows: 

*1675  (1)  Three  members  who  shall  represent  the  public,  to  be  2962 

appointed  by  the  President;  and 

jo  ,bis-’  t.  ' 7.c:j  riiui  rrw  v ?rrtil  dHt 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22. 


THE  INCOME  TAX  LAW. 


§1328. 


_ Law  Repeated 

Paragraph  at  f 

1676  (2)  Three  members  who  shall  represent  the  Bureau  of  2963 
Interna!  Revenue  and  shall  be  officers  or  employees  of  the 
United  States  serving  in  such  Bureau  to  be  appointed  by  the 
Secretary. 

1677  (b)  Any  vacancy  in  the  Board  shall  be  filled  in  the  same  2964 
manner  as  the  original  appointment.  The  members  repre- 
senting the  public  shall  serve  without  compensation  except  re- 
imbursement for  traveling,  subsistence,  and  other  necessary 
expenses  incurred  in  the  performance  of  the  duties  vested  in 
them  by  this  section.  The  members  representing  the  Bureau  of 
Internal  Revenue  shall  serve  without  compensation  in  addition 

to  that  received  for  their  service  in  such  Bureau. 

1678  (c)  The  Secretary  shall  furnish  the  Board  with  such  clerical  2965 
assistance,  quarters  and  stationery,  furniture,  office  equipment, 

and  other  supplies  as  may  be  necessary  for  the  performance  of 
the  duties  vested  in  them  by  this  section. 

1679  (d)  It  snail  be  the  duty  of  the  Board  to  investigate  the  pro-  2966 
cedure  of  and  the  forms  used  by  the  Bureau  in  the  administra- 
tion of  the  internal  revenue  laws,  and  to  make  recommenda- 
tions in  respect  to  the  simplification  thereof.  The  Board  shall 
make  a report  to  the  Congress  on  or  before  the  first  Monday  of 
December  in  each  year. 

1680  (e)  The  expenditures  of  the  Board  shall  be  paid  upon  2967 
vouchers  approved  by  the  Board  and  signed  by  the  chairman 
thereof.  For  the  expenditures  of  the  Board  for  the  fiscal  year 
ending  June  30,  1922,  there  is  authorized  to  be  appropriated,  out 

of  any  money  in  the  Treasury  not  otherwise  appropriated,  the 
sum  of  $10,000. 

1681  (f)  The  Board  shall  cease  to  exist  on  December  31,  1924.  2968 

Consolidation  of  Liberty  Bond  Interest  Tax  Exemptions. 

1682  Sec.  1328.  (Revenue  Act  of  1921.)  That  the  various  Acts  1571 
authorizing  the  issues  of  Liberty  bonds  are  amended  and  sup- 
plemented as  follows: 

1683  (a)  On  and  after  January  1,  1921,  4 per  centum  and  4 l/i  per  1572 
centum  Liberty  bonds  shall  be  exempt  from  graduated  addi- 
tional income  taxes,  commonly  known  as  surtaxes,  and  excess- 
profits  and  war-profits  taxes,  now  or  hereafter  imposed  by  the 
United  States  upon  the  income  or  profits  of  individuals,  part- 
nerships, corporations,  or  associations,  in  respect  to  the  interest 

on  aggregate  principal  amounts  thereof  as  follows: 

1684  Until  the  expiration  of  two  years  after  the  date  of  the  termi-  1573 
nation  of  the  war  between  the  United  States  and  the  German 
Government,  as  fixed  by  proclamation  of  the  President,  on 

•s  Copyright  1922,  by  Tht  Corporation  Trust  Company. 

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85 


§1329. 


THE  INCOME  TAX  LAW. 


2-27-22 


_ Eaw  Repeated 

Paragraph  at  ^ 

(1(684)  $125,000  aggregate  principal  amount;  and  for  three  years  more  1573 
on  $50,000  aggregate  principal  amount. 

'1685  (b)  The  exemptions  provided  in  subdivision  (a)  shall  be  in  1574 

addition  to  the  cxen  ptions  provided  in  section  7 of  the  Second 
Liberty  Bond  Act,  and  in  addition  to  the  exemption  provided 
in  subdivision  (3)  of  section  1 of  the  Supplement  to  the  Second 
Liberty  Bond  Act  in  respect  to  bonds  issued  upon  conversion 
of  3^2  per  centum  bonds,  but  shall  be  in  lieu  of  the  exemptions 
provided  and  free  from  the  conditions  and  limitations  imposed 
in  subdivisions  (1)  and  (2)  of  section  1 of  the  Supplement  to 
Second  Liberty  Bond  Act  and  in  section  2 of  the  Victory  Liberty 
I.oan  Act. 

Deposit  of  United  States  Bonds  or  Notes  in  Lieu  of  Surety. 

H 686  Sec.  1329.  (Revenue  Act  of  1921.)  That  wherever  by  the  1770 
laws  of  the  United  States  or  regulations  made  pursuant  thereto, 
any  person  is  required  to  furnish  any  recognizance,  stipulation, 
bond,  guaranty,  or  undertaking,  hereinafter  called  “penal  bond,” 
with  surety  or  sureties,  such  person  may,  in  lieu  of  such  surety 
or  sureties,  deposit  as  security  with  the  official  having  authority 
to  approve  such  penal  bond,  United  States  Liberty  bonds  or 
other  bonds  or  notes  of  the  United  States  in  a sum  equal  at  their 
par  value  to  the  amount  of  such  penal  bond  required  to  be 
furnished,  together  with  an  agreement  authorizing  such  official 
to  collect  or  sell  such  bonds  or  notes  so  deposited  in  case  of  any 
default  in  the  performance  of  any  of  the  conditions  or  stipula- 
tions of  such  penal  bond.  The  acceptance  of  such  United  States 
bonds  or  notes  in  lieu  of  surety  or  sureties  required  by  law 
shall  have  the  same  force  and  effect  as  individual  or  corporate 
sureties,  or  cerfffied  checks,  bank  drafts,  post-office  money 
orders,  or  cash,  for  the  penalty  or  amount  of  such  penal  bond. 

The  bonds  or  notes  deposited  hereunder  and  such  other  United 
States  bonds  or  notes  as  may  be  substituted  therefor  from  time 
to  time  as  such  security,  may  be  deposited  with  the  Treasurer 
of  the  United  States,  a T ederal  reserve  bank,  or  other  depository 
duly  designated  for  that  purpose  by  the  Secretary,  which  shall 
issue  receipt  therefor,  describing  such  bonds  or  notes  so  de- 
posited. As  soon  as  security  for  the  performance  of  such  penal 
bond  is  no  longer  necessary,  such  bonds  or  notes  so  deposited, 
shall  be  returned  to  the  depositor:  Provided , * * * ; 

1[687  Provided  further,  That  nothing  herein  contained  shall  1771 

affect  or  impair  the  priority  of  the  claim  of  the  United 
States  against  the  bonds  or  notes  deposited  or  any  right 
or  remedy  granted  by  said  Acts  or  by  this  section  to  the 
United  States  for  default  upon  any  obligation  of  said 
penal  bond : 

1f688  Provided  further,  That  all  laws  inconsistent  with  this  1772 

section  are  hereby  so  modified  as  to  conform  to  the  pro- 
visions hereof: 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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86 


2-27-22. 


THE  INCOME  TAX  LAW. 


§1332. 


Repeated 
at  H 

And  provided  further,  That  nothing  contained  herein  1773 

shall  affect  the  authority  of  courts  over  the  security,  where 
such  bonds  are  taken  as  security  in  judicial  proceedings, 
or  the  authority  of  any  administrative  officer  of  the 
United  States  to  receive  United  States  bonds  for  security 
in  cases  authorized  by  existing  laws. 

^[690  The  Secretary  may  prescribe  rules  and  regulations  necessary  1774 
and  proper  for  carrying  this  section  into  effect. 

Alternative  Tax  on  Personal  Service  Corporations. 

^[691  Sec.  1332.  (Revenue  Act  of  1921.)  (a)  That  if  either  852 

subdivision  (e)  of  section  218  of  the  Revenue  Act  of  1918  or 
subdivision  (d)  of  section  218  of  this  Act  is  by  final  adjudication 
declared  invalid,  there  shall,  in  addition  to  all  other  taxes, 
be  levied,  collected,  and  paid  on  the  net  income  (as  defined  in 
section  232)  received  during  the  calendar  years  1918,  1919, 

1920,  and  1921,  by  every  personal  service  corporation  (as 
defined  in  section  200)  included  within  the  provisions  of  such 
subdivisions,  a tax  equal  to  the  taxes  imposed  by  Titles  II  and 
III  of  the  Revenue  Act  of  1918  and,  in  the  case  of  income 
received  during  the  calendar  year  1921,  by  Titles  II  and  III 
of  this  Act. 

^[692  (b)  In  such  event  every  such  personal  service  corporation  853 

shall,  on  or  before  the  fifteenth  day  of  the  sixth  month  following 
the  date  of  entry  of  decree  upon  such  final  adjudication,  make 
a return  of  any  income  received  during  each  of  the  calendar 
years  1918,  1919,  1920,  and  1921  in  the  manner  prescribed  by 
the  Revenue  Act  of  1918  (or  in  the  manner  prescribed  by  this 
Act,  in  the  case  of  income  received  during  the  calendar  year 
1921).  Such  return  shall  be  made  and  the  net  income  shall 
be  computed  on  the  basis  of  the  taxpayer’s  annual  accounting 
period  (fiscal  year  or  calendar  year,  as  the  case  may  be)  in  the 
manner  provided  for  other  corporations  under  the  Revenue 
Act  of  1918  and  this  Act. 

Tf693  (c)  If  either  subdivision  (e)  of  section  218  of  the  Revenue  854 

Act  of  1918  or  subdivision  (d)  of  section  218  of  this  Act  is  so 
declared  invalid,  claims  for  credit  or  refund  of  taxes  paid  under 
both  such  sections  shall  be  allowed,  if  made  within  the  time 
provided  in  subdivision  (f)  of  this  section. 

•11694  (d)  In  case  the  claims  for  credit  or  refund,  filed  within  six  855 

months  from  such  date  of  entry  of  decree,  represent  less  than  30 
per  centum  of  the  outstanding  stock  or  shares  in  the  corpora- 
tion, the  amount  of  taxes  imposed  by  this  section  upon  such 
corporation  shall  be  reduced  to  that  proportion  thereof  which 
the  number  of  stock  or  shares  owned  by  the  shareholders  or 
members  making  such  claims  bears  to  the  total  number  of 
stock  or  shares  outstanding. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


Law 

Paragraph 

If  689 


87 


§1332. 


2-27-22. 


THE  INCOME  TAX  LAW. 


Law 

Paragraph 

1f695  (e)  The  tax  imposed  by  this  section  shall  be  assessed,  col- 

lected, and  paid  upon  the  same  basis,  in  the  same  manner,  and 
subject  to  the  same  provisions  of  law,  including  penalties,  as 
the  taxes  imposed  by  sections  230  and  301  of  the  Revenue  Act 
of  1918  (or  by  sections  230  and  301  of  this  Act,  in  the  case 
of  income  received  during  the  calendar  year  1921),  but  no 
interest  or  penalties  shall  be  due  or  payable  thereon  for  any 
period  prior  to  the  date  upon  which  the  return  is  by  this  section 
required  to  be  made  and  the  first  installment  paid.  The 
amount  of  tax  paid  by  any  shareholder  or  member  of  a personal 
service  corporation  pursuant  to  the  provisions  of  subdivision 
(e)  of  section  218  of  the  Revenue  Act  of  1918  or  subdivision 
(d)  of  section  218  of  this  Act  shall  be  credited  against  the  tax 
due  from  such  corporation  under  this  section  upon  the  joint 
written  application  of  such  corporation  and  such  shareholder  or 
member  or  his  representatives,  heirs,  or  assigns,  if  such  applica- 
tion is  filed  with  the  Commissioner  within  six  months  from  such 
date  of  entry  of  decree. 


Repeated 
at  II 

856 


11696  (f)  Notwithstanding  any  other  provision  of  law,  no  claim  857 

for  a credit  or  refund  of  taxes  paid  under  subdivision  (e)  of 
section  218  of  the  Revenue  Act  of  1918  or  subdivision  (d)  of 
section  218  of  this  Act,  may  be  filed  after  the  expiration  of  six 
months  from  such  date  of  entry  of'decree: 

1f697  Provided , however , That  a personal  service  corporation  858 

of  which  no  shareholder  or  member  has  filed  such  claim 
within  such  period  of  six  months  shall  not  be  subject  to 
the  tax  imposed  by  this  section. 

TITLE  XIV.— GENERAL  PROVISIONS. 

(Of  the  Revenue  Act  of  1921.) 

Repeals. 

1(698  Sec.  1400.  (Revenue  Act  of  1921.)  (a)  That  the  following  2774 
parts  of  the  Revenue  Act  of  1918  are  repealed,  to  take  effect 
(except  as  otherwise  provided  in  this  Act)  on  January  1, 

1922,  subject  to  the  limitations  provided  in  subdivision  (b): 

Title  II  (called  “Income  Tax”)  as  of  January  1,  1921; 

***************** 

1(699  Sections  1314, . 1315,  1316,  1317,  1319,  and  1320  of  Title  2775 
XIII  (being  certain  administrative  provisions)  on  the  passage 
of  this  Act. 

K700  (b)  The  parts  of  the  Revenue  Act  of  1918  which  are  repealed  2776 

by  this  Act  shall  (unless  otherwise  specifically  provided  in  this 
Act)  remain  in  force  for  the  assessment  and  collection  of  all 
taxes  which  have  accrued  under  the  Revenue  Act  of  1918  at  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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THE  INCOME  TAX  LAW 


§1400. 


Law 

Paragraph 

(11700)  time  such  parts  cease  to  be  in  effect,  and  for  the  imposition 
and  collection  of  all  penalties  or  forfeitures  which  have  accrued 
or  may  accrue  in  relation  to  any  such  taxes.  In  the  case  of  any 
tax  imposed  by  any  part  of  the  Revenue  Act  of  1918  repealed  by 
this  Act,  if  there  is  a tax  imposed  by  this  Act  in  lieu  thereof,  the 
provision  imposing  such  tax  shall  remain  in  force  until  the  corre- 
sponding tax  under  this  Act  takes  effect  under  the  provisions  of 
this  Act.  The  unexpended  balance  of  any  appropriation  hereto- 
fore made  and  now  available  for  the  administration  of  any 
such  part  of  the  Revenue  Act  of  1918  shall  be  available  for 
the  administration  of  this  Act  or  the  corresponding  provision 


1f701 


Saving  Clause  in  Event  of  Unconstitutionality. 

. Se°*  14J3-  That  ^ any  provision  of  this  Act,  or  the  applica- 
tion thereof  to  any  person  or  circumstances,  is  held  invalid,  the 
remainder  of  the  Act,  and  the  application  of  such  provision  to 
other  persons  or  circumstances,  shall  not  be  affected  thereby. 

Effective  Date  of  Act. 

Sec.  1404.  That  except  as  otherwise  provided,  this  Act 
shall  take  effect  upon  its  passage. 

Comment. — [The  provisions  of  Title  XIII  and  Title  XIV 
so  far  as  reproduced  above,  there  being  no  specific  provision  to 
the  contrary,  became  effective  on  “passage”  of  the  Act,  that  is, 
on  November  23,  1921,  the  day  of  approval  by  the  President.] 

Approved  by  the  President,  November  23,  1921,  at  3:55  P.M. 

H703  For  1[703,  see  page  103. 


H702 


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Repeated 
at  H 

2776 


2970 


3005 


-27-22 . 


[In  blank] 


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ft 

V 

B 

Over. 

# 

# 


Insert  this  sheet'  immediately  following  the 
yeUow  guide  card  marked  “The  Compilation.” 


WF"  FOR  CUMULATIVE  INDEX-DIGESTS 


of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922 

see  the 

Cumulative  Index  Unit 
beginning  on 
Supplementary  Page  37 
in  the 

“T.  D.  Finder”  division  of  the  Service. 


In  the  Cumulative  Index  Unit  the  Article  number  of  Regulations 
No.  62  is  the  key  number.  Ail  digests  of  rulings  bearing  on  a par- 
ticular Article  are  placed  under  that  particular  Article’s  number. 
The  Article  numbers  (to  the  extent  that  they  appear  at  all)  run 
sequentially,  beginning  with  number  1. 


Insert  this  page  to  face  page  91. 


2-27-22.  (2)  4-10-22. 


DEDUCTIONS— TAXES. 


1733  Law  ^301.  Credit  for  Taxes  in  the  Case  of  Individuals. — “Sec. 
(Sec.  222.)  222.  ( a ) That  the  tax  computed  under  Part  II  [individ- 

ual normal  and  surtax ] of  this  title  shall  be  credited 


1 734  Law  ^[302.  Income  and  Excess-Profits  Taxes  Paid  to  Foreign 
(Sec.  222.)  Countries  and  All  Such  Taxes  Paid  to  Possessions 
of  the  United  States  by  Citizens  to  be  Credited. — 

“(1)  In  the  case  of  a citizen  of  the  United  States , the  amount  of  any  income, 
war-profits  and  excess-profits  taxes  paid  during  the  taxable  year  to  any 
foreign  country  or  to  any  possession  of  the  United  States ; and ” — Law. 


1 735  Law  1(303.  Income  and  Excess-Profits  Taxes  Paid  to  Possessions 
(Sec.  222.)  of  the  United  States  by  Residents  Are  to  be  Credited. 

— “(2)  In  the  case  of  a resident  of  the  United  States , 


1 736  Law  K304.  Certain  Inc  -Profits  Taxes  Paid  to  For- 

(Sec.  222.)  eign  Count  sidents  Are  to  be  Credited. 

— “(3)  In  lien  resident  of  the  United 

States , the  amount  of  any  sue  dng  the  taxable  year  to  any 

foreign  country , if  the  foreign  c uch  alien  resident  is  a citizen 

or  subject,  in  imposing  such  t<  nilar  credit  to  citizens  of  the 


1 73  7 Countries  Which  Do  oi  r the  Similar  Credit  Require- 
ment.— (a)  The  follow  tplete  list  of  the  countries 

which  satisfy  the  similar  credi  >f  Section  222  (a)  (3)  of  the 

Revenue  Act  of  1921,  either  1 :itizens  of  the  United  States 

residing  in  such  countries  a ci  ount  of  income,  war  profits, 

or  excess  profits  taxes  paid  to  t >,  or  in  imposing  such  taxes, 

by  exempting  from  taxation  t ved  from  sources  within  the 

United  States  by  citizens  of  t s residing  in  such  countries: 

Bulgaria,  Canada,  Italy,  Newf  dor.  (b)  The  following  is  an 

incomplete  list  of  the  countries  tvhich  do  not  iatisfv  the  similar  credit  require- 
ment of  Section  222  (a)  (3)  of  the  Revenue  Act  of  1921,  either  by  allowing 
no  credit  to  citizens  of  the  United  States  residing  in  such  countries,  for  the 
amount  of  income,  war  profits,  or  excess  profits  taxes  paid  to  the  United 
States,  or  because  such  countries  do  not  impose  any  income,  war-profits,  or 
excess-profits  taxes:  Argentina,  Bahama,  Belgium,  Bermuda,  Bolivia,  Bosnia, 
Brazil,  Chile,  China,  Costa  Rica,  Dutch  Guiana,  Ecuador,  Egypt,  Finland, 
France,  Great  Britain  and  Ireland,  Guatemala,  Herzegovina,  India,  Jamaica, 


with:” — Law.  [Note:  The  1918  Act  so  provided.] 


[Note:  The  1918  Act,  in  the  case  of 

taxes  paid  to  a foreign  country,  carried 
the  qualification  “upon  income  derived 
from  sources  therein”.] 


the  amount  of  any  such  taxes  ■}  xable  year  to  any  possession 

of  the  United  States ; and” — Ls  The  1918  Act  so  provided.] 


United  States  residing  in  such  countri;" — Law.  [Note:  The  1918 


Act, /here,  limited  the  credit  to  such 


taxes  imposed  by  foreign  countries 
“upon  income  derived  from  sources 
thmrein,”  under  like  reciprocal  con- 
ditions.] 


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DEDUCTIONS  TAXES. 


Japan,  Montenegro,  Morocco,  New  Zealand,  Nicaragua,  Panama,  Paraguay, 
Persia,  Peru,  Portugal,  Roumania,  Santo  Domingo,  Serbia,  Siam,  Straits 
Settlements,  Sweden,  Switzerland,  Venezuela.  The  former  names  of  certain 
of  these  territories  arc  here  used  for  convenience  in  spite  of  the  actual  or 
possible  change  in  the  name  or  sovereignty.  A resident  of  the  United  States 
who  is  a citizen  or  subject  of  any  country  in  the  first  list  is  entitled,  for  the 
purpose  of  the  total  tax  due  the  United  States  for  1921  (as  to  fiscal  years 
beginning  in  1920,  see  article  386  [1  1746])  and  subsequent  years,  to  a credit 
for  the  amount  of  any  income,  war  profits,  and  excess  profits  taxes  paid  or 
accrued  during  the  taxable  year  to  any  foreign  country.  If  he  is  a citizen 
or  subject  of  any  country  in  the  second  list,  he  is  not  entitled  to  such  credit. 
If  he  is  a citizen  or  subject  of  a country  which  is  in  neither  list,  then  to  secure 
the  desired  credit,  he  must  prove  to  the  satisfaction  of  the  Commissioner 
that  his  country  satisfies  the  similar  credit  requirement  of  the  statute.  Art. 
385,  Reg.  62,  1922  Edition.) 


1 73  8 Law  ^305.  Proportionate  Parts  of  Certain  Income  and  Excess- 
(Sec.  222.)  Profits  Taxes  Paid  to  Foreign  Countries  and  of  All 
Such  Taxes  Paid  to  Possessions  of  the  United  States 
to  be  Credited  to  Members  of  Partnerships  and  to  Beneficiaries  of  Es- 
tates or  Trusts. — “(4)  In  the  case  of  any  such  individual  who  is  a mem- 
ber of  a partnership  or  a beneficiary  of  an  estate  or  trust , his  proportionate 
share  of  such  taxes  of  the  partnership  or  the  estate  or  trust  paid  during  the 
taxable  year  to  a foreign  country  or  to  any  possession  of  the  United  States, 
as  the  case  may  be.” — Law.  [Note:  The  1918  Act  so  provided.] 

1 739  Law  ^306.  Credit  for  Taxes  Not  Allowed  to  Citizens  Entitled 
(Sec.  222.)  to  Benefits  of  Sec.  262. — “(5)  The  above  credits  [for 
taxes]  shall  not  be  allowed  in  the  case  of  a citizen  entitled 
to  the  benefits  of  section  262  [^[2070];” — Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 

1740  Law  ^[307.  Limitation  on  Amount  of  Credit  Allowed  for  Taxes 

(Sec.  222.)  Paid. — “ and  in  no  other  case  shall  the  amount  of  credit 
taken  under  this  subdivision  exceed  the  same  proportion 
of  the  tax,  against  which  such  credit  is  taken,  which  the  taxpayer's  net  income 
{computed  without  deduction  for  any  income,  war-profits  and  excess-profits 
taxes  imposed  by  any  foreign  country  or  possession  of  the  United  States) 
from  sources  without  the  United  States  bears  to  his  entire  net  income  ( com- 
puted without  such  deduction)  for  the  same  taxable  year.” — Law.  [Note : 

This  provision  is  new  to  the  1921  Act.] 

l 74 1 Law  ^[308.  Adjustment  of  Any  Difference  Between  Amount  of 
(Sec.  222.)  Tax  Paid  and  Amount  Accrued. — “( b ) If  accrued 
taxes  when  paid  differ  from  the  amounts  claimed  as 
credits  by  the  taxpayer , or  if  any  tax  paid  is  refunded  in  whole  or  in  part. 

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2-27-22.  (2)  8-16-22. 


(8)  4-18-22.  (4)  6-8-22.  (6)  6-10-22.  (6)  5-26-22.  (7)  6-9-22  (8)  8-3-22. 

DEDUCTIONS— TAXES. 

1714  Law  If  150.  Certain  Assessments  Against  Local  Benefits  are  Not 
(Sec.  214.)  Deductible. — [ Taxes  are  deductible  except ] “(c)  taxes 

assessed  against  local  benefits  of  a kind  tending  to  in- 
crease the  value  of  the  property  assessed  ,” — Law.  [Note:  The  1918 

Act  so  provided,  in  effect.] 

1715  Law  ^[392.  [Corporations.] — [ Taxes  are  deductible  except ] “(c) 
(Sec.  234.)  taxes  assessed  against  local  benefits  of  a kind  tending 

to  increase  the  value  of  the  property  assessed .” — Law. 

[Note:  The  1918  Act  so  provided,  in  effect.] 

1716  So-called  taxes,  more  properly  assessments,  paid  for  local  bene- 
fits, such  as  street,  sidewalk,  and  other  like  improvements,  im- 
posed because  of  and  measured  by  some  benefit  inuring  directly  to  the  property 
against  which  the  assessment  is  levied,  do  not  constitute  an  allowable  de- 
duction from  gross  income.  A tax  is  considered  assessed  against  local  benefits 
when  the  property  subject  to  the  tax  is  limited  to  property  benefited.  Special 
assessments  are  not  deductible,  even  though  an  incidental  benefit  may  inure 
to  the  public  welfare.  The!  taxes  deductible  are  those  levied  for  the  general 
public  welfare  by  the  proper  taxing  authorities  at  a like  rate  against  all 
property  in  the  territory  Over  which  such  authorities  have  jurisdiction. 
Assessments  under  the  statuses  of  California  relating  to  irrigation  and  of  Iowa 
relating  to  drainage,  and  finder  certain  statutes  of  Tennessee  relating  to 
levees,  are  limited  to  property  benefited,  and  when  it  is  clear  that  the  assess- 
ments are  so  limited,  the  aimounts  paid  thereunder  are  not  deductible  as 
taxes.  When  assessments  ar : made  for  the  purpose  of  maintenance  or  repair 
of  local  benefits,  the  taxpaye  • may  deduct  the  assessments  paid  as  an  expense 
incurred  in  business,  if  the  payment  of  such  assessments  is  necessary  to  the 
conduct  of  his  business.  W1  en  the  assessments  are  made  for  the  purpose  of 
constructing  local  benefits,  the  payments  by  the  taxpayer  are  in  the  nature 
of  capital  expenditures  and  ; re  not  deductible.  Where  assessments  are  made 
for  the  purpose  of  both  construction  and  maintenance  or  repairs,  the  burden 
is  on  the  taxpayer  to  show  the  allocation  of  the  amounts  assessed  to  the  dif- 
ferent purposes.  If  bhe  allocation  can  not  be  made,  none  of  the  amounts 
so  paid  is  deductible.  (Art.  133,  Reg.  62,  1922  Edition.) 

For  explanation  of  l Cumulative  Index  references  see  page  gi. 

District  of  Columbia;  res^tity  curb  and  repaving  street:  1918  Act  (1-18-250-  A R R 
909)..  Bull.  1 (’22)-18,Svr.  10. 

District  of  Columbia  “watfer  taxes”  as  personal  or  business  expense  (45-'’0-1291  • 
O.  D.  719).  .Dec.  1920  Cum.  Bull.  p.  139. 

Estates  (31-20-1102:  O.  D.  6l\.  .Dec.  1920  Cum.  Bull.  p.  149. 

Illinois  drainage  districts  (24-19*561:  O.  928).  .1919  Cum.  Bull.  p.  112. 

Street  resurfacing;  old  blocks  uW  on  new  foundation:  1921  Act  (1-12-154*  I T 
1246).  .Bull.  I (’22)-12,rp.  is\ 

Tenant  for  landlord  (3-20-689:  O.  D.\73).  .June  1920  Cum.  Bull.  p.  123. 


tock 


1717  Law  H151.  Taxes  6n  Bank 
(Sec.  214.)  Not  Deductible  t 

ment  by  Him  to  Badk  for 
except]  “(d)  taxes  imposed  upon  the  taxpayi, 
or  member  of  a corporation , which  are  paid 
bursement  from  the  taxpayer — Law. 


Paid  by  Bank  for  Shareholder 
Shareholder  when  no  Reimburse- 
Tax. — [Taxes  are  deductible 
■ upon  his  interest  as  shareholder 
the  corporation  without  reim- 
{ote:  This  provision  is  new 
\ to  the  1921  Act.] 

In  computing.the  net  income  of  an  individual  no  deduction  is  allowed 
for  the  taxes  imposed  upon  his  interest  as  shareholder  or  member  of 
a bank  or  other  corporation,  which  are  paid  by  the  corporation  without 
reimbursement  from  the  taxpayer.  The  amount  so  paid  should  not  be 

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1718 


1 29-22.  <2)  4 10-22.  (8)  4-18  22.  (4)  6-8-22.  (6)  6-10-22.  (6)  6-26-22.  (7)  6 9-22.  (8)  8-3-22 

DEDUCTIONS  TAXES. 

included  in  the  income  of  the  stockholder  or  member.  (Art.  135,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gt. 

Reduced  dividends  (as  a consequence  of  payment  of  taxes  by  bank)  not  “reimburse- 
ment” by  shareholder:  1921  Act  (1-13-181:  I.  T.  1255).  .Bull.  I (’22)-13,  p.  9. 
Reimbursement;  what  constitutes:  1921  Act  (1-23-334:  I.  T.  1346).. Bull.  I (’22)-23, 
p.  7. 

1719  Law  1[395.  Taxes  on  Bank  Stock  Paid  by  Bank  for  Shareholder 
(Sec.  234.)  are  Deductible  by  Bank  When  no  Reimbursement 
by  Shareholder  to  Bank. — “ The  deduction  allowed  by 
this  paragraph  shall  be  allowed  in  the  case  of  taxes  imposed  upon  a share- 
holder or  member  of  a corporation  upon  his  interest  as  shareholder  or  member, 
which  are  paid  by  the  corporation  without  reimbursement  from  the  share- 
holder or  member — Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 

1 720  Law  ^[396.  “ but  in  such  cases  no  deduction  shall  be  allowed  the 

(Sec.  234.)  shareholder  or  member  for  the  amount  of  such  taxes 
[see  1J1717].” — Law.  [Note:  This  provision  is 

new  to  the  1921  Act.] 

1721  Under  the  Revenue  Act  of  1921  banks  or  other  corporations  paying 
taxes  assessed  against  their  stockholders  on  account  of  their  owner- 
ship of  the  shares  of  stock  issued  by  such  corporations,  without  reimburse- 
ment from  such  shareholder  or  member,  may  deduct  the  amount  of  taxes  so 
paid.  The  statute  specifically  provides,  however,  that  in  such  cases  the 
stockholders  may  not  deduct  the  amount  of  the  taxes.  (Art.  566,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

■¥■  Advances  by  bank  to  stockholders  to  pay  taxes  on  stock  arc  not  deductible  by  bank 
and  arc  dividends  to  stockholders:  1921  Act  (1-31-142:  I.  T.  1407)  Bull.  I 
(’22)— 31,  p.  11. 

California  (28-21-1729:  0.  D.  976).. Dec.  1921  Cum.  Bull.  p.  228. 

Corporation  stockholders  in  bank  are  within  the  scope  of  Art.  566  (7-19-302:  O. 

858) . . 1919  Cum.  Bull.  p.  225;  also  (9-19-344:  O.  1).  199).  .1919  C.  B.  p.  226. 
Kentucky  (1-15-215:  !.  T.  1276).  .Bull.  I (’22)-  15,  p.  12. 

Louisiana  (31-21-1758:  O.  D.  987).. Dec.  1921  Cum.  Bull.  p.  228. 

Maryland  (1-21-306:  I.  T.  1322).  Bull.  I (’22)-21,  p.  18. 

Massachusetts  (25-21-1696:  0.  D.  954).. June  1921  Cum.  Bull.  p.  294. 

Trust  companies  (38-21-1833:  O.  D.  1043).. Dec.  1921  Cum.  Bull.  p.  229. 
Mississippi  (1918  and  1921  Acts)  (1-7-95:  I.  T.  1208).  .Bull.  I (’22)-7,  p.  22. 
Montana:  “Classified  Tax  Law”  (5-21-1420:  O.  D.  787).  June  1921  Cum.  Bull.  p.  293 
New  York  (10-21-1500:  0.  D.  839).. June  1921  Curn.  Bull.  p.  293. 

Oregon:  trust  companies,  building  and  loan  associations,  and  State  savings  banks 
(1-19-99:  O.  D.  70).  . 1919  Cum.  Bull.  p.  226. 

South  Dakota:  State  banks,  savings  banks,  and  trust  companies  (44-20-1281 : A.  R.  M. 
88).  .Dec.  1920  Cum.  Bull.  p.  271. 

Statements  correcting  1919  returns  in  lieu  of  amended  returns  (23-21-1 677:  O.  D. 

944).  .June  1921  Cum.  Bull.  p.  294 
Washington:  1921  Act  (1-23-334:  1.  T.  1346).  .Bull.  I (’22)-23,  p.  7. 

West  Virginia;  amount  paid  by  bank  to  stockholder  in  lieu  of  tax  bank  was  relieved 
front  paying  because  stockholder  claimed  exemption  is  not  deductible  bv  bank; 
1921  Act  (1-19-262:  I.  T.  1300)  .Bull.  I (’22)-19,  p,  7. 

1 7 22  Law  H393.  Taxes  Paid  by  Obligors  at  the  Source  on  Account 
(Sec.  234.)  of  Interest  on  Tax-Free  Obligations  are  Not  Deduct- 
ible.— “/«  the  case  of  obligors  specified  in  subdivision 
(b)  [1f2240]  of  section  221  no  deduction  for  the  payment  of  the  tax  imposed 
by  this  title,  or  any  other  tax  paid  pursuant  to  the  contract  or  provision 
referred  to  in  that  subdivision , shall  be  allowed ” — Law.  [Note:  The 

1918  Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

m 


<-27-22.  (2)  1-10-22  (8)  4-18-22.  (4)  5-10-22  (5)  5-18-22  (6)  7-12-22.  (7)  7-20-22.  (8)  9-1-22. 

DEDUCTIONS— TAXES. 


Interest  paid,  and  if  it  retires  its  bonds  at  a price  in  excess  of  the  issuing  price 
such  excess  may  usually  be  deducted  as  expense.  See  articles  545  [for  sale 
and  retirement  of  corporate  bonds,  1279]  and  848  [for  discount  on 
bonds  in  relation  to  invested  capital— War  Tax  Service].  If  (1)  a corpora- 
tion sells  its  capital  assets  for  less  than  their  cost,  and  such  assets  were 
acquired  before  March  1,  1913,  then  if  the  fair  market  value  on  March  1, 
1913,  less  depreciation  subsequently  sustained  and  allowable  as  a deduction 
is  less  than  the  amount  realized,  no  loss  is  deductible;  if  (2)  such  fair  market 
value  less  depreciation  subsequently  sustained  and  allowable  as  a deduction 
s greater  than  the  amount  realized,  but  the  amount  realized  exceeds  original 
cost,  no  loss  is  deductible;  if  (3)  the  amount  realized  is  less  than  both  original 
cost  and  the  value  of  March  1,  1913,  less  depreciation  subsequently  sustained 
and  allowable  as  a deduction,  the  deductible  loss  is  the  difference  between 
such  amount  realized  and  such  cost  or  March  1,  1913,  value,  whichever  is 
lower.  See  article  546  [1fl292].  (Artj.  563,  Reg.  62,  1922  Edition.) 

ror  explanation  of  Cumulative  Index  reference i tee  page  gi. 

Commissions  on  sales  of  preferred  Stock.  Redemption  of  the  stock  (1-6-77:  I.  T. 
1198).  .Ball.  I (’22)-6,  p.  23.  / 

Discount  on  issued  bonds  improperly  charged  to  profit  and  loss;  amended  returns  tc 
show  as  advance  interest  to  be  amortized  (2-19-166:  O.  D.  111)..  1919  Cum 
Bull.  p.  224.  f 

Serial  maturities  of  bonds:  allocation  of  discount  (22-21-1665:  O.  D.  936).. Jun; 
1921  Cum.  Bull,  pj,  276.  Also / 1918  and  1921  Acts:  (1-32-448:  I.  T.  1412) . .Bull. 
I (’22)-32,  p.  3. 


1 697 


(Sec.  214.) 


or  Accrued  are  Deductible,  with  Certain 

-“(3)  Taxes  paid  or  accrued  within  the 
it  except” — Law.  [Note:  The  1918 

Act  so  provided,  in  effect.] 

ites  Income  and  Excess-Profits  Taxes  are 
ictible. — “(a)  income,  war-profits,  and  excess- 
<es  imposed  by  the  authority  of  the  United 
The  1918  Act  so  provided,  in  effect.] 


1698  Law  U 148.  United 
(Sec.  214.)  not  Dec 
profits 

States” — Law.  [No  j 

j 699  Lav/  1J149.  Foreign  InVome  and  Excess-Profits  Taxes  to  Amount 
(Sec.  214.)  Credifii , Ire  not  Deductible. — “(&)  so  much  of  the 
mcomje,  wav-profits  and  excess-profits  taxes , imposed 
by  the  authority  of  any  foreign  country  or  possession  of  the  United  States , as 
is  allowed  as  a credit  unfler  section  222  [If  1733],” — Law.  [Note:  The 

• 1918  Act  so  provided,  in  effect.] 

Taxes  paid  or  accrued  within  the 
-Law.  [Note:  The  1918  Act 
so  provided,  in  effect.] 


1700 


I 701 


Law  1f389. 

(Sec.  234.) 

Law  1f390. 

(Sec.  234.) 


I Corporation^] — “(3) 
taxdble  year  except”— 

noq/d  - 29  L . i ' (X  . DOB 

[Corporations]1 — “(a)  income,  war-profits,  and  excess- 
profits  taxes  imposed  by  the  authority  of  the  United 
States,” — Law.  [Note:  The  1918  Act  so  provided, 

in  effect,] 

1 702  Law  1f391.  [Corporations] — “(i)  so  much  of  the  income , war-profits 
(Sec.  234.)  and  excess-profits  taxes  imposed  by  the  authority  of  any 
foreign  country  or  possession  of  the  United  States  as  is 
allowed  as  a credit  under  section  238  [1[1752],” — Law.  [Note:  The 

1918  Act  so  provided,  in  effect.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 
the  Federal  income  tax  service 
371 


£-27  22  (2)  4-10-22.  («)  4-18-22.  (4)  6-10-22.  (6)  6-18-22.  (C)  7-12-22.  (7)  7-20-22.  (8)  9-1-22. 

DEDUCTIONS— TAXES. 

1 703  Federal  taxes  (except  income,  war  profits,  and  excess  profits  taxes), 
State  and  local  taxes  (except  taxes  assessed  against  local  benefits 
of  a kind  tending  to  increase  the  value  of  the  property  assessed),  and  taxes 
imposed  by  possessions  of  the  United  States  or  by  foreign  countries  (except 
the  amount  of  income,  war  profits,  and  excess  profits  taxes  allowed  as  a 
credit  against  the  tax),  are  deductible  from  gross  income.  See.  section  222  of 
the  statute  and  articles  381-386  as  to  tax  credits  [^[1733].  Postage  is  not  a 
tax.  Amounts  paid  to  States  under  secured  debts  laws  in  order  to  render 
securities  tax  exempt  are  deductible.  Automobile  license  fees  are  ordinarily 
taxes.  (Art.  131,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page*  gi. 

Acts  of  1909,  1913  and  1916:  taxes  and  additional  taxes  assessed  under  (13-19-418: 
O.  D.  240).  . 1919  Cum.  Bull.  p.  111.  But  see  A.  R.  R.  1082.  .Bull.  I (’22)-35,  p.  2. 
¥ 1916  Income  taxes  deductible  in  1916  return  where  books  kept  on  accrual 

basis:  1916  Act  (1-35-481:  A.  R.  R.  1082).. Bull.  I (’22)-35,  p.  2. 

British  Columbia  mineral  and  income  taxes  (39-21-1844:  O.  D.  1050).. Dec.  1921 
Cum.  Bull.  p.  194. 

Consular  fee  stamp  on  invoice  of  merchandise  imported  for  personal  use  is  not  a 
deductible  item;  1921  Act  (1-19-265:  I.  T.  1301).. Bull.  1 (’22)-19,  p.  16. 

Cuba;  sugar  plantations  (3-20-688:  O.  D.  372) . .June  1920  Cum.  Bull.  p.  1 15. 

Foreign  country  income  and  profits  taxes  paid  by  citizen  of  U.  S.  residing  abroad  on 
income  from  U.  S.  (26-19-593:  O.  D.  317) . . 1919  Cum.  Bull.  p.  188. 

Gasoline  tax  imposed  on  distributors  (1-6-73:  I.  T.  1 193).  . Bull.  1 (’22) — 6,  p.  18. 

Iowa  automobile  taxes  (5-20-715:  O.  D.  388).  .June  1920  Cum.  Bull.  p.  116. 

Munition  manufacturer’s  tax  (5-20-713:  A.  R.  M.  26) . .June  1920  Cum.  Bull.  p.  1 15. 
Same:  (9-20-770:  A.  R.  M.  29).  .June  1920  Cum.  Bull.  p.  119. 

Same:  (24-20-1002:  A.  R.  M.  57).  .June  1920  Cum.  Bull.  p.  121. 

Same  (4-21-1408:  L.  O.  1057).  .June  1921  Cum.  Bull.  p.  145. 

Same  (10-21-1503:  L.  O.  1059).  .June  1921  Cum.  Bull.  p.  147. 

New  York  franchise  tax  (3-20-687:  O.  D.  371).  .June  1920  Cum.  Bull.  p.  112. 

New  York  Personal  Income  Tax  (20-20-936:  O.  D.  505).  .June  1920  Cum.  Bull.  p.  121. 
Amounts  withheld  at  source  against  nonresidents  may  be  deducted  as  of  year 
withheld:  1921  Act  (1-15-211:  I.  T.  1273).  .Bull.  I (’22)-15,  p.  10. 

Rhode  Island;  tax  on  depositor  on  savings  deposits  in  national  bank  but  paid  by 
bank  may  be  deducted  by  it  as  business  expense  and  by  depositor  as  tax,  the 
latter  including  amount  in  gross  income:  1921  Act  (1-28-401:  I.  T.  1388).  .Bull. 
I (’22)-28,  p.  3. 

Trust  fund  principal;  deductibility  of  State  taxes  on:  1921  Act  (1-29-411:  I.  T.  1393) 
. .Bull.  I (’22)-29,  p.  5. 

Undistributed  profits  tax  (1917  Act)  (1-19-58:  O.  D.  41) . . 1919  Cum.  Bull.  p.  111. 

War  special  taxes:  admissions  and  dues,  transportation,  semi-luxury  taxes,  sales  taxes 
(22-19-535:  O.  D.  287).  . 1919  Cum.  Bull.  p.  112. 

Wisconsin  bonus  law:  1918;  1919  (5-20-714:  O.  D.  387).  .June  1920  Cum.  Bull.  p.  116. 
Decision  of  U.  S.  Circuit  Court  of  Appeals.  . TJ32 1 3.  Same  printed  as  Ct.  D.  28 
. .Bull.  I (’22)-21,  p.  10. 

Wisconsin:  retroactive  supertax  imposed  (48-21-1949:  O.  D.  1118).. Dec.  1921  Cum. 
Bull.  p.  133. 


1 704  Federal  Duties  and  Excise  Taxes. — Import  or  tariff  duties  paid 
to  the  proper  customs  officers,  and  business,  license,  privilege, 
excise,  and  stamp  taxes  paid  to  internal  revenue  collectors,  are  deductible 
as  taxes  imposed  by  the  authority  of  the  United  States,  provided  they  are 
not  added  to  and  made  a part  of  the  expenses  of  the  business  or  the  cost  of 
articles  of  merchandise  with  respect  to  which  they  are  paid,  in  which  case 
they  can  not  be  separately  deducted.  (Art.  132,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Estate : stamp  tax  on  deed  (33-20-1135 : O.  D.  632) . . Dec.  1920  Cum.  Bull.  p.  204. 

Wholesale  liquor  dealers  (4-19-216:  O.  D.  137) . . 1919  Cum.  Bull.  p.  1 12. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
372 


2-37-22.1  (2)  6-9-22. 


BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


Mines  and  oil  and  gas  wells;  discovered  on  or  after  March  1,  1913;  valuation  at  date 
of  discovery  may  not  be  set  up  (29-20-1068:  Sol  Op.  26).  .Dec.  1920  Cum.  Bull, 
p.  44. 

-¥■  Municipal  bonds;  contract  for  sale  of,  prior  to  issuance,  interest  running  from  date  of 
contract:  handling  of  accrued  interest  by  dealer  on  sale  by  him  when  issued 
(1-23-325:  I.  T.  1337)..  Bull.  I (’22)-23,  p.  1. 

Municipal  bonds  purchased  at  discount  and  (1)  held  till  maturity,  (2)  sold  for  more  than 
cost  (48-20-1321:  0.  D.  737).. Dec.  1920  Cum.  ’Bull.  p.  49.  Same,  made  more 
specific  (1-21-1369:  0.  D.  762).  .June  1921  Cum.  Bull  p.  31.  Same  (3-21-1396: 

0.  D.  774).  . June  1921  Cum.  Bull.  p.  31.  (See  at  “Discount;  non-interest  bearing 
securities,”  in  Cumulative  Index  following  If  1564.) 

Municipal  bonds  purchased  at  premium  and  held  to  maturity  (46-20-1300:  0.  D. 
726).  .Dec.  1920  Cum.  Bull.  p.  49. 

Original  issue  stock  for  invention;  establishing  “market  value”  when  received  as 
compensation  (1-20-656:  O.  962).  .June  1920  Cum.  Bull.  p.  74. 

Pecuniary  claim  owned  by  estate  on  March  1, 1913;  profit  or  loss  on  subsequent  settle- 
ment; interest  since  March  1,  1913;  payment  in  securities  of  less  than  par  value 
(1-19-11:  O.  D.  6) . . 1919  Cum.  Bull.  p.  37 

Real  estate  acquired  by  corporation  in  exchange  for  ts  stock  subsequent  to  Feb.  28, 
1913  (26-21-1699:  0.  D..955) . . June  1921  C.  B.  p.  44. 

Real  estate;  attorney’s  fees  paid  to  secure  reduction  of  assessment  to  be  added  to 
“cost”  (48-20-1324:  O.  D.  739).. Dec.  1920  Cum.  Bull.  p.  192. 

¥ Real  estate;  benefit  of  deduct  on  for  taxes  paid,  lost  over  period  of  years  as  insufficient 
income;  not  to  be  addec  to  “cost”  ( 1-6-64 : I.  T.  1188).  .Bull.  I (’22) — 6,  p.  8. 
Also:  1921  Act  (I-23-32( : I.  T.  1338).  .Bull.  I (’22)-23,  p.  2. 

Real  estate  in  lots;  future  development  work  included  in  selling  price  to  be  included 
in  “cost”  also  (27-20-103  5:  O.  D.  567).  .Dec.  1920  Cum.  Bull.  p.  108. 
Requisition  of  property  and  payment  therefor  by  government  (18-21-1604:  0.  D. 
897}>.June  1921  Cum.  Bjull.  p.  43. 

ResidenceSffaxpayer’s  own  hbuse);  cost  not  reduced  by  depreciation  on  sale  (30-20- 
1085:  ON9.  600).. Dec.  1920  Cum.  Bull.  p.  46. 

Short  sales  of  sNjck  (24-29-5^8:  S.  1179) ..  1919  Cum.  Bull.  p.  60. 

State  obligations  ssld  between  interest  dates;  interest:  discount  (1921  Act)  (1-6-63: 

1.  T.  1187).  . Buih  I (’23)— -6,  p.  7. 

Stock;  market  quotatVjns  (9-20-764:  A.  R.  R.  33).  June  1920_Cum._BulL  p.  30. 
Stock:  where  no  sales  ( 

Stock  dividends;  sale  of\tock  received  as  and  in  respect  to  which  paid  (30-19-634: 
A.  R.  R.  6).  . 1919  CiNn.  Bull.  p.  30.  See  further  at  “Method  of  determining 
profit,  etc.”  in  Cumulative  Index  following  If  1140. 

Stock  owned  on  March  1,  19l\sold  at  price  greater  than  market  value  then  but  less 
than  cost  (19-19-493:  T.  B\M.  73)..  1919  Cum.  Bull.  p.  35. 

Supreme  Court  decisions ..  Supplementary  Page  189,  lfS346,  and  Supplementary 
Page  191  1fS364.  j 

ranee  asVart  consideration  for  property  purchased;  what 
bn  with  subsequent  disposition  (24-21-1682:  O.  D.  945) 
11.  p.  44. 

11-1560:  A.  l\  R.  375)..  June  1921  Cum.  Bull.  p.  102. 
fe6) . . Bull.  I (’2\)-2,  p.  7. 

idebtedness  puro{iased  or  sold  at  discount  (46-20-1303: 
Cum  Bull.  p. 

; payment  for  new:  Subsequent  sale  of  used  car  (5-21-1413: 


Support  for  life  and  life  ins 
is  “cost”  in  connectii 
. .June  1921  Cum.  Bv 
Syndicate  liquidation  (15- 
Also  (1-2-15:  I.  T.  Ill 
Treasury  certificates  of 
O.  D.  729).  .Dec.  192 
Used  car  accepted  as  part 


O.  D.  782).  .June  19^1  Cum.  Bull,  p 31. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
295 


2-27-22. 


(2)  G-3-22. 


BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


1445  The  Determination,  in  the  Case  of  Stock,  of  “Fair  Market  Price  or 
Value”  as  of  March  1,  1913. — I his  office  is  in  receipt  of  your 

letter  of  November  20,  1916,  in  matter  of  computing  gain  or  loss  on  sale 
of  property  acquired  prior  to  March  1,  1913,  and  asking  whether 

In  case,  of  the  sale  of  stock  traded  in  on  the  exchange,  shall 
the  opening  price  on  Adarch  1st,  or  the  closing  price,  or  the  average 
price  for  the  day,  be  taken  as  the  basis?” 

1446  Under  paragraph  (c)  of  Section  2 and  paragraph  (4)  of  Section  5, 
Act  of  September  8,  1916,  in  case  of  property  acquired  prior  to 

March  1,  1913,  the  fair  market  price  or  value  of  such  property  as  of  March 
1,  1913,  shall  be  the  basis  for  determining  the  amount  of  gain  or  loss”  upon 
sale  or  other  disposition  of  the  property. 

1 447  “The  fair  market  price  or  value  as  of  March  1”  is  held  to  be  the  fair 
market  price  or  value  as  of  the  entire  day  of  Alarch  1,  which  in  the 
case  of  variation  between  “opening  and  closing  price”  for  the  day,  would 
mean  the  average  price  for  the  day.  This,  however,  would  be  conditioned 
upon  showing  that  the  exchange  quotation  represented  the  fair  market  price 
or  value  of  the  stock,  as  it  is  this  “fair  market  price  or  value”  which  is  to 
control,  however  that  fact  may  be  ascertained.  (Letter  to  The  Corporation 
Trust  Company,  signed  by  Commissioner  W.  H.  Osborn,  and  dated  November 
21,  1916.) 

1448  In  Determining  Value  of  Stock  as  of  March  1,  1913,  the  Good- 
will of  the  Corporation  is  to  be  Taken  Into  Consideration. — Receipt 
is  acknowledged  of  your  letter  of  July  2,  1919,  in  which  you  refer  to  the 
consideration  to  be  given  to  the  value  of  goodwill  of  a corporation  where  it 
is  desired  to  establish  the  fair  market  value  of  its  outstanding  capital  stock 
on  Alarch  1,  1913.  Tfln  reply,  you  are  advised  that  the  value  of  the  tangible 
and  intangible  assets  of  a corporation,  inclusive  of  the  value  of  goodwill,  as 
of  March  1,  1913,  is  to  be  taken  into  consideration,  together  with  such  other 
facts  as  may  be  necessary,  where  it  is  desired  to  establish  the  market  value  of 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
296 


S-27-22.  (2)  4-10-22.  (3)  4-18-22.  (4)  6-8-22.  (5)  6-10-22.  (6)  5-19-22.  (7)  6-2-22.  (8)  6-9-22. 

GROSS  INCOME— DIVIDENDS. 


28,  1913.  Although  interest  on  state  bonds  and  certain  other  obligations  is 
not  taxable  when  received  by  a corporation,  upon  amalgamation  with  the 
other  funds  of  the  corporation  such  income  loses  its  identity  and  when  dis- 
tributed to  stockholders  in  dividends  is  taxable  to  the  same  extent  as  other 
dividends.  See  further  articles  53  [for  constructive  receipt  of  dividends, 
If  1272]  and  858  [for  effect  of  ordinary  dividend  on  invested  capital — War 
Tax  Service],  The  term  “dividends”  does  not,  however,  include  a dis- 
tribution made  by  a personal  service  corporation  out  of  earnings  or  profits 
accumulated  since  December  31,  1917,  and  prior  to  January  1,  1922.  (Art. 
1541,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

¥ Agreement  to  buy  stock  in  another  corporation  with  proceeds,  through  trustee,  the 
stockholders  receiving  no  cash;  is  a taxable  dividend:  1921  Act  (1-23-324:  I.  T. 
1336).  .Bull.  I (’22)-23,  p.  1. 

Bank  capital  stock  tax  (West  Virginia) /payable  by  bank  on  stockholders’  account; 
payment  by  bank  to  stockholder  of  famount  of  tax  bank  was  relieved  from  paying 
because  stockholder  claimed  exemption  is  additional  dividend  to  stockholder: 
1921  Act  (1-19-262:  I.  T.  1300).  .Bull.  I (’22)-19,  p.  7. 

Cash  distribution  with  option  to  buy  stoik  with  dividend  checks  is  not  a stock  dividend 
(22-19-529:  T.  B.  R.  63) . . 1919  Cum.  Bull.  p.  24. 

Same  (27-20-1034:  & D.  565).  .Dfec.  1920  Cum.  Bull.  p.  22. 

Same:  National  banlis  (29-20-1066:  0.  D.  588).  .Dec.  1920  Cum.  Bull.  p.  24. 
Debenture  bonds;  payments  on  account  of,  are  not  d vidends  (41-21-1861:  0.  D. 
1060).. Dec.  1921  CuA.  Bull.  p.  193. 

Debenture  bonds;  dividends  paid  irV.  . (24-21-1681:  T.  D.  3170).  .June  1921  Cum. 
Bull.  p.  25.  \ 

Declared  and  credited  but  pot  paid;/ also  credited  though  not  formally  declared;  no 
interest;  all  by  agreeiAent:  (Massachusetts)  (34-21-1786:  0.  D.  1006).. Dec. 
1921  Cum.  Bull.  p.  276.  \ 

Declared  prior  to  March  1,  1913  nut  payable  thereafter  is  not  taxable  under  1913 
Act  (1-7-86:  Ct.  D.  23)  (2M  Fell.  363) . . Bull.  I (’22)-7,  p.  7.  Relied  on  in  decision 
at  113127.  \ [ 

Employees  buying  stock;  dividknas  credited  contingently,  corporation  retaining  title 
to  stock  until  paid  for,\a re  additional  compensation  (1-21-1370:  O.  D.  763) 
..June  1921  Cum.  Bullifo.  76. 

Same,  but  stock  held  by  txustees  (6-21-1426:  O.  D.  791).. June  1921  Cum. 
Bull.  p.  76.  A 

Incorporation  of  partnership  busjpiss  “within  4 months”  after  Nov.  23,  1921;  treat- 
ment of  withdrawals  by  partners  and  interest  on  partners’  capital  accounts:  1921 
Act  (1-18-256:  I.  T.  1299) ./.  Bill.  I (’22)-18,  p.  20. 

Interest  on  installment  payments  fpr  stock  pending  authorization  to  corporation  to 
increase  its  capital  stock;  B918  Act  (1-22-322:  I.  T.  1334).  .Bull.  I (’22)-22,  p.  17. 
Missouri  corporations  may  daclar  Sstock  dividends  (17-21-1589:  O.  D.  887).. June 
1921  Cum.  Bull.  p.  24.  I \ 

Net  deficit  over  period  of  years;  prior  losses  do  not  offset  profits,  which  will  conse- 
quently, be  deemed  to  hive  bein  distributed  by  dividends  (31-20-1098:  O.  D. 
610).. Dec.  1920  Cum.  Bill.  p.  Also  (40-20-1219:  A.  R.  M.  82).. Dec.  1920 
Cum.  Bull.  p.  36.  j i 

Non-taxable  profits  (because  iof  March  1,  1913  valuation  in  excess  of  cost  but  not  in 
excess  of  selling  price)  dfstributeq  as  taxable  dividends  (43  21-1878:  L.  O.  1073) 
. .Dec.  1921  Cum.  Bullip.  26.  The  foregoing  superseded  by  Art.  1543  of  Reg. 
62  (111113)  (1-20-268:  1 1 T.  1303)|  .Bull.  I (’22)-20,  p.  7. 

Paid  in  December,  received  in  Januart  (2-19-140:  O.  D.  97).  .1919  Cum.  Bull.  p.  79. 
Premiums  on  life  insurance/of  officer,  Stockholders  being  beneficiaries,  are  dividends 
to  them  (37-20-1193:  □.  D.  659).  IDec.  1920  Cum.  Bull.  p.  192. 

Rescission  of  illegal  dividend  (20-19-50,!:  T.  B.  M.  77). . 1919  Cum.  Bull.  o.  24. 
Rescission  of  legal  dividend;  i.  e.,  voluntary  repayment  by  stockholders  (12-19-398: 
T.  B.  R.  42) . . 1919  Cufcn.  Bull.  p.  A5. 

Scrip  for  fractional  shares,  Corporation  selling  in  open  market  as  agent  for  stockholders 
who  so  elect  (14-21-1538:  O.  D.  859).. June  1921  Cum.  Bull.  p.  24:  See  “Frac- 
tional shares”  under  AiV.  1547,  If  1084. 

Stock  (?)  dividends  paid  in  preferred  stock  (7-21-1441:  O.  D.  801).  .June  1921  Cum. 
Bull.  p.  24. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE  J 

209 


3-27-2*.  (2)  4-10-22.  (#)  4-18-22.  (41  5-8-22.  (6)  5-10-22.  (C)  6-19-22.  (7)  G-2-22.  (8)  C-9-22. 

GROSS  INCOME— DIVIDENDS. 


Stock  dividends  do  not  ‘.‘distribu'e,’'  hence  surplus  acquired  since  March  1,  1913, 
is. deemed  to  be  distributed  by  a cash  dividend  subsequent  to  or  simultaneous1^ 
with  a stock  dividend  (29-20-1065:  0.  I).  587)  . Dec.  1920  Cum.  Bull.  p.  23 
(Note;  (1-19-7 : T.  B.  R.  3;..  1919  Cum.  Bull.  p.  29  (continued  in  the  August 
Cum.  Digest,  p.  28),  though  bearing  primarily  on  invested  capital,  would  seem  to 
contradict  the  above.) 

Stock  dividends  not  taxable;  Supreme  Court  decisions 
1913  Act.  .Supplementary  Page  137,  1fS54. 

1916-1918  Acts.  .Supplementary  Page  173,  ^S244 


1081  Law  H38.  As  of  What  Date  Dividends  are  Included  in  the 

(Sec.  201.)  Gross  Income  of  the  Distributees.—' "(*)  For  the 
purposes  of  this  Act , a taxable  distribution  made  by  a 
corporation  to  its  shareholders  or  members  shall  be  included  in  the  gross 
income  of  the  distributees  as  of  the  date  when  the  cash  or  other  property  is 
unqualifiedly  made  subject  to  their  demands Law.  [Note:  This 

provision  is  new,  in  terms,  to  the  1921 
Act.  The  regulations  under  the  1918 
Act  read  “when  set  apart  for  the 
stockholder.”] 

[See  statement  in  court  decision  relative  to  dividends  credited  merely, 
and  amount  thereof  not  segregated  from  other  assets  of  the  corporation 
(1916  Act)  at  1[1265.] 


1 082  A taxable  distribution  made  by  a corporation  to  its  stockholders  or 
members  shall  be  included  in  the  gross  income  of  the  distributees 
when  the  cash  or  other  property  is  unqualifiedly  made  subject  to  their 
demands.  See  article  53  [If  1272],  (Art.  1541,  Reg.'  62,  1922  Edition.) 

[See  Cumulative  Index  following  If  1080,  above.] 

1083  Return  of  Corporate  Dividends.— Dividends  on  stock  of  domestic 
corporations  or  resident  foreign  corporations  are  prima  facie  in- 
come of  the  record  owner  of  the  stock,  and  such  record  owner  will  be  liable 
for  any  additional  tax  based  thereon,  unless  a disclosure  of  the  actual  owner- 
ship is  made  to.  the  Commissioner  on  Form  1087  which  shall  show  that 
the  record  owner  is  not  the  actual  owner  and  who  the  owner  is  and  his  address. 
In  all  cases  where  the  actual  owner  is  a nonresident  alien  individual  and  the 
record  owner  is  a person  in  the  United  States,  the  record  owner  will  be 
considered  for  . tax  purposes  to  have  the  receipt,  custody,  control,  and  dis- 
posal of  the  dividend  income  and  will  be  required  to  make  return  for  the 
actual  ow  ner,  regardless  of  the  amount  of  the  income,  and  to  pay  any  surtax 
found  by  such  return  to  be  due.  (Art.  405,  Reg.  62,  1922  Edition.)  ' 


1084  Dividends  Paid  in  Property. — Dividends  paid  in  securities  or  other 
property  (other  than  its  own  stock),  in  which  the  earnings,  of  a 
corporation  have  been  invested,  are  income  to  the  recipients  to  the  amount 
of  the.  market  value  of  such  property  when  receivable  by  the  stockholders. 
A dividend  paid  in  stock  of  another  corporation  is  not  a stock  dividend 
[see  i|1134],  even  though  the  stock  distributed  was  acquired  through  the 
transfer  by  tne  corporation  declaring  the  dividend,  of  property  to  the  cor- 
poration the  stock  of  which  is  distributed  as  a dividend.  ‘ Where  a corpo- 
ration declares  a dividend  payable  in  stock  of  another  corporation,  setting 
aside  the  stock.to  be  so  distributed  and  notifying  the  stockholders  of  its  action, 
the  income  arising  to  the  recipients  of  such  stock  is  its  market  value  at 
the  time  the  dividend  becomes  payable.  [For  gain  or  loss  on  subsequent 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
210 


9-1-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D.  Date  Subject  Paragraph 

Report  No.  48,  August  10,  1922. 

3380  July  8,  1922  (T.  D.  designation  for  Regulations  40  (1922 

Edition),  Stamp  Taxes  on  Issues,  Sales,  and 
Transfers  of  Stock,  and  Sales  of  Products  for 
Future  Delivery. — War  Tax  Service,  page 
709.) 

3381  Aug.  4,  “ (Prohibition.)  . 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  32,  of  the  1922  Series.] 


3382 

3383 


3384 


Special 


3385 


3386 

3387 

3388 

3389 


3390 

3391 


July  20, 


Aug.  9, 


July  27, 


Aug.  9, 


17, 


Report  No.  49,  August  17,  1922. 

(T.  D.  designation  for  Regulations  59  (1922 
Edition),  Special.  Taxes  on  Businesses  and 
Occupations  and/on  the  Use  of  Boats. — War 
Tax  Service,  P^ge  1513.) 

(Estate  Taxes.— AVar  Tax  Service,  1[787.) 

[Pages  for  substitution  on  account  index-digest 
references  Ip  rulings  in  Internal  Revenue  Bul- 
letin No.  33,  of  the  1922  Series.] 

Zeport  No.  50,  August  24,  1922. 

D.  designation  for  Regulations  63  (1922 
Edition),  Estate  Tax. — War  Tax  Service,  Page 
r 1*.)/ 

Income  of  deceased  partner,  who  made  returns  on 
a cash  basis,  includes  his  share  of  fees  collected 
to.  Say  of  death;  his  interest  in  uncollected  fees 
tb  he  capitalized  by  estate 3305 

(Narcotics.) 

[Pagesj  for  substitution  on  account  index-digest 
references  to  new  matters  and  rulings  in 
Internal  Revenue  Bulletin  No.  34,  of  the 
1922\  Series.] 

Report  No.  51,  August  28,  1922. 

Art.  170,  Reg.  33  (1916  Act),  amended. — De- 
pletion of  oil  and  gas  properties 3306 

Art.  327(a)  added,  Reg.  62,  Transportation 
service&by  foreign  corporations  between  U.  S. 
and  foreign  points 3323 

(Prohibition.) 

(Excess-pronts  tax. — War  Tax  Service,  1[1289.) 

[Pages  for  Substitution  on  account  index-digest 
references  to  foregoing  new  matters.] 

Report  No.  52,  September  1,  1922. 

(Prohibition.) 

(Prohibition.)  , 

[Pages  for  substitution  on  account  index-digest 
references  to  Vulings  in  Internal  Revenue 
Bulletin  No.  35*  of  the  1922  Series.] 


There  are  no  Supplementary  Pages  32  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  31. 


- 


t i.  ■ . i.  oJ  }9i  :.i 

' 


JI  loom  JAH3  R iHT 


8-28-22. 


points  in  the  United  States  and  points  outside  the  United  States,  the  costs  and 
expenses  (including  taxes)  properly  apportioned  or  allocated  to  such  other 
business  should  be  excluded  both  from  the  deductions  and  from  the  apportion- 
ment process  prescribed  in  (1)  above;  but,  for  the  purpose  of  determining  net 
income,  a ratable  part  of  any  general  expenses,  losses  or  deductions  which 
cannot  definitely  be  allocated  to  some  item  or  class  of  gross  income,  may  be 
deducted  from  the  gross  income  from  sources  within  the  United  States,  after 
the  amount  of  such  gross  income  has  been  determined.  Such  ratable  part 
should  ordinarily  be  based  upon  the  ratio  of  gross  income  from  sources  within 
the  United  States  to  the  total  gross  income. 

3330  (4)  Application  for  permission  to  base  the  return  upon  the  taxpayer’s 

books  of  account  will  be  considered  by  the  commissioner  in  the  case  of 
any  taxpayer  subject  to  this  article,  who,  in  good  faith  and  unaffected  by  con- 
siderations of  tax  liability,  regularly  employs  in  his  books  of  account  a de- 
tailed allocation  of  receipts  and  expenditures  which  reflects  more  clearly  than 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
743 


*1*4  I I 1 . 1 » . . I kfl  ♦ . . f f M ( t . I 


-oomoqqu  orb  moil  bn  • lo ii-jmV.  , aHi  noil  rbod  babtibya  ad  bluoxl  9„i1.Ijt| 

i 'jf<  r ibud  .!’■■>(  rfi  ■ > J iij  ft  ><J  f{  nri'  nrti  pj  /['jo  lo  it ij  m ail/ 
niriJiv/  * jutuor  n ill-'  . .1  a*oi  lo  oiJr.t  »if  J itoqtf  bsg  . od  vlnniiiLio  blu.  ,1?. 


10  t)HR  ,dj  tu  pjiiol  iiitni.)  i -./lj  vcl  bavjfji-tioa  ad  lltw  inuo  »:  lo  giood 

nr  a^olqjflia  '<  !i  t , did  il  y,  j li> 

11  ' 1:*3  'Jioftt  taaltar  > airlw  r>iu3  . •>  j x * > bn  :fqi-  j lo  jo  'r. , tilt  fo  |i  • 

'Vff'l.i  11  I 1 *•  . ■ i . I 


riii:ia  .11  .Cl  larioi:  irjinjv  >yd  bo.rji.  ,t8<  . 


.'£  ji\itio'j  tmYY  -ult  i ''  l'n'£'V>J 

:i  »ivaaa  xat  smoowi  hht 


2-27-22.  (2)  7-20-22. 


RULES,  REGULATIONS,  ETC. 


2964  Law  ^[677.  “( b ) Any  vacancy  in  the  Board  shall  be  filled  in  the 

(Sec,  1327.)  same  manner  as  the  original  appointment.  The 
members  representing  the  public  shall  serve  without 
compensation  except  reimbursement  for  traveling,  subsistence,  and  other 
necessary  expenses  incurred  in  the  performance  of  the  duties  vested  in 
them  by  this  section.  The  members  representing  the  Bureau  of  Internal 
Revenue  shall  serve  without  compensation  in  addition  to  that  received  for 
their  service  in  such  Bureau .” 


2965  Law  1,678.  “(c)  The  Secretary  shall  furnish  the  Board  with  such 

(Sec.  1327.)  clerical  assistance,  quarters  and  stationery,  furniture, 

office  equipment,  and  other  supplies  as  may  be  necessary 
for  the  performance  of  the  duties  vested  in  them  by  this  section .” 

2966  Law  1679.  “(d)  It  shall  be  the  duty  of  the  Board  to  investigate 

(Sec.  1327.;  the  procedure  of  and  the  forms  used  by  the  Bureau  in  the 

administration  of  the  internal  revenue  laws,  and  to  make 
recommendations  in  respect  to  the  simplification  thereof.  The  Board  shall 
make  a report  to  the  Congress  on  or  before  the  first  Monday  of  December  in 
each  year.” 

2967  Law  ^[680.  “(e)  The  expenditures  of  the  Board  shall  be  paid  upon 

(Sec.  1327.)  vouchers  approved  by  the  Board  and  signed  by  the  chair- 
man thereof.  For  the  expenditures  of  the'  Board  for 

the  fiscal  year  ending  June  30,  1922,  there  is  authorized  to  be  appropriated, 
out  of  any  money  in  tie  Treasury  not  otherwise  appropriated , the  sum  of 
$10,000.”  5 ' 

2968  Law  1[ 631.  “(f)  The  Board  shall  cease  to  exist  on  December  31 

(Sec.  1327.)  1924.”  Law.  [Note:  These  provisions  are  new 

to  the  1921  Act.] 


2969  Personnel  of  the  Tax  Simplification  Board.— (February  27,  1922.) 

James  H.  Beal 
Joseph  E.  Sjterrett 
William  T.  Abbott 

Appointed  by  the  President  to  represent  the  public. 
Charles  P.  SJnith 
Jesse  D.  Burks 
George  W.  S|ilton 

Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
resent the  Bureau  of  Internal  Revenue. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

* Change  in  personnel:  Board  as  constituted  July  15,  1922.  .*[[3299. 

\ 

2970  Law  701 . Saving  Clause  in  Event  of  Unconstitutionality. — 

(Sec.  1403.)  “Sec.  1403.  That  if  any  provision  of  this  Act,  or  the 
application  thereof  lo  any  person  or  circumstances,  is 
neld  invalid , the  remainder  of  the  At  i and  the  application  of  such  provision 
to  other  persons  or  circumstances,  shall  not  be  affected  thereby Law. 

[Note:  This  “saving  clause”  differs  con- 
siderably in  its  wording  from  that  of  the 
1918  Act.] 


Copyright  1922 , by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
659 


2-27-22.  (2)  7-20-22. 


SUPREME  COURT  DECISIONS. 


2971  Cases  Involving  the  Constutionality  of  the  Act  of  October  3,  1913.* 

The  case?  listed  below,  arising  under  the  Income  Tax  Law  of  October 
3,  1913,  have  been  decided  in  the  Supreme  Court  of  the  United  States.  (To 
February  15,  1922.) 

2972  Frank  R.  Brushaber,  Appellant,  v.  Union  Pacific  Railroad  Com 
pany.  (240  U.  S.  1.) 

(For  the  opinion  see  Supplementary  Page  125  ] 

2973  John  F.  Dodge  and  Horace  E Dodge,  Appellants,  v.  James  J.  Brady, 
Collector  of  Internal  Revenue.  (240  U.  S.  122.) 

[For  the  opinion  see  Supplementary  Page  132.] 

2974  Tyee  Realty  Company.  Plaintiff  in  Error,  v.  Charles  W.  Anderson, 
Collector  of  Internal  Revenue.  (240  U.  S.  1 15.) 

(For  the  opinion  see  Supplementary  Page  132.] 

2975  Edwin  Thorne,  Plaintiff  in  Error,  v.  Charles  W.  Anderson,  Col- 
lector of  Internal  Revenue.  (240  U.  S.  115.) 

[For  the  opinion  see  Supplementary  Page  132.] 

2976  John  R.  Stanton,  Appellant,  v.  Baltic  Mining  Company  et  al.  (240 
U.  S.  103.) 

[For  the  opinion  see  Supplementary  Page  133.] 

297  7 John  F.  Dodge  and  Horace  E.  Dodge,  Appellants,  v.  William  H. 

Osborn,  Commissioner  of  Internal  Revenue.  (240  U.  S.  118.) 

2978  [Comment:  The  appellants  here  [^[2977],  sought  in  the  lower  courts 
to  enjoin  the  assessment  and  collection  of  the  additional  tax.  The 
Court  of  Appeals  of  the  District  of  Columbia  affirmed  the  decree  of  the 
Supreme  Court  of  the  District  of  Columbia  dismissing  the  bill  and  held 
that  the  constitutional  questions  could  not  be  considered  in  a proceeding 
to  enjoin  collection.  The  U.  S.  Supreme  Court  affirmed.  For  the  opinion 
see  paragraph  2873.] 

29  79  Howard  Gould.  Plaintiff  in  Error,  v.  Katherine  C.  Gould.  (245 
U.  S.  151.) 

[For  the  opinion  see  Supplementary  Page  136.] 

2980  Henry  R.  Towne,  Plaintiff  in  Error,  v.  Mark  Eisner,  Collector  of 
Internal  Revenue.  (245  U.  S.  418.) 

[For  the  opinion  see  Supplementary  Page  137.] 

2981  William  E.  Peck  & Co.,  Inc.,  Plaintiff  in  Error,  v.  John  Z.  Lowe, 
Jr.,  Collector  of  Internal  Revenue.  (247  U.  S.  165.) 

[For  the  opinion  see  Supplementary  Page  140.] 

2982  E.  J.  Lynch,  Collector  of  Internal  Revenue,  Petitioner,  v.  H.  C. 
Hornby.  (247  U.  S.  339.) 

[For  the  opinion  see  Supplementary  141.] 

2983  E.  J.  Lynch,  Collector  of  Internal  Revenue,  Petitioner,  v.  Henry 
Turrish.  (247  U.  S.  221.) 

[For  the  opinion  see  Supplementary  Page  144.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
660 


E-27-22.  (2)  8-22-22.  (3)  4-10-22.  (4)  4-14-22.  (5)  9-1-22. 

RETURNS  FOR  PERIOD  OF  LESS  THAN  TWELVE  MONTHS. 


For  explanation  of  Cumulative  Index  references  see  page  gr. 

Alien  arriving  here  with  established  fiscal  year:  notice  to  collector  (15-20-853:  O.  D. 


456).  .June  1920  Cum.  Bull.  p.  201. 

Decedent’s  income  to  be  placed  on  annual  basis.  1921  Act.  .^3098.  Same  (1-12-160: 
I.  T.  1250)  and  (1-12-161:  I.  T.  1251).  .Bull.  I (’22)-12,  p.  26.  Same  again 
(1-14-199:  Mim.  2934).  .Bull.  I (’22)-14,  p.  12. 

Dividends  and  tax-free  interest  placed  on  annual  basis  for  normal  tax  purposes — 
1921  Act.  .113098. 

Fiscal  year  ending  June  30:  change  to  calendar  year  basis  (24-20-996:  Sol.  Op.  5) 
..June  1920  Cum.  Bull.  p.  67. 

Tax  comoutation  on  any  resulting  fractional  year  return  (45-20-1296:  0.  D.  723)  Dec 
1920  Cum.  Bull,  p 230 


257  6 In  the  making  its  first  return  of  income  for 

only  a year  and  in  the  case  of  a corporation 

changing  its  a ther  from  calendar  year  to  fiscal  year, 

from  fiscal  ye£  from  one  fiscal  year  to  another  fiscal 

year,  a separat  1 part  of  a year  is  required.  See  section 

226  of  the  stat  2574  above].  In  such  a case  the  credit 

of  $2,000  agair  a domestic  corporation  having  a net  in- 
come not  exce  reduced  to  such  proportion  of  the  full 

credit  as  the  n tie  period  for  which  the  return  is  made 

bears  to  tvvelv  ited  credit  shall  be  applied  to  the  net 

income  before  iced  on  an  annual  basis,  as  provided 

in  section  226(  s 236  and  305  and  articles  591  [for  cred- 
its allowed  If:  portionment  of  the  $3,000  specific  ex- 
emption from  /ar  Tax  Service].  (Art.  626,  Reg.  62, 

1922  Edition.) 

For  te  Index  references  see  page  gi. 

Specific  cre<  : O.  D.  352)..  1919  Cum.  Bull.  p.  235.  (See 

“Fracti<  lat.ive  Index  followine  112489.) 

4 Fractional  pi  T.  1432).  .Bull.  I (’22)-35,  p.  9. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  3-22-22.  (8)  4-10-22.  (4)  4-14-22.  (5)  9-1-22. 

INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

2677  Law  1(347.  Understatement  in  Returns  and  Increases  by  the  Col- 

(Sec.  228.)  lector.  “Sec.  228.  '1  hat  if  the  collector  or  deputy 
collector  has  reason  to  believe  that  the  amount  of  any 
income  returned  is  understated , he  shall  give  due  notice  to  the  taxpayer 
making  the  return  to  show  cause  why  the  amount  of  the  return  should  not 
be  increased , and  upon  proof  of  the  amount  understated , may  increase  the 
same  accordingly”— Law.  [Note:  The  1918  Act  so  provided.] 

2678  Law  ^[348.  Taxpayer  May  Appeal  Collector’s  Decision,  to  the 
(Sec.  228.)  Commissioner. — “ Such  taxpayer  may  furnish  sworn 

testimony  to  prove  any  relevant  facts  and  if  dissatisfied 
with  the  decision  of  the  collector  may  appeal  to  the  Commissioner  for  his  de- 
cision, under  such  rules  of  procedure  as  may  be  prescribed  by  the  Commis- 
sioner with  the  approval  of  the  Secretary.” — Law.  [Note:  The  1918 

Act  so  provided.] 

2679  Understatement  of  Income. — If  a collector  has  reason  to  believe  that 
_ the  amount  of  any  income  is  understated  in  a return,  he  may  on  his 

own  initiative  take  up  the  matter  with  the  taxpayer  and  upon  becoming  satis- 
fied that  the  amount  was  understated  may  increase  it  accordingly,  subject  to 
the  right  of  the  taxpayer  to  appeal  to  the  Commissioner.  The  Commissioner, 
however,  without  the  intervention  of  the  collector  may  exercise  original  juris- 
diction in  cases  of  understatements  or  other  errors  in  returns,  in  which  event 
sections  250  [beginning  at  1f2597]  and  1300  [5[2709]  of  the  statute  and  section 
3176  [beginning  at  ^[2612]  of  the  Revised  Statutes,  as  reenacted  by  section  131 1 
of  the  statute,  are  applicable  instead  of  section  228  [1f2577  above].  See 
articles  1002  [payment  of  tax  when  no  proper  return,  ^[2624],  1005  [penalty 
for  understated  return,  1f2603],  and  1711  [Commissioner  has  benefit  of  all 
existing  internal  revenue  laws  as  aids  to  collection  of  the  tax,  ^[271 1].  Section 
3172  of  the  Revised  Statutes,  as  reenacted  by  section  1311  of  the  Revenue 
Act  of  1921,  provides  [^[2583].  See  also  section  3173  of  the  Revised  Statutes 
as  reenacted  by  section  1311  of  the  Revenue  Act  of  1921  [does  not  relate 
specifically  to  income  tax,  but  see  ^[2701].  (Art.  451,  Reg.  62,  1922  Edition.) 

2580  Reasonable  Time  for  Investigation  After  Government’s  Notifica- 
tion That  Return  is  Incorrect. — Referring  to  your  statement  that 

the  representative  of  this  office  insists  upon  the  officers  of  corporations 
signing  amended  returns  without  giving  any  reasonable  time  for  investi- 
gation on  the  part  of  the  officers,  you  are  informed  that  examining  officers 
have  been  instructed  by  this  office  to  secure  from  corporations  amended 
returns  wherever,  as  a result  of  their  examinations,  it  is  shown  that  the 
original  returns  were  not  correct. 

2581  It  is  not  the  desire  of  this  office,  however,  that  examining  officers 
shall  not  give  the  officers  of  corporations  the  fullest  opportunity  to 

make  any  investigation  they  may  desire  prior  to  signing  these  amended  re- 
turns, provided,  of  course,  such  investigation  does  not  cover  an  unreason- 
able length  of  time.  (Extract  from  letter  to  the  Industrial  Association  of 
Cincinnati,  signed  by  Commissioner  W.  H.  Osborn,  and  dated  February 
2,  1915.) 

(Decision.) 

2582  The  acceptance  of  amended  returns,  and  the  statur  thereof,  when 
not  specifically  authorized  by  law. — [Comment:  On  appeal,  in  a 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22. 


INCOME  FROM  SOURCES  WITHIN  U.  S.  POSSESSIONS. 


States.  For  a determination  of  the  income  from  sources  within  the  United 


States,  see  section  217  and  articles  311-329  [beginning  at  ^[21 02].  (Art.  1135, 
Reg.  62,  1922  Edition.) 

20  7 7 Domestic  Corporation  Deriving  Income  From  Sources  Within  a 
Possession  of  the  United  States. — The  gross  income  of  a domestic 
corporation  (1)  80  per  cent  or  more  of  the  gross  income  of  which  (computed 
without  the  benefit  of  this  article)  for  the  three-year  period  immediately 
preceding  the  close  of  the  taxable  year  (or  for  such  part  of  such  period  im- 
mediately preceding  the  close  of  such  taxable  year  as  may  be  applicable) 
was  derived  from  sources  within  a possession  of  the  United  States,  and  (2) 
50  per  cent  or  more  of  the  gross  income  of  which  (computed  without  the  benefit 
of  this  article)  for  such  period  or  such  part  thereof  was  derived  from  the  active 
conduct  of  a trade  or  business  within  a possession  of  the  United  States,  means 
only  gross  income  from  sources  within  the  United  States.  See  section  217 
and  articles  316-329  [beginning  at  ^[2102].  (Art.  1136,  Reg.  62,  1922  Edition.) 

20 7 S Income  Received  Within  the  United  States. — Notwithstanding  the 
provisions  of  articles  j there  shall  be  included  in  gross 

income  of  citizens  and  domes  ; therein  specified  all  amounts, 

whether  derived  from  sources  ut  the  United  States,  which  are 

received  by  such  citizens  or  < :hin  the  United  States.  From 

the  amounts  so  included  in  g ;re  shall  be  deducted  only  the 

expenses  properly  apportions  thereto.  The  term  “United 

States”  as  used  herein  include  s,  the  Territories  of  Alaska  and 

Hawaii,  and  the  District  of  C term  “possession  o the  United 

States”  as  used  in  articles  11.  his  article  includes  Porto  Rico, 

the  Philippine  Islands,  the  Pa  ne,  Guam,  Tutuila,  Wake,  and 

Palmyra;  it  does  not  include  ids.  (Art.  1137,  Reg.  62,  1922 

Edition.) 

2079  Deductions  Allowed  i d to  Benefits  of  Sec.  262. — 

Read  at  2170  and  ^[21 

2080  Deductions  Allowed  C itled  to  Benefits  of  Sec.  262. — 


2081  Credits  Allowed  Citizens  titled  to  Benefits  of  Sec.  262. — Read  at 


2082  Personal  Exemption  in  the  Case  of  a Citizen  Entitled  to  Benefits  of 
Sec.  262. — Read  at  ^[21 75. 

2083  Credit  for  Taxes  in  the  Case  of  a Citizen  Entitled  to  Benefits  of  Sec. 
262.— Read  at  1(1739. 

2084  Credit  for  Taxes  in  the  Case  of  a Corporation  Entitled  to  Benefits  of 
Sec.  262. — Read  at  If  1768. 

2085  Consolidated  Returns;  Corporation  Entitled  to  Benefits  of  Sec.  262 
Treated  as  a Foreign  Corporation. — Read  at  1(2558. 


Read  at  1[1412. 


\ 


/ 


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TAX  ON  NONRESIDENT  ALIENS. 

2086  Tax  on  Nonresident  Aliens. — Who  is  a nonresident  alien. — Read 
at  1f754. 

208  7 Law  1(104.  Normal  Tax  on  Nonresident  Aliens. — “Sec.  210. 
(Sec.  210.)  That , in  lieu  of  the  tax  imposed  by  section  210  of  the 

Revenue  /let  of  1918,  there  shall  be  levied,  collected,  and 
paid  for  each  taxable  year  upon  the  nit  income  of  every  individual  a normal 
tax  of  8 per  centum  of  the  amount  of  the  net  income  in  excess  of  the  credits 
provided  in  section  216  [1(2038  and  1(2176]:”— Law.  [Note:  The 

1918  Act  so  provided.] 

2088  Law  1(106.  Surtax  on  Nonresident  Aliens.—1 “Sec.  211.  (a)  That , 

(Sec.  211.)  in  lieu  of  the  tax  imposed  by  section  211  of  the  Revenue 

Act  of  1918,  but  in  addition  to  the  normal  tax  imposed 
by  section  210  of  this  Act,  there  shall  be  levied , collected,  and  paid  for  each 
taxable  year  upon  the  net  income  of  every  individual — ” — Law.  (Note: 

The  1918  Act  so  provided.] 

2089  [Rates  same  as  for  citizens  and  resident  aliens:  For  1921,  see  «'7?2 
for  1922,  see  1(727.] 

2090  Law  1(110.  Net  Income  of  Nonresident  Aliens  Defined. — “ Sec 

(Sec.  212.)  212.  (a)  That  in  the  case  of  an  individual  the  term 

‘ net  income’  means  the  gross  income  as  defined  in  sec- 
tion 213  [see  Sec.  213  (c)  below,  at  1(2092],  less  the  deductions  allowed  by 
section  214  [1(2162].”— Law.  [Note:  The  1918  Act  so  provided.] 

2091  Law  Kill.  Annual  Accounting  Period  for  Nonresident  Aliens 
(Sec.  212.)  (Fiscal  Year  or  Calendar  Year,  as  the  Case  May  Be.) — 

Sec.  212  (b).  [Same  as  for  citizens  and  residents  for 

which  see  K1044.] 

2092  Law  K 139.  Gross  Income  of  Nonresident  Aliens. — “(c)  In  the  case 
(Sec.  213.)  of  a nonresident  alien  individual,  gross  income  means 

only  the  gross  income  from  sources  within  the  United 
States , determined  under  the  provisions  of  section  217.  [K2102.]” — Law. 

[Note:  The  1918  Act  so  provided, 

omitting,  however,  “determined  under 
the  provisions  of  section  217”,  and 
adding  the  following:  “including  interest 
on  bonds,  notes,  or  other  interest- 
bearing  obligations  of  residents,  cor- 
porate or  otherwise,  dividends  from 
resident  corporations,  and  including  all 
amounts  received  (although  paid  under 
a contract  for  the  sale  of  goods  or  other- 
wise) representing  profits  on  the  manu- 
facture and  disposition  of  goods  within 
the  United  States,”  the  interest  portion 
of  which,  modified,  appears  [K2103]  in 
the  1921  Act  in  Section  217,  wherein  is 
prescribed,  in  the  case  of  nonresident 


Copyright  1922,  by.  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22. 


CREDITS  TO  CORPORATIONS. 


2066  Law  ^441.  1921-22  Fiscal  Year— “(2)  In  the  case  of  a corporation 

(Sec.  236.)  which  makes  return  for  a fiscal  year  beginning  in  1921 

and  ending  in  1922,  in  computing  the  income  tax  as 
provided  in  subdivision  (b)  [11865]  o/  section  205,  the  war-profits  and  excess- 
profits  tax  computed  under  subdivision  ( b ) of  section  335  shall  be  cr,  dited 
against  the  net  income  computed  for  the  entire  period  as  provided  in  clause 
(1)  [If 866]  of  subdivision  ( b ) of  section  205.” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act,  in 
terms,  but  in  principle  is  the  same  as  that 
carried  in  the  1918  Act  to  meet  the 
situation  for  1917-18  fiscal  years.] 

2067  Credits  Allowed  to  Corporations— After  ascertaining  the  net  income 
of  a domestic  corporation  it  is  allowed  as  credits  against  such  net 

income  before  the  application  of  the  income  tax  rate  the  sum  of  $2,000  (only 
if  its  net  income  is  $25,000  or  less),  plus  the  amount  of  any  war  profits  and 
excess  profits  tax  assessed  or  to  be  assessed  for  the  same  taxable  )*ear  (in 
case  of  fiscal  years  ending  in  1921  and  1922,  see  sec.  205  and  arts.  1623-1624 
fl[871]),  and  plus  the  amountfof  interest  not  entirely  exempt  from  tax  received 
upon  obligations  of  the  United  States  and  bonds  of  the  War  Finance  Corpo- 
ration.  See  section  213  (b)  di  the  statute  and  articles  77-83. _ Consequently, 
in  the  case  of  corporations  no  income  tax  is  imposed  on  any  interest  received 
upon  obligations  of  the  Unrced  States  or  bonds  of  the  War  Finance  Corpo- 
ration. A foreign  ^corporation  is  allowed  the  credit  provided  in  subdivision 
(c)  of  section  236  [^2062]  but  not  the  credit  of  $2,000.  The  statute  repeals 
the  war  profits  and  excess  profits  tax  as  of  January  1,  1922.  For  the  purpose 
of  the  war  profits  and,  excess  profits  tax  a corporation  is  not  entitled  to  the 
credits  mentioned  in  tHis  Article.  To  lessen  the  inequality  between  the  tax 
upon  net  income  of  $2^000  and  upon  net  income  slightly  in  excess  of  that 
amount,  subdivision  (b)^lection  236,  provides  that  the  tax  shall  not  exceed 
' ' ' ' ' ' fable  if  the  $2,000  credit  were  allowed,  plus  the 

excess  of  $25,000.  As  to  the  equalizing  provision 
les  slightly  in  excess  of  $5,000,  see  section  216 
t.  591,  Reg.  62,  1922  Edition.) 


the. tax  which  would  be 
amount  of  the  net  income] 
in  the  case  of  individual 
(c),  and  article  301  [1f204| 


For  explanation]  of  Cumulative  Index  references  see  page  91. 

Ad  valorem  penalties  (excess-profits  tax)  not  part  of  tax  for  purposes  of  credit  (23-19 
551:  O.  926) . . 191?  Cum.  BullXp.  241. 

Apportioning  $2,000  exemption:  part  of  year  and  part  of  month  (51-20-1356:  O.  D. 

756).  .Dec.  1920  Cum.  Bull.  p.  282.  JA  . , 

Apportioning  $2,000  exemption:  return  for  5 months,  charter  granted  Aug.  1,  no  capital 
paid  in  and  operations  not  begun  until  Oct.  1 (27-20-1044:  O.  D.  574).. Dec. 

*Excess-p°rofits  tax  for  fiscal  year  ending  in  1917  (1-9-120:  A.  R.  R.  770) . .Bull.  I (’22)- 
9,  p.  16. 


2068  Credit  of  $2,000  (if  any)  Apportioned  When  Returns  Are  Being 
Made  for  a Changed  Accounting  Period.— Read  at  112573. 

2069  Credits  Against  the  Tax  in  the  Case  of  a Corporation.  Read  at 

111752.  ~ 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22. 

INCOME  FROM  SOURCES  WITHIN  U.  S.  POSSESSIONS. 

2070  Law  1(617.  Income  of  U.  S.  Citizens  and  Domestic  Corpora- 
(Sec.  262.)  tions  From  Sources  Within  the  Possessions  of  the 

, . United  States. — “ Sec . 262.  (a)  That  in  the  case  of 

citizens  of  the  United  States  or  domestic  corporations , satisfying  the  fol- 
lowing conditions , gross  income  means  only  gross  income  from  sources 
within  the  United  States  ” — Law.  [Note:  This  provision  is  new 

to  the  1921  Act.] 

2071  Law  1(618.  “(1)  If " 80  per  centum  or  more  of  the  gross  income  of 

(Sec.  262.)  such  citizen  or  domestic  corporation  ( computed  without 

the  benefit  of  this  section)  for  the  three-year  period 
immediately  preceding  the  close  of  the  taxable  year  (or  for  such  part  of  such 
period  immediately  preceding  the  close  of  such  taxable  year  as  may  be  ap- 
plicable) was  derived  from  sources  within  a possession  of  the  United  States; 
and” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

2072  Law  1(619.  “(2)  If,  in  the  case  of  such  corporation,  50  per  centum 

(Sec.  262.)  or  more  of  its  gross  income  (computed  without  the 

benefit  of  this  section)  for  such  period  or  such  part 
thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within  a 
possession  of  the  United  States',  or ” — Law.  [Note:  This  provision 

is  new  to  the  1921  Act.] 

2073  Law  1(620.  “(3)  If,  in  the  case  of  such  citizen,  50  per  centum 

(Sec.  262.)  or  more  of  his  gross  income  (computed  without  the 

benefit  of  this  section)  for  such  period  or  such  part 
thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within  a 
possession  of  the  United  States  either  on  his  own  account  or  as  an  employee 
or  agent  of  another  .’’—Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 

2074  Law  1(621.  “(b)  Notwithstanding  the  provisions  of  subdivision 

(Sec.  262.)  (a)  there  shall  be  included  in  gross  income  all  amounts 

received  by  such  citizens  or  corporations  within  the 
United  States,  whether  derived  from  sources  within  or  without  the  United 
States.” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

2075  Law  K622.  “(c)  As  used  in  this  section  the  term  ‘ possession  of 

(Sec.  262.)  the  United  States’  does  not  include  the  Virgin  Islands 

of  the  United  States.” — Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 

2076  The  gross  income  of  a citizen  of  the  United  States  (1)  80  per  cent  or 
more  of  whose  gross  income  (computed  without  the  benefit  of  this 

article)  for  the  three-year  period  immediately  preceding  the  close  of  the  taxable 
year  (or  for  such  part  of  such  period  immediately  preceding  the  close  of  such 
taxable  year  as  may  be  applicable)  was  derived  from  sources  within  a pos- 
session of  the  United  States,  and  (2)  50  per  cent  or  more  of  whose  gross 
income  (computed  without  the  benefit  of  this  article)  for  such  period  or  such 
part  thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within 
a possession  of  the  United  States,  either  on  his  own  account  or  as  an  employee 
or  agent  of  another,  means  only  gross  income  from  sources  within  the  United 

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2-27-22.  (2)  4-10-22.  (3)  8-28-22. 

DEDUCTIONS- DEPLETION. 

1901  (c)  “M  inerals”  include  ores  of  the  metals,  coal,  oil,  gas,  and  such 
non-mctalic  substances  as  abrasives,  asbestos,  asphaltum,  barytes, 

borax,  building  stone,  cement  rock,  clay,  crushed  stone,  feldspar,  fluorspar, 
fuller’s  earth,  graphite,  gypsum,  limestone,  magnesite,  marl,  mica,  mineral 
pigments,  peat,  potash,  precious  stones,  refractories,  rock  phosphate,  salt, 
sand  and  gravel,  silica,  slate,  soapstone,  soda,  sulphur,  and  talc. 

1902  (f)  “Operating  profit”  is  the  net  income  from  mineral  production 
before  depletion  and  depreciation  are  deducted.  It  is  distinct  from 

net  income. 

1903  (g)  “Depletion  or  depreciation  sustained”:  (1)  In  arriving  at  the 
amount  returnable  through  depletion  or  depreciation,  means  (except 

in  cases  where  a discovery  has  been  established,  as  to  which,  see  (h)  below) 
depletion  or  depreciation  actually  sustained  based  on  the  value  as  at  the  basic 
date;  (2)  in  arriving  at  profit  or  loss  from  sale,  means  depletion  or  deprecia- 
allowed  based  on  value  as  at  basic  date  except  where  value  as  at  basic  date 
is  a discovery  value,  in  which  case  the  depletion  sustained  is  that  based  on 
value  as  of  March  1,  1913,  or  cost  if  acqui/ed  after  that  date;  (3)  in  arriving 
at  invested  capital,  means  depletion  and  depreciation  actually  sustained 
based  on  cost.  j 

1904  (h)  Depletion  allowance  in  case  of  discovery:  The  deduction  for 
depletion  in  case  of  a discovery  can  not  exceed  the  net  income  com- 
puted without  allowance  for  depletion,  from  the  property  upon  which  the 
discovery  is  made,' except  where  and/ to  the  extent  that  such  net  income  so 
computed  is  less  than  the  depletion  allowance  based  on  cost  or  fair  market 
value  as  of  March  1,  1913.  Ndjt  income  is  the  gross  income  from  the  sale  of  all 
mineral  products  and  any  other  income  incidental  to  the  operation  of  the 
property  for  the  production  of  \har  mineral  products,  less  operating  expenses, 
including  depreciation  on  equipitapnt,  and  taxes,  but  excluding  any  allowance 
for  depletion.  If  the  mineral  products  are  not  sold  as  raw  material  but  are 
manufactured  or  converted  into/a  refined  product,  then  the  gross  income  shall 
be  assumed  to  be  equivalent  to/tlfe  market  or  field  price  of  the  raw  material 
before  conversion.  Operating  expenses,  depreciation,  and  taxes  on  the 
property  upon  which  the  discovery  is  made  should  be  applied  against  the 
gross  income  from  the  sam^  property  on  the  basis  of  actual  expenditures, 
but  if  the  records  for  the  year  19^1  are  in  any  case  inadequate,  allocation 
of  such  expenditures  for  that  year  )m  ay  be  made  on  the  basis  of  the  ratio  of 
(1)  the  number  of  wells  operated  oin  the  property  on  which  the  discovery  is 
made  to  (2)  the  total  nufiiber  of  wells  operated  in  the  operating  division  in 
which  the  discovery  is  iilcluded.  (^rt.  201,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  QI. 

¥ 1916  Act  Regulations  amended:  Art.  1*37,  Reg.  33,  revised  (T.  D.  3386).  .1f3306. 

Discovery  valuation  provision  does  non  apply  to  sale  (29-20-1068:  Sol.  Op.  26).  .Dec. 
1920  Cum.  Bull.  p.  44. 

Foreign  corporation  deriving  no  income  from  U.  S.  sources  permitted  no  depiction; 
nor  are  American  stockholders  in  connection  with  their  dividends  (1-8-103:  A.  R. 
M.  153).  . Bull.  I f’22)-8,  P.  15. 

Pennsylvania  leasehold:  period  of  lease  being  ample  to  allow  removal  of  all  coal  (1913 
and  1916  Acts)  (18-20-900:  S.  1365).. June  1920  Cum.  Bull.  p.  143:  explained 
(5-21-1418:  Sol.  Op.  80).. June  1921  Cum.  Bull.  p.  195. 

Reorganizations:  capital  sum  recoverable  on  assets  acquired  in  (15-20-855:  O.  D.  458) 
. .June  1920  Cum.  Bull.  p.  313. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

421 


2-27-22.  (2)  4-10-22.  (3)  8-28-22. 

DEDUCTIONS  DEPLETION. 


1905  Amount  Returnable  Through  Depletion  and  Depreciation  Deduc- 
tions in  the  Case  of  an  Operating  Owner. — In  the  case  of  an  operat- 
ing owner  in  fee,  the  amount  remaining  in  any  year  returnable  through 
depletion  and  depreciation  deductions  is  (a)  the  cost  or  value  of  the  property 
at  the  basic  date  plus  (b)  subsequent  allowable  capital  additions  and  minus 
(c)  depletion  and  depreciation  sustained,  whether  legally  allowable  or  not, 
from  the  basic  date  to  the  taxable  year,  and  minus  (d)  the  value  of  the  land 
at  the  basic  date  for  other  purposes  than  mineral  production  and  the  residual 
value  of  other  property  at  the  end  of  operations.  The  amount  returnable 
through  depletion  is  the  total  capital  remaining  less  the  sum  recoverable 
through  depreciation.  (Art.  202,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

“Depletion  which  has  or  should  have  been  taken,”  discussed  and  explained  (1-19-53: 
T.  B.  R.  4) . . 1919  Cum.  Bull.  p.  141. 

Waiving  royalty  rights  for  period  of  years  (2-20-674:  A.  R.  M.  17) . . Tune  1920  Cum. 
Bull.  p.  144. 


1906  Amount  Returnable  Through  Depletion  and  Depreciation  Deduc- 
tions in  the  Case  of  Lessee. — (a)  In  the  case  of  a lessee,  the  amount 

remaining  in  any  year  returnable  through  depletion  and  depreciation  deduc- 
tions is  (1)  the  value  as  of  the  basic  date  of  the  lessee’s  equity  in  the  prop- 
erty plus  (2)  subsequent  allowable  capital  additions  but  minus  (3)  depletion 
and  depreciation  sustained,  whether  legally  allowable  or  not,  from  the  basic 
date  to  the  taxable  year  and  the  residual  value  of  other  property  at  the  end 
of  operations.  The  amount  returnable  through  depletion  is  the  total  capital 
remaining  less  the  sum  recoverable  through  depreciation. 

1907  (b)  The  value  of  the  equities  of  lessor  and  lessee  shall  be  computed 
separately,  but,  when  determined  as  of  the  same  basic  date,  shall 

together  never  exceed  the  value  at  that  date  of  the  property  in  fee  simple. 

1908  (c)  The  value  of  a lessee’s  equity,  if  acquired  prior  to  March  1, 
1913,  is  the  value  of  his  interest  in  the  mineral  as  of  that  date. 

1 909  (d)  The  value  of  a lessee’s  equity  in  a proven  mineral  property 
acquired  on  or  after  March  1,  1913,  is  its  cost. 

1910  (e)  The  value  of  a lessee’s  equity  in  a discovery  on  or  after  March 
1,  1913,  is  the  fair  market  value  at  date  of  discovery  or  within  thirty 

days  thereafter,  of  his  equity  in  the  mineral  discovered.  (Art.  203,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Capital  stock  issued  by  lessee  in  payment  for  lease  is  “capital  actually  invested  in  the 
lease”  at  fair  market  value  of  stock  (Act  of  1916)  (20-20-938:  L.  0.  1033).  .June 

1920  Cum.  Bull.  p.  145. 

Payments  in  excess  of  royalties  to  effect  payment  of  stipulated  amount  under  option 
to  purchase  mine  (“bond  and  lease”  agreement):  forfeiture  of  option  (4-21-1406: 
Sol.  Op.  86) . .June  1921  Cum.  Bull.  p.  138. 

Physical  equipment  acquired  exceeds  in  value  purchase  price  of  oil  well  leases  (37-21- 
1818:  A.  R.  R.  570).. Dec.  1921  Cum.  Bull.  p.  152. 

Public  lands:  withdrawn  before  completion  of  valid  location  prior  to  March  1,  1913; 
subsequently  leased  by  original  claimant  (36-21-1801:  Sol.  Op.  118).. Dec. 

1921  Cum.  Bull.  p.  160. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
422 


8-28-22. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS— (Continued.) 


T.  D.  Date 


Subject  Paragraph 

Report  No.  48,  August  10,  1922. 


3380  July  8,  1922  (T.  D.  designation  for  Regulations  40  (1922 

Edition),  Stamp  Taxes  on  Issues,  Sales,  and 
Transfers  of  Stock,  and  Sales  of  Products  for 
Future  Delivery. — War  Tax  Service,  page 
709.) 


3381 

Aug.  4,  “ 

(Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  32,  of  the  1922  Series.) 

Report  No.  49,  August  17,  1922. 

3382 

July  20,  “ 

(T.  D.  designation  for  Regulations  59  (1922 
Edition),  Special  Taxes  on  Businesses  and 
Occupations  and  on  the  Use  of  Boats. — War 
Tax  Service,  Page  1513.) 

3383 

Aug.  9,  “ 

(Estate  Taxes.— rWar  Tax  Service,  1f787.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  33,  of  the  1922  Series.) 

Report  No.  50,  August  24,  1922. 

3384 

July  27,  “ 

(T.  D.  designation  for  Regulations  63  (1922 
Edition),  Estate  Tax. — War  Tax  Service,  Page 
158. 

Special 

Aug.  9,  “ 

IncomeW  deceased  partner,  who  made  returns  on 
a cash^basjs,  includes  his  share  of  fees  collected 
to  daytef  death;  his  interest  in  uncollected  fees 
to  be  ctoijtalized  by  estate 

3385 

“ 17,  “ 

(Narcotics^) 

[Pages  for  .substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin Not.  b4,  of  the  1922  Series.) 

j Report  No.  51,  August  28,  1922. 

3386 

“ 22,  “ 

Art.  170,  Re)j.  33  (1916  Act),  amended. — De- 
pletion of  o\)  and  gas  properties 

3387 

“ 23,  “ 

Art.  327(a)  added,  Reg.  62,  Transportation 
services  by  foreign  corporations  between  U.  S. 
and  foreign  points 

3388 

“ 23,  “ 

(Prohibition.) 

3389 

24. 

(Excess-profits  ttex. — War  Tax  Service,  1J1289.)] 

\ 


3305 


3306 

3323 


There  are  no  Supplementary  Pages  32  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
SupplementaryLPage  31. 


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2-27-22.  (2)  8-22-22.  (8)  4-10-22.  (4)  4-14-22. 

RETURNS  FOR  PERIOD  OF  LESS  THAN  TWELVE  MONTHS. 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alien  arriving  here  with  established  fiscal  year:  notice  to  collector  ( 1 5-20-8 53:  0.  D. 
456).  .June  1920  Cum.  Bull.  p.  201. 

‘Decedent’s  income  to  be  placed  on  annual  basis.  1921  Act.  . 113098.  Same  (1-12-160: 
I.  T.  1250)  and  (1-12-161:  I.  T.  1251).  .Bull.  I (’22)-12,  p.  26.  Same  again 
_ (1-14-199:  Mim.  2934).  .Bull.  I (’22)-14,  p.  12. 

Dividends  and  tax-free  interest  placed  on  annual  basis  for  normal  tax  purposes — 
1921  Act.  .1f3098. 

Fiscal  year  ending  June  30:  change  to  calendar  year  basis  (24-20-996:  Sol.  Op.  5) 
. .June  1920  Cum.  Bull.  p.  67. 

Tax  computation  on  any  resulting  fractional  year  return  (45-20-1296:  O.  D.  723) . . Dec. 
1920  Cum.  Bull,  p 230. 


only  a part  of  tl  lendar  year  and  in  the  case  of  a corporation 

changing  its  accounting  d,  whether  from  calendar  year  to  fiscal  year, 

from  fiscal  year  to  calen  rear,  or  from  one  fiscal  year  to  another  fiscal 

year,  a separate  return  fo  actional  part  of  a year  is  required.  See  section 

226  of  the  statute  and  ai  431  [1f2574  above].  In  such  a case  the  credit 

of  $2,000  against  net  inco  llowed  a domestic  corporation  having  a net  in- 
come not  exceeding  $25, ( hall  be  reduced  to  such  proportion  of  the  full 

credit  as  the  number  of  i hs  in  the  period  for  which  the  return  is  made 

bears  to  twelve  months.  is  prorated  credit  shall  be  applied  to  the  net 

income  before  such  net  ii  e is^  placed  on  an  annual  basis,  as  provided 

in  section  226(c)  [f2571].  sections  236  and  305  and  articles  591  [for  cred- 
its allowed  *[[2067]  and  [for  apportionment  of  the  $3,000  specific  ex- 
emption from  excess  pro  ax.— War  Tax  Service].  (Art.  626,  Reg.  62, 

1922  Edition.)  / 


2676  In  the  case  of  a corporation  making  its  first  return  of  income  for 


For  explanation  of  Cumulative  Index  references  tee  page  91. 

Specific  credit  apportioned  (31-19-650:  O.  D.  352)..  1919  Cum.  Bull.  p.  235.7](See 

“Fractional  year  retutn”  in  Cumulative  Index  following  1f2489.) 


Copyright  1922,  by  The  Corporation  Trust  Company, 
THE  FEDERAL  INCOME  TAX  SERVICE 
575 


2-27-22.  (2)  8-22-22.  (8)  4-10-22.  (4)  4-14-22. 

INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

2677  Law  1f347.  Understatement  in  Returns  and  Increases  by  the  Col- 

(Sec.  228.)  lector.  Sec.  228.  That  if  the  collector  or  deputy 
collector  has  reason  to  believe  that  the  amount  of  any 
income  returned  is  understated , he  shall  give  due  notice  to  the  taxpayer 
making  the  return  to  show  cause  why  the  amount  of  the  return  should  not 
be  increased j and  upon  proof  of  the  amount  understated , may  increase  the 
same  accordingly.”— Law . [Note:  The  1918  Act  so  provided.] 

2678  Law  1f348.  Taxpayer  May  Appeal  Collector’s  Decision,  to  the 
(Sec.  228.)  Commissioner. — uSuch  taxpayer  may  furnish  sworn 

testimony  to  prove  any  relevant  facts  and  if  dissatisfied 
with  the  decision  of  the  collector  may  appeal  to  the  Commissioner  for  his  de- 
cision, under  such  rules  of  procedure  as  may  be  prescribed  by  the  Commis- 
sioner with  the  approval  of  the  Secretary.” — Law.  [Note:  The  1918 

Act  so  provided.] 


2679  Understatement  of  Income. — If  a collector  has  reason  to  believe  that 
the  amount  of  any  income  is  understated  in  a return,  he  may  on  his 

own  initiative  take  up  the  matter  with  the  taxpayer  and  upon  becoming  satis- 
fied that  the  amount  was  understated  may  increase  it  accordingly,  subject  to 
the  right  of  the  taxpayer  to  appeal  to  the  Commissioner.  The  Commissioner, 
however,  without  the  intervention  of  the  collector  may  exercise  original  juris- 
diction in  cases  of  understatements  or  other  errors  in  returns,  in  which  event 
sections  250  [beginning  at  If 2597]  and  1300  [1f2709]  of  the  statute  and  section 
3176  [beginning  at  1[2612]  of  the  Revised  Statutes,  as  reenacted  by  section  1311 
of  the  statute,  are  applicable  instead  of  section  228  [^[2577  above].  See 
articles  1002  [payment  of  tax  when  no  proper  return,  1|2624],  1005  [penalty 
for  understated  return,  1[2603],  and  1711  [Commissioner  has  benefit  of  all 
existing  internal  revenue  laws  as  aids  to  collection  of  the  tax,  H27 1 lj.  Section 
3172  of  the  Revised  Statutes,  as  reenacted  by  section  1311  of  the  Revenue 
Act  of  1921,  provides  [1[2583].  See  also  section  3173  of  the  Revised  Statutes 
as  reenacted  by  section  1311  of  the  Revenue  Act  of  1921  [does  not  relate 
specifically  to  income  tax,  but  see  ^[2701].  (Art.  451,  Reg.  62,  1922  Edition.) 

2680  Reasonable  Time  for  Investigation  After  Government’s  Notifica- 
tion That  Return  is  Incorrect. — Referring  to  your  statement  that 

the  representative  of  this  office  insists  upon  the  officers  of  corporations 
signing  amended  returns  without  giving  any  reasonable  time  for  investi- 
gation on  the  part  of  the  officers,  you  are  informed  that  examining  officers 
have  been  instructed  by  this  office  to  secure  from  corporations  amended 
returns  wherever,  as  a result  of  their  examinations,  it  is  shown  that  the 
original  returns  were  not  correct. 

2581  It  is  not  the  desire  of  this  office,  however,  that  examining  officers 
shall  not  give  the  officers  of  corporations  the  fullest  opportunity  to 

make  any  investigation  they  may  desire  prior  to  signing  these  amended  re- 
turns, provided,  of  course,  such  investigation  does  not  cover  an  unreason- 
able length  of  time.  (Extract  from  letter  to  the  Industrial  Association  of 
Cincinnati,  signed  by  Commissioner  W.  H.  Osborn,  and  dated  February 
2,  1915.) 

(Decision.) 

2582  The  acceptance  of  amended  returns,  and  the  status'thereof,  when 
not  specifically  authorized  by  law.— [Comment :|[On  appeal,  in  a 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
576 


(8)  8-16-22.  (9)  6-26-22. 


(10)  7-27-22. 

WITHHOLDING  AT  THE  SOURCE. 


2260  Withholding  and  Paying  Agents  May  Be  Appointed  by  Debtors. 
A debtor  corporation  having  an  issue  of  bonds  or  other  similar 

obhgations  may  appoint  a duly  authorized  withholding  agent  to  act  in  its 
behalf,  provided  notice  of  such  appointment  is  filed  with  the  Commissioner 
(Art.  361,  Reg.  62,  1922  Edition.) 

2261  Filing  Notice  of  Appointment  of  Paying  Agent.— This  notice  of 
appointment  should  be  placed  on  file  in  the  office  of  the  collector  of 

internal,  revenue  for  the  district  in  which  the  debtor  corporation  is  located 
or  has  its  principal  place  of  business,  and  the  said  collector  should  notify 
the  col  ector  of  internal  revenue  for  the  district  in  which  the  duly  authorized 
withholding  agent  is  located.  (T.  D.,2135,  Jan.  23,  1915.) 

2262  Where  Returns  and  Certificates  Are  to  be  Filed  by  Paying  Agents 
Appointed  by  Debtors. — WheJe  such  withholding  agent  is  so  author- 
ized by  the  debtor  corporation,  he  mky  file  with  the  collector  of  his  district 
;he  required  returns  and  accompanying  certificates  in  which  case  the  assess- 
ment of  the  tax  withheld  by  him  will  be  made  in  that  district.  Unless  such 
authority  be  given,  such  reports,  etc.,  will  be  furnished  by  the  debtor  cor- 
poration to  the  collector  of  its  district  (i.  e.,  the  district  in  whidh  its  principal 
hnancial  or  business  office  is  located),  where,  in  such  cases,  assessment  will 
be  made.  (Art.  38,  Reg.  33,  Jan/5,  1914.) 

22S3  The  duly  authorized  withholding  agent  is  required  to  file  its  return 
. , . with  the  collector  of  internal  revenue  for  the  district  in  which  the 

saia  withholding  agent  located/,  and  is  not  required  to  file  a return  with  the 
collector  for  the  districtNin  whirni  the  debtor  corporation  is  located.  (T  D 
2135,  Jan.  23,  1915.)  ' ' v • • 

2264  The  Debtor  Corporation  Only  Deducts  the  Tax,  if  Any.— In  reply 
, ij  7°U  are  advised  thaAtnis  office  holds  that  the  normal  tax,  to  be  with- 
held under  the  Act  of  Sept.  8 1 916,  as  amended  by  Section  1205,  subdivision 
fc),  Act  of  Oct.  3,  1917,  is  r/Auired  to  be  deducted  only  by  the  debtor  cor- 
poration and  should  not  be  Withheld  by  the  bank  by  whose  agency  collection 
is  made.  (Letter  to  Sackett,  Chapman  & Stevens,  New  York,  N.  Y.,  signed 
by  Deputy  Commissioner  L.  F.  Smeer,  and  dated  Nov.  13,  1917.) 

2266  Ownership  Certifigites  for  Interest  Coupons.— The  owners  of  bonds  or 
other  obligations, /except  domestic  and  resident  corporations,  whether 
or  not  such  bonds  or  other  obligations  contain  a tax-free  covenant,  issued 
by  domestic  or  resident  foreign  corporations,  when  presenting  interest 
coupons  for  payment  ihall  file  a certificate  of  ownership  for  each  issue 
of  bonds,  showing  the  name  and  address  of  the  debtor  corporation,  the 
name  and  address  of  the  owner  of  the  bonds,  the  nature  of  the  obliga- 
tions the  amount  of  interest  and  its  due  date,  and  the  amount  of 
any  tax  withheld.  No  ownership  certificates  need  be  filed  in  the  case  of  in- 
terest  payments  on  bonds  the  income  from  which  is  not  required  to  be  in- 
cluded in  gross  income,  nor  in  the  case  of  any  obligations  of  the  United 
States  See  section  213  (b)  of  the  statute  and  articles  74-82  [for  State  and 
Federal  obligations,  1564].  Where  in  connection  with  the  sale  of  its  prop- 
erty payment  of  the  bonds  or  other  obligations  of  a corporation  is  assumed 
by  the  assignee,  such  assignee,  whether  an  individual,  partnership,  corpora- 
tion, or  a State  or  political  subdivision  thereof,  must  deduct  and  withhold 
such  taxes  as  would  have  been  required  to  be  withheld  by  the  assignor  had 
no  such  sale  and  transfer  been  made.  As  to  ownership  certificates  in  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

501 


IS)  (1-16-22.  (9)  G -28-22.  (10)  7-27-22. 

WITHHOLDING  AT  THE  SOURCE. 


case  of  bonds  of  foreign  countries,  or  bonds  or  stocks  of  nonresident  for- 
eign corporations,  see  article  1077  [<|[2361].  (Art.  365,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  paye  yi. 

Certified  copies  ( 1 7-10-473:  0.  879).  . 1919  Cum.  Bull.  p.  262. 

Conversion  privilege  exercised  (bonds  for  stock)  between  interest  dates  (24-21-1689: 
O.  D.  949)..  June  1921  Cum.  Bull.  p.  234.  Overruled:  1918  and  1921  Acts 
(1-24-345:  FT.  1356)..  Bull.  I-(’22)-24,  p.  6.  See  1f3304. 

No  ownership  certificates  required  when  accrued  interest  is  neither  paid  nor 
credited  but  adjusted  against  dividends  accrued  on  the  stock.  . 1]3 1 2 1 . 
Corporations  (domestic  and  resident)  not  required  to  file  ownership  certificates; 

responsibility  of  debtor  corporations  and  their  paying  agents.  .H3045;  also,  K3095 
Debentures:  interest  on  (41-21-1861:  O.  D.  1060).. Dec.  1921  Cum.  Bull.  p.  193. 
Debtor  purchases  own  bonds  in  open  market  paying  accrued  interest,  presenting  to 
trustee  for  cancellation,  or  holding  until  maturity,  or,  having  purchased  with 
sinking-fund  assets  places  both  bonds  and  interest  to  credit  of  such  fund:  no 
ownership  certificates  (1921  Act)  (1-7-92:  I.  T.  1206).  .Bull.  1 (’22)-7,  p.  15. 
* See  “Trustee”  below.  Certificates  not  required  in  event  of  redemption  at  a 
fixed  price  and  accrued  interest,  etc..  . K3304. 

Draft  by  domestic  bank  on  foreign  bank  for  collection  of  foreign  interest  should  be 
identified  as  foreign  item  for  treatment  as  such  on  collection  (34-20-1150:  O.  D. 
641).  .Dec.  1920  Cum.  Bull.  p.  217. 

Equipment  trust  certificates  with  dividend  warrants  attached  involving  lease  by  do- 
mestic trust  company  of  railway  equipment  to  foreign  corporation  with  privilege 
to  buy  and  arrangement  with  second  trust  company  in  connection  with  subscribers’ 
fund  for  purchase  of  such  equipment  (42-20-1249:  O.  D.  689) . . Dec.  1920  Cum. 
Bull.  p.  218. 

Exempt  foreign  corporations  (31-20-1105:  O.  D.  616).  .Dec.  1920  Cum/ Bull.  p.  217. 
Modification  of  Form  1000  when  exempt  status  has  been  established ..  1f3236. 
The  foregoing  becomes  I.  T.  1399.  .Bull.  I (’22)-30,  p.  16. 

Incomplete  and  improperly  executed  (11-21-1514:  M.  2725).. June  1921  Cum.  Bull, 
p.  232. 


Interest-bearing  scrip  in  payment  of  defaulted  bond  interest  on  reorganization 
(26-20-1032:  O.  D.  563).  .June  1920  Cum.  Bull.  p.  193. 

Joint-stock  land  bank  bond  interest:  no  ownership  certificates  required  pending  decis- 
ion of  U.  S.  Supreme  Court  (52-20-1363:  O.  D.  758).. Dec.  1920  Cum.  Bull, 
p.  218:  Supreme  Court  (in  Smith  vs.  Kansas  City  Title  and  Trust  Company  et 
al.,  No.  199 — October  Term,  1920,  decided  February  28,  1921)  held  the  Farm 
Loan  Act  constitutional  and  the  securities  authorized  to  be  issued  thereunder 
legally  exempted  from  taxation  both  as  to  principal  and  interest. 

Old  ownership  certificates  to  be  accepted  for  a limited  period.  . K3047.  Same  (1-12- 
159:  1.  T.  1249).  .Bull.  I (’22)-12,  p.  26.  See  further.  . K3109.  Final.  .1(3209. 
Special  (limited)  for  interest  on  registered  bonds.  . K3266. 

Overdue  bonds,  coupons  exhausted  (5-20-719:  O.  D.  392).. June  1920  Cum.  Bull, 
p.  191. 

Post-office  addresses  of  debtors  (31-20-1104:  O.  D.  615)  .Dec.  1920  Cum.  Bull. 

p.  216. 


Post-office  addresses  of  nonresident  alien  creditors:  address  of  domestic  bank  in  lieu 
of  that  of  alien  (19-21-1624:  O.  D.  908).  .June  1921  Cum.  Bull.  p.  233. 

Schedule  of  certificates  to  be  used  under  1918  Act  (21-20-958:  O.  D.  520).  June  1920 
Cum.  Bull.  p.  191.  Under  1921  Act  (1-22-318:  F T.  1331).  .Bull.  I (’22)-22,  p.  12. 
Tax-free  covenant  bond  interest,  bonds  being  sold  between  interest  dates  (9-21-1483: 
O.  D.  830).  .June  1921  Cum.  Bull.  p.  232. 

Trustee  under  corporate  deed  of  trust  purchases  bonds  between  interest  dates  for 

immediate  retirement;  no  ownership  certificates  required:  1921  Act.. 1(3265. 
See  K3304. 

War  Finance  Corporation  Bonds  (21-19-527:  O.  D.  284)..  1919  Cum.  Bull.  p.  185. 
Wrong  forms  received  by  banks  or  other  collecting  agents;  substitution  (26-20-1031: 

O.  D.  562).  .June  1920  Cum.  Bull.  p.  192 


22  68  Substitution  by  Collecting  Agent  of  Proper  Certificate  for  Improper 
Form  Accompanying  Item  Presented  for  Collection.— Receipt  is 
acknowledged  of  your  letter  dated  May  5,  1920,  stating  that  numerous 
couDons  are  received  by  you  attached  to  the  wrong  forms  of  ownership 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
502 


2-27-22.  (2)  6-2-22.  (3)  8-28-22. 

TAX  ON  NONRESIDENT  ALIENS. 

2099  The  following  additional  exclusions  from  gross  income  not  provided  by 
the  Revenue  Act  of  1918  is  allowed  by  the  Revenue  Act  of  1921: 

Income  of  a nonresident  alien  or  foreign  corporation  consisting  exclusively  of 
earnings  derived  from  the  operation  of  a ship  or  ships  documented  under  the 
laws  of  a foreign  country  which  grants  an  equivalent  exemption  to  citizens 
of  the  United  States  and  corporations  organized  in  the  United  States.  Any 
taxpayer  claiming  this  exemption  must  file,  under  oath,  a statement  citing  the 
foreign  statute  which  grants  the  equivalent  exemption  and  stating  fully  the 
facts  upon  which  he  relies  to  establish  his  claim.  (Art.  89,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Norway  satisfies  the  equivalent  exemption  provision;  1921  Act  (1-22-3 14:  I.  T.  1327) 

. . Bull.  I (’22)-22-,  p.  11.  /.  .. 

Sweden  satisfies  the  equivalent  exemption  provision;  1921  Act  (1-22-315;  I.  T.  1328) 
. .Bull.  I (’22)-22,  p.  11  / 

+ When  no  reciprocal  conditions  exist  ^ee  Art.  327  (a),  Reg.  62,  Transportation  services 
by  foreign  corporation  betweeryU.  S.  and  foreign  points  (T.  D.  3387).  . ^[3323. 

2100  Income  of  Nonresident  Aliens  from  United  States  Bonds. — By 

virtue  of  section  4 of  the /Victory  Liberty  Loan  Act  of  March  3,  1919, 
amending  section  3 of  the  Fourtjfi  Liberty  Bond  Act  of  July  9,  1918,  [^[2101  ], 
the  interest  received  on  and  afj’er  March  3,  1919,  on  bonds,  notes  and  cer- 
tificates of  indebtedness  of  the  United  States  and  bonds  of  the  War  Finance 
Corporation,  while  beneficially  owned  by  a nonresident  alien  individual, 
or  a foreign  corporation  partnership  or  association,  not  engaged  in  business 
in  the  United  States,  is  ^exempt  from  all  income  and  war-profits  and  excess- 
profits  taxes.  See  Articles  84^^1587].  (Art.  94,  Reg.  62,  1922  Edition.) 

For  explanation  ad  Cumulative  Index  references  see  page  gi. 

In  trust  for  life  beneficiary  M6-20-86I:  O.  D.  464).  .June  1920  Cum.  Bull.  p.  103. 

2101  Sec.  4.  That  secti©\3  of  the  Fourth  Liberty  Bond  Act  is  hereby 
amended  to  read  aj  follows: 

“Sec.  3.  That,  notwithstanding  the  provisions  of  the  Second  Liberty 
Bond  Act  or  of  the  War  Finance  Corporation  Act  or  of  any  other  Act,  bonds, 
notes,  and  certificates  of/ indebtedness  of  the  United  States  and  bonds  of 
the  War  Finance  Corporation  shall,  while  beneficially  owned  by  a non- 
resident alien  individual!  or  a foreign  corpoiation,  partnership,  or  associa- 
tion, not  engaged  in  business  in  the  United  State'-,  be  exempt  both  as  t o 
principal  and  interest  from  any  and  all  taxation  now  or  hereaftei  imposed 
by  the  United  States,  any  State,  or  any  of  the  possessions  of  the  United 
States  or  by  any  local  taxing  authority.”  (Section  4 of  ‘ An  Act  to  amend 
the  Liberty  Bond  AcU  and  the  War  Finance  Corporation  Act,  and  for  other 
purposes,”  known  as  the  “Victory  Libeity  Loan  Act,”  approved  by  the 
President,  March  3,  1919.) 

2102  Law  ^[207-  Gross  Income  of  Nonresident  Aliens  from  Sources 
(Sec.  217.)  Within  the  United  States  Specifically. — “Sec.  217. 

(a)  That  in  the  case  of  a nonresident  alien  individual 
or  of  a citizen  entitled  to  the  benefits  of  section  262  [^[2070],  the  following 
items  of  gross  income  shall  be  treated  as  income  from  sources  within  the 
United  States:” — Law.  [Note:  This  entire  section  is  new  to  the 

1921  Act,  in  terms,  but  in  effect,  with 
exceptions  to  be  noted,  in  large  measure 
carries  into  the  new  law  the  provisions 
of  the  1918  Act  and  the  regulations 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
469 


2-27-??.  (2  ) 0-2-2?.  (3)  8-28-22. 

TAX  ON  NONRESIDENT  ALIENS. 

based  thereon,  relating  to  gross  and 
net.  income  of  nonresident  ; lien  indi- 
viduals and  foreign  corporations.  The 
application  of  the  rules  1 id  down,  to  a 
citizen  and  a domestic  corporation 
entitled  to  the  benefits  of  section  262,  is 
new,  of  course.  The  exceptions  in  the 
case  of  interest  accruing  from  residents 
are  new.  rl  he  dividends  provisions  are 
somewhat  changed.  The  provisions 
relative  to  the  allocation  and  appor- 
tionment of  expenses,  losses,  and  other 
deductions  which  cannot  definitely  be 
allocated  to  items  of  gross  income  either 
from  sources  within  or  without  the 
United  States,  the  provisions  for  allocat- 
ing to  sources  within  and  without  the 
United  States  items  of  gross  income  not 
specifically  mentioned  and  in  turn  al- 
locating thereto,  respectively,  the  ex- 
pense and  other  items,  etc.,  etc.,  and 
the  provisions  stating  the  rule  that 
profits  derived  from  certain  sources  are 
to  be  treated  as  derived  partly  from 
sources  within  and  partly  from  sources 
without  the  United  States,  are  new  to 
the  law,  and  to  the  letter  of  the  formal 
regulations,  at  least,  under  the  1918 
Act.  The  1918  Act  provided,  as  to 
gross  income,  that  “Jn  the  case  of  non- 
resident alien  individuals  [and  foreign 
corporations],  gross  income  includes  only 
the  gross  income  from  sources  within  the 
United  States,  including  interest  on 
bonds,  notes,  or  other  interest-bearing 
obligations  of  residents,  corporate  or 
otherwise,  dividends  from  resident  cor- 
porations, and  including  all  amounts 
received  (although  paid  under  a con- 
tract for  the  sale  of  goods  or  otherwise) 
representing  profits  on  the  manufacture 
and  disposition  of  goods  within  the 
United  States;”  and  as  to  the  deduc- 
tions “the  proper  apportionment  and 
allocation  of  the  deductions  with  re- 
spect to  sources  of  income  within  and 
without  the  United  States  shall  be 
determined  under  rules  and  regulations 
prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary  [see  Law 
11186,  H2169].”] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
470 


2-27-22.  (2)  4-10-22.  (3)  7-27-22 

DEDUCTIONS— DEPRECIATION. 

The  fact  that  depreciation  has  not  been  taken  in  prior  years  does  not  entitle 
the  taxpayer  to  deduct  in  any  taxable  year  a greater  amount  for  depreciation 
than  would  otherwise  be  allowable.  See  articles  40  [for  sale  of  patents  and 
copyrights,  If  1235]  and  843  [for  valuing  patents  for  purposes  of  invested 
capital.— War  Tax  Service],  (Art.  167,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Acquired  prior  to  March  1,  1913  (1917  Act)  (20-19-506:  T.  B.  R.  59)..  1919  Cum. 
Bull  p.  138. 

Same:  effort  to  take  depreciation  in  1917,  none  having  previously  been  taken  and 
life  of  patent  having  expired  (47-20-1312:  A.  R.  M.  95).. Dec.  1920  Cum. 
Bull.  p.  172. 

Same:  owner’s  method  to  establish  value  of  copyright  on  March  1,  1913  disallowed: 
general  discussion  on  copyright  depreciation,  cost,  etc.  (27-21-1721:  O.  D.  966) 

. .Dec.  1921  Cum.  Bull.  p.  155. 

Assigned  for  40%  of  future  profits;  allowance  to  assignor  (10-20-779:  A.  R.  M.  35) . . 
June  1920  Cum.  Bull.  p.  142. 

Litigation  expenses  defending  right,  title  and  interest:  no  effect  on  capital  sum  recover- 
able through  depreciation  (20-20-934:  A.  R.  R.  98) . .June  1920  Cum  Bull.  p.  105. 
Rights:  extension  acquired  gra/tis  (44-21-1893:  A.  R.  R.  520).  .Dec.  1921  Cum.  Bull. 

p.  156.  / ggi 

Term  to  run:  patents  and  copyrights  in  various  countries  (45-20-1293:  0.  D.  721).  . 
Dec.  1920  Cum.  Bull.  p./l69. 


1 S50  Depreciation  of  .Drawings  and  Models— A taxpayer  who  has  in- 
curred expenses/  in  his  business  for  designs,  drawings,  patterns, 
models,  or  work  wf  an  experimental  nature  calculated  to  result  in  improve- 
ment of  his  facilities  or/his  product,  may  at  his  option  deduct  such  expenses 
from  gross  income  tor^the  taxable  year  in  which  they  are  incurred  or  treat 
such  articles  as  a capital  asset  to  the  extent  of  the  amount  so  expended.  In 
the  latter  case,  if  tha  period  of  usefulness  of  any  such  asset  may  be  esti- 
mated from  experience  with  reasonable  accuracy,  it  may  be  the  subject  of 
depreciation  allowance);  spread  over  such  estimated  period  of  usefulness. 
1 he.  facts  must  be  hj11)\  shown  in  the  return  or  prior  thereto  to  the  satis- 
faction. of  the  Comjnissi^ner.  Except  for  such  depreciation  allowances  no 
deduction  shall  be  jfnade  \by  the  taxpayer  against  any  sum  so  set  up  as  an 
asset  except  on  the]  sale  cD  other  disposition  of  such  assets  at  a loss  or  on 
proof  of  a total  los 4 thereol.  (Art.  168,  Reg.  62,  1922  Edition.) 

lor  expatriation  ofSXfumulative  Index  references  see  page  91. 

Appraisal  in  1921'  as  of  1913  of  tracings,  etc.,  rise  being  resumed  after  several  years 
idleness  (40/20-1223:  A.  R.  R.  272).  Dec.  1920  Cum.  Bull  p.  173. 


1851  Charging  off  Depreciation. — A depreciation  allowance,  in  order  to 
constitute  an  allowable  deduction  from  gross  income,  must  be 
charged  off.  The  particular  manner  in  which  it  shall  be  charged  off  is  not 

Copyright  by  l he  Corporation  trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
411 


2-27-22.  (2)  4-10-22.  (3)  7-27-22. 

DEDUCTIONS— DEPRECIATION. 


material,  except  that  the  amount  measuring  a reasonable  allowance  for  de- 
preciation must  be  cither  deducted  directly  from  the  book  value  of  the  as- 
sets or  preferably  credited  to  a depreciation  reserve  account,  which  must  be 
reflected  in  the  annual  balance  sheet.  The  allowances  should  be  computed 
and  charged  off  with  express  reference  to  specific  items,  units  or  groups  of 
ProPe'"ty>  each  item  or  unit  being  considered  separately  or  specifically  in- 
cluded in  a group  with  others  to  which  the  same  factors  apply.  The  tax- 
payer should  keep  such  records  as  to  each  item  or  unit  of  depreciable  property 
as  will  permit  the  ready  verification  of  the  factors  used  in  computing  the 
allowance  for  each  year  for  each  item,  unit,  or  group.  (Art.  169,  Reg.  62, 


For  explanation  of  Cumulative  Index  references  see  page  gi. 


*Banks;  supplemental  books  for  chargin 
(1-30-424:  A.  R.  M.  172),  .Bull.  I i 
Cum.  Bull.  p.  64. 


off  depreciation:  1917,  1918,  and  1921  Acts 
22)-30,  p.  4.  See  A.  R.  R.  377,  June  1921 


Dividends  leave  insufficient  current  earnings  and  surplus  against  which  to  charge 
depreciation;  depreciation  deductible  nevertheless  (10-21-1497:  A.  R.  M 112) 
June  1921  Cum.  Bull.  p.  180. 


1852  In  view  of  the  fact  that  it  has  been  the  practice  of  examining  offi- 
cers to  disallow  a deduction  for  depreciation  or  depletion  if  not 
charged  off  on  the  books  of  the  corporation  at  the  time  of  the  investigation, 
it  is  deemed  necessary  to  clarify  the  interpretation  of  this  provision  of  the  law' 

1 853  A corporation  is  not  entitled  to  a deduction  from  the  amount  of  its 

gross  income  of  any  amount  for  depreciation,  depletion,  or  other  loss  * 

sustained  within  the  taxable  year  unless  the  amount  of  such  depreciation, 
depletion,  or  other  loss  is  charged  off  on  the  books  of  the  corporation  before 
such  deduction  is  allowed.  The  purpose  of  this  requirement  that  deprecia- 
tion, depletion,  and  other  losses  be  charged  off  on  the  books  of  the  corpora- 
tion before  allowance  is  to  insure  that  the  returns  of  such  corporation  are 
in  accord  with  its  books  of  account,  and  that  thereby  error  and  fraud  with 
respect  to  the  facts  are  prevented.  The  statute  is  not,  however,  to  be  con- 
strued as  requiring  that  depreciation,  depletion,  and  other  losses  be  charged 
off  within  the  taxable  year..  It  is  sufficient  that  they  are  charged  off  before 
they  are  allowed  as  deductions.  Consequently  at  the  time  of  an  examina- 
tion of  a corporation  it  should  be  given  an  opportunity  to  reopen  its  books  % 

and  charge  off  depreciation,  depletion  and  other  losses  which  it  actually 
sustained  during  the  taxable  year. 

1 854  The  depreciation,  depletion,  and  other  losses  must  be  charged  off  in 
the  manner  prescribed  by  the  regulations.  If  the  books  of  the  cor- 
poration are  reopened  for  the  purpose  of  charging  off  depreciation,  deple- 
tion, or  other  losses,  corresponding  corrections  must  be  made  in  the  other 

book  entries;  and  if  for  any  reason  the  facts  do  not  warrant  such  other  ^ 

changes,  depreciation,  depletion,  and  other  losses  can  not  be  charged  off: 
and,  therefore,  can  not  be  allowed  as  deductions.  Thus,  for  example,  if  by 
reason  of  a distribution  of  earnings  there  is  nothing  from  which  to  credit  a 
reserve  for  depreciation  no  allowance  for  depreciation  can  be  credited  to  a 
depreciation  reserve  account.  [See  ^[11 26.] 

1 855  Whenever,  therefore,  a corporation  has  clearly  suffered  allowable 

depreciation,  depletion,  or  other  loss  which  has  not  been  charged  off  ^ 

on  its  books,  and  on  reopening  its  books  at  the  time  of  an  examination  charges 

copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
412 


4 *7-22.  (2)  4-10-22  (8)  4-18-22.  (4)  5-10-22  (6)  6-18-22  (fi>  T-12-22. 

DEDUCTIONS  TAXES. 


(7)  7-20-22. 


interest  paid,  and  if  it  retires  its  bonds  at  a price  in  excess  of  the  issuing  price 
such  excess  may  usually  be  deducted  as  expense.  See  articles  545  [for  sale 
and  retirement  of  corporate  bonds,  If  1279]  and  848  [for  discount  on 
bonds  in  relation  to  invested  capital— War  Tax  Service].  If  (1)  a corpora- 
tion sells  its  capital  assets  for  less  than  their  cost,  and  such  assets  were 
acquired  before  March  1,  1913,  then  if  the  fair  market  value  on  March  1, 
1913,  less  depreciation  subsequently  sustained  and  allowable  as  a deduction 
is  less  than  the  amount  realized,  no  loss  is  deductible;  if  (2)  such  fair  market 
value  less  depreciation  subsequently  sustained  and  allowable  as  a deduction 
s greater  than  the  amount  realized,  but  the  amount  realized  exceeds  original 
cost,  no  loss  is  deductible;  if  (3)  the  amount  realized  is  less  than  both  original 
cost  and  the  value  of  March  1,  1913,  less  depreciation  subsequently  sustained 
and  allowable  as  a deduction,  the  deductible  loss  is  the  difference  between 
such  amount  realized  and  such  cost  or  March  1,  1913,  value,  whichever  is 
lower.  See  article  546  [If  1292].  (Art.  563,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

commissions  on  sales  of  preferred  stock.  Redemption  of  the  stock  (1-6-77  • I T 
1198)..  Bull.  I (’22)-6,  P.  23./  V 

Discount  on  issued  bonds  improperly  charged  to  profit  and  loss;  amended  returns  to 
show  as  advance  interest  to  be  amortized  (2-19-166:  O.  D.  111)..  1919  Cum 
Bull.  p.  224.  I 

Serial  maturities  of  bonds:  allocation  of  discount  (22-21-1665:  O.  D.  936)  Tune 
1921  Cum.  Bull.  p.  276.  ' 


1697  Law  If  147. 

(Sec.  214.) 


1 698 


Law  If  148. 
(Sec.  214.) 


Taxes  Jfaid  or  Accrued  are  Deductible,  with  Certain 
Jxceptfons. — “(3)  Taxes  paid  or  accrued  within  the 
taxable]  year  except”— Law.  [Note:  The  1918 

Act  so  provided,  in  effect.] 

United  States  Income  and  Excess-Profits  Taxes  are 
not  deductible. — “(a)  income,  war-profits,  and  excess- 
profit  taxes  imposed  by  the  authority  of  the  United 
?te:  The  1918  Act  so  provided,  in  effect.] 

Foreign  Income  and  Excess-Profits  Taxes  to  Amount 
Credited,  are  not  Deductible. — “(£)  so  much  of  the 
iricome,  \var-profits  and  excess-profits  taxes,  imposed 
country  or  possession  of  the  United  States,  as 
tion  222  [Hi 733],”— Law.  [Note:  The 

/ 1918  Act  so  provided,  in  effect.] 

1700  Law  ^389.  1 Corporations] — ‘"(3)  Taxes  paid  or  accrued  within  the 

(Sec.  234.)  taxable  year  except” — Law.  [Note:  The  1918  Act 

so  provided,  in  effect.] 

1701  Law  ^390.  [Corporations]— “(a)  income,  war-profits,  and  excess- 
(Sec.  234.)  profits  taxes  imposed  by  the  authority  of  the  United 

States,”  Law.  [Note:  The  1918  Act  so  provided, 

in  effect.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
371 


States,” — Law. 

ie$9  Law  ^f  149. 

(Sec.  214.) 


by  the  authority  of  apy  forex  ^ 
is  allowed  as  a cred ik  under  s 


t-tl-fi  (X)  4-10-21.  (8)  4-18-22.  (4)  6-10-22.  (6)  6-18-22.  (C)  7-12-22.  (7)  7-20-22 

DEDUCTIONS— TAXES 

1 702  I. aw  '[391.  [Corporations]  u(b)  so  much  of  the  income , war-profits 
(Sec.  234.)  and  excess-profits  taxes  imposed  by  the  authority  of  any 
. , foreign  country  or  possession  of  the  United  States  as  is 

allowed  as  a credit  under  section  238  [If  1 752],”— Law.  [Note:  The 

1918  Act  so  provided,  in  effect.] 

1 7 03  Federal  taxes  (except  income,  war  profits,  and  excess  profits  taxes), 
State  and  local  taxes  (except  taxes  assessed  against  local  benefits 
of  a kind  tending  to  increase  the  value  of  the  property  assessed),  and  taxes 
imposed  by  possessions  of  the  United  States  or  by  foreign  countries  (except 
the  amount  of  income,  war  profits,  and  excess  profits  taxes  allowed  as  a 
credit  against  the  tax),  are  deductible  from  gross  income.  See  section  222  of 
the  statute  and  articles  381-386  as  to  tax  credits  [^[1733].  Postage  is  not  a 
tax.  Amounts  paid  to  States  under  secured  debts  laws  in  order  to  render 
securities  tax  exempt  are  deductible.  Automobile  license  fees  are  ordinarily 
taxes.  (Art.  131,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  tee  page'  gi. 

Acts  of  1909,  1913  and  1916:  taxes  and  additional  taxes  assessed  under  (13-19-418 
O.  D.  240).. 1919  Cum.  Bull.  p.  111. 

British  Columbia  mineral  and  income  taxes  (39-21-1844:  O.  D 1050)  Dec  1921 
Cum.  Bull.  p.  194. 

Consular  fee  stamp  on  invoice  of  merchandise  imported  for  personal  use  is  not  a 
deductible  item;  1921  Act  (1-19-265:  I.  T.  1301).. Bull.  I (’22)-19  p 16 
Cuba;  sugar  plantations  (3-20-688:  0.  D.  372).  .June  1920  Cum.  Bull,  p 115 
Foreign  country  income  and  profits  taxes  paid  by  cituen  of  U.  S.  residing  abroad  on 
income  from  U.  S.  (26-19-593:  0.  D.  317).  . 1919  Cum.  Bull.  p.  188. 

Gasoline  tax  imposed  on  distributors  ( i-6-73:  I.  T.  1193)  Bull  i (’22) 6 p 18 

Iowa  automobile  taxes  (5-20-715:  O.  D.  388).  .June  1920  Cum.  Bull.  p.  116.' 
Munition  manufacturer’s  tax  (5-20-713:  A.  R.  M.  26).  .June  1920  Cum.  Bull,  p 115 
Same:  (9-20-770:  A.  R M.  29).  .June  1920  Cum.  Bull.  p.  119. 

Same:  (24-20-1002:  A.  R.  M.  57) . .June  1920  Cum.  Bull.  p.  121 
Same  (4-21-1408:  L.  O.  1057).  .June  1921  Cum.  Bull.  p.  145. 

Same  (10-21-1503:  L.  O.  1059).  .June  1921  Cum.  Bull.  p.  147 
New  York  franchise  tax  (3-20-687:  O.  D.  371).  .June  1920  Cum.  Bull  p 112 
New  York  Personal  Income  Tax  (20-20-936:  O.  D.  505).  .June  1920  Cum.  Bull.  p.  121. 
Amounts  withheld  at  source  against  nonresidents  may  be  deducted  as  of  vear 
withheld:  1921  Act  (1-15-211:  I.  T.  1273).  .Bull.  I (’22)-15,  p.  10. 

Rhode  Island;  tax  on  deposition  savings  deposits  in  national  bank  but  paid  by 
bank  may  be  deducted  by  it  as  business  expense  and  by  depositor  as  tax,  the 
latter  including  amount  in  gross  income:  1921  Act  (1-28-401:  I.  T.  1388).  Bull 
I (’22)-28,  p.  3. 

•¥■  Trust  fund  principal;  deductibility  of  State  taxes  on:  192 1 Act  (1-29-41 1 • I T 1 3931 
. .Bull.  I (’22)-29,  p.  5.  ’ ' 

Undistributed  profits  tax  (1917  Act)  (1-19-58:  O.  D.  41).  .1919  Cum.  Bull.  p.  111. 

War  special  taxes:  admissions  and  dues,  transportation,  iemi-luxury  taxes,  sales  taxes 

(22-19-535:  O.  D.  287) ..  1919  Cum.  Bull.  p.  1 12. 

Wisconsin  bonus  law:  1918;  1919  (5-20-714:  O.  D.  387).  .June  1920  Cum.  Bull.  p.  116. 
Decision  of  U.  S.  Circuit  Court  of  Appeals.  . H3213.  Same  printed  as  Ct.  D.  28 
. . Bull.  I (’22)-21,  p.  10. 

Wisconsin:  retroactive  supertax  imposed  (48-21-1949:  O.  D.  1118).. Dec.  1921  Cum 
Bull.  p.  133. 

1 704  Federal  Duties  and  Excise  Taxes— Import  or  tariff  duties  paid 
to  the  proper  customs  officers,  and  business,  license,  privilege, 
excise,  and  stamp  taxes  paid  to  internal  revenue  collectors,  are  deductible 
as  taxes  imposed  by  the  authority  of  the  United  States,  provided  they  are 
not  added  to  and  made  a part  of  the  expenses  of  the  business  or  the  cost  of 
articles  of  merchandise  with  respect  to  which  they  are  paid,  in  which  case 
they  can  not  be  separately  deducted.  (Art.  132,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Estate:  stamp  tax  on  deed  (33-20-1135:  O.  D.  632).  .Dec.  1920  Cum.  Bull,  p 204 
Wholesale  liquor  dealers  (4-19-216:  O.  D.  137) . . 1919  Cum.  Bull.  p.  112. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
372 


2-27-22.  (2)  4-10-22.  (3)  6-10-22. 


INVENTORIES. 


1616  Inventories  at  Cost. — Cost  means: 

(1)  In  the  case  of  merchandise  on  hand  at  the  beginning  of  the 
taxable  year,  the  inventory  price  of  such  goods. 

1517  (2)  In  the  case  of  merchandise  purchased  since  the  beginning  of 
the  taxable  year,  the  invoice  price  less  trade  or  other  discounts, 

except  strictly  cash  discounts,  approximating  a fair  interest  rate,  which 
may  be  deducted  or  not  at  the  option  of  the  taxpayer,  provided  a consistent 
course  is  followed.  To  this  net  invoice  price  should  be  added  transporta- 
tion or  other  necessary  charges  incurred  in  acquiring  possession  of  the  goods. 

1518  (3)  In  the  case  of  merchandise  produced  by  the  taxpayer  since  the 
beginning  of  the  taxable  year  (a)  the  cost  of  raw  materials  and  sup- 
plies entering  into  or  consumed  in  connection  with  the  product,  (b)  expendi- 
tures for  direct  labor,  (c)  indirect  expenses  incident  to  and  necessary  for  the 
production  of  the  particular  article,  including  in  such  indirect  expenses  a 
reasonable  proportion  of  management  expenses,  but  not  including  any  cost 
of  selling  or  return  on  capital,  whether  by  way  of  interest  or  profit. 

1519  (4)  In  any  industry  in  which  the  usual  rules  for  computation  of 
cost  of  production  are  inapplicable,  costs  may  be  approximated  upon 

such  basis  as  may  be  reasonable  and  m conformity  with  established  trade 
practice  in  the  particular  industry.  Afnong  such  cases  are  fa)  farmers  and 
raisers  of  live  stock  (see  article  1586  [f  1192],)  (b)  miners  and  manufacturers 
who  by  a single  process  or  uniform  series  of  processes  derive  a product  of 
two  or  more  kinds,  size  or  gratae,  the  JUnit  cost  of  which  is  substantially  alike 
(see  article  1587  ftfl524],)  and  Retail  merchants  who  use  what  is  known  as 
the  “retail  method”  in  ascertaining  approximate  cost.  See  article  1588 
[11525].  (Art.  1583,  Reg.  62,  1922/Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Cash  discounts  (28-19-610:  O.  D.  ^26).  . 1919  Cum.  Bull.  p.  56. 

Reg.  45,  Art.  1583  amended  (T.  D/  329)5).  .^[3067. 


1520  Inventories  at  Market. — Under  ordinary  circumstances,  and  for 
normal  goods  in  an  inventory,  “market”  means  the  current  bid  price 
prevailing  at  the  date  of  th£  inventory  for  the  particular  merchandise  in 
the  volume  in  which  usually  purchased  by  the  taxpayer,  and  is  applicable  in 
the  cases  (a)  of  goods  purchased  and  on  hand,  and  (b)  of  basic  elements  of 
cost  (materials,  labor,  and  burden)  in  goods  in  process  of  manufacture  and 
in  finished  goods  on  hand;  /exclusive,  however,  of  goods  on  hand  or  in  process 
of  manufacture  for  delivery  upon  firm  sales  contracts  (i.e.,  those  not  legally 
subject  to  cancellation  by  either  party)  at  fixed  prices  entered  into  before 
the  date  of  the  inventory,  which  goods  must  be  inventoried  at  cost.  Where 
no  open  market  exists  or  where  quotations  are  nominal,  due  to  stagnant 
market  conditions,  the  taxpayer  must  use  such  evidence  of  a fair  market 
price  at  the  date  or  dates  nearest  the  inventory  as  may  be  available,  such 
as  specific  purchases  or  sales  by  the  taxpayer  or  others  in  reasonable  volume 
and  made  in  good  faith,  or  compensation  paid  for  cancellation  of  contracts 
for  purchase  commitments.  Where  the  taxpayer  in  the  regular  course  of 
business  has  offered  for  sale  such  merchandise  at  prices  lower  than  the  cur- 
rent price  as  above  defined,  the  inventory  may  be  valued  at  such  prices  less 
proper  allowance  for  selling  expense,  and  the  correctness  of  such  prices  will 

Copyright  1922,  by  7 lie  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

317 


2-27-22.  (2)  4-10-22.  (8);6-10-22. 


INVENTORIES. 


he  determined  by  reference  to  the  actual  sales  of  the  taxpayer  for  a reason- 
able period  before  and  after  the  date  of  the  inventory.  Prices  which  vary 
materially  from  the  actual  prices  so  ascertained  will  not  be  accepted  as 
reflecting  the  market.  (Art.  1584,  Reg.  62,  1922  Edition.) 

/•or  explanation  of  Cumulative  Index  references  see  page  gi. 

Claims  for  losses  when  inventory  taken  at  “asking  price”  because  of  abnormal  con- 
ditions (18-21-1609:  A.  R.  R.  487).  .June  1921  Cum.  Bull.  p.  205. 

* Goods  having  junk  value  only;  1918  Act  (1-19-264;  A.  R.  K.  921).  .Bull.  li’22)-19 

p.  10. 

Reg.  45,  Art.  1584  amended  (T.  D.  3296).  . TJ307 1 . 

1521  Inventories  by  Dealers  in  Securities.--A  dealer  in  securities,  who 
. *n  his  books  of  account  regularly  inventories  unsold  securities  on 
hand  either  (a)  at  cost  or  (b)  at  cost  or  market,  whichever  is  lower,  or  (c)  at 
market  value,  may  make  his  return  upon  the  basis  upon  which  his  accounts  are 
kept;  provided  that  a description  of  the  method  employed  shall  be  included 
in  or  attached  to  the  return,  that  all  the  securities  must  be  inventoried  by  the 
same  method,  and  that  sucdi  method  must  be  adhered  to  in  subsequent  years, 
unless  another  be  authorized  by  the  Commissioner.  For  the  purpose  of  this 
rule  a dealer  in  securities  is  a merchant  of  securities,  whether  an  individual, 
partnership,  or  corporation,  with  an  established  place  of  business,  regularly 
engaged  in  the  purchase  of  securities  and  their  resale  to  customers;  that  is, 
one  who  as  a merchant  buys  securities  and  sells  them  to  customers  with  a 
view  to  the  gains  and  profits  that  may  be  derived  therefrom.  If  such  busi- 
ness is.  simply  a branch  of  the  activities  carried  on  by  such  person,  the 
securities  inventoried  as  here  provided  may  include  only  those  held  for  pur- 
poses of  resale  and  not  for  investment.  Taxpayers  who  buy  and  sell  or 
hold  securities  for  investment  or  speculation,  and  not  in  the  course  of  an 
established  business,  and  officers  of  corporations  and  members  of  partner- 
ships, who  in  their  individual  capacities  buy  and  sell  securities,  are  not 
dealers  in  securities  within  the  meaning  of  this  rule.  A dealer  in  securities  is 
not  entitled  to  the  benefits  of  section  206  with  reference  to  the  gain  from  the 
sale  of  securities.  (Art.  1585,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1920  specifically,  relief  provisions  of  amended  Art.  1584  of  Reg.  45  apply  (7-2 1-1 442 • 
M.  2703).  .June  1921  Cum.  Bull. p.  52. 

Investor  on  extensive  scale  (35-20-1168:  A.  R.  R.  249).  .Dec.  1920  Cum.  Bull.  p.  145. 

May  employ  generally  prescribed  method:  others  may  not  take  loss  due  to  reduced 
market  value  of  Liberty  bonds  (1-19-14:  O.  D.  8) . . 1919  Cum.  Bull.  p.  56. 

Member  of  stock  brokerage  firm  dealing  extensively  on  own  account  considered  as  a 
dealer  (1-7-93:  A.  R.  R.  755).  .Bull.  I (’22)-7,  p.  16. 

Reg.  45,  Art.  1585  amended  (T.  D.  3296).  .^[3075. 

Short  sales  of  stock:  inventories  apply  to  stock  owned  only  (24-19-558:  S.  1179) 

. . 1919  Cum.  Bull.  p.  60. 


1522  Inventories  of  Securities  by  a Bank  Maintaining  a Department  for 
the  Merchandising  Thereof. — Reference  is  made  to  your  letter  of 

May  26,  1919,  wherein  you  ask  whether  a bank  that  maintains  a branch 
for  the  purpose  of  buying  and  selling  securities  has  the  full  status  of  a recog- 
nized dealer  in  securities.  If  In  reply,  you  are  advised  that  a bank  or  other 
institution  having  a regularly  established  department  for  the  merchandising 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

318 


2-27-22.  (2)  4-10-22.  (3)  4-18-22. 


NET  INCOME. 


1 047  Law  1f20.  “Paid  or  Incurred”  and  “Paid  or  Accrued”  Construed. 

(Sec.  200.)  — “ The  term  ‘ paid If  for  the  purposes  of  the  deductions 
and  credits  under  this  titley  means  ‘ paid  or  accrued? 
or  ‘paid  or  incurred ,’  and  the  terms  ‘paid  or  incurred ’ and  ‘ paid  or 
accrued?  shall  be  construed  according  to  the  method  of  accounting  upon 
the  basis  of  which  the  net  income  is  computed  under  sect  on  212  [1fl044];” — 
Law.  [Note:  The  1918. Act  so  provided.] 

1 048  “Paid”  is  to  be  construed  in  eacjh  instance  in  the  light  of  the  method 
used  in  computing  net  income^  whether  on  an  accrual  or  a receipts 
basis.  See  article  23  [for  bases  of  computing  income,  111049],  (Art.  1533, 
Reg.  62,  1922  Edition.) 


Paid,  under  Revenue  Act  ( amended,  construed  as  “paid  or  accrued”  if 

corporation  kept  books  c basis  (10-21-1503:  L.  O.  1059)..  fune  1921 

Cum.  Bull.  p.  147. 

1 049  Bases  of  Computatic  Approved  standard  methods  of  ac- 
counting will  ordinari  irded  as  clearly  reflecting  income.  A 

method  of  accounting  will  n /er,  be  regarded  as  clearly  reflecting 

income,  unless  all  items  of  gri  e and  all  deductions  are  treated  with 

reasonable  consistency.  See  200  [If 1047]  of  the  statute  for  defini- 
tions of  “paid,”  “paid  or  aci  nd  “paid  or  incurred.”  All  items  of 

gross  income  shall  be  include  gross  income  for  the  taxable  year  in 

which  they  are  received  by  tf  er,  and  deductions  taken  accordingly, 

unless  in  order  clearly  to  ref  ne  such  amounts  are  to  be  properly 

accounted  for  as  of  a differen  See  Section  213  (a).  For  instance, 

in  any  case  in  which  it  is  ne  d use  an  inventory,  no  accounting  in 

regard  to  purchases  and  sales  jctly  reflect  income  except  an  accrual 

method.  A taxpayer  is  deemted  tolf^ve  received  items  of  gross  income  which 
have  been  credited  to  or  set /apart  for  him  without  restriction.  See  Article 
53  [If  1272].  On  the  other  hafid,  appreciation  in  value  of  property  is  not  even 
an  accrual  of  income  to  a taxpayer  prior  to  the  realization  of  such  appreciation 
through  sale  or  conversion  of  the  property.  But  see  section  203  [for  in- 
ventories, If  1509].  j 


1050  (2)  For  the  taxable  year  1921,  the  true  income,  computed  under  the 
Revenue  Act  of  1921  and,  where  the  taxpayer  keeps  books  of  account, 

in  accordance  with  the  method  of  accounting  regularly  employed  in  keeping 
such  books,  shall  in  all  casts  be  entered  in  the  return.  Where  for  any  reason 
the  basis  of  reporting  indome  subject  to  tax  is  changed,  the  taxpayer  shall 
attach  to  his  return  a separate  statement  setting  forth  for  the  taxable  year 
and  for  the  preceding  yehr  the  classes  of  items  differently  treated  under  the 
two  systems,  specifying/  in  particular  all  amounts  duplicated  or  entirely 
omitted  as  the  result  of  such  change. 

1051  (3)  A taxpayer  who  changes  the  method  of  accounting  employed  in 
keeping  his  books  for  the  taxable  year  1921  or  thereafter  should,  be- 
fore computing  his  income  upon  such  new  basis  for  purposes  of  taxation, 
secure  the  consent  of  the  Commissioner.  Application  for  permission  to 
change  the  basis  of  the  return  shall  be  made  at  least  30  days  before  the  close 
of  the  period  to  be  covered  by  the  return  and  shall  be  accompanied  by  a state- 
ment  specifying  the  classes  of  items  differently  treated  under  the  two  systems 


For  explanation  of  C Index  references  see  page  gi. 


Copyright  1922,  by  The  Corporation  Trust  Company, 
THE  FEDERAL  INCOME  TAX  SERVICE 

197 


2-27-22.  (2)  4-10-22.  (3)  4-18-22. 


NET  INCOME. 


and  specifying  a!!  amounts  which  would  be  duplicated  or  entirely  omitted  as  a 
result  of  the  proposed  change. 

1 052  (4)  Banks  which  in  the  past  have  treated  discount  as  income  before 

it  was  actually  earned  and  during  the  taxable  year  have  placed 
the  discount  account  upon  an  accrual  basis  will  be  permitted  to  submit  (or  the 
Commissioner  may  require)  amended  returns  for  the  prior  year  affected. 
Additional  taxes  for  prior  years  found  to  be  due  upon  such  re-examinations, 
will  be  paid  upon  the  basis  of  the  amended  returns  in  the  ordinary  way. 
Where  it  appears  that  prior  taxes  have  been  paid  in  excess  of  the  amount 
properly  due,  such  excess  will  to  the  extent  possible  be  credited  against  future 
income  and  profits  taxes  under  the  provisions  of  Section  252  fl[2825]  of  the 
Revenue  Act  of  1921.  (Art.  23,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Accrued  interest  to  decedent  (15-20-851:  O.  D.  454).  .June  1920  Cum.  Bull.  p.  170. 

Agent  on  percentage  of  agency  profits  basis  which  he  may  appropriate  but  is  not  hit 
until  he  does  so;  amount  actually  appropriated  is  returnable  income  (7-20-738: 
S.  1312).  .June  1920  Cum.  Bull.  p.  64. 

Amended  return  simply  to  change  from  cash  to  accrua  basis,  even  though  income  is 
the  same  generally  on  the  two  bases,  is  not  permitted  (50-21-1971:  O.  D.  1133). . 
Dec.  1921  Cum.  Bull.  p.  79. 

Application  made  at  end  of  taxable  year;  to  change  basis  for  such  year  denied  (48-21 
1941:  O.  D.  1113).  .Dec.  1921  Cum.  Bull.  p.  79. 

Averaging  total  earnings,  inventory  being  taken  every  other  year  only,  not  permissible 
(4-19-211:  O.  D.  133). . 1919  Cum.  Bull.  p.  62. 

Commissions  received  by  cash  receipt  and  disbursement  basis  corporation  on  real 
estate  installment  payments  (17-21-1588:  A.  R.  R.  464).. June  1921  Cum.  Bull. 
P-  17. 

Deferred  royalties  received  in  one  year  by  taxpayer  on  cash  return  basis;  handling 
depletion  allowance  (2-20-674:  A.  R.  M.  17).  .June  1920  Cum.  Bull.  p.  144. 

Farmers;  returns  on  accrual  basis;  changing  from  cash  to  accrual;  inventories  (See 
Art.  1586,  111  192.)  (6-19-268:  O.  844).  .1919  Cum.  Bull.  p.  59. 

Same:  and  amended  returns  (18-20-893:  O.  D.  481).. June  1920  Cum.  Bull, 
p.  66:  modified  by  (34-20-1144:  O.  D.  636).. Dec.  1920  Cum.  Bull.  p.  80: 
further  modified  by  (42-20-1241 : O.  D.  685) . . Dec.  1920  Cum.  Bull.  p.  81. 

Income  of  one  of  taxpayer’s  businesses  computed  on  accrual  basis;  partnership  income 
on  cash  basis,  however:  permission  denied  to  taxpayer  to  change  from  cash  to 
accrual  basis  (29-21-1731:  O.  D.  977).  .Dec.  1921  Cum.  Bull.  p.  67. 

Open  “hedges”  against  spot  or  cash  transactions  in  cotton,  grain,  etc.  (31-21-1750: 
A.  R.  M.  135).  .Dec.  1921  Cum.  Bull.  p.  67.  Applicable  to  dealers  in  other  com- 
modities (1-3-30:  I.  T.  1166).  .Bull.  I (’22)-3,  p.  10. 

Opening  books  after  close  of  taxable  year  to  enter  retroactively  effective  increase  in 
salaries  (20-2 1-1637:  A.  R.  R.  493).. June  1921  Cum.  Bull.  p.  131. 

Oysters,  propagation  and  culture  oi:  no  inventories;  amended  returns  (42-20-1240: 
O.  D.  684).  .Dec.  1920  Cum.  Bull.  p.  80. 

“Paid,”  under  Revenue  Act  of  1916  as  amended,  construed  as  “paid  or  accrued”  if 
corporation  kept  books  on  accrual  basis  (10-21-1503:  L.  O.  1059).. June  1921 
Cum.  Bull.  p.  147. 

Short  sales  (24-19-558:  S.  1179)  . .1919  Cum.  Bull.  p.  60. 

Uniform  accounting  and  inventories  for  all  branches  or  lines  of  business  required,  after 
1918  (23-19-541 : O.  D.  289)..  1919  Cum.  Bull.  p.  62. 

Vendee  agreeing  to  pay  taxes  of  vendor  (income  and  excess  profits  taxes),  the  taxable 
years  of  the  two  differing  (2-20-669:  A.  R.  M.  16).  .June  1920  Cum.  Bull.  p.  62. 

‘Wisconsin;  accrual  of  State  income  tax  for  one  year  when  its  assessment  in  following 
year  may  be  satisfied  in  part  or  in  whole  by  presenting  tax  receipts  for  personal 
property  taxes  assessed  during  same  year  (1-15-210:  I.  T.  1272).  .Bull.  I (’22)- 
15,  p.  8. 


Copyright  1922,  by  Tht  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

198 


2-27-22.  (2)  4-10-22.  (8)  4-14-22.  (4)  6-26-22.  (6)  7-7-22.  (6)  8-24-22. 

ESTATES  AND  TRUSTS. 


Mortgage  accepted  at  face  value  in  part  payment  of  debt  due  decedent  (44-21-1896: 

O.  1).  1084).. Dec.  1921  Cum.  Bull.  p.  189. 

New  York:  application  under  1916  and  1918  Acts  of  rule  that  one  who  receives  a be- 
quest of  the  income  of  a specified  sum,  the  decedent’s  property  being  income 
producing  at  time  of  death,  is  entitled  to  such  income  from  time  of  death  (38-20 

1206:  L.  O.  1051).  .Dec.  1920  Cum.  Bull.  p.  205.  See  (1-4-44:  A.  R.  M.  151) 
. .Bull.  I (’22)-4,  p.  10 

Partner  in  firm  which  had  acquired  interest  of  member  retiring  some  month’s  prior  to 
former’s  death,  promissory  notes  being  medium  of  payment;  also,  surviving 
members  pay  to  decedent’s  estate,  waiving  their  rights  thereto,  his  share,  as  though 
living,  of  profits  on  old  firm’s  unfinished  business  at  time  of  his  death:  1921  Act 
(1-27-391:  I.  T.  1383).  .Bull.  I (’22)-27,  p.  8. 

¥ Partner’s  estate  to  capitalize  decedent’s  interest  in  uncollected  fees,  his  share  of  fees 
collected  to  day  of  death  being  income  to  decedent  on  cash  basis.  .1(3305. 
Personal  service  corporation  stockholder  (1-19-71:  O.  D.  52). . 1919  Cum.  Bull.  p.  180. 
Promissory  notes  coindorsed  by  decedent  (25-20-1017:  O.  D.  556).  .June  1920  Cum 
Bull.  p.  137. 

Promissory  notes  of  decedent;  accrued  interest  on  which  was  deducted  for  estate  tar 
purposes;  interest  capitalized  by  giving  a new  note  (21-20-953:  A.  R.  R.  113).. 
June  1920  Cum.  Bull.  p.  114. 

Sale  of  real  estate  on  installment  plan  by  decedent  (1-6-70:  I.  T.  1192).  .Bull.  1 

(’22)-6,  p.  16. 

Securities  distributed  to  residuary  legatees  on  basis  of  market  value,  this  exceeding 
value  at  date  of  testator’s  deajth;  no  income  to  estate,  and  value  at  death  is  basis 
for  determining  gain  or  loss  oi  future  disposition  (39-20-1209:  O.  D.  667).  .Dec. 
1920  Cum.  Bull.  p.  52. 

Securities  held  at  death:  no  profit? or  loss  to  decedent,  to  estate  during  settlement,  on 
transfer  to  legatee  or  to  Irustee  or  to  substituted  trustee,  appraised  value  at 
time  of  death  remaining  as  basis  on  subsequent  disposition  (11-19-383:  O.  D. 
219) ..  1919  Cum.  Bull,  p 180.  Same  in  part  (35-20-1 168:  A.  R.  R.  249).. 
Dec.  1920  Cum.  Bull,  pj  145.  Same  in  part  (property  in  general)  (46-20- 
1306:  O.  D.  731).  .Dec.  f920  Cum.  Bull.  p.  210. 

" ’’  above. 

property  sold  by  estate  (33-20-1135:  O.  D.  632).. 


See  “Assessment  on  bank  s 
Stamp  taxes  on  deeds  conveyin 
Dec.  1920  Cum.  Bull.  p\20 
Trustees  holding  trust  fund  by 
death,  then  distributing 
return  obligations  of  trust 
1921  Cum.  Bull.  p.  223 
Widow-administratrix  sole  be 
of  settlement  (21-21-1652 
Widow’s  personal  allowance  f 
estate  by  probate  court’s 
p.  224. 


rms  of  will  creating,  for  one  year  after  life  tenant’s 
turning  over  to  administrators  with  the  will  annexed: 
and  administrators  (7-21-1447:  O.  D.  806).. June 

ary:  return  liability  for  each  of  the  several  years 
926).. June  1921  Cum.  Bull.  p.  225. 
ut  of  personal  property  and  income  from  real 
order  (\21-1482:  O.  D.  829).. June  1921  Cum.  Bull. 


B76  Law  1f249.  Income  'Accumulated  in  Trust  is  Taxable. — fl[873. 
(Sec.  219.)  The  taxes  imposed  by  sections  210  and  211  apply  to] 
“(2)  Intome  accumulated  in  trust  for  the  benefit  of 
unborn  or  unascertained  persons  or  persons  with  contingent  interests — 
Law.  [Note:  The  1918  Act  so  provided.] 


877  Law  1[250.  Income  Held  for  Future  Distribution  Under  Terms 
(Sec.  219.)  of  Will  or  Trust  is  Taxable. — “(3)  Income  held 
for  future  distribution  under  the  terms  of  the  will  or 
trust;” — Law.  [Note:  The  1918  Act  so  provided.] 


878  Law  ^256. 

(Sec.  219.) 


Taxes  to  Be  Paid  by  Fiduciary  on  Income  (1)  Re- 
ceived During  Period  of  Settlement,  (2)  Accumulated 
in  Trust,  and  (3)  Held  for  Future  Distribution  under 
Terms  of  Will  or  Trust. — “(c)  In  cases  under  paragraphs  (1)  [1[874],  (2) 
[1f876],  or  (3)  [H877]  of  subdivision  (a)  or  in  any  other  case  within  sub- 

Copy right  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
153 


2-27-22.  (2)4-10-22.  Cl)  4-14-22.  (4)  6-26-22.  (6)  7-7-22.  (6)8-24-22. 

ESTATES  AND  TRUSTS. 

division  (a)  oj  this  section  except  paragraph  (4)  [11889]  thereof  the  tax  shall 

be  imposed  upon  the  net  income  of  the  estate  or  trust  and  shall  be  paid  by 

the  fiduciary Law.  [Note:  The  1918  Act  did  not  carry  “or  in 

any  other  case  within  subdivision  (a)  of 
this  section  except  paragraph  (4) 
thereof.”] 

8 79  Estates  and  Trusts  Taxed  to  Fiduciary.-— In  the  case  of  (a)  estates 
of  decedents  before  final  settlement,  (b)  trusts,  whether  created 
by  will  or  deed,  for  accumulation  of  income,  whether  for  unascertained 
persons  or  persons  with  contingent  interests  or  otherwise,  and  in  any  other 
case  within  section  219  (a)  except  paragraph  4 [1f889]  thereof,  the  income  is 
Uxed  to  the  fiduciary  as  to  any  single  individual,  except  that  from  the  income 
of  a decedent’s  estate  there  may  first  be  deducted  any  amount  of  income 
properly  paid  or  credited  to  a beneficiary.  See  section  200  of  the  statute  and 
articles  1521  and  1522  [for  definition  of  “fiduciary”  1J923].  Where  under 
the  terms  of  the  will  or  deed  the  trustee  may  in  his  discretion  distribute 
the  income  or  accumulate  it,  the  income  is  taxed  to  the  trustee  irrespective 
of  the  exercise  of  the  discretion.  The  imposition  of  the  tax  is  not  affected 
by  the  fact  than  an  ultimate  beneficiary  may  be  a person  exempt  from  tax. 
An  allowance  paid  a widow  out  of  the  corpus  of  the  estate  is  not  deductible 
from  gross  income.  As  an  intestate’s  real  estate  does  not  pass  to  his  ad- 
ministrator, upon  a sale  by  the  heirs,  whether  before  or  after  settlement  of 
.he  estate,  each  heir  is  taxed  individually  on  any  profit  derived.  (Art  342 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Amounts  properly  paid  or  credited  during  administration  or  in  final  distribution  mujt 
be  deduced  by  fiduciary  and  included  by  beneficiary  (27-21-1714:  O.  D.  967) 
Dec.  1921  Cum.  Bull.  p.  186. 

Decedent’s  income  prior  to  death:  no  profit  or  loss  on  securities  held  at  death  (11- 
19-383:  O.  D.  219)  . . 1919  Cum.  Bull.  p.  180. 

Same  in  part  (35-20-1168:  A.  R.  R.  249).  .Dec.  1920  Cum.  Bull.  p.  145. 

Same  in  part  (property  in  general)  (46-20-1306:  0.  D.  731).. Dec.  1920  Cum 
Bull.  p.  210. 

Discretionary  trustB:  general  discussion  1916-17  and  1918  Acts  (11-19-382:  S 1088' 

. .1919  Cum.  Bull.  p.  176. 

Estates  and  trusts  not  taxable  as  entities  under  1913  Act:  U.  S.  Supreme  Court 
. decision  (1-13-183:  Ct.  D.  24).  . Bull.  1 (’22)-13,  p.  10.  Same  as  at  1J3048,  herein. 

Indians  whose  property  is  under  control  of  Office  of  Indian  Affairs:  1921  Act  (1-25- 
358:  I.  T.  1366)..  Bull.  I (’22)-25,  p.  15. 

Life  tenancy:  profit  from  sale,  held  for  remainderman,  taxable  to  estate  as  entity 
(26-20-1029:  O.  D.  560).  .June  1920  Cum.  Bull.  p.  175. 

Same:  Here  proceeds  of  sale  of  intestate’s  real  estate  to  create  a life  estate  for 
husband  with  remainder  over  to  son  by  agreement  (38-21-1830:  O.  D.  1040) 

. .Dec.  1921  Cum.  Bull.  p.  186. 

Life  tenants  in  trust  with  power  of  appointment,  remainderman  (if  exercise  of  power 
did  not  exhaust  principal)  a charitable  institution:  sale  by  trustee  of  rights  to 
subscribe  to  stock,  proceeds  being  added  to  corpus — taxable  to  estate  as  entity 
(20-20-939:  0.  D.  507).  .June  1920  Cum.  Bull.  p.  174. 

Massachusetts;  profit  on  sale  of  intestate’s  realty  by  administrator:  1918  and  1921 
Acts  (1-14-197:  I.  T.  1267).  .Bull.  I (’22)-14,  p.10. 

Nonresident  alien  creator  and  beneficiary  of  discretionary  trust;  foreign  bond  interest 
taxable  in  hands  of  resident  fiduciary  (See  “Nonresident  alien  creator”  below) 
(49-20-1355:  O.  D.  743)  Dec.  1920  Cum.  Bull.  p.  203. 

Nonresident  alien  creator  and  beneficiaries  of  trust  estate,  resident  fiduciary:  un- 
distributed income  and  income  during  settlement  (13-20-810:  A.  R.  M.  37).. 
June  1920  Cum.  Buli.  p.  172. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
154 


8-2-1-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 

3380 

3381 

3382 

3383 

3384 
Special 

3385 


Date 


Subject 


Paragraph 


July  8,  1922 
Aug.  4,  “ 

July  20,  “ 

Aug.  9,  “ 

July  27,  “ 

Aug.  9,  “ 

“ 17,  “ 


Report  No.  48,  August  10,  1922. 

(T.  D.  designation  for  Regulations  40  (1922 
Edition),  Stamp  Taxes  on  Issues,  Sales,  and 
Transfers  of  Stock,  and  Sales  of  Products  for 
Future  Delivery. — War  Tax  Service,  page 
709;) 

(Prohibition.) 

(Pages  for  substitution  on  account  index-digest 
references  to  rillings  in  Internal  Revenue  Bul- 
letin No.  32,  o^  the  1922  Series.] 

No.  49,  August  17,  1922. 
n for  Regulations  59  (1922 
a\  Taxes  on  Businesses  and 
on  the  Use  of  Boats. — War 
ge  1513.) 

War  Tax  Service,  1(787.)® 
ution  on  account  index-digest 
tilings  in  Internal  Revenue  Bul- 
the  1922  Series.] 


nd 


Repost 
(T.  D.  designat  o 
Edition),  Spec 
Occupations  a 
Tax  Service,  Pi 
(Estate  Taxes. 
[Pages  for  substi 
references  to  r 
letin  No.  33,  of 


Report  No.  50,  August  24,  1922. 

(T.  D.  designation  for  Regulations  63  (1922 
Edition),  Estate  Tax. — -War  Tax  Service,  Page 
158.)  j 

Income  of  deceased  partner,  who  made  returns  on 
a cash  basis,  includes  his  share  of  fees  collected 
to  day  of  death;  his  interest  in  uncollected  fees 
to  be  capitalized  by  estate 3305 

(Narcotics.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  34,  of  the  1922  Series.] 

\ 


There  are  no  Supplementary  Pages  32  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  31. 


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7-20-22.  (2)  7-27-22.  (.■))  8-24  22. 


3299  Personnel  of  the  Tax  Simplification  Board. — (July  12,  1922.) 

2969  James  H.  Beal,  Chairman 

Joseph  E.  Sterrett 

(vacancy) 

Appointed  by  the  President  to  represent  the  public. 
Charles  P.  Smith 
George  W.  Skilton 
E.  H.  Chatterton 

Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
resent the  Bureau  of  Internal  Revenue. 


3300  On  powers-of-attomey  required  to  be  filed  by  taxpayers’  represent- 

2941  atives. — The  Bureau  desires  to  inform  you  that  it  has  been  unable  to 

3104  develop  any  form  for  power  of  attorney  which  is  sufficiently  broad  to 
3229  conform  to  the  many  varied  purposes  for  which  instruments  of  this 

character  are  presented  to  the  Income  Tax  Unit.  Consequently,  it 
is  requested  that  your  service  publish  no  set  form.  Publication  of  forms  of 
this  character  in  established  services  very  often  leads  to  a wrong  assumption 
on  the  part  of  taxpayers,  attorneys  and  agents  that  these  forms  are  official. 

3301  Further,  the  attention  of  all  attorneys  and  agents  should  be  invited 
to  the  fact  that,  unless  the  original  power  of  attorney  granted  by 

the  taxpayer  contains  a power  of  substitution  or  revocation,  the  right  of  the 
out-of-town  attorney  to  have  a man  in  Washington  represent  him  in  following 
up  cases  is  lost.  No  substitution  power  of  attorney  will  be  recognized  in 
any  case,  where  the  original  document  does  not  contain  a proper  power  of 
substitution. 

3302  It.is  also  suggested  that,  as  far  as  practicable,  powers  of  attorney  sub- 
mitted by  attorneys  and  agents,  be  confined  to  a single  matter  at 

issue  or  the  tax  liability  for  a single  year.  For  example,  if  a power  of  attorney 
be  granted  covering  the  prosecution  of  a claim,  that  the  power  of  attorney 
distinctly  state  that  and  nothing  more  or,  if  it  is  desired  that  it  cover  a single 
year,  that  the  year  be  specified.  ^The  practice  of  furnishing  a general  power 
of  attorney  covering  all  years,  including  the  future  years  on  which  returns  are 
not  yet  due,  is.being  discouraged  by  the  Bureau.  In  no  case  will  a power  of 
attorney  covering  a year  on  which  returns  are  not  yet  due  be  accepted. 

3303  So  much  of  this  Jetter  as  you  may  desire  to  use  may  be  quoted  in 
your  service.  (Letter  to  The  Corporation  Trust  Company,  signed 

by  Deputy  Commissioner  E.  H.  Batson,  and  dated  July  17,  1922.) 

/ -J 

3304  No  ownership  certificates  required  in  connection  with  accrued 
2265  interest  on  bonds  surrendered  between  interest  dates  for  cancella- 

2284  tion,  for  conversion  into  stock,  or  for  payment  prior  to  maturity  at 

2285  a fixed  price  arid  accrued  interest.— Your  letter  oFJune  30,  1922,  was 
3265  not  received  in  this  office  in  time  to  telegraph  a reply  as  requested. 

y°Ur  lettei  you  <5uote  from  a ruling  contained  in  office  telegram 
[113265]  of  June  14,  addressed  to  the  Guaranty  Trust  Company,  New  York, 
with  respect  to  ownership  certificates  covering  accrued  interest  on  bonds 
where  the  trustee  under  a corporate  deed  of  trust  purchases  outstanding 
bonds  between  interest  dates  for  a sinking  fund  and  by  the  terms  of  the 
sinking  fund,  the  bonds  and  attached  coupons  are  immediately  cancelled,  so 
that  interest  ;s tops  "on  the  date' the  bonds  are  delivered  to  the  trustee 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
.737  ' ' 


(1)  7-27-22.  (2)  8-21-22. 


HYou  inquire  whether  the  Department  holds  that  when,  under  the  terms  of 
the  deed  of  trust  the  bonds  are  redeemed  by  the  corporation  or  by  the  trustee 
for  the  corporation  at  a fixed  price  and  accrued  interest,  no  ownership  certi- 
ficates are  required  for  the  amount  of  interest  so  accrued  between  interest 
dates.  KYou  are  advised  that  ownership  certificates  to' cover  accrued  interest 
are  not  required  to  accompany  bonds  delivered  between  interest  dates  cither 
for  cancellation,  for  conversion  into  stock,  or  for  payment  prior  to  maturity 
at  a fixed  price  and  accrued  interest.  (Letter  to  The  Equitable  Trust  Com- 
pany, attention  Franklin  Carter,  Jr.,  New  York,  N.  Y.,  signed  by  Deputy 
Commissioner  E.  H.  Batson,  and  dated  July  22,  1922.) 


3306  Income  of  deceased  partner,  who  made  returns  on  a cash  basis,  in- 
875  eludes  his  share  of  fees  collected  to  day  of  death;  his  interest  in 
939  uncollected  fees  to  be  capitalized  by  estate. — Decedent  was  partner 
in  law  firm  reporting  on  cash  basis.  Query:  May  decedent’s  interest 
in  accrued  and  contingent  fees  at  date  of  death  be  capitalized  so  that  sub-  ^ 
sequent  collections  represent  return  of  capital  to  estate  or  must  such  receipts 
be  regarded  as  income?  If  former,  must  amount  of  such  uncollected  fees  be 
returned  as  income  for  period  prior  to  decedent’s  death?  Refer  I.  T.  1383 
[Bull.  I (’22)-28,  p.  8].  Please  wire  reply.  ( Answer ) Value  of  deceased 

partner’s  interest  in  uncollected  fees  of  partnership  may  be  capitalized  and 
only  receipts  in  excess  of  such  value  reported  as  income  by  estate.  In  com- 
puting deceased  partner’s  income  there  should  be  included  total  amount  of 
his  share  of  fees  collected  by  partnership  to  but  not  including  day  of  death. 
(Telegram  of  inquiry  from  McLaren,  Goode  & Co.,  San  Francisco,  Calif., 
and  the  reply  thereto  signed  by  Acting  Deputy  Commissioner  E.  W.  Chatter-  * 

ton  and  dated  August  9,  1922.)  r 


ni 


* 


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,>IioY  wdM 
zb  nod  J 
gnibmuaJuc 
erit  io  emr. 
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33 1?  Jll 


* 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
738 


2-27-22. 


TAX  ON  NONRESIDENT  ALIENS. 


2146  Law  1[230.  “(2)  from  the  sale  of  personal  property  produced,  (in 

(Sec.  217)  whole  or  in  part)  by  the  taxpayer  within  and  sold  without 

the  United  States , or  produced  (in  whole  or  in  part) 
by  the  taxpayer  without  and  sold  within  the  United  States ,” 

2147  Law  1(231.  “ shall  be  treated  as  derived  partly  from  sources  within 

2148  (Sec.  217.)  and  partly  from  sources  without  the  United  States — 

Law.  [Note:  See  note  at  ^[21 02.] 

2149  Items  of  gross  income  not  allocated  by  articles  316-323  or  326  to 
sources  within  or  without  the  United  States  shall  (unless  unmis- 
takably from  a source  within  or  a source  without  the  United  States)  be 
treated  as  derived  from  sources  partly  within  and  partly  without  the  United 
states,  according  to  the  following  rules  <ind  cases: 

2150  Manufacturers  and  Producers. —Gross  income  derived  from  the 
sale  of  personal  property  produced  (in  whole  or  in  part)  by  the 

taxpayer  within  and  sold  without  the  United  States,  or  produced  in  whole  or 
in  part  by  the  taxpayer  without  and  sold  within  the  United  States  shall  be 
treated  as  derived  partly  from  sources  within  and  partly  from  sources  with- 
out  the  United  States,  under  one  of  the  cases  named  below.  As  used  herein 
the  word  produced”  includes  created,  fabricated,  manufactured,  extracted’ 
processed,  cured,  or  aged.  ’ 

2151  Case  1:  Where  the  manufacturer  or  producer  regularly  sells  part  of 
. h,s  output  to  wholly  independent  distributors  or  other  selling  con- 
cerns in  such  a way  as  to  establish  fairly  an  independent  factory  or  produc- 
tion price  or  shows  to  the  satisfaction  of  the  Commissioner  that  such  an 
independent  factory  or  production  price  has  been  otherwise  established- 
unaffected  by  considerations  of  tax  liability,  and  the  selling  or  distributing 
branch  or  department  of  the  business  is  located  in  a different  country  than 
tnat  in  which  the  factory  is  located  or  the  production  carried  on  the  net 
income  attributable  to  sources  within  the  United  States  shall  be  computed 
by  an  accounting  which  treats  the  products  as  sold  by  the  factory  or  pro- 
ductive department  of  the  business  to  the  distributing  or  selling  department 
at  the  independent  factory  price  so  established.  In  all  such  cases  the  basis 
of  the  accounting  shall  be  fully  explained  in  a statement  attached  to  the 
return. 

2152  Case  2:  Where  an  independent  factory  or  production  price  has  not 
been  established  as  provided  under  case  1,  the  net  income  shall  first 

be  computed  by  deducting  from  the  gross  income  derived  from  sources 

PiFt  77!ithin-  and  partIy,  without  the  United  States  the  expenses,  losses,  or 
other  deductions  properly  apportioned  or  allocated  thereto  and  a ratable 
part  of  any  expenses,  losses,  or  other  deductions  which  can  not  definitely 
be  allocated  to  some  item  or  class  of  gross  income.  Of  the  amount  of  net 
income  so  determined,  one-half  shall  be  apportioned  in  accordance  with  the 
value  of  the  taxpayer’s  property  within  and  without  the  United  States  the 
portion  attributable  to  sources  within  the  United  States  being  determined 
by  mulUplymg  such  one-half  by  a fraction  the  numerator  of  which  consists 
of  the  value  of  the  taxpayer  s property  within  the  United  States  and  the 
denominator  of  which  consists  of  the  value  of  the  taxpayer’s  property  both 
within  and  without  the  United  States.  The  remaining  one-half  of  such  net 
income  shall  be  apportioned  in  accordance  with  the  gross  sales  of  the  tax- 
payer within  and  without  the  United  States,  the  portion  attributable  to 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22. 


TAX  ON  NONRESIDENT  ALIENS. 


sources  within  the  United  States  being  determined  by  multiplying  such 
one-half  by  a fraction  the  numerator  of  which  consists  of  the  taxpayer’s 
gross  sales  for  the  taxable  year  or  period  within  the  United  States,  and  the 
denominator  of  which  consists  of  the  taxpayer’s  gross  sales  for  the  taxable 
year  or  period  both  within  and  without  the  United  States.  “Gross  sales 
within  the  United  States”  means  the  aggregate  amount  of  all  sales  made 
during  the  taxable  year  which  were  principally  secured,  negotiated  or  effected 
by  employees,  agents,  offices,  or  branches  of  the  taxpayer’s  business  resident 
or  located  in  the  United  States. 

21  53  The  term  “property”  as  used  in  this  article  includes  only  the  property 
held  or  used  to  produce  income  which  is  derived  from  sources  partly 
within  and  partly  without  the  United  States  (excluding  all  property  held  or 
used  to  produce  income  which  is  allocated  or  apportioned  under  other  articles 
or  paragraphs  of  these  regulations).  Such  property  should  be  taken  at  its 
actual  value,  which  in  the  case  of  property  valued  or  appraised  for  purposes 
of  inventory,  depreciation,  depletion,  or  other  purposes  of  the  Revenue 
Act  of  1921  shall  be  the  highest  amount  at  which  so  valued  or  appraised, 
and  which  in  other  cases  shall  be  deemed  to  be  its  book  value  in  the  absence 
of  affirmative  evidence  showing  such  value  to  be  greater  or  less  than  the 
actual  value.  The  average  value  during  the  taxable  year  or  period  shall 
be  employed.  The  average  value  of  property  as  above  prescribed  at  the 
beginning  and  end  of  the  taxable  year  or  period  ordinarily  may  be  used, 
unless  by  reason  of  material  changes  during  the  taxable  year  or  period,  such 
average  does  not  fairly  respresent  the  average  for  such  year  or  period,  in 
which  event  the  average  shall  be  determined  upon  a monthly  or  daily  basis. 
Bills  and  accounts  receivable  shall  (unless  satisfactory  reason  for  a different 
treatment  is  shown)  be  assigned  or  allocated  to  the  United  States  when  the 
debtor  resides  in  the  United  States,  unless  the  taxpayer  has  no  office  branch 
or  agent  in  the  United  States. 

2154  Case  3:  Application  for  permission  to  base  the  return  upon  the  tax- 
to  payer’s  books  of  account  will  be  considered  by  the  Commissioner  in 
2157  the  case  of  any  taxpayer  who,  in  good  faith  and  unaffected  by  con- 
siderations of  tax  liability,  regularly  employs  in  his  books  of  account  a 
detailed  allocation  of  receipts  and  expenditures  which  reflects  more  clearly 
than  the  processes  or  formulas  prescribed  under  cases  1 and  2,  the  income 
derived  from  sources  within  the  United  States.  (Art.  327,  Reg.  62,  1922 
Edition.) 


2158  Law  If 23 2.  Profit  from  Sales  of  Personal  Property. — “Gains, 
(Sec.  217.  profits  and  income  derived  from  the  purchase  of  personal 
property  within  and  its  sale  without  the  United  States 
or  from  the  purchase  of  personal  property  without  and  its  sale  within  the 
United  States , shall  be  treated  as  derived  entirely  from  the  country  in  which 
sold” — Law.  [Note:  See  note  at  ^[2 102.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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2-27-22.  (2)  6-2-22. 


TAX  ON  NONRESIDENT  ALIENS. 


2099  The  following  additional  exclusions  from  gross  income  not  provided  by 
the  Revenue  Act  of  1918  is  allowed  by  the  Revenue  Act  of  1921: 

Income  of  a nonresident  alien  or  foreign  corporation  consisting  exclusively  of 
earnings  derived  from  the  operation  of  a ship  or  ships  documented  under  the 
laws  of  a foreign  country  which  grants  an  equivalent  exemption  to  citizens 
of  the  United  States  and  corporations  organized  in  the  United  States.  Any 
taxpayer  claiming  this  exemption  must  file,  under  oath,  a statement  citing  the 
foreign  statute  which  grants  the  equivalent  exemption  and  stating  fully  the 
facts  upon  which  he  relies  to  establish  his  claim.  (Art.  89,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

* Norway  satisfies  the  equivalent  exemption  provision:  1921  Act  (1-22-314:  I T 1327) 

. Bull.  I (’22)-22,  p.  11. 

44  Sweden  satisfies  the  equivalent  exemption  provision;  1921  Act  (1-22-315-  I T 13?8) 

. . Bull.  I (’22) -22,  p.  11 

2100  Income  of  Nonresident  Aliens  from  United  States  Bonds.— By 
virtue  of  section  4 of  the  Victory  Liberty  Loan  Act  of  March  3,  1919, 

amending  section  3 of  the  Fourth  Liberty  Bond  Act  of  July  9,  1918,  [1(2101  J, 
the  interest  received  on  and  after  March  3,  1919,  on  bonds,  notes  and  cer’ 
tificates  of  indebtedness  of  the  United  States  and  bonds  of  the  War  Finance 
Corporation,  while  beneficially  owned  by  a nonresident  alien  individual, 
or  a foreign  corporation,  partnership  or  association,  not  engaged  in  business 
in  the  United  States,  is  exempt  from  all  income  and  war-profits  and  excess- 
profits  taxes.  See  Article  84  [1(1587].  (Art.  94,  Reg.  62,  1922  Edition.) 

I 

For  explanation  of  Cumulative  Index  references  see  page  gr. 

In  trust  for  life  beneficiary  (16-20-861:  O.  D.  464).  .June  1920  Cum.  Bull.  p.  103. 

2101  Sec.  4.  That  section  3 of  the  Fourth  Liberty  Bond  Act  is  hereby 
amended  to  read  as  follows: 

“Sec.  3.  That,  notwithstanding  the  provisions  of  the  Second  Liberty 
Bond  Act  or  of  the  War  Finance  Corporation  Act  or  of  any  other  Act,  bonds, 
notes,  and  certificates  of\indebl|edness  of  the  United  States  and  bonds  of 
the  War  Finance  Corporation  shall,  while  beneficially  owned  by  a non- 
resident alien  individual,  or  a foreign  corporation,  partnership,  or  associa- 
tion, not  engaged  in  business  the  United  Stare-,  be  exempt  both  as  ‘o 
principal  and  interest  from  anyvand  all  taxation  now  or  hereafter  imposed 
by  the  United  States,  any  State, \rr  any  of  the  possessions  of  the  United 
States  or  by  any  local  taxing  authority.”  (Section  4 of  ‘ An  Act  to  amend 
the  Liberty  Bond  Acts  and  the  War  Finance  Corporation  Act,  and  for  other 
purposes,”  known  as  the  “Victory  Liberty  Loan  Act,”  approved  by  the 
President,  March  3,  1919.) 

2 102  Law  K207.  Gross  Income  of  Nonresident  Aliens  from  Sources 
(Sec.  217.)  Within  the  United  States  Specifically. — “Sec.  217. 

(a)  That  in  the  case  of  a nonresident  alien  individual 
or  of  a citizen  entitled  to  the  benefits  of  section  262  (1(2070],  the  following 
items  o'  gross  income  shall  be  treated  as  income  from  sources  within  the 
United  States :” — Law.  [Note:  This  entire  section  is  new  to  the 

1921  Act,  in  terms,  but  in  effect,  with 
exceptions  to  be  noted,  in  large  measure 
carries  into  the  new  law  the  provisions 
of  the  1918  Act  and  the  regulations 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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TAX  ON  NONRESIDENT  ALIENS. 


based  thereon,  relating  to  gross  and 
net  income  of  nonresident  alien  indi- 
viduals and  foreign  corporations.  The 
application  of  the  rules  laid  down,  to  a 
citizen  and  a domestic  corporation 
entitled  to  the  benefits  of  section  262,  is 
new,  of  course.  The  exceptions  in  the 
case  of  interest  accruing  from  residents 
are  new.  The  dividends  provisions  are 
somewhat  changed.  The  provisions 
relative  to  the  allocation  and  appor- 
tionment of  expenses,  losses,  and  other 
deductions  which  cannot  definitely  be 
allocated  to  items  of  gross  income  either 
from  sources  within  or  without  the 
United  States,  the  provisions  for  allocat- 
ing to  sources  within  and  without  the 
United  States  items  of  gross  income  not 
specifically  mentioned  and  in  turn  al- 
locating thereto,  respectively,  the  ex- 
pense and  other  items,  etc.,  etc.,  and 
the  provisions  stating  the  rule  that 
profits  derived  from  certain  sources  are 
to  be  treated  as  derived  partly  from 
sources  within  and  partly  from  sources 
without  the  United  States,  are  new  to 
the  law,  and  to  the  letter  of  the  formal 
regulations,  at  least,  under  the  1918 
Act.  The  1918  Act  provided,  as  to 
gross  income,  that  “In  the  case  of  non- 
resident alien  individuals  [and  foreign 
corporations],  gross  income  includes  only 
the  gross  income  from  sources  within  the 
United  States,  including  interest  on 
bonds,  notes,  or  other  interest-bearing 
obligations  of  residents,  corporate  or 
otherwise,  dividends  from  resident  cor- 
porations, and  including  all  amounts 
received  (although  paid  under  a con- 
tract for  the  sale  of  goods  or  otherwise) 
representing  profits  on  the  manufacture 
and  disposition  of  goods  within  the 
United  States;”  and  as  to  the  deduc- 
tions “the  proper  apportionment  and 
allocation  of  the  deductions  with  re- 
spect to  sources  of  income  within  and 
without  the  United  States  shall  be 
determined  under  rules  and  regulations 
prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary  [see  Law 
If  186,  H2169]-”] 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
470 


(• 


% 

( 


2-27-22.  (2)  4-10-22. 


DEDUCTIONS— DEPLETION. 


1901  (e)  “Minerals”  include  ores  of  the  metals,  coal,  oil,  gas,  and  such 
non-metalic  substances  as  abrasives,  asbestos,  asphaltum,  barytes^ 

borax,  building  stone,  cement  rock,  clay,  crushed  stone,  feldspar,  fluorspar, 
fuller’s  earth,  graphite,  gypsum,  limestone,  magnesite,  marl,  mica,  mineral 
pigments,  peat,  potash,  precious  stones,  refractories,  rock  phosphate,  salt, 
sand  and  gravel,  silica,  slate,  soapstone,  soda,  sulphur,  and  talc. 

1902  (f)  “Operating  profit”  is  the  net  income  from  mineral  production 
before  depletion  and  depreciation  are  deducted.  It  is  distinct  from 

net  income. 

1903  (g)  “Depletion  or  depreciation  sustained”:  (1)  In  arriving  at  the 
amount  returnable  through  depletion  or  depreciation,  means  (except 

in  cases  where  a discovery  has  been  established,  as  to  which,  see  (h)  below) 
depletion  or  depreciation  actually  sustained  based  on  the  value  as  at  the  basic 
date;  (2)  in  arriving  at  profit  or  loss  from  sale,  means  depletion  or  deprecia- 
allowed  based  on  value  a«^at  basic  date  except  where  value  as  at  basic  date 
is  a discovery  value,  in  which  case  the  depletion  sustained  is  that  based  on 
value  as  of  March  1,  1913,  or  cost  if  acquired  after  that  date;  (3)  in  arriving 
at  invested  capital,  means  depletion  and  depreciation  actually  sustained 
based  on  cost. 

1904  (h)  Depletion?  allowance  in  case  of  discovery:  The  deduction  for 
depletion  in  case  of  a discovery  can  not  exceed  the  net  income  com- 
puted without  allowance  for  depletion,  from  the  property  upon  which  the 
discovery  is  made,  except  where  and  to  the  extent  that  such  net  income  so 
computed  is  less  than  the  depletion  allowance  based  on  cost  or  fair  market 
value  as  of  March  1,  1913.  Net  income  is  the  gross  income  from  the  sale  of  all 
mineral  products  and  any  other  income  incidental  to  the  operation  of  the 
property  for  the  production  of  the  mineral  products,  less  operating  expenses, 
including  depreciation  on  equipment,  and  taxes,  but  excluding  any  allowance 
for  depletion.  If; the  mineral  products  are  not  sold  as  raw  material  but  are 
manufactured  or  converted  into  a refined  product,  then  the  gross  income  shall 
be  assumed  to  be.equivalent  to  the  market  or  field  price  of  the  raw  material 
before  conversion.  Operating  expenses,  depreciation,  and  taxes  on  the 
property  upon  which  the  discovery  is  made  should  be  applied  against  the 
gross  income  from  "the  same  property  on  the  basis  of  actual  expenditures, 
but  if  the  records  for  the  year  1921  are  in  any  case  inadequate,  allocation 
of  such  expenditures  for  that  year  may  be  made  on  the  basis  of  the  ratio  of 
(1)  the  number  of  wells  operated  on  the  property  on  which  the  discovery  is 
made  to  (2)  the  total  number  of  wells  operated  in  the  operating  division  in 
which  the  discpvery  is  included.  (Art.  201,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Discovery  valuation  provision  does  not  apply  to  sale  (29-20-1068:  Sol.  Op.  26).  .Dec. 
1920  Cum.  Bull.  p.  44. 

Foreign  corporation  deriving  no  income  from  t. . S.  sources  permitted  no  depletion; 
nor  are  American  stockholders  in  connection  with  their  dividends  (1-8-103:  A R 
M.  153).  .Bull.  I (’22)-8,  p.  15. 

Pennsylvania  leasehold:  period  of  lease  being  ample  to  allow  removal  of  all  coal  (1913 
and  1916  Acts)  (18-20-900:  S.  1365).  June  1920  Cum.  Bull.  p.  143:  explained 
(5-21-1418:  Sol.  Op.  80).. June  1921  Cum.  Bull.  p.  195. 

Reorganizations:  capital  sum  recoverable  on  assets  acquired  in  (15-20-855:  0.  D.  458) 
..June  1920  Cum.  Bull.  p.  313. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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DEDUCTIONS— DEPLETION. 


1905  Amount  Returnable  Through  Depletion  and  Depreciation  Deduc- 
tions in  the  Case  of  an  Operating  Owner. — In  the  case  of  an  operat- 
ing owner  in  fee,  the  amount  remaining  in  any  year  returnable  through 
depletion  and  depreciation  deductions  is  (a)  the  cost  or  value  of  the  property 
at  the  basic  date  plus  (b)  subsequent  allowable  capital  additions  and  minus 
(c)  depletion  and  depreciation  sustained,  whether  legally  allowable  or  not, 
from  the  basic  date  to  the  taxable  year,  and  minus  (d)  the  value  of  the  land 
at  the  basic  date  for  other  purposes  than  mineral  production  and  the  residual 
value  of  other  property  at  the  end  of  operations.  The  amount  returnable 
through  depiction  is  the  total  capital  remaining  less  the  sum  recoverable 
through  depreciation.  (Art.  202,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

“Depletion  which  has  or  should  have  been  taken,”  discussed  and  explained  (1-19-53- 
T.  B.  R.  4). . 1919  Cum.  Bull.  p.  141. 

Waiving  royalty  rights  for  period  of  years  (2-20-674:  A.  R.  M.  17).  .June  1920  Cum. 
Bull.  p.  144. 


1906  Amount  Returnable  Through  Depletion  and  Depreciation  Deduc- 
. tions  in  the  Case  of  Lessee. — (a)  In  the  case  of  a lessee,  the  amount 
remaining  in  any  year  returnable  through  depletion  and  depreciation  deduc- 
tions is  (1)  the  value  as  of  the  basic  date  of  the  lessee’s  equity  in  the  prop- 
erty plus  (2)  subsequent  allowable  capital  additions  but  minus  (3)  depletion 
and  depreciation  sustained,  whether  legally  allowable  or  not,  from  the  basic 
date  to  the  taxable  year  and  the  residual  value  of  other  property  at  the  end 
of  operations.  The  amount  returnable  through  depletion  is  the  total  capital 
remaining  less  the  sum  recoverable  through  depreciation. 

1 907  (b)  The  value  of  the  equities  of  lessor  and  lessee  shall  be  computed 

separately,  but,  when  determined  as  of  the  same  basic  date,  shall 
together  never  exceed  the  value  at  that  date  of  the  property  in  fee  simple. 
1908  (c)  The  value  of  a lessee’s  equity,  if  acquired  prior  to  March  1, 

1913,  is  the  value  of  his  interest  in  the  mineral  as  of  that  date. 

1 909  (d)  The  value  of  a lessee’s  equity  in  a proven  mineral  property 

acquired  on  or  after  March  1,  1913,  is  its  cost. 

1910  (e)  rI  he  value  of  a lessee’s  equity  in  a discovery  on  or  after  March 

1,  1913,  is  the  fair  market  value  at  date  of  discovery  or  within  thirty 
days  thereafter,  of  his  equity  in  the  mineral  discovered.  (Art.  203,  Ree.  62. 
1922  Edition.)  & ’ 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Capital  stock  issued  by  lersee  in  payment  for  lease  is  “capital  actually  invested  in  the 
lease”  at  fair  market  value  of  stock  (Act  of  1916)  (20-20-938:  L.  0.  1033).  . Tune 

1920  Cum.  Bull.  p.  145. 

Payments  in  excess  of  royalties  to  effect  payment  of  stipulated  amount  under  option 
to  purchase  mine  (“bond  and  lease”  agreement):  forfeiture  of  option  (4-21-1406: 
Sol.  Op.  86).  .June  1921  Cum.  Bull.  p.  138. 

Physical  equipment  acquired  exceed  in  value  purchase  price  of  oil  well  leases  (37-21- 
1818:  A.  R.  R.  570).. Dec.  1921  Cum.  Bull.  p.  152. 

Public  lands:  withdrawn  before  completion  of  valid  location  prior  to  March  1,  1913; 
subsequently  leased  by  original  claimant  (36-21-1801:  Sol.  Op.  118).. Dec. 

1921  Cum.  Bull.  p.  160. 

Copyright  1922,  by  The  Corporation  Trust  Company, 

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TABLE  OP  CONTENTS  TO  REGULATIONS  62. 


Section  214(a)  8.  Deductions  allowed:  depreciation  P 

Article  161.  Depreciation jg3l 

162.  Depreciable  property 1839 

163.  Depreciation  of  intangible  property 1834 

164-  Capital  sum  recoverable  through  depreciation  allowances 1840 

165.  Method  of  computing  depreciation  allowance 1841 

166.  Modification  of  method  of  computing  depreciation 1848 

167.  Depreciation  of  patent  or  copyright 1849 

168.  Depreciation  of  drawings  and  models. ..  ., 1850 

169.  Charging  off  depreciation 1851 

170.  Closing  depreciation  account 1859 

171.  Depreciation  in  the  case  of  farmers. . ./ ’’  j 208 

Section  214(a)  9.  Deductions  allowed:  amortization 

Article  181.  Scope  of  provision  for  amortization. (864 

182.  Depreciation  of  amortized  property | ’ |g66 

183.  Property  cost  of  which  may  be  amortized 1867 

184.  Computatioti  of  amortization  allowance |S7o 

185.  Amortization,  period l 's-,| 

186.  Additional  requirements  for  amortization 1876 

1S7.  RedeterminatiOn  of  amortization  allowance ’ ’ . , ’ ’ ’ ] ’ ’ 1x77 

188.  Sale  of  amortized  property ’’’  157,8 

189.  Information  to  be  furnished  by  the  taxpayer 1879 

Section  214(a)  10.  Deductions  allowed:  depletion 

Article  201.  Depletion  of  mines,  oil  and  gas  wells;  depreciation  of  improvements  1893 

202.  Amount  returnable  through  depletion  and  depreciation  deductions 

in  the  case  of  an  operating  owner 1905 

203.  Amount  returnable  tnrough  depletion  and  depreciation  deductions 

in  the  case  of  lesse^.  1906 

204.  Amount  returnable  thrpugh  depletion  and  depreciation  in  case  of 

lessor... \ 19I1 

205.  Determination  of  cost  of\deposits 1928 

206.  Determination  of  fair  market  value  of  mineral  property  other  than 

oil  and  gas 1929 

New 206(a).  Determination  of  fair  market  value  of  oil  and  gas  properties.  .'  1934 

207.  Revaluation  of  mineral  deposits  not  allowed 1939 

208.  Determination  of  mineral  contents  of  mine | ” j g i0 

209.  Determination  of  quantity  of  oil  in  ground !!......  . .' . . . ’ 1941 

210.  Computation  of  deduction  for\depletion  of  mineral  deposits....  1942 

211.  Computation  of  deductioh  for  depletion  of  gas  wells 1944 

212.  Gas  well  pressure  records  to  be  kppt 1945 

213.  Computation  of  allowance  where  Quantity  of  oil  or  gas  uncertain.  . 1946 

214.  Computation  of  depiction  allowance  for  combined  holdings  of  oil 

and  gas  wells \. 1947 

215.  Depletion— Adjustments  of  account*  based  on  bonus  or  advanced 

royalty \ 1948 

216.  Depletion  and  depreciation  accounts  bn  books 1952 

217.  Statement  to  be  attached  to  return  when  depletion  or  depreciation 

of  mineral  property  is  claimed 2953 

218.  Additional  statement/to  be  attached  to  rVturn  where  depletion’  of 

oil  or  gas  claimed. iqcfi 

219.  Discovery  of  mines.  1 .....  ....'. 19S7 

220.  Oil  and  gas  wells. . . j 963 

220(a).  Discovery— Proven  tract  or  lease— Property  disproportionate 

value 2965 

221.  Proof  of  discovery  of  oil  and  gas  wells 2959 

222.  Allowable  capital  additions  in  case  of  mines 1970 

Charges  to  capital  and  to  expense  in  the  case  of  oil  and  gas  wells.  . 1972 

224.  Depreciation  in  the  case  of  mines 2973 

oil'  £ePfec.iation  of  improvements  in  the  case  of  oil  and  gas  weils  1980 

HI'  et!on  a"d  depreciation  of  oil  and  gas  wells  in  years  before  1916  1981 

227.  Depletion  of  timber j gg 5 

228.  Capital  recoverable  through  depletion  allowance  in  the  case  of 

t,mber 1986 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  214(a)  10.  Deductions  allowed:  depletion— Continued  Paragraph 

Article  229.  Computation  of  allowance  for  depletion  of  timber  for  given  year.  . 1987 

230.  Revaluation  of  timber  not  allowed 1989 

231.  Charges  to  capital  and  to  expenses  in  the  case  of  timber 1990 

232.  Depreciation  of  improvements  in  the  case  of  timber 1991 

233.  Information  to  be  furnished  by  taxpayer  claiming  depiction  of 

timber 1992 

234.  Determination  of  fair  market  value  of  timber 1993 

235.  Determination  of  quantity  of  timber 1991 

236.  Aggregating  timber  and  land  for  purposes  of  valuation  and 

accounting 1995 

237.  Timber  depletion  and  depreciation  accounts  on  books 2000 

Section  214(a)  11.  Deductions  allowed:  charitable  contributions 

Article  251.  Charitable  contributions 2003 

Section  214(a)  12.  Involuntary  conversion  of  property 

New.  Art. 261.  1 nvoluntary  conversion  of  property 2034 

New..  ..262.  Ascertainment  of  gain 2036 

50 263.  Replacement  funds 2037 

Section  214(b).  Deductions  allowed:  nonresident  alien  individual 

Article  271.  Deductions  allowed  nonresident  alien  individuals 2166 

Section  215.  Items  not  deductible 

Article  291.  Personal  and  family  expenses 1623 

292.  Traveling  expenses 1624 

293.  Capital  expenditures 1630 

294.  Premiums  on  business  insurance 1639 

New.... 295.  Life  or  terminable  interests 915 

Section  216.  Credits  allowed  individuals 

Article  301.  Credits  against  net  income 2043  2048 

302.  Personal  exemption  of  head  of  family ’ 2049 

303.  Personal  exemption  of  married  person 2050 

304.  Credit  for  dependents 2052 

305.  Date  determining  exemption 2055 

306.  Credits  to  citizen  entitled  to  benefits  of  section  262  and  nonresident 

alien  individual 2176 

Section  217.  Net  income  of  nonresident  alien  individuals 

312.  Art. 311.  Definition 754 

312a.  ...  31 1 (a).  Alien  seamen,  when  to  be  regarded  as  residents 756 

313  312.  Proof  of  residence  of  alien 75g 

314  313.  Loss  of  residence  by  alien 759 

315  314.  Duty  of  employer  to  determine  status  of  alien  employee 760 

316  315.  Allowance  of  personal  exemption  to  nonresident  alien  employee..  2180 

New.  . . .316.  Income  from  sources  within  the  United  States 2094 

New.... 317.  Interest 2106 

New.... 318.  Dividends 2113 

New.... 319.  Compensation  for  labor  or  personal  services 2118 

New.... 320.  Rentals  and  royalties 2120 

New....  321.  Sale  of  real  property 2122 

92 322.  Income  from  sources  without  the  United  States 2131 

New.... 323.  Sale  of  personal  property 2159 

New 324.  Deductions  in  general 2167 

New.... 325  Apportionment  of  deductions 2171 

New’.  . . .326.  Other  income  from  sources  within  the  United  States 2139 

New.  ..  .327.  Income  derived  from  sources  partly  within  and  partly  without  the 

United  States 2149 

New.... 328.  Computation  of  income 2143 

311 329.  Allowance  of  deductions  and  credits 2178 


Section  218.  Partnerships  and  personal  service  corporations 

321.  Art.  331.  Partnerships 784  787 

322  332.  Distributive  shares  of  partners 800 

323  333.  Credits  allowed  partners 807 

324  334.  Taxation  of  partners  in  partnership  with  fiscal  year  ending  in  1921  811 

326-7...  . 335.  Taxation  of  partners  in  partnership  with  fiscal  year  ending  in  1922  812 

325  336.  Personal  service  corporations 841 

329  337.  Personal  service  corporation  with  fiscal  year  ending  in  1921  or  1922  844 

330  338.  Distributive  shares  of  stockholders  in  personal  service  corporation  847 

331  339.  Credits  allowed  stockholders  of  personal  service  corporation....  851 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


CUMULATIVE  INDEX-DIGESTS 

Of  ijfto  IbvbVI  ¥ 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922. 

Art.  22. — Computation  of  net  income  (If  1046). 

* Foreign  exchange  rates:  . J 

England;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:1.  T.  1495).. Bull.  I (’22)-46 
p.  4. 

France;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)-46 

p.  4. 

Germany;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)-' 
46,  p.  4, 

Art.  24. — Methods  of  accounting  (^f 1053). 

Permanent  books 'of  accountj  the  keeping  and  production  of:  1921  Act.. 113396. 

Art.  51. — When  included  in  gross  income  (If 1260). 

Government  contract  canceled;  satisfaction  of  claim:  last  sentence  of  Art.  51  Reg 
62,  equally  applicable  to  1918  Act  (1-45-579:  I.  T.  1489).  .Bull.  I (’22)-45,’p.  7.’ 

Art.  89. — Additional  exclusions  from  gross  income  under  the  Revenue  Act 
of  1921  (If  1606,  If  1725,  f2099). 

¥ Foreign  countries  wbidh  do  not  satisfy  equivalent  exemption  provision  (1921  Act)* 
Great  Britain  (1-46-589:  I.  T.  1496).  .Bull.  I (’22)-46,  p.  5. 

Art.  101(a). — Traveling  expenses  (If  1678). 

“Home”;  single  traveling  salesmen  on  the  road  365  days  in  the  vear:  1921  Act 
(1-45-5/5°:  I.T.  1490).  .Bull.  I (’22)-45,  p.  7.  See  O.  D.  905,  June  1921  Cum. 
Bull.  p.  212. 

* Naval  officers;  subsistence*  of  single  man  while  afloat  deductible  if  he  has  a “home,” 

otherwise  not;  but  expense  incident  to  visits  to  home  not  deductible:  1921  Act 
(1-4^-590:  I.  T.  1497).  .Bull.  I (’22)-46,  p.  5. 

i 

Art.  111.— When  charges  deductible  (^f 1057). 

* South  Carolina  income  tax  (law  passed  March  13,  1922,  retroactive  for  1921):  1921 

Act  (1-46-591:  I.  T.  1498).  .Bull.  I (’22)-46,  p.  6. 

Art.  134. — Federal  estate  and  inheritance  taxes  (^f  1728). 

Arkansas  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581;  I.  T.  1491).  .Bull.  I (’22)-45,  p.  8.  - A - 

Connecticut  inheritance  taxes  are  deductible  by  the  beneficiaries  onlv  1921  Act  (T- 
45-581:  I.  T.  1491).  .Bull.  I (’22)-45,  p,  8.  7 V 

* Federal  estate  tax  paid  subsequent  to  settlement  of  estate  out  of  residue  of  estate 

: placed  in  trust,  not  deductible  by  trustees  in  determining  net  income  of  trust* 
1918  Act  (1-46-592:  A.  R.  R.  1020).. Bull.  I (’22)-46,  p.  7. 

Indiana  mheritance^ta^es^are  ^deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 

Massachusetts  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act 
(1-45-581 : I.  T.  1491)..  Bull.  I (’22)-45,  p.  8. 

3jre^  ^e^uc^’^e  hy  the  beneficiaries  only:  1921  Act  (1-45- 

Okiahoma  inheritance  ta^s^ar^  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 

V^ginia  inhmdtance^taxes^ are  ^deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 

THE  FEDEEAL  INCOME  TAX  SERVICE  if 

Supplementary  Page737» 


CUMULATIVE  INDEX-DIGESTS.-  NOV.  6 TO  DEC.  31,  1922. 


Art.  291. — Personal  and  family  expenses  (1(1623). 

¥ Naval  officers;  expenses  incident  to  visits  home  from  port  and  subsistence  afloat  of 
•single  I0.au  leaving  no.  honje  arc.  Upl  deductible:  19?1.  Act  (1-46-590:  I.  T.  1497) 

. . fruit.  I (’220-46,  p.  5. 

Art.  327(a),— Transportation  services  (^[3324) . 

Art.  327(a)  applies  under  1921  Act  only  (1-45-582:  I.  T.  1492).  .Bull.  I (’22)-45,  p.  8. 

Art.  345. — Estates  and  trusts  taxed  to  beneficiaries  (1(894). 

¥ Federal  estate,  tax  paid  by  trustee  out  of  residuary  trust  funds,  all  distributable  to 
m beneficiaries,  because  not  paid  and  no  provision  made  for  paying  prior  to  clos- 
ing of  administration  is  not  deductible  in  determining  income  of  the  trust  (1-46- 
592:  A.  R.  R.  1020) . .Bull.  I (’22)-46,  p.  7. 

¥ Self  beneficiary  of  income  of  trust  to  extent  demanded  is  taxable  on  amount  actually 
received  only.  This  ruling  which  revokes  S.  1344,  June  1920  Cum.  Bull.  p.  176, 
is  confined  strictly  to  the  1916-17  Act.  (1-46-593:  Sol.  Op.  146).. Bull.  I (’22)- 
46,  p.  9. 

Art.  361. — Withholding  tax  as  source  (1(2197). 

Tax-free  covenant  bond  interest;  tax  (1917)  withheld  and  paid  to  Government 
though  creditor  not  liable  to  normal  tax:  refund  or  credit  to  creditor.  O.  D. 
1103,  Dec.  1921  Cum.  Bull.  p.  248,  overruled.  Here,  creditor  is  a corporation, 
against  which  there  had  also  been  withholding  on  account  of  dividends  (1-45- 
585:  L.  O.  1107).. Bull.  I (’22)-45,  p.  11. 

Art.  364. — Exemption  certificate  of  nonresident  aliens  (1(2254-1(2255). 

Members  of  a nonresident  alien  partnership  and  beneficiaries  of  an  estate  or  trust 
having  a nonresident  alien  fiduciary  may  not  use  Forms  1001  B and  1001 C in 

connection  with  payments  made  to  the  partnership  or  estate  or  trust  (though 
the  estate  or  trust  may):  1921  Act  (1-45-584:  I.  T.  1493).  .Bull.  I (’22)-45,  p.  10. 

Art.  522. — Cooperative  Associations  (1(1038). 

¥ Buying  and  selling  on  own  account;  deductibility  of  so-called  rebates;  necessity  for 
making  return  through  no  tax  due:  1917  and  1918  Acts  (1-46-594:  1.  T.  1499) 

. .Bull.  I (’22)-46,  p.  10. 

Art.  1003. — Nonpayment  of  tax — Interest  and  penalty  (K 2727). 

¥ Abatement  claims  rejected  when  claims  based  on  inventory  losses  under  1918  Act; 

1 % per  month  rate  still  applies:  1918  and  1921  Acts  (1-46-595:  I.  T.  1500).. 
Bull.  I (’22)-46,  p.  12. 


Art.  1006. — Appeals  and  hearings  (1(2763). 

Jf  Art.  1006  amended.  .1(3406. 

Special  in  1917  tax  cases  to  meet  emergency.  . K3397. 

Art.  1034. — Claims  for  credit  of  taxes  erroneously  collected  (1(2829). 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  far  any  normal  tax  (1917  Act):  O.  D.  1103,  Dec.  1921  Cum.  Bull.  p.  248 
overruled.  Here,  foreign  corporation  and  amounts  withheld  on  dividends  also 
involved  (1-45-585:  L.  O.  1107).  .Bull.  I (’22)-45,  p.  11. 

Art.  1036. — Claims  for  refund  of  taxes  erroneously  collected  (1(2835). 

Tax  withheld  and  paid  to  Government  in  excess  of  liability  (See  “Tax  withheld,  etc.,” 
| |F  under  Art.  1034'above.) 


THK  'FEDHaAi  ;INCOMB  .TAX.  SERVICE 

Supplementary  Page"^38. 


E 11-15-22. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 

Art.  1541. — Dividends  (If  1080). 

Crediting  capital  stock  account  (debiting  profit  and  loss)  with  an  amount  sufficient 
to  make  total  credit  to  capital  stock  equal  to  aggregate  of  par,  thus  rendering 
stock  fully  paid  that  was  theretofore  partially  paid  and  subject  to  call,  is  in 

AR  R Cfl27)  StBuU  tI°(’2a2I)d45  0t  St0ck  div!dend:  1916-1917  Acts  (1-45-575: 


Art.  1561.  Basis  for  determining  gain  or  loss  from  sal 

¥ Depreciation  to  be  given  full  weight  in  establishing  both 
value,”  for  purposes  of  joint  comparison  with  selli- 
erty  acquired  prior  to  March  1,  1913:  1917  Act 
I (’22)-46,  p.  1. 


(111437). 

lost”  and  “March  1,  1913, 
_ price  of  depreciable  prop- 
-46-586:  I.  T.  1494).. Bull. 


Art.  1583. — Inventories  kt  cost  (If  15 16). 
“Cost”  of  merchandise! on  hand  at  the  Wit.. 

price  of  such  good!  in  a “cost  or  market 


jg  of  the  taxable  year  is  the  inventory 
hichever  is  lower”  inventory.  .H4004. 


Art.  1601. — Net  losses,  jlefinition  and  commutation  (^f  1535). 

Capital  assets;  losses  fjom  sale  of,  by  coloration  in  liquidation  are  not  within  the 
law  provisions:  19*8  Act  (I-45-576yA.  R.  M.  185)  .Bull.  I (’22)-45,  p.  3 

Art.  1711. — Aids  to  collection  of  tax/^f27 1 1). 

Permament  books  of  account:  the  Maintaining  and  production  of.  .Tf3396. 


Miscellaneous. 

Committee  on  Appeals /fnd  Review:  personnel  increased  to  13  members;  organiza- 
tion  of  a Special  Cqffim  ttee  on  Appeals  and  Review  to  meet  emergency  on  account 

1-^1/  L«X  cases  . . 07/ 

¥ Continuing  effect  °f/[918  . .ct  for  assessment  and  collection  of  taxes  accrued  there- 
r •,  rate  of  interest  chargeable  on  rejected  claims  for  abate- 
s es  (1-46-595:  I.  T.  1500)..  Bull.  I (’22)-46,  p.  12. 


under  (see  f27  76):  her 
ment  for  inve/tory  los 


There  are  no  Supplementary  Pages  40  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  39. 


.23-ai-l!  1 


»ba  biyiCT-— ,|f2i  .ttA 

i'll  ,ou  I!  .n  b nr  i;  3 r Vffv 


rni'iiij  i n 9[cf«uu  srii  lo  : 

.fOO*?. . VTKMfib  ni  "i9  //ol  fi  I'  vsdai 


nojnqvni'iiij  in  »y  slduAl  orfi  lo  :v*in-^ri  « . j«  & [ op  .at.’.  . » *';<■  0“ 


~ \ii  o ! jl„  ! laJir,  .0 


■muqffico  T.nr  aobint;  JiH — .1051 

.£  , , - cs*)  Mu  iff  - . 

.(IIJ-?.  rroin  ;:  , a JiA 

J ./ooor  nr  voi.ss'l  13  iaam  oj  vrji'i  fens  ' ■>.  ■■  o:  r-oZ  . nZ  a lo  nob 

-tnar!  T.  i 

-ojcdis  io'I  sjaicli  bafasiai  no  'Ie-j'jt  Id  ji-  . :i  ]o  3,1  1 : • C Cl '•  .• , - .Lr. 

.11  Jb*-(SV)  r.l!;  .(00? : ,T  >6  ' 


a Jo  ijfood  tnimaanoSl 


.inaaoiq  :i-  Mi  pj  Of  ftKaa*!  ’ laJasmalqqoS  or.  3is  ?i9dT 

3^r/a:-f5  zat  su. of  am 


1 1-9-22. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


CUMULATIVE  INDEX-DIGESTS 
of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922. 


Art.  24. — Methods  of  accounting  1053) . 

Permanent  books  of  account;  the  keeping  and  production  of:  1921  Act.  .^[3396. 

Art.  51. — When  included  in  gross  incbme  (1(1260). 

Government  contract  canceled;  satisfaction  of  claim:  last  sentence  of  Art.  51  Reg 
62,  equally  applicable  to  1918  Actj  (1-45-579:  I.  T.  1489).  .Bull.  1 (’22)-45,’p.  7. 

Art.  101(a). — Traveling  expenses  (1(1678). 

“Home”;  single  traveling  salesmen  bn  the  road  365  days  in  the  year-  1921  Arr 
(1-45-580:  I.  T.  1490).. Bull.  I (j22)-45,  p.  7. 

Art.  134. — Federal  estate  and  inheritance  taxes  (^f  1 728). 

Arkansas,  Connecticut,  Indiana,  Massachusetts,  Missouri,  Oklahoma,  and  Virginia 
taxes  deductible  by  beneficiariefc  only:  1921  Act  (1-45-581-  I T 1491)  Bull 
I.  (’22)-45,  p.  8. 

Art.  327(a). — Transportation  s^rvicjes  (1(3324). 

Art.  327(a)  applies  under  1921  Ac^okly  (1-45-582:  I.  T.  1492).  .Bull.  1 (’22)-45,  p.  8. 

Art.  361. — Withholding  tax  as  sources'{l(2197). 

Tax-free  covenant  bond  interest;  tax  0917)  withheld  and  paid  to  Government 
though  creditor  not  liable  to  riormal  tJsn  refund  or  credit  to  creditor.  O.  D. 
1103,  Dec.  1921  Cum.  Bull,  p.;  248,  overrHJed.  Here,  creditor  is  a corporation 
against  which  there  had  also  been  withholding  on  account  of  dividends  (1-45 ? 
585:  L.  O.  1107)..  Bull.  I (’22)-45,  p.  11.  x 

Art.  364. — Exemption  certificate  of  nonresident  alienV  (1(2254-1(2255). 

Members  of  a nonresident  alien  partnership  and  beneficiaries  of  an  estate  or  trust 
having  a nonresident  alien  fiduciary  may  not  use  FormstQOl  B and  1001C  in 
connection  with  payments  made  to  the  partnership  or  estate-  or  trust  (though 
the  estate  or  trust  may):  1921  Act  (1-45-584:  I.  T.  1493) ..  Bull.  Tf22)-45,  p.  10. 

Art.  1006. — Appeals  and  hearings  (1(2763). 

Special  in  1917  tax  cases  to  meet  emergency.  43397. 

Art.  1034.— Claims  for  credit  of  taxes  erroneously  collected  (1(2829). 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (1917  Act):  O.  D.  1103,  Dec.  1921  Cum.  Bull.  p.  248 
overruled  Here,  foreign  corporation  and  amounts  withheld  on  dividends  also 
involved  (1-45-585:  L.  O.  1107).. Bull.  I (’22)-45,  p.  11. 


Art.  1036. — Claims  for  refund  of  taxes  erroneously  collected  (1(2835). 

Tax  withheld  and  paid  to  Government  in  excess  of  liability  (See  “Tax  withheld  etc  ” 
under  Art.  1034  above.)  ’ 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  37. 


CUMULATIVE  INDEX -DIGESTS. — NOV.  6 TO  DEC.  31,  1922. 

Art.  1541. — Dividends  (^[1080). 

Crediting  capita)  stock  account  (debiting  profit  and  loss')  with  an  amount  sufficient 
to  make  total  credit  to  capita!  stock  equal  to  aggregate  of  par,  thus  rendering 
•Stock  fully  paid  that  was  theretofore  partially  paid  and  subject  to  call,  is  in 
eltcct  a cash  distribution  and  not  a stock  dividend:  1916-1917  Acts  (I-45-57S- 
A.  R.  R.  1127).. Hull.  I (’22)-45,  p.  ,1. 

Art.  1583. — Inventories  at  cost  (^f  1516). 

“Cost”  of  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the  inventory 
price  ot  such  goods  in  a “cost  or  market  whichever  is  lower”  inventory.  .*[4004. 

Art.  1601. — Net  losses,  definition  and  computation  (^f  1 .535). 

Capital  assets;  losses  from  sale  of,  by  corporation  in  liquidation  are  not  within  the 
law  provisions:  1918  Act  (1-45-576:  A.  R.  M.  185).  .Bull.  1 (’22)-45,  p.  3. 

Art.  1711.' — Aids  to  collection  of  tax  (1f2711). 

Permament  books  of  account:  the  maintaining  and  production  of.  A[3396. 


Miscellaneous. 

Committee  on  Appeals  and  Review:  personnel  increased  to  13  members;  organiza- 
tion  of  a Special  Committee  on  Appeals  and  Review  to  meet  emergency  on  account 
1917  tax  cases.  AI3397. 


SO 


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leuooncma  8'  xr?  to  Jjosio  toI  emis-iD — .P£0I  .JtA 

o ?sol-ziiJ  no  jramrn  . i oO  oj  biaq  bna  blaiirijiw  xbT 


no  i v i.A  orr  t a r;oijJ3K  ,tco  n tof  ■ v 

.11  .q  tef-(£r)  I .Huff . . (to 1 1 .0  .J  :c8£-cM)  bsvlovni 

) hotoolloo  (kuoanono  eoxrJ  lo  bnul  n tol  amir  ID — 
id  ‘ ad)  y::.id£il  lo  22907.9  ni  Jns-rnr  iavoD  01  biaq  baa  blsxMli'. 

There  are  no  Supplementary  Pages  39  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  38. 


11-9-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 


3401 

3402 

3403 


Oct 


Nc 


Special  Oct. 


3404 

3405 


3406 
Memo. 

3407 

3408 

Special 

Special 


Date  Subject  Paragraph 

Report  No.  62,  October  21,  1922. 

18,  1922  (Excise  Taxes. — War  Tax  Series,  1f4795.) 

18,  “ Art.  39,  Reg.  45,  amended.— Sale  of  the  right  to 

subscribe  to  stock 3372 

Art.  39,  Reg.  62,  amended. — Sale  of  the  right  to 
subscribe  to  stock 3375 

Report  No.  63,  November  6,  1922. 

[Pages  for  substitution  on  account  change  of 
all  index-digest  references  from  page  numbers  in 
weekly  Internal  Revenue  Bulletins  1 to  26  of  the 
1922  Series  to  page  numbers  in  Cumulative  Bul- 
•j*n  y (January-June, . 1922),  and  on  account 
index-digest  references  to  new  matters  and  the 
rulings  in  weekly  Bulletins  Nos.  41  to  44.] 

Report  No.  64,  November  6,  1922. 

21-21,  1922  Placing  of  income  for  taxable  period  of  less 
than  12  months  on  an  annual  basis:  (1)  in 
general,  decedent  dying  during  year  and  estates 
of  decedents;  and  (2)  special,  calendar  year 

oc  .<  •e?t~n?emker  °f  fiscal  year  partnership. . . 3378 

*0,  (Prohibition.) 

25,  “ Decision  of  coipt:  Bankruptcy  Act. — Taxes  due 

[the.  United  States  take  priority  over  claims 
„ . gainst  the  estate  of  a bankrupt  for  wages...  3383 

28,  An  Act  relative  to  the  naturalization  and  citizen- 

K SP'P  of  married  women 3384 

2,  Decision  of  Court,  1913  Act. — Expenses  in  con- 

nection with  the  breeding  of  blooded  horses 
a.n'd  the  incidental  racing  thereof,  in  a par- 
ticular case 3392 

P.-  designation  for  U.  S.  Supreme  Court  de- 

cision:  Led.erer  vs.  Stockton  (^3355) 3395 

keeping  and  production  of  permanent 
books  of  account 3396 

Report  No.  65,  November  9,  1922. 

7,  “ Appeals  and  hearings  on  1917  tax  cases  specif- 

ically: 'special  Committee  on  Appeals  and 

t(  Review.  .V 3397 

4>  In  a cost  'or  market  whichever  is  lower”  in- 

ventory the  “cost”  of  merchandise  on  hand  at 
the  beginning  of  the  taxable  year  is  the  in- 
ventory pride  of  such  goods 3404 

. . [Supplementary  Pages  (“T.  D.  Finder’”’  div- 
lsion)  showing  tndex-digest  references  to  rulings 
in  Internal  Revenue  Bulletin  No.  45,  of  the  1922 
series,  and  to  nety  matters  in  the  Service.] 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Pages  33  to  36. 


.*2-0.  It 

(.bounLxioD)— .8TK3T  fO  *10  3 T OVTlW^Otf  dVIA  KS'Tlin  .a  .T 


rfq*  Igm  »1 

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,t»  ^Awi  AA  ,r.o  )Vl  \' 

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J/Uf-vj:.  no  ijnt  , : C<  ■ . ,5(Ti;  ' m . (,)  I [ "ijol 
sib  bnc  eisllB/n  w > i bi  i..  vr Jssgib -*  :>ni 
[.♦*.  oi  I*  Vi  ni  jlJn'I  '..(Jw.  a:  saailoi 

AVH  ,U  ndmvfelA  ,Va 

.!  - ,i  ■ J'  .'  ' -1'  . ' 1 - .J'r  1 

ni  (I)  :uia*d  Icunns  nn  no 

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7B3\  7*bfl3l*3  Jleljsqs  ,r’  blUl  3Jfa5b99st  lo 

sub  --9XBT-  .JoA  (J  [Uldtf.  A : >’(jo  IB  floi  :-i9<I 
f.HLL  ;.  .?;-g‘E-.v  iol  tfq«n;!  lied  * *>.*».•••  I'.nju, 

-no3  ni  E33  . ■ ; ! 

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-«r  s at  tio3  >ib  gi  ■ i I:  nsbi.  r!. 

-ob  JtuoO  smviqjg  .2  .1/  • .il  nobenri?^:  .0  ? 

I''’'.  . . .(iif.r  *)  noijJr.  j2  - • toiDt •_  : moieii 

Jnsneanaq  lo  noiionbonci  b.  ..  gain-.'  i ath  aO 
dQiZ  jni/o33£  lo  i'Aoo'l 

,SSQ\  vsftsnvio Vl  ,7.b  .oVl 

-lissq  r:  rS3  x*j  91  ssn b • slssqq/ 
bn«  aij&sqqA  no  ssJJimrnoO  I- ‘ssq?  y!Ix;dx 

tCC6 

-ni  ‘'iowoI  zi  isvanoiiiv/  Jsihc  x 70  ; 01"  c.  ni 
It  bned  no  33ibn*rf3TS,ni  lo  ‘isod*4  x/rf:;  v .oj.rrx 
-ni  3(ij  ei  if.3v  oldsreJ  orb  lo  rrtnxii;  jx!x 
t*04-F.  .... 

‘ 

agailm  or  eaanoioi-j.  : •iib-7. -bfi  q or  - (j  ;; 

££QI  axij  lo  ,?.£  .oil  njjsllul':  .iriava  : is  mo.  :ii  ni 

i.ssrnsS  srit  ni  37  silent  yisp  oj  bn*  .-•  ns? 


ffiissq2 

Ij»3;>q2 


iDivaa^  /.at  2 Menu:  zsn 

bf.  oi  ££  MgjE'i  xisJDsxnalqqL’S 


11-6-22. 


(2)  11-9-22. 


(T.  D.  3407.) 

3395  U.  S.  Supreme  Court  decision:  Lederer  vs.  Stockton.— [This  T.  D 

3355  reproduces,  merely,  the  opinion  in  Lederer  vs.  Stockton,  appearing 
in  full,  herein,  at  *[[3355.  The  Corporation  Trust  Company.] 


(T.  D.  3408.) 


3396 

I 1053 
(2711 


On  the  keeping  and  production  of  permanent  books  of  account. — 

Every  taxpayer  carrying  on  the  business  of  producing,  manufactur- 
in&>  purchasing  or  selling  any  commodities  or  merchandise,  except 
the  business  of  growing  and  selling  products  of  the  soil,  shall  for  the 
purpose  of  determining  the  amount  of  income  under  the  Revenue  Act  of 
1921,  keep  such  permanent  books  of  account  or  records,  including  inven- 
tories, as  are  necessary  to  establish  the  amount  of  gross  income  and  deduc- 
tions, credits  and  other  information  required  by  an  income  tax  return  (Sec- 
tions 1300  [H2709]  and  1303  [1[2942]  of  the  Revenue  Act  of  1921.)  The 
taxpayer  shall  produce  such  books  of  account  or  records  for  the  inspection 
of  revenue  officers  duly  authorized  by  law  to  inspect  the  same,  at  such  time 
and  in  the  manner  provided  by  law.  (Section^  253  [^2627]  and  1308  [1125931 
of  the  Revenue  Act  of  1921.)  (T.  D.  3408,  signed  by  Commissioner  D.  H. 
Blair,  and  dated  November  2,  1922.) 


3397  Appeals  and  hearings  on  1917  tax  cases  specif  cally:  Committee  on 
2763  Appeals  and  Review  enlarged:  special  Committee  on  Appeals  and 
2868  Review.  In  view  of  the  emergency  existing  at  the  present  time  with 
2923  respect  to  the  disposition  of  1917y  income  and  profits  tax  cases,  it 

has  been  necessar\\to  formulate  a plan  to  enable  the  Bureau  to  dispose 
of  such  cases  prior  to  Marchy  1923. 

3398  Under  this  plan  of  reorganization  the  Committee  on  Appeals  and 
Review  will  be  composed  bf  twelvd(12)  members  beside  the  chairman.* 

1 he  membership  of  the  Committee  will  be  divided  into  four  groups  of  three 
members.  These  groups  of  three  will  hear  and  determine  cases  as  they  are 
received  from  the  Income  Tax  Unit'afthr  disposing  of  the  1917  cases  which 
have  heretofore  been  assigned. 

3399  In  addition  to  the  increase  of.  the  personnel  of  the  Committee  on 
Appeals  and  Review  the  emerg^cy  makes  it  necessary  to  take  further 

|*e.P®  1°-  “lsP°se  . t^ie  accumulation/ ol  1917  cases  prior  to  March  1923. 
\A  ith  this  end.  m view  a Special  Comn/itt(^  on  Appeals  and  Review  has  been 
created.  This  Committee  will  devote  id  time  exclusively  to  the  hearing 
and  determination  of  the  1917  accumulate*  appeals.  It  will  start  work  on 
the  larger  cases  and  dispose  of  thenp  in  thAorder  of  their  size.  It  will  be 
composed  of  five  members  selected  from  the  personnel  of  the  Bureau  will 
function  in  the  same  manner  as  the]Committe<\on  Appeals  and  Review,  will 
report  directly  to  me  as  does  the  Committee  o\i  Appeals  and  Review,  will 
follow  the  same  procedure,  and  will  have  the  same  jurisdiction  as  the  Com- 
mittee on  Appeals  and  Review.  When  cases  have  been  heard  and  decided 
by  this  committee,  the  decision  will  be  final. 


C pTWh  tahnHtweRadX-ti0nalvTemIb-erJS  °L*h.e  Committee  on  Appeals  and  Review  are 
SJ&SSf.Sj  Trust  Compand”6  th'rd  ‘dd,t‘°“‘  m'“b"  h"  >>“"  »*«*“- 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

761 


11-9-22. 


3400  The  personnel  of  the  Special  Committee  on  Appeals  and  Review  is  as 
follows: 

Mr.  A.  W.  Gregg,  Chairman 
Mr.  B.  M.  Price,  Member 
Mr.  C.  D.  Hamel,  Member 
Mr.  F.  B.  Bell,  Member 
Mr.  A.  C.  Muddiman,  Member 

3401  Hearings  will  be  granted  in  all  cases  where  the  taxpayer  so  requests 
and  after  considering  all  the  facts  submitted,  together  with  the  oral 

arguments  and  the  facts  in  the  record,  the  findings  of  the  Committee  will  be 
reduced  to  writing.  It  is  necessary  to  dispense  with  lengthy  written  opinions 
containing  complete  statements  of  facts,  authorities  and  arguments,  except 
in  those  cases  where  the  Chairman  of  either  committee  deems  it  advisable. 
The  findings  setting  forth  the  conclusion  reached  by  the  committee  will  be 
signed  by  the  Chairman  and  will  be  accepted  for  the  guidance  of  the  Income 
Tax  Unit. 

3402  All  cases  involving  questions  of  law  will  be  referred  to  the  Solicitor 
for  consideration  before  the  appeal  is  disposed  of  by  the  committee. 

3403  Cases  once  closed  after  consideration  by  either  committee  can  only 
be  reopened  upon  the  strictest  compliance  with  the  provisions  of  T.  D. 

3240  [1f2868].  (Bureau  Memo.  224,  signed  by  Commissioner  D.  H.  Blair, 
and  dated  November  7,  1922.) 


3404  In  a “cost  or  market  whichever  is  lower”  inventory  the  “cost”  of 
1516  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the 

inventory  price  of  such  goods. — Reference  is  made  to  office  letter 
dated  October  12,  1922,  in  reply  to  your  inquiry  of  September  25,  1922,  in 
regard  to  the  interpretation  of  the  first  paragraph  of  Article  1583  [If  15 16]  of 
Regulations  62  as  applied  to  the  valuation  of  an  inventory  on  the  basis  of 
cost  or  market  whichever  is  lower. 

3405  The  paragraph  in  question  states  that  cost  means  “in  the  case  of 
merchandise  on  hand  at  the  beginning  of  the  taxable  year,  the  inventory 

price  of  such  goods.”  Upon  further  consideration  of  the  question  presented 
by  you,  it  is  the  opinion  of  this  office  that  cost,  for  the  purpose  of  valuing  an 
inventory,  is  to  be  determined  in  accordance  with  Article  1583,  regardless  of 
whether  the  basis  of  cost  or  cost  or  market  value  whichever  is  lower,  is  used. 
Therefore,  where  an  inventory  of  goods  at  the  close  of  a taxable  year  includes 
merchandise  which  was  on  hand  at  the  beginning  of  the  year,  the  cost  thereof, 
to  be  compared  with  market  in  applying  the  basis  of  cost  or  market  whichever 
is  lower,  should  be  the  price  at  which  such  goods  were  included  in  the  opening 
inventory.  (Letter  to  Patterson,  Teele  and  Dennis,  attention  of  Mr.  Frank 
Lowson,  Washington,  D.  C.,  signed  by  Commissioner  D.  H.  Blair,  and  dated 
November  4,|1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

762 


2-27-22.  (2)  4-10-22.  (3)  10-17-22. 

TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  239.  Corporation  returns  ^ aragrap.i 

Article  621.  Corporation  returns < 2489  2509 

622.  Returns  by  receivers ’ 2500 

623.  Returns  of  insurance  companies 1362 

624.  Returns  of  personal  service  corporations g43 

625.  Returns  of  foreign  corporations ’ XXX 1423 

626.  Returns  for  fractional  part  of  year v’  2576 

Section  240.  Consolidated  returns  of  corporations 

Article  631.  Affiliated  corporations 

632.  Consolidated  returns 2544 

6 33.  When  corporations  are  affiliated X X X X X 2555 

634.  Change  in  ownership  during  taxable  year 2556 

“6 635.  Domestic  corporation  affiliated  with  foreign  corporation. ... . . ’ ‘ ’ ’ 2559 

636.  Consolidated  net  income  of  affiliated  corporations 2551 

•Ncw *?3/.  Consolidated  accounts  of  belated  trades  owned  by  same  interests.  . 2561 

6J8.  JJitterent  hscal  years  of  affiliated  corporations 2548 

Section  241.  Time  and  place  for  filing  cqrporate  returns 

Article  651.  Time  anihplace  for  filing!  returns 

Sections  242  and  243.  Tax  on  life  insurance  companies 
New.  Art. 661.  Life  insurance  companiq 
Section  244. 

549.  .Art. 671.  Gross  income  "bf  life  insurance  companies 1315 

Section  245. 

New.Art.681.  Reserve  funds. 


2535 


1313 


New. . . .682.  Reserve  for  defers 


1320 


dividends 1324 


New.... 683.  Investment  expenses./. 1307 

New.... 684.  Taxes  and  expenses  ' ’ 


New. 

New. 


. yith  respect  to  real  estate 1331 

.685.  Other  deductions...)/ 1322,  13j6  1340 

.000.  rlome  office  properties M4.1 

New.... 687.  Foreign  companies./  A. I345 

Sections  246  and  247.  Insurance  edmpknies  other  than  life  or  mutual  companies 

nXJ'aqo naX  °"  insuran"e.  T mP‘Ves 1369;  A,  3353 

New.,..  .692.  Gross  income  of  irAurancre  companies ’ 1378 

New. . . .693.  Deductions  allowes!  insurance  companies 1394 


Ne 


ADMINISTRATIVE  PROVISIONS 
Section  250.  Payment  of  taxes 

Article  1001.  Time  for  payment  of  tax. ..  A. 2602,2718,2720,2723  2732 

1002.  Payment  of  taa  when  no  proper  return 2624 

1003,1006  ,1003.  Nonpayment  ot  tax — interest  And  penalty  . . . 0797 

1004.  Penalty  for  faiftire  to  file  return^  . . . ; X X X X X X X X 2625 

1005.  Deficiency  in  pjayment — interest  2md  penalty X 9fins 

1006.  Appeals  and  hearings 2763 

1007.  Notice  and  dejnand  for  payment. . A ... . 77-in 

1008.  Collection  of  t^x  by  suit \ 97Sfi 

1009.  Collection  of  t(ax  by  distraint 2779 

1010.  Liens  and  enforcement  of  tax  liens  by  bill  in  equity. 2781 

1011.  Compromise  eff  tax  cases \ 

1012.  Assessment  of  tax \ 2747 

1013-  Declaration  oi  termination  of  taxable  period.*.’.  ’. ! .’ . .’ . ' ' ’ * 2786 

New...  .1014.  Extension  of  t%e  for  payment  of  deficiency  7e.n0 

Section  251.  Receipts  for  taxes  V , / i 

Article  1021.  Receipts  for  tax  payments ^ 2799 

Section  252.  Refunds 

Article  1031.  Authority  for  refund,  credit,  and  abatement  of  tax 2813 

New.  . . . 1031(a).  Refund,  credit,  and  abatement  adjustments 2817 

Claims  for  abatement  of  taxes  erroneously  assessed 2822 

1033.  Claims  for  abatement  of  uncollectible  taxes 2824 

Claims  for  credit  of  taxes  erroneously  collected 2829 

Action  on  claims  for  credit 2832 

Claims  for  refund  of  taxes  erroneously  collected 2835 

Special  relief  where  invested  capital  reduced  by  Commissioner. . 2851 

Kelunds  under  prior  Acts 2853 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

99 


New. 

New. 


1034. 

1035. 

1036. 
, 1037. 

1038. 


2-27-22.  (2)  4-10-22  Cl)  10-17-22. 

TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Paragraph 


Section  1324.  Interest  on  refunds  and  judgments 

New. Art. 1040.  Interest  on  refunds  and  judgments 2859,  2918 

Sections  1318,  1319,  and  1320.  Limitations  upon  suits  and  prosecutions 

1037.  Art  1050.  Suits  for  recovery  of  taxes  erroneously  collected . .2752,  2871,  2 84,  2886 

1038.  . . . 1051.  Claims  for  refund  of  sums  recovered  by  suit 2920 

Section  253.  Penalties 

1041. Art. 1055.  Specific  penalties 2629 

Section  254.  Returns  of  payments  of  dividends 

1051. Art.  1060.  Return  of  information  as  to  payments  of  dividends 2379 

Section  255.  Returns  of  brokers 

1061. Art. 1065.  Return  of  information  by  brokers 2381 

Section  256.  Information  at  source 

Article  1071.  Return  of  information  as  to  payments  of  $1,000 2343 

1072.  Return  of  information  as  to  payments  to  employees 2345 

1074.  . . . 1073.  Cases  where  no  return  of  information  required 2350 

1075.  . . . 1074.  Return  of  information  as  to  interest  on  corporate  bonds 2355 

1076 1075.  Return  of  information  as  to  payments  to  nonresident  aliens 2352 

1077.  . . . 1076.  Source  of  information  as  to  foreign  items 2357 

1078.  . . .1077.  Ownership  certificates  for  foreign  items 2361 

1078a.  . . 1078.  Foreign  items  presented  for  collection  unaccompanied  by  owner- 
ship certificates 2366 

1079.  Return  of  information  as  to  foreign  items 2368 

1080.  Information  as  to  actual  owner 2370 

Section  257.  Returns  to  be  public  records 

1091. Art. 1090.  Inspection  of  returns 2663 

1091a  ..1091.  Furnishing  of  copies  of  income  returns 2660 

1092.  Inspection  of  returns  by  State 2683 

1093.  Inspection  of  returns  by  stockholder 2693 

1094.  Penalties  for  disclosure  of  returns 2695,  2778 

Section  258.  Publication  of  statistics 

Article  1101.  Statistics  of  income 2708 

Section  259.  Collection  of  foreign  items 

Article  1111.  License  to  collect  foreign  items 2374 

Section  260.  Citizens  of  possessions  of  the  United  States 

Article  1121.  Status  of  citizen  of  United  States  possession 770 

Section  261.  Porto  Rico  and  Philippine  Islands 

Article  1131.  Income  tax  in  Porto  Rico  and  Philippine  Islands 774 

1132.  Taxation  of  individuals  between  United  States  and  Porto  Rico 

and  Philippine  Islands 775 

1133.  Taxation  of  corporations  between  United  States  and  Porto  Rico 

and  Philippine  Islands 776 

Section  262.  Income  from  sources  within  the  possessions  of  the  United  States 
. Ncw.Art.l  135.  Citizens  of  the  United  States  deriving  income  from  sources  within 

a possession  of  the  United  States 2076 

New.  . . . 1136.  Domestic  corporation  deriving  income  from  sources  within  a pos- 
session of  the  United  States 2077 

New.  . . . 1137.  Income  received  within  the  United  States 2078 

Section  1312.  Final  determinations  and  assessments 

New. Art. 1141.  Final  determination  of  tax  or  penalty 2867 


DEFINITIONS  AND  GENERAL  PROVISIONS 

Section  2.  General  definitions 

Article  1501.  Person 

1502.  Association 

1503.  Association  distinguished  from  partnership 

1504.  Association  distinguished  from  trust 

1505.  Limited  partnership  as  partnership 

1506.  Limited  partnership  as  corporation 

1507.  Joint  ownership  and  joint  adventure 

1508.  Insurance  company 

1509.  Domestic  and  foreign  persons 

1510.  Government  contract 

Copyright  1922,  by  The  Corporation  Trust  ( 

THE  FEDERAL  INCOME  TAX  SERVI 
100 


704,  706,  987 

988 

989 

990 

992 

993 

994 

1348 

1400,  2060 

821 

Company. 


1 1-6-22. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.-(Continued.) 


T.  D. 


3401 

3402 

3403 


Date 


Subject 


Paragraph 


Oct. 


18,  1922 
18,  “ 


Special 

Oct.  21-21, 

3404 

3405 

“ 25,  “ 

“ 25,  “ 

3406 

“ 28,  “ 

Memo. 

Nov.  2,  “ 

3407 

“ 2,  “ 

3408 

“ 2,  “ 

Report  No.  62,  October  21,  1922. 

(Excise  Taxes.— War  Tax  Series,  ^4795.) 

Art.  39,  Reg.  45,  amended. — Sale  of  the  right  to 

subscribe  to  stock 3373 

Art.  39,  Reg.  62,  amended. — Sale  of  the  right  to 
subscribe  to  stock 3375 

Report  No.  63,  November  6,  1922. 
p [Pages  for  substitution  on  account  change  of 
all  index-digest  references  from  page  numbers  in 
weekly  Internal  Revenue  Bulletins  1 to  26  of  the 
1922  Series  to  page  numbers  in  Cumulative  Bul- 
■j!n  y (January-June,  1922),  and  on  account 
index-digest  references  to  new  matters  and  the 
rulings  in  weekly  Bulletins  Nos.  41  to  44.] 

Report  No.  64,  November  6,  1922. 

22  Placing  of  income  for  taxable  period  of  less 
than  12  months  on  an  annual  Ziasis:  (1)  in 
general,  decedent  dying  during  year  and  estates 
of  decedents;  and  (2)  special, /calendar  year 
/r>  .m aent-member  of  fiscal  year  partnership.  . . 3378 
(Prohibition.)  f / 

Decision  of  court:  Bankruptcy/Act. — Taxes  due 
the^  United  States  take  prj&rity  over  claims 
aeainst  the  estate  of  a bankrupt  for  wages.  ..  3383 
relative  to  the  naturalization  and  citizen- 
ship of  married  women. . / . 3384 

Decision  of  Court,  1913  A/t.— Expenses  in  con- 
nection wish  the  breecj/ng  of  blooded  horses 
and  the  incidental  raying  thereof,  in  a par- 
ticular easy / 3392 

T.  D.  designation  for  'lJ.  S.  Supreme  Court  de- 

cision:  Ledprer  vs.  Stockton  (1T3355) 3395 

On  the  keeping  and  production  of  permanent 
books  of  account./ 3396 


There  are  no  Supplementary  Pages  34  to  114  at  present. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33. 


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11-6-22. 


(T.  D.  3407.) 


3395  U.  S.  Supreme  Court  decision:  Lederer  vs.  Stockton..— = [This  T D 
3355  reproduces,  merely,  the  opinion  in  Lederer  vs.  Stockton,  appearing 
in  full,  herein,  at  ^[3355.  The  Corporation  Trust  Company.] 


(T.  D/3408.) 

3396  On  the  keeping  and  production  of  permanent  books  of  account  — 

1053  Every  taxpayer  carrying  on/  the  business  of  producing,  manufactur- 


2711  ing,  purchasing  or  selling 
the  business  of  growing  anq 
purpose  of  determining. the  amouj 
1921,  keep  such  permanent  books 
tories,  as  are  necessary  to  establisj 


fny  commodities  or  merchandise,  except 
selling  products  of  the  soil,  shall  for  the 
to  of  income  under  the  Revenue  Act  of 
of  account  or  records,  including  inven- 

. - , , ^ae  amount  of  gross  income  and  deduc- 

tions, credits  and  other  information  required  by  an  income  tax  return  fSnr- 
tions  1300  [|2709]  and  1303  [If 2942]  of  the  Revenue  Act  of  1921  ) The 
taxpayer  shall  produce  such  books  of  account  or  records  for  the  inspection 
o revenue  officers  duly  authorized  by  law  to  inspect  the  same,  at  such  time 
and  in  the  manner  provided  by  law.  (Sections  253  fl[2627]  and  1308  [^2593] 
o the  Revenue  Act  of  1921.)  (T.  D.  3408,  signed  by  Commissioner  D.  H 
.Blair,  and  dated  November  2,  1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
761 


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io-21-as. 

T.  D.  FINDER  AND  RONNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D.  Date 

3401  ' Oct.  IS,  1922 

3402  “ 18,  “ 

3403  •'  18,  " 


Subject 


Paragraph 


Report  No.  62,  October  21,  1922. 

(Excise  Taxes.) 

Art.  39,  Reg.  45,  amended. — Sale  of  the  right  to 

subscribe  to  stock 

Art.  39.  Reg.  62,  amended. — Sale  of  the  right  to 
subscribe  to  stock 


3372 

3373 


There  are  no  Supplementary  Pages  34  to  114  at  present 
TEE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33 


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2-27-22.  (2)  4-10-22.  (8)  10-21-22.  (4)  11-27-22. 

REGULATIONS  62  RELATING  TO  THE  INCOME  TAX. 

I Promulgated  February  15,  1922. — Released  for  Publication,  March  1,  1922.) 


TABLE  OF  CONTENTS. 

(Always  up-to-date.) 

Comment. — The  following  table  lists  all  of  the  Articles  of  the  Regulations  62,  (1922 
Edition)  (except  those  relating  specifically  to  the  excess-profits  tax),  by  numbers,  giving 
the  caption  of  each,  showing  general  subject  content,  and  referring  to  the  paragraph  in  the 
book  at  which  each  is  reproduced.  The  table  is  always  up-to-date. 

Caution. — The  numerals  inserted  marginally  on  the  left  show  the  numbers  ^of  the 
respective  corresponding  Articles  (in  context)  of  Regulations  45  (1918  Act).  New 
indicates  that  there  is  no  corresponding  Article  (in  context)  in  Regulations  45.  Otherwise 
the  numbering  of  the  Articles  of  the  two  series  of  Regulations  correspond.  For  cross 
reference  table  of  Articles  of  Regulations  45  to  corresponding  Articles  (in  context)  of 
Regulations  62,  see  page  102. 

INCOME  TAX  ON  INDIVIDUALS 

Paragraph 

Section  210.  Normal  tax 

Article  1.  Income  tax  on  individuals 207 

2.  Normal  tax 7]2 

3.  Persona  liable  to  tax 746 

4.  Who  is  a citizen • • • 748 

Section  211.  Surtax 

Article  11.  Surtax '14 

12.  Computation  of  surtax 724,  728 

13.  Surtax  on  sale  of  mineral  deposits 731 

Section  212.  Net  income  of  individuals  defined 

Article  21.  Meaning  of  net  income 10^2 

22.  Computation  of  net  income 1046 

23.  Bases  of  computation 1049 

24.  Methods  of  accounting * • • • 1053 

25.  Accounting  period 1064 

26.  Change  in  accounting  period 1066 

Section  213(a).  Gross  income  defined:  inclusions 

Article  31.  What  included  in  gross  income.  . 1075 

32.  Compensation  for  personal  services 1156 

33.  Compensation  paid  other  than  in  cash 1168 

34.  Compensation  paid  in  notes 1178 

35.  Gross  income  from  business 1179 

36.  Long-term  contracts 1180 

37.  State  contracts 1184 

38.  Gross  income  of  farmers 1186 

39.  Sale  of  stock  and  rights 1219;  A,  3373 

40.  Sale  of  patents  and  copyrights 1235 

41.  Sale  of  good  will 1236 

42.  Sale  of  personal  property  on  installment  plan 1237 

43.  Sale  of  real  estate  in  lots 1244 

44.  Sale  of  real  estate  involving  deferred  payments 1245 

45.  Sale  of  real  estate  on  installment  plan 1249 

46.  Deferred-payment  sales  of  real  estate  not  on  installment  plan. . . . 1250 

47.  Annuities  and  insurance  policies 1251 

48.  Improvements  by  lessees 1252 

49.  Compensation  for  loss 1237 

51  50.  Forgiveness  of  indebtedness 1258 

52  51.  When  included  in  gross  income 1260 

53  52.  Income  not  reduced  to  possession : • • • 1271 

54  53.  Examples  of  constructive  receipt 1272 

Section  213(b).  Gross  income  defined:  exclusions 

Article  71.  What  excluded  from  gross  income. 1351 

72.  Proceeds  of  insurance — Compensation — War  pensions 1557 

73.  Gifts  and  bequests 1559 

74.  Interest  upon  State  obligations 1564 

75.  Dividends  and  interest  from  Federal  land  bank  and  national  farm 

loan  association 1565 

Copyright  1922,  by  The  Corporation  Trust  Company. 

T*E  FEDERAL  INCOME  TAX  IEKVICE 

93 


2-27-22.  (2)  4-10-22.  (8)  10-21-22.  (4)  11-27-22. 

TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  213(b).  Gross  income  defined : exclusions — Concluded.  Paragraph 

Article  76.  Dividend*  from  Federal  reserve  bank 1566 

77.  Interest  upon  United  States  obligations 1570 

New..  ..78.  Liberty  bond  exemptions,  as  amended  and  supplemented  by  the 

Revenue  Act  of  1921 1575 

78  79  Liberty  bond  exemption  under  Second,  Third,  and  Fourt  Liberty 

Bond  Acts — Treasury  (war)  savings  certificates 1576 

New. . . .80.  Liberty  bond  exemption  under  Supplement  to  Second  Liberty  Bond 

Act,  as  amended  by  the  Revenue  Act  of  1921 1578 

79  81.  Exemptions  on  Victory  notes 1580 

80  82.  Interest  accrued  upon  conversion  of  Victory  notes 1581 

80a 83.  Summary  of  tax  exemptions  of  Liberty  bonds  and  Victory  notes, 

as  amended  and  supplemented  by  the  Revenue  Act  of  1921 1583 

81,  82..  .84.  Liberty  bond  exemption  in  the  case  of  trusts  or  partnerships 1587 

79,  80..  .85.  Return  for  fiscal  year  ending  in  1921 1589 

83  86.  Income  of  foreign  governments 1595 

84  87.  Income  of  States 1598 

85  88.  Compensation  of  State  officers  and  employees 1599 

New. . . .89.  Additional  exclusions  from  gross  income  under  the  Revenue  Act  of 


87 

88 


1921 1606,  1725,  2099 

90.  Income  accrued  prior  to  March  1,  1913 1611 

91.  Subtraction  for  redemption  of  trading  stamps 1612 


Section  213(c).  Gross  income  defined:  nonresident  alien  individual 

91. .Article  92.  Gross  income  of  nonresident  alien  individuals 2093 

92a 93.  When  the  wages  of  a nonresident  alien  seaman  are  derived  from 

sources  within  the  United  States 2096 

93 94.  Income  of  nonresident  aliens  from  United  States  bonds  2100 


Section  214(a).  1.  Deductions  allowed:  business  expenses 

Article  101.  Business  expenses 1640 

292 101(a).  Traveling  expenses 1625,  1678 

102.  Cost  of  materials 1641 

103.  Repairs 1642 

104.  Professional  expenses 1643 

105.  Compensation  for  personal  services 1650 

106.  Treatment  of  excessive  compensation 1662 

107.  Bonuses  to  employees 1667 

108.  Pensions — Compensation  for  injuries 1674 

109.  Rentals 1683 

110.  Expenses  of  farmers 1195 

111.  When  charges  deductible 1057 

Section  214(a)  2.  Deductions  allowed:  interest 

Article  121.  Interest 1688 

122.  Interest  on  capital 1695 

Section  214(a)  3.  Deductions  allowed:  taxes 

Article  131.  Taxes 1703 

132.  Federal  duties  and  excise  taxes 1704 

133.  Taxes  for  local  benefits 1716 

134.  Federal  estate  and  State  inheritance  taxes 1728;  A,  3414 

New 135.  Tax  on  stock 1718 

Section  214(a)  4,  5,  and  6.  Deductions  allowed:  losses 

Article  141.  Losses 1783 

142.  Voluntary  removal  of  buildings 1800 

143.  Loss  of  useful  value 1801 

144.  Shrinkage  in  value  of  stocks 1802 

145.  Losses  of  farmers 1196 

New. . . . 146.  Accounting  for  losses  to  reflect  income 1786 

New. . . . 147.  Losses  from  the  sale  and  repurchase  of  securities 1792 

Section  214(a)  7.  Deductions  allowed:  bad  debts 

Article  151.  Bad  debts 1810 

152.  Examples  of  bad  debts 1814 

153.  Uncollectible  deficiency  upon  sale  of  mortgaged  or  pledged 

property 1815 

154.  Worthless  securities 1818 

New.,..  155.  Reserve  for  bad  debts 1822 

Copyright  192Z,  by  The  Corporation  Trust  Company. 

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TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  214(a)  8.  Deductions  allowed:  depreciation 

Article  161.  Depreciation 1831 

162.  Depreciable  property 1832 

163.  Depreciation  of  intangible  property 1834 

164.  Capital  sum  recoverable  through  depreciation  allowances 1840 

165.  Method  of  computing  depreciation  allowance 1841 

166.  Modification  of  method  of  computing  depreciation 1848 

167.  Depreciation  of  patent  or  copyright 1849 

168.  Depreciation  of  drawings  and  models 1850 

169.  Charging  off  depreciation 1851 

170.  Closing  depreciation  account 1859 

171.  Depreciation  in  the  case  of  farmers 1208 

Section  214(a)  9.  Deductions  allowed:  amortization 

Article  181.  Scope  of  provision  for  amortization 1864 

182.  Depreciation  of  amortized  property 1866 

183.  Property  cost  of  which  may  be  amortized 1867 

184.  Computation  of  amortization  allowance 1870 

185.  Amortization  period 1874 

186.  Additional  requirements  for  amortization 1876 

187.  Redetermination  of  amortization  allowance 1877 

188.  Sale  of  amortized  property 1878 

189.  Information  to  be  furnished  by  the  taxpayer 1879 

Section  214(a)  10.  Deductions  allowed:  depletion 

Article  201.  Depletion  of  mines,  oil  and  gas  wells;  depreciation  of  improvements  1893 

202.  Amount  returnable  through  depletion  and  depreciation  deductions 

in  the  case  of  an  operating  owner 1905 

203.  Amount  returnable  through  depletion  and  depreciation  deductions 

in  the  case  of  lessee 1906 

204.  Amount  returnable  through  depletion  and  depreciation  in  case  of 

lessor 1911 

205.  Determination  of  cost  of  deposits 1928 

206.  Determination  of  fair  market  value  of  mineral  property  other  than 

oil  and  gas-- 1929 

New 206(a).  Determination  of  fair  market  value  of  oil  and  gas  properties.  . 1934 

207.  Revaluation  of  mineral  deposits  not  allowed 1939 

208.  Determination  of  mineral  contents  of  mine 1940 

209.  Determination  of  quantity  of  oil  in  ground 1941 

210.  Computation  of  deduction  for  depletion  of  mineral  deposits....  1942 

211.  Computation  of  deduction  for  depletion  of  gas  wells 1944 

212.  Gas  well  pressure  records  to  be  kept 1945 

213.  Computation  of  allowance  where  quantity  of  oil  or  gas  uncertain.  . 1946 

214.  Computation  of  depletion  allowance  for  combined  holdings  of  oil 

and  gas  wells 1947 

215.  Depletion — Adjustments  of  accounts  based  on  bonus  or  advanced 

royalty .. . 1948 

216.  Depletion  and  depreciation  accounts  on  books 1952 

217.  Statement  to  be  attached  to  return  when  depletion  or  depreciation 

of  mineral  property  is  claimed 1953 

218.  Additional  statement  to  be  attached  to  return  where  depletion  of 

oil  or  gas  claimed 1956 

219.  Discovery  of  mines 1957 

220.  Oil  and  gas  wells 1963 

220(a).  Discovery — Proven  tract  or  lease — Property  disproportionate 

value 1965 

221.  Proof  of  discovery  of  oil  and  gas  wells 1969 

222.  Allowable  capital  additions  in  case  of  mines 1970 

223.  Charges  to  capital  and  to  expense  in  the  case  of  oil  and  gas  wells.  . 1972 

224.  Depreciation  in  the  case  of  mines 1973 

225.  Depreciation  of  improvements  in  the  case  of  oil  and  gas  wells.  . 1980 

226.  Depletion  and  depreciation  of  oil  and  gas  wells  in  years  before  1916  1981 

227.  Depletion  of  timber 1985 

228.  Capital  recoverable  through  depletion  allowance  in  the  case  of 

timber 1986 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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1ABLE  of  CONTENTS  TO  REGULATIONS  62. 


Section  214(a)  10.  Deductions  allowed:  depletion —Continued  Paragraph 

Article  229.  Computation  of  allowance  for  depiction  of  timber  for  given  year.  . 1987 

230.  Revaluation  of  timber  not  allowed 1989 

231.  Charges  to  capital  and  to  expenses  in  the  case  of  timber 1990 

232.  Depreciation  of  improvements  in  the  case  of  timber 1991 

233.  Information  to  be  furnished  by  taxpayer  claiming  depletion  of 

timber 1992 

234.  Determination  of  fair  market  value  of  timber 1993 

235.  Determination  of  quantity  of  timber 1 99 4 

236.  Aggregating  timber  and  land  for  purposes  of  valuation  and 

accounting 1995 

237.  Timber  depletion  and  depreciation  accounts  on  books 2000 

Section  214(a)  11.  Deductions  allowed:  charitable  contributions 

Article  251.  Charitable  contributions 2003 

Section  214(a)  12.  Involuntary  conversion  of  property 

New.  Art. 261.  Involuntary  conversion  of  property 2031 

N'.w..  ..262.  Ascertainment  of  gain 20 ’6 

50 263.  Replacement  funds _ 2037 

Section  214(b).  Deductions  allowed:  nonresident  alien  individual 

Article  271.  Deductions  allowed  nonresident  alien  individuals 2166 

Section  215.  Items  not  deductible 

Article  291.  Personal  and  family  expenses 1623 

292.  Traveling  expenses 1624 

293.  Capital  expenditures 1930 

294.  Premiums  on  business  insurance 1639 

New.... 295.  Life  or  terminable  interests 915 

Section  216.  Credits  allowed  individuals 

Article  301.  Credits  against  net  income 2043,  2048 

302.  Personal  exemption  of  head  of  family 2049 

303.  Personal  exemption  of  married  person 2050 

304.  Credit  for  dependents 2052 

305.  Date  determining  exemption 2055 

306.  Credits  to  citizen  entitled  to  benefits  of  section  262  and  nonresident 

alien  individual 2176 

Section  217.  Net  income  of  nonresident  alien  individuals 

312. Art. 311.  Definition 754 

312a.  ...  31 1(a).  Alien  seamen,  when  to  be  regarded  as  residents 756 

313  312.  Proof  of  residence  of  alien 75S 

314  313.  Loss  of  residence  by  alien 759 

315  314.  Duty  of  employer  to  determine  status  of  alien  employee 760 

316  315.  Allowance  of  personal  exemption  to  nonresident  alien  employee.  . 2180 

New....  3 16.  J ncome  from  sources  within  the  Lin  i ted  States. . 2094 

New.... 317.  Interest 2106 

New.... 318.  Dividends 2113 

New.  ...319.  Compensation  for  labor  or  personal  services 2118 

New.... 320.  Rentals  and  royalties 2120 

New.... 321.  Sale  of  real  property 2122 

92 322.  Income  from  sources  without  the  United  States 2131 

New.... 323.  Sale  of  personal  property 2159 

New 324.  Deductions  in  general 2167 

New.... 325  Apportionment  of  deductions 2171 

New.  . . .326.  Other  income  from  sources  within  the  United  States 2139 

New. ..  . 327.  Income  derived  from  sources  partly  within  and  partly  without  the 

United  States 2149 

¥ New. . .327(a).  Transportation  Services  [by  foreign  corporations  between 

U.  S.  and  foreign  points) 3323 

New.... 328.  Computation  of  income 2143 

31  1 329.  Allowance  of  deductions  and  credits 2178 


Section  218.  Partnerships  and  personal  service  corporations 

321  Art.  331.  Partnerships '. 784,  787 

322.. ..  ~332.  Distributive  shares  of  partners 800 

323  333.  Credits  allowed  partners ■.•••. 807 

324  334.  Taxation  of  partners  in  partnership  with  fiscal  year  ending  in  1921  811 

326-7.. ..  335.  Taxation  of  partners  in  partnership  with  fiscal  year  ending  in  1922  812 

328  336.  Personal  service  corporations 841 

329  337.  Persona!  service  corporation  with  fiscal  year  ending  in  1921  or  1922  844 

330  338.  Distributive  shares  of  stockholders  in  personal  service  corporation  847 

331.. ... 339.  Credit*  allowed  stockholder*  of  personal  service  corporation....  851 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TABLE  OF  CONTENTS  OF  REGULATIONS  62. 


Paragraph 

Section  219.  Estates  and  trusts 

Article  341.  Estates  and  trusts 900 

342.  Estates  and  trusts  taxed  to  fiduciary 879 

343.  Decedent’s  estate  during  administration 875 

344.  Incidence  of  tax  on  estate  or  trust 888 

345.  Estates  and  trusts  taxed  to  beneficiaries 894 

346.  Credits  to  trust  or  beneficiary 920 

347.  Estates  and  trusts  with  income  which  is  distributed  periodically 

and  other  income 913 

New....  348.  Stock  bonus  or  profit-sharing  trust 971 

Section  220.  Evasion  of  surtaxes  by  incorporation 

Article  351.  Profits  of  corporation  taxable  to  stockholders 738 

352.  Purpose  to  escape  surtax 743 

353.  Unreasonable  accumulation  of  profits 744 

Section  221.  Payment  of  individual’s  tax  at  source 

Article  361.  Withholding  tax  at  source 2197,  2224,  2233,  2250,  2260 

362.  Fixed  or  determinable  annual  or  periodical  income 2202 

363.  Exemption  from  withholding 761,  2200,2201,  2252 

363a.  . . .364.  Exemption  certificates  of  nonresident  aliens 2254,  2255,  2256 

364  365.  Ownership  certificates  for  interest  coupons 2265 

365  366.  Form  of  certificate  where  withholding  required 2303 

366  367.  Form  of  certificate  where  no  withholding  required 2310 

367  368.  Use  of  substitute  certificates 2311 

368  369.  Interest  coupons  without  ownership  certificates 2315 

369  370.  Interest  on  registered  bonds 2317 

370  371.  Return  of  tax  withheld 2322 

New.  ...  371(a).  Withholding — Partnerships 2198 

372.  Release  of  tax  withheld  from  interest  on  bank  deposits 2199 

373.  Use  of  information  return  where  no  actual  withholding 2323 

374.  Ownership  certificates  in  the  case  of  fiduciaries  and  joint  owners.  . 2277 

376 375.  Return  of  income  from  which  tax  withheld 2330 

Section  222.  Credit  for  taxes  in  case  of  individuals 

Article  381.  Analysis  of  credit  for  taxes 1747 

382.  Meaning  of  terms 1749 

383.  Conditions  of  allowance  of  credit 1750 

384.  Redetermination  of  tax  when  credit  proves  incorrect 1751 

385.  Countries  which  do  or  do  not  satisfy  the  similar  credit  requirement  1737 

New. . . .386.  Fiscal  year  beginning  in  1920  and  ending  in  1921 1746 

Section  223.  Individual  returns 

Article  401.  Individual  returns 2390 

402.  Form  of  return 926,  2486 

403.  Return  of  income  of  minor 957 

404.  Return  of  income  of  nonresident  alien 2182 

405.  Return  of  corporate  dividends 1083 

406.  Verification  of  returns 2514 

407.  Use  of  prescribed  forms 2501 

Section  224.  Partnership  returns 

Article  411.  Partnership  returns 794 

412.  Contents  of  partnership  returns 795 

Section  225.  Fiduciary  returns 

Article  421.  Fiduciary  returns 939 

422.  Return  by  guardian  or  committee 958 

423.  Returns  where  two  trusts 955 

424.  Return  by  receiver ' 956 

425.  Return  for  nonresident  alien  beneficiary 960 

Section  226.  Returns  for  a period  of  less  than  twelve  months 

Article  431.  Returns  for  periods  of  less  than  twelve  months 2574 

Section  227.  Time  and  place  for  filing  individual,  partnership,  and  fiduciary  returns 

Article  441.  Time  for  filing  return 2529 

442.  Time  for  filing  return  upon  death  or  termination  of  trust 954 

443.  Extension  of  time  by  collector 2564 

444.  Extension  of  time  by  Commissioner.  . 2565 

445.  Extension  of  time  in  the  case  of  persons  abroad 2566 

447  446.  Last  due  date 2538 

448  447.  Place  for  filing  return 2534 

Copyright  1922,  by • The  Corporation  Trust  Company. 

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TABLE 


OF  CONTENTS  TO  REGULATIONS  62. 


Paragraph 


Section  228.  Understatement  in  returns 

Article  451.  Understatement  of  income. 


2579 


975 


1043 


INCOME  TAX  ON  CORPORATIONS 
Section  230.  Tax  on  corporations 

Article  501.  Income  tax  on  corporations 

502.  Rates  of  tax q7K 

503.  Corporations  liable  to  tax 

Section  231.  Conditional  and  other  exemptions  of  corporations 

Article  511.  Proof  of  exemption 

512.  Agricultural  and  horticultural  organizations 

513.  Mutual  savings  banks.  ....  

514.  Fraternal  beneficiary  societies..... *.••••", \rn\ 

515.  Building  and  loan  associations  and  cooperative  banks 

517.  Religious,  charitable,  scientific,  literary,  and  educational  organ- 

izations  and  community  chests Jr" 

518.  Business  leagues n,- 

519.  Civic  leagues 

520.  Social  clubs • • • •.••  •. inr7 

521.  Local  mutual  insurance  companies  and  like  organizations JtM/ 

522.  Cooperative  associations 

Section  232.  Net  income  of  corporations  defined 

Article  531.  Net  income 

Section  233.  Gross  income  of  corporations  defined  1Q74 

Article  541.  Gross  income .. 

41a 542.  Creation  of  sinking  fund 

543  544.  Contributions  by  stockholders 

544  545.  Sale  and  retirement  of  corporate  bonds }^'y 

545  546.  Sale  of  capital  assets.... 

546  547.  Income  from  leased  property.  . . . . ...  . . 

547  548.  Gross  income  of  corporation  in  liquidation. 

548. ! . . .549.  Gross  income  of  mutual  insurance  companies 

550.  Gross  income  of  foreign  corporations 

Section  234.  Deductions  allowed  corporations 

Article  561.  Allowable  deductions 

562.  Donations 

563.  Sale  of  capital  stock,  bonds,  and  capital  assets 

564.  Interest.... f t79^ 

565.  Effect  of  tax-free  covenant  in  bonds j'r? 

566.  Tax  on  bank  or  other  stock 

567.  Depositors’  guaranty  fund : 

568.  Deductions  allowed  insurance  companies , 

569.  Required  addition  to  reserve  funds  of  insurance  companies.  ..  . . . 

570.  Special  deductions  allowed  in  the  case  of  combined  life,  health, 

and  accident  policies .•••; 

571.  Special  deductions  allowed  mutual  marine  insurance  companies.  . IMS 

572.  Special  deductions  allowed  mutual  insurance  companies 360 

573.  Deductions  allowed  foreign  corporations 1414 


1350 

1410 


Section  235.  Items  not  deductible  by  corporations 

Article  581.  Items  not  deductible 

582.  Capital  expenditures 0 


Section  236.  Credits  allowed  corporations 

Article  591.  Credits  allowed  


2067 


Section  237.  Payment  of  corporation  income  tax  at  source 

Article  601.  Withholding  in  the  case  of  nonresident  foreign  corporations 2ZZ5 

Section  238.  Credit  for  taxes  in  case  of  corporations 

Article  611.  Credit  for  foreign  taxes ; . 10’  1/00 

636  ....612.  Domestic  corporation  owning  a majority  of  the  stock  ot  ioreign 

corporation 1/b/'  1/oy 

Copyright  1922,  by ■ The  Corporation  Trust  Company. 

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Explanation  of  the  Cumulative  Indexes. 

Early  in  1920  the  Government  published  its  1919  Cumulative  Bulletin 
of  Special  Income  Tax  Rulings,  which  rulings  had  been  issued  confidentially 
during  1919  for  the  exclusive  use  of  the  Bureau’s  employees.  During  1920, 
by  a change  of  policy,  rulings  were  made)  public  week  by  week.  Through 
1921,  also,  weekly  Bulletins  were  issued.  / So  far  as  appears  there  will  con- 
tinue to  be  weekly  issues  for  1922. 

Subscribers  to  The  Service  receive  /the  weekly  Bulletins,  direct  from 
Washington,  for  insertion  in  the  special  /shoe-string  binder,  which  contains  all 
prior  published  rulings,  in  full,  as  originally  issued. 

Each  ruling  is  allocated  by  the  Government  to  a particular  Article  of 
Regulations  45  (1918  Act)  or  to  a particular  Article  of  Regulations  62  (1921 
Act).  We  have  indexed  all  of  the/strictly  income  tax  rulings,  other  than  a 
few  referring  specifically  to  the  /Revenue  Acts  of  1913  and  1916-17  and 
having  no  application  to  the  1918/hnd  1921  Acts,  and  have  placed  these  digest- 
index  references,  in  the  compilation  beginning  on  page  103,  immediately 
following  the  respective  particular  Articles  on  which  they  bear. 

In  preparing  Regulations A>2  (1921  Act)  the  Government,  so  far  as  was 
readily  possible,/ perhaps,  Was  numbered  the  Articles  identically  with  the 
corresponding  Articles  of  .Regulations  45  (1918  Act).  Thus  Article  31  of 
each  series  of  regulations  treats  on  “What  included  in  gross  income”;  but 
“Forgiveness  of  indebtedness,”  which  is  discussed  in  Art.  50  of  Reg.  62,  is 
the  subject  matter  or>Art.  51  of  Reg.  45.  We  have  placed  each  Cumulative 
Index  group  under  it4 Woper  subject  matter  in  Regulations  62,  and  in  the 
Table  of  Contents  ^Regulations  62,  (beginning  on  page  93)  have  cross-refer- 
enced, by  numbepfe,  the  Articles  of  Regulations  45  and  62,  where  there  is 
a variation  in  nwfnbering.  'Thus  any  Cumulative  Index  references  sought 
may  be  found  immediately.  \ 

All  references  to  rulings  bas&d  specifically  on  the  1921  Act  are  so  indicated 
clearly;  other- references  are  to 'rulings  based  on  the  1918  Act  or  on  prior 
Acts.  The  extent  to  which  these  fitter  rulings  have  bearing  on  the  provisions 
of  the  1921  Act  and  on  the  official  Regulations  62  interpreting  that  Act  is 
left  to  the"  judgment  of  the  reader.  \ As  an  aid  we  have  indicated,  by  notes, 
differences,  if  any,  between  the  provisions  of  the  1918  Act  and  those  of  the 
1921  Act.  Such  a comparative  note  is  appended  to  each  law  paragraph  or 
group  of  law  paragraphs  within  the  compilation,  which  paragraph  or  para- 
graph group  in  turn  invariably  precedes  its  interpreting  Article  or  Articles  of 
Regulations  62,  to  which  the  Cumulative  Index  references  are  subjoined. 

At  the  outset  (February  27,  1922),  in  the  nature  of  things,  scarcely  any 
of  the  indexed  rulings  will  be  found  to  be  based  specifically  on  the  1921  Act, 
as  most  of  these  were  issued  prior  to  the  passage  of  that  Act  in  November, 
1921,  and  all  before  the  release  of  Regulations  62.  (Bulletin  I(’22) — 9,  is 
dated  February  27,  1922.)  This  will  appear  by  their  respective  designations 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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— (again  we  itate,  all  rulings  relating  specifically  to  the  1921  Act  are  so 
indicated): 

The  references  are  to  pages  in  t lie 

(1)  1919  Cum.  Bull.  “ 1919  Cumulative  Bulletin.  (No  1.) 

(Covering  all  of  1919.) 

(2)  June  1920  Cum.  Bull.  *■  June  1920  Cumulative  Bulletin.  (No,  2.) 

(Covering  the  first  si.,  months  of  1920.) 

(0)  l)ec.  1920  Cum.  Bull.  =■  December  1920  Cumulative  Bulletin.  (No.  3.) 

(Covering  the  last  six  months  of  1920.) 

(4)  June  1921  Cum.  Bull.  June  1921  Cumulative  Bulletin.  (No.  4.) 

(Covering  the  fir:  t six  months  of  1921.) 

(.5)  Dec.  1921  Cum.  Bull.  “ December  1921  Cumulative  Bulletin.  (No.  5.) 

(Covering  the  last  six  months  of  1921.) 

(6)  *Bull.  1 (’22)  !,  etc.  **  Bulletins  1,  2,  etc.  of  the  1922  Scties. 

(Covering  the  weekly  issues  of  1922.) 

*TLc  weekly  Bulletins  of  the  1922  Series  are  forwarded  promptly  as  issued,  for  inser- 
tion in  the  special  Bulletin  shoe-string  binder. 

Each  current  1922  weekly  Bulletin  will  be  indexed  at  once,  revised  Service 
pages  being  mailed  to  subscribers  for  substitution,  each  added  reference  being 
indicated  by-  a star  in  the  margin  on  the  left.  In  like  manner,  as  issued, 
all  current  “new  matters”  published  in  the  Service  proper,  will  be  indexed 
in  the  appropriate  Cumulative  Index  groups.  Thus  will  the  Service  be  com- 
pletely indexed  at  all  times,  as  the  general  index  on  the  blue  pages  at  the  back  of 
the  book  indexes  exhaustively  the  law  and  regulations  in  the  compilation,  and 
the  Cumulative  Indexes  within  the  compilation  index  all  related  Bulletin 
rulings  and  all  day-by-day  Treasury  Decisions,  court  decisions,  special 
rulings,  etc.,  etc. 

Each  indexed  Bulletin  ruling  is  cited  to  its  source  as  (43-20-1273:  A.  R.  M. 
85).  This  particular  ruling,  then,  is  the  85th  recommendation  of  the  Com- 
mittee on  Appeals  and  Review,  is  the  1273d  ruling  made  (a  new  series  of 
ruling  numbers,  beginning  with  ruling  1,  was  started  in  the  first  weekly  issue 
of  1922),  and  was  first  published  in  Bulletin  No.  43,  of  the  1920  Series.  It 
has  been  reproduced  in  Cumulative  Bulletin  No.  3,  that  is,  in  the  December 
1920  Cumulative  Bulletin,  beginning  on  page  65.  Our  reference,  in  the 
Cumulative  Index,  is  to.  .Dec.  1920  Cum.  Bull.  p.  65.  The  key  to  the 
Government’s  abbreviations  (such  as  A.  R.  M.,  above)  is  printed  below. 

Op.  A.  G.  = Opinion  of  Attorney  General. 

O.  or  L.  O.  ■=  Solicitor’s  Law  Opinion. 

S ~ Solicitor’s  Memorandum. 

Sol.  Op.  = Solicitor’s  Opinion. 

T.  B.  R.  = Advisory  Tax  Board  Recommendation. 

T.  B.  M.  = Advisory  Tax  Board  Memorandum. 

A.  R.  R.  = Committee  on  Appeals  and  Review  R erommendation. 

A.  R.  M.  — Committee  on  Appeals  and  Review  Memorandum. 

0.  D.  “ Office  Decision. 

1.  T.  = Income  Tax  I 'nit  Office  Deci  ion. 

Ct.  D.  = Court  Decision. 

Mim.  ■=  Mimeograph  letter  to  Collectors  or  Agents. 

C.  B.  or  Cum.  Bull.  = Cumulative  Bulletin. 

See  Caution  Notice  on  front  cover , and  “ Introductory  Notes ” on  page  3,  of 
any  weekly  issue  of  the  Internal  Revenue  Bulletin. 


Copyright  1922,  by  The  Corporation  Trust  Company, 
IH«  rF.nrSAC  INCOME  TAX  SFfiVICE 

92 


10-81-22 

the  purpose  of  determining  the  portion  of  the  cost  attributable  to  each  class 
of  stock  or  securities,  but  if  that  should  be  impracticable  in  any  case,  no 
profit  on  any  subsequent  sale  of  any  part  of  the  stock  or  securities  will  be 
realised  until  out  of  the  proceeds  of  sales  shall  have  been  recovered  the 
totalvbst.  See  article  1567  [If  1477].  Where  a corporation  issues  to  its  stock- 
holdcft^fche  right  to  subscribe  to  its  stock,  the  value  of  the  right  does  not 
constitute  taxable  income  to  the  stockholder,  but  gain  may  be  derived  or 
loss  sustained  by  the  stockholder  from  the  sale  of  such  right.  The  amount 
of  taxable\Wain  derived  or  deductible  loss  sustained  from  the  sale  by  a stock- 
holder of  le  right  to  subscribe  or  from  the  sale  of  the. stock  with  respect 
to  which  tljte  right  is  issued  sh&ll  be  determined  as  provided  in  article  1561 
[<[1437],  afrekrthe  cost  or  both  the  cost  and  fair  market  value  as  of  March 
1913,  if  ^cbuired  prior  thereto  of  both  the  old  shares  and  the  right  is 
determined  m\kccordance  with  the  following  rule: 

3377  Wheres4the  right  issued  relates  to  new  stock  of  substantially  the 
same  character  ory[) reference  as  the  stock  with  respect  to  which  the 
right  is  issued,  fhScost  d each  share  of  the  old  stock  and  the  right  to  sub- 
scribe to  each  sh\rXof  tne  new  (or,  if  acquired  prior  to  March  1,  1913,  the 
fair  market  valueWoT'that  date)  will  be  the  quotient  of  the  cost  (or  such 
fair  market  value)\bfome  old  shares  of  stock,  plus  the  subscription  price  of 
the  new  shares  of  sIsa^L  divided  by  the  sum  of  the  number  of  the  old  shares 
and  the  number  of  ramWiares  covered  by.  the  right.  In  computing  the  gain 
from  the  sale  of  the  Aght  in  accordance  with  article  1561  the  price  for  which 
sold  shall  be  consicI|reU\flie  sum  of  the  subscription  price  of  the  new  shares 
and  the  selling  pritfe  oVt\e  right.  The  above  rule  for  computing  the  gain 
from  the  sale  of  tic  riglVt\Xo  subscribe  to  stock  is  subject  to  the  limitation 
that  the  gain  so  <Amputed\\hall  not  exceed  the  amount  for  which  the  right 
is  sold;  in  any  c ahl  in  whiMAthis  limitation  is  applied,  the  gain  or  loss  from 
the  subsequent  f\h  of  thel$6ck  with  respect  to  which  the  right  was  issued 
shall  be  determined  as  if  nought  to  subscribe  had  been  issued  with  respect 
to  it.  Where  ttt&stockholdeb'exercises  his  right  to  subscribe  to  new  stock 
of  substantially? tjhe  same  character  or  preference  as  the  stock  with  respect 
to  which  the  riJ/t  is  issued,  thjjpVbst  of  the  old  and  new  shares  (or,  if  acquired 
prior  to  Marclfj'l,  1913,  the  fair\market  value  as  of  that  date)  will  be  the 
quotient  of  the  tost  of  the  old  shares,  plus  the  subscription  price  of  the  new 
shares,  divided  fey  the  total  nufnber  of  the  old  and  new  shares.  Where  the 
rip-ht  issued  dM\s  with  stock  in  ivkble  or  in  part  of  a character  or  preference 
materially  ditt/rent  from  the  stock  with  respect  to  which  the  right  is  issued, 
or  where”  the  /fctock  with  respect  toWhich  the  right  is  issued  was  purchased 
at  different  tttnes  and  at  different  pfcces,  and  the  identity  of  the  lots  can  not 
be  determined,  or  where  the  stock  #ith  respect  to  which  the  right  is  issued 
was  purcha&d  at  different  times  an*  at  different  prices  and  the  stock  right 
issued  with  [respect  to  such  stock  can%iot  be  identified  as  having  been  issued 
with  respe/t  to  any  particular  lot  o’Ksuch  stock,  the  computation  of  the 
gain  from*  the  sale  of  ‘the  old  shares  to"  the  right  in  cases  where  the  right 
fs  sold  or  from  the  sale  of  the  old  or  n$w  shares  in  cases  where  the  right  is 
exercised  shall  be  based  upon  and  shall  be  in  accordance  with  the  principles 
laid  down  in  article  1548  [If  1136]  with  respect  to  the  computation  of  the  gain 
or  loss  from  the  sale  of  stock  received  as  a stock  dividend.  (T.  D.  3403, 
signed  by  Commissioner  D.  H.  Blair,  and  dated  October  18,  1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company 

TH*  TEDEKAI.  INCOME  TAX  SEBVIC? 

757 


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respective  legacies?  There  is  little  doubt  that  the  legacies  would  then  have 
been  acquired  by  bequest  within  the  meaning  of  the  law.  We  think  the  whole 
of  each  legacy  was  payable  independent  of  services.  It  was  an  acquisition 
to  each  legatee  by  bequest  within  the  meaning  of  the  taxing  act  and  was 
therefore  not  taxable  as  income. 

Judgments  reversed  * 

3371  *The  cases  reported  above  are  in  the  United  States  Supreme  Court. — 

A petition  for  a writ  of  certiorari  to  the  Second  Circuit  Court  of 
Appeals  was  granted  by  the  United  States  Supreme  Court  on  October  16, 
1922  in  each  of  the  two  cases  reported  above.  On  the  Supreme  Court  docket 
these  cases  are  respectively  Nos.  457  and  458,  October  1922  Term. — The 
Corporation  Trust  Company. 


Copyright  1922,  by  Tht  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
755 


-.two'-)  9ta9i]U(i  attfatg  b»iinU  on  * xti  a is  rvodx:  bafto  si  w sriT  r Tec 


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2-27-22.  (2)  4-10-22. 

REGULATIONS  62  RELATING  TO  THE  INCOME  TAX. 

[ Promulgated  February  15,  1922. — Released  for  Publication,  March  1,  1922.] 

TABLE  OF  CONTENTS. 

(Always  up-to-date.) 

Comment. — The  following  table  lists  all  of  the  Articles  of  the  Regulations  62,  (1922 
Edition)  (except  those  relating  specifically  to  the  excess-profits  tax),  by  numbers,  giving 
the  caption  of  each,  showing  general  subject  content,  and  referring  to  the  paragraph  in  the 
book  at  which  each  is  reproduced.  The  table  is  always  up-to-date. 

Caution. — The  numerals  inserted  marginally  on  the  left  show  the  numbers  of  the 
respective  corresponding  Articles  (in  context)  of  Regulations  45  (1918  Act).  “New” 


74.  Interest  upon  State  obligations 1564 

75.  Dividends  and  interest  from  Federal  land  bank  and  national  farm 

loan  association 1565 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
93 


2-27-22.  (2)  4-10-22. 

TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  213(b). 
Article  76. 
77. 

New 78. 

78  79 

New. . . . 80. 

79  81. 

80  82. 

80a 83. 

81,  82..  .84. 
79,  80..  .85. 

83  86. 

84  87. 

85  88. 

New. . . .89. 

87  90. 

88  91. 

Section  213(c). 

91. .Article  92. 
92a 93. 

93 94. 


Gross  income  defined:  exclusions — Concluded.  Paragraph 

Dividends  from  Federal  reserve  bank 1566 

Interest  upon  United  States  obligations 1570 

Liberty  bond  exemptions,  as  amended  and  supplemented  by  the 

Revenue  Act  of  1921 1575 

Liberty  bond  exemption  under  Second,  Third,  and  Fourt  Liberty 

Bond  Acts — Treasury  (war)  savings  certificates 1576 

Liberty  bond  exemption  under  Supplement  to  Second  Liberty  Bond 

Act,  as  amended  by  the  Revenue  Act  of  1921 1578 

F-xemptions  on  Victory  notes 1580 

Interest  accrued  upon  conversion  of  Victory  notes 1581 

Summary  of  tax  exemptions  of  Liberty  bonds  and  Victory  notes, 

as  amended  and  supplemented  by  the  Revenue  Act  of  1921 1583 

Liberty  bond  exemption  in  the  case  of  trusts  or  partnerships 1587 

Return  for  fiscal  year  ending  in  1921 1589 

Income  of  foreign  governments 1595 

Income  of  States 1598 

Compensation  of  State  officers  and  employees.  . 1599 

Additional  exclusions  from  gross  income  under  the  Revenue  Act  of 

1921 1606,  1725,  2099 

Income  accrued  prior  to  March  1,  1913 1611 

Subtraction  for  redemption  of  trading  stamps 1612 

Gross  income  defined:  nonresident  alien  individual 

Gross  income  of  nonresident  alien  individuals 2093 

When  the  wages  of  a nonresident  alien  seaman  are  derived  from 

sources  within  the  United  States 2096 

Income  of  nonresident  aliens  from  United  States  bonds  2100 


Section  214(a).  1.  Deductions  allowed:  business  expenses 

Article  101.  Business  expenses 1640 

292 101(a).  Traveling  expenses 1625,  1678 

102.  Cost  of  materials 1641 

103.  Repairs 1642 

104.  Professional  expenses • 1643 

105.  Compensation  for  personal  services 1650 

106.  Treatment  of  excessive  compensation 1662 

107.  Bonuses  to  employees 1667 

108.  Pensions — Compensation  for  injuries 1674 

109.  Rentals 1683 

110.  Expenses  of  farmers 1195 

111.  When  charges  deductible 1057 

Section  214(a)  2.  Deductions  allowed:  interest 

Article  121.  Interest 1688 

122.  Interest  on  capital ' 1695 

Section  214(a)  3.  Deductions  allowed:  taxes 

Article  131.  Taxes 1703 

132.  Federal  duties  and  excise  taxes 1704 

133.  Taxes  for  local  benefits 1716 

134.  Federal  estate  and  State  inheritance  taxes 1728 

New ....  135.  Tax  on  stock 1718 


Section  214(a)  4,  5,  and  6.  Deductions  allowed:  losses 

Article  141.  Losses 1783 

142.  Voluntary  removal  of  buildings 1800 

143.  Loss  of  useful  value 1801 

144.  Shrinkage  in  value  of  stocks 1802 

145.  Losses  of  farmers 1196 

New. . . . 146.  Accounting  for  losses  to  reflect  income 1786 

New.  . . . 147.  Losses  from  the  sale  and  repurchase  of  securities 1792 

Section  214(a)  7.  Deductions  allowed:  bad  debts 

Article  151.  Bad  debts 1810 

152.  Examples  of  bad  debts 1814 

153.  Uncollectible  deficiency  upon  sale  of  mortgaged  or  pledged 

property 1815 

154.  Worthless  securities 1818 

New. . . . 155.  Reserve  for  bad  debts 1822 


Copyright  1922,  by-  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

94 


f.s 


6-23-22. 


TABLE  OF  CASES.— Concluded. 


Paragraph 

Stockton:  Lederer  vs.  (266  Fed.  676) 880 

Thorne  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  HS31 

Towne  vs.  Eisner  (245  U.  S.  418) Sup.  Page  137,  ^[S54 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Pages  117  and  118. 


av  . 


. 


- M - ■ rairr 


MM 

nni 


7-12-22. 


TABLE  OF  CASES. 


1'  tragraph 

Allen:  Altheimer  & Rawlings  Investment  Co.  vs.  (248  Fed.  688) 1213 

Altheimer  & Rawlings  Investment  Co.  vs.  Allen  (248  Fed.  688) 1213 

Anderson:  Brady  vs.  (240  Fed.  665) 942 

Anderson:  Jacobs  and  Davies  (Inc.)  vs.  (228  Fed.  505) 1666 

Anderson:  Thorne  vs.  (240  U.  S.  115) Sup.  Page  132,  ^S31 

Anderson:  Tyee  Realty  Company  vs.  (240  U.  S.  115) Sup.  Page  132,  *J S3 1 

Baldwin  Locomotive  Works  vs.  McCoach  (221  Fed.  59) 1288 

Baltic  Mining  Co.:  Stanton  vs.  (240  U.  S.  103) Sup.  Page  133,  S38 

Brady  vs.  Anderson  (240  Fed.  665) 942 

Brady:  Dodge  vs.  (240  U.  S.  122) Sup.  Page  132,  tfS35 

Brewster  vs.  Walsh  (255  U.  S.  536) Sup.  Page  191,  flS364 

Brushaber  vs.  U.  P.  Railroad  Company  (240  U.  S.  1) Sup.  Page  125,  ^Sl 

Carter:  Union  Hollywood  Water  Company  vs.  (238  Fed.  329) 985,  1632 

Chapin  vs.  Irwin  (U.  S.  D.  C.,  July  29,  1921) 1203 

Chicago  & Alton  Railroad  Co.  vs.  U.  S.  (53  C.  of  C.  41) 1283 

Cohen  vs.  Lowe  (234  Fed.  474) 720,  1845 

Commercial  Health  and  Accident  Co.  vs.  Pickering  (T.  D.  3313) 3111 


Heller,  Hirsh  & Co.:  In  re  (258  Fed.  208) 1296 

Hornby:  Lynch  vs.  (247  U.  S.  339) Sup.  Page  141,  1fS78 

Hurst  vs.  Lederer  (273  Fed.  174) 2721 

Indiana  Steel  Company:  Smietanka  vs.  (U.  S.  Supreme  Court,  Oct.  24,  1921)2911 
Iredell:  De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  (268  Fed.  377)..  835 

Irwin:  Chapin  vs.  (U-  S.  D.  C.,  July  29,  1921) 1203 

Irwin:  Fish  vs.  (U  S.  D.  C.,  July  29,  1921) 1198 

Jacobs  and  Davies  (Inc.)  vs.  Anderson  (228  Fed.  505) 1666 

Johnstone:  Haiku  Sugar  Co.  et  al.  vs.  (249  Fed.  103) 783 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  115. 


TABLE  OF  CASES — Continued 


Lowe: 

Lowe: 

Lowe: 


Paragraph 

Kirkendall:  Markle  et  al . vs.  (267  Fed.  498) 2780 

Kohlhamcr  vs.  Smietanka  (239  Fed.  408) 2880 

Lawrence  vs.  Warded  (T.  I).  3102)  (T.  I).  3178 — 273  Fed.  405) 747 

l.edercr:  De  Ganay  vs  (250  U.  S.  376)  . Sup.  Page  155,  ^JSl49 

Lederer:  Hurst  vs.  1273  Fed.  174) 2721 

Ledercr:  Massey  vs.  (277  Fed.  123) 3113 

Lederer:  Penn  Mutual  Life  Ins.  Co.  vs.  (252  U.  S.  523).. Sup.  Page  161,  T[S201 
Lederer:  Philadelphia,  1 larrisburg  & Pittsburgh  R.  R.  Co.  vs.  (242  Fed.  492)  2904 

Lederer  vs.  Stockton  (266  Fed.  676) 880 

Levy:  U.  S.  vs.  (271  Fed.  942) 2582 

Lewdly n : Gulf  Oil  Corporation  vs.  (Example  of  procedure) 2890 

U.  S.  Supreme  Court  Decision  (248  U.  S.  71) Sup  Page  152,  ^Sl36 

Lowe:  Cohen  vs.  (234  Fed.  474) 720,  1845 

Peck  vs.  (247  U.  S.  165) Sup.  Page  140,’  TfS70 

Roberts  vs.  (236  Fed.  604) 2902 

Southern  Pacific  Company  vs.  (247  U.  S.  330) Sup.  Page  149,  ^Sl21 

Lynch:  Great  Northern  Railway  Company  vs.  (T.  D.  3147) 2838 

Lynch  vs.  Hornby  (247  U.  S.  339)...  Sup.  Page  141,  1JS78 

Lynch  vs.  Turrish  (247  U.  S.  221) Sup.  Page  144,  ^S92 

McCoach-  Baldwin  Locomotive  Works  vs.  (221  Fed.  59) 1288 

McKIligott:  Towne  vs.  (U.  S.  D.  C.,  August  6,  1921)  (274  Fed.  960). 721,  1141 

Macomber  vs.  Kisner  (252  U.  S.  189).  . . Sup.  Page  173,  ^jS244 

McHatton:  U.  S.  vs.  (U.  S.  District  Court)  (T.  D.  3043) 2493 

Mager:  Darlington  vs.  (41  Sup.  Ct.  533) Sup.  Page  200,  ,,[S412 

Mager:  Eldorado  Coal  and  Mining  Co.  vs.:  (255  U.  S.  522)  Sup.  Page  190,  TJS360 
Malley  vs.  Alvah  Crocker,  et  ah,  Trustees  (249  U.  S.  223).  .Sup.  Page  153,  S 1 40 

Marion  Hotel  Company:  Urquhart  vs.  (194  S.  W.  1) 2258 

Markle  et  al.  vs.  Kirkendall  (267  Fed.  498) 2780 

Maryland  Casualty  Company  vs.  U.  S.  (251  U.  S.  342).  Sup.  Page  157,  *j S 1 5 9 

Massey  vs.  Lederer  (277  Fed.  123) 3113 

Mellon:  U.  S.  vs  (U.  S.  Dist.  Ct.)  (July  13,  1921) 1145 

Affiirmed  C.  C.  of  A.  (June  29,  1922) 3293 

Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs.  Smietanka,  former  Collec- 
tor (255  U.  S.  509) Sup.  Page  186,  S3 1 3 

Miles,  Collector:  Safe  Deposit  & Trust  Co.  (273  Fed.  822) 1220 

U.  S.  Supreme  Court,  May  29,  1922 3217 

Miller:  Dilley  Building  and  Loan  Co.  vs  (T.  D.  3355) 3289 

New  York  Trust  Co.,  Executors,  etc.,  vs.  Edwards  (42  Sup. 

Ct.  68) Sup.  Page  170,  HS237 

Oregon-Washington  R.  & Nav.  Co.:  U.  S.  vs.  (251  Fed.  211) 1259 

Osborn:  Dodge  vs.  (240  U.  S.  1 18) 2872 

Park  vs.  Gilligan  (U.  S.  Dist.  Ct.,  June  1 1,  1921) 1261 

Peabody  vs.  Eisner  (247  U.  S.  347) Sup.  Page  148,  ^Sl!9 

Peck  vs.  [.owe  (247  U S.  165) Sup  Page  140,  flS70 

Penn  Mutual  Life  Insurance  Co.  vs.  Lederer  (252  U.  S.  523)  Sup.  Page  161,  ^[S201 

Phellis  vs.  United  States  (42  Sup.  Ct.  63) Sup.  Page  167,  ^S219 

Philadelphia,  Harrisburg  & Pittsburgh  R.  R.  Co.  vs.  Lederer  (242  F’ed.  492)  2904 
Pickering:  Commercial  Health  and  Accident  Company  vs.  (T.  D.  3313)...  3111 

Pittaro:  U.  S.  vs.  (U.  S.  District  Court).  (T.  D.  2874) 2800 

Plant  vs.  Walsh  (U.  S.  D.  C.,  April  12,  1922) 3127 

Roberts  vs.  Lowe  (236  Fed.  604) 2902 

Rockefeller:  U.  S.  vs.  (42  Sup.  Ct.  68) Sup.  Page  170,  ^[S237 

R.  I.  A.  and  L.  R.  R Co.  vs.  U.  S.  (254  U.  S.  141) 2887 

Safe  Deposit  and  Trust  Co.  vs.  Miles,  Collector  (273  Fed.  822) 1220 

U.  S.  Supreme  Court,  May  29,  1922 3217 

San  Juan  County:  U.  S.  vs.  (U.  S.  District  Court)  (T.  D.  3298) 3085 

Schuster  & Co.,  Inc.  vs. -Williams  (T.  D.  3330) 3213 

Skinner:  U.  P.  Coal  Co.  vs.  (252  U.  S.  470) Sup.  Page  161,  5[S200 

Smietanka  vs.  First  Trust  and  Savings  Bank,  Trustee  (U.  S.  Supreme  Court, 

Feb.  27,  1922) 3048 

Smietanka  vs.  Indiana  Steel  Company  (U.  S.  Supreme  Court,  Oct.  24,  1921)  291 1 

Smietanka:  Ivohlhamer  vs.  (239  Fed.  408) 2880 

Smietanka:  Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs. 

(255  U.  S.  509) Sup.  Page  186,  1fS313 

Southern  Pacific  Company  vs.  Lowe  (247  U.  S.  330) Sup.  Page  149,  ^S121 

Stanton  vs.  Baltic  Mining  Co.  (240  U.  S.  103) Sup.  Page  133,  ^fS38 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  116. 


9-8-22. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


0 


T.  D. 


Date 


3380 

July  8, 

0 

3381 

Aug.  4, 

3382 

July  20, 

m 

3383 

Aug.  9, 

3384 

July  27, 

Special 

Aug.  9, 

0 

3385 

“ 17, 

3386 

Aug.  22, 

3387 

“ 23, 

0 

3388 

3389 

“ 23, 

“ 24. 

0 

3390 

3391 

Aug.  25, 
“ 25, 

Special 

Sept.  8, 

8,  1922 


Subject  Paragraph 

Report  No.  48,  August  10,  1922. 

(T.  D.  designation  for  Regulations  40  (1922 
Edition),  Stamp  Taxes  on  Issues,  Sales,  and 
Transfers  of  Stock,  and  Sales  of  Products  for 
Future  Delivery. — War  Tax  Service,  page 
709.) 

(Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  32,  of  the  1922  Series.] 

Report  No.  49,  August  17,  1922. 

(T.  D.  designation  for  Regulations  59  (1922 
Edition),  Special  Taxes  on  Businesses  and 
Occupations  arid  on  the  Use  of  Boats. — War 
Tax  Service,  I*age  1513.) 

(Estate  Taxesy'— War  Tax  Service,  1[787.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  ^3,  of  the  1922  Series.] 

jReport  No.  50,  August  24,  1922. 

(T.  D.  d/signation  for  Regulations  63  (1922 
Edition/,  Estate  Tax. — War  Tax  Service,  Page 
158.)  ' 

icome  of  deceased  partner,  who  made  returns  on 
cash  /basis,  includes  his  share  of  fees  collected 
t^daV of  death;  his  interest  in  uncollected  fees 
to  b^Jrapitalized  by  estate 3305 

(NarcojScs.) 

[Pages /foF  substitution  on  account  index-digest 
references,  to  new  matters  and  rulings  in 
Internal  Revenue  Bulletin  No.  34,  of  the 
192g  Series.' 

Repori\No.  51,  August  28,  1922. 

Art.  1 170,  Reg.  33\(1916  Act),  amended. — De- 
pletion of  oil  and  has  properties 3306 

Art.  327(a)  added,  YReg.  62,  Transportation 
tvices  by  foreign  corporations  between  U.  S. 
aid  foreign  points. . \. 3323 

(Prohibition.)  \ 

(Erfcess-profits  tax. — Wat  Tax  Service,  1fl289.) 

[Paiges  for  substitution  oh  account  index-digest 
references  to  foregoing  t^ew  matters.' 

Report  No.  52,  September  1,  1922. 
prohibition.) 
prohibition.) 

’ages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue 
Bulletin  No.  35,  of  the  1922  Series.] 

Report  No.  53,  September  8,  1922. 

Personnel  of  the  Tax  Simplification  Board 3331 

[Pages  for  substitution  on  account  index-digest 
references  to  new  matters  and  to  rulings  in 
Internal  Revenue  Bulletin  No.j|36,  of  the 
1922  Series.]^ 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  31. 


In  blank  temporarily. 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  32. 


10-17-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 

3392 

3393 
Law 

3394 

3395 
Special 

3396 

3397 

3398 

3399 

3400 


Subject 


Paragraph 


Report  No.  54,  September  13,  1922. 

Sept.  7,  1922  (Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  37,  of  the  1922  Series.] 

Report  No.  55,  September  15,  1922. 

Sept.  12,  1922  Basis  for  determining  taxable  gain  or  deductible 
loss  in  the  case  of  property  acquired  pr’or  to 
March  1,  1913,  and  sold  or  disposed  of  subse- 
quent thereto. — Attorney-General’s  opinion. — 

1916,  1917,  and  1918  Acts 3332 

Report  No.  56,  September  20,  1922. 

Sept.  19,  1922  Amendments  to  the  Revenue  Act  of  1921  effected 

by  the  China  Trade  Act 3158 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  38,  of  the  1922  Series,  and  on  account 
of  forward  references  to  the  amendments  to  the 
law  effected  by  the  ChinalTrade  Act.] 

Report  No.  57,  September  27 , 1922. 

Sept.  21,  1922  (Admissions  and  Dues./-War  Tax  Service, 
U6837.) 

(Prohibition.) 

Personnel  of  Tax  Simplification  Board 3343 

[Pages  for  substitution  on  account  index-digest 
references  to  new/matters  and  to  rulings  in 
Internal  Revenue/Bulletin  No.  39,  of  the  1922 
Series.] 

Reporj  No.  58,  October  4,  1922. 
(Prohibition.) 

(Narcotic  Law.) 

[Pages  for  substitution  on  account  index-digest 
references  t e rulings  in  Internal  Revenue  Bul- 
letin No.  40,  of  the  1922  Series.] 

eport  No.  59,  October  11,  1922. 
(^rohibitio/.) 

Ark  1586, /Reg.  62  (and  Reg.  45)  amended. — In- 

vkntori/s  of  live  stock  raisers  and  other  farmers  3344 


Sept.  21,  1922 
“ 27,  “ 


Oct.  3,  1922 

ti  y it 


Report  No.  60,  October  17,  1922. 

Oct.  10,  1922  Art.  691,  Reg.  62,  amended. — Tax  on  insurance 

com/asies 3353 


There  are  np  Supplementary  Pages  3Ato  114  at  present. 

IE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33.  ' 


balMfla  I£t’i  1o  l*‘  wr>»9  •>  i inon.l  Mini  1 <-i  ,<•(  ,jq  ? 

....  ‘ 1 i 


? 


e 


: 


j .it  xi£*nuinslqqu? 


■ 


10-17-22. 


(T.  D.  3400.) 


(Only  change  is  elimination  of  reference  to  Section  1000  of  the  Revenue  Act  of 

1921 — Capital  Stock  Tax.) 


3353  Tax  on  insurance  companies.— Article  691  of  Regulations  62 

1369  amended. — Article  691  of  Regulations  62  is  hereby  amended  to  read 

as  follows: 

3354  Art.  691.  Tax  on  insurance  companies. — For  the  calendar  year  1921 

all  insurance  companies  (other  than  life)  are  subject  to  taxes  imposed 

by  section  230  (corporation  income  tax)  and  Title  III  (war  profits  and  excess 
profits  tax).  For  the  calendar  year  1922  and  thereafter,  however,  in  lieu  of 
such  taxes,  insurance  companies,  except  life  and  mutual  companies,  are  subject 
to  the  tax  imp  Mutual  insurance  companies  (other  than 

life)  remain  si  )sed  by  section  230.  In  articles  691-693 

the  term  “ins1  ;ans  only  those  companies  subject  to  the 

tax  imposed  t -ate  of  the  tax  imposed  by  section  246  is 

the  same  as  t ection  230  (12)4  per  cent),  but  the  net 

income  upon  ised,  as  defined  in  sections  246  and  247, 

differs  from  tl  • corporations.  Insurance  companies  are 

entitled  to  th<  >4  (net  losses  fl[1546])  but  not  of  section 

206  (capital  n ns  of  the  statute  and  of  these  regulations 

not  inconsiste  provisions  of  sections  246  and  247  are 

applicable  to  ollection  of  this  tax,  and  insurance  com- 
panies are  sub  ties  as  provided  in  the  case  of  returns  and 

payment  of  ii  orporations.  Since  section  246  provides 

that  the  unc  ment  exhibit  of  the  annual  statement 

approved  by  ion  of  Insurance  Commissioners  shall  be 

the  basis  for  Dme  and  since  the  annual  statement  is 

rendered  on  t >,  the  first  returns  under  section  246  will 

be  for  the  taj  ember  31,  1922,  and  will  be  made  on  or 

before  March  30,  signed  by  Commissioner  D.  H.  Blair, 

and  dated  Oc 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
749 


,J  ■'  in/.  r ■;  ti  at  ,«,<  r rbu ' 

2 ijfJlfi  ir! 

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- - ■ ' . . V 

aHYAMS  XAT  MOO VII  J A 113011  3UT 


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10.11-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS— (Continued.) 


T.  D. 


3392 


3393 


Law 


3394 

3395 
Special 


3396 

3397 


3398 

3399 


Subject 


Paragraph 


Sept.  7,  1922 


Sept.  12,  1922 


Sept.  19,  1922 


Sept.  21,  1922 

“ 21,  “ 

“ 26,  “ 


Sept.  21,  1922 
“ 27,  “ 


Oct.  3,  1922 

“ 7,  “ 


Report  No.  54,  September  13,  1922. 

(Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  37,  of  the  1922  Series.] 

Report  No.  55,  September  15,  1922. 

Basis  for  determining  taxable  gain  or  deductible 
loss  in  the  case  of  property  acquired  pr'or  to 
March  1,  1913,  and  sold  or  disposed  of  subse- 
quent thereto. — Attorney-General’s  opinion. — 

1916,  1917,  and  1918  Acts 3332 

Report  No.  56,  September  20,  1922. 

Amendment^  to  the  Revenue  Act  of  1921  effected 
by  the  China  Trade  Act 3158 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  3! , of  the  1922  Series,  and  on  account 
of  forward  references  to  the  amendments  to  the 
law  effected  by  the  China  Trade  Act.] 

Report  No.  57,  September  27 , 1922. 

(Admissions  and  Dues. — War  Tax  Service, 
^6837.)  I 

(Prohibitioqf.) 

Personnel  qf  Tax  Simplification  Board 3343 

[Pages  for 'substitution  on  account  index-digest 
references  to  new  matters  and  to  rulings  in 
Internal  Revenue  Bulletin  No.  39,  of  the  1922 
^Series.]  j 

Report  No.  58,  October  4,  1922. 

(Prohibition.) 

(Narcotic  D^w.) 

[Pages  for  substitution  on  account  index-digest 
references  to  Njlings  in  Internal  Revenue  Bul- 
letinfNo.  40,  of'the  1922  Series.] 

Report  NoS$9,  October  11,  1922. 
(Prohibition.) 

Art.  } 586,  Reg.  62  (and  Reg.  45)  amended.- — In- 

ltories  of  live  stock  raisers  and  other  farmers  3344 


There^are  no  Supplementary  Pages  34  to  114[at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  33. 


4 


-tut  ov  3 ■ •;■'•• 


v- 


smc 


m.t 


•EE  t;->3  yiBTtj^fji-dqquS 


2-27-22. 


(2)  4-10-22. 

TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  239.  Corporation  returns  ^ ^ 

Article  621.  Corporation  returns 2489  2509 

622.  Returns  by  receivers ’ 2500 

623.  Returns  of  insurance  companies 1362 

624.  Returns  of  personal  service  corporations 843 

625.  Returns  of  foreign  corporations 1423 

626.  Returns  for  fractional  part  of  year 2576 

Section  240.  Consolidated  returns  of  corporations 

Article  631.  Affiliated  corporations 2543 

632.  Consolidated  returns 2544 

633.  When  corporations  are  affiliated ............  ...  2555 

634.  Change  in  ownership  during  taxable  year 2556 

”3° 635.  Domestic  corporation  affiliated  with  foreign  corporation......! ! ! ! 2559 

‘ 636.  Consolidated  net  income  of  affiliated  corporations 2551 

New.  . . .637.  Consolidated  accounts  of  related  trades  owned  by  same  interests! ! 2561 

638.  Different  fiscal  years  of  affiliated  corporations 2548 

Section  241.  Time  and  place  for  filing  corporate  returns 

Article  651.  Time  and  place  for  filing  [returns 2535 

Sections  242  and  243.  Tax  on  life  insurance  companies 

New. Art. 661.  Life  insurance  companies' ilia 

Section  244.  "" 

549.  Art  671.  Gross  income  of  life  insurance  companies 1315 

Section  245. 

Ncw.Art.681.  Reserve  funds 1320 

New.  . . .682.  Reserve  for  deferred  dividends 1324 

New....  683.  Investment  expenses. . .' ............ 1327 

New.  . . .684.  Taxes  and  expenses  with  respect  to  real  estate 1331 

New'  °ther  d^u^°ns- 1322,  1336,  1340 

New.... 686.  Home  office  properties Mat 

New.... 687.  Foreign  compares 1345 

Sections  246  and  247.  Insurance  \coxfipanies  other  than  life  or  mutual  companies 

New.  Art. 591.  lax  on  insurance  Companies J369 

New.  . . . 692.  Gross  income  of  insurance  companies ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 1378 

New.  . . .693.  Deductions  allowed  vnsurance  companies 1394 


New . 


ADMINISTRATIVE  PROVISIONS 
Section  250.  Payment  of  taxes  / 

Article  1001.  Time  for  payment  of  tar\ 2602,2718,2720,2723  2732 

1002.  Payment  of  tairf  when  no  proper  return 

1003,  1006. 1003.  Nonpayment  of  tax—  inteW  and  penalty !!!!!! 2727 

1004.  Penalty  for  failure  to  file  return !!*.!!!!!!.".*  2625 

1005.  Deficiency  in  payment — interest  and  penalty 2603 

■ 1006.  Appeals  and  hearings ! ! ! " 2763 

1007.  Notice  and  dalmand  for  payment ?7tn 

1008.  Collection  of  tax  by  suit 

1009.  Collection  of  tax  by  distraint ! . . . . ! . . . . . . !!!!!!!!!!!  2779 

1010.  Liens  and  enforcement  of  tax  liens  by  bill  in  equity ...... ! . ! ! ! ! ! 2781 

1011.  Compromise  of  tax  cases 7639 

1012.  Assessment  of  tax 2747 

1013.  Declaration  bf  termination  of  taxable  period. . . ! . . .’ .’ . ! ! . ! .* ‘ ‘ 2786 

0 ..  _ * Extension  of  time  for  payment  of  deficiency ?608 

Section  251.  Receipts  for  taxes  

Article  1021.  Receipts  for  tax  payments 2799 

Section  252.  Refunds 

Article  1031.  Authority  for  refund,  credit,  and  abatement  of  tax 2813 

■ • lye‘u!lcl,  credit,  and  abatement  adjustments 2817 

loiT  o a!ms  c abatement  of  taxes  erroneously  assessed 2822 

1033.  Claims  for  abatement  of  uncollectible  taxes ! ! . ! 2824 

!oif‘  9la!ms  f°r  credit  of  taxes  erroneously  collected 2829 

1035.  Action  on  claims  for  credit 2832 

1077’  ?a**P®  re^uacl  °f  taxes  erroneously  collected 2835 

' 1078'  re  iei  whe-re  !l?ve8ted  caPital  reduced  by  Commissioner! ! 2851 

. .1038.  Refunds  under  prior  Acts 2853 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
99 


Ne 


Ne 


New.  . 
New. . 


2-27-22.  (2)  4-10-22. 

table  of  contents  to  REGULATIONS  62. 


Section  1324.  Interest  on  refunds  and  judgments  Paragraph 

New. Art. 1040.  Interest  on  refunds  and  judgments 2859  2918 

SeCm°^8A1^1fn^31e  ’ an^  1320'  Limit?tions  uPon  suits  and  prosecutions 

1038  nil'  rr8  t rccoYcrY  °\  taxes  erroneously  collected.  .2752,  2871,  2884,  2886 

IUA8 1051.  Claims  for  refund  of  sums  recovered  by  suit  ?o?n 

Section  253.  Penalties  

1041. Art. 1055.  Specific  penalties 2629 

Section  254.  Returns  of  payments  of  dividends 

1051  Art.  1060.  Return  of  information  as  to  payments  of  dividends 2379 

Section  255.  Returns  of  brokers 

1061. Art. 1065.  Return  of  information  by  brokers 2381 

Section  256.  Information  at  source 

Article  1071.  Return  of  information  as  to  payments  of  $1,000 2343 

. n,.  Inin'  !^eturn  information  as  to  payments  to  employees 2345 

07? ‘ 7 ' , aSCS  w . n°  rct,.lrn  of  information  required ” 2350 

io-7r  ' ’ ’ llln  „urn  information  as  to  interest  on  corporate  bonds 2355 

,n77 ,„7f'  ^ tUrn  of  information  as  to  payments  to  nonresident  aliens 2352 

iu//  ....  1076.  oource  of  information  as  to  foreign  items.  . ->157 

1078 1077.  Ownership  certificates  for  foreign  items. ..." 2361 

1078a...  1078.  Foreign  items  presented  for  collection  unaccompanied  by  owner- 
ship certificates 2366 

1079.  Return  of  information  as  to  foreign  items.  2368 

1080.  Information  as  to  actual  owner 2370 

Section  257.  Returns  to  be  public  records 

1091  .Art.  1090.  Inspection  of  returns 

1091a  ..1091.  Furnishing  of  copies  of  income  returns'." 2660 

1092.  Inspection  of  returns  by  State 2683 

1093.  Inspection  of  returns  by  stockholder . ’ 2693 

_ 1094.  Penalties  for  disclosure  of  returns.  ..  . ?77« 

Section  258.  Publication  of  statistics  ’ 8 

Article  1101.  Statistics  of  income 2708 

Section  259.  Collection  of  foreign  items 

Article  1111.  License  to  collect  foreign  items 2374 

Section  260.  Citizens  of  possessions  of  the  United  States 

Article  1121.  Status  of  citizen  of  United  States  possession 770 

Section  261.  Porto  Rico  and  Philippine  Islands 

Article  1131.  Income  tax  in  Porto  Rico  and  Philippine  Islands 774 

1132.  Taxation  of  individuals  between  United  States  arid  Porto  Rico 

and  Philippine  Islands 775 

1133.  Taxation  of  corporations  between  United  States’ and  Porto  Rico 

and  Philippine  Islands 775 

Section  262.  Income  from  sources  within  the  possessions  of  the  United  States 

New. Art. 1 135.  Citizens  of  the  United  States  deriving  income  from  sources  within 

a possession  of  the  United  States 2076 

New 1136.  Domestic  corporation  deriving  income  from  sources  within  a pos- 
session of  the  United  States 2077 

New 1137.  Income  received  within  the  United  States .' . . . . . . . . . . 2078 

Section  1312.  Final  determinations  and  assessments 

New.Art.l  141.  Final  determination  of  tax  or  penalty 2867 

DEFINITIONS  AND  GENERAL  PROVISIONS 
Section  2.  General  definitions 

Artide  1501.  Person.. 704,  706;  <>87 

Io0^.  Association t 988 

1503.  Association  distinguished  from  partnership 989 

1504.  Association  distinguished  from  trust 990 

1505.  Limited  partnership  as  partnership .'!.!!!  992 

1506.  Limited  partnership  as  corporation 993 

1507.  Joint  ownership  and  joint  adventure 994 

1508.  Insurance  company ' 1343 

1509.  Domestic  and  foreign  persons 1400  2060 

1510.  Government  contract ! . ’ 821 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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10-4-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 

3392 

3393 


Law 


3394 

3395 
Special 


3396 

3397 


Subject 


Paragraph 


Sept.  7,  1922 


Sept.  12,  1922 


Sept.  19,  1922 


Report  No.  54,  September  13,  1922. 

(Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  37,  of  the  1922  Series.] 

Report  No.  55,  September  15,  1922. 

Basis  for  determining  taxable  gain  or  deductible 
loss  in  the  case  of  property  acquired  pr'or  to 
March  1,  1913,  and  sold  or  disposed  of  subse- 
quent thereto. — Attorney-General’s  opinion. — 

1916,  1917,  and  1918  Acts 3332 

Report  No.  56,  September  20,  1922. 

Amendments  to  the  Revenue  Act  of  1921  effected 
by  the  China  Trade  Act 3158 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  38,  of  the  1922  Series,  and  on  account 


of  forward 
law  effect( 


Sept.  21,  1922 


21, 

26, 


Sept.  21,  1922 
“ 27,  “ 


references  to  the  amendments  to  the 
d by  the  China  Trade  Act.] 


R,  port  No.  57,  September  27,  1922. 
(Admissions  and  Dues. — War  Tax  Service, 
116837.) 

(Prohibition.) 

^Personnel  of  Tax  Simplification  Board 3343 

ages  for  s lbstitution  on  account  index-digest 
references  to  new  matters  and  to  rulings  in 
iternal  Revenue  Bulletin  No.  39,  of  the  1922 
Sihfies.l 

Report  No.  58,  October  4,  1922. 

■) 

aw.) 

bstitution  on  account  index-digest 
; v>  rulings  in  Internal  Revenue  Bul- 
40^of  the  1922  Series.] 


There' are  no  Supplementary  Pages  34  to  114  at  present. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33. 


V .« 


i 


9-15-22.  (2)  9-27-22. 


extent  that  the  selling  price  exceeded  the  value  on  March  1,  1913; 

(b)  Taxable  gain  resulted  if  the  selling  price  was  greater  than  the  cost  and 
if  the  cost  was  greater  than  the  value  on  March  1,  1913,  to  the  extent  that  the 
selling  price  exceeded  the  cost  of  the  property  sold  or  disposed  of; 

(c)  No  taxable  gain  or  allowable  loss  resulted  if  the  selling  price  was  greater 
than  the  value  of  the  property  on  March  1,  1913,  but  less  than  the  cost 
thereof; 

(d)  An  allowable  loss  resulted  if  the  selling  price  was  less  than  the  value 
on  March  1,  1913,  and  if  that  value  was  less  than  the  cost  to  the  extent  of  the 
difference  between  the  value  on  March  1,  1913,  and  the  selling  price; 

(e)  No  taxable  gain  or  deductible  loss  resulted  if  the  selling  price  was  less 

than  the  value  but  greater  than  the  cost;  or 

(f)  An  allov  ing  price  was  less  than  the  cost  and 

if  the  cost  was  rch  1,  1913,  to  the  extent  that  the 

cost  of  the  pro]  the  selling  price  thereof. 


3343  Person:  >n  Board. — (September  26,  1922.) 


Uy, 

DAUGHERTY,  Attorney  General. 


(Opinion  of  mded  to  and  made  a part  of  T.  D. 

3393,  1(3332.) 


3343  Person:  >n  Board. — (September  26,  1922.) 

2969 
3299 

3331  1 


Appointed  by  the  President  to  represent  the  public. 


Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
j resent  the  Bureau  of  Internal  Revenue. 


topyiiglit  1922,  by  The  Corporation  Trust  Company. 
I HE  FEDERAL  INCOME  TAX  SERVICE 
747 


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2-27-22 


(2)  4-10-22. 

TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Paragraph 

Section  200.  Definitions 

Article  1521.  Fiduciary..... 923 

1522.  Fiduciary  distinguished  from  agent 924 

1523.  Personal  service  corporation 825 

1524.  Personal  service  corporation:  certain  corporations  excluded....  826 

1525.  Personal  services  rendered  by  personal  service  corporation 827 

1526.  Personal  services  rendered  by  personal  service  coporation:  more 

than  one  business 828 

1527.  Activities  of  stockholders  of  personal  service  corporation 829 

1528.  Activities  of  stockholders  of  personal  service  corporation:  conduct 

of  affairs 830 

1529.  Activities  of  stockholders  of  personal  service  corporation:  stock 

interest  required 831 

1530.  Activities  of  stockholders  of  personal  service  corporation:  change 

in  ownership 832 

1531.  Capital  of  personal  service  corporation 833 

1532.  Capital  of  personal  service  corporation:  inference  from  use.......  834 

1533.  “Taxable  year,”  “withholding  agent,”  and  “paid”... . 1048,  1061,  2227 
Section  201.  Dividends 

Article  1541.  Dividends /. 1080,  1082 

1542.  Source  of  distribution. ./ 1107 

1543.  Distribution  out  of  warnings  or  profits  accumulated  prior  to 

March  1,  1913...../. 1113,  1117 

1543. . ..  1544.  Distributions  other  than  those  out  of  earnings  or  profits 1123 

1548.  ...  1545.  Distributions  in  liquidation 1125 

1549. .  . . 1546.  Distribution  from  depletion  or  depreciation  reserves 1 126 

1544.  ...  1547.  Dividends  paid  in  property 1084 

1547.  . . . 1548.  Sale  of  stock  received  as  dividend 1136 

New....  1549.  Declaration  and  s/ibsequent  redemption  of  a stock  dividend....  1151 

Section  202.  Basis  for  determining  gain  or  loss 

Article  1561.  Basis  for  determining  gain  or  loss  from  sale 1437 

1562.  Sale  of  property?  acquired  by  gift  after  December  31,  1920 1452 

1562.  ...  1563.  Sale  of  property  acquired  by  gift  on  or  before  December  31, 

1920,  or  by  Request,  devise,  or  inheritance 1455 

1563. . ..  1564.  Exchange  of  ppb'perty 1457 

1564. .  . . 1565.  Determination/of  gain  or  loss  from  the  exchange  of  property. . . . 1458 

1566 . . 1  / \ 

1567. . >•  1566.  Exchange  of  property  which  results  in  no  gain  or  loss 1466 

1569.. ) 

1568. .  . . 1567.  Gain  or  loss, from  subsequent  sale 1477 

1565. .  . . 1568.  Exchanges  of  property,  for  other  property  and  money 1482 

New....  1569.  Installment^  sales \ 1489 

1570.  Readjustment  of  partnership  interests 1490 

Section  203.  Inventories 

Article  1581.  Need  of  inventories \ 1510 

1582.  Valuation  of  inventories. .. ., 1511 

1583.  Inventorfes  at  cost V 1516 

1584.  Inventories  at  market \ 1520 

1585.  Inventories  by  dealers  in  securities 1521 

1586.  Inventories  of  live-stock  raisers  and  other  farmers 1192 

1587.  Inventories  of  miners  and  manufacturers 1524 

1588.  Inventories  of  retail  merchants 1525 

Section  204.  Net  losses 

Article  1601.  Net  losses,  definition  and  computation 1535 

1602,  1603.1602.  Claim  fpr  allowance  of  net  loss 1545 

New....  1603.  Net  losses  of  partnerships,  trusts,  estates,  and  insurance  com- 
panies  1547 

New....  1604.  Net  losses,  for  what  periods  allowed 1549 

New. . . . 1605.  Illustration  of  computation  of  net  loss 1541 

Section  205.  Fiscal  years  1920-21  and  1921-22 

Article  1621.  Fiscal  years  1920-21  and  1921-22 869 

1622.  Fiscal  year  ending  in  1921 870 

1623.  Credits  in  the  case  of  fiscal  year  ending  in  1921 871 

1624.  Fiscal  year  ending  in  1922 872 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
101 


2-27-22. 


(2)  4-10-22. 

TABLE 


OF  CONTENTS  TO  REGULATIONS  62. 


Section  206.  Capital  gain  Paragraph 

New  .Art.  165  1.  Definition  and  illustration  of  capital  net  gain 1503 

New 1652.  Returns  of  capital  net  gain 1506 

New 1653.  Partnerships,  estates,  and  trusts 1508 

Section  1300.  Laws  made  applicable — Returns — Examination  of  books  and  witnesses 

Article  171 1.  Aids  to  collection  of  tax 2711 

Section  1306.  Fractional  parts  of  a cent 

Article  1721.  When  fractional  part  of  a cent  may  be  disregarded 2788a 

Section  1325.  Payment  of  taxes  by  check  or  United  States  securities 

Article  1731.  Payment  of  tax  by  certificates  of  indebtedness 2790 

1732.  Procedure  with  respect  to  certificates  of  indebtedness 2791 

1733.  Payment  of  tax  by  uncertified  checks 2796 

1734.  Procedure  with  respect  to  dishonored  checks 2797 

Section  1332.  Alternative  tax  on  personal  service  corporations 

New. Art.  1736.  Alternative  tax  on  personal  service  corporations 860 

Section  1303.  Rules  and  regulations 

Article  1800.  Promulgation  of  regulations 2943 

Cross  References  From  Regulations  45  to  Regulations  62. 

If  a particular  Article  of  Regulations  45  is  not  listed,  its  general  subject  matter  is 
covered  in  the  Article  of  Regulations  62  bearing  the  same  number. 

of  Reg.  62 


Reg.  45,  Art. 

Keg.  45,  Art.  61  = Art. 

Keg.  45,  Art.  52  = Art. 

Reg.  45,  Art.  53  = Art. 

Reg.  45,  Art.  64  = Art. 

Reg.  45,  Art.  78  = Art. 

Reg.  46,  Art.  79  = Art. 

Reg.|45,  Art.  80  = Art. 


Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 

Reg.  45,  Art. 

Reg.  45,  Art. 

Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 

Reg.  45,  Art 

Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 


80  a)  = 

81  = 


of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 

of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 


Art.  101a\.  . T,  ~~ 
292/  of  Reg’  02 


none 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 


329  of  Reg.  62 

311  of  Reg.  62 
311a  of  Reg.  G2 

312  of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 


313 

314 

315 

331 

332 

333 

334 


Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Keg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 
Reg.  45,  Art. 


370  = 

371  = 

375  = 

376  = 

446  = 

447  = 

448  = 

504  " 

541(a) = 

542  = 

543  = 

544  = 

545  = 

546  == 

547  = 

548  = 

549  = 

635  = 

636  = 


Art. 

none 

none 

Art. 

none 

Art. 

Art. 

none 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

none 

Art. 


371 


375  of  Reg.  62 


446 

447 


none 
Art.  335 
Art.  335 
Art.  336 
Art.  337 
Art.  338 
Art.  339 

none 


of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 


Reg.  45,  Art.  637  : 

Reg.  45,  Art.  1006 
Reg.  45,  Art.  1037 
Reg.  45,  Art.  1038 
Reg.  45,  Art.  1041 
Reg.  45,  Art.  1051 
Keg.  45,  Art.  1061  = 

Reg.  45,  Art.  1073  : 

Keg.  45,  Art.  1074  : 

Reg.  45,  Art.  1075  = 

Reg.  45.  Art.  1076  : 

Reg.  45,  Art.  1077  = 

Reg.  45,  Art.  1078 
Reg.  45,  Art.  1078(a'>  = 
Reg.  45,  Art.  1091 
Reg.  45,  Art.  1091ta)= 
Reg.  45,  Art.  1543 

Reg.  45,  Art.  1544  = 

Reg.  45,  Art.  1545  = 

Reg.  45,  Art.  1646  = 

Reg.  45,  Art.  1547  = 

Reg.  45,  Art.  1548  = 

Reg.  45,  Art.  1549  = 

Reg.  45,  Art.  1562  = 

Reg.  45,  Art.  1563  = 

Reg.  45,  Art.  1564  = 

Reg.  45,  Art.  1565  = 

Reg.  45,  Art.  1567  = 

Reg.  45,  Art.  1568  = 

Reg.  45,  Art.  1569  = 

Reg.  45,  Art.  1603  = 

1621) 

Reg.  45,  Art.  to  \ - 

1 62  5 J 

Reg.  45,  Art.  1641  = 

Reg.  45,  Art.  1642  = 


Art. 

Art.  1003 
Art.  1050 
Art.  1051 
Art.  1055 
Art.  1060 
Art.  1065 
none 

Art.  1073 
Art.  1074 
Art.  1075 
Art.  1076 
Art.  1077 
Art.  1078 
Art.  1090 
Art.  1091 


of  Reg.  62 
of  Reg.  62 


642  of  Reg.  62 

543  of  Reg.  62 

544  ' of  Reg.  62 
645£of  Reg.  62 
546 1 of  Reg.  62 
647#  of  Reg.  62 
548J(of  Reg.  62 
649  of  Reg.  62 
671  of  Reg.  62 


6121 

635/ 

636 


of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 


Art.  15431  c0 

1544/  of  Reg"  62 
Art.  1547  of  Reg.  62 


none 

none 

Art.  1548 
Art.  1545 
Art.  1546 
Art.  1563 
Art.  1564 
Art.  1565 
Art.  1568 
Art.  1666 
Art.  1567 
Art.  1566 
Art.  1602 
1621 
Art.  to 
1624 

none 

none 


of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 


For  Cumulative  Index  references  to  Articles  of  Reg.  45,  for  which  there  are  no  corresponding  Articles 
(in  context)  of  Reg.  62,  see  end  of  compilation. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

102 


9-27-22. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 


Subject 


Paragraph 


Report  No.  54,  September  13,  1922. 


3392  Sept.  7,  19?0  (Prohibition.) 


[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  37,  of  the  1922  Series.) 


[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  38,  of  the  1922  Series,  and  on  account 
of  forward  references  to  the  amendments  to  the 
law  effected  by  the  China  Trade  Act.) 


[Pages  for  substitution  on  account  index-digest 
references  to  new  matters  and  to  rulings  in 
Internal  Revenue  Bulletin  No.  39,  of  the  1922 
Series.! 


There'are  no  Supplemen  tary[Pages[33  to[114{at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33. 


Report  No.  55,  September  15,  1922. 


3393 


Sept.  12,  1922  Basis  for  determining  taxable  gain  or  deductible 


loss  in  the  case  of  property  acquired  pr'or  to 
March  1,  1913,  and  sold  or  disposed  of  subse- 


quent thereto. — Attorney-General’s  opinion. — 
1916,  1917,  and  1918  Acts 


3332 


Law 


Report  No.  56,  September  20,  1922. 
Sept.  19,  1922  Amendments  to  the  Revenue  Act  of  1921  effected 
by  the  China  Trade  Act 


3158 


3394 


(Admissions  and  Dues. — War  Tax  Service, 
U6837.) 

(Prohibition.) 

Personnel  of  Tax  Simplification  Board 


Report  No.  57,  September  27,  1922. 


3395  “ 21,  “ 

Special  “ 26,  “ 


3343 


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2-87- ‘it. 


(2)  7-20-22. 

CREDITS  TO  INDIVIDUALS— SPECIFIC  EXEMPTIONS 


°1  such  personal  exemption  shall  be  $2,500,  unless  the  aggregate  net  income 
of  such  husband  and  wife  is  in  excess  of  $5,000,  in  which  case  the  amount 
of  such  personal  exemption  shall  be  $2,000.  If  such  husband  and  wife 
™,akr,  S/\ar.ate  rel),rns'„  thi  Pers°nal  exemption  may  be  taken  by  either  or 
ivniei  bm"n  '*"»  [Note:  The  1918  Act  limited  the 

credit  to  $2,000  in  such  cases  irrespective 
of  the  amount  of  the  net  income.) 


2047  Law  f202.  Relief  Provision  for  Married  Persons  and  Heads 
(occ.  216.)  of  Families  With  Incomes  of  Over  $5,000  but  Less 
, th*n  $5,020.—' 11  In  no  case  shall  the  reduction  of  the 

personal  exemption  from  $2  500  to  $2,000  operate  to  increase  the  tax 
which  would  be  payable  if  the  exemption  were  $2,500,  by  more  than  the 
amount  of  the  net  income  in  excess  of  $5,000;”— Law.  7 [Note:  This 

provision  is  new  to  the  1921  Act.) 


f 


2048  (b)  Under  the  Revenue  Act  of  1921  a single  person  is  entitled  to 

a personal  exemption  of  $1,000  regardless  of  the  amount  of  his  net 
income  but  the  personal  exemption  of  a head  of  a family  or  of  a married 

Pf™nJ te,n’-h  hu-Suand  °r  IT*6  !S  $2’,5°°>  Unless  thc  net  ^comc  is  in 
excess  of  $5,000,  in  which  event  the  personal  exemption  is  $2,000.  A husband 

and  wife  living  together  have  but  one  personal  exemption,  the  amount  of 
«s  nno  deJ?en,ds  “P01.1  whether  their  combined  net  income  is  in  excess  of 
•.u  Vhey  make  separate  returns,  such  exemption  may  be  taken  by 
either  or  divided  between  them.  To  prevent  a slight  increase  above  $5,000 
in  net  income  from  causing  a disproportionate  increase  in  tax,  section  216  fc) 

£°snnet  t*?noo  n°  C3Se  Sha1-1  the  rcdfction  o{  the  personal  exemption  from 
$2,500  to  $2,000  operate  to  increase  the  tax  which  would  be  payable  if  the 
exemption  were  $2,500,  by  more  than  the  amount  of  the  net  income  in 
excess  or  $5,000.  For  example,  a married  man  with  no  dependents,  having 
a net  income  of  $5,005,  would  pay  without  the  benefit  of  this  provision  a 
normal  tax  of  $120.20  ($5,005  less  $2,000,  or  $3,005,  at  4 per  cent)  but 
under  this  provision  his  normal  tax  is  only  $105.20  ($5,005  less  $2,500,  or 
$2,505,  at  4 per  ^cent or  $100.20,  plus  $5,  the  amount  by  whi-h  his  net  income 
exceeds  $5,000).  The  only  incomes  affected  by  this  equalizing  provision 
are  those  in  excess  of  $5,000  but  not  in  excess  of  $5,019.99.  (Art  301  Re? 
62,  1922  Edition.)  ’ ’ Keg‘ 


' 


2049  Personal  Exemption  of  Head  of  Family.-A  head  of  a family  is  an 
individual  who  actually  supports  and  maintains  in  one  household 
one  or  more  individuals  who  are  closely  connected  with  him  bv  blood  re- 
lationship, relationship  by  marriage,  or  by  adoption,  and  whose  right  to 
exercise  family  control  and  provide  for  these  dependent  individuals  is  based 
upon  some  moral  or  legal  obligation.  In  the  absence  of  continuous  actual 
residence  together,  whether  or  not  a person  with  dependent  relatives  13  a 
nead  of  a family  within  the  meaning  of  the  statute  must  depend  on  the  char- 
af!f[  °*  1 if  seParat,on*  Ii  a father  is  absent  on  business  or  at  war  or  a 
child  or  other  dependent  is  away  at  school  or  on  a visit,  the  common  home 
being  still  maintained,  the  additional  exemption  applies.  If,  moreover. 
",  force  of  circumstances  a parent  is  obliged  to  maintain  his  dependent 
children  witn  relatives  or  in  a boarding  house  while  he  lives  elsewhere,  the 
additional  exemption  may  still  apply.  If.  however,  without  necessity  the 


r 


r 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THJ!  FEDERAL  INCOME.  TAX  SERVICE 
458 


r 


£-27-22.  (2)  4-10  22.  (8)  4-21-22.  (4)  5-19-22.  (5)  6-2-22.  (6)  6-26-22.  (7)  7-12-22.  (8)  8-3-22. 

DEDUCTIONS — AMORTIZATION. 


of  such  reduced  cost.  Where  no  such  allowance  has  been  made  the  amount 
of  amortization  to  be  allowed  as  a deduction  from  gross  income,,  for  the 
purpose  of  the  tax,  shall  be  computed  in  accordance  with  the  provisions  of 
articles  181  to  189,  pursuant  to  which  the  deduction  must  be  made,  and  not 
upon  the  basis  of  any  amount  contractually  or  otherwise  determined.  (Art. 
181,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Government  contract:  income  being  partially  from  (26-19-597:  A.  R.  M.  1) . .1919 
Cum.  Bull.  p.  269.  ,nio 

“If  claim  therefor  was  made  at  the  time  of  filing  return  for  the  taxable  year  1918, 
1919,  1920,  or  1921”  is  condition  precedent  to  claiming  deduction  in  a return 
under  the  1921  Act  only;  amended  and  supplemental  returns;  refund  claims 
under  1918  Act;  general  discussion:  1918  and  1921  Acts  (1-20-273:  Sol.  Op.  138) 

. .Bull.  I (’22)-20,  p.  10.  Same  (refund  now  under  1918  Act  though  no  claim 
heretofore  filed)  (1-28-402:  I.  T.  13S9).- . Bull.  I ( 22)-2S,  p-  3.  . 

Munition  manufacturers’  tax:  effect  of  amortization  for  that  tax  on  invested  capital 
(15-19-452:  T.  B.  M.  56).  .1919  Cum.  Bull.  p.  291.  ' . 

Supplemental  return  of  May  15,  1922;  19 i 1 Act  (1-22-3 16:  I.  1 . 1-29) ..  Bull.  ( ~ 2)- 
22,  P-  12.  ^ J 

1866  Depreciation  of  Amortized  property.— The  allowance  for  amorti- 
zation shall  be  inclusive  of  all  depieciation  during  the  amortization 

period  on  property  subject  to  amortization.  See  Article  186  [H1876].  Depre- 
ciation will  be  allowed,  beginning  «/t  the  close  of  the  amortization  period, 
upon  property  the  cost  of  which  has  been  partly  amortized  but  shall  be 
limited  to  the  value  of  such  property  after  the  amortization  allowance  has 
been  deducted.  Property  which  hiabeen  amortized  to  its  scrap  value  shall 
not  further  be  subject  to  depreciation.  (Art.  182,  Reg.  62,  1922  edition.) 

1867  Property  Cost  of  Which  MaV  be  Amortized.— The  taxpayer  may 
deduct  from  gr^oS  incomfe  a reasonable  allowance  for  amortization 

of  the  cost  of  buildings,  machinery,  equipment  or  other  facilities,  constructed 
erected,  installed,  or“acquired  oh  or  aft\r  April  6,  1917,  for  the  production 
of  articles  contributing  to  the  prosecution  of  the  war  against  the  German 
Government  and  of  vessels  constructed  01*  acquired  on  or  after  such  date  for 
the  transportation  of  articles  qfr  men  confuting  to  the  prosecution  of  such 

war.  . 

1 868  The  allowance  may  bd  deducted  onW  by  taxpayers  who  alter  April 
6,  1917,  have  constructed  or  otherwise  acquired  plant  or  other  facil- 
ities for  the  actual  production  of  articles  contributing  to  the  prosecution  of 
the  war.  It  is  not  sufficient,  to  entitle  the  taxpayer  to  the  allowance,  that 
the  nature  of  his  business  is  such  as  to  contribute  to  the  production  of  arti- 
cles. For  example,  a taxpayer,  such  as  a railroad,  whose  business  activities 
are  confined  to  transportation  (other  than  t^ater  transportation)  is  not 
entitled  to  the  allowance.  A taxpayer,  the  nature  of  whose  business  is  the 
actual  production  of  articles,  however,  may  claim  the  allowance  with  respect 
to  the  cost  of  all  buildings,  machinery,  equipment  or  other  facilities  which 
were  constructed  for  use  or  which  were  used  in  connection  with  the  produc- 
tion of  such  articles,  both  in  the  acquisition  and  transportation  of  raw  mate- 
rial, the  actual  process  of  manufacture  or  other  conversion,  and  the  trans- 
portation and  marketing  of  the  finished  product. 

1 869  In  the  case  of  facilities  the  construction,  erection,  installation,  or 
acquisition  of  which  was  commenced  before  April  6,  1917,  and  com- 
pleted subsequent  to  that  date,  amortization  will  be  allowed  with  respect 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

415 


2-27-22.  (21  4-10-22.  (3)  4-21-22.  (4)  6-19-22.  (5)  6-2-22.  (6)  6-2C-22.  (7)  7-12-22.  (8)  8-3-22. 

DEDUCTIONS  - AMORTIZATION. 

only  to  that  pait  of  the  cost  incurred  on  or  after  April  6,  1917,  and  which 
was  (or  should  have  been)  properly  entered  on  the  books  of  the  taxpayer  on 
or  after  that  date.  (Art.  183,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

4 Facilities  constructed  011  leased  ground  which  revert  to  lessor;  amortization  per- 
inittcd  to  lessee:  1918  Act  (1-31-437:  A.  R.  R.  1009).  . Hull.  1 (’22)— 31,  p.  5. 

Parent  corporation,  through  stock  control,  not  entitled  to  deduction  on  account  of 
subsidiaries’  assets:  1918  and  1921  Acts  (1-25-359:  I.  T.  1367).  .Bull.  I (’22)-25, 

p.  16. 

Railioads:  additional  facilities  constructed  or  purchased  do  not  fall  within  the  statutory 
provision  (45-21-1909:  L.  O.  1074).. Dec.  1921  Cum.  Bull.  p.  159. 

Sugar  production  and  manufacture  contributed  to  prosecution  of  the  war  (16-19-464: 
O D.  259).  . 1919  Cum.  Bull.  p.  221. 

1 870  Computation  of  Amortization  Allowance. — The  total  amount  of  the 
amortization  allowance  is  the  difference  between  the  original  cost  of  the 
property  if  constructed,  erected,  installed,  or  acquired  on  or  after  April  6, 
1917;  or  if  acquired  partly  before  and  partly  after  April  6,  1917,  then  that  part 
of  the  cost  incurred  on  or  after  April  6,  1917,  and  properly  entered  on  the  books 
of  the  taxpayer  on  or  after  that  date,  less  any  amounts  deducted  for  depre- 
ciation, losses,  etc.,  prior  to  January  1,  1918,  and  the  value  of  the  property 
on  either  of  the  bases  indicated  below: 

1871  (1.)  In  the  case  of  property  which  has  been  sold  or  permanently  dis- 
carded, or  which  will  be  sold  or  permanently  discarded  before 

March  3,  1924,  the  value  shall  be  the  actual  sale  price  or  estimated  fair  market 
value  a?  of  the  date  when  the  property  was  or  will  be  permanently  discarded 
plus  a reasonable  allowance  for  depreciation  in  case  the  property  is  used  in 
the  taxpayer’s  business  after  the  close  of  the  amortization  period.  Such  fair 
market  value  shall  be  established  by  investigation  of  engineers  of  the  Bureau 
of  Internal  Revenue,  if  such  investigation  is  deemed  advisable. 

1872  (2.)  In  the  case  of  Droperty  not  included  in  (1)  above,  the  value 
shall  be  the  estimated  value  to  t he  taxpayer  in  terms  of  its  actual 

use  or  employment  in  his  going  business,  such  value  to  be  not  less  than  the 
sale  or  salvage  value  of  the  property  and  not  greater  than  the  estimated 
cost  of  replacement  under  normal  postwar  conditions  less  depreciation  and 
depletion.  Upon  the  basis  of  the  costs  prevailing  at  the  latest  prewar  date 
at  which  a reasonably  normal  market  existed,  the  commissioner  shall  in 
respect  of  basic  material  and  labor  costs  determine  and  publish  ratios  of 
estimated  postwar  costs  of  replacement,  and  a taxpayer  shall  use  such  ratios 
in  computing  a claim  for  a tentative  allowance  for  amortization.  Such  ten- 
tative allowance  may  be  redetermined  on  or  before  March  3,  1924,  at  the 
request  of  the  taxpayer  or  by  the  Commissioner. 

1 873  Special  record  of  all  property  falling  in  (1)  above,  must  be  preserved 
by  the  taxpayer,  and  the  Commissioner  must  be  notified  with  the 
next  tax  return  (a)  if,  after  having  been  in  good  faith  permanently  discarded 
or  dismantled,  property  shall  in  any  case  be  restored  to  use  because  of  con- 
ditions not  foreseen  or  anticipated  at  the  time  it  was  discarded;  or  (b)  of  the 
selling  price,  if  sold.  (Art.  184,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Penalty  and  interest:  excessive  claim  (3-20-692:  A.  R.  M.  24).  .June  1920  Cum.  Bull, 
p.  231. 

Ratios  of  estimated  post-war  cost  of  replacement.  . H3144.  Same  reproduced  as 
(1-20-274:  I.  T.  1308).  .Bull.  I (’22)-20,  p.  13. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
410 


2-27-22.  (2)  4-10-22.  (3)  9-13-22. 


DEDUCTIONS— TAXES. 

1733  Law  1J301.  Credit  for  Taxes  in  the  Case  of  Individuals. — “Sec. 

(Sec.  222.)  222.  (a)  That  the  tax  computed  under  Part  II  [individ- 

ual normal  and  surtax]  of  this  title  shall  be  credited 

with:” — Law.  [Note:  The  1918  Act  so  provided.] 

1 734  Law  1f302.  Income  and  Excess-Profits  Taxes  Paid  to  Foreign 
(Sec.  222.)  Countries  and  All  Such  Taxes  Paid  to  Possessions 

of  the  United  States  by  Citizens  to  be  Credited. — 
“(1)  In  the  case  of  a citizen  of  the  United  States,  the  amount  of  any  income , 
war-profits  and  excess-profits  taxes  paid  during  the  taxable  year  to  any 
foreign  country  or  to  any  possession  of  the  United  States;  and” — Law. 

[Note:  The  1918  Act,  in  the  case  of 

taxes  paid  to  a foreign  country,  carried 
the  qualification  “upon  income  derived 
from  sources  therein”.] 

1 735  Law  1f303.  Income  and  Excess-Profits  Taxes  Paid  to  Possessions 
(Sec.  222.)  of  the  United  States  by  Residents  Are  to  be  Credited. 

— “(2)  In  the  case  of  a resident  of  the  United  States, 
the  amount  of  any  such  taxes  paid  during  the  taxable  year  to  any  possession 
of  the  United  States;  and” — Law.  [Note:  The  1918  Act  so  provided.] 

1 736  Law  1f304.  Certain  Income  and  Excess-Profits  Taxes  Paid  to  For- 
(Sec.  222.)  eign  Countries  by  Alien  Residents  Are  to  be  Credited. 

— “(3)  In  the  case  of  an  alien  resident  of  the  United 
States,  the  amount  of  any  such  taxes  paid  during  the  taxable  year  to  any 
foreign  country,  if  the  foreign  country  of  which  such  alien  resident  is  a citizen 
or  subject,  in  imposing  such  taxes,  allows  a similar  credit  to  citizens  of  the 
United  States  residing  in  such  country ;” — Law.  [Note:  The  1918 

Act,  here,  limited  the  credit  to  such 
taxes  imposed  by  foreign  countries 
“upon  income  derived  from  sources 
therein,”  under  like  reciprocal  con- 
ditions.] 


1 73  7 Countries  Which  Do  or  Do  Not  Satisfy  the  Similar  Credit  Require- 
ment.— (a)  The  following  is  an  incomplete  list  of  the  countries 
which  satisfy  the  similar  credit  requirement  of  Section  222  (a)  (3)  of  the 
Revenue  Act  of  1921,' either  by  allowing  to  citizens  of  the  United  States 
residing  in  such  countries  a credit  for  the  amount  of  income,  war  profits, 
or  excess  profits  taxes  paid  to  the  United  States,  or  in  imposing  such  taxes, 
by  exempting  from  taxation  the  incomes  received  from  sources  within  the 
United  States  by  citizens  of  the  United  States  residing  in  such  countries: 
Bulgaria,  Canada,  Italy,  Newfoundland,  Salvador,  (b)  The  following  is  an 
incomplete  list  of  the  countries  which  do  not  satisfy  the  similar  credit  require- 
ment of  Section  222  (a)  (3)  of  the  Revenue  Act  of  1921,  either  by  allowing 
no  credit  to  citizens  of  the  United  States  residing  in  such  countries,  for  the 
amount  of  income,  war  profits,  or  excess  profits  taxes  paid  to  the  United 
States,  or  because  such  countries  do  not  impose  any  income,  war-profits,  or 
excess-profits  taxes:  Argentina,  Bahama,  Belgium,  Bermuda,  Bolivia,  Bosnia, 
Brazil,  Chile,  China,  Costa  Rica,  Dutch  Guiana,  Ecuador,  Egypt,  Finland, 
France,  Great  Britain  and  Ireland,  Guatemala,  Herzegovina,  India,  Jamaica, 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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£-27-22  (2)  4-10-22.  (3)  5-19-22.  (4)  5-2G-22.  (5)  6-2-22. 

EXEMPT  INCOME. 


and  not.  the  accomplishment  of  specific  objects,  and  whose  services  are  con- 
tinuous, not  occasional  or  temporary.  Employees  of  universities  receiving 
salaries  paid  in  part  or  in  whole  from  funds  available  under  the  Smith-Lever 
Act  of  May  8,  1914,  who  are  officers  or  employees  of  a State,  are  not  required 
to  return  as  taxable  income  the  salaries  so  received.  This  is  also  true  with 
respect  to  the  Act  of  August  30,  1890,  relating  to  colleges  for  the  benefit  of 
agriculture  and  the  mechanic  arts,  and  to  the  Act  of  March  2,  1887,  relating 
to  agricultural  experiment  stations  in  such  colleges.  As  to  State  contracts, 
lee  article  37  [^f  1 1 84].  (Art.  88,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 


1921  Cum.  Bull.  p.  106. 

Receiver  for  assets  of  corporation  in  two  states;  appointed  by  State  court  in  one  and 
Federal  Court  in  another  (20-20-933:  O.  D.  503).  .June  1920  Cum.  Bull.  p.  99. 

Referee  in  drainage  appointed  by  District  Judge  (22-20-968:  O.  D.  525).  .June  1920 
Cum.  Bull.  p.  100. 

Teachers,  when  employed  by  institution  not  wholly  supported  by  State;  general  dis- 
cussion (4-19-214:  O.  826)..  1919  Cum.  Bull.  p.  93. 

Teachers,  when  employed  and  paid  by  private  corporation  (though  under  aupervision 
of  city  school  authorities)  to  meet  requirements  of  State  compulsory  education 
laws  (27-21-1711:  O.  D.  963).. Dec.  1921  Cum.  Bull.  p.  105. 


Copyright  1922,  by  Tlic  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
341 


2-27-22.  (2)  4-10-22.  (8)  6-19-22.  (4)  6-26-22.  (5)  6-2-22. 

EXEMPT  INCOME. 

Va.  debt  commissioners  (16-1  y-460:  0.  D.  237) . . 1919  Cum.  Bull.  p.  96. 

Washington;  special  deputy  bank  examiners,  attorneys  and  clerks  appointed  by 

State  bank  examiner:  1921  A<i  (1-21-297:  1.  'Id  1316)..  Bull.  I (’22)-21,  p.  7.  f- 

Witnesses  for  State;  fees  (9-19-338:  O.  D.  195) ..  1919  Cum.  Bull.  p.  67. 


1600  Section  213  (a)  of  the  Revenue  Act  of  1918  provides  that  gross 
income  shall  include  “gains,  profits,  and  income  derived  from  salaries, 

wages,  or  compensation  for  personal  service  * * * of  whatever  kind  and  in 
whatever  form  paid.” 

1601  In  accordance  with  an  opinion  of  the  Attorney-General,  dated  May 

6,  1919,  and  based  on  the  well-settled  rule  that  governmental  agencies  f" 
of  the  States  are  not  subject  to  taxation  by  the  Federal  Government,  it  is 
held  that  salaries  of  State  officials  and  salaries  and  wages  of  employees  of 
a State  are  not  subject  to  the  income  tax  imposed  by  the  said  Revenue  Act 
of  1918.  (T.  D.  2843,  May  17,  1919.) 


1602  Compensation  as  Special  Counsel,  Received  from  a Municipality, 
is  Not  Exempt  Income. — A counsellor  at  law  is  engaged  by  a munici- 
pality as  special  counsel,  to  act  in  connection  with  the  regular  City  Attorney 
in  handling  a certain  piece  of  litigation.  Is  he  regarded  a3  an  officer  or 
employee  of  a political  subdivision  of  a state,  so  that  his  compensation  for 
his  services  are  not  taxable  under  Article  71  of  Regulations  45,  sentence  2 
[now  Art.  88]?  (Answer.)  In  reply  to  the  first  question,  you  are  advised 
that  under  the  ruling  of  this  office,  the  compensation  paid  by  a State  to  “spec- 
ial counsel,”  such  as  described  above,  is  taxable  income,  and  not  exempt  from 
income  tax.  (Part  of  letter  from  Collins  & Corbin,  Jersey  City,  N.  J.,  and 
the  answer  thereto,  signed  by  J.  H.  Callan,  Assistant  to  the  Commissioner, 
and  dated  April  15,  1919.) 


1603  Law  ^[136.  Amounts  Received  after  December  31,  1921  and 
(Sec.  213.)  Before  January  1,  1927,  as  Dividends  or  Interest 
from  Domestic  Building  and  Loan  Associations. — 
[Gross  income  does  not  include ] “(10)  So  much  of  the  amount  received  by  an 
individual  after  December  31,  1921,  and  before  January  1,  1927,  as  dividends 
or  interest  from  domestic  building  and  loan  associations , operated  exclusively 
for  the  purpose  of  making  loans  to  members,  as  does  not  exceed  $300;” — 
Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

[See  Art.  89,  If  1606.] 


1604  Law^fl37.  Rental  Value  of  Parsonage  Furnished  as  Part  of 
(Sec.  213.)  Minister’s  Compensation. — [Gross  income  does  not 
include ] “(11)  The  rental  value  of  a dwelling  house  and 
appurtenances  thereof  furnished  to  a minister  of  the  gospel  as  part  of  his 
compensation.” — Law.  [Note:  This  provision  is  new  to  the  1921 

Act.] 

[See  Art.  89,  'll 1606.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
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tr 


c 


2-27-22.  (2)  4-10-22  (3)  7-12-22.  (4)  8-3-22.  (5)  8-24-22. 

NET  LOSSES. 


:■  . i oifi  enoilanbob  suit  ,nob 

1535  Net  Losses,  Definition  and  Computation. — The  term  “net  loss”  as 
used  in  the  statute  means  only  a net  loss  resulting  from  the  operaticifi 

during  the  taxable  year  of  any  trade  or  business  regularly  carried  on  by  tHef 
taxpayer.  Included  therein  are  losses  from  the  sale  or  other  disposition  of 
real  estate,  machinery,  and  other  capital  .assets  used  in  the  conduct  of  such 
trade  or  business.  In  order  to  be  entitled  to  claim  an  allowance  for  a “net 
loss”  the  taxpayer  must  have  suffered  an  actual  net  loss  in  a trade  or  business 
during  the  taxable  year.  The  amount  properly  allowable  may  be  neither 
the  loss  reflected  upon  the  return  filed  for  the  purpose  of  the  income  tax  nor 
the  net  loss  shown  by  the  taxpayer’s,  profit  and  loss  account,  but  is  to  be 
computed  according  to  the  statute,  as  follows: 

1536  (1)  In  the  case  of  an  individual,  it  is  the  amount  by  which  the 
deductions  allowed  under  section  214,  excluding: 

(a)  the  amount  by  which  the  deductible  losses  not  sustained  in  such 
trade  or  business  exceed  the  taxable  gain  or  profits  not  derived  from 
such  trade  or  business; 

(b)  so  much  of  the  depletion  deduction  with  respect  to  any  mine, 

oil  or  gas  well  as  represents  the  excess  of  value  based  upon  discovery 
subsequent  to  February  28,  1913,  over  cost  or  value  as  of  March  1, 
1913;  and  j 

(c)  the  amount  of  deductions  allowed  under  section  214  not  con- 
nected with  the  trade  or  bu/iness, 

exceeds  the  sum  of  the  fpllow/ng: 

(a)  the  gross  income  dr  the  taxpayer  for  the  taxable  year  as  com- 
puted under  section  2K3;  And 

(b)  the  amount  by\  which  the  interest  received  free  from  taxation 
under  the  provisions  on  file  Act  exceeds  so  much  of  the  interest  paid  or 
accrued  within  the  taxable  year  on  indebtedness  as  is  not  allowed  as  a 
deduction  under  section;  2 14  (a)  (2). 

1537  (2)  In  the  case  h\  a corporation,  it  is  the  amount  by  which  the 
deductions  allowed  under  section  234,  excluding: 

(a)  the  amount  received  as  dividends  and  allowed  as  a deduction 
under  section  234  (a)  (6)t  and 

(b)  so  much  of  ^he  depletion  deduction  with  respect  to  any  mine, 
oil  or  gas  well  as  nfepres^nts  the  excess  of  value  based  upon  discovery 
subsequent  to  Febmary  2^,  1913,  over  cost  or  value  as  of  March  1,  1913, 

exceeds  the  sum  of  me  following: 

(a)  the  gross  /ncome  |)f  the  taxpayer  for  the  taxable  year  as  com- 
puted under  sect/on  233;  and 

(b)  the  amount  by  which  the  interest  received  free  from  taxation 
under  the  provisions  of  the  Act  exceeds  so  much  of  the  interest  paid  or 
accrued  within/the  taxable  year  on  indebtedness  as  is  not  allowed  as  a 
deduction  undir  section  234  (a)  (2). 

1538  In  competing  statutory  “net  loss”  the  following  restrictions  are  to 
be  noted: 

1539  (1)  Interest  received  by  the  taxpayer  on  obligations  or  securities, 
the  interest  from  which  is  exempted  from  taxation  must  be  included 

in  income,  but  this  amount  may  first  be  reduced  by  the  amount  of  any 
interest  paid  by  the  taxpayer  on  money  used  to  purchase  or  carry  such 
obligations  or  securities. 

1540  (2)  Where  depletion  is  computed  upon  the  basis  of  discovery  value 
in  lieu  of  cost  or  value  as  of  March  1,  1913,  in  making  the  computa- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
321 


within  law 
Overruled : 


provision:  1918  Act 
1918  Act  (1-31-434: 


2-87-22.  (2)  4-10-22.  (8)  7-12-22.  (4)  8-8-22.  (5)  8-24-22. 

NET  LOSSES. 

tion,  the  deductions  are  reduced  by  that  portion  of  the  depletion  repre- 
senting the  excess  of  the  discovery  value  over  actual  cost  or  value  as  of 
March  1,  1913.  See  section  214  (a)  (10)  and  articles  201-237  [beginning  at 
111893],  (Art.  1601,  Reg.  62,  1922  Edition.) 

hor  explanation  of  Cumulative  Index  references  see  page < 9/ 

Affiliated  parent  and  subsidiary  corporations;  1921  net  loss  largely  attributable  to 
subsidiary  which  becomes  inactive  in  1922:  loss  may  be  claimed  on  consolidated 
return  which  will  be  made  for  1922:  1921  Act  (1-28-399:  I.  T.  1386)  Bull  I 

(’22)-28,  p.  1. 

Capital  assets:  losses  resulting  from  sale  of, 

(1-5-50:  I.  T.  1179).. Bull.  I.  (’22)— 5,  p 
1.  T.  1401).  .Bull.  I (’22)— 31,  p.  1. 

Request  to  change  accounting  period  denied;  consideration  of  bearing  on  net  loss 
provisions  (1  1-19-370:  T.  B.  R.  37)..  1919  Cum.  Bull.  p.  63. 

Change  of  accounting  period;  net  loss  being  sustained  in  fractional  part  of  taxable 
year  thus  created  (15-20-841:  O.  D.  445).  . June  1920  Cum.  Bull.  p.  58:  also 
(30-20-1087:  T.  D.  3044) ..  Dec.  1920  Cum.  Bull.  p.  83:  See  (13-21-1529:  0.  D 
855).  .June  ’21  C.  B.  p.  54.  Also  (1-6-66:  A.  R.  R.  743).  .Bull.  I (’22)-6,  p.  9. 

Change  of  accounting  period:  net  loss  sustained  in  full  year  before  change  not  an 
olfset  against  net  income  of  succeeding  lcss-than-1 2-months  period  but  of  that  of 
succeeding  full  taxable  year  (1-8-98:  1.  T.  1211).  .Bull.  1 (’22)-7,  p.  7. 

Corporations  arc  within  the  net  loss  provisions  of  the  1921  Act  (1-13-177-  I T 1252) 

. . Bull.  I (’22)-I3,  p.  7. 

Excess-profits  tax:  how  affected  (21-21-1655:  O.  D.  928).  .June  ’21  C.  B.  p.  357, 

Farmers:  provision  applies  to  (26-20-1025:  O.  D.  558).  .June  1920  Cum.  Bull.  p.  59. 

Fiscal  year  corporation  whose  taxable  year  does  not  fall  within  statutory  period  may 
not  allocate  its  net  loss  (21-20-947:  O.  D.  511).  .June  1920  Cum.  Bull.  p.  58. 

Floods  accountable  for  losses  (3-20-681:  O.  D.  367).  .June  1920  Cum.  Bull  p 58 

Foreign  corporation  (31-20-1099:  O.  D.  611).  .Dec.  1920  Cum.  Bull.  p.  72 

Member  of  partnership  (14-20-822:  O.  D.  430).  .June  1920  Cum.  Bull.  p.  58.  1921 

Act,  see  (1-13-177:  I.  T.  1252).  .Bull.  I (’22)-13,  p.  7. 

Payment  of  liquidated  damages  (3-19-188:  S.  983).  .1919  Cum.  Bull.  p.  217. 

Partnerships  and  the  members  thereof:  1921  Act  (1-13-177:  I.  T.  1252)  Bull  I 
(’22)-13,  p.  7. 

* Preceding  taxable  period  (1918)  being  less  than  full  taxable  year,  income  thereof 
not  subject  to  1919  net  loss  deduction;  but  latter  deductible  from  1920  income- 
1918  Act  (1-34-464:  1.  T.  1423),  .Bull.  I (’22)-34,  p.  1. 

Stockholder  of  failed  corporation  (4-20-703:  O.  D.  380) . .June  1920  Cum.  Bull.  p.  128. 

1541  Illustration  of  Computation  of  Net  Loss.— The  method  of  computa- 
tion of.net  losses  as  outlined  in  article  1601  may  be  illustrated  as 
follows:  A,  an  individual  conducting  a trade  or  business,  finds  the  following 
facts  relative  to  a taxable  year: 

(a)  His  deductions  as  computed  under  section  214  amount  to  $100,000. 

(b)  Included  in  the  deductions  is  an  item  of  $10,000  for  loss  by  fire  of 
property  occupied  by  him  as  a residence  and  not  used  in  connection  with 
his  trade  or  business. 

(c)  Deductible  losses  on  account  of  transactions  entered  into  for  profit 
outside  of  the  trade  or  business  are  $3,000. 

(d)  Taxable  gains  from  transactions  entered  into  for  profit  and  not  con- 
nected with  the  trade  or  business  are  $5,000. 

(e)  Donations  to  the  Red  Cross  are  included  in  the  deductions  in  the 
amount  of  $1,000. 

(f)  Depletion  is  claimed  in  the  amount  of  $2,000,  of  which  $500  is  based 
upon  the  value  of  the  mineral  in  the  mine  as  of  March  1,  1913,  and  $1,500  i3 
attributable  to  increase  in  valuation  on  account  of  discovery  subsequent  to 
February  28,  1913. 

(g)  His  entire  gross  income  as  computed  under  section  213  is  $50,000. 

(h)  Interest  received  from  municipal  bonds  exempted  from  taxation  by 
section  213  (b)  (4)  amounted  to  $10,000. 

(i)  Interest  was  paid  upon  money  borrowed  to  carry  municipal  bonds  in 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
322 


2-27-22.  (2)  6-9-22.  (3)  9-13-22.  (4)  9-15-22. 

BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

¥ March  1,  1913:  Attorney-General’s  opinion  on  the  computation  of  profit  or  loss  on 
disposition  of  property  acquired  prior  to  March  1,  1913:  1916,  1917,  and  1918 

Acts  (1-37-495:  Op.  A.  G.  4) . . Bull.  I-  (’22)-37,  p.  1.  This  opinion  of  the  Attorney- 
General  reproduced  in  T.  l5.  3393,  ^[3332  herein. 

Mines  and  oil  and  gas  wells;  discovered  on  or  after  March  1,  1913;  valuation  at  date 
of  discovery  may  not  be  set  up  (29-20-1068:  Sol  Op.  26).  .Dec.  1920  Cum.  Bull, 
p.  44.  ESS 

Municipal  bonds;  contract  for  sale  of,  prior  to  issuance,  interest  running  from  date  of 
contract:  handling  of  accrued  interest  by  dealer  on  sale  by  him  when  issued 
(1-23-325:  I.  T.  1337).. Bull.  I (’22)-23,  p.  1. 

Municipal  bonds  purchased  at  discount  and  (1)  held  til-  maturity,  (2)  sold  for  more  than 
cost  (48-20-1321:  O.  D.  737).. Dec.  1920  Cum.  Bull.  p.  49.  Same,  made  more 
specific  (1-21-1369:  0.  D.  762) /.June  1921  Cum.  Bull  p.  31.  Same  (3-21-1396: 

0.  D.  774).  .June  1921  Cum.  Bull.  p.  31.  (See  at  “Discount;  non-interest  bearing 
securities,”  in  Cumulative  Index  following  If  1564.) 

Municipal  bonds  purchased  at  premium  and  held  to  maturity  (46-20-1300:  0.  D. 
726).  .Dec.  1920  Cum.  Bull.lp.  49. 

Original  issue  stock  for  invention;  establishing  “market  value”  when  received  as 
compensation  (1-20-656:  07962).  .June  1920  Cum.  Bull.  p.  74. 

Pecuniary  claim  owned  by  estate  on  March  1, 1913;  profit  or  loss  on  subsequent  settle- 
ment; interest  since  March  1,  1913;  payment  in  securities  of  less  than  par  value 
(1-19-11:  O.  D.  6).  .1919  Cum.  Bull.  p.  37 

Real  estate  acquired  by  corporation  in  exchange  ?or  its  stock  subsequent  to  Feb.  28, 
1913  (26-21-1)499:  O.  D.  $55).  .June  1921  C.  B.  p.  44. 

Real  estate;  attorney’s  fees  /paid  to  secure  reduction  of  assessment  to  be  added  to 
“cost”  (48-20-1324:  0.  ©.  739).. Dec.  1920  Cum.  Bull.  p.  192. 

Real  estate;  benefit  oideduefion  for  taxes  paid,  lost  over  period  of  years  as  insufficient 
income;  not  to  b\  addtfd  to  “cost”  ( 1-6-64 : I.  T.  1188).  .Bull.  I (’22) — 6,  p.  8. 
Also:  1921  Act  (B23-326:  I.  T.  1338).  .Bull.  I (’22)-23,  p.  2. 

Real  estate  in  lots;  fuDure/development  work  included  in  selling  price  to  be  included 
in  “cost”  also  (27-20-4 036:  O.  D.  567).  .Dec.  1920  Cum.  Bull.  p.  108. 
Requisition  of  property  ind  payment  therefor  by  government  (18-21-1604:  O D. 
897).. June  1921  Cium.  Bull.  p.  43. 

Residence  (taxpayer’s  own  house);  cost  not  reduced  by  depreciation  on  sale  (30-20- 
1085:  O.  D.  600).  /Dec.  1920  Cum.  Bull.  p.  46. 

Short  sales  of  stock  (24f-29h558:  S.  1179) ..  1919  Cum.  Bui',  p.  60. 

State  obligations  sold  between  interest  dates;  interest:  discount  (1921  Act)  (1-6-63: 

1.  T.  1187).  .Bull/l  (’12)— 6,  p.  7. 

Stock;  market  quotations  (to- 20-764:  A.  R.  R.  33).  .June  1920  Cum.  Bui'  p.  30. 
Stock:  where  no  sale/  (34-20-1143:  A R.  R.  252).  .Dec.  1920  Cum.  Bull.  p.  46. 

Stock  dividends;  safe  of  stock  received  as  and  in  respect  to  which  paid  (30-19-634: 

A.  R.  R.  6).  . 1P19  Cum.  Bull.  p.  30.  See  further  at  “Method  of  determining 
profit,  etc.”  in  Cumulative  Index  following  1 1 40. 

Stock  owned  on  M^rch  1,  1913  sold  at  price  greater  than  market  value  then  but  less 
than  cost  (19-19-493:  T.VB.  M.  73)..  1919  Cum.  Bull.  p.  35. 

Supreme  Couri  decisions.!.  Supplementary  Page  189,  ^S346,  and  Supplementary 
Page  191  HS364.  V 

Support  for  life  and  life  insurance  as  part  consideration  for  property  purchased;  what 
is  “cost”  in  /connection  with  subsequent  disposition  (24-21-1682:  0.  D.  945) 
. .June  1921  turn.  Bull.  p.\44. 

Syndicate  liquidation  (15-21-151^0:  A.  R.  R.  375).. June  1921  Cum.  Bull.  p.  102. 

Also  (1-2-15 1 I.  T.  1156). . Bull.  I (’22)-2,  p.  7. 

Treasury  certificates  of  indebtedness  purchased  or  sold  at  discount  (46-20-1303. 
0.  D.  729) .(.Dec.  1920  Cum  Bull.  p.  123. 

Used  car  accepted  as  part  payment  for  new:  subsequent  sale  of  used  car  (5-21-1413: 
O.  D.  782) . .June  1921  Cum.  Bull,  p 31. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
295 


2-27-22. 


(2)  6-9-22.  (8)  9-18-22.  (4)  9-15-22. 

BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


1445  The  Determination,  in  the  Case  of  Stock,  of  “Fair  Market  Price  or 
Value”  as  of  March  1,  1913. — This  office  is  in  receipt  of  your 

letter  of  November  20,  1916,  in  matter  of  computing  gain  or  loss  on  sale 
of  property  acquired  prior  to  March  1,  1913,  and  asking  whether 

“In  case  of  the  sale  of  stock  traded  in  on  the  exchange,  shall 
the  opening  price  on  March  1st,  or  the  closing  price,  or  the  average 
price  for  the  day,  be  taken  as  the  basis?” 

1446  Under  paragraph  (c)  of  Section  2 and  paragraph  (4)  of  Section  5, 
Act  of  September  8,  1916,  in  case  of  property  acquired  prior  to 

March  1,  1913,  “the  fair  market  price  or  value  of  such  property  as  of  March 
1,  1913,  shall  be  the  basis  for  determining  the  amount  of  gain  or  loss”  upon 
sale  or  other  disposition  of  the  property. 

1447  “The  fair  market  price  or  value  as  of  March  1”  is  held  to  be  the  fair 
market  price  or  value  as  of  the  entire  day  of  March  1,  which  in  the 

case  of  variation  between  “opening  and  closing  price”  for  the  day,  would 
mean  the  average  price  for  the  day.  This,  however,  would  be  conditioned 
upon  showing  that  the  exchange  quotation  represented  the  fair  market  price 
or  value  of  the  stock,  as  it  is  this  “fair  market  price  or  value”  which  is  to 
control,  however  that  fact  may  be  ascertained.  (Letter  to  The  Corporation 
T rust  Company,  signed  by  Commissioner  W.  H.  Osborn,  and  dated  November 
21,  1916.) 

1448  In  Determining  Value  of  Stock  as  of  March  1,  1913,  the  Good- 
will of  the  Corporation  is  to  be  Taken  Into  Consideration.— Receipt 

is  acknowledged  of  your  letter  of  July  2,  1919.  in  which  you  refer  to  the 
consideration  to  be  given  to  the  value  of  goodwill  of  a corporation  where  it 
is  desired  to  establish  the  fair  market  value  of  its  outstanding  capital  stock 
on  March  1,  1913.  If  In  reply,  you  are  advised  that  the  value  of  the  tangible 
and  intangible  assets  of  a corporation,  inclusive  of  the  value  of  goodwill,  as 
of  March  1,  1913,  is  to  be  taken  into  consideration,  together  with  such  other 
facts  as  may  be  necessary,  where  it  is  desired  to  establish  the  market  value  of 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


2-27-22. 


GROSS  INCOME— DIVIDENDS. 


from  such  a reserve  until  all  the  earnings  or  profits  of  the  corporation  ha\e 
first  been  distributed.  (Art.  1546,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Dividends  received  by  domestic  corporation  from  foreign  corporation  of  which  it  is 
sole  stockholder  are  taxable  under  Acts  of  1909,  1913,  1916,  1917  and  1918 
(1-8-103:  A.  R.  M.  1 S3).  . Bull.  I (22)-8,  p.  15. 

Dividends  which  practically  exhaust  earning?  (1917  Act)  (10-21-1497:  A.  R.  M. 
112).  .June  1921  Cum.  Bull.  p.  180.  . , , 

“Surplus  and  undivided  profits”  referred  to  ifi  this  Article  means  those  accumulated 
since  Feb.  28,  1913;  method  of  determining  taxable  gain  to  stockholder  on  final 
liquidation  or  on  sale  of  his  stock  (48-20-1320:  O.  D.  736) . . Dec.  1920  Cum.  Bull, 
p.  42. 


r/io  ant.io  noinoq  3uj  uj'i  , ■ ■■>  r 

1 1 27  Law  ^[37.  Stock  Dividends. — “(.d)  -A  stock  dividend  shall  not 
(Sec.  201.)  be  subject  to  tax  bfut  if  after  the  distribution  of  any  such 

dividend  the  corporation  proceeds  to  cancel  or  redeem 
its  stock  at  such  time  and  in  such  planner  as  to  make  the  distribution  and 
cancellation  or  redemption  essentially  equivalent  to  the  distribution  of  a 
taxable  dividend , the  amount  received  in  redemption  or  cancellation  of  the 
stock  shall  be  treated  as  a taxable  dividend  to  the  extent  of  the  earnings  or 
profits  accumulated  by  such  corporation  after  F ebruary  28,  1913.  - Law. 

[Note:  This  provision  is  new  to  the 
1921  Act.  The  1918  Act  provided, 

“A  dividend  paid  in  stock  of  the  corpo- 
ration shall  be  considered  income  to  the 
amount  of  the  earnings  or  profits  dis- 
\ tributed.”] 

1128  Stock  Dividends  under  the  1913,  1916,  1917  and  1918  Acts.— [See 
Towne  vs.  Eisner  (Revenue  Act  of  1913)  at  HS54,  Supplementary 

Page  137;  and  Eisner  vs.  Mstcdmber  (Revenue  Act  of  1916,  and  applicable  to 
Revenue  Acts  of  1917  and  1918)  at  1[S244,  Supplementary  Page  173,  for 
United  States  Supreme  Cdurt  stock  dividend  decisions  under  or  applicable 
to  prior  Acts. — Banks  may  not  declare  stock  dividend,  II 1144.] 

1 1 29  The  following  applications  of  the  decision  of  the  Supreme  Court  of 
the  United  States'  in  the  case  of  Eisner  v.  Macomber  in  the  deter- 
mination of  the  taxability  of  dividends  declared  by  corporations  are  published 
for  the  information  and  guidance  of  internal  revenue  officers  and  others 

concerned : . r 

1130  1.  Where  a corporation,  being  authorized  so  to  do  by  the  laws  ol 

the  state  in  which  it  is  incorporated,  transfers  a portion  of  its  sur- 
plus to  capital  account,  issues  new  stock  representing  the.  amount  of  the 
surplus  so  transferred,  and  distributes  the  stock  so  issued  to  its  stockholders, 
such  stock  is  not  income  to  the  stockholders  and  the  stockholders  incur  no 
liability  for  income  tax  by  reason  of  its  receipt.  . . 

1131  2.  Where  a corporation,  being  thereunto  lawfully  authorized, 
increases  its  capital  stock,  and  simultaneously  declares  a cash  divi- 
dend equal  in  amount  to  the  increase  in  its  capital  stock,  and  gives  to  its 
stockholders  a real  option  either  to  keep  the  money  for  their  own  or  to 
reinvest  it  in  the  new  shares,  such  dividend  is  a cash  dividend  and  is  income 
to  the  stockholders  whether  they  reinvest  it  in  the  new  shares  or  not. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

219 


GROSS  INCOME-  DIVIDENDS. 


1 132  3.  Where  a corporation,  which  is  not  permitted  under  the  laws  of 

the  state  in  which  it  is  incorporated  to  issue  a stock  dividend,  in- 
creases its  capital  stock  and  at  the  same  time  declares  a cash  dividend  under 
an  agreement  with  the  stockholders  to  reinvest  the  money  so  received 
in  the  new  issue  of  capital  stock,  such  dividend  is  subject  to  tax  as  income 
to  the  stockholder. 

1 133  4.  Where  a corporation,  having  a surplus  accumulated  in  part  prior 

to  March  1,  1913,  and  being  thereunto  lawfully  authorized,  trans- 
fers to  its  capital  account  a portion  of  its  surplus,  issues  new  stock  repre- 
senting the  amount  so  transferred  to  the  capital  account  and  then  declares 
a dividend  payable  in  part  in  cash  and  in  part  in  shares  of  the  new  issue 
of  stock,  that  portion  of  the  dividend  paid  in  cash  will,  to  the  amount  of  the 
surplus  accumulated  since  March  1,  1913,  be  deemed  to  have  been  paid 
out  of  such  surplus,  and  be  subject  to  tax,  but  the  portion  of  the  dividend 
paid  in  stock  will  not  be  subject  to  tax  as  income. 

1 124  5.  A dividend,  paid  in  stock  of  another  corporation  held  as  a part 

of  the  assets  of  the  corporation  paying  the  dividend,  is  income  to 
the  stockholder  at  the  time  the  same  is  made  available  for  distribution  to 
the  full  aniount  of  the  then  market  value  of  such  stock  (Peabody  v.  Eisner, 
247  U.  S.  347  [^[S 1 19,  Supplementary  Page  148]);  and  if  such  stock  be  sub- 
sequently sold  by  the  stockholder,  the  difference  between  its  market  value 
at  date  of  receipt  and  the  price  for  which  it  is  sold  is  additional  income  or 
loss  to  him,  as  the  case  may  be  [see  Art.  1547,  1 084]. 

1 135  6.  The  profit  derived  by  a stockholder  upon  the  sale  of  stock  re- 

ceived as  a dividend  is  income  to  the  stockholder  and  taxable  as 
such  even  though  the  stock  itself  was  not  income  at  the  time  of  its  receipt 
by  the  stockholder.  For  the  purpose  of  determining  the  amount  of  gain 
or  loss  derived  from  the  sale  of  stock  received  as  a dividend  or  of  the  stock 
with  respect  to  which  such  dividend  was  paid,  the  cost  of  each  share  of  stock 
(provided  both  the  dividend  stock  and  the  stock  with  respect  to  which  it 
is  issued  have  the  same  rights  and  preferences)  is  the  quotient  of  the  cost  of 
the  old  stock  (or  its  fair  market  value  as  of  March  1,  1913,  if  acquired  prior 
to  that  date)  divided  by  the  total  number  of  shares  of  the  old  and  new  stock. 
[See  Art.  1548,  1 136,  for  sale  of  stock  received  as  dividend.]  (T.  D.  3052, 

Aug.  4,  1920.) 

113©  Sale  of  Stock  Received  as  Dividend  and  of  Stock  with  Respect  to 
Which  a Stock  Dividend  is  Issued. — Stock  issued  by  a corporation 
as  a dividend  does  not  constitute  taxable  income  to  a stockholder  in  such 
corporation,  but  gain  may  be  derived  or  loss  sustained  by  the  stockholder 
from  the  sale  of  such  stock.  The  amount  of  taxable  gain  derived  or  deducti- 
ble loss  sustained  from  the  sale  of  such  stock,  or  from  the  sale  of  the  stock 
with  respect  to  wTich  it  is  issued,  shall  be  determined  as  provided  in  article 
1561  [^f  1437],  after  the  cost,  or  both  the  cost  and  fair  market  value  as  of 
March  1,  1913,  if  acquired  prior  thereto,  of  both  the  old  and  the  new  shares 
is  determined  in  accordance  with  the  following  rules: 

1 137  (1)  Where  the  stock  issued  as  a dividend  is  all  of  substantially  the 

same  character  or  preference  as  the  stock  upon  w'hich  the  stock  divi- 
dend is  paid,  the  cost  of  each  share  (or  when  acquired  prior  to  March  1, 
1913,  the  fair  market  value  as  of  such  date)  will  be  the  quotient  of  the  cost 
(or  such  fair  market  value)  of  the  old  shares  of  stock,  divided  by  the  total 
number  of  the  old  and  new  shares. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


2-27-22.  (8)  4-10-22.  (8)  5-10-22.  (4)  6-30-22. 

GROSS  INCOME— DIVIDENDS. 


of  the  Liberty  Bonds  at  the  time  of  their  receipt  by  the  stockholders.  (Letter 
to  Ropes,  Gray,  Boyden  & Perkins,  Boston,  Mass.,  signed  by  Deputy  Com- 
missioner L.  F.  Speer,  and  dated  November  12,  1918.) 

1098  Income  from  Private  Banks  Considered  as  Dividends.— In  the 

case  of  private  banks  which  have  the  form  of  corporations  and 
which  are  held  to  be  associations  within  the  meaning  of  the  Federal  income- 
tax  law,  it  is  not  the  purpose  of  this  office  to  assess  the  income  tax  against 
such  banking  associations  and  then  also  against  the  individual  members  of  the 

association.  [See  ^[989.]  > . 

1 099  Income  which  the  members  of  the  association  receive  from  the 


bank  because  of  their  investment  therein  will  be  considered  divi- 
dends, * * * . (T.  D.  2152,  Feb.  12  .) 


1100  Private  banks  which  have  orm  of  corporate  organizations, 

elect  officers  and  a board  o lagers,  have  a distinctive  name, 

a fixed  situs,  and  distribute  their  net  ngs  upon  the  basis  of  the  amount 

of  capital  invested  by  the  members  raers,  are  held  to  be  associations 

within  the  meaning  of  the  Federal  i : tax  law,  and  in  their  organized 

capacity  should  make  returns  of  anrVhal  net  income  and  pay  any  income  tax 
thereby  shown  to  be  due.  ' [See  ^[980.] 

1101  The  holders  of  the;  stock  o/  the  owners  of  the  bank  will  be  exempt 
from  the  normal  tax  to  thq'extent  of  the  dividends,  or  earnings  which 

they  receive  from  such  private  banks  as  make  returns  in  their  organized 
capacity  and  pay  income  tax  in  Accordance  therewith.  * * * . (T.  1).  2137, 

Jan.  30,  1915.) 

1 1 02  Profits  of  Limited  Considered  as  Dividends.— Read 


1 1 03  Dividends  Paid  on  Life  Insurance  Policies. — Read  at  ^[1251. 

1 1 04  Law  ^[28.  Presumption  as  to  Source  of  Distribution.— “(&)  For 
(Sec.  201.)  the  purposes  of  this  Act  every  distribution  is  made  out 

of  earninj'S  or  profits , and  from  the  most  recently  ac- 
cumulated earnings  or  profits , to  the  extent  of  such  earnings  or  profits  ac- 
cumulated since  February  2$,  1913;” — Law.  [Note:  _ The  1918  Act 

qualified  “every  distribution  is  made  out 
/ of  earnings  or  profits”  by  adding  “unless 

/ ! all  earnings  or  profits  have  first  been 

distributed.”] 

1105  Law  ^[39.  “(/)  Any  distribution  made  during  the  first  sixty  days 

(Sec.  201 .)  of  any  taxable  year  shall  be  deemed  to  have  been  made  from 

earnings  or  profits  accumulated  during  preceding  taxable 

years] ;” 

1 106  Law  T[40.  “but  any  distribution  made  during  the  remainder  of  the 
(Sec.  201.)  taxable  year  shall  be  deemed  to  have  been  made  from 
earnings  or  profits  accumulated  between  the  close  of  the 
preceding  taxable  year  and  the  date  of  distribution , to  the  extent  of  such 
earnings  or  profits , and  if  the  books  of  the  corporation  do  not  show  the 
amount  of  such  earnings  or  profits , the  earnings  or  profits  for  the  accounting 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

213 


2 27-22.  (2)4-10-22.  (3)  5-10-22.  (4)  6-80-22. 

GROSS  INCOME— DIVIDENDS. 

period  within  which  the  distribution  was  made  shall  be  deemed  to  have  been 
accumulated  ratably  during  such  period.  This  subdivision  [1(1105  and 
this  paragraph ] shall  not  be  in  effect  after  December  31,  1921.” — Law. 

[Note:  The  1918  Act  so  provided, 
except  to  the  extent  of  the  limitation 
carried  in  the  last  sentence,  here.] 

i l 07  (a)  l' or  the  purpose  of  income  taxation  every  distribution  made  by  a 

corporation  is  made  out  of  earnings  or  profits  and  from  the  most 
recently  accumulated  earnings  or  profits,  to  the  extent  of  such  earnings  or 
profits  accumulated  since  February  28,  1913; 

11C8  (b)  Every  distribution  made  by  a corporation  during  the  first  60 

days  of  a taxable  year  shall  be  deemed  to  have  been  made  from 
earnings  or  profits  accumulated  during  preceding  taxable  years.  Every  dis- 
tribution made  during  the  remainder  of  the  taxable  year  after  the  first  60 
days  shall  be  deemed  to  have  been  made  from  earnings  or  profits  accumulated 
during  the  taxable  year  up  to  the  date  of  the  distribution  to  the  extent  of  such 
earnings  or  profits.  The  presumptions  contained  in  this  paragraph  affect 
the  determination  of  invested  capital  for  the  purpose  of  the  excess  profits 
tax,  and  are  not  in  effect  after  December  31,  1921.  They  have  no  effect 
upon  the  rates  at  which  dividends  paid  in  1921  and  subsequent  years  are  taxed. 
In  ascertaining  whether  or  not  a distribution  was  made  out  of  earnings  or 
profits  of  the  taxable  year  there  should  first  be  set  aside  a proper  reserve 
for  the  payment  of  accrued  income  and  excess  profits  taxes.  See  article 
857  [Excess-profits  tax. — War  Tax  Service]. 

1103  In  the  case  of  a personal  service  corporation  every  distribution  is 
made  out  of  earnings  or  profits  and  from  the  most  recently  accumu- 
lated earnings  or  profits,  to  the  extent  of  such  earnings  or  profits  accumulated 
since  I'ebruary  28,  1913.  Such  a distribution,  if  made  during  the  first  60 
days  of  a taxable  year,  shall  be  deemed  to  have  been  made  rom  the  most 
recently  accumulated  earnings  or  profits  of  preceding  taxable  years,  and  if 
made  during  the  remainder  of  the  taxable  year  after  the  first  60  days,  from 
earnings  or  profits  accumulated  during  the  taxable  year  up  to  the  date  of 
distribution  to  the  extent  of  such  earnings  or  profits.  The  presumption  con- 
tained in  the  preceding  sentence  is  not  in  effect  after  December  31,  1921. 
As  stated  in  article  1541  [K10S0]  the  term  “dividend”  does  not  include  a dis- 
tribution made  by  a personal  service  corporation  out  of  earirngs  or  profits 
accumulated  since  December  31,  1917,  and  prior  to  January  1,  1922.  (Art. 
1542,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

First  60  days  of  taxable  year  when  no  surp'us  between  March  1 1913,  and  beginn:ng 
of  taxable  year  but  ample  surplus  since  beginning  of  taxable  yea  (12-19-395: 
T.  B.  R.  43).  .1919  Cum.  Bull.  p.  26.  Again  (1-19-263:  Sol.  Op.  140).  .Bull. 

1 (’22)- 1 9,  p.  7. 

First  60  days  of  taxable  year  includes  March  1 except  in  leap  year  (1-19-8:  O.  D 4) 
1919  Cum.  Bui  . p.  27. 

* First  60  days;  presumption  that  distribution  is  from  prior  earnings  not  rebuttable: 
1921  Act  (1-26-377:  I.  T.  1375).  .Bull.  I(’22)-26,  p.  15. 

First  60  days  provision  has  no  bearing  on  rates  at  which  taxable  (1-19-9:  O.  D.  5) 

. . 1919  Cum.  Bull.  p.  28.  1918  specifically  (22-20-992:  A.  R.  R.  127).  .June  1920 

Cum.  Bulb  p.  25. 

Impairment  of  capital  more  than  offset  by  book  surplus  based  on  valuation  of  good 
will,  trade-marks,  etc.  (6-19-266:  O.  D.  163).  . 1919  Cum.  Bull  p.  28. 

No  corporation  records  of  1917  income  prior  to  early  191.7  dividend  distributions 
(1917  Act)  (38-21-1824:  A.  R.  R.  577).. Dec.  1921  Cum.  Bull.  p.  28. 

Repayment  of  additional  assessment  on  stock  (paid-in  surplus  or  invested  capita1 
purposes)  (23-19-552:  T.  B.  M.  82) . . 1919  Cum.  Bull.  p.  275. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
214 


(8)  6-9-22.  (9)  9-13-22. 


(10)  10-4-22. 

GROSS  INCOME- 


-DIVIDENDS. 


28,  1913.  Although  interest  on  state  bonds  and  certain  other  obligations  is 
not  taxable  when  received  by  a corporation,  upon  amalgamation  with  the 
other  funds  of  the  corporation  such  income  loses  its  identity  and  when  dis- 
tributed to  stockholders  in  dividends  is  taxable  to  the  same  extent  as  other 
dividends.  See  further  articles  53  [for  constructive  receipt  of  dividends, 
1272]  and  858  [for  effect  of  ordinary  dividend  on  invested  capital — War 
Tax  Service].  The  term  “dividends”  does  not,  however,  include  a dis- 
tribution made  by  a personal  service  corporation  out  of  earnings  or  profits 
accumulated  since  December  31,  1917,  and  prior  to  January  1,  1922.  (Art. 
1541,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Agreement  to  buy  stock  in  another  corporation  with  proceeds,  through  trustee,  the 
stockholders  receiving  no  cash;  is  a taxable  dividend:  1921  Act  (1-23-324:  I.  T. 
1336).  .Bull.  I (’22)-23,  p.  1. 

Bank  capital  stock  tax  (West  Virginia)  payable  by  bank  on  stockholders’  account; 
payment  by  bank  to  stockholder  of  amount  of  tax  bank  was  relieved  from  paying 
because  stockholder  claimed  exemption  is  additional  dividend  to  stockholder: 
1921  Act  (I-19:262:  I.  T.  1300).  .Bull.  I (’22)-19,  p.  7. 

Cash  distribution  with  option  to  buy  stock  with  dividend  checks  is  not  a stock  dividend 
(22-19-529:  T.  B.  R.  63). . 1919  Cum.  Bull.  p.  24. 

Same  (27-20-1034:  0.  D.  565).. Dec.  1920  Cum.  Bull.  p.  22. 

Same:  National  banks  (29-20-1066:  O.  D.  588).  .Dec.  1920  Cum.  Bu'l.  p.  24. 

Crediting  stockholders  with  profits  without  formal  dividend  declaration  constitutes  a 
“dividend”;  1917-1918  Acts  (1-37-507: /A.  R.  R.  1004)..  Bull.  I (’ 22)-37,  p.  16. 

Debenture  bonds;  payments  on  account  of,  are  not  d vidends  (41-21-1861:  O.  D. 
1060).  .Dec.  1921  Cum.  Bull.  p.  193. 

Debenture  bonds;  dividends  paid  in.  . (24-21-168 1 : T.  D.  3170).  Tune  1921  Cum. 
Bull.  p.  25. 

Declared  and  credited  but  not  paid;  also  credited  though  not  formally  declared;  no 
interest;  all  by  agreement:  (Massachusetts)  (34-21-1786:  0.  D.  1006).. Dec. 
1921  Cum.  Bull.  p.  276. 

Declared  prior  to  March  1,  1913  but  payable  thereafter  is  not  taxable  under  1913 
Act  (1-7-86:  Ct.  D.  23)  (27&Fed.  363) . .Bull.  I (’22)-7,  p.  7.  Relied  on  in  decision 
at  U3127. 

credited  contingently,  corporation  retaining  title 
additional  compensation  (1-21-1370:  O.  D.  763) 
76. 

ees  (6-21-1426:  O.  D.  791).. June  1921  Cum. 


ds 


tri 


Employees  buying  stock;  divide 
to  stock  until  paid  for, 

. .June  1921  Cum.  Bull 
Same,  but  stock  held  by 
Bull.  p.  76. 

Incorporation  of  partnership  business  “within  4 months”  after  Nov.  23,  1921;  treat- 
ment of  withdrawals  by  partnersXand  interest  on  partners’  capital  accounts:  1921 
Act  (1-18-256:  I.  T.  1299) . . Bfull\  I (’22)-18,  p.  20. 

Interest  on  installment  payments/ for  btock  pending  authorization  to  corporation  to 
increase  its  capital  stock;  19J8  Act\(I-22-322:  I.  T.  1334) . . Bull.  I (’22)-22,  p.  17. 

Missouri  corporations  may  declir  stdtk  dividends  (17-21-1589:  O.  D.  887)  . Tune 
1921  Cum.  Bull.  p.  24.  \ 

ck;  interest  paid  on  deposits  is  not  “divi- 
61).  .Bull.  I (’22)-40,  p.  15. 

ses  do  not  offset  profits,  which  will  conse- 


¥ Mutual  savings  bank  without  capital  s 
dends”;  1921  Act  (1-40-53#:  I.  T. 

Net  deficit  over  period  of  yearp;  prior  1 
quently,  be  deemed  to  have  been 
610).. Dec.  1920  Cum.  Ball.  p.  24 
Cum.  Bull.  p.  36. 

Non-taxable  profits  (because  of  March  1, 
excess  of  selling  price)  distributed  as  t 
. .Dec.  1921  Cum.  Bulh/p.  26.  The 
62  (Hi  113)  (1-20-268:  If  T.  1303).  .B 

Paid  in  December,  received  #n  January  (2- 

Premiums  on  life  insurance  of  officer,  stock 


tributed  by  dividends  (31-20-1098:  O.  D. 
' (40-20-1219:  A.  R.  M.  82).  .Dec.  1920 

13  valuation  in  excess  of  cost  but  not  in 
able  dividends  (43  21-1878:  L.  O.  1073) 

egoing  superseded  by  Art.  1543  of  Reg. 
I (’22)-20,  p.  7. 

140:  O.  D.  97). . 1919  Cum.  Bull.  p.  79. 
lders  being  beneficiaries,  are  dividends 


to  them  (37-20-1 193:  O.  D.  659) . . Dec.  1920  Cum.  Bull.  p.  192 
Rescission  of  illegal  dividend  (20-19-502:  T.  B.  M.  77). . 1919  Cum.  Bull.  p.  24. 
Rescission  of  legal  dividend;  i.  e.,  voluntary  repayment  by  stockholders  (12-19-398: 
T.  B.  R.  42) . . 1919  Cum.  Bull.  p.  65. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
209 


(8)  C-9-22.  (9)  9-13-22.  (10)  10-4-22. 

GROSS  INCOME— DIVIDENDS. 

Scrip  for  fractional  shares,  corpotation  Belling  in  open  market  as  agent  for  #tockholder« 
who  so  elect  (14-21  1538:  O.  D.  859).. June  1921  Cum.  Bull.  p.  24:  See  “Fiac- 

tional  shares”  under  Art.  IS47,  D084. 

Stock  it)  dividends  paid  In  preferred  stock  (7-21-1441:  O.  D.  801).  June  1921  Cum. 

Bull.  p.  24. 

Stock  dividends  do  no  “distribute,”  hence  surplus  acquired  since  March  1,  1913, 
is  deemed  to  be  di  trihuted  by  a cash  dividend  subsequent  to  or  simultaneously 
with  a stock  dividend  (29-20-1065:  O D.  587)..  Dec.  1920  Cum.  Bull.  p.  23. 
* Same;  also  cash  dividend  after  first  60-days  distributes  earnings  of  year  though 
prior  Block  dividend  capitalized  earnings  of  year  to  date  of  issue:  1918  Act  (I- 
40-529:  Sol.  Op.  144).. Bull.  I (’22)-40,  p.  1. 

Stock  dividends  not  taxable;  Supreme  Court  decisions 
1913  Act.  .Supplementary  Page  137,  ^S54. 

1916-1918  Acts.  .Supplementary  Page  173,  ^’S244 

1081  Law  ^38.  As  of  What  Date  Dividends  are  Included- in  the 

(Sec.  201. ) Gross  Income  of  the  Distributees. — “(e)  For  the 
purposes  of  this  Act , a taxable  distribution  made  by  a 
corporation  to  its  shareholders  or  members  shall  be  included  in  the  gross 
income  of  the  distributees  as  of  the  date  when  the  cash  or  other  properly  is 
unqualifiedly  made  subject  to  their  demands .” — Law.  [Note:  This 

provision  is  new,  in  terms,  to  the  1921 
Act.  The  regulations  under  the  1918 
Act  read  “when. (set  apart  for  ( the 
stockholder.”] 

l 082  A taxable  distribution  made  by  a corporation  to  its  stockholders  or 
members  shall  be  included  in  the  gross  income  of  the  distributees 
when  the  cash  or  other  property  is  unqualifiedly  made  subject  to  their 
demands.  See  article  53  [^f  1272].  (Art.  1541,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  ^1080,  above.] 

1 083  Return  of  Corporate  Dividends. — Dividends  on  stock  of  domestic- 
corporations  or  resident  foreign  corporations  are  prima  facie  in- 
come of  the  record  owner  of  the  stock,  and  such  record  owner  will  be  liable 
for  any  additional  tax  based  thereon,  unless  a disclosure  of  the  actual  owner- 
ship is  made  to  the  Commissioner  on  Form  1087  which  shall  show  that 
the  record  owner  is  not  the  actual  owner  and  who  the  owner  is  and  his  address. 
In  all  cases  where  the  actual  owner  is  a nonresident  alien  individual  and  the 
record  owner  is  a person  in  the  United  States,  the  record  owner  will  be 
considered  for  tax  purposes  to  have  the  receipt,  custody,  control,  and  dis- 
posal of  the  dividend  income  and  will  be  required  to  make  return  for  the 
actual  owner,  regardless  of  the  amount  of  the  income,  and  to  pay  any  surtax 
found  by  such  return  to  be  due.  (Art.  405,  Reg.  62,  1922  Edition.) 

l 084  Dividends  Paid  in  Property.— Dividends  paid  in  securities  or  other 
property  (other  than  its  own  stock),  in  which  the  earnings  of  a 
corporation  have  been  invested,  are  income  to  the  recipients  to  the  amount 
of  the  market  value  of  such  property  when  receivable  by  the  stockholders. 
A dividend  paid  in  stock  of  another  corporation  is  not  a stock  dividend 
[see  ^[1134],  even  though  the  stock  distributed  was  acquired  through  the 
transfer  by  the  corporation  declaring  the  dividend,  of  property  to  the  cor- 
poration the  stock  of  which  is  distributed  as  a dividend.  Where  a corpo- 
ration declares  a dividend  payable  in  stock  of  another  corporation,  setting 
aside  the  stock  to  be  so  distributed  and  notifying  the  stockholders  of  its  action, 
the  income  arising  to  the  recipients  of  such  stock  is  its  market  value  at 
the  time  the  dividend  becomes  payable.  [For  gain  or  loss  on  subsequent 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
210 


(8)  6-9-22.  (9)  9-13-22. 


GROSS  INCOME— DIVIDENDS. 


28,  1913.  Although  interest  on  state  bonds  and  certain  other  obligations  is 
not  taxable  when  received  by  a corporation,  upon  amalgamation  with  the 
other  funds  of  the  corporation  such  income  loses  its  identity  and  when  dis- 
tributed to  stockholders  in  dividends  is  taxable  to  the  same  extent  as  other 
dividends.  See  further  articles  53  [for  constructive  receipt  of  dividends, 
1[1272]  and  858  [for  effect  of  ordinary  dividend  on  invested  capital — War 
Tax  Service].  The  term  “dividends”  does  not,  however,  include  a dis- 
tribution made  by  a personal  service  corporation  out  of  earnings  or  profits 
accumulated  since  December  31,  1917,  and  prior  to  January  1,  1922.  (Art. 
1541,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Agreement  to  buy  stock  in  another  corporation  with  proceeds,  through  trustee,  the 
stockholders  receiving  no  cash;  is  a taxable  dividend:  1921  Act  (1-23-324:  I.  T. 
1336).  .Bull.  I (’22)-23,  p.  1. 

Bank  capital  stock  tax  (West  Virginia)  payable  by  bank  on  stockholders’  account; 
payment  by  bank  to  stockholder  of  amount  of  tax  bank  was  relieved  from  paying 
because  stockholder  claimed  exemption  is  additional  dividend  to  stockholder: 
1921  Act  (1-19-262:  I.  T.  1300).  .Bull.  I (’22)-19,  p.  7. 

Cash  distribution  with  dption  to  buy  stock  with  dividend  checks  is  not  a stock  dividend 
(22-19-529:  T.  B.  R.«3)..1919  Cum.  Bull.  p.  24. 

Same  (27-20-1034:  Ov  D/565) . . Dec.  1920  Cum.  Bull.  p.  22. 

Same:  National  banks  (29-20-1066:  0.  D.  588).  .Dec.  1920  Cum.  Bull.  p.  24. 

¥ Crediting  stockholders  withtorofits  without  formal  dividend  declaration  constitutes  a 
“dividend”:  1917  and’1918  Acts  (1-37-507:  A.  R.  R.  1004)..  Bull.  I (’  2 2) -3  7, 

p.  16. 

Debenture  bonds;  paymoiti  on  account  of,  are  not  d vidends  (41-21-1861:  O.  D. 
1060).  .Dec.  1921  Cuti.  Bull.  p.  193. 

Debenture  bonds;  dividends  (paid  in.  .(24-21-1681:  T.  D.  3170).. June  1921  Cum. 
Bull.  p.  25.  I i 

Declared  and  credited  but  not  paid;  also  credited  though  not  formally  declared;  no 
interest;  all  by  agreement:  (Massachusetts)  (34-21-1786:  O.  D.  1006).. Dec. 
1921  Cum.  Bull.  p./276. 

Declared  prior  to  March  1,  19113  but  payable  thereafter  is  not  taxable  under  1913 
Act  (1-7-86:  Ct.  Df  23)  (27*  Fed.  363) . . Bull.  I (’22)-7,  p.  7.  Relied  on  in  decision 

at  1(3127.  1 _ . 

Employees  buying  stack;  dividends  credited  contingently,  corporation  retaining  title 
to  stock  until  paid  for,  are  additional  compensation  (1-21-1370:  O.  D.  763) 

. .June  1921  Cum.  Bui],  p.  76. 

Same,  but  stoc Jl  held  by  trustees  (6-21-1426:  O.  D.  791).. June  1921  Cum. 
Bull.  p.  76j 

Incorporation  of  partnership  business  “within  4 months”  after  Nov.  23,  1921;  treat- 
ment of  withdrawals  by  partners  and  interest  on  partners’  capital  accounts:  1921 
Act  (1-18-256:/!.  T.  1299)..  Bull.  I (’22)-18,  p.  20. 

Interest  on  installment  payments  for  stock  pending  authorization  to  corporation  to 
increase  its  capital  stock;  1918  Act  (1-22-322:  I.  T.  1334) . . Bull.  I (’22)-22,  p.  17. 
Missouri  corporations  may  declar  stock  dividends  (17-21-1589:  O.  D.  887).. June 
1921  Cum.  Bull.  p.  24. 

Net  deficit  over  neriod  of  years;  prior  losses  do  not  offset  profits,  which  will  conse- 
quently, be  peemed  to  have  been  distributed  by  dividends  (31-20-1098:  O.  D. 
610).. Dec.  1(920  Cum.  Bull.  p.  24— Also  (40-20-1219:  A.  R.  M.  82) . . Dec.  1920 
Cum.  Bull.  p.  36. 

Non-taxable  profits  (because  of  March  1,  1913  valuation  in  excess  of  cost  but  not  in 
excess  of  selling  price)  distributed  as  taxable  dividends  (43  21-1878:  L.  O.  1073) 
. .flee.  1921  Cum.  Bull.  p.  26.  The  forcaoing  superseded  by  Art.  1543  of  Reg. 
62  (1(1  1 13)  (1-20-268:  I.  T.  1303).  .Bull.  1 (’22)-20,  p.  7. 

Paid  in  December,  received  in  January  (2-19-140:  O.  D.  97) . . 1919  Cum.  Bull.  p.  79. 
Premiums  on  life  insurance  of  officer,  stockholders  being  beneficiaries,  are  dividends 
to  them  (37-20-1193:  0.  D.  659).  .Dec.  1920  Cum.  Bull.  p.  192. 

Rescission  of  illegal  dividend  (20-19-502:  T.  B.  M.  77).  . 1919  Cum.  Bull.  p.  24. 
Rescission  of  legal  dividend;  i.  e.,  voluntary  repayment  by  stockholders  (12-19-398: 
T.  B.  R.  42) . . 1919  Cum.  Bull.  p.  65. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
209 


(8)  G-9-22.  (9)  9-13-22. 


GROSS  INCOME— DIVIDENDS. 


Scrip  for  fractional  shares,  corporation  belling  in  open  market  as  agcm  for  stockholders 
who  so  elect  (14-21-1538:  O.  I).  859),  . June  1921  Cum.  Bull.  p.  24:  Sc-  “F  ar- 
tional  share**  under  Art.  1547,  If  1084. 

Stock  (?)  dividends  paid  in  preferred  stock  (7-21-1441:  O.  D 801)  June  1921  Ci  rr 
Bull.  p.  24. 

Stock  dividends  do  not  “distribu'e,”  hence  surplus  acqu:red  since  March  1 1913 

is  deemed  to  be  distributed  by  a cash  dividend  subsequent  to  or  simultaneous! v 
with  a stock  dividend  (29-20-1065:  O.  D.  587).. Dec.  1920  C’um  Bull  p 23 
(Note:  (1-19-7:  T.  B R.  3)  1919  Cum.  Bull.  P.  29  (continued  in  the  August 

Lurn.  digest,  p.  28),  though  bearing  primarily  on  invested  capital,  would  seem  to 
contradict  the  above.) 

Stock  dividends  not  taxable;  Supreme  Court  decisions. 

1913  Act.  .Supplementary  Page  137,  HS54. 

1916-1918  Acts.  .Supplementary  Page  173,  ^[S244 


1081  Law  1[38.  As  of  What  Date  Dividends  are  Included  in  the 

(Sec.  201.)  Gross  Income  of  the  Distributees— “Or)  For  the 
purposes  of  this  Act , a taxable  distribution  made  by  a 
corporation  to  its  shareholders  or  members  shall  be  included  in  the  gross 
income  of  the  distributees  as  of  the  date  when  the  cash  or  other  property  is 
unqualifiedly  made  subject  to  their  demands .” — Law.  [Note:  This 

provision  is  new,  in  terms,  to  the  1921 
Act.  The  regulations  under  the  1918 
Act  read  “when  set  apart  for  the 
stockholder.”] 


1082  A taxable  distribution  madeby  a corporation  to  its  stockholders  or 
members  shall  be  included  in  the  gross  income  of  the  distributees 

when  the  cash  or  other  property  is  unqualifiedly  made  subject  to  their 
demands.  See  article  53  [If  1272].  (Art.  1541,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  1 080,  above.] 

1083  Return  of  Corporate  Dividends.— Dividends  on  stock  of  domestic 
corporations  or  resident  foreign  corporations  are  prima  facie  in- 
come of  the  record  owner  of  the  stock,  and  such  record  owner  will  be  liable 
for  any  additional  tax  based  thereon,  unless  a disclosure  of  the  actual  owner- 
ship is  made  to  the  Commissioner  on  Form  1087  which  shall  show  that 
the  record  owner  is  not  the  actual  owner  and  who  the  owner  is  and  his  address. 
In  all  cases  where  the  actual  owner  is  a nonresident  alien  individual  and  the 
record  owner  is  a person  in  the  United  States,  the  record  owner  will  be 
considered  for  tax  purposes  to  have  the  receipt,'  custody,  control,  and  dis- 
posal  of  the  dividend  income  and  will  be  required  to  make  return  for  the 
actual  owner,  regardless  of  the  amount  of  the  income,  and  to  pay  any  surtax 
found  by  such  return  to  be  due.  (Art.  405,  Reg.  62,  1922  Edition.) 

1 084  Dividends  Paid  in  Property. — Dividends  paid  in  securities  or  other 
property  (other  than  its  own  stock),  in  which  the  earnings  of  a 
corporation  have  been  invested,  are  income  to  the  recipients  to  the  amount 
of  the.  market  value  of  such  property  when  receivable  by  the  stockholders. 
A dividend  paid  in  stock  of  another  corporation  is  not  a stock  dividend 
[see  Tf  1 134],  even  though  the  stock  distributed  was  acquired  through  the 
transfer  by  the  corporation  declaring  the  dividend,  of  property  to  the  cor- 
poration the  stock  of  which  is  distributed  as  a dividend.  Where  a corpo- 
ration declares  a dividend  payable  in  stock  of  another  corporation,  setting 
aside  the  stock  to  be  so  distributed  and  notifying  the  stockholders  of  its  action, 
the  income  arising  to  the  recipients  of  such  stock  is  its  market  value  at 
the  time  the  dividend  becomes  payable.  [For  gain  or  loss  on  subsequent 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


210 


2-87-1 


(t)  4-10-22. 


(•)  4-88-82.  (4)  6-26-22.  (6)  6-9-22. 

E8TATES  AND  TRUSTS. 


beneficiary  must  include  in  his  return  his  distributive  share  of  the  net  income, 
even  though  not  yet  paid  him,  but  if  his  taxable  year  is  different  from  that  of 
the  estate  or  trust,  then  he  need  only  include  in  computing  his  net  income  his 
distributive  share  of  the  income  of  the  estate  or  trust  for  its  taxable  year 
ending  within  his  taxable  year.  The  regulations  governing  partnerships 
are  generally  applicable  to  such  an  estate  or  trust.  See  articles  331-335 
(for  partnerships,  1(778].  (Art.  345,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alimony:  stated  amount  in  lieu  of:  trust  fund  in  connection  therewith  (45-21-191): 
0.  D.  1092).  .Dec.  1921  Cum.  Bull.  p.  190.  This  reverses  ruling  (6-20-730:  O.  D. 
399).  .June  1920  Cum.  Bull.  p.  15  -. 

Bequest  annuities  provided  for  by/  purchase  by  executor  of  single-payment  2-year 
endowment  insurance  policy  calling  for  establishment  of  trust  fund  with  proceeds, 
principal  and  accrued  income  distributable  to  residuary  legatees  on  death  of 
annuitants:  annuities  are  taxable,  as  is  (to  the  established  trust)  the  excess  of 
policy  proceeds  over  cost  (51-20-1355:  O.  D.  755).. Dec.  1920  Cum.  Bull.  p.  212. 

C a 4a  Viam  4 ( __  L — _ cnAniira^^  hif  4 i*ii  efao  lift  4 a ptft  f fid  ft  m All  nt 


Distribution  of  income  to  beneficiary  “when  received”  by  trustee,  up  to  stated  amount 

‘ (1-19-69:  S.  961). . 

1919  Cum.  Bull.  p.  180. 


the  principal  and  undistributed  income  reverting  to  trustor 


Irrevocable  oral  trust  (Kentucky)  the  trustor  being  the  trustee  and  a sister  the  bene- 
ficiary (20-21-l'635:  A.  R.  R.  492).  .June  1921  Cum.  Bull.  p.  198. 

Life  tenant  foregoes^ trust  income  being  party  to  agreement  by  which  remainderman 
receives  part  and  by  which  part  is  added  to  corpus  (i.e.,  put  back  in  business  of 
trust)  (1-17-243  :\A.  R.  R.  877)..  Bull.  I (’22)-17,  p.  14.  _ 

’ constituting  corpus,  the  income  being  distributable  periodically 
56).  -1919  Cum.  Bull.  p.  181.  .See  Art.  347,  1f913. 
corporation  in  consideration  of  fruits  thereof  during  trans- 
, 13\  l.  T.  1220).. Bull.  I (’22)-9,  p.  8. 

Self  beneficiary  of  income  of  trust  to  extent  demanded  (1917  Act)  (10-20-780:  S.  1344) 
. .June  1920  Cum.  Bull.  p.  176. 

Stock  dividends  distributable  to  beneficiaries  or  otherwise;  profit  or  loss  or  sale  of 
stock  received  and  orf  that  in  respect  of  which  received.  .1(3010. 

¥ Trusts  from  residue  not  yet.  created,  settlement  of  estate  not  being  completed;  bene- 
ficiaries agree  to  nondis\ribution  of  income;  income  is  taxable  to  estate:  1918  and 
1921  Acts  (1-23-332:  I.  T.  1344).  .Bull.  I (’22)-23,  p.  6. 

Waiving  payment  of  distributable  income  (30-20-1093:  O.  D.  606).  .Dec.  1920  Cum. 
Bull.  p.  211. 


Loss  on  sale  of  prope: 

(5-19-255:  O.  D. 

Securities  transferred 
ferree’s  life  (1-9-1 


895 


Credits  to  Beneficiaries. — See 


1917. 


896  Law  1(253.  How  Net  Income  of  an  Estate  or  Trust  Is  to  Be  Com- 
(Sec.  219.)  puted. — “ The  net  income  of  the  estate  or  trust  shall  be 

computed  in  the  same  manner  and  on  the  same  basis  as 
provided  in  section  212  [1(1040],” — Law.  [Note:  The  1918  Act  so 

provided.] 

897  Benefit  of  the  Capital  Net  Gain  Provision  Accrues  to  Estates  and 
Trusts  and  to  the  Beneficiaries  Thereof,  on  and  After  January  1, 1922. 

— Read  at  K1507. 

898  Law  K254.  Deduction  Because  of  Payments  Made  for  Religious, 
(Sec.  219.)  Charitable,  Educational,  etc.,  Purposes,  Pursuant 

to  Terms  of  Will  or  Deed  of  Trust. — “ except  that 
(in  lieu  of  the  deduction  authorized  by  paragraph  (11)  [1(2001]  of  sub- 
division (a)  of  section  214)  there  shall  also  be  allowed  as  a deduction , without 
limitation , any  part  of  the  gross  income  which , pursuant  to  the  terms  of  the 
will  or  deed  creating  the  trust,  is  during  the  taxable  year  paid  or  permanently 
set  aside  for  the  purposes  and  in  the  manner  specified  in  paragraph  (11)  of 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
159 


a-27-au.  (2)  4-10-22.  (8)  4-28-22.  (4)  6-20-22.  15)  0-9-22. 

ESTATES  AND  TRUSTS. 


subdivision  (a)  of  section  214.” — Law  [Note:  The  1918  Act  did 

not  restrict  deductible  gifts,  etc.,  to  the 
United  States,  States,  etc.,  to  those  “for 
exclusively  public  purposes;”  and  it 
did  not  authorize  as  a deduction  the 
amount  of  contributions  to  the  special 
fund  for  vocational  rehabilitation. 
Otherwise  this  provision  is  the  same  as 
the  corresponding  one  of  the  1918  Act, 
weight  being  given  to  the  changes  in 
paragraph  (11)  of  Sec.  214  (a)  to  which 
reference  is  made.] 

899  Law  51257.  Additional  Deduction  of  Amounts  Properly  Paid  or 
(Sec.  219.)  Credited  to  Legatee  During  Period  of  Administration. 

— “ except  that  in  determining  the  net  income  of  the 
estate  of  any  deceased  -person  during  the  period  of  administration  or  settle- 
ment there  may  be  deducted  the  amount  of  any  income  properly  paid  or 
credited  to  any  legatee , heir , or  other  beneficiary .” — Law.  [Note: 

The  1918  Act  so  provided.] 


900  Estates  and  Trusts. — While  certain  estates  and  trusts  are  sub- 
ject to  tax  as  such  and  others  are  not,  the  fiduciary  in  every  case  is 
required  to  make  a return  of  income.  See  section  225  of  the  statute  and 
articles  421-425  [for  returns  by  fiduciaries,  beginning  at  ^[939].  The  net 
income  of  an  estate  or  trust  shall  be  computed  in  the  same  manner  and  on 
the  same  basis  as  the  net  income  of  an  individual,  except  that  in  place  of  the 
deduction  allowed  individuals  of  certain  gifts  or  contributions  there  may  be 
deducted  without  limitation,  from  the  gross  income  any  part  of  it  which  during 
the  taxable  year  is  pursuant  to  the  will  or  trust  deed  paid  or  permanently 
set  aside  in  the  manner  specified  in  section  214  (a)  (11)  [5)2001].  See  section 
212  and  articles  21-26  [for  manner  and  basis  of  computing  net  income  gen- 
erally, beginning  at  51 1042].  (Art.  341,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alien  Property  Custodian  is  not  a trustee  of  enemy  alien  but  merely  agent  of  U.  S. 
Government  (30-20-1092:  Op.  A.  G.  2).  .Dec.  1920  Cum.  Bull.  p.  199. 

Ancillary  executor  of  estate  of  nonresident  alien  (23-19-547:  O.  D.  292).  .1919  Cum. 
Bull.  p.  190. 

Assets  of  liquidating  corporation  turned  over  to  estate  which  is  sold  stockholder  as 
well  as  creditor  (17-20-877:  A.  R.  R.  67).  .June  1920  Cum.  Bull.  p.  27. 

Associations:  when  trusts  are  not  (10-19-351:  S.  1068).  .1919  Cum.  Bull.  p.  5. 

Same:  (32-20-1112:  O.  D.  620).  .Dec.  1920  Cum.  Bull.  p.  9. 

Bankruptcy:  “trustee”  and  the  individual  bankrupt  (7-19-297:  O.  D.  174).. 1919 
Cum.  Bull.  p.  175. 

Decedent’s  income  prior  to  death:  accrued  interest  (15-20-851:  O.  D.  454).. June 
1920  Cum.  Bull.  p.  171. 

Decedent’s  income  prior  to  death:  beneficiaries  jointly  or  any  one  by  selection  to 
make  return  if  no  administrator  appointed  (43-20-1264:  0.  D.  702).  .Dec.  1920 
Cum.  Bull.  p.  229. 

Estate  tax  (13-19-419:  0.  812)..  1919  Cum.  Bull.  p.  115. 

Same:  (16-20-875:  Op.  A.  G.  1).  .June  1920  Cum.  Bull.  p.  117. 

Estate  tax:  interest  on  amount  set  aside  to  pay  (36-20-1183:  O.  D.  656).  .Dec.  1920 
Cum.  Bull.  p.  90. 

Estate  tax:  interest  on  unpaid  (29-20-1074:  O.  D.  594)  Dec.  1920  Cum.  Bull.  p.  148. 
Overruled:  1921  Act  (1-21-298:  I.  T.  1317).. Bull.  I (’22)-21,  p.  10. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
160 


-27-22.  (2)  4-10-22. 


INDIVIDUALS  LIABLE  TO  TAX. 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Expatriation  of  American  woman;  death  of  nonresident  alien  husband  (23-20-983: 
O.  D.  533).  .June  1920  Cum.  Bull.  p.  59. 

Minor  child  of  naturalized  father;  on  coming  of  age  (43-20-1256:  0.  D.  695).  .Dec. 
1920  Cum.  Bull.  p.  74. 

Minor  children  of  alien  acquiring  U.  S.  citizenship  by  marriage  (44-21-1897:  O.  D. 

1085).. Dec.  1921  Cum.  Bull.  p.  191. 

Repatriation  of  expatriated  naturalized  citizen  (14-21-1540:  O.  D.  861).. June  1921 
Cum.  Bull.  p.  59. 


749  American  Wife  of  a Nonresident  Alien. — An  American  woman 
who  marries  a foreigner  takes  the  nationality  of  her  husband  * * * 

(T.  D.  2090,  December  14,  1914.) 

750  Citizenship. — Determination  by  State  Department  of  right  to 
registry  is  not  conclusive  upon  the  Treasury  in  fixing  citizenship  for 

income  tax  purposes.  Held  th/t  native  and  naturalized  status  remains 
unless  changed  by  affirmative  /action  or  forfeited  by  overt  act.  (T.  D. 
2135,  January  23,  1915.)  ' / 

751  Nonresident  Citizens /Against  Whom  the  Presumption  of  Expa- 
triation Has  Ariseh./— The  Department  has  received  several  in- 
quiries concerning  the  payiWent  of  the  income  tax  under  the  provision  of 
Section  2 of  the  Act  of  October  3,  1913,  by  persons  residing  abroad  who 
claim  American  Citizenship^  These  inquiries  involve  particularly  two 
questions:  (1)  Whether  a/ naturalized  American  citizen  who  has  brought 
upon  himself  the  presumption  of  expatriation,  under  the  provision  of  the 
second  paragraph  of  Sectfon  2\of  the  Act  of  March  2,  1907,  by  protracted 
residence  abroad,  and  hafe  failed  to  overcome  such  presumption  under  the 
established  rules  is  required  to  )pay  the  income  tax  as  an  American  citizen, 
and  (2)  whether  a naturalized  American  citizen  residing  abroad  can  over- 
come the  presumption  of  expatriation  by  payment  of  the  income  tax. 

752  The  question  ag  to  the  liability  of  a particular  person  to  pay  the 
income  tax  mugt  be  determined  not  by  this  Department  but  by  the 

Treasury  Department/  under  whi^h  the  income  tax  law  is  administered. 
Persons  making  inquiry  concerning  this  point  should,  therefore,  be  advised 
to  apply  to  the  Treasury  Department  for  information. 

753  With  reference  to  the  second  inquiry  mentioned  above  your  attention 
is  called  to  the  fact  that  naturalized  citizens  of  the  United  States 

who  have  brought  upon  themselves  the  presumption  of  expatriation,  under 
the  provision  of  the  second  paragraph  of  Section  2 of  the  Act  of  March  2, 
1907,  by  protracted  residence  abroad,  may  overcome  such  presumption 
only  upon  presenting  “satisfactory  evidence  to  a diplomatic  or  consular 
officer  of  the  United  States,  under  such  rules  and  regulations  as  the  Depart- 
ment of  State  may  prescribe.”  The  Department  has  not  prescribed  a rule 
that  the  presumption  of  expatriation  arising  under  the  law  mentioned  may 
be  overcome  by  showing  that  the  person  concerned  has  paid,  or  is  ready  to 
pay,  the  income  tax  of  the  United  States.  However,  if  a person  against 
whom  the  presumption  of  expatriation  has  arisen  presents,  in  connection 
with  an  application  for  a passport,  or  for  registration  in  a consulate  or  for 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
119 


2-27-22.  (2)  4-10-22. 


INDIVIDUALS  LIABLE  TO  TAX. 


actual  protection,  evidence  that  he  has  paid  the  income  tax,  the  fact  will 
receive  due  consideration  in  connection  with  other  evidence  submitted  to 
overcome  the  presumption  of  expatriation  under  the  established  rules,  and 
particularly  with  regard  to  the  question  of  the  intent  to  return  to  this  country 
to  reside.  The  payment  of  the  income  tax  will  be  duly  considered  in  de- 
ciding the  question  of  the  right  to  the  continued  protection  of  this  Govern- 
ment in  cases  of  native  American  citizens  who  have  resided  abroad  for  a 
period  so  long  that  the  natural  presumption  may  be  held  to  have  arisen  that 
they  have  abandoned  this  country.  (Letter  to  the  American  Diplomatic 
and  Consular  Officers,  signed  by  W.  J.  Bryan,  Secretary  of  State,  and  dated 
March  18,  1914.) 


754  Who  Is  a Nonresident  Alien. — A “nonresident  alien  individual” 
means  an  individual  (a)  whose  residence  is  not  within  the  United 
States  and  (b)  who  is  not  a citizen  of  the  United  States.  An  alien  actually 
present  in  the  United  States  who  is  not  a mere  transient  or  sojourner  is  a 
resident  of  the  United  States  for  purposes  of  the  income  tax.  Whether  ^ 
he  is  a transient  or  not  is  determined  by  his  intentions  with  regard  to  the 
length  and  nature  of  his  stay.  A mere  floating  intention,  indefinite  as 
to  time,  to  return  to  another  country  is  not  sufficient  to  constitute 
him  a transient.  If  he  lives  in  the  United  States  and  has  no  definite 
intention  as  to  his  stay,  he  is  a resident.  One  who  comes  to  the  United  States 
for  a definite  purpose  which  in  its  nature  may  be  promptly  accomplished 
is  a transient;  but  if  his  purpose  is  of  such  a nature  that  an  extended  stay 
may  be  necessary  for  its  accomplishment,  and  to  that  end  the  alien  makes 
his  home  temporarily  in  the  United  States,  he  becomes  a resident,  though 
it  may  be  his  intention  at  all  times  to  return  to  his  domicile  abroad  when  l 

the  purpose  for  which  he  came  has  been  consummated  or  abandoned.  A ' 

foreign  corporation  is  one  incorporated  under  the  law's  of  a foreign  country. 

As  to  when  a citizen  or  domestic  corporation  is  entitled  to  the  benefits  of 
section  262,  see  articles  1135-1137  [^[2076],  For  the  treatment  of  foreign 
life  insurance  companies,  see  section  245(c)  and  article  687  [^[1345].  (Art. 

311,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alien  leaving  U.  S.  during  taxable  period  (16-20-867:  0.  D.  468).  .June  1920  Cum. 

Bull.  p.  243. 

Exemption  from  military  service:  weight  of  statements  in  affidavit  claiming  exemption  L 
under  Selective  Service  Act  (14-20-832:  O.  D.  438) . .June  1920  Cum.  Bull.  p.  162.  ^ 

Families  of  foreign  ambassadors  (9-19-343:  O.  D.  198)..  1919  Cum.  Bull.  p.  164. 

Member  of  foreign  partnership;  yearly  stay  in  U.  S.  of  several  months  (29-20-1072: 
nO.  D.  592).  .Dec.  1920  Cum.  Bull.  p.  128. 

One  year’s  residence  in  U.  S.  as  presumption  of  residence  here  (9-19-342:  O.  D.  197) 

. . 1919  Cum.  Bull.  p.  164. 

Service  in  U.  S.  Army  constitutes  residence  in  U.  S.  (3-19-175:  O.  D.  117).  1919 
Cum.  Bull.  p.  163. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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9-20-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 


3392 


3393 


Subject 


Paragraph 


I.av 


Sept.  7,  1922 


Sept.  12,  1922 


Sept.  19,  1922 


Report  No.  54,  September  13,  1922. 

(Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  37,  of  the  1922  Series.] 

Report  No.  55,  September  15,  1922. 

Basis  for  determining  taxable  gain  or  deductible 
loss  in  tjie  case  of  property  acquired  prior  to 
March  1,  1913,  and  sold  or  disposed  of  subse- 
quent thereto. — Attorney-General’s  opinion. — 

1916,  1^17,  and  1918  Acts 3332 

Report  No.  56,  September  20,  1922. 

Amend/ients  to  the  Revenue  Act  of  1921  effected 

by  tile  China  Trade  Act 3158 

[Page/  for  substitution  on  account  index-digest 
rences  to  rulings  in  Internal  Revenue  Bul- 
letin No.  38,  of  the  1922  Series,  and  on  account 
forward  references  to  the  amendments  to  the 
w effected  by  the  China  Trade  Act.] 


There  are  no  Supplementary  Pages  34  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33. 


i ajam  .a  .T 


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. 

' 


.irreasiq  3a  i-I  j 03  *€  as-a.'I  rt£U  . hi  o.t  ent. 

oivmg  xat  MOivii  jamcu  am 
.fet'-i'jj#*!  rrB'Viifnlqqtf^ 


9-16-22. 


extent  that  the  selling  price  exceeded  the  value  on  March  1,  1913; 

(b)  Taxable  gain  resulted  if  the  selling  price  was  greater  than  the  cost  and 
if  the  cost  was  greater  than  the  value  on  March  1,  1913,  to  the  extent  that  the 
selling  price  exceeded  the  cost  of  the  property  sold  or  disposed  of; 

(c)  No  taxable  gain  or  allowable  loss  resulted  if  the  selling  price  was  greater 
than  the  value  of  the  property  on  March  1,  1913,  but  less  than  the  co 
thereof; 

(d)  An  allowable  loss  i fas  less  than  the  value 

on  March  1,  1913,  and  if  tf  ost  to  the  extent  of  the 

difference  between  the  vah  Le  selling  price; 

(e)  No  taxable  gain  or  le  selling  price  was  less 

than  the  value  thereof  on  . Tan  the  cost;  or 

(f)  An  allowable  loss  re  > less  than  the  cost  and 

if  the  cost  was  less  than  tl  to  the  extent  that  the 

cost  of  the  property  dispos  rice  thereof. 


(Opinion  of  the  Attorn^  1 made  a part  of  T.  D. 

3393,  1[3332.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

747 


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i ' til  i.  >(  o!  " .1  4tU  r>'/  {">) 

jtemorb 

ii  i *j[  ; w oh  'jnilb.;  oi  1 1 i.oJb;  or  <>l  oldiswollfi  ri A (b) 

u Ibv  TRfii  jnr.  f£I<?t  ,1  ibuslV  no 

r.  no  oub.  i jrli  h jov  ,o<i  jimoBib 
.■i'll'  ultliboi!  i jo  oi  1 ibob  nisg  oldr.XJ  r cH  (o) 

. r j;  . r- : ) r t 1 , I<?1  .1  rh  no  }0CT9ifJ  9vlj<7  odj  fisrfl 
i)j  laoootit  ••..'! i -,«o[  ’i  i<]  I > o/lHi  b'  .Jt  n rtt’\  old  .wall*,  nA  ()) 

os  JJ‘  ,l  d .u  s i : 4i  • oAi  <i  rl"  ?.:■  ir.yn  uoo  oiJr  li 

bum  btifl  o;  bobr  ..  io/wO  jomouA  orij  to  coiniqO) 


Itinl  r-  .'no io^vO  -,A  v.<J  tA'ih'^oO 

UJIVJ 134  XAT  20403*11  J/Jtttm  3HT 

W 


2-27-22.  (2)  7-20-22. 


(3)  9-8-22. 

RULES,  REGULATIONS,  ETC. 


2964  Law  1T677.  “(b)  Any  vacancy  in  the  Board  shall  be  filled  in  the 

(Sec  1327.)  same  manner  as  the  original  appointment.  The 

members  representing  the  public  shall  serve  without 
compensation  except  reimbursement  for  traveling,  subsistence,  and  other 
necessary  expenses  incurred  in  the  performance  of  the  duties  vested  in 
them  by  this  section.  The  members  representing  the  Bureau  of  Internal 
Revenue  shall  serve  without  compensation  in  addition  to  that  received  for 
their  service  in  such  Bureau .” 

2965  Law  j[678.  “(c)  The  Secretary  shall  furnish  the  Board  with  such 

(Sec.  1327.)  clerical  assistance , quarters  and  stationery,  furniture , 

office  equipment,  and  other  supplies  as  may  be  necessary 
for  the  performance  of  the  duties  vested  in  them  by  this  section .” 

2966  Law  ^[679.  “(d)  It  shall  be  the  duty  of  the  Board  to  investigate 

(Sec.  1327.)  the  procedure  of  and  the  forms  used  by  the  Bureau  in  the 

administration  of  the  internal  revenue  laws,  and  to  make 
recommendations  in  respect  to  the  simplification  thereof.  The  Board  shall 
make  a report  to  the  Congress] on  or  before  the  first  Monday  of  December  in 
each  year.' 

2967  Law  ^[680.  “(e)  The! expenditures  of  the  Board  shall  be  paid  upon 

(Sec.  1327.)  vouchers  i approved  by  the  Board  and  signed  by  the  chair- 
man thereof.  For  the  expenditures  of  the  Board  for 

the  fiscal  year  ending  JuniZO,  1922,  there  is  authorized  to  be  appropriated, 
out  of  any  money  in  the  [Treasury  not  otherwise  appropriated,  the  sum  of 
$10,000.” 

2968  Law  ^[681.  “(f)  The  Board  shall  cease  to  exist  on  December  31, 

(Sec.  1327.)  1924. — Law.  [Note:  These  provisions  are  new 

to  the  1921  Act.] 

V ' * ~ * 

ax  Simplification  Board. — (February  27,  1922.) 
eal 

teVett 
Abbott 

pointed  by  the  President  to  represent  the  public. 
Smiths 
urks 

Skilton  \ 

ppointcd  tW  the  Secretary  of  the  Treasury  to  rep- 
resent the  Bureau  of  Internal  Revenue. 


2969  Personnel  of  the 

James  H. 
Joseph  E, 
William  T 

Charles  P. 
Jesse 
George 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

* Change  in  personnel/  Board  as  constituted  July  15,  1922.  . ^3299:  as  constituted 
September  8,  1922.  . *[f333 1 . 

2970  Law  H701.  having  Clause  in  Event  of  Unconstitutionality. — 

(Sec.  1403.)  ‘Sec.  1403.  That  if  any  provision  of  this  Act,  or  the 
application  thereof  to  any  person  or  circumstances,  is 
held  invalid,  the  remainder  of  the  A > and  the  application  of  such  provision 
to  other  persons  or  circumstances,  shall  not  be  affected  thereby." — Law. 

[Note:  This  “saving  clause”  differs  con- 
siderably in  its  wording  from  that  of  the 
1918  Act.] 


■ opy  right  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
6^9 


2-27-22.  (2)  7-20-22.  (3)  9-8-22. 

SUPREME  COURT  DECISIONS. 


2971  Cases  Involving  the  Constutionality  of  the  Act  of  October  3,  1913  * 

, , |he  casef  hs,te(?  below,  arising  under  the  Income  Tax  Law  of  October 

3,  1913,  have  been  decided  in  the  Supreme  Court  of  the  United  States  (To 
February  15,  1922.)  ’ v 

2972  Frank  R.  Brushaber,  Appellant,  v.  Union  Pacific  Railroad  Com- 
pany. (240  U.  S.  1.) 

[For  the  opinion  see  Supplementary  Page  125  ] 


2973  John  F.  Dodge  and  Horace  E.  Dodge,  Appellants,  v.  James 
Collector  of  Internal  Revenue.  (240  U.  S.  122.) 

[For  the  opinion  see  Supplementary  Page  132.] 


J.  Brady, 


2974  Tyee  Realty  Company.  Plaintiff  in  Error,  v.  Charles  W.  Anderson 
Collector  of  Internal  Revenue.  (240  U.  S.  115.) 

[For  the  opinion  see  Supplementary  Page  132.] 

2975  Edwin  Thorne,  Plaintiff  in  Error,  v.  Charles  W.  Anderson  Col- 
lector of  Internal  Revenue.  (240  U.  S.  115.) 

[For  the  opinion  see  Supplementary  Page  132.] 

2976  John  R.  Stanton,  Appellant,  v.  Baltic  Mining  Company  et  al.  (240 
u*  u.  103.) 

[For  the  opinion  see  Supplementary  Page  133.] 


2977  John  F.  Dodge  and  Horace  E.  Dodge,  Appellants,  v.  William  H. 
Osborn,  Commissioner  of  Internal  Revenue.  (240  U S 118) 

2978  -[Comment:  The  appellants  here  tf[2977],  sought  in  the’ lower  courts 
to  enjoin  the  assessment  and  collection  of  the  additional  tax  The 

Court  of  Appeals  of  the  District  of  Columbia  affirmed  the  decree  of  the 
Supreme  Court  of  the  District  of  Columbia  dismissing  the  bill  and  held 
that  the  constitutional  questions  could  not  be  considered  in  a proceeding 
to  enjoin  collection  The  U.  S.  Supreme  Court  affirmed.  For  the  opinion 
see  paragraph  2873.] 


2979  Howard  ^Gould,  Plaintiff  in  Error,  v.  Katherine  C.  Gould.  (245 
[For  the  opinion  see  Supplementary  Page  136.] 


2980  Henry  R Towne,  Plaintiff  in  Error,  v.  Mark  Eisner,  Collector  of 
Internal  Revenue.  (245  U.  S.  418.) 

[For  the  opinion  see  Supplementary  Page  137.] 


2981  William  E.  Peck  & Co.,  Inc.,  Plaintiff  in  Error,  v.  John  Z.  Lowe 
Jr.,  Collector  of  Internal  Revenue.  (247  U.  S.  165.) 

[For  the  opinion  see  Supplementary  Page  140.] 

2982  E.  J.  Lynch,  Collector  of  Internal  Revenue,  Petitioner  v H C 

Hornby.  (247  U.  S.  339.)  ’ * 

[For  the  opinion  see  Supplementary  141.] 

2983  E.  J.  Lynch,  Collector  of  Internal  Revenue,  Petitioner,  v.  Henrv 

Turnsh.  (247  U.  S.  221.)  y 

[For  the  opinion  see  Supplementary  Page  144.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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SUITS  TOR  RECOVERY  OF  TAXES. 


this  would  apply  to  a suit  of  the  present  kind  is  at  least  doubtful.  Roberts 
v.  Lowe,  236  Fed.  Rep.  604,  605.  In  Patten  v.  Brady,  184  U.  S.  608,  a suit 
against  a collector  begun  after  the  passage  of  this  statute,  it  was  held  that  it 
could  be  revived  against  his  executrix,  which  shows  again  that  the  action  is 
personal  as  also  does  the  fact  that  this  collector  may  be  held  liable  for  interest. 
Erskine  v.  Van  Arsdale,  15  Wall.  75.  Redfield  v.  Bartels,  139  U.  S.  694. 
But  in  any  event  the  statute  supposes  a suit  already  begun  against  the  officer 
in  his  lifetime.  We  need  not  consider  the  remedies  against  the  United 
States.  United  States  v.  Emery,  Bird,  Thayer  Realty  Co.,  237  U.  S.  28; 
Sage  v.  United  States,  250  U.  S.  33.  It  appears  to  us  plain  without  further 
discussion  that  both  questions  must  be  answered:  No. 

Answer  to  Questions  1 and  2:  No. 

(U.  S.  Supreme  Court.  Smietanka  fs.  Indiana  Steel  Company.  October 
24,  1921.)  / 

I 

2915  Law  11632.  U.  S.  District  Courts  Given  Jurisdiction  to  Hear  and 
(Sec.  1310.)  Determine  Claims  Against  the  United  States  for  the 

Amount  of  Tajbs  or  Penalties  Illegally  Collected 
if  the  Collector  to  Whom  Such  Tqfees  or  Penalties  were  Paid  is  Dead. — 

“(c)  Paragraph  Twentieth  of  section  24  of  the  Judicial  Code  is  amended 
by  adding  at  the  end  thereof  the  fallowing  new  paragraph: 

‘ Concurrent  with  the\Court  of  Claims , of  any  suit  or  proceeding , com- 
menced after  the  passage  of  the  Revenue  Act  of  1921,  for  the  recovery  of  any 
internal-revenue  tax  allege a.  to  nave  been  erroneously  or  illegally  assessed  or 
collected , or  of  any  penalty  dawned  to  have  been  collected  without  authority 
or  any  sum  alleged  to  have  beef)  excessive  or  in  any  manner  wrongfully  col- 
lected, under  the  internal-revenue  laws,  even  if  the  claim  exceeds  $10,000, 
if  the  collector  of  internal-revefaie  by  whom  such  tax,  penalty , or  sum  was 
collected  is  dead  at  the  time  sifch  siSt  or  proceeding  is  commenced.’’  ” — Law. 

j [Note:  This  amendment  to  paragraph 
) 20th\of  Sec.  24  of  the  Judicial  Code  is: 
new  t\  the  1921  Act.  Note  paragraph 
f 5th  of  Sec.  24  of  the  Judicial  Code.] 

2916  Law  H67I.  Interest  May  be  Allowed  in  Any  Judgment  of  Any 
(Sec.  1324.)  Court  Rendered  Against  the  United  States  for  Internal 

Revenue  Taxes  or  Penalties  Illegally  Collected.— 

“(b)  Section  111  of  the  Judicial  Code  is  amended  to  read  as  follows: 

‘Sec.  177.  No  interest  shall  be  allowed  on  any  claim  up  to  the  time 
of  the  rendition  of  judgment  by  the  Court  of  Claims,  unless  upon  a contract 
expressly  stipulating  for  the  payment  of  interest ,’  ” — Law.  {Note: 

The  word  “thereon”  after  “judgment” 
has  been  omitted.] 

2917  Law  ^[672.  “ ‘except  that  interest  may  be  allowed  in  any  judgment 

(Sec.  1324.)  of  any  court  rendered  after  the  passage  of  the  Revenue 

Act  of  1921  against  the  United  States  for  any  internal- 
revenue  tax  erroneously  or  illegally  assessed  or  collected,  or  for  any  penalty- 
collected  without  authority  or  any  sum  which  was  excessive  or  in  any  manner- 
wrongfully  collected,  under  the  internal-revenue  laws .’  ” — Law.  [Note: 

This  is  all  new.] 


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2-27-22. 


SUITS  FOR  RECOVERY  OF  TAXES. 

2918  Section  177  of  the  Judicial  Code,  amended  by  section  1324  of  this 
t Provides  that  interest  may  be  allowed  in  any  judgment  of  anv 

urt  rendered  after  the  passage  of  the  Revenue  Act  of  1921  against  the 

> TS  °r  3117  mter,naI  revcnue  erroneously  or  illegally  as  essed 
or  collected  or  for  any  penalty  collected  without  authority  or  any  sum  which 

excessive  or  in  any  manner  wrongfully  collected  under  die  internal 
revenue  laws.  (Art.  1040,  Reg.  62,  1922  Edition.)  internal 

29,9  ^f^ation  for  the  Payment  of  Refunds  and  the 

(Sec.  1317.)  Satisfaction  of  Judgments. — “Sec.  1317  That  the 
paragraph  of  section  3689  of  the  Revised  Statutes  as 
amended,  reading  as  follows:  ‘ Refunding  taxes  illegally  collected  ( internal 

7°  7"  ^ Md  P7  hack  duties  erroneoush  or  illegally' assessed 
V)  win?  lnternal  7?ve™e  lawsf  is  repealed  from  and  after  June 

!92  t92av’jand  the„Sec[eta  7 the  Freasury  shall  submit  for  the  fiscal  year 
1921,  and  annually  thereafter,  an  estimate  of  appropriations  to  refund  and 

thl  intern^  ” or  assessed  or  collect  under 

the  internal-revenue  laws,  and  to  pay  judgments,  including  interest  and 

0S  S>  ? cndered  f or  taxes  or  penalties  erroneously  or  illegally  assessed  or  col- 
lected under  the  internal-revenue  laws.”— Lew.  [Note:  This  is  new.] 

2920  Claims  for  Refund  of  Sums  Recovered  by  Suit.— (a)  Claims  bv 

aid,,  taxpay7  f°r  ,?he  aiXl°^nt1of  a Judgment  representing  taxes  or  pen- 
alties  erroneously  collected  should  be  made  on  Form  843.  The  claim- 

ant  should  state  the  grounds  of  his  claim  under  oath,  giving  the  nam^s 
If  Parties  to  the  sua,  the  cause  of  action,  the  date  of  it!  commence- 
m nt,  the  date  of  the  judgment,  the  court  in  which  it  was  recovered,  and  its 
amount.  To  this  affidavit  there  should  be  annexed  a certified  copy  of  the  final 
judgment  a certificate  of  probable  cause,  and  an  itemized  bill  of  the  costs  paid 
receipted  by  the  clerk  or  other  proper  officer  of  the  court,  together  with  a^er- 
tified  copy  of  the  docket  entries  of  the  court  in  the  case  or  so  much  thereof 
as  may  be  required  by  the  Commissioner.  When  a recovery  is  had  in  any  suit 
or  proceeding  against  a collector  or  other  internal  revenue  officer  for  any  act 

dCTkbyw  im’  f°r  th  i re£°veiy  of  any  money  exacted  by  or  paid  to  him 
and  by  him  paid  into  the  Treasury,  in  the  performance  of  his  official  duty, 
and  the  court  certifies  that  there  was  probable  cause  for  the  act  done  by 
the  collector  or  other  officer,  or  that  he  acted  under  the  directions  of  the 
Secretary  oi  the  freasury,  or  other  proper  officer  of  the  Government  no 
execution  shall  issue  against  such  collector  or  other  officer,  but  the  amount 
so  recovered  shall,  upon  final  judgment,  be  provided  for  and  paid  out  of  the 
proper  appropriation  from  the  Treasury.  See  section  989  of  the  Revised 
Statutes  (b)  If  the  judgment  debtor  shall  have  already  paid  the  amount 
recovered  against  him  the  claim  should  be  made  in  his  name.  There  should 
also  be  a certificate  of  the  clerk  of  the  court  in  which  the  judgment  was  re- 
covered (or  other  satisfactory  evidence),  showing  that  the  judgment  has 
been  satisfied  and  specifying  the  exact  sum  paid  in  its  satisfaction,  with  a 
detail  of  all  items  of  costs  which  were  paid  by  the  judgment  debtor  or  for 

rost'ReTef 1922  Edition  ’I"  1031  11,28,31  a"d  1040  Mi  (Art. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
650 


Z-2T-22.  (2)  4-10-22.  (3)  4-18-22.  (4)15-19-22.  (5)  6-16-22.  (6)  6-30-22.  (7)  9-13-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES. 

amended,  the  Revenue  Act  of  1917,  or  the  Revenue  Act  of  1918,  it  appears 
that  an  amount  of  income,  war-profits  or  excess-profits  tax  has  been  paid 
in  excess  of  that  properly  due,  then , notwithstanding  the  provisions  of 
section  3228  [^[2827 ] of  the  Revised  Statutes,  the  amount  of  the  excess  shall 
be  credited  against  any  income,  war-profits  or  excess-profits  taxes,  cr  install- 
ment thereof,  then  due  from  the  taxpayer  under  any  other  return,  and  any 
balance  of  such  excess  shall  be  immediately  refunded  to  the  taxpayer:”— 
Law.  [Note:  The  1918  Act  so  provided,  though,  naturally,  the 

1921  Act  was  not  embraced  within  its 
terms.] 

2826  Law  1[583.  Five-year  Limitation  Generally  for  Making  Claim 
(Sec.  252.)  for  Credit  or  Refund. — “ Provided , That  no  such  credit 

or  refund  shall  be  allowed  or  made  after  five  years  from 
the  date  when  the  return  was  due,  unless  before  the  expiration  of  such  five 
years  a claim  therefor  is  filed  by  the  taxpayer-” — Law.  [Note:  The 

/ 1918  Act  so  provided.] 

2827  Law  ^656.  Four-Year  Limitaj&on  on  Claims  for  Refunding  Other 
(Sec.  1316.)  Than  Those  Based  on  an  Examination  of  a Return 

of  Income  unde/  1916,  1917,  1918,  and  1921  Acts.— 
“Sec.  1316.  That  section  3228  of  trie  Revised  Statutes  is  amended  to  read 
as  follows:  j 

‘Sec.  3228.  All  claims  for  the  refunding  or  crediting  of  any  internal 
revenue  tax  alleged  to  hqve  been j erroneously  or  illegally  assessed  or  col- 
lected, or  of  any  penalty  alleged  to  have  been  collected  without  authority,  or 
of  any  sum  alleged  to  have  Bb^n  (excessive  or  in  any  manner  wrongfully  col- 
lected, must  be  presented  to  tfmCommissioner  of  Internal  Revenue  within 
four  years  next  after  payment  Jf\uck  tax,  penalty,  or  sum.’’  ” 

2828  Law  If 657.  “ This  secti(n,\cept  as  modified  by  section  252  [1f2825], 

(Sec.  1316.)  shall  applj  retroactively  to  claims  for  refund  under  the 

Revenue  Act  of  1946,  the  Revenue  Act  of  1917,  and  the 
Revenue  Act  of  1918.”— Latf.  [Note:  Section  3228  of  the  Revised 

/ Statutes,  prior  to  its  amendment  here 
/ (effective  generally  November  23,  1921, 
but  to  beNetroactively  applied  as  stated 
j in  Law  If 61)7.  1f2828)  omitted  “or  credit- 
/ ing,”  and  provided  that  all  claims  must 
f be  presented  “within  two  years  next 

/ after  the  cause  df  action  accrued.”] 

2829  Claims  for  Credit  of  Taxes  Erroneously  Collected. — Any  amount 
of  income,  war  profits  or  excess  profits  tax  paid  in  excess  of  that 

properly  due  shall  be  credited  against  any  such  taxes  due  from  the  taxpayer 
under  any  other  return.  To  obtain  uch  credit  the  taxpayer  should  proceed 

as  follows: 

2830  (1)  Where  the  credit  demanded  is  equal  to  or  less  than  any  outstand- 
ing assessment  of  tax,  a taxpayer  desiring  to  obtain  such  credit  shall 

file  with  the  collector  for  the  district  in  which  his  original  return  was  filed 
a claim  on  Form  843,  which  shall  be  sworn  to  and  shall  contain  the  follow- 
ing statements;  (a)  business  engaged  in  by  the  claimant;  (b)  character  of  as- 
sessment or  tax;  (c)  amount  of  tax  claimed  as  a credit;  (d)  unpaid  assessment 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
631 


2-27-22.  (2)  4-10-22.  (3)  4-18-22.  (4)  5-19-22.  (5)  6-16-22.  (6)  6-30-22.  (7)  9-13-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES. 

against  which  credit  is  asked  and  for  what  taxable  year;  and  (e)  all  facts 
regarding  the  over-payment. 

2 831  (2)  Where  the  amount  claimed  as  a credit  is  greater  than  the  out- 

standing assessment  of  tax,  a taxpayer  desiring  to  obtain  such  credit 
and  the  refund  to  which  he  is  entitled  shall  file  Form  843,  stating  thereon  the 
respective  amounts  claimed  as  a credit  or  as  a refund.  See  article  1036 
(1(2835].  All  the  facts  regarding  the  total  overpayment  should  be  stated  in 
the  claim.  ('Art.  1034,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  index  reference s see  page  gi. 

Amortisation  deduction  under  1918  Act  even  though  no  claim  made  in  return  for 
1918,  1919,  1920,  or  1921:  1918  and  1921  Acts  (1-20-273:  Sol.  Op.  138).  .Bull.  1 

(’22)-20,  p.  10. 

Community  property:  single  claim,  applied  against  tax  of  either  spouse,  by  agreement 
(42-21-1873:  O.  D.  1068)  . Dec.  1 92 1 Cum.  Bull.  p.  247.  (See  “Texas  community 
property”  below.) 

Credit  allowed  constitutes  payment  to  that  extent  of  tax  against  which  credit  is  applied, 
the  whole  then  becoming  subject  to  proper  refund  claim  (25-21-1697:  Sol.  Op. 
107).  .June  1921  Cum.  Bull,  p.  336. 

Effect  of  claim:  general  discussion:  also,  interest,  if  rejected  (19-20-924:  A.  R.  M.  46) 
. .June  1920  Cum.  Bull.  p.  247.  Does  not  stay  collection  of  tax,  necessarily: 
1921  Act  (1-26-374:  I.  T.  1373).  Bull.  I (’22)-26,  p.  12. 

Enemy  alien:  erroneous  tax  withheld  at  source  (36-20-1185:  O.  D.  657).. Dec.  1920 
Cum.  Bull.  p.  219. 

Husband  and  wife;  one  filed  return  and  paid  tax,  the  other  filed  no  return  because 
net  loss:  now  amended  joint  return  and  consequent  claim  (1918  and  1921  Acts) 
(1-2-23:  I.  T.  1162),. Bull.  I (’22)-2,  p.  15. 

Partnership  electing  to  be  taxed  as  corporation:  claims  arising  by  virtue  of  (15-20-854: 

0.  D.  457).  . June  1920  Cum.  Bull.  p.  247.  ^4 

Partnership  members’  overpayments  of  income  tax  may  be  credited  against  excess- 
profits  tax  assessment  (1917  Act)  on  partnership  (1-15-217:  A.  R.  R.  859).  .Bull. 
I (’22)- 1 5,  p.  14.  See  O.  D.  180,  1919  Cum.  Bull.  p.  309,  which  is  modified  by 
(1-24-351:  I.  T.  1361).  Bull.  I (’22)-24,  p.  13. 

* Penalties  (ad  valorem)  and  interest  are  subject  to  credit  claims:  1921  Act  (1-37-505: 

1.  T.  1447).  .Bull.  I (’22)-37,  p.  14. 

Returns  for  two  years,  respectively,  filed  in  different  districts:  procedure  to  adjust 
tax  due  on  one  against  overpayment  on  other  (48-20-1327:  O.  D.  740).. Dec. 
1920  Cum.  Bull.  p.  310. 

bole  owner  of  corporation  may  not  apply  corporation’s  credit  for  overpayment  against 
taxes  due  under  his  personal  return:  1918  and  1921  acts  (1-13-189:  I.  T.  1259).  . 
Bull.  I (’22)-13,  p.  17. 

Sole  proprietor  files  partnership  return  and  pays  tax  on  such  in  error;  credit  allowed 
against  his  future  personal  tax  installments  (26-21-1710:  O.  D.  962).  .June  1921 
Curn.  Bull.  p.  338. 

Stock  dividends:  instructions  for  making  claim  on  account  of  tax  paid  on  (11-20- 
789A:  M.  2429) . .June  1920  Cum.  Bull.  p.  245 : Further  instructions  (11-20- 
789B:  M.  2436).. June  1920  Cum.  Bull.  p.  245. 

Same:  stock  carried  on  margin  with  broker  (32-20-1123:  O.  D.  625).. Dec.  1920 
Cum.  Bull.  p.  308. 

Successor  corporation  in  event  of  merger  or  consolidation  under  New  Jersey  statute 
(24-21-1690:  O.  D.  950).. June  1921  Cum.  Bull.  p.  335. 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (1917  Act)  (46-21-1924:  O.  D.  1103).  .Dec.  1921  Cum. 
Bull.  p.  248. 

Texas  community  property  income:  claims  because  of  ruling  contained  in  T.  D.  3071 
(43-20-1270:  O.  D.  708).  .Dec.  1920  Cum.  Bull.  p.  309.  Modified  by  (51-20- 
1358:  O.  D.  757).. Dec.  1920  Cum.  Bull.  p.  310:  also  (12-21-1525:  O.  D. 
854).  .June  1921  Cum.  Bull.  p.  335. 

Abandoning  domicile  in  Texas  during  taxable  year  (7-21-1451:  O.  D.  810).  .June 
1921  Cum.  Bull.  p.  235. 

In  event  of  death  of  either  spouse  (20-21-1643:  O.  D.  920).  .June  1921  Cum.  Bull, 
p.  335. 

See  “Community  property”  above. 

Undistributed  surplus  tax  on  corporations:  excess  may  be  credited  (1-20-662:  O.  974) 
..June  1920  Cum.  Bull.  p.  244. j gA; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22.  (2)  4-10-22.  (3)  4-14-22.  (4)  6-16-22.  (6)  8-3-22. 

COLLECTION  AND  PAYMENT  OF  TAX. 


Complete  return  after  filing  tentative  return  (4-19-323:  0.  D.  149).  .1919  Cum.  Bull, 
p.  247. 

Death  before  granted  extension  expires  (41-20-1234:  O.  D.  681).. Dec.  1920  Cum 
Bull.  p.  230. 

Deductible  item  of  expense  (26-19-595:  O.  D.  319)..  1919  Cum.  Bull.  p.  247:  also 
(7-20-745:  O.  922).  .June  1920  Cum.  Bull.  p.  227. 

Extension  due  to  war:  penalties  for  failure  to  pay  tax  apply,  return  having  been  filed 
(30-20-1095:  0.  D.  608).  .Dec.  1920  Cum.  Bull.  p.  299. 

Extension  in  case  of  individuals  in  Hawaii  and  Alaska:  1921  Act.  . TJ3093. 

Extension  in  case  of  persons  abroad  (1921  Act).  .^3032. 

* Extension  of  time  under  relief  Sec.  250  (f);  interest  on  rejected  abatement  claim  for 
1917  taxes:  1921  Act  (1-24-349:  I.  T.  1360).. Bull.  1 (’22)-24,  p.  10.  Modified 
(1-31-443:  1.  T.  1408).  .Bull.  I (’22)— 31,  p.  11. 

First  installment  (1-19-106:  O.  D.  74)..  1919  Cum.  Bull.  p.  246;  also  T.  D.  3136 
( 1 1-21-15 13) . .June  1921  Cum.  Bull.  p.  316. 

General  discussion;  fractional  paj-t  of  month:  “full  month”:  collectible  from  date 
tax  due  (13-19-426:  O.  884).  .1919  Cum.  Bull.  p.  244. 

Indians  who  are  incompetent,  and  are  wards  of  nation  (18-20-902:  O.  D.  487).  .June 
1920  Cum.  Bull.  p.  229. 

Installments  after  the  first.  ,T.  D;  3136  (1 1-21-1513).  .June  1921  Cum.  Bull.  p.  316. 

Installments  after  the  first:  taxpayer  is  on  notice  by  fact  of  having  filed  return  and 
paid  first  installment  (9-20-775:  O.  D.  408) . .June  1920  Cum.  Bull.  p.  236. 

“Reasonable  cause”  relates  to  failure  to  file  return  only;  here,  amended  return  filed, 
no  claim  for  abatement  until  10  day  period  following  notice  and  demand  for  tax 
shown  due"by  original  return  had  expired;  penalties  asserted  (43-20-1268:  O.  D, 
706).  .Dec.  h020  Cum.  Bull.  p.  299. 

Sec.  250  (e)  applicable  to  Tide  II  of  1918  Act  only,  except  by  specific  provision  (7- 
20-747:  O.  931)V.June  1920  Cum.  Bull.  p.  235. 

Total  tax  paid  at  time  of  filing  delinquent  return  (25-19-588:  O.  D.  313).  .1919  Cum. 
Bull.  p.  249:  Overruled  (47-21-1935:  O.  D.  1111).. Dec.  1921  Cum.  Bull.  p.  238 


\ ■ no  sinb  stlJ  «s  soifon  ?rfl  no  r.v  ^ hi 

1*  e.vnb  **  ,.V  / 

1 

2 728  Law  If 569.  Ipso  Facto  Assessment  of  the  Tax  and  Notice  and 
(Sec.  250.)  Demand  for  the  First  Installment. — “/»  the  case  of 
the  first  installment  provided  for  in  subdivision  (a)  the 
instructions  printed  on  the  return  shall  be  sufficient  notice  of  the  date  when 
the  tax  is  due  and  sufficient  demand , and  the  taxpayer's  computation  of 
the  tax  on  the  return  shall  be  sufficient  notice  of  the  amount  due” — Law. 

[Note:  The  1918  Act  so  provided.] 

2729  Law  1f570.  Notice  and  Demand  for  Payment  of  Installments 
(Sec.  250.)  Subsequent  to  the  First  May  be  Given  by  the  Col- 
lector.— “7n  the  case  of  each  subsequent  installment  the 
collector  may,  within  thirty  days  and  not  later  than  ten  days  before  the  instal- 
ment becomes  due,  mail  to  the  taxpayer  notice  of  the  amount  of  the  installment 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
607 


2-27-22.  (2)  4-10-22.  (3)4-14-22.  (4)  6-16-22.  (5)  8-3-22.1 

COLLECTION  AND  PAYMENT  OF  TAX. 

and  the  date  on  which  it  is  due  for  payment.  Such  notice  of  the  collector 
shall  he  sufficient  notice  and  sufficient  demand  under  this  section.” — Law. 

[Note:  This  provision  is  new  to  the  1921 
Act.  (The  practice  has  been  to  send  the 
notices.  The  statutory  provisions  re- 
lative to  notice  and  demand  are  un- 
changed.)] 

2730  Notice  and  Demand  for  Payment. — In  the.,  case  of  the  first  install- 
ment provided  for  in  subdivision  (a)  of  section  250  the  instructions 
printed  on  the  return  shall  be  sufficient  notice  of  the  date  when  the  tax  is 
due  and  sufficient  demand.  In  the  case'  of  each  subsequent  installment  the 
collector  may  within  30  days  and  not  later  than  10  days  before  the  install- 
ment becomes  due  mail  to  the  taxpayer  notice  (on  Form  1123)  of  the  amount 
of  the  installment  and  the  date  on  which  it  is  due  for  payment  and  such 
notice  of  the  collector  shall  be  sufficient  notice  and  sufficient  demand  for 
the  subsequent  installment.  In  all  other  cases  and  in  cases  where  the  col- 
lector failed  to  give  advance  notice  on  Form  1123,  notice  and  demand  will 
be  given  on  Form  1-1 7a.  The  service  of  the  notice  and  demand  on  Form 
1-1 7a  is  complete  upon  mailing  it,  and  the  time  within  which  the  tax  must 
be  paid  runs  fi  m the  date  of  mailing  the  notice  and  not  from  the  date  of  its 
receipt  by  the  taxpayer.  [For  notice  and  demand  on  account  of  the  first 
installment,  see  ^[2728.]  But  payment  of  the  tax  must  actually  reach  the 
collector  within  the  ten-day  period,  and  merely  mailing  a remittance 
before  the  expiration  of  the  ten  days  is  not  sufficient.  So,  to 
avoid  the  prescribed  penalties,  no  more  than  ten  days  may  elapse  after  the 
mailing  of  the  notice  before  the  payment  is  in  the  collector’s  hands.  See 
section  3184  of  the  Revised  Statutes  [See  *[[2733,  below].  By  reason,  how- 
ever, of  the  absence  from  home  or  place  of  business  in  a foreign  country 
or  in  the  military  or  other  service  of  the  country  and  the  consequent  delay 
in  receiving  mail,  or  by  reason  of  the  location  of  the  residence  of  an  indi- 
vidual or  of  the  office  of  a corporation  to  which  the  notice  was  addressed  at 
a distance  from  the  collector’s  office,  it  is  frequently  impossible  for  a tax- 
payer to  receive  notice  and  demand  and  to  make  payment  of  the  tax  so  that 
such  payment  may  be  received  by  the  collector  within  the  ten-day  period 
(following  the  service  of  notice  and  demand).  In  all  such  cases  the  collector 
will  enter  on  the  notice  as  the  date  on  which  the  tax  becomes  due  and  pay- 
able a date  as  nearly  as  possible  ten  days  after  the  time  that  the  notice  should 
be  received  in  the  ordinary  course  of  the  mails  by  the  taxpayer.  In  such 
cases  where  it  is  established  that  a remittance  for  the  tax  was  placed  in  the 
mails  within  the  ten-day  period  after  the  due  date  specified  in  the  notice,  and 
tardiness  was  occasioned  because  the  notice  was  not  delivered  in  due  time 
by  reason  of  delay  in  the  mail  and  satisfactory  evidence  of  that  fact  is  fur- 
nished, the  penalty  and  interest  will  not  be  collected.  (Art.  1007,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

First  installment  not  paid  when  return  filed  (12-19-408:  O.  D.  233). . 1919  Cum.  Bull, 
p.  249;  also,  T.  D.  3136  (11-21-1513).  .June  1921  Cum.  Bull  p.  316. 

Installments  after  the  first.  .T.  D.  3136  (1 1-21-1513) . .June  1921  Cum  Bull.  p.  316. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

608 


8-87-22.  (2)  8-20-22  (8)  8-30-22. 


(4)  4-10-22. 

RETURNS. 


2532  Law  ^ 481.  Where  Returns  Are  to  be  Filed  by  Corporations.—  (b) 
(Sec.  241.)  Returns  shall  be  made  to  the  collector  of  the  district  in 

which  is  located  the  principal  place  of  business  or  princi- 
pal office  or  agency  of  the  corporation , or,”  . . . 

2533  Law  11482.  “rf  it  has  no  principal  place  of  business  or  principal 
(Sec.  241.)  office  or  agency  in  the  United  States,  then  to  the  collector 

at  Baltimore,  Maryland .” — Law.  [Note:  The 

1918  Act  so  provided.] 


2534 


Place  for  Filing  Return. — Returns  of  income  must  be  delivered 
or  mailed  to  the  collector  for  the  district  of  the  legal  residence  or 
principal  place  of  business  of  the  person  making  the  return.  Persons  having 
no  domicile  or  place  of  business^in  the  United  States,  and  persons  in  the 
military  or  naval  service  of  theMUnited  States,  may  file  their  returns<  of 
income  with  the  collector  at  Baltimore.  (Art.  447,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Decedent:  ancillary  and  domiciliary  executors,  both  domestic  (28-20-1060:  O.  D. 
584).. Dec.  1920  Cum.  Bull.  p.  331. 

2636  Time  and  Place  for  Filing  Returns  by  Corporations —Returns 
of  income  must  be  made  on  /for  before  the  fifteenth  day  of  the 
third  month  following  th<*\olose  of  the  fiscal  or  calendar  year,  as  provided  in 
section  227  of  the  statute  \id  articles  441-447  [beginning  at  1f2524  (above 
and  continuing  through  this  djscussio/i].  In  the  case  of  foreign  corporations 
not  having  any  office  or  'place  f of  business  in  the  United  States, 
however,  returns  shall  be  made\c>n  or  before  the  fifteenth  day  of  the  sixth 
month  following  the  close  of  the  fiscal  year,  or,  if  the  return  is  made  on  the 
basis  of  the  calendar  year,  then,  oh  or  before  June  15.  A corporation  going 
into  liquidation  during  any  taxable  year  may  upon  the  completion  of  such 
liquidation  prepare  a return  cohering  its  income  for  the  fractional  part  of 
the  year  during  which  it  was  engaged  in  business  and  may  immediately  fiU 
such  return  with  the  collector.  A ^corporation  having  an  office  or  agency 
in  the  United  States  must  make  iti  return  to  the  collector  of  the  district 
in  which  is  located  its  princ/pal  office  or  agency.  Other  corporations  must 
make  their  returns  to  the  collector  4t  Baltimore.  (Art.  651,  Reg.  62,  1922 
Edition.) 

For  explanation  pf  Cumulative  Index  references  see  page  91. 

Extension  of  time  for  filing  new  returns  under  1921  Act  for  fiscal  years  ended  in 
1921.  .1(3092.  Amended.  .H3 110.  1 . . , . , 1Q-, 

Extension  of  time  for  filing  returns  by  domestic  corporations  for  calendar  year  1921, 
and  for  fiscal  year  ended  Jan.  31  or  Feb.  28,  1922.  . IT 3 04 1 . . 

* Hawaii:  extension  for  tentative  returhs  in  connection  with  above  extension  (.1-13- 
185:  I.  T.  1257).. Bull.  I (’22)-13,  p.  12.  . 

Extension  of  time  for  filing  returns  by  foreign  corporations  for  1921  and  subsequent 

‘ ‘Final” Returns" f s a m e dates,  etc.,  prevail  as  though  fiscal  year  had  been  completed 
(42-20-1253:  O.  D.  692).  .Dec.  1920  Cum.  Bull.  p.  286. 

Illinois;  on  completion  of  liquidation  (39-20-1214:  O.  D.  672).  .Dec.  19*0  Cum.  Bull. 

Porto  Rico:  U.  S.  corporation  with  principal  office,  books,  and  all  business  in,  and  all 
income  from,  Porto  Rico  (1917  Act)  (25-21-1694:  L.  O.  1066).. June  1921  Cum. 

Receiver  of  fiscal  year  corporation  on  discharge  (25-20-1018:  O.  D.  557).. June  1920 
Cum.  Bull.  p.  226.1 

Copyright  1922,  by  The  Corporation  Trust  Company, 

ths  feumai.  income  tax  sebvice 
563 


2-27-22.  (2)  8-20  22.  (3)  3-30  22.  (4)4-10-22. 

RETURNS. 

2636  The  Principal  place  of  business  of  a corporation  is  the  place  or  office 
in  which  are  kept  the  books  of  account  and  other  data  from  which 
the  return  is  to  be  prepared.  (T.  D.  2090,  Dec.  14,  1914.) 

253  7 Dissolved  Corporation  to  Make  Final  Return.— All  corporations 
having  an  existence  as  such  dur  ng  all  or  any  portion  of  a vear 
unless  coming  within  the  class  specifically  enumerated  as  exempt  are  re- 
quired to  make  returns.  Corporations  dissolved  during  the  year  and  whose 
fiscal  year  coincides  with  the  calendar  year  will  make^eturL  covering  the 
to,date1of  dissolution,  and  such  corporations  having 
a fiscal  year  other  than  the  calendar  year,  will  make  returns  covering  the 

rornnr  ^ —n  ‘ ^ln.ning  of  the  fiscal  year  to  the  date  of  dissolution,  and  new 
corporations  will  make  returns  for  the  period  from  the  date  of  organization 
to  December  31,  unless  a fiscal  year  is  designated  in  the  proper  manner 

of  t'KcaT vea?™",’  !°hr  :r”7‘d  frora  the  da,e  of  organization  to  the  close 
(Art.  12  m°nthS'  Wi"  be  f'led' 

HS38  Last  Due  Date.— The  last  due  date  is  the  last  day  upon  which  a 
.,  . r^LUrn  is  required  to  be  filed  m accordance  with  the  provisions  of 

he  statute  or  the  last  day  of  the  period  covered  by  an  extension  of  time 
granted  by  the  collector  or  Commissioner.  When  the  last  due  date  fails 
on  Sunday  or  a legal  holiday,  the  last  due  date  for  filing  returns  will  be  the 
day  following  such  Sunday  or  legal  holiday.  If  placed  in  the  mails  the  re- 
turn  should  be  posted  in  ample  time  to  reach  the  collector’s  office,  under 
ordinary  handhng  of  the  ma.ls,  on  or  before  the  date  on  which  the  return 
is  required  to  be  filed.  If  a return  is  made  and  placed  in  the  mails  in  due 

offiUreeAfPtl°^er  U addressed  and  P°stage  Paid,  in  ample  time  to  reach  the 
r u \tne  co!,ector  ?n  or  before  the  last  due  date,  no  penalty  will  attach 

S th^t  rtt  n0t  ^ actVaiIy  received  by  such  officer  until  subsequent 

to  that  date.  Where  a question  may  be  raised  as  to  whether  or  not  the  return 
was  posted  in  ample  time  to  reach  the  collector’s  office  on  or  before  the  due 
tlie.enye‘°Pe  m which  the  return  was  transmitted  will  be  preserved 
446,  R^M, E°  ,he  Comm:ss!on<:r  thc  r«ur„.  (Art. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Eiieona°sesf‘S:  laSt  du.e,  dat.c  for  P'lrP0Se  of  measuring  3-year  limitation 

fss/.  ?’lPoSUo^b  3'year  ''mitation  under  Sec.  250  (d)  and  Sec. 
252)  (13-21-1534:  Sol.  Op.  92).  .June  1921  Cum.  Bull  P.  325. 


Ctfynght  1922.  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
364 


2-27-22  (2)  6-2-22.  (8)  8-28-22.  (4)  9-1-22.  (6)  9-13-22. 

TAX  ON  NONRESIDENT  ALIENS. 

2099  The  following  additional  exclusions  from  gross  income  not  provided  b 

( the  Revenue  Act  of  1918  is  allowed  by  the  Revenue  Act  of  1921: 
Income  of  a nonresident  alien  or  foreign  corporation  consisting  exclusively  of 
earnings  derived  from  the  operation  of  a ship  or  ships  documented  under  the 
laws  of  a foreign  country  which  grants  an  equivalent  exemption  to  citizens 
of  the  United  States  and  corporations  organized  in  the  United  States..  Any 
taxpayer  claiming  this  exemption  must  file,  under  oath,  a statement  citing  the 
foreign  statute  which  grants  the  equivalent  exemption  and  stating  fully  the 
facts  upon  which  he  relies  to  establish  his  claim.  (Art.  89,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Foreign  countries  which  satisfy  equivalent  exemption  provision  (1921  Act): 
Argentine  Republic  (I.  T.  1430:  1-35-480).  .Bull.  I (’22)-35,  p.  2. 

¥ Egypt  (1-37-496:  I.  T.  1441).  .Bull.  I (’22)-37,  p.  4. 

Norway  (1-22-314:  I.  T.  1327).  .Bull.  I (’22)-22,  p.  11. 

Sweden  (1-22-315:  I.  T.  1328).. Bull.  I (’22)-22,  p.  11. 

Venezuela  (I.  T.  1430:  1-35-480) . .Bull.  I (’22)-35,  p.  2. 

When  no  reciprocal  conditions  exist  see  Art.  327  (a),  Reg.  62,  Transportation  services 
by  foreign  corporation  between ,U.  S.  and  foreign  points  (T.  D.  3387).  .^[3323. 

2100  Income  of  Nonresident  Aliens  from  United  States  Bonds. — By 
virtue  of  section  4 of  the  Victory  Liberty  Loan  Act  of  March  3,  1919, 

amending  section  3 of  the  Fourth'  Liberty  Bond  Act  of  July  9,  1918,  [^2101], 
the  interest  received  on  and  after  March  3,  1919,  on  bonds,  notes  and  cer- 
tificates of  indebtedness  of  the  .United  States  and  bonds  of  the  War  Finance 
Corporation,  while  beneficially  owned  by  a nonresident  alien  individual, 
or  a foreign  corporation,  partnership  or  association,  not  engaged  in  business 
in  the  United  States,  is  exempt  from  all  income  and  war-profits  and  excess- 
profits  taxes.  See  Article  84j  [^[  1587].  (Art.  94,  Reg.  62,  1922  Edition.) 

For  explanatidfi  of  'Cumulative  Index  references  see  page  gi. 

In  trust  for  life  beneficiary  (46-20-861:  O.  D.' 464) . .June  1920  Cum.  Bull.  p.  103. 

2101  Sec.  4.  That  section  3 of  the  Fourth  Liberty  Bond  Act  is  hereby 
amended  to  read  Vs  follows: 

“Sec.  3.  That,  notwithstanding  the  provisions  of  the  Second  Liberty 
Bond  Act  or  of  the  War  Finance  Corporation  Act  or  of  any  other  Act,  bonds, 
notes,  and  certificates  o^  indebtedness  of  the  United  States  and  bonds  of 
the  War  Finance  Corporation  shall,  while  beneficially  owned  by  a non- 
resident alien  individual,  or  a foreign  corporation,  partnership,  or  associa- 
tion, not  engaged  in  business  in  the  United  States,  be  exempt  both  as  to 
principal  and  interest  £k>m  any.  and  all  taxation  now  or  hereafter  imposed 
by  the  United  States,  Jany  StatO,  or  any  of  the  possessions  of  the  United 
States  or  by  any  local /taxing  authority.”  (Section  4 of  “An  Act  to  amend 
the  Liberty  Bond  Act?  and  the  War  Finance  Corporation  Act,  and  for  other 
purposes,”  known  as;  the  “Victory  Liberty  Loan  Act,”  approved  by  the 
President,  March  3,  ,1919.) 

2102  Law  ^[207.  6ross  Income  of  Nonresident  Aliens  from  Sources 
(Sec.  217.)  Within  the  United  States  Specifically. — “Sec.  217. 

(a)  That  in  the  case  of  a nonresident  alien  individual 
or  of  a citizen  entitled  to  the  benefits  of  section  262  [^[2070],  the  following 
items  of  gross  income  shall  be  treated  as  income  from  sources  within  the 
United  States-” — Law.  [Note:  This  entire  section  is  new  to  the 

1921  Act,  in  terms,  but  in  effect,  with 
exceptions  to  be  noted,  in  large  measure 
carries’into^the  new  law  the  provisions 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
469 


2-27-22.  (2)6-2-22 


(8)  8-28-22.  (4)  9-1-22.  (6)  9-13-22. 

TAX  ON  NONRESIDENT  ALIENS. 

of  the  1918  Act  and  the  regulations 
based  thereon,  relating  to  gross  and 
net  income  of  nonresident  alien  indi- 
viduals and  foreign  corporations.  The 
application  of  the  rules  laid  down,  to  a 
citizen  and  a domestic  corporation 
entitled  to  the  benefits  of  section  262,  is 
new,  of  course.  The  exceptions  in  the 
case  of  interest  accruing  from  residents 
are  new.  The  dividends  provisions  are 
somewhat  changed.  The  provisions 
relative  to  the  allocation  and  appor- 
tionment of  expenses,  losses,  and  other 
deductions  which  cannot  definitely  be 
allocated  to  items  of  gross  income  either 
from  sources  within  or  without  the 
United  States,  the  provisions  for  allocat- 
ing to  sources  within  and  without  the 
United  States  items  of  gross  income  not 
specifically  mentioned  and  in  turn  al- 
locating thereto,  respectively,  the  ex- 
pense and  other  items,  etc.,  etc.,  and 
the  provisions  stating  the  rule  that 
profits  derived  from  certain  sources  are 
to  be  treated  as  derived  partly  from 
sources  within  and  partly  from  sources 
without  the  United  States,  are  new  to 
the  law,  and  to  the  letter  of  the  formal 
regulations,  at  least,  under  the  1918 
Act.  The  1918  Act  provided,  as  to 
gross  income,  that  “In  the  case  of  non- 
resident alien  individuals  [and  foreign 
corporations],  gross  income  includes  only 
the  gross  income  from  sources  within  the 
United  States,  including  interest  on 
bonds,  notes,  or  other  interest-bearing 
obligations  of  residents,  corporate  or 
otherwise,  dividends  from  resident  cor- 
porations, and  including  all  amounts 
received  (although  paid  under  a con- 
tract for  the  sale  of  goods  or  otherwise) 
representing  profits  on  the  manufacture 
and  disposition  of  goods  within  the 
United  States;”  and  as  to  the  deduc- 
tions “the  proper  apportionment  and 
allocation  of  the  deductions  with  re- 
spect to  sources  of  income  within  and 
without  the  United  States  shall  be 
determined  under  rules  and  regulations 
prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary  [see  Law 
1T186,  T2169] .”]J|  L 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
470 


2-27-22.  (2)  4-10-22.  (3)  9-13-22. 

DEDUCTIONS— CONTRJLL  UTIOIIP. 

and  organizations  are  included  within  (b)  see  article  517  [111 030].  Deduc- 
tion of  contributions  to  posts  of  the  American  Legion  or  the  women’s  auxi- 
liary units  thereof  is  expressly  allowed  by  the  statute. 

2004  In  connection. with  claims  for  this  deduction  there  shall  be  stated 
on  returns  of  income  the  name  and  address  of  each  organization  to 
which  a gift  was  made  and  the  approximate  date  and  the  amount  of  the 
gift  in  each  case.  Where  the  gift  is  other  than  money  the  basis  for  calcula- 
tion of  the  amount  of  the  gift  shall  be  the  cost  of  the  property,  if  acquired 
after  February  28,  1913,  or  its  fair  market  value  as  of  March  1,  1913,  if 
acquired  prior  thereto,  after  deducting  from  such  cost  or  value  the  amount, 
of  depreciation  sustained  and  allowable  as  a deduction  in  computing  net 
income.  A gift  of  real  estate  to  a city  to  be  maintained  perpetually  as  a 
public  park  is  an  allowable  deduction  under  the  present  statute,  but  was 
not  an  allowable  deduction  under  the  Revenue  Act  of  1918.  The  propor- 
tionate share  of  contributions  made  by  a partnership  may  be  claimed  as 
deductions  in  the  personal  returns  of  the  partners  to  an  amount  which, 
added  to  the  amount  of  such  contributions  made  by  the  partner  individually’ 
is  not  in  excess  of  15  per  cent  of  the  partner’s  net  income  computed  without 
the  benefit  of  the  deduction  for  such  cohtributions;  but  the  contributions 
made  by  the  partnership  shall  not  be  deducted  from  its  gross  income  in 
ascertaining  the  amount  of  its  net  income  to  be  reported  on  Form  1065. 
See  article  331  fl[787].  This  article  does  not  apply  to  gifts  by  estates  and 
trusts  or  corporations.  See  section  21&  of  the  statute  and  articles  561 
[IT  1617]  and  562  [U 1675].  (Art.  251,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

American  Legion  (14-20-834:  0.  D.  439)/.  June  1920  Cum.  Bull.  p.  210. 

Athletic  purposes:  public  high  schbol  (3-19- 192:  O.  D.  126).  . 1919  Cum.  Bull.  p.  151 

Board  of  education  of  a school  district  (3-19-321:  S.  1052).  . 1919  Cum.  Bull.  p.  146. 

Cemetery  association  operating  on  behalf  of  municipality  cemetery  leased  from  the 
latter:  cost  of  building  donated\o [association  is  deductible:  1921  Act  (1-13-182- 
I.  T.  1256).  . Bull.  I (’22)-13,  p.  9\1 

* Cemetery  company  of  charitable  nature;  contributions  to,  not  deductible:  1918  Act 
(1-37-498:  A.  R.  R.  1122).  .Bull,  j \22)-37,  p.  7. 

Citizens’  Club;  of  undoubted  benefit  to  community  but  does  not  meet  statutory  test 
(6-21-1435:  A.  R.  R.  379).  . June;192\  Cum.  Bull.  p.  203. 

Community  Service,  Inc.  (5-20-716:  (f.  D.\S9).  .June  1920  Cum.  Bull.  p.  148. 

Corporation  trustee  for  memorial  fund;  income  distributed  to  charitable  institutions 
and  worthy  individuals  (15-21-1B63:  0\D.  872).  . June  1921  Cum.  Bull,  p 264 

Council  of  National  Defence  (3-19-191 : S.  99*) ..  1919  Cum.  Bull.  p.  145. 

Coupons  from  nontax-free  Liberty  bonds  (3- 19-\4?1:  O.  D.  120) ..  1919  Cum.  Bull  p 84 

Educational  associations:  test  (8-20-755:  S.  1246).. June  1920  Cum.  Bull.  P.  149. 

Estate  or  trust,  the  beneficiary  organization  n\t  yet  operating  (20-19-5 1 1 - O D 
278).  . 1919  Cum.  Bull.  p.  175.  ' ' 

Family  cemetery  corporation:  New  York  (1  1-19-379:  O.  D.  217).. 1919  Cum.  Bull, 
p.  151. 

Inducing  industrial  plant  to  locate  in  city  (1-19-56:  O.  D.  39).  . 1919  Cum.  Bull.  p.  150. 

Legislation:  association  to  further  passage  of  (22-20-971:  S.  1362)  fune  19’0 

Cum.  Bull.  p.  152. 

Same:  and  election  of  favorable  officials,  etc.  (43-20-1266:  O.  D.  704)  Dec 
1920  Cum.  Bull.  p.  240. 

Life  insurance  premiums:  beneficiary  being  charitable  corporation  (24-19-566 

O.  D.  299) . . 1919  Cum.  Bull.  p.  151. 

Monuments  and  memorials:  organizations  to  erect  (8-20-755:  S.  1246)..  Tunc  1920 
Cum.  Bull.  p.  149. 

Same:  including  trophy  museum  and  memorial  assembly  hall,  etc.,  the  use  of 
which  are  restricted  to  educational  purposes  (45-20-1294:  A.  R.  R.  301) 

. .Dec.  1920  Cum.  Bull.  p.  188. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

449 


2 27-22.  (2)  4-10-22.  (3)9-13-22. 

DEDUCTIONS- CONTRIBUTIONS. 

National  Dry  Federation  (1-19-61:  0.  D.  44)..  1919  Cum.  Bull.  p.  150. 

Orchestral  concert  association  (23-19-546:  S.  1176).  . 1919  Cum.  Bull.  p.  147. 
Partnership;  members  (8-19-322:  O.  D.  185)..  1919  Cum.  Bull.  p.  151. 

Personal  service  coro'orations  and  their  stockholders  (1-6-74:  I.  T.  1196).  .Bull.  I 

(’22)— 6,  p.  18. 

Pew  rent,  assessments,  dues,  and  basket  collections  (26-19-590:  A.  R.  M.  2).  . 1919 
Cum.  Bull.  p.  150. 

Police  pension  fund  (27-19-602:  S.  1202)..  1919  Cum.  Bull.  p.  148. 

Porto  Rico:  earthquake  and  tidal  wave  (30-19-641:  O.  D.  345)..  1919  Cum.  Bull, 
p.  151. 

Presentation  gift  to  contributors  to  educational  organizations;  cost  of  (16-20-863: 
O.  D.  465).  .June  1920  Cum.  Bull.  p.  152. 

Public  park  for  A.  E.  F.  men  (2-19-152:  O.  D.  104) . . 1919  Cum.  Bull.  p.  150. 
Services  rendered  rather  than  cash  or  property  (44-20-1277:  O.  D.  712).  .Dec.  1920 
Cum.  Bull.  p.  188. 

Trust  company  trust  fund  for  charitable  purposes;  contributions  to  (39-20-121  1: 
O.  D.  669).  .Dec.  1920  Cum.  Bull.  p.  187. 

Valuing  gift  when  made  in  property  other  than  money  (7-20-740:  O.  979).  .June  1920 
Cum.  Bull.  p.  148. 


2005  Receipt  is  acknowledged  of  your  letter  dated  December  5,  1917, 
referring  to  contributions  or  gifts  made  by  citizen  and  resident 

individuals  of  the  United  Stated  to  corporations  or  associations  organized 
and  operated  exclusively  for  religious,  charitable  or  scientific  purposes  which 
may  be  considered  as  a deduction  for  tax  purposes,  in  accordance  with  the 
provisions  of  the  ninth  paragraph  added  to  Section  5 (a),  Act  of  September 
8,  1916,  by  Section  1201,  Act  of  October  3,  1917. 

2006  You  present  several  inquiries  which  are  repeated  and  answered  in 
the  order  stated  by  you. 

2007  “Are  gifts  to  foreign  organizations  of  a character  specified  in  the 
Law  to  be  also  deducted?”  Such  contributions  or  gifts  may  be 

considered  in  computing  the  amount  allowable  as  a deducton  under  the 
provisions  of  paragraph  nine. 

20  08  “Is  the  Red  Cross  to  be  included  as  a charitable  organization?” 
It  is  held  that  the  American  National  Red  Cross  falls  within  the  class 
of  associations  enumerated  in  paragraph  nine. 

2009  “Is  a church  to  be  considered  a religious  organization?  Of  course, 
we  know  that  ‘the  Church’  is  a religious  institution,  but  is  any  par- 
ticular church  so  considered?”  It  is  held  that  every  church  constitutes  a 
religious  corporation  or  association  for  the  purposes  of  the  deduction  provided 
by  the  ninth  paragraph. 

2010  “In  this  connection,  are  donations  made  to  missionary  funds,  to 
the  church  building  funds  and  for  the  benefit  of  other  activities  of 

the  church  to  be  deductible?”  It  is  held  that  all  such  donations,  being  for 
the  benefit  or  furtherance  of  religious  activities,  constitute  items  which  may 
be  considered  in  computing  the  deductions  provided  by  the  ninth  paragraph. 
(Letter  to  The  Corporation  Trust  Company,  signed  by  Commissioner  Daniel 
C.  Roper,  and  dated  Dec.  24,  1917.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

450 


2-27-22.  (2)  4-10-22. 


EXEMPT  INCOME. 


1 696  The  exemption  of  income  of  foreign  governments  applies  also  to 
their  political  subdivisions.  Any  income  collected  by  foreign  gov- 
ernments from  investments  in  the  United  States  in  stocks,  bonds  or  other 
domestic  securities,  which  are  not  actually  owned  by  but  are  loaned  to 
such  foreign  governments,  is  subject  to  tax.  The  income  from  investments 
in  the  United  States  in  bonds  and  stocks  and  from  interest  on  bank  balances 
received  by  ambassadors  and  ministers  accredited  to  the  United  States  and 
the  fees  of  foreign  consuls,  are  exempt  from  tax,  but  income  of  such  foreign 
officials  from  any  business  carried  on  by  them  in  the  United  States  would  be 
taxable.  As  under  international  law  the  benefits  and  immunities  of  am- 
bassadors and  ministers  of  foreign  countries  extend  to  the  members  of  their 
households,  including  attaches,  secretaries,  and  servants,  the  foregoing  pro- 
vision is  likewise  applicable  to  the  wives  and  minor  children  of  foreign  am- 
bassadors and  ministers  and  the  members  of  their  households.  The  com- 
pensation of  citizens  of  the  United  States  who  are  officers  or  employees  of  a 
foreign  government  is.  however,  not  exempt  from  tax.  (Art.  86,  Reg.  62, 
1922  Edition.) 

/ 

bs*l'LiD3£  •fjj.jtii  ‘iilrlif/T  r In  nl  / ^r\n  ar  a 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ambassador’s  wives  (5-19-248:  0.  D.  153/.  .1919  Cum.  Bull.  p.  90:  Overruled  (48- 
21-1945  : 0.  D.  1115).  .Dec.  1921  Cum.  Bull.  p.  104.  Art.  83,  Reg.  45  (1920  Ed.) 
amended  accordingly  by  T.  D.  3266/. Bull.  I (’22)-l,  p.  11. 

Commonwealth  Bank  of  Australia  (33-20-1129:  O.  D.  628).. Dec.  1920  Cum.  Bull. 

* P-  124.-  . . A / 

+ Consul  acting  as  administrator  of  estate  of  fellow  countryman:  fees  taxable:  1921  Act 
(1-13-180:  I.  T.  1254).  .Bull.  I(’f2)-13,  p.  9. 

Consuls;  interest  on  investments  and  bank  balances;  exemption  is  not  extended  to 
(29-19-624:  O.  D.  336)..  1919  Cum.  Bull.  p.  91. 

Delegates  representing  foreign  government;  (8-19-315:  O.  D.  182)..  1919  Cum. 
Bull.  p.  90.  ; V 

Foreign  ruler;  personal  and  Crown  property  income  (18-20-895:  O.  D.  483)..  Tunc 
1920  Cum.  Bull,  p 96.  7 V 

Legation  bank  funds;  interest  (44-2b-12Y5:  O.  D.  710).  .Dec.  1920  Cum.  Bull.  p.  125. 

Residents  and  citizens  of  U.  S.,  employed  by  foreign  government  (9-19-339:  O.  D. 
196) . . 1919  Cum.  Bull.  p.  90.7  \ 

Stock  of  foreign  bank  owned  in  part  by  foreign  government  (15-20-844:  O.  D.  448) 

. .June  1920  Cum.  Bull.  p.  9p.  \ 

Stock  of  foreign  corporation  ownfed  by  foreign  government  to  extent  of  51%  (26-21- 
1702:  O.  D.  958).  .June  192^1  Cum.  BufLp.  111. 

Vessels  owned  or  chartered  (2}'-20-951:  O.  D.  515).  .June  1920  Cum.  Bull.  p.  96. 


1 696  Law  132.  Income  Arising  Through  the  Exercise  of  an  Essential 
(Sec.  213.)  Governmental  Function,  and  Accruing  to  Any  State, 
etc. — “jf 7)  [ Gross  income  does  not  include ] Income 
derived  from  any  public  j utility  or  the  exertise  of  any  essential  govern- 
mental function  and  accruing  to  any  State,  Territory , or  the  District  of 
Columbia,  or  any  political  subdivision  of  a State  or  Territory,  or  income 
accruing  to  the  government  of  any  possession  of  the  United  States,  or  any 
political  subdivision  thereof .” — Law.  [Note;  The  1918  Act  so 

provided.] 

1597  Law  IT  133.  “Whenever  any  State,  Territory,  or  the  District  of 
(Sec.  213.)  Columbia,  or  any  political  subdivision  of  a State  or  Ter- 
ritory, prior  to  September  8,  1916,  entered  in  good  faith 
into  a contract  with  any  person,  the  object  and  purpose  of  which  is  to  ac- 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
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EXEMPT  INCOME. 


quire,  construct,  operate,  or  maintain  a public  utility,  no  tax  shall  be  levied 
under  the  provisions  of  this  title  upon  the  income  derived  from  the  opera- 
tion of  such  public  utility,  so  far  as  the  payment  thereof  will  impose  a loss 
or  burden  upon  such  Stale,  Territory , District  of  Columbia , or  political 
subdivision ; but  this  provision  is  not  intended  and  shall  not  be  construed 
to  confer  upon  such  person  any  financial  gain  or  exemption  or  to  relieve 
such  person  from  the  payment  of  a tax  as  provided  for  in  this  title  upon 
the  part  or  portion  of  such  income  to  which  such  person  is  entitled  under 
such  contract;”— Law.  [Note:  The  1918  Act  so  provided,  in  effect. 

1698  Income  of  States. — Income  derived  from  any  public  utility  or  the 
exercise  of  any  essential  governmental  function  and  accruing  to 
any  State  or  Territory  of  the  United  States,  or  to  any  political  subdivi- 
sion thereof,  or  to  the  District  of  Columbia,  or  income  accruing  to  the  gov- 
ernment  of  any  possession  of  the  United  States,  or  any  political  subdivision 
thereof,  is  exempt  from  tax.  See  article  74  [for  political  subdivisions  1564]. 
The  income  of  State  workmen’s  compensation  insurance  funds  established 
by  State  statutes  is  not  taxable.  In  the  case  of  a public  utility  acquired, 
constructed,  operated,  or  maintained  by  a taxpayer  under  contract  with  any 
State,  Territory,  or  political  subdivision  thereof,  or  with  the  District  of 
Columbia,  containing  an  agreement  that  a portion  of  the  net  earnings  of 
such  public  utility  shall  be  paid  to  the  State,  Territory,  or  political  subdivision 
thereof,  or  the  District  of  Columbia,  the  amount  so  paid  may  be  deducted  by 
the  taxpayer  as  a necessary  expense  in  transacting  business.  See  section  214 
(a)  (1)  of  the  statute.  (Art.  87,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Employers’  mutual  liability  insurance  company  created  by  Act  of  State  Legislature  is 
not  exempt  (43-21-1883:  O.  D.  1074).. Dec.  1921  Cum.  Bull.  p.  105. 

Property  willed  to  municipality  in  trust  (14-19-433:  O.  895) . . 1919  Cum.  Bull.  p.  91. 

Property  willed  to  State;  income  received  during  administration  of  estate,  other  assets 
being  ample  to  satisfy  creditors  (18-20-896:  S.  1374)  . .June  1920  Cum.  Bull.  p.  96. 

Public  utility;  common  stock  all  owned  by  town;  preferred  stock  to  be  redeemed  as 
soon  as  possible,  after  which  plant  becomes  property  of  town  (28-19-612:  O.  D. 
328) . . 1919  Cum.  Bull.  p.  93. 

Railroad  constructed  by  certain  townships  and  a county;  rentals  from  lease  thereof 
(14-19-434:  O.  D.  250) . . 1919  Cum.  Bull.  p.  92. 

Remainderman-beneficiary  of  trust-estate  income  (28-21-1724:  O.  D.  972).. Dec. 
1921  Cum.  Bull.  p.  104. 


1599  Compensation  of  State  Officers. — Compensation  paid  its  officers 
and  employees  by  a State  or  political  subdivision  thereof,  including 
fees  received  by  notaries  public  commissioned  by  States  and  the  commis- 
sions of  receivers  appointed  by  State  courts,  is  not  taxable.  Compensat  on 
received  for  services  rendered  to  a State  or  a political  subdivision  thereof  is 
included  in  gross  income  unless  the  person  receives  such  compensation  as 
an  officer  or  employee  of  a State  or  political  subdivision.  An  officer  is  a 
person  who  occupies  a position  in  the  service  of  the  State  or  political  sub- 
division, the  tenure  of  which  is  continuous  and  not  temporary  and  the  duties 
of  which  are  established  by  law  or  regulations  and  not  by  agreement.  An 
employee  is  one  whose  duties  consist  in  the  rendition  of  prescribed  services 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

340 


2-27-22  (2)  4-10-22.  (3)  8-10-22. 

TAX  ON  FOREIGN  CORPORATIONS. 

1409  Law  ^[382.  “in  the  manner  provided,  in  section  217  [^[2102).” — Law. 
(Sec.  233.)  [Note:  The  1918  Act  omitted  “determined  (except 


1410  The  gross  inco  orporation,  including  a mutual  insur- 
ance company  ss  income  from  sources  within  the 

United  States,  as  defii  d in  section  217  and  articles  316-328 

[beginning  at  ^[2094]  r sident  alien  individuals.  As  to  other 

foreign  insurance  com  le  687  [^[1345].  See  also  article  541 

[Hi 074],  (Art.  550,  R<  ion.) 

For  explanat  Index  references  see  page  gi. 

All  of  the  rulings  foil  at  e of  the  Revenue  Act  of  1918  or  of  prior  Ads. 

See  Sec.  217  of  the  Rev  d Regulations  thereunder , beginning  at  ^[21 02 . 

Assigned  commission!  \ residing  abroad,  accruing  to  him  as  agent 

for  domestic  corp  >XD.  109) . . 1919  Cum.  Bull.  p.  213. 

Dividends  of  domestic  Corporation  doing  no  business  in  U.  S.,  and  owning  no  property 
here  (1-12-158:  D.  O.  1069).  .Bull.  I (’22)-12,  p.  23. 

Foreign  bank  credit:  commissions  and  interest  (41-21-1863:  O.  D.  1062).. Dec.  1921 
Cum.  Bull.  p.  229. 

Foreign  securities  purchased  in  U.  S.  at  discount  and  sold  at  profit  or  redeemed,  here 
(23-20-985:  O.  D.  534).. June  1920  Cum.  Bull.  p.  103.  Same  digested  (17-21- 
1593:  O.  D.  890) . .June  1921  Cum.  Bull.  p.  1 14. 

General  discussion:  Attorney-General’s  opinion  (3-21-1401:  T.  D.  3111).. June  1921 
Cum.  Bull.  p.  280. 

Insurance  company  with  resident  U.  S.  broker  (28-20-1062:  O.  D.  586).. Dec.  1920 
Cum.  Bull.  p.  284. 

Insurance  premiums  paid  by  domestic  corooration  under  contract  made  in  foreign 
. country  (1-8-101:  A.  R.  R.  723).  .Bull.  1.  (’22)-8,  p.  11. 

Mail  order  business  or  unsolicited  orders  (23-19-549:  O.  D.  294)..  1919  Cum.  Bull, 
p.  213. 

Place  where  payment  is  made  immaterial  (in  explanation  of  Art.  66,  of  Reg.  33, 
Rev.  1916-17  Acts)  (35-20-1  174:  O.  D.  651).  .Dec.  1920  Cum.  Bull.  p.  265. 

Profit  sharing  on  profits  on  resale  of  goods  sold  to  domestic  corporation  at  a minumim 
price  (4-20-708:  O.  D.  384).  .June  1920  Cum.  Bull.  p.  212. 


in  the  case  of  insurance  companies 
subject  to  the  tax  imposed  by  section 
243  or  246)  in  the  manner  provided  in 
section  217”,  but  added  “including  the 
interest  on  bonds,  notes,  or  other 
interest-bearing  obligations  of  residents, 
corporate  or  otherwise,  dividends  from 
resident  corporations,  and  including  all 
amounts  received  (although  paid  under 
a contract  for  the  sale  of  goods  or  other- 
wise) representing  profits  on  the  manu- 
facture and  disposition  of  goods  within 


Ipe  United  States,”  the  interest  portion 
of  which,  modified,  appears  [1[2103]  in 
/the  1921  Act  in  Sec.  217,  wherein  is 
'prescribed,  in  the  case  of  a foreign 
corporation,  what  is  and  what  is  not 
gross  income  from  sources  within  the 
United  States,  and  the  manner  of 
determining  net  income  from  sources 
within  and  without  the  United  States, 
in  far  greater  detail  than  has  heretofore 
been  attempted.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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2-27-22.  (2)  4-10-22.  (3)  8-10-22. 

TAX  ON  FOREIGN  CORPORATIONS. 

Sale  abroad  to  U.  S.  Government  of  goods  manufactured  there  by  foreign  corporation 
having  no  office  or  place  of  business  here  but  owned  by  domestic  corporation; 
contracts  entered  into  and  deliveries  and  payments  made  abroad  (26-21-1703’ 
A R.  M.  133)  ..June  1921  Cum.  Bull.  p.  114. 

Steamship  companies  with  agency  here:  transporting  abroad  goods  brought  to  U.  S. 
port  from  Canada  by  railroad,  the  latter  prepaying  the  freight;  return  voyage 
with  coal  as  ballast  which  is  sold  in  U.  S.  (29-20-1077:  O.  D.  596).  .Dec.  1920 
Cum.  Bull.  p.  264. 

Steamship  companies  with  agency  here:  charter  money  exemption  provision  not 
applicable  to  (35-20-1 174:  O.  D.  651).  .Dec.  1920  Cum.  Bull.  p.  265. 

Steamship  companies  with  no  agency  here;  foreign  freight  shipped  abroad  through 
an  American  port  (36-21-1806:  O.  D.  1024)., Dec.  1921  Cum.  Bull.  p.  218. 

Stock  of  foreign  corporation  all  owned  by  domestic  corporation:  activities,  however, 
conducted  abroad,  and  all  sales  consummated  and  title  to  property  passing 
abroad  (46-21-1920:  O.  D.  1100).. Dec.  1921  Cum.  Bull.  p.  118. 

1411  Income  derived  from  ships  documented  under  the  lav/s  of  a 

foreign  country.— Read  at  ^[2098. 

1412  Law  ^[430.  Deductions  Allowed  Foreign  Corporations  and  the 
(Sec.  234.)  Apportionment  and  Allocation  Thereof. — “(b)  In  the 

case  of  a foreign  corporation  or  of  a corporation  entitled 
to  the  benefits  of  section  262  [^[2070]  the  deductions  allowed  in  subdivision 
(a)  [i.  e . y the  deductions  authorized  in  the  case  of  domestic  corporations , for 
which  see  beginning  at  ^[1616]  shall  be  allowed  only  if  and  to  the  extent  that 
they  are  connected  with  income  from  sources  within  the  United  States 

1413  Law  If 431.  “and  the  proper  apportionment  arid  allocation  of  the 
(Sec.  234.)  deductions  with  respect  to  sources  within  and  without  the 

United  States  shall  be  determined  as  provided  in  section 
217  i*f2l02]  under  rules  and  regulations  prescribed  by  the  Commissioner  zeith 
the  approval  of  the  Secretary .” — Law.  [Note:  The  1918  Act  so 

provided  in  effect,  bearing  in'mind  the 
provisions  of  Sec.  217.  The  reference  to 
“a  corporation  entitled  to  the  benefits  of 
section  262”  is  new.] 

1414  Foreign  corporations  are  allowed  the  same  deductions  from  their  gross 
income  arising  from  sources  within  the  United  States  as  are  allowed 

to  domestic  corporations,  to  the  extent  that  such  deductions  are  connected 
with  such  gross  income.  The  proper  apportionment  and  allocation  of  the 
deductions  with  respect  to  sources  within  and  without  the  United  States 
shall  be  determined  as  provided  in  section  217  and  articles  325-328  [beginning 
at  1[2139].  (Art.  573,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

* Loss  incurred  at  maturity  of  U.  S.  Treasury  certificates  (purchased  above  par)  not 
deductible  by  foreign  corporation  not  engaged  in  business  in  U.  S.,  interest  having 
been  exempt:  1921  Act  (1-32-451:  I.  T.  1415)..  Bull.  I (’22)-32,  p.  7. 

1415  Credits  Against  Income  Allowed  Foreign  Corporations. — A for- 
eign corporation  is  allowed  the  credit  providednn  subdivision  (c)  of 

section  236  [1[2062]  but  not  the  credit  of  $2,000.  (Art.  591,  Reg.  62,  1922 
Edition.) 

1416  Credit  to  Foreign  Corporation  for  Foreign  Taxes  Paid. — For  credit 
where  taxes  are  paid  by  a foreign  corporation  controlled  by  a domestic 

corporation  see  article  612  [1J1767].  A claim  for  credit  in  such  a case  is 
also  to  be  made  on  Form  1 118.  (Art.  611,  Reg.  62,  1922  Edition.) 

[For  Cumulative  Index  see  following"^  1759.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FFPERAL  INCOME  TAX  SERVICE 
288 


9-13-22.  (2)  9-15-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 

T D.  Subject  Paragraph 

Report  No.  54,  September  13,  1922. 

3392  Sept.  7,  1922  (Prohibition.)  ...... 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  bul- 
letin No.  37,  of  the  1922  Series.] 


Report  No.  55,  September  15,  1922. 


There  are  no  Supplementary  Pages  34  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  33. 


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# 


5-3-22. 


LaW  Regulations  Governing  the  Recognition  of  Attorneys,  Agents  and 
Other  Persons  Representing  Claimants  and  Others  Before  the 
Treasury  Department  and  Offices  Thereof. 


1922 

Department  Circular  No.  230.* 


Chief  Clerk. 


Treasury  Department, 
Office  of  the  Secretary, 

W ashington,  April  25,  1922. 


lhe  following  statutes  relate  to  the  recognition  of  attorneys,  agents 
and  other  persons  representing/  claimants  and  others  before  the 
treasury  Department  and  office!  thereof- 


3174 

2932 
2937 
3104 

m good  repute,  possessed  of  the  VecessYry  /ualitltions  to  eynable  hge°m  fo  araaCtCr 
claimants  valuable  service,  and  otherwise  cA  undent  to  a th  ■ 1 render  such 

in  the  presentation  of  their  cases  \nd  su/h  Wretsnr  lse  and  assist  such  claimants 

tunity  for  hearing  suspend,  and  distL  frc/i  further  practiw  “brforf  Ms"?)106  ^ °PP°r' 

such  person,  agent  or  attornev  slimM  . T|,  • P 1 ce  Letoie  his  Department  any 

to  comply  with  the’ said  rules  and  reguLijbnsC  or  w^shl^’wkh1' in t* ?rf  wh<i  Wfuscs 
manner  willfully  and  knowingly  deceiveVinislead  or  threaten  , -U  t0  defraud,  in  any 
claimant,  by  word,  circular,  fitter,  'or 

or  f?iasS;-°ora-person  h0,ding-a,n>' place  of  ™ 

Department  of  the  GoULent  of  thfunXed St’t  ^th>  Executive 

Representatives  of  the  United  States, /shallVt  as  an  a&M^attornev*^  °r  H°USC  °f 
any  claim  against  the  United  States  ri-  ® , or  attornc>  for  prosecuting 

in  discharge  of  his  proper  official  dn’tils  <-|1;  nner’  ?’  ?-v  an>"  means,  otherwise  than 

of  any  such  claim,  cr Teceive  any  trJuitv  nl  the  Prosecution  or  support 

any  claimant  against  the  United  Stales  with  iAetiVt*1  ° i 0'  lnte.rest  ‘n.any  claim  from 

ol  having  aided  or  ...bred,  in  tta  prfcu"on  iltch  d.im  Thflfh  Vf"  COnsid'mi°" 

to  act  as  counsel,  attorney,  or  agent  for  orosecut  nP  -y  of  the  Departments, 

Which  was  pending  in  ei.lfe'r  oi  ,S.id  iSepaTmSts  whilSwS  S'office'r  dc,T 
ployee,  nor  in  any  manner,  nor  by  anv  means  to  aid  in  ttnYl!  y r ’ clerk>  or  cm- 

rSiSr asi; h'  4 h*«  » »* 

op;Xdu„,S  SMJSatESaai  ToT"  P S&B 

lishment,  or  who  has  befn  engagld  in ?7he  Militarr  Estab- 
ments  for  the  procurement  of  supplies  for  the  Military  Fsr  mim'1  ° con.tl.a.cts  or  a§ree~ 
next  after  his  discharge  or  other  separation  Aon! X of  ^ *?'■* 

employment  in  the  presentation  or  to  aid  or  assist  w AA  Government,  to  solicit 

of  claims  against  the  United  MatL  m-.ew  out  of  comP™sation  in  the  prosecution 

procurement  of  supplies  for  said  Bureau,  which  were  Lndine*  or  ent  agr,ee.ments  f°r  the 
said  officer  or  employee  was  associated  therewith  \ P-  i entered  into  while  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

708 


2-27-22.  (2)  4-10-22. 


CONSOLIDATED  RETURNS. 


2547  Foreign  corporations  and  corporations  entitled  to  the  benefits  of 


section  262  [1(2070]  may  not  file  consolidated  returns;  but  see  article 
637  [If 2561].  (Art.  632,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Foreign  corporations,  one  in  effect  a branch  of  the  other;  no  authority  for  consolidated 
return  (1917  Act)  (9-21-1486:  A.  R.  R.  397).. June  1921  Cum.  Bull.  p.  311. 
Information  at  the  source  (16-20-868:  O.  D.  469) . . June  1920  Cum.  Bull.  p.  249. 
Partnership  becoming  a corporation  (6-19  . B.  R.  27). . 1919  Cum.  Bull.  p.  307. 

Refunds  and  claims  for  credit:  over-pay:  n years  prior  to  consolidated  return 

authorization,  additional  tax  due  on  lated  return  (41-20-1237:  O.  D.  683) 


2548  Different  Fiscal  lorations. — In  the  case  of  all 

consolidated  ret  beginning  prior  to  January 

1,  1922,  consolidated  inv  :omputed  as  of  the  beginning 

of  the  taxable  year  of  th  sporting  corporation  and  con- 
solidated income  must  1 isis  of  its  taxable  year.  If  a 

consolidated  return  is  m ar  beginning  on  or  after  Jan- 
uary 1,  1922,  consolidal  )mputed  on  the  basis  of  the 

taxable  year  of  the  pai  ting  corporation.  Whenever 

the  fiscal  year  of  one  < other  affiliated  corporations 

differs  from  the  fiscal  ye  ncipal  corporation,  the  Com- 
missioner should  be  full  >ayer  in  order  that  provision 

may  be  made  for  assessii  the  period  prior  to  the  begin- 
ning of  the  fiscal  year  < pal  corporation.  See  section 

226  of  the  statute  and  ai  t.  638,  Reg.  62,  1922  Edition.) 

2549  Law  1(471.  In  i ated  Returns  the  Tax  is 

(Sec.  240.)  Assi  ten  Apportioned. — “(b)  In 

any  assessed  upon  the  basis  of  a 

consolidated  return , the  ited  in  the  first  instance  as  a 

unit  and  shall  then  be  c ive  affiliated.  corporations  in 

such  proportions  as  me  g them , or,  in  the  absence  of 

any  such  agreement,  th  t income  properly  assignable 

to  each.” — Law.  so  provided.] 

2550  Law  1(472.  In  1 ted  Returns,  One  Specific 

(Sec.  240.)  Cre  . , , , Allowed. — “ There  shall  be 

allotted  in  computing  the  income  tax  only  one  specific 
credit  computed  as  provided  in  subdivision  ( b ) [1f2058]  of  section  236.” — 
Law.  [Note:  The  1918  Act  so  provided.] 

2551  Consolidated  Net  Income  of  Affiliated  Corporations. — Subject  to  the 
provisions  covering  the  determination  of  taxable  net  income  of 

separate  corporations,  and  subject  further  to  the  elimination  of  intercompany 
transactions  (whether  or  not  resulting  in  any  profit  or  loss  to  the  separate 
corporations),  the  consolidated  taxable  net  income  shall  be  the  combined 
net  income  of  the  several  corporations  consolidated.  Only  one  specific  credit 
of  $2,000,  as  provided  in  section  236  (b)  and  article  591,  shall  be  allowed 


..Dec.  1920  Cum.  Bull.  p.  311. 


Copyright  1922,  by  The  Corporation  7 rust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
567 


2-27-22.  (2)  4-10-22. 


CONSOLIDATED  RETURNS. 


the  consolidated  group,  and  this  only  in  case  the  net  income  of  the  group 
does  not  exceed  $25,000;  but  if  such  net  income  is  more  than  $25,000,  the 
tax  imposed  by  section  230  shall  not  exceed  the  tax  which  would  be  payable 
if  the  $2,000  were  allowed,  plus  the  amount  of  the  net  income  in  excess  of 
$25,000.  In  respect  of  the  statement  of  gross  income  and  deductions  and 
the  several  schedules  required  under  Form  1120,  a corporation  filing  a con- 
solidated return  is  required  to  prepare  and  file  such  statements  and  schedules 
in  columnar  form  to  the  end  that  the  details  of  the  items  of  gross  income  and 
deductions  for  each  corporation  included  in  the  consolidation  may  be  readily 
audited.  (Art.  636,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Government  contract  income  accruing  to  several  of  affiliated  group  (12-20-799: 0.  D. 
415).  .June  1920  Cum.  Bull.  p.  226. 

Replacement  fund  for  one  subsidiary  used  for  purchase  of  “like  property”  from 
another  subsidiary  (48-21-1942:  A.  R.  M.  142).. Dec.  1921  Cum.  Bull.  p.  94. 


2652 

2553 

2554 


Law  1[473. 

(Sec.  240.) 

Law  U474. 
(Sec.  240.) 

Law  ^475. 
(Sec.  240.) 


What  Corporations  are  Deemed  to  be  Affiliated. — 

“(c)  For  the  purpose  of  this  section  two  or  more  dom- 
estic corporations  shall  be  deemed  to  be  affiliated” 

“(1)  if  one  corporation  owns  directly  or  controls  through 
closely  affiliated  interests  or  by  a nominee  or  nominees 
substantially  all  the  stock  of  the  other  or  others,  or” 

“(2)  if  substantially  all  the  stock  of  two  or  more  cor- 
porations is  owned  or  controlled  by  the  same  interests” 
— Law.  [Note:  The  1918  Act  so  provided.] 


2555  When  Corporations  are  Affiliated.— Corporations  will  be  deemed  to 
be  affiliated  (a)  when  one  domestic  corporation  owns  directly  or 
controls  through  closely  affiliated  interests  or  by  a nominee  or  nominees  sub- 
stantially all  the  stock  of  the  other  or  others,  or  (b)  when  substantially  all 
the  stock  of  two  or  more  domestic  corporations  is  owned  or  controlled  by  the 
same  interests.  The  words  “substantially  all  the  stock”  can  not  be  inter- 
preted as  meaning  any  particular  percentage,  but  must  be  construed  accord- 
ing to  the  facts  of  the  particular  case.  The  owning  or  controlling  of  95  per 
cent  or  more  of  the  outstanding  voting  capital  stock  (not  including  stock 
in  the  treasury),  at  the  beginning  of  and  during  the  taxable  year  will  be 
deemed  to  constitute  an  affiliation  within  the  meaning  of  the  statute.  Con- 
solidated returns  may,  however,  be  required  for  any  taxable  year  beginning 
prior  to  January  1,  1922,  even  though  the  stock  ownership  is  less  than  95 
per  cent.  When  the  stock  ownership  or  control  is  less  than  95  per  cent, 
but  in  excess  of  70  per  cent,  a full  disclosure  of  the  affiliations  should  be  made 
showing  all  pertinent  facts,  including  the  stock  owned  or  controlled  in  each 
subsidiary  or  affiliated  corporation  and  the  percentage  of  such  stock  owned 
or  controlled  to  the  total  stock  outstanding.  This  information  will  also  be 
required  where  like  conditions  exist  and  the  taxpayer  elects  to  file  a consoli- 
dated return  for  any  taxable  period  beginning  on  or  after  January  1,  1922. 
Such  statement  should  preferably  be  made  in  advance  of  filing  the  return, 
but  if  a consolidated  return  isjiled  subject  to  the  approval  of  the  Commis- 

C opyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 

368 


2-27-22. 


RETURNS. 


Trustees  continuing  business  of  corporation  to  avoid  immediate  sale  of  assets  at  loss 
(Minnesota)  (22-21-1658:  O.  D.  931).. June  1921  Cum.  Bull.  p.  11. 


2501  Use  of  Prescribed  >pies  of  the  prescribed  return  forms 

will  so  far  as  poss  ished  taxpayers  by  collectors.  Fail- 
ure on  the  part  of  any  tax  eive  a blank  form  will  not,  however, 

excuse  him  from  making.a  xpayers  not  supplied  with  the  proper 

forms  should  make  applicat  to  the  collector  in  ample  time  to  have 

their  returns  prepared,  ver:  :d  with  the  collector  on  or  before  the 

last  due  date.  Each  taxpa  arefully  prepare  his  return  so  as  fully 

and  clearly  to  set  forth  th<  n called  for.  Imperfect  or  incorrect 

returns  will  not  be  accepte<  the  requirements  of  the  statute.  In 

lack  of  a prescribed  form  made  by  a taxpayer  disclosing  his 

gross  income  and  the  dedu  rom  may  be  accepted  as  a tentative 

return,  and  if  filed  within  ■ :d  time  a return  so  made  will  relieve 

the  taxpayer  from  liability  , provided  that  without  unnecessary 

delay  such  a tentative  reti  ed  by  a return  made  on  the  proper 

form.  See  further  articles  )r  extensions  of  time  and  tentative 

returns,  beginning  at  1[2564  , Reg.  62,  1922  Edition.) 

2502  Correction  by  the  of  Erroneous  Return. — All  returns 

should  be  carefully  , and,  if  improperly  prepared,  they 

should  be  returned  to  the  correction,  with  instructions  that  if 

a new  return  be  executed,  the  old  one,  showing  the  date  of  the  receipt  thereon, 
should  be  forwarded  to  the  Collector  to  avoid  the  possibility  of  subjecting 
the  taxpayer  to  additional/tax  or  penalties  for  failure  to  file  the  return  within 
the  period  required  by  lafv. 

2503  A record  of  each  return  sent  back  to  the  taxpayer  for  correction 
should  be  made  in  the  office  of  the  Collector,  so  that  if  the  taxpayer 

fails  to  properly  amend  and  forward  same,  the  Collector  may  take  steps  to 
secure  the  return.  (Extract  from  Mimeograph  Letter  No.  1160  to  Col- 
lectors, signed  by  Acting  Commissioner  David  A.  Gates,  and  dated  Feb- 
ruary 9,  1915.) 

2504  Correction  of  Erroneous  Returns  at  the  Instance  of  the  Collector. 

to  —Referring  to  the  returns  of  annual  net  income  to  be  filed  by  cor- 

2507  porations  for  the  year  [1914],  you  are  requested  to  examine  each 
re^urn  cIosely  w'th  a view  to  having  such  returns  as  nearly  correct  as 

possible  before  forwarding  to  this  office.  (Mimeoeraph  letter  No.  1148  to 
Collectors,  Jan.  16,  1915.) 

2508  Law  1f467.  Corporation  Return  to  Include  Detailed  Information 
(Sec.  239.)  Sufficient  to  Enable  Commissioner  to  Determine  What 


or  Ordered  to  be  Distributed  Jo  Stockholders.— “(c)  There  shall  be  in- 


Portion  of  the  Year’s  Profits  Have  been  Distributed 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
559 


2-27-22. 


RETURNS. 


eluded  in  the  return  or  appended  thereto  a statement  of  such  facts  as  will  enable 
the  Commissioner  to  determine  the  portion  of  the  earnings  or  profits  of  the 
corporation  ( including  gains , profits  and  income  not  taxed)  accumidated 
during  the  taxable  year  for  which  the  return  is  made,  which  have  been  distrib- 
uted or  ordered  to  be  distributed,  respectively , to  its  stockholders  or  members 
during  such  year” — Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 

2509  Section  239  (c)  requires  every  corporation  to  include  in  its  return 
a statement  of  such  facts  as  will  enable  the  Commissioner  to  deter- 
mine the  portion  of  the  earnings,  including  gains,  profits,  and  income  not 
taxed,  accumulated  during  the  taxable  year  which  have  been  distributed 
or  ordered  to  be  distributed,  respectively,  to  its  stockholders  during  such 
year.  (Art.  621,  Reg.  62,  1922  Edition.) 

2510  Law  1[462.  Returns  to  be  Made  Under  Oath.— “The  [corpora- 
(Sec.  239.)  tion]  return  shall  be  sworn  to  by  the  president , vice-presi- 
dent, or  other  principal  officer  and  by  the  treasurer  or 

assistant  treasurer .”— Law.  [Note:  The  1918  Act  so  provided.] 


251  1 (Sec.  223.)  “The  following  individuals  shall  each  make  under  oath 
a return,”  1[2382. 

2512  (Sec.  224.)  “The  return  shall  be  sworn  to  by  any  one  of  the  part- 
ners,” 1[793. 

2513  (Sec.  225.)  “Every  fiduciary  * * * shall  make  under  oath  a 

return  for  any  of  the  following  individuals,  estates,  or  trusts  for  which 

he  acts,”  1[928. 


2514  All  income  tax  returns  must  be  verified  under  oath  or.  affirmation 
before  an  officer  duly  authorized  to  administer  oaths  either  by  the 
laws  of  the  United  States  or  by  the  laws  of  the  State  or  Territory  where 
such  officer  resides.  Persons  in  the  naval  or  military  service  of  the  United 
States  may  verify  their  returns  before  any  official  authorized  to  adminis- 
ter oaths  for  the  purposes  of  those  services.  Income  tax  returns  executed 
abroad  may  be  attested  free  of  charge  before  United  States  consular  officers. 
Where  a foreign  notary  or  other  official  having  no  seal  shall  act  as  attesting 
officer,  the  authority  of  such  attesting  officer  should  be  certified  to  by  some 
judicial  official  or  other  proper  officer  having  knowledge  of  the  appointment 
and  official  character  of  the  attesting  officer.  (Art.  406,  Reg.  62,  1922  Edi- 
tion.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

“Before  an  officer  duly  authorized:”  meaning  explained;  postmasters  (43-20-1263: 
0.  D.  701).. Dec.  1920  Cum.  Bull.  p.  228. 

China  (8-19-327:  O.  D.  189)..  1919  Cum.  Bull.  p.  190. 


Copyright  1022,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

560 


8-27-22.  (2)  4-10-22.  (3)  4-18-22.  (4)  8-10-22. 

RETURNS. 

person  liable  for  the  return  is  unable  to  make  it,  the  agent  assuming  the 
responsibility  for  making  theWeturn  and  incurring  liability  to  the  specific 
penalties  provided  for  erroneous,  false,  or  .fraudulent ; returns.  See  section 
253  and  article  1055j1f2629].  (Art.  402,  Reg.  62,  1922  Edition.) 


2487  Law  1f461.  Returns  by  Corporations. — “Sec.  239.  {a)  That  every 

(Sec.  239.)  corporation  subject  to  taxation  under  this  title  and  every 

personal  service  corporation  [If  7 7 8]  shall  make  a return 
stating  specifically  the  items  of  its  gross  in  :ome  [If  1073]  and  the  deductions 
[1[1616]  and  credits  flf2056]  allowed  by  this  title.”— Law.  [Note:  The 

/ 1918  Act  so  provided.] 

2488  Law1f465.  “ Returns  made  ujnder  this  section  shall  be  subject  to 

(Sec.  239.)  the  provisions  of  Sections  226  [‘Returns  when  accounting 

period  k changed f 1f2567]  and  228  [‘  Under  statement  in 
Returns ,’  1f2577].”— Law. \ [Note:  The  1918  Act  so  provided.] 

2489  Every  corporation  nocvexpr^ssly  exempt  from  tax  must  make  a return 
Of  income,  regardless  of  thfe  amount  of  its  net  income.  In  the  case  of 

ordinary  corporations  the  return  shall  be  on  Form  1120.  For  returns  of  insur- 
ance companies  see  article  623\W[1362];  of  personal  service  corporation  see 
article  624  [If 843];  of  foreign  corporations  see  article  625  [If  1423];  and  of 
affiliated  corporations  see  section  V40  of  the  statute  and  article  632  [1f2544].  A 
corporation  having  an  existecfcel  during  any  portion  of  a taxable  year  is 
required  to  make  a return.  A corporation  which  has  received  a charter,  but 
has  never  perfected  its  orgamzatityi,  and  which  has  transacted  no  business 
and  had  no  income  from  any  sourc^,  may  upon  presentation  of  the  facts  to 
the  collector  be  relieved  from  the  necessity  of  making  a return  so  long  as  it 
remains  in  an  unorganized' conditio*.  In  the  absence  of  a proper  showing 
to  the  Collector  such  a corporation  Will  be  required  to  make  a return.  A 
corporation  which  was  dissolved  in  1921  prior  to  the  enactment  of  the 
present  statute  is  not  relieved  from  tile  necessity  of  rendering  returns  there- 
under for  such  portion  o i 1921  as  elapsed  before  its  dissolution.  [For  returns 
by  corporations  going  pito  liquidation^  see  1j2535.]  See  further  section  228 
of  the  statute  and  articles  406  [for  verification  of  returns,  1f2514],  407  [for 
use  of  prescribed  forms,  1f2501]  and  451  [for  under  statement  of  income, 
If 2579].  (Art.  621,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  referencet  see  page  p I. 

1921  fiscal  year  return  under  1921  Act  required  though  return  under  1918  Act  for 
same  period  filed:  1921  Act  (1-15-216:  i.  T.  1277).  .Bull.  I ( 22)-15,  p.  14. 

Alien  Property  Custodian:  return  to  time  property  taken  over  by  (4-19-231:  O.  D. 
148) ..  1919  Cum.  Bull.  p.  234.  . 

Amended  returns  not  necessary  when  deductions  made  on  account  contributions  to 
Red  Cross,  etc.,  prior  to  T.  D.  2847;  statements  filed  in  lieu  thereof  (14-19-438: 
M.  2207)..  1919  Cum.  Bull.  p.  221.  _ 

Amended  returns  on  account  deduction  of  capital  charges;  right  reserved  by  (jovern- 
ment  to  penalize  (2-19-169:  O.  D.  113).  .1919  Cum.  Bull.  p.  234. 

Amended  returns  on  account  use  of  inflated  values  for  invested  capital  (37-21-1822: 
T.  D.  3220).. Dec.  1921  Cum.  Bull.  p.  285.  No  waiver  because  no  further 
tax  due  (49-21-1968:  O.  D.  1131).. Dec.  1921, Cum.  Bull.  p.  289. 

Insurance  companies  (1-6-82:  I.  T.  1201).  .Bull.  1 ( 22)-6,  p.  29. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

555 


2-27-22.  (2)  4-10-22.  (3)  4-18-22.  (4)  8-10-22. 

RETURNS. 


Bank  liquidated,  liquidating  agents  discharged,  subsequently  discovered  tax  liability- 
assets  followed  (16-21-1583:  O.  D.  883).  .June  1921  Cum.  Bull.  p.  308. 

Charter  declared  forfeited  but  business  continued  for  several  years  thereafter  (2-20-677- 
O.  D.  365).  .June  1920  Cum.  Bull.  p.  222. 

Charter  expired  but  business  continued  in  corporate  form  (14-21-1552:  Sol.  Od  931 
June  1921  Cum.  Bull.  p.  305.  ^ ' 

Dissolving  and  no  provision  made  for  tax:  distributees  liable  (29-20-1079-  O D 5971 
Dec.  1920  Cum.  Bull.  p.  300. 

★ Dissolution,  business  being  continued  as  a partnership:  1921  Act  (1-32-452-  I T 
1416).  .Bull.  I (’22)-32,  p.  8. 

Domicile  changed  merely  (3-20-697:  A.  R.  R.  16).. June  1920  Cum.  Bull  d 312 
Also  (48-21-1950:  O.  D.  1119).. Dec.  1921  Cum.  Bull.  p.  232.  * 

Execution  by  one  officer  (19-21-1628:  O.  D.  911).  .June  1921  Cum.  Bull.  p.  307. 

Fiscal  year  ending  in  1917;  1917  excess-profits  tax  credit  (1-9-120:  A.  R.  R.  770) 
Bull.  I (’22)-9,  p.  16. 

Fractional  year  return:  proportionate  specific  credit  (27-20-1044:  O.  D.  574)  Dec 

1920  Cum.  Bull.  p.  282.  (See  also  Art.  626,  1J2576.) 

Illinois:  on  liquidation  (39-20-1214:  O.  D.  672).  .Dec.  1920  Cum.  Bull.  p.  284. 
Michigan  when  there  has  been  a “change  of  attitude”  (20-21-1641:  O.  D.  919)  Tune 

1921  Cum.  Bull.  p.  308.  " J 

New  corporation  taking  over  old  Dec.  31,  1919  as  of  Oct.  4,  1919  (36-21-1808:  O.  D 

1025).  .Dec.  1921  Cum.  Bull.  p.  231. 

Ohio  corporation  stock  all  acquired  by  one  stockholder  is  de  facto  even  if  not  a de  jure 
corporation  (12-21-1524:  Sol.  Op.  91).  .June  1921  Cum.  Bull.  p.  302. 

Organization  not  completed  and  no  business  transacted;  no  return  made  and  no 
notice  to  collector  of  status  (48-21-1951:  O.  D.  1120).. Dec.  1921  Cum.  Bull,  d 
233.  * 


Organization  not  completed  but  articles  filed  and  business  transacted  (2-19-168-  S 
972)  v 1919  Cum.  Bull.  p.  233. 

Partnership  business  incorporated,  but  business  always  carried  on  as  partnership 
(43-21-1887:  O.  D.  1078).  .Dec.  1921  Cum.  Bull.  p.  232. 

Partnership  business  incorporated  by  intention  as  of  May,  1920  (stock  being  sold  on 
understanding  of  sharing  in  profits  from  that  date,  and  on  transferring  the  busi- 
ness the  corporation  assumed  operation  thereof  then)  but  charter  not  issued  until 
Oct.,  1920  (35-21-1796:  O.  D.  1016).. Dec.  1921  Cum.  Bull.  p.  231. 

Partnership  business  incorporated  retroactively  (48-21-1952:  O.  D.  1121).. Dec. 
1921  Cum.  Bull.  p.  233. 

Penalties  for  failure  to  file  when  no  income,  not  operating,  etc.  (16-21-1582:  O.  D 
882).  .June  1921  Cum.  Bull.  p.  307. 

Railroads  under  Federal  control:  election  to  have  claims  adjusted  under  Sec.  3 of  Act 
of  March  21,  1918,  rather  than  under  Sec.  1 of  that  Act  (34-20-1 151:  O.  D.  642) 
. .Dec.  1920  Cum.  Bull.  p.  231. 

Return  required  under  retroactive  law  is  case  of  fiscal  year  corporation  showing  loss 
by  return  under  old  law  (1-19-100:  O.  D.  71). . 1919  Cum.  Bull.  p.  234. 

State  bank  converted  into  National  bank  (17-20-888:  O.  D.  476).. June  1920  Cum 
Bull.  p.  222. 


2490  Corporations  Dissolving  Before  the  Time  for  Making  Returns. — 
A corporation  which  has  continued  in  business  through  a calendar 
year  cannot  evade  liability  for  the  special  excise  tax  imposed  by  Act  of 
August  5,  1919,  Section  38,  by  dissolving  before  the  time  when  it  is  required 
to  make  a return  of  said  business  to  the  collector  of  internal  revenue  and 
the  assessment  of  the  tax.  (United  States  v.  General  Inspection  & Loading 
Co.,  192  Fed.  223.) 

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2-27-22.  (2)  4-10-22.  (3)  8-3-22. 

TAX  ON  NONRESIDENT  ALIENS. 

Taxable  Interest. — “(1)  Interest  on  bonds,  notes,  or 
other  interest-bearing  obligations  of  residents,  cor- 
porate or  otherwise,  not  including ” 

“( A ) interest  on  deposits  with  persons  carrying  on  the 
banking  business  pa  d to  persons  not  engaged  in  busi- 
ness within  the  United  States  and  not  having  an  office 
or  place  of  business  therein,  or” 

2105  LawH210.  “(B)  interest  received  from  a resident  alien  individual 
(Sec.  217.)  or  a resident  foreign  corporation  when  it  is  shozun  to 

the  satisfaction  of  the  Commissioner  that  less  than 
20  per  centum  of  the  gross  income  of  such  resident  payor  has  been  derived 
from  sources  within  the  United  States,  as  determined  under  the  provisions 
. of  this  section,  for  the  three-year  period  ending  with  the  close  of  the  taxable 
year  of  such  payor,  or  for  such  part  of  such  period  immediately  preceding 
the  close  of  such  taxable  year  as  may  be  applicable-” — Law.  [Note: 

See  note  at  ^[21 02.] 

/ 

2106  There  shall  be  included  in  the  gross  income  from  sources  within. the 
United  States,  of  nonresident  alien  individuals,  foreign  corporations 

and  citizens  of  the  United  States  or  domestic  corporations  which  are  entitled 
to  the  benefits  of  section  262  [^[2070],  all  interest  received  or.  accrued,  as  the 
case  may  be,  on  bonds,  notes;  or  other  interest-bearing  obligations  of  residents 
of  the  United  States,  whether  corporate  or  otherwise,  except: 

2107  (a)  Interest  paid  on  deposits  with  persons,  including  individuals, 
partnerships,  or  corporations  carrying  on  the  banking  business,  to 

persons  (nonresident  alien  individuals,  foreign  corporations  and  citizens  of  the 
United  States,  or  domestic  corporations  entitled  to  the  benefits  of  sec.  262 
[^[2070])  not  engaged  in  business  within  the  United  States,  and  not  having 
an  office  or  place  of  business  therein;  and 

2108  (b)  Interest  received  from  a resident  alien  individual  or  a resident 
foreign  corporation  when  it  is  shown  to  the  satisfaction  of  the  Com- 
missioner that  less  than  20  per  centum'ofthe  gross  income  of  such  resident 
payor  has  been  derived  from  sources  within  the  United  States  for  the  three- 
year  period  ending  with  the  close  of  the  \axable  year  of  such  payor,  or  for 
such  part  of  such  period  immediately  preceding  the  close  of  such  taxable  year 
as  may  be  applicable. 

2109  Any  taxpayer  who  excludes  from  gross  income  from  sources  within 
the  United  States  income  of  the  type  specified  in  (a)  or  (b).  above 

shall  file  with  his  return  a statement  setting  forth  the  amount  of  such  income 
and  such  information  as  may  be  necessary  to  show  that  the  income  is  of  the 
type  specified  in  those  paragraphs.  (Art.  317,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  <?/. 

Interest  on  bonds  of  domestic  corporation  operating  exclusively  in  U.  S.  possession 
which  guarantees  the  interest  (1921  Act)  (1-10-125:  I.  T.  1228).. Bull.  I (’22)- 
10,  p.  15. 

•V-  Interest  on  U.  S.  bank  deposits  of  foreign  corporation  whose  only  activity  here  is 
purchasing  materials  through  local  agent;  such  corporation  is  doing  business  here, 
hence  interest  is  taxable  and  agent  is  to  make  return;  1921  Act  (1-31-441:  I.  T. 
1406).  .Bull.  I (’22)— 31,  p.  10. 

* Trust  fund  principal  and  interest  on  deposit  in  bank  draws  interest;  such  bank  interest 
is  not  tax  exempt  to  beneficiary  of  trust:  1921  Act  (1-31-440:  I.  T.  1405)..  Bull. 
I (’22)— 31,  p.  8. 

2110  Law  ^211.  Taxable  Dividends. — “(2)  The  amount  received  as 
(Sec.  217.)  dividends” 

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THE  FEDERAL  INCOME  TAX  SERVICE 

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2103  Law  1[208. 

(Sec.  217.) 

2104  Law  ^ 209. 

(Sec.  217.) 


[ 2-27-22. 

(2)  4-10-22. 

2111 

Law  1[212. 

(Sec.  217.) 

2112 

Law  ^[213. 

(See.  217.) 

TAX  ON  NONRESIDENT  ALIENS. 

“(A)  from  a domestic  corporation  other  than  a corpora- 
tion entitled  to  the  benefits  of  section  262  [^2070],  or ” — 
“(B)  from  a foreign  corporation  unless  less  than  50 
per  centum  of  the  gross  income  of  such  foreign  cor- 
poration for  the  three-year  period  ending  with  the  close 
of  its  taxable  year  preceding  the  declaration  of  such  dividends  (or  for  such 
part  of  such  period  as  the  corporation  has  been  in  existence)  was  derived 
from  sources  within  the  United  States  as  determined  under  the  provisions 
of  this  section — Law.  [Note:  See  note  at  ^[2102.] 


2113  Gross  income  from  sources  within  the  United  States  includes  all 
dividends,  as  defined  by  section  201  ft[l077]: 

2114  (a)  From  a domestic  corporation  other  than  one  entitled  to  the 
benefits  of  section  262  [^[2070];  and 

2115  (b)  From  a foreign  corporation  unless  less  than  50  per  cent  of  its 
gross  income  for  the  three-year  period  ending  with  the  close  of  its 

taxable  year  preceding  the  declaration  of  such  dividends  or  for  such  part  of 
such  period  as  it  has  been  in  existence,  was  derived  from  sources  within  the 
United  States. 

2116  Dividends  will  be  treated  as  income  from  sources  within  the  United 
States  unless  the  taxpayer  submits  sufficient  data  to  establish  the 

fact  that  less  than  50  per  cent  of  the  gross  income  of  the  foreign  payor  corpo- 
ration for  the  three-year  period  ending  with  the  close  of  its  taxable  year  pre- 
ceding the  declaration  of  such  dividend  was  derived  from  sources  within  the 
United  States.  (Art.  318,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Domestic  corporation  doing  no  business  in  U.  S.  and  owning  no  property  here;  1918 
Act  (1-12-158:  L.  O.  1069).  .Bull.  I (’22)-12,  p.  23. 


2117  Law  H214.  Taxable  Personal  Service  Compensation. — “(3)  Com- 
(Sec.  217.)  pensation  for  labor  or  personal  services  performed  in  the 
United  States — Law.  [Note:  See  note  at  ^[2 102.] 


2118  Gross  income  from  sources  within  the  United  States  includes  com- 
pensation for  labor  or  personal  services  performed  within  the  United 
States  regardless  of  the  residence  of  the  payor,  of  the  place  in  which  the 
contract  for  services  was  made,  or  of  the  place  of  payment.  When  a specific 
amount  is  paid  for  labor  or  personal  services  performed  in  the  United  States, 
such  amount  shall  be  included  in  the  gross  income.  When  no  accurate 
allocation  or  segregation  of  compensation  for  labor  or  personal  services  per- 
formed in  the  United  States  can  be  made,  or  when  such  labor  or  service  is 
performed  partly  within  and  partly  without  the  United  States,  the  amount 
to  be  included  in  the  gross  income  shall  be  determined  by  an  apportionment 
on  the  time  basis,  i.  e.,  there  shall  be  included  in  the  gross  income  an  amount 
which  bears  the  same  relation  to  the  total  compensation  as  the  number  of 
days  of  performance  of  the  labor  or  services  within  the  United  States  bears 
to  the  total  number  of  days  of  performance  of  labor  or  services  for  which  the 
payment  is  made.  (Art.  319,  Reg.  62,  1922  Edition.) 


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2-27-22.  (2)  4-10-21.  (8)  7-27-22. 

TAX  ON  NONRESIDENT  ALIENS. 

aliens,  what  is  and  what  is  not  gross 
income  from  sources  within  the  United 
States,  and  the  manner  of  determining 
net  income  from  sources  within  and 
without  the  United  States  in  far  greater 
detail  than  has  heretofore  been  at- 
tempted.] 

2093  In  the  case  of  nonresident  alien  individuals  “gross  income”  means  only 
the  gross  income  from  sources  within  the  United  States,  determined 
under  the  provisions  of  section  217.  Sjee  articles  316-329  [beginning  at  ^[2094]. 
As  to  the  gross  income  of  foreign  corporations  see  section  233  (b)  of  the  statute 
and  article  550  [^1410];  also  section  217  and  articles  316-329  [beginning  at 
1[2094].  The  items  of  gross  income  from  sources  without  the  United  States  and 
therefore  not  taxable  to  nonresident  aliens  or  foreign  corporations  are  des- 
cribed in  section  217(c)  and  article  322  [!f213l].  As  to  who  are  nonresident 
alien  individuals,  see  articles  314-314  [beginning  at  If 754].  (Art.  92,  Reg. 

62,  1922  Edition.) 

For  explanation  of  Uutnulative  Index  references  see  page  gi. 

The  rulings  cited  below  are  based  on  the  1918  Act  or  prior  Acts,  and  were  formerly  grouped 
under  Article  91  off  Regulations  45,  entitled  “Gross  Income  of 
\ Nonresident  Alien  Individuals." 

Bonds  of  domestic  corporation  operating  abroad;  owns  property  and  has  office  here; 
in  hands  of  receiver  appointed  by  U.  S.  Court,  and  who  has  office  here  (21-20-955: 
O.  D.  517).  .June  1920  Cum.  Bull.  p.  187. 

Bonds  of  foreign  govemnient  or  corporation  sold  here  or  liquidated  here  at  maturity; 

bought  here  or  abroad.. . (17-21-1593:  O.  D.  890).. June  1921  Cum.  Bull. 

p.  H4.  7 \ 

Same;  here  an  estate  subject  to  jurisdiction  of  a foreign  country  (14-21-1546:  O. 
D.  863).  .June  1921  Cum.  Bull,  p.  113. 

Bonds  of  nonresident  foreign  corporation:  interest  payable  in  U.  S.:  not  taxable 
income  (13-19-41/:  O.  D.  239).  .1919  Cum.  Bull.  p.  98. 

British  Government  treasury  bills  bought  at  discount;  realizing  discount  at  maturity; 

profit  from  sale  pf  (23-20-985;  O.  D1J534) . .June  1920  Cum.  Bull.  p.  103. 
Dividends  from  corporation  organized  in  U.  S.  though  neither  doing  business  nor  own- 
ing property  here  (1-12-158:  L.  O.  1069).  .Bull.  I (’22)-12,  p.  23. 

General  discussion:  Attorney  General’s  opinion  (3-21-1401:  T.  D.  3111)..  June  1921 
Cum.  Bull.  p.  280. 

Mail  order  business  or  unsolicited  orders;  not  taxable  income  (23-19-549:  O.  D.  294) 

. .1919  Cum.  Bull.  p.  213. 

Merchandise  sold  here  by  alien  here  less  than  30  days  (23-19-543:  O.  D.  291).  .1919 
Cum.  Bull.  p.  98. 

Purchasing  office  here  of  railroad  operated  by  foreign  government;  wages  of  employees 
(34-20-1146:  O.  D.  638).  .Dec.  1920  Cum.  Bull.  p.  128. 

Reg.  45,  Art.  91  amended.  .^3034. 

Sale  of  securities  within  U.  S.  wherever  acquired  (1921  Act)  (1-7-90:  I.  T.  1204).  . 
Bull.  I (’22)-7,  p.  14. 

Supreme  Court  decision  (1913  Act);  Stocks  and  bonds  held  here  under  power  of 
attorney.  .Supplementary  Page  155,  \149. 


2094  Nonresident  alien  individuals,  foreign  corporations,  and  citizens  of 
the  United  States  or  domestic  corporations  entitled  to  the  benefits  of 
section  262  [^2070]  are  taxable  only  upon  income  from  sources  within  the 
United  States.j^See  sections  213(c),  233(b),  and  262. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22. 


(2)  4-10-22.  (3)  7-27-22. 

TAX  ON  NONRESIDENT  ALIENS. 


2095  The  statute  divides  the  income  of  such  taxpayers  into  three  classes: 
(I)  Income  which  is  derived  in  full  from  sources  within  the  United 
States;  (2)  income  which  is  derived  in  full  from  sources  without  the  United 
States;  and  (3)  income  which  is  derived  partly  from  sources  within  and  partly 
from  sources  without  the  United  States.  The  taxable  income  includes  that 
derived  in  full  from  sources  within  the  United  States  and  that  portion  of 
the  income  which  is  derived  partly  from  sources  within  and  partly  from  sources 
without  the  United  States  which  is  allocated  or  apportioned  to  sources  within 
the  United  States.  (Art.  316,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

+Bank  acceptances  purchased  here  by  agent  and  sold  by  him  at  profit  involves  income 
from  U.  S.  sources:  1921  Act  (1-30-429:  I.  T.  1398).  .Bull.  I (’22)-30,  p.  16. 


2096  When  the  Wages  of  a Nonresident  Alien  Seaman  are  Derived  From 
Sources  Within  the  United  States. — While  resident  alien  seamen  are 
taxable  like  citizens  on  their  entire  income  from  whatever  sources  derived, 
nonresident  alien  seamen  are  taxable  only  on  income  from  sources  within  the 
United  States.  Wages  received  for  services  rendered  inside  the  territorial 
United  States  are  to  be  regarded  as  from  sources  within  the  United  States. 
The  wages  of  an  alien  seaman  earned  on  a coastwise  vessel  are  from  sources 
within  the  United  States.  See  further  article  319  [^[2118].  There  is  no  with- 
holding from  the  wages  of  alien  seamen  unless  they  are  nonresidents  within 
the  rules  laid  down  in  articles  311  to  315  [beginning  at  1f754j.  Even  in  the 
case  of  a nonresident  alien  seaman,  the  employer  is  not  obliged  to  withhold 
from  wages  unless  those  wages  are  from  sources  within  the  United  States  as 
defined  above.  As  to  when  alien  seamen  are  to  be  regarded  as  residents,  see 
article  311(a)  [^[756].  (Art.  93,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Pacific  to  Atlantic  U.  S.  port  or  vice  versa  via  Panama  Canal  (5-21-1416:  O.  D.  784) 
. .June  1921  Cum.  Bull.  p.  116. 

Seamen;  occasional  coast-wise  voyage  on  vessel  usually  making  foreign  ports  (13-19- 
424:  O.  D.  245) . . 1919  Cum.  Bull.  p.  183. 

Seamen:  steamer  in  foreign  trade  lying  for  two  weeks  in  U.  S.  port  for  repairs  (26-20- 
1027:  O.  D.  559).. June  1920  Cum.  Bull.  p.  103. 


2097  Exempt  Income  in  the  Case  of  Nonresident  Aliens.— [Same  as  for 
citizens  and  residents,  for  which  see  ^[1550,  and  in  addition,  the 
following.] 


2098  Law  H 134-  Earnings  Derived  from  the  Operation  of  Ships  Docu- 
(Sec.  213.)  mented  Under  the  Laws  of  a Foreign  Country,  Under 
Reciprocal  Conditions. — “(8)  The  income  of  a nonres- 
ident alien  or  foreign  corporation  which  consists  exclusively  of  earnings  de- 
rived from  the  operation  of  a ship  or  ships  documented  under  the  laws  of  a 
foreign  country  which  grants  an  equivalent  exemption  to  citizens  of  the 
United  States  and  to  corporations  organized  in  the  United  States — Law. 

[Note:  This 'provision  is  new  to  the  1921 

Act.l 


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2-27-22.  (2)  4-10-22.  (3)  9 8-22. 

CREDITS  TO  CORPORATIONS. 

2066  Law  11441.  1921-22  Fiscal  Year— “(2)  In  the  case  of  a corporation 

(Sec.  236.)  which  makes  return  for  a fiscal  year  beginning  in  1921 

and  ending  in  1922,  in  computing  the  income  tax  as 
provided  in  subdivision  (b)  [11865]  of  section  205,  the  war-profits  and  excess- 
projits  lax  computed  under  subdivision  ( b ) of  section  335  shall  be  credited 
against  the  net  income  computed  for  the  entire  period  as  provided  in  clause 
(1)  [If 866]  of  subdivision  (b)  of  section  205.”— Law.  [Note:  I his 

provision  is  new  to  the  1921  Act,  in 
terms,  but  in  principle  is  the  same  as  that 
carried  in  the  1918  Act  to  meet  the 
situation  for  1917-18  fiscal  years.] 

2067  Credits  Allowed  to  Corporations.— After  ascertaining  the  net  income 
of  a domestic  corporation  it  is  allowed  as  credits  against  such  net 

income  before  the  application  of  the  income  tax  rate  the  sum  of  $2,000  (only 
if  its  net  income  is  $25,000  or  less),  plus  the  amount  of  any  war  profits  and 
excess  profits  tax  assessed  or  to  be  assessed  for  the  same  taxable  year  (in 
case  of  fiscal  years  ending  in  1921  and  1922,  see  sec.  205  and  arts.  1623-1624 
[1(871]),  and  plus  the  amount  of  interest  not  entirely  exempt  from  tax  received 
upon  obligations  of  the  United  States  ..-and  bonds  of  the  War  finance  Corpo- 
ration. See  section  213  (b)  of  the  statute  and  articles  77-83.  Consequently, 
in  the  case  of  corporations  no  income  tax  is  imposed  on  any  interest  received 
upon  obligations  of  the  United  States  or  bonds  of  the  War  Finance  Corpo- 
ration. A foreign  corporation  is  ailowed  the  credit  provided  in  subdivision 
(c)  of  section  236  [1(2062]  but  not  the  credit  of  $2,000.  The  statute  repeals 
the  war  profits  and  excess  profits  tfax'^s  of  January  1,  1922.  For  the  purpose 
of  the  war  profits  and  excess  profits  tax  a corporation  is  not  entitled  to  the 
credits  mentioned  in  this  articl^.  To  \essen  the  inequality  between  the  tax 
upon  net  income  of  $25,000  and  upon  het  income  slightly  in  excess  of  that 
amount,  subdivision  (b),  section  236,  provides  that  the  tax  shall  not  exceed 
the  tax  which  would  be  payable  if  the  $^000  credit  were  allowed,  plus  the 
amount  of  the  net  income  in  excess  of  $25,O0().  As  to  the  equalizing  provision 
in  the  case  of  individual  incomes  slightly  in\excess  of  $5,000,  see  section  216 
(c),  and  article  301  [1(2048].  / (Art.  591,  Reg.  62, 1922  Edition.) 

/ V 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

+ Actual  not  annual  basis  ii 
case  of  fractional  yer 

p.  11.  i 

Ad  valorem  penalties  (extess-profits  tax)  not  part  of  tax  for  purposes  of  credit  (23-19 
551:  O.  926).  .1919/Cum.  Bull.  p.  241. 

Apportioning  $2,000  exemption:  part  of  year  and  part  of  month  (51-20-1356:  O.  D. 
756)..  Dec.  1920  Gum.  Bull.  p.  282.  J A . . 

Apportioning $2,000  exemption:  return  for  5 months,  charter  granted  Aug.  1,  no  capital 
paid  in  and  operations  not  begun  until  Oct.  1 (27-20-1044:  O.  D.  574).. Dec. 
1920  Cum.  Bull,  pi  282.  T . 

Excess-profits  tax  for  fiscal  year  ending  in  1917  (1-9-120:  A.  R.  R.  770).  .Bull.  I ( 22)* 
9,.p.  16. 


Come  determines  right  to  apportioned  $ 2,000  exemption  in 
return:  1921  Act  (1-36-493:  I.  T.  1439).  .Bull  I (’22)-36, 


2068  Credit  of  $2,000  (if  any)  Apportioned  When  Returns  Are  Being 
Made  for  a Changed  Accounting  Period.— Read  at  1(2573. 

2069  Credits  Against  the  Tax  in  the  Case  of  a Corporation.— Read  at 
1(1752. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

463 


2-27-22.  (2)  4-10-22.  (3)  9-8-22. 

INCOME  FROM  SOURCES  WITHIN  U.  S.  POSSESSIONS. 


20/0  Law.  11617.  Income  of  U.  S.  Citizens  and  Domestic  Corpora- 
te- 262.)  tions  From  Sources  Within  the  Possessions  of  the 
, Un!ted  States.— “S^c.  262.  (a)  That  in  the  case  of 

citizens  of  the _ United  States  or  domestic  corporations , satisfying,  the  fol- 
Lowing  conditions,  gross  income  means  only  gross  income  from  sources 
within  the  United  States-”- Law.  [Note:  This  provision  is  new 

to  the  1921  Act.] 


2071  Law  1(618.  (1)  If  80  per  centum  or  more  of  the  gross  income  of 

tbec.  262.)  such  citizen  or  domestic  corporation  ( computed  without 
,.  , fhe  benefit  of  this  section)  for  the  three-year  period 

immediately  preceding  the  close  of  the  taxable  year  (or  for  such  part  of  such 
period  immediately  preceding  the  close  of  such  taxable  year  as  may  be  ap- 
plicable) was  derived  from  sources  within  a possession  of  the  United  States; 
and  Law.  [Note:  This  provision  is  new  to  the  1921  Act.J 


20  72  Law  1(619.  “(2)  If,  in  the  case  of  such  corporation,  50  per  centum 

(bee.  262.)  or  more  of  its  gross  income  ( computed  without  the 

benefit  of  this  section)  for  such  period  or  such  part 
thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within  a 
possession  of  the  United  States;  or”— Law.  [Note:  This  provision 

is  new  to  the  1921  Act.] 

20  73  Law  1J620.  “(3)  If,  in  the  case  of  such  citizen,  50  per  centum 

(bcc.  262.)  or  more  of  his  gross  income  ( computed  without  the 

. benefit  of  this  section)  for  such  period  or  such  part 
thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within  a 
possession  of  the  United  States  either  on  his  own  account  or  as  an  employee 
or  agent  of  another.”— Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 


20  74  Law  11621.  “(b)  Notwithstanding  the  provisions  of  subdivision 

(bee.  262.)  (a)  there  shall  be  included  in  gross  income  all  amounts 

received  by  such  citizens  or  corporations  within  the 
United^  States,  whether  derived  from  sources  within  or  without  the  United 
states.  Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

2075  Law  1(622.  “(c)  As  used,  in  this  section  the  term  ‘ possession  of 

(bee.  262.)  the  Lnited  States’  does  not  include  the  Virgin  Islands 
of  the  Ignited  States.  Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 


2076  The  gross  income  of  a citizen  of  the  United  States  (1)  80  per  cent  or 
more  of  whose  gross  income  (computed  without  the  benefit  of  this 
article)  for  the  three-year  period  immediately  preceding  the  close  of  the  taxable 
year  (or  for  such  part  of  such  period  immediately  preceding  the  close  of  such 
taxable  year  as  may  be  applicable)  was  derived  from  sources  within  a pos- 
session of  the  United  States,  and  (2)  50  per  cent  or  more  of  whose  gross 
income  (computed  without  the  benefit  of  this  article)  for  such  period  or  such 
part  thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within 
a possession  of  the  United  States,  either  on  his  own  account  or  as  an  employee 
or  agent  of  another,  means  only  gross  income  from  sources  within  the  United 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
464 


2-27-22.  (2)  4-10-22. 


CREDITS  TO  CORPORATIONS. 


2065  The  status  of  the  taxpayer  on  the  last  day  of  his  taxable  year  deter- 
mines his  right  to  an  additional  exemption  and  to  a credit  for  dependents. 
If  then  he  is  the  head  of  a family,  the  personal  exemption  of  $2,000  or  $2,500, 
as  the  case  may  be,  may  be  taken.  If  then  he  is  the  chief  support  of  a 
dependent  who  is  under  eighteen  years  of  age  or  incapable  of  self-support 
because  mentally  or  physically  defective,  the  credit  of  $400  may  be  taken. 
But  an  unmarried  individual  or  a married  individual  not  living  with  husband 
or  wife,  who  during  the  taxable  year  has  ceased  to  be  the  head  of  a family  or 
to  have  dependents,  is  entitled  only  to  the  personal  exemption  of  $1,000 
allowed  a single  person.  A husband  and  wife  living  together  at  the  end  of 
the  taxable  year  may  receive  but  one  personal  exemption,  divisible  as  they 
please,  against  their  aggregate  net  income.  If  an  individual  dies  during  the 
taxable  year,  his  executor  or  administrator  in  making  a return  for  him  is 
entitled  to  claim  his  full  personal  exemption  according  to  his  status  at  the 
time  of  his  death.  See  also  sections  219  (c)  and  226  (c)  of  the  statute  and 
articles  346,  fl[920],  421  [1f939],  and  431  [1f2574].  If  a husband  or  wife  so 
dies  and  the  joint  personal  exemption  is  used  by  the  executor  or  admin- 
istrator in  making  a return  for  the  decedent,  an  undiminished  personal 
exemption  according  to  the  status  of  the  survivor  at  the  end  of  the  taxable 
year  may  be  claimed  in  the  survivor’s  return.  If  a taxpayer  makes  a return 
for  a period  other  than  a taxable  year,  tflie  last  day  of  such  period  shall  be 
treated  as  the  last  day  of  the  taxable  yeaf  for  the  purpose  of  this  article.  See 
section  226  and  articles  431  [1j2574]  and  1013  [<[2786].  (Art.  305,  Reg.  62,, 
1922  Edition.) 

\ i 


Credits  AgainstNlncome  Allowed  to  Corporations. — 
“Sec.  236.  Thai'for  the  purpose  only  of  the  tax  im- 
posed by  secjtion  23Q  [1f972]  there  shall  be  allowed  the 
following  credits — Law.  [Note\  The  1918  Act  so  provided.] 


2056  Law  H433. 

(Sec.  236.) 


2057  Law  1f434.  Any  Interest  from  Gbvernment  Obligations  and  from 
("Sec.  236.)  War  Finance  Corporation  Bonds  is  to  be  Credited  for 

Purposes  of  the  Income  Tax. — “(a)  The  amount  re- 
ceived as  interest  upon  obligations  of  the  United  States  and  bonds  issued 
by  the  War  Finance  Corporation,  which  is  included  in  gross  income  under 

Section  2 33  [111567];” — Law.  [Note:  T(he  1918  Act  so  provided.] 

} \ 

\ 

2058  Law  H435.  A Specific  Credit  of  $2,000  (is  Allowed  to  Domesticr 
(Sec.  236.)  Corporations  if  Net  Income  is  $25,000  or  Less. — “(b) 

In  the  case  of  a domestic  corporation  the  net  income  of 
which  is  $25,000  or  less,  a specific  credit  of  $2,000;” — Law.  [Note: 

The  1918  Act  provided  for  a:  specific 
credit  of  $2,000  in  the  case  of  every 
domestic  corporation'  irrespective) of  the 
amount  of  its  net  income.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

461 


2-27-22.  (2)  3-15-22. 


CREDITS  TO  CORPORATIONS. 


.2059  Law  If 5.  “(3)  The  term  ‘ domestic ’ when  applied  to  a corporation 

(Sec.  2.)  or  partnership  means  created  or  organized  in  the  United 

States  [see  If  1400.];”— Law.  [Note:  The  1918  Act  so 

provided.] 

20  60  A domestic  corporation  is  a resident  corporation  even  though  it  does 
no  business  and  owns  no  property  in  the  United  States  [If  1400]. 

(Art.  1509,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

China;  corporation  receiving  charter  from  U.  S.  Court  for  (38-20-1199:  0.  D.  661) 
. .Dec.  1920  Cum.  Bull.  p.  19. 

^Organized  in  U.  S.  but  doing  no  business  and  owning  no  property  here  constitutes  a 
resident  corporation  under  1918  Act  (1-12-158:  L.  O.  1069).  . Bull.  I (’22)-12  p.  23. 

Reg.  45,  Art.  1509  amended.  . 1f3036. 


2061  Law  ^ 436.  Relief  Provision  Applicable  to  Corporations  Having  Net 
(Sec.  236.)  Income  in  Excess  of  $25,000  but  Less  than  $25,200. — 

“ but  if  the  net  income  is  more  than  $ 25,000  the  tax  im- 
posed by  section  230  shall  not  exceed  the  tax  which  would  be  payable  if  the 
$2,000  credit  were  allowed,  plus  the  amount  of  the  net  income  in  excess  of 
$25,000;” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

2D  62  Law  $[437.  The  Amount  of  War  and  Excess-Profits  Tax  Imposed 
(Sec.  236.)  for  the  Same  Taxable  Year  is  to  be  Credited  Against 
Income  for  Purposes  of  the  Income  Tax. — “(c)  The 
amount  of  any  war-profits  and  excess-profits  taxes  imposed  by  Act  of  Con- 
gress for  the  same  taxable  year.  The  credii  allowed  by  this  subdivision  shall 
be  determined  as  follows:” — Law.  [Note:  The  1918  Act  so  pro- 

vided.] 

2063  Law  $438.  1920-21  Fiscal  Year. — “(1)  In  the  case  of  a corporation 

(Sec.  236.)  which  makes  return  for  a fiscal  year  beginning  in  1920 

and  ending  in  1921,  in  computing  the  income  tax  as 
provided  in  subdivision  (a)  [$861]  of  section  205,” 

2064  Law  $439.  “ the  portion  of  the  war-profits  and  excess-profits  tax 

(Sec.  236  ) computed  for  .he  entire  period  under  clause  (1)  of  sub- 
division ( a ) of  section  335  shall  be  credited  against  the 

n.t  income  computed  for  the  entire  period  as  provided  in  clause  (1)  [$862] 
of  subdivision  (a)  of  section  205,” 

2066  Law  $440.  " ihe  portion  of  i he  war-piofits  and  excess -profits  tax 

fSec.  236.)  comp  wed  jor  the  entire  period  under  clause  (2)  of  subdi- 
vision ( a ) of  section  335  shall  be  credited  against  the  net 
income  computed  for  the  entire  period  as  provided  in  clause  (2)  [$863]  of 
x subdivision  (a)  of  section  205.” — Law.  [Note:  This  provision  is 

new  to  the  1921  Act,  in  terms,  but  in 
principle  is  the  same  as  that  carried  in 
the  1918  Act  to  meet  the  situation  for 
1917-18  fiscal  years.] 

Ct  pyrin!. l 1922,  by  1'he  Corporation  Trust  Company. 

THE  FKIJERAI.  INCOME  TAX  SERVICE 
462 


2-27-22.  (2)  4-10-22.  (3)  4-21-22. 

DEDUCTIONS— INVOLUNTARY  CONVERSION  OF  PROPERTY. 


203 S Ascertainment  of  Gain. — In  cases  of  involuntary  conversion  of 
property  within  the  provisions  of  sections  214  (a)  (12)  or  234  (a) 
(14),  the  gain  must  be  included  in  income  and  no  deduction  will  be  allowed 
unless  the  taxpayer  proceeds  forthwith  in  good  faith  to  expend  the  proceeds 


gain,  if  any,  shall  be  ascertain?  rticle  49  [^f  1 257].  (Art. 

262,  Reg.  62,  1922  Edition.) 


203  7 Replacement  Fund  for  e where  the  taxpayer 

elects  to  replace  or  rest  >roperty,  but  where  it  is 

not  practicable  to  do  so  immedi  n permission  to  establish 

a replacement  fund  in  his  accou  : all  of  the  compensation 

so  received  shall  be  held,  witho  e payment  of  any  mort- 
gage, and  pending  the  dispositic  :tion  shall  be  tentatively 

allowed.  In  such  a case  the  tax  application  to  the  Com- 
missioner on  Form  1114  for  p lish  such  a replacement 

fund  and  in  his  application  shou  s relating  to  the  transac- 
tion and  undertake  that  he  will  tiously  as  possible  to  re- 
place or  restore  such  property.  1 be  required  to  furnish 

a bond  with  such  surety  as  the  y require  for  an  amount 

not  less  than  the  estimated  ad<  l war-profits  and  excess- 

profits  taxes  assessable  by  the  Un  income  so  carried  to  the 

replacement  fund.  See  section  1 [U.  S.  bonds  as  security, 

If  1770].  The  estimated  addition  ount  of  which  the  claim- 
ant is  required  to  furnish  securit  ted  at  the  rates  at  which 

the  claimant  would  have  been  c tg  into  consideration  the 

remainder  of  his  net  income  and  dm  all  matters  in  dispute 

affecting  the  amount  of  the  tax.  knies  holding  certificates 

of  authority  from  the  Secretarj  acceptable  sureties  on 

Federal  bonds  will  be  approve  s', application  should  be 

executed  in  triplicate,  so  that  the  applicant  and  the 

surety  or  depositary  may  each  h;  1,  Reg.  62,  1922  Edition.) 


Affiliated  corporations:  intercompany  replacement  (48-21-1942:  A.  R.  M.  142).. 
Dec.  1921  Cum.  Bull.  p.  94. 

Barge  for  lost  tug  is  not  a replacement  in  kind  (20-19-504:  O.  914). . 1919  Cum.  Bull, 
p.  77. 

Interest  on  excess  of  insurance  over  book  value  of  lost  vessels  (12-20-801:  O.  D.  417: 
. .June  1920  Cum.  Bull.  p.  287. 


of  such  conversion  in  any  of  the  ' ’’  ed  in  article  261.  If  the 

taxpayer  does  not  elect  so  to  c s of  the  conversion,  the 


\ 


For  explanation  of  Cumulative  Index  references  see  page  p I. 


Copyright  1922,  by  The  Corporation  Trust  Company 
THE  FEDERAL  INCOME  TAX  SERVICE 
455 


2-27-22.  (2)  4-10-22.  (3)  4-21-22. 

CREDITS  TO  INDIVIDUALS. 

*Profit  shown  by  replacement  in  later  year  from  fund  is  taxable  as  of  year  of  original 
conversion  into  cash:  1921  Act  (1-16-227:  Sol.  Op.  135).  . Bull.  I (’22)-16,  p.  11. 

Requisitioned  ships  restored  to  owner  with  sum  of  money  in  lieu  of  restoration; 
ships  may  be  sold  by  owner  and  fund  established  (12-19-400:  T.  R.  R.  41) . . 1919 
Cum.  Bull.  p.  78. 

Vessel  for  vessel  of  greater  capacity  is  a replacement  in  kind  (15-19-443:  T.  B.  M.  61) 
. . 1919  Cum.  Bull.  p.  76. 


203  8 Law  If  194.  Credits  Allowed  to  Individuals. — For  Normal  Tax 

(Sec.  216.)  Only. — “Sec.  216.  That  for  the  purpose  of  the  normal 
tax  only  there  shall  be  allowed  the  following  credits — 
Law.  [Note:  The  1918  Act  so  provided.] 


2039 


2040 


Law  1fl95. 
(Sec.  216.) 
Law  If  196. 
(Sec.  216.) 


Dividends  as  Credit  for  Normal  Tax  Only. — “( a ) 

The  amount  received  as  dividends ” 

“(1)  from  a domestic  corporation  other  than  a corpo- 
ration entitled  to  the  benefiis  of  section  262  [^f 207 0], 


or 


2041  Law  1fl97.  “(2)  from  a foreign  corporation  when  it  is  shown  to  the 

(Sec.  216.)  satisfaction  of  the  Commissioner  that  more  than  50  per 
centum  of  the  gross  income  of  such  foreign  corporation 
for  the  three-year  period  ending  with  the  close  of  its  taxable  year  preceding 
the  declaration  of  such  dividends  (or  for  such  part  of  such  period  as  the 
corporation  has  been  in  existence)  was  derived  from  sources  within  the 
United  States  as  determined  under  the  provisions  of  section  217  [1J2102];” — 
Law.  [Note:  The  1918  Act  provided  for  the  credit  of  dividends  as 

follows:  “(a)  The  amount  received  as 

dividends  from  a corporation  which  is 
taxable  under  this  title  upon  its  net 
income,  and  amounts  received  as  divi- 
dends from  a personal  service  corpora- 
tion out  of  earnings  or  profits  upon  which 
income  tax  has  been  imposed  by  Act  of 
Congress.”] 


2042  Law  If  198.  All  Interest  on  Government  and  War  Finance  Corpo- 
(Sec.  216.)  ration  Bonds  which  has  been  Included  as  Gross 
Income  is  Credited  for  Normal  Tax  Purposes. — 

“(b)  The  amount  received  as  interest  upon  obligations  of  the  United  States 
and  bonds  issued  by  the  War  Finance  Corporation , which  is  included  in 
gross  income  under  section  213  [1fl567];” — Law.  [Note:  The  1918 

Act  so  provided.] 


2043  Credits  Against  Net  Income. — (a)  For  the' purpose  of  imposing  the 
normal  tax  the  taxpayer’s  net  income  as  computed  pursuant  to 
section  212  of  the  statute  and  articles  21-26  is  first  reduced  by  the  sum  of 
the  allowable  credits.  These  include  dividends  (as  defined  in  sec.  201  and 
arts.  1541-1549)  received  from  a domestic  corporation  other  than  a corpora- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THF.  FEDERAL  INCOME  TAX  SERVICF. 

456 


2-27-22.  (2)  4-10-22.  (3)  6-9-22.  (4)  6-26-22.  (5)  7-27-22.  (6)  9-13-22. 

DEDUCTIONS— DEPRECIATION. 


taxpayer  using  the  reserve  method  should  make  a statement  in  his  return 
showing  the  volume  of  his  charge  sales  (or  other  business  transactions)  for 
the  year  and  the  percentage  of  the  reserve  to  such  amount,  the  total  amount 
of  notes  and  accounts  receivable  at  the  beginning  and  close  of  the  taxable 
year,  and  the  amount  of  the  debts  which  have  been  ascertained  to  be  wholly 
or  partially  worthless  and  charged  against  the  reserve  account  during  the 
taxable  year.  (Art.  155,  Reg.  62.  1922  Edition.) 

For  explanation  of  Cumulative  Index  References  see  page  gi. 

■¥■  Example  of  nondeductibility  of  debts  created  after  close  of  1920  fiscal  year  and  ascer- 
tained to  be  bad  after  setting  up  in  1921  of  initial  reserve  as  of  1920  by  fiscal 
year  corporation:  1921  Act  (1-37-497:  1.  T.  1442)..  Bull.  I (’22)-37,  p.  5. 

Insufficiency  of  net  addition  to  reserve  fund  d/iring  a taxable  year  to  be  considered 
in  determining  amount  of  net  addition  to  such  fund  in  subsequent  year;  1921 
Act  (1-23-329:  I.  T.  1341).  .Bull.  I (’22)-23,  p.  4. 


1 823 


1 824 


1 825 


1 826 


Law  ^[407. 
(Sec.  234.] 

Law  ^408. 
(Sec.  234.) 
Law  ^|4C9. 
(Sec.  234.) 


Amounts  Received  as  Dividends  by  Individuals  as  a Credit  for 
Normal  Tax  Purposes. — See  ^2043. 

\ / 

Amounts  Received^  as  Dividends  by  Corporations 
Are  Deductible  Generally. — “(b)  The  amount  received 
as  dividends ” 

“(A)  from  a domestic  corporation  other  than  a corpora- 
tion entitled  to  thef  benefits  of  section  262  [5T2070],  or’ 
“(B)  from  ariy  foreign  corporation  when  it  is  shown 
to  the  satisfaction  of  the  Commissioner  that  more  than 
50  per  centum  afi^the  gross  income  of  such  foreign  cor- 
poration for  the  three-year  period  4nd\ng  with  the  close  of  its  taxable  year 
preceding  the  declaration  of  such  dividends  (or  for  such  part  of  such  period 
as  the  foreign  corporation  has  been  in  existence ) was  derived  from  sources 
within  the  United  States  as  deter  pined  u\der  section  217  [\\2102];” — Law. 

[Note:  The  1918  Act  provided  here,  as 
follows:  ‘V6)  Amounts  received  as  divi- 
dends from\a  corporation  which  is  tax- 
able under  'this  title  upon  its  net  in- 
come, and  axnounts  received  as  divi- 
dends from  a personal  service  corpora- 
tion out  of  edrnings  or  profits  upon 
which  income  tax  has  been  imposed  by 
Act  of  Congress/’] 

[Read  statement  relative  to  deductibility  of  dividends  at  1617.] 


1827  Law  ^[166.  Reasonable  Allowance  for  Depreciation  of  Business 
(Sec.  214.)  Property  is  Deductible. — “(8)  A reasonable  allowance 

for  the  exhaustion,  wear  and  tear  of  properly  used  in 
the  trade  or  business,  including  a reasonable  allowance  for  obsolescence .” 

1828  Law  If  167.  “In  the  case  of  such  property  acquired  before  March 

(Sec.  214.)  1,  1913,  this  deduction  shall  be  computed  upon  the  basis 

of  its  fair  market  price  or  value  as  of  March  1,  1913;” 

1829  Law  ^410.  [Corporations.] — “(7)  A reasonable  allowance  for  the 
(Sec.  234.)  exhaustion,  wear  and  tear  of  property  used  in  the  trade 

or  business,  including  a reasonable  allowance  for  obso- 


lescence. ’ 


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2-27-22.  (2)  4-10-22.  (8)  6-9-22.  (4)  6-26-22.  (6)  7-27-22.  (6)  9-13-22. 

DEDUCTIONS— DEPRECIATION. 


1830  Law  ^[41 1 . “/«  the  case  of  such  property  acquired  before  March 

(Sec.  234.)  1,  1913,  this  deduction  shall  be  computed  upon  the  basis 

of  its  fair  market  price  or  value  as  of  March  1,  1913;” 

— Law.  [Note:  The  1918  Act  ($nd  to  the  extent  of  the  provision 

relative  to  property  acquired  prior  to 
March  1,  1913,  the  regulations  under  the 
1918  Act)  so  provided.] 

1831  Depreciation,. — A reasonable  allowance  for  the  exhaustion,  wear 
and  tear  and  obsolescence  of  property  used  in  the  trade  or  business 

may  be  deducted  from  gross  income.  For  convenience  such  an  allowance 
will  usually  be  referred  to  as  depreciation,  excluding  from  the  term  any  idea 
of  a mere  reduction  in  market  value  not  resulting  from  exhaustion,  wear 
and  tear  or  obsolescence.  The  proper  allowance  for  such  depreciation  of  any 
property  used  in  the  trade  or  business  is  that  amount  which  should  be  set 
aside  for  the  taxable  year  in  accordance  with  a reasonably  consistent  plan  (not 
necessarily  at  a uniform  rate)  by  which  the  aggregate  of  such  amounts  for  the 
useful  life  of  the  property  in  the  business  will  suffice,  with  the  salvage  value, 
and  having  due  regard  for  expenditures  made  for  current  upkeep,  at  the  end 
of  such  useful  life  to  provide  in  place  of  the  property  its  original  cost  (not 
replacement  cost)  or  its  value  as  of  March  1,  1913,  if  acquired  by  the  tax- 
payer before  that  date.  See  further  articles  839  and  844  [for  depreciation 
in  connection  with  invested  capital.— War  Tax  Service].  (Art.  161,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  Qi. 

Accrued  obsolescence  prior  to  Jan.  1,  1918  (31-21-1752:  Sol.  Op.  114).. Dec.  1921 
Cum.  Bull.  p.  148. 

Brewery  turned  to  cereal  beverages,  then  abandoned  (34-21-1780:  O.  D.  1001).. 
Dec.  1921  Cum.  Bull.  p.  150. 

Coast-wise  lumber  trade  steam  schooners  (42-20-1245:  A.  R.  R.  279)..  Dec.  1920 
Cum.  Bull.  p.  168. 

Dipping  vats  for  cattle  tick  eradication  constructed  by  virtue  of  State  law  (48-20-1322: 
O.  D.  738) . . Dec.  1920  Cum.  Bull.  p.  168. 

Great  Lakes  bulk  freight  steamships  (9-20-773:  A.  R.  R.  27).  .June  1920  Cum.  Bull, 
p.  139.  Obsolescence  accrued  prior  to  Jan.  1,  1918  (31-21-1752:  Sol.  Op.  114).. 
Bull.  31-21,  p.  18.  A.  R.  R.  27  reconsidered  and  Sol.  Op.  114  adhered  to;  lengthy 
discussion:  1918  and  1921  Acts  (1-25-357:  A.  R.  R.  963)..  Bull.  I (’22)-25,  p.  8. 

Leased  apparatus  junked  at  expiration  of  lease  (44-21-1894:  O.  D.  1082).. Dec. 
1921  Cum.  Bull.  p.  175. 

Leased  properties  the  terms  requiring  that  lessee  turn  back  properties  at  expiration  of 
period  in  same  condition  as  when  leased  (35-21-1794:  0.  D.  1014).. Dec.  1921 
Cum.  Bull.  p.  151. 

Oil  well  equipment  acquired  on  purchase  of  leases  (37-21-1818:  A.  R.  R.  570).  .Dec. 

1921  Cum.  Bull.  p.  152. 

Railroad  siding  to  taxpayer’s  property  (36-21-1800:  O.  D.  1019).. Dec.  1921  Bull, 
p.  151.  Same  (1-30-427:  A.  R.  R.  100S).  .Bull.  I (’22)-30,  p.  14. 

Railroads  (See  “Railroads”  under  Art.  162  below). 

Reorganization  of  corporation;  capital  sum  to  be  recovered  in  case  of  assets  thus 
acquired  (15-20-855:  O.  D.  458).. June  1920  Cum.  Bull.  p.  313. 

Uncertain  obsolescence;  that  is,  a building  may  become  obsolete  (4-20-704:  O.  D.  381) 

. .June  1920  Cum.  Bull,  p 138. 

“Useful  life”  interpreted:  new  buildings  in  course  of  construction  (11  21-1510:  O.  D. 
845).. June  1921  Cum.  Bull.  p.  178. 

Vineyards;  prohibition  (8-19-320:  O.  862)..  1919  Cum.  Bull.  p.  127. 


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-27-22.  (2)  4-10-22. 


DEDUCTIONS— LOSSES. 


Restriction  by  statute  or  regulation  on  taxpayer’s  activities  not  in  itself  a loss  to  be 
measured  and  deducted  (here:  safe  deposit  vaults  in  New  York;  nonpayment  of 

Royah^interest^purrSase'^fn^ra^ts  Cof^oU  hnd  which  prove  worthless  (3-20-691: 

Scrapping  a^d  salvaging  equipment  (1913  Act  specifically)  (30-19-639:  S.  1217) . . 1919 

Securities; BbUonaPfide0sale;  repurchasing  at  same  price  (2-19-149:  0.  D.  103)..  1919 

Cum.  Bull.  p.  124.  . . . , . 

Securities;  brokers  ofler  at  public  auction  and  under  instructions  buy  in,  there  being 
no  other  bidders  (1-5-53:  I.  T.  1 181).  . Bull.  I ( 22)— 5,  p.  12.  , 

Stock  of  corporation  purchased  by  it  paying  therefor  with  assets  of  less  book  value 
(51-21-1984:  A.  R.  R.  693) ..  Dec.  1921  Cum.  Bull.  p.  207.  . . 

Stockholder  in  bankrupt  corporations  (in  relation  to  net  loss  provisions)  (4-20  703. 

O.  D.  380).  .June  1920  Cum.  Bull.  p.  128.  D „ 

Subletting  apartment  at  a decreased  rental  (1-19-59:  O.  D.  42)..  1919  Cum.  Bull.  p. 


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DEDUCTIONS— LOSSES. 


1 7 84  Law  1[  161 . Losses  Not  Necessarily  Deducted  in  Year  Sustained. — 

(Sec.  214.)  “ Losses  allowed  under  paragraphs  (4),  (5),  and  (6) 

bosses  by  individuals)  of  this  sub-division  shall  be 
deducted  as  of  the  taxable  year  in  which  sustained  unless , in  order  to  clearly 
reflect  the  income,  the  loss  should , in  the  opinion  of  the  Commissioner  be  ac- 
counted for  as  of  a different  period.”— Law.  [Note:  This  provision  is 

new  to  the  1921  Act.] 

1785  Law  1|399.  “ unless  [in  the  case  of  corporations ],  in  order  to  clearly 

(Sec.  234.)  reflect  the  income,  the  loss  should  in  the  opinion  of  the 

Commissioner  be  accounted  for  as  of  a different  period.” — 
Law  [Note:  This  provision  is  new  to  the  1921  Act.] 

1786  As  a general  rule  losses  allowed  under  paragraphs  (4),  (5),  and  (6) 

. °‘  this  subdivision  shall  be  deducted  as  of  the  taxable  year  in  which 

sustained.  In  exceptional  circumstances,  however,  in  order  to  avoid  injus- 
tice to  the  taxpayer  and  to  more  clearly  reflect  his  income,  the  Commissioner 
may  permit  a loss  to  be  accounted  for  as  of  a year  other  than  the  one  in 
which  sustained.  For  example,  an  embezzlement  or  a shipwreck  may  occur 
in  1921  but  not  become  known  until  1922  and  in  such  a case  income  may  be 
more  clearly  reflected  by  accounting  for  the  loss  as  of  1922  rather  than  of 
1?21.  If  a taxpayer  desires  to  account  for  a loss  as  of  a period  other  than 
the  one  in  which  actually  sustained,  he  shall  attach  to  his  return  a state- 
ment setting  forth  his  request  for  consideration  of  the  case  by  the  Commis- 
sioner, together  with  a complete  statement  of  the  facts  upon  which  he  relies 
However,  in  his  income  tax  return  he  shall  deduct  the  loss  only  for  the  tax- 
able year  in  which  actually  sustained.  Upon  the  audit  of  the  return  the 
Commissioner  will  decide  whether  the  case  is  within  the  exception  provided 
by  the  statute;  if  not  within  the  exception  the  loss  will  be  allowed  only  as 
of  the  taxable  year  in  which  sustained.  The  allowance  of  a deduction  for  a 
loss  in  a year  other  than  the  one  in  which  sustained  is  entirely  within  the 
discretion  of  the  Commissioner  and  he  will  consider  exercising  this  discre- 
tion only  in  exceptional  cases.  A shrinkage  in  the  value  of  the  taxpayer’s 
stock  in  trade,  as  reflected  in  his  inventory,  is  not  such  a loss  as  is  contem- 
plated by  the  provision  of  the  statute  authorizing  the  Commissioner  to 
allow  the  deduction  of  a loss  for  a taxable  year  other  than  the  one  in  which 
sustained.  (Art.  146,  Reg.  62,  1922  Edition.) 


1 7S7 


Law  156.  Losses  Resulting  from  Sale  of  Stock  or  Securities 
(Sec.  214.)  After  Nov.  23,  1921,  When  Substantially  Identical 
cue,  ,t  1.It.e,ms,are  Acquired  Within  30  Days  Before  or  After 
Such  Sale  — [Individuals.]  “No  deduction  shall  belallowed  under  this 
paragraph  for  any  loss  claimed  to  have  been  sustained  in  any  sale  or  other 
disposition  of  shares  of  stock  or  securities  made  after  the  passage  of  this  Act 
where  it  appears  that  within  thirty  days  before  or  after  the  date  oj  such  sale 
or  other  disposition  the  taxpayer  has  acquired  ( otherwise  than  by  bequest  or 
inheritance)  substantially  identical  property,  and  the  property  so  acquired 
is  held  by  the  taxpayer  for  any  period  after  such  sale  or  other'disposition.” 

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1 765  Law  *[[458.  “ and  the  Commissioner  with  the  approval  of  the  Secretary 

(Sec.  238.)  shall  have  full  power  to  determine  from  the  accumulated 
profits  of  what  year  or  years  such  dividends  were  paid ; 
treating  dividends  paid  in  the  first  sixty  days  of  any  year  as  having  been 
paid  from  the  accumulated  profits  of  the  preceding  year  or  years  ( unless  to 
his  satisfaction  shown  otherwise ),  and  in  other  respects  treating  dividends 
as  having  been  paid  from  the  most  recently  accumulated  gains , profits,  or 
earnings .” 

1766  Law  1f459.  “In  the  case  of  a foreign  corporation,  the  income,  war- 
(Sec.  238.)  profits,  and  excess-profits  taxes  of  which  are  determined 

on  the  basis  of  an  accounting  period  of  less  than  one  year, 
the  word  ‘year’  as  used  in  this  subdivision  shall  be  construed  to  mean  such 
accounting  period.”— Law . [Note:  These  provisions  are  new,  here, 

to  the  1921  Act.  However,  Sec.  240  of 
the  1918  Act,  relating  to  consolidated 
returns  of  affiliated  corporations,  pro- 
vided in  subsection  (c)  thereof  as 
follows:  7(c)  For  the  purposes  of  section 
' 238  a domestic  corporation  which  owns 
A majority  of  the  voting  stock  of  a foreign 
cbrporarion  shall  be  deemed  to  have  paid 
the  same  proportion  of  any  income, 
wa^-prbfits  and  excess-profits  taxes  paid 
(bu^  not  including  taxes  accrued;  by 
sucliy  foreign  corporation  during  the 
taxaftle  year  to  any  foreign  country  or 
to  apy  possession  of  the  United  States 
upofi  income  derived  from  sources  with- 
out) theUnited  States,  which  the  amount 
of  |any  dividends  (not  deductible  under 
section  ZSJ4)  received  by  such  domestic 
corporation  from  such  foreign  corpora- 
tion during  the  taxable  year  bears  to 
the  total  taxable  income  of  such  foreign 
corporation  'upon  or  with  respect  to 
which  such  taxes  were  paid:  Provided, 

/That  in  no  such  case  shall  the  amount 
of  the  credit  for  such  taxes  exceed  the 
amount  of  such  dividends  (not  deductible 
under  section  234)  received  by  such 
domestic  corporation  during  the  tax- 
able year.”] 

1767  A domestic  corporation  which  owns  a majority  of  the  voting  stock 
of  a foreign  corporation  from  which  it  receives  dividends  (not  de- 
ductible under  section  234)  in  any  taxable  year,  shall  be  entitled  to  credit 
against  the  amount  of  its  income,  war  profits  or  excess  profits  taxes,  the  same 
proportion  of  the  sum  of  any  income,  war  profits  or  excess  profits  taxes  paid 
or  accrued  by  such  foreign  corporation  to  any  foreign  country  or  to  any 
possession  of  the  United  States,  upon  or  with  respect  to  the  accumulated 
profits  of  such  corporation  from  which  such  dividends  were  paid,  which  the 
amount  of  any  such  dividends  received  bears  to  the  amount  of  such  accumu- 

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DEDUCTIONS— TAXES. 


lated  profits.  But  in  no  case  shall  such  credit  exceed  the  same  proportion 
of  the  taxes  against  which  it  is  credited,  which  the  amount  of  such  dividends 
bears  to  the  amount  of  the  entire  net  income  of  the  domestic  corporation  in 
which  such  dividends  are  included.  A domestic  corporation  seeking  such 
credit  must  comply  with  those  provisions  of  subdivision  (a)  of  article  383 
[If  1750]  which  are  applicable  to  credits  for  taxes  already  paid,  except  that 
in  accordance  with  article  611  [^[  1758]  the  form  to  be  used  is  Form  1118 
instead  of  Form  1116.  (Art.  612,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Credit  for  foreign  taxes;  taxes  must  actually  have  been  paid  during  year  for  which 
credit  is  to  be  taken  (11-19-388:  T.  B.  R.  36).  . 1919  Cum.  Bull.  p.  237. 

Intercompany  interest  debits  and  credits;  also  withholding  (28-19-616:  O.  D.  330).  . 
1919  Cum.  Bull.  p.  239. 


176  8 Law  If 460.  A Domestic  Corporation  Entitled  to  the  Benefits  of 

(Sec.  238.)  Sec.  262,  Treated  as  a Foreign  Corporation  for  the 
Purposes  of  the  Credit  for  Taxes  Provisions. — “(f) 
For  the  purposes  of  this  section  a corporation  entitled  to  the  benefits  of  section 
262  [^[2070]  shall  be  treated  as  a foreign  corporation.” — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

1769  For  the  purposes  of  section  238  a corporation  entitled  to  the  bene- 
fits of  section  262  is  treated  as  a foreign  corporation.  (Art.  612,  Reg. 

62,  1922  Edition.) 

177  0 Law  1[686.  United  States  Bonds  and  Notes  as  Security  in  Con- 

(Sec.  1329.)  nection  with  “Penal  Bonds.” — “Sec.  1329.  That 
wherever  by  the  laws  of  the  United  States  or  regulations 
made  pursuant  thereto , any  person  is  required  to  furnish  any  recogni- 
zance, stipulation,  bond , guaranty,  or  undertaking,  hereinafter  called  lpenal 
bond,’  with  surety  or  sureties,  such  person  may,  in  lieu  of  such  surety  or 
sureties,  deposit  as  security  with  the  official  having  authority  to  approve  such 
penal  bond,  United  States  Liberty  bonds  or  other  bonds  or  notes  of  the 
United  States  in  a sum  equal  at  their  par  value  to  the  amount  of  such  penal 
bond  required  to  be  furnished,  together  with  an  agreement  authorizing  such 
official  to  collect  or  sell  such  bonds  or  notes  so  deposited  in  case  of  any  default 
in  the  performance  of  any  of  the  conditions  or  stipulations  of  such  penal 
bond.  The  acceptance  of  such  United  States  bonds  or  notes  in  lieu  of 
surety  or  sureties  required  by  law  shall  have  the  same  force  and  effect  as  indi- 
vidual or  corporate  sureties,  or  certified  checks,  bank  drafts,  post-office 
money  orders,  or  cash,  for  the  penalty  or  amount  of  such  penal  bond.  The 
bonds  or  notes  deposited  hereunder  and  such  other  United  States  bonds  or 
notes  as  may  be  substituted  therefor  from  time  to  time  as  such  security,  may 
be  deposited  with  the  Treasurer  of  the  United  States,  a Federal  Reserve 
bank,  or  other  depository  duly  designated  for  that  purpose  by  the  Secretary, 
which  shall  issue  receipt  therefor,  describing  such  bonds  or  notes  so  de- 
posited. As  soon  as  security  for  the  performance  of  such  penal  bond 
is  no  longer  necessary , such  bonds  or  notes  so  deposited,  shall  be  returned 
to  the  depositor:  Provided , * * *.” — Law.  [Note:  The  1918 

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1321  Law  1(492.  Certain  Dividends  Received  are  Deductible. — “(3) 
(Sec.  245).  The  amount  received  as  dividends  (A)  from  a domestic 

corporation  other  than  a corporation  entitled  to  the 
benefits  of  section  262  [1(2070],  or  (B)  from  any  foreign  corporation  when 
it  is  shown  to  the  satisfaction  of  the  Commissioner  that  more  than  50  per 
centum  of  the  gross  income  of  such  foreign  corporation  for  the  three-year 
period  ending  with  the  close  of  its  taxable  year  preceding  the  declaration 
of  such  dividends  (or  for  such  part  of  such  period  as  the  foreign  corporation 
has  been  in  existence)  was  derived  from  sources  within  the  United  States 
as  determined  under  section  217  [1(2102];” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

1322  (1)  The  deduction  allowed  by  section  245  (a)  (3)  for  dividends  re- 
ceived from  other  corporations  is  identical  with  the  deduction 

allowed  other  corporations  by  section  234  (a)  (6).  See  article  561  [1(1617], 

(Art.  685,  Reg.  62,  1922  Edition.) 

1323  Law  1(493.  2%  of  Amount  of  Reserve  for  Certain  Dividends  is 

(Sec.  245.)  Deductible. — “(4)  An  amount  equal  to  2 per  centum 
of  any  sums  held  at  the  end  of  the  taxable  year  as  a reserve 
for  dividends  ( other  than  dividends  payable  during  the  year  following  the 
taxable  year)  the  payment  of  which  is  deferred  for  a period  of  not  less  than 
five  years  from  the  date  of  the  policy  contract — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

/ 1 

1324  The  deduction  for  deferred  dividends  under  section  245  (a)  (4)  will 
be  based  upon  item  37  of  the  liability  page  of  the  annual  statement 

for  life  companies  but  shall  not  include  any  dividend  payable  during  the 

year  immediately  following  the  taxable  year.  (Art.  682,  Reg.  62,  1922 
Edition.) 


1325  Law  1(494.  Investment  Expenses  are  Deductible. — “(5)  Invest- 
(Sec.  245.)  ment  expenses  paid  during  the  taxable  yearU 

1326  Law  1(495.  “ Provided,  That  if  any  general  expenses  are  in  part 

(Sec.  245.)  assigned  to  or  included  in  the  investment  expenses,  the 

total  deduction  under  this  paragraph  shall  not  exceed 
one-fourth  of  1 per  centum  of  the  book  value  of  the  mean  of  the  invested 
assets  held  at  the  beginning  and  end  of  the  taxable  yearf — Law. 

[Note:  These  provisions  are  new  to  the 

1921  Act.] 

1327  If  any  general  expenses  are  in  part  assigned  to  or  included  in  the 
investment  expenses,  the  total  investment  expenses  (other  than  taxes 

and  expenses  with  respect  to  real  estate)  allowable  as  a deduction  shall  not 
exceed  one-quarter  of  1 per  cent  of  the  mean  of  the  book  value  of  the  invested 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TAX  ON  LIFE  INSURANCE  COMPANIES. 


assets  held  at  the  beginning  and  end  of  the  taxable  year.  If  there  be  no  allo- 
cation of  general  expenses  to  investment  expenses  the  deduction  may  consist 
of  investment  expenses  actually  paid  during  the  taxable  year,  in  which  case  an 
itemized  schedule  of  such  expenses  must  be  appended  to  the  return  The 
invested  assets  are  items  1-6,  inclusive,  item  9,  and  items  10  and  1 1 (if  interest- 
bearing  assets)  of  the  asset  page  of  the  annual  statement  for  life  companies, 
and  items  1-4,  inclusive,  item  7,  and  items  27-30,  inclusive  (if  interest-bearing 
assets),  .of  the  asset  page  of  the  annual  statement  for  miscellaneous  stock 
companies.  If  the  method  used  by  any  company  in  ascertaining  the  invest- 
ment expenses  where  there  is  any  allocation  of  general  expenses  shall  be 
changed  so  that  a greater  deduction  is  claimed,  the  company  shall  file  with  its 
return,  information  sufficient  to  enable  the  Commissioner  to  determine  the 
validity  of  the  claim.  The  maximum  allowance  of  one-quarter  of  1 per  cent 
will  not  be  granted  unless  it  is  shown  to  the  satisfaction  of  the  Commissioner 
that  such  allowance  is  justified.  (Art.  683,  Reg.  62,  1922  Edition.) 


1328  Law  *[496.  Certain  Taxes  are  Deductible. — “(6)  Taxes  and  other 
(Sec.  245.)  expenses  paid  during  the  taxable  year  exclusively  upon 

or  with  respect  to  the  real  estate  owned  by  the  company , 
not  including  taxes  assessed  against  local  benefits  of  a kind  tending  to  increase 
the  value  of  the  property  assessed , and  not  including  any  amount  paid  out 
for  new  buildings , or  for  permanent  improvements  or  betterments  made  to 
increase  the  value  of  any  property .” 

1329  Law  If 497.  “ The  deduction  allowed  by  this  paragraph  shall  be 

(Sec.  245.)  allowed  in  the  case  of  taxes  imposed  upon  a shareholder 

or  member  of  a company  upon  his  interest  as  shareholder 
or  member , which  are  paid  by  the  company  without  reimbursement  from 
the  shareholder  or  member,  ” 

1330  Law  *[498.  “ but  in  such  cases  no  deduction  shall  be  allowed  the 

(Sec.  245.)  shareholder  or  member  for  the  amount  of  such  taxes;”  — 

Law.  [Note:  These  provisions  are  new  to  the 

1921  Act.] 

1331  This  deduction  comprises  items  31  and  32  of  the  disbursement  page 
of  the  annual  statement  for  life  companies  and  items  34  and  35  of  the 

disbursement  page  of  the  annual  statement  for  miscellaneous  stock  companies, 
except  as  noted  below,  and  any  sum  included  in  any  other  item  representing 
taxes  imposed  upon  the  individual  shareholders’  or  members’  interest  in  the 
real  estate  of  the  corporation  which  is  paid  by  the  corporation  without  reim- 
bursement from  the  individual  shareholder  or  member.  In  the  latter  case  the 
amount  allowable  as  a deduction  (subject  to  the  provisions  of  art.  686)  shall 
be  that  proportion  of  the  total  tax  imposed  upon  the  individual  shareholders’ 
or  members’  interest  in  the  corporation  which  the  book  value  of  the  real  estate 
owned  by  the  corporation  at  the  end  of  the  taxable  year  is  of  the  book  value 
of  all  the  corporation’s  ledger  assets,  and  so  much  thereof  as  represents  the 
tax  upon  real  estate  occupied  in  whole  or  in  part  by  the  company  must  be 
included  in  the  calculation  referred  to  in  article  686  [^T 1 343].  The  amount  so 
included  shall  be  that  proportion  of  the  total  amount  allowable  as  a deduction 
which  the  book  value  of  the  real  estate  owned  and  occupied  in  whole  or  in 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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GROSS  INCOME. 


1251  Annuities  and  Insurance  Policies. — Annuities  paid  by  religious, 
charitable,  «nd  educational  corporations  under  an  annuity  contract 
are  subject  to  tax  to  the  extent  that  the  aggregate  amount  of  the  payments 
to  the  annuitant  exceeds  any  amounts  paid  by  him  as  consideration  for 
the  contract.  An  annuity  charged  upon  devised  land  is  income  taxable 
to  the  annuitant,  whether  paid  by  the  devisee  out  of  the  rents  of  the  land 
or  from  other  sources.  The  devisee  is  not  required  to  return  as  taxable 
income  the  amount  of  rent  paid  to  the  annuitant,  and  he  is  not  entitled  to 
deduct  from  his  taxable  income  any  sums  paid  to  the  annuitant.  Where  an 
insured  receives  under  life  insurance,  endowment,  or  annuity  contracts  sums 
in  excess  of  the  premiums  paid  therefor,  sucfh  excess  is  income  for  the  year 
of  its  receipt.  See  article  72  [for  proceeds  of  insurance,  ^[1555].  Dis- 
tributions on  paid-up  policies  which  are  made  out  of  earnings  of  the  in^irance 
company  subject  to  tax  are  in  the  natur^  of  corporate  dividends  and  are 

income  of  an  individual  only  for  of  the  suitax.  (Art.  47,  Reg.  45, 

1922  Edition.) 

For  explanation  of  Cur,  v references  see  page  gi. 

Annuity  purchased  for  one  by  an  9:  O.  D.  170). . 1919  Cum.  Bull.  p.  76. 

Assignment  of  policy  (1)  to  some  n insurance  company;  (2)  to  company 

(4-20-701:  0.  D.  379) . .June  ull.  p.  77. 

Exchanging  policies;  one  kind  fo  1 (36-20-1181:  Sol.  Op.  55).  .Dec.  1920 

Cum.  Bull.  p.  54. 

Interest  on  proceeds  of  policies  le  ny  on  exercise  of  option  by  beneficiaries 

(31-20-1101:  O.  D.  612).  .D  . Bull.  p.  120.  See  (1-21-1374:  O.  D. 

767).. June  1921  Cum.  Bull. 

Proceeds  of  endowment  policy  p ly  installments  to  named  beneficiaries 

(47-21-1931:  O.  D.  1108).  .Dec.  11.  p.  92. 


* Securities  transferred  to  a corp  isideration  of  the  fruits  thereof  during 

life  of  transferree  (1-9-113:  .Bull.  I (’22)-9,  p.  8.  See.  (1-25-354: 

I.  T.  1363).  .Bull.  I (’22)-25,  so  involves  conversion  of  securities  into 

cash  and  annual  payment  tc  amount  equivalent  to  5%  of  proceeds: 

1918  and  1921  Acts. 

1252  Improvements  by  Lesse  buildings  are  erected  or  improve- 
ments made  by  a lessee  i of  an  agreement  with  the  lessor, 

and  such  buildings  or  improvem  subject  to  removal  by  the  lessee, 

the  lessor  may  at  his  option  red  >me  therefrom  upon  either  of  the 

following  bases: 

1253  (a)  The  lessor  may  repo  : at  the  time  when  such  buildings 

or  improvements  are  cdn  air  market  value  of  such  buildings 

or  improvements  subject  to  tfye  lease.  Thi$  amount  would  ordinarily  be  the 
difference  between  the  value  of  the  land  ffee  from  the  lease  without  such 
improvements  and  the  value  of  the  land  subject  to  the  lease  with  such  im- 
provements. bp. 


depreciated  value  of  such  buildings  or  improvements  at  the  termina 


by  the  lessor  the  lease  is  terminated,  so  that  the  lessor  comes  into 
possession  or  control  of  the  property  prior  to  the  time  originally  fixed  for  the 
termination  of  the  lease,  the  lessor  receives  additional  income  for  the  year  in 
which  the  lease  is  so  terminated  to  the  extent  that  the  value  of  such  buildings 
or  improvements  when  he  became  entitled  to  such  possession  exceeds  the 
amount  already  reported  as  income  on  account  of  the  erection  of  such  buildings 


1 254  (b)  The  lessor  may  spread  over  the  life  of  the  lease  the  estimated 


tion  of  the  lease  and  report  as  income  for  each  year  of  the  lease  an  aliquot  part 
thereof. 

1 255  If  for  any  other  reason  than  a bona  fide  purchase  from  the  lessee 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
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GROSS  INCOME. 

or  improvements.  No  appreciation  in  value  due  to  causes  other  than  the 
premature  termination  of  the  lease  shall  be  included.  Conversely,  if  the 
buildings  or  improvements  are  destroyed  prior  to  the  expiration  of  the  lease, 
the  lessor  is  entitled  to  deduct  as  a loss  for  the  year  when  such  destruction 
takes  place  the  amount  previously  reported  as  income  because  of  the  erection 
of  such  buildings  or  improvements,  less  any  salvage  value  subject  to  the  lease 
to  .the  extent  that  such  loss  was  not  compensated  for  by  insurance.  If  the 
buildings  or  improvements  destroyed  were  acquired  prior  to  March  1,  1913, 
the  deduction  shall  be  based  on  the  cost  or  the  value  subject  to  the  lease  as  of 
that  date,  whichever  is  lower,  less  any  salvage  value  subject  to  the  lease  to  the 
extent  that  such  loss  was  not  compensated  for  by  insurance.  See  articles  109 
(If  1683]  and  164  [If  1840].  (Art.  48,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Improvements  by  lessee  as  income  to  lessor;  Art.  48,  Reg.  45,  as  amended  by  T D 
3062  construed  and  illustrated  (8-21-1474:  M.  2714).  . June  1921  Cum.  Bull  p'  9o' 
Local  benefit  assessments  paid  by  tenant  (3-20-689:  O.  D.  373)  June  1920  Cum 
Bull.  p.  123. 


1 256  Board  and  Lodging  in  Lieu  of  Rental.— Board,  lodging  or  other  con- 
sideration received  in  lieu  of  rental  is  considered  income  equal  in 
amount  to  the  indebtedness  in  payment  of  which  it  is  received,  and  should 
be  included  in  any  return  of  annual  net  income  its  recipient  is  required  to 
render  under  the  provisions  of  the  income-tax  law.  (T.  D.  2135  Tan  23 
1915.)  J ' ’ 

1 257  Compensation  for  Loss. — In  the  case  of  property  which  has  been 
compulsorily  or  involuntarily  converted  into  cash  or  its  equivalent 
as  a result  of  (a)  its  destruction  in  whole  or  in  part,  (b)  theft  or  seizure,  or 
(c)  an  exercise  of  the  power  of  requisition  or  condemnation  or  the  threat  or 
imminence  thereof,  that  amount  received  by  the  owner  as  compensation  for 
the  property  which  js  in  excess  of  the  cost  of  the  property  (or  other  basis) 
should  be  included  in  gross  income.  However,  the  gain  to  be  included  in 
gross  income  in  the  case  where  the  property  was  acquired  before  March  1, 
1913,  and  its  fair  market  value  as  of  that  date  was  greater  than  its  cost,  is 
the  excess  over  such  value  of  the  amount  received.  No  taxable  gain  results 
when  the  amount  received  is  more  than  the  cost  but  less  than  he  fair  market 
value  of  the  property  as  of  March  1,  1913.  In  any  case  proper  provision  shall 
be  made  for  depreciation  to  the  date  of  the  loss,  damage,  or  transfer.  How- 
ever, if  the  taxpayer  proceeds  forthwith  in  good  faith  to  replace  the  property 
as  provided  in  section  214  (a)  (12,)  see  articles  261-263  [beginning  at  U20341. 
(Art.  49,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  If 2034.] 

1258  Forgiveness  of  Indebtedness.— The  cancellation  and  forgiveness 
of  indebtedness  is  dependent  on  the  circumstances  for  its  effect.  It 
n ay  amount  to  a payment  of  income  or  to  a gift  or  to  a capital  transaction. 
If,  for  example,  an  individual  performs  services  for  a creditor,  who  in  consid- 
eration thereof  cancels  the  debt,  income  to  that  amount  is  realized  by  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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I-ST-B2.  (*)  4-10-22.  (4)  4-21-22.  (4)  5-8-22,  (6)  7-12-22.  (6)  7-27-22.  (7)  8-10-22. 

GROSS  INCOME. 

Labor  union  unemployment  benefits  received  by  members  are  to  be  included  in  gross 
income;  1921  Act  (1-18-248:  I.  T.  1293).  .Bull.  1 (’22)-18,  p.  8. 

Leasehold  (oil  and  gas)  yield,  leasehold  to  be  paid  for  (in  a stated  amount)  in  install- 
ments out  of  the  yield,  plus  assuming  of  income  tax  of  lessors  on  profits,  plus 
interest  (28-21-1723:  O.  D.  971).. Dec.  1921  Cum.  Bull.  p.  80. 

Liberty  bonds:  interest  received  by  banks  on  loans  to  subscribers  for  (1-19-28:  O.  D.  16) 
..1919  Cum.  Bull.  p.  67.  Also  (8-19-331:  O.  D.  192)..  1919  Cum.  Bull.  p.  211. 

Membership  initiation  fees  in  unincorporated  exchange;  special  facts:  1921  Act 

(1-16-223:  I.  T.  1280).  .Bull.  I (’22)-16,  p.  7.  Modified  (1-28-400:  I.  T.  1387) 
. .Bull.  I (’22)-28,  p,  1. 

Mineral  lease:  annual  rentals;  bonusds  where  land  had  no  value  for  mineral  purposes 
on  March  1,  1913  (1-5-56:  A.  R.  M.  148).  . Bull.  I (’22)-5,  p.  14. 

Mineral,  oil  and  gas  rights;  sale  of,  when  acquired  without  consideration  in  prior  pur- 
chase of  land  (35-20-1163:  O.  D. /644) . . Dec.  1920  Cum.  Bull.  p.  89. 

★ Note  payable  in  marks  for  marks  loaned;  profit  by  payment  in  dollars:  1921  Act 
(1-32-447:  I.  T.  1411).. Bull.  I (]22)-32,  p.  2. 

Option  to  purchase  interest  in  patent  royalties;  payment  made  to  bind  (37-21-1813: 
O.  D.  1028).  .Dec.  1921  Cum.  Blull.  p.  83. 

Perpetual  easement  sold  (43-21-1881:  O.  D.  1072).. Bull.  43-21,  p.  13. 

Profits  involuntarily  acquired  (25-19(581:  A.  R.  M.  1). . 1919  Cum.  Bull.  p.  66. 

Profit-sharing  fund  of  employees,  invested  in  firm’s  business,  profit-sharing  certificates 
being  subject  to  cancellation  by  the  firm:  income  from  fund  is  firm’s  (9-20-766: 
S.  1329).  .June  1920  Cum.  Bulf.  p.  69. 

Receiver’s  fees  going  to  third  party:  here,  bank  president  acting  for  insolvent  debtor 
of  bank  on  condition  that  fee^  be  turned  over  to  bank  (35-21-1789:  O.  D.  1009) 
. .Dec.  1921  Cum.  Bull.  p.  81> 

Red  Cross  worker;  no  salary  but  Jnaintenance  (1-19-23:  0.  D.  11)..  1919  Cum.  Bull. 

p.  66.  \ / 

Rescinding  of  illegally  paid  dividend  and  refund  by  stockholders  (20-19-502:  T.  B.  M. 
77).  .1919  Cum.  Bull.  p.  25J 

Rescinding  of  legally  paid  dividipd  and  refund  by  stockholders  (12-19-398:  T.  B.  R. 
42) . . 1919  Cum.  Bull.  p.  65./  \Same  though  no  purported  rescinding  by  corporation 
but  refunding  by  action  of  stockholders  (25-21-1691:  Sol.  Op.  110).. June  1921 
Cum.  Bull.  p.  73. 

Revocable  trust  (32-20-1 116:/  O.  Q.  621).  .Dec.  1920  Cum.  Bull.  p.  202.  Reversal: 
the  income  of  the  instanjt  revocable  trust,  and  generally  when  no  question  of 
fraud  or  intent  to  evade  ’taxatioV  is  not  taxable  to  the  grantor  but  to  the  ben- 
eficiaries of  whom  the  gjantor  rrmy  be  one;  full  discussion:  1916-17,  and  1918 
Acts  (1921  Act)  (1-30-425:  L.  O.  t»102).  .Bull.  I (’22)-30,  p.  5. 

Rhode  Island;  amount  of  tax  assessed  Ygainst  depositor  of  savings  in  national  bank 
but  paid  by  bank  is  income  to  depoJutor:  1921  Act  (1-28-401:  I.  T.  1388).  .Bull. 
I (’22)-28,  p.  3.  \ 

Sale  of  capital  assets  by  one  not  a deicer  therein:  May  taxable  “profit”  arise? 
Supreme  Court  decisions.  . Supplementary  Pages  186,  189,  190,  191,  and  200. 

Profits  not  included  in  returns  for  K>20  (23-21-1674:  Mim.  2791).  .Tune  1921 
Cum.  Bull.  /p.  72. 

Sale  of  farm  in  1910:  partial  payments  and  interest  running  into  years  when  there 
was  income  tax  (35-20-1165:  O.  D.  646)\.Dec.  1920  Cum.  Bull.  p.  90. 

Sale  of  investment  assets:  Is  an  amount  of  realized  capital  increment  “profit?” 
Supreme  Court  decisions ..  Supplementary  Pages  186,  189,  190,  191,  and  200. 

Profits  not  included  in  returns  for  1920  (23-21-1674:  Mim.  2791).  .June  1921 
Cum.  Bull.  p.  72. 

Savings  stamps;  profit  on  sale  (1-19-33:  O.  D.  21). . 1919  Cum.  Bull.  p.  67. 

Scrip  for  bond  interest  (26-20-1032:  O.  D.  563).  .June  1920  Cum.  Bull.  p.  193. 

Spruce  Division;  salary  of  employee  of  (11-19-376:  O.  D.  214). . 1919  Cum.  Bull.  p.  98. 

State  or  municipal  obligations;  discount  on  non-interest  bearing  (13-19-416:  O.  D. 
238)..  1919  Cum.  Bull.  p.  68.  See  however  (35-20-1166:  O.  D.  647).. Dec.  1920 
Cum.  Bull.  p.  123. 

Storage,  etc.,  charges  reimbursed  (in  part)  by  landlord  to  tenant  on  account  antici- 
pated termination  of  lease  (37-21-1812:  A.  R.  R.  617.  .Dec.  1921  Cum.  Bull.  p.  81. 

Strike  benefits  (25-20-1011:  O.  D.  552).  .June  1920  Cum.  Bull.  p.  73. 

Tax-free-covenant  bond  interest;  taxes  paid  by  obligor  for  obligee  on  account  of, 
as  “additional  interest”  to  the  latter  (277  Fed.  123)  (1-5-51:  Ct.  D.  20)..  Bull.  I 
(’22)-5,  p.  8.  Syllabus  at  ^[3 1 1 3 herein. 

Income  and  excess-profits  taxes  paid  by  vendee  for  vendor  as  income  for  latter  (2-20- 
669:  A.  R.  M.  16).  .June  1920  Cum.  Bull.  p.  62. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  *-10-22.  <*)  4-21-22.  (4)  5-8-22.  (6)  7-12-22.  (6)  7-27-22.  (7)  8-10-22. 

GROSS  INCOME— DIVIDENDS. 


Thirty-day  repurchase  of  “substantially  identical”  securities  sold  at  a profit — 1921 
Act  (1-11-141:  I.  T.  1239).  .Bull.  I (’22)-ll,  p.  13. 

Underwriting  profits  income  to  partnership  although  work  undertaken  to  protect 
decedent  member’s  estate  and  profits  all  turned  over  to  estate  (24-20-998:  O.  D. 
542).  .June  1920  Cum.  Bull.  p.  72. 

Use  and  occupancy  insurance  (35-20-1164:  O.  D.  645).  .Dec.  1920  Cum.  Bull.  p.  89. 
Usurious  interest  accrued  on  notes  not  collectible  by  legal  process  (51-21-1979:  O.  D. 
1139).. Dec.  1921  Cum.  Bull.  p.  84. 

Warrants  purchased  at  discount  by  bank  (15-21-1561:  O.  D.  870).. June  1921  Cum 
Bull.  p.  111. 

Witness  for  “State”;  fees  (9-19-338:  O.  D.  195) . . 1919  Cum.  Bull.  p.  67. 


107  6 Gross  Income  of  United  States  Citizens  and  Domestic  Corporations 
from  Sources  within  Possessions  of  the  United  States.— Read 

at  H2070. 


1077  Law  H26.  “Dividends”  Defined. — “Sec.  201.  (a)  That  the 

(Sec.  201.)  term  1 dividend1  when  used  in  this  title  ( except  in  para- 
graph (10)  of  subdivision  (a)  of  section  234  [Hi  351] 

and  paragraph  (4)  of  subdivision  (a)  of  section  245  [Hi 323])  means 
any  distribution  made  by  a corporation  to  its  shareholders  or  members , 
whether  in  cash  or  in  other  property,  out  of  its  earnings  or  profits  accumu- 
lated since  February  28,  1913,” — Law.  [Note:  The  1918  Act  in- 

cluded here  distributions  made  “in 
stock  of  the  corporation”;  “and  para- 
graph (4)  of  subdivision  (a)  of  section 
245”,  life  insurance  companies,  is  new.] 

1078  Law  H27.  Distribution  by  Personal  Service  Corporations. — 

(Sec.  201.)  “ except  a distribution  made  by  a personal  service 

corporation  out  of  earnings  or  profits  accumulated  since 
December  31,  1917,  and  prior  to  January  1,  1922.” — Law.  [Note: 

The  limitation  to  “prior  to  January  1, 
1922”  is  new  to  the  1921  Act.  (Personal 
service  corporations  cease  to  be  dis- 
tinguished on  and  after  January  1, 
1922.)] 

1079  No  Withholding  on  Dividends  in  Any  Event. — Read  at  H2200. 

1080  Dividends. — Dividends  for  the  purpose  of  the  statute  comprise 
any’  distribution  in  the  ordinary  course  of  business,  even  though 

extraordinary  in  amount,  made  by  a domestic  or  foreign  corporation  to 

its  shareholders  out  of  its  earnings  or  profits  accumulated  since  February 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
208 


2-27-22. 


ESTATES  AND  TRUSTS. 


States  and  subject  to  withholding  of  normal  tax  at  the  source.  Interest 
coupons  detached  from  domestic  bonds  should  be  accompanied  by  owner- 
ship certificates,  Form  [1000],  Revised,  -when  presented  for  payment  or 
collection  by  a foreign  fiduciary,  and  the  interest  paid  on  such  coupons 
will  be  subject  to  withholding  of  normal  tax  ‘ ' 1 source,  * * * (Letter  to 
The  Corporation  Trust  Company,  signed  by  nissioner  W.  H.  Osborn, 
and  dated  December  28,  1916.) 

966  Law  ^[333.  Law  Provisions  Applica  Individuals  Apply  to 

(Sec.  225.)  Fiduciaries. — “ Any  fiduc  quired  to  make  a return 


57  General  Law  Provisions  and  Applicable  Regulations  Relative 
Returns. — Read  beginning  ^[2382. 

58  Law  ^[267.  Trust  Created  by  an  Employer  as  Part  of  a Stock 
(Sec.  219.)  Bonus  or  Profit-Sharing  Plan. — “(/)  A trust  created 

by  an  employer  as  a part  of  a stock  bonus  or  profit- 
sharing  plan  for  the  exclusive  benefit  of  some  or  all  of  his  employees , to 
which  contributions  are  made  by  such  employer , or  employees , or  both , 
for  the  purpose  of  distributing  to  such  employees  the  earnings  and  principal 
of  the  fund  accumulated  by  the  t%ust  in  accordance  with  such  plan , shall 

TIOt  b&  fn'rnhlp  ni'virJpr  ilnnc  cerf-inn  55 

39  - ally  distributed  or  made  available 

i ll  be  taxable  to  him  in  the  year  in 

r made  available  to  the  extent  that 

it  exce 


870  all  for  the  purpose  of  the  normal 


m sui  and  (b)  [interest  on  Government 

bonds , 42]  of  section  216.” — Law. 


onus  or  profit-sharing  plan  for  the 
exclusiv  ployees,  to  which  contributions  are 

made  by  both,  for  the  purpose  of  distributing 

to  such  ipal  of  the  fund  accumulated  by  the 

trust  in  accordance  with  such  plan,  shall  not  be  taxable  under  this  section, 
but  the  amount  actually  distributed  or  made  available  to  any  distributee  shall 
be  taxable  to  him  in  the  year  in  which  so  distributed  or  made  available  to  the 
extent  that  it  exceeds  the  amounts  paid  in  by  him.  Such  distributees  shall 
for  the  purpose  of  the  normal  tax  be  allowed  as  credits  that  part  of  the 
amount  so  distributed  or  made  available  as  represents  the  dividend  and 
interest  items  specified  in  subdivisions  (a)  [H2039]  and  (b)  [^[2042]  of  section 
216.  (Art.  348,  Reg.  62,  1922  Edition.) 


Act  which  apply  to  individuals  A — Law. 


under  this  Act  shall  be  sul  all  the  provisions  of  this 

o individuals .” — Law.  ote:  The  1918  Act  so 


provided.] 


971  i 'ovides  that  a trust  created  by  an 


tax  be  allowed  as  Credits  that  part  of  the  amount  so  dis- 
tributed or  mhde  available  as  represents  the  items  specified 


f |t\ott:  These  provisions  are  new  to  the 

1921  Act.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
175 


TAX  ON  CORPORATIONS. 


972  Law  5358.  Tax  on  Corporations. — “Sec.  230.  That,  in  lieu  of  the 
(Sec.  230.)  tax  imposed  by  section  230  of  the  Revenue  Act  of  1918, 

there  shall  be  levied,  collected,  and  paid  for  each  taxable 
year  upon  the  net  income  of  every  corporation  a tax  at  the  following  rates:” 

— Law.  [Note:  The  1918  Act  so  provided.] 

973  Law  5359.  Tax  Rates  for  1921  Applicable  to  Corporations. — 

(Sec.  230.)  “( a ) For  the  calendar  year  1921,  10  per  centum  of  the 

amount  of  the  net  income  in  excess  of  the  credits  provided 
in  section  236  [^2056] — Law.  [Note:  The  1918  Act  so  provided.] 

974  Law  5360.  Tax  Rates  for  1922  Applicable  to  Corporations. — 

(Sec.  230.)  “(b)  For  each  calendar  year  thereafter  [i.  e.,  after  1921], 

\2}/2  per  centum  of  such  excess  amount — Law. 

[Note:  The  rate  imposed  by  the  1918 
Act,  for  1919  and  each  year  thereafter, 
was  10%.] 

975  The  statute  imposes  an  income  tax  at  a fixed  rate  on  all  corpora- 
tions not  expressly  exempt.  See  section  231  of  the  statute  [for 

exempt  corporations,  51004].  The  tax  is  upon  net  income,  as  defined  in  the 
statute,  after  deducting  from  gross  income,  as  defined  in  the  statute,  the 
allowable  deductions.  Certain  credits  are  allowed  against  net  income 
and  against  the  amount  of  the  tax.  The  tax  is  payable  upon  the  basis  of 
returns  rendered  by  the  corporations  liable  thereto,  except  that  in  some 
cases  it  is  to  be  paid  at  the  source  of  the  income.  The  statute  continues  in 
effect  for  the  calendar  year  1921  the  war  profits  and  excess  profits  tax  on 
corporations.  (Art.  501,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1909  Act;  deducting  interest  on  basis  of  full  amount  received  for  capital  stock  sold  at 
premium  (3-21-1400:  Ct.  D.  3).  .June  1921  Cum.  Bull.  p.  256. 


97©  The  income  tax  on  corporations  is  at  the  rate  of  10  per  cent  of  the 
net  income  subject  to  tax  for  the  calendar  year  1921  and  at  the 
rate  of  12)^  per  cent  of  the  net  income  subject  to  tax  for  the  calendar  year 
1922  and  subsequent  years.  In  order  to  determine  the  amount  subject  to 
tax  the  net  income,  as  defined  in  section  232  of  the  statute  and  article  531 
[51043]  of  the  regulations,  is  first  entitled  to  the  credits  specified  in  section 
236  of  the  statute  and  article  591  [512067] . (Art.  502,  Reg.  62,  1922  Edition.) 

97  7 Application  of  the  Rates  for  Fiscal  Year  Embracing  Parts  of  Cal- 

endar Years  with  Different  Rates.— Read  at  5361. 

©78  Corporations  Liable  to  Tax. — Every  corporation,  domestic  or  foreign, 
not  exempt  under  section  231  [51004]  of  the  statute,  is  liable  to  the 
tax.  It  makes  no  difference  that  a domestic  corporation  (unless  entitled  to 
the  benefits  of  section  262  [52070])  may  receive  no  income  from  sources 
within  the  United  States.  On  the  other  hand,  a foreign  corporation  is 
taxed  only  on  its  income  from  sources  within  the  United  States.  See  section 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


2-27-22. 


THE  INCOME  TAX  LAW. 


{262. 


Law 

Paragraph 

H613  and  in  such  case  the  tax  shall  be  computed  and  paid  in  the  same 
manner  and  subject  to  the  same  conditions  as  in  the  case  of  other 
persons  who  are  taxable  only  as  to  income  derived  from  such 
sources. 


Repeated 
at  "f 

767 


1f614  Nothing  in  this  section  shall  be  construed  to  alter  or  amend  768 
the  provisions  of  the  Act  entitled  “An  Act  making  appropriations 
for  the  naval  service  for  the  fiscal  year  ending1  June  30,  1922,' and 
for  other  purposes,”  approved  July  12,  1921,  relating  to'the 
imposition  of  income  taxes  in  the  Virgin  Islands  of  the  United 
States. 

Porto  Rico  and  Philippine  Islands. 

1[615  Sec.  261.  That  in  Porto  Rico,  and  the  Philippine  Islands  771 

the  income  tax  shall  be  levied,  assessed,  collected,  and  paid  as 
provided  by  law  prior  to  the  passages  of  this  Act. 

H616  The  Porto  Rican  or  Philippine  Legislature  shall  have  772 
power  by  due  enactment  to  amend,  alter,  modify,  or  repeal  the 
income  tax  laws  in  force  in  Porto/Rico  or  the  Philippine  Islands, 
respectively. 

Income  From  Sources  Within  the  Possessions  of  the 
United  States. 

1f617  Sec.  262.  (a)  That  in  t/*e  case  of  citizens  of  the  United  2070 
States  or  domestic  corporations,  satisfying  the  following  con- 
ditions, gross  income  means'on^y  gross  income  from  sources  with- 
in the  United  States — 

1[618  (1)  If  80  per  centum  or  m^re  of  the  gross  income  of  such  2071 

citizen  or  domestic  corporation  (computed  without  the  benefit  of 
this  section)  for  the  three-year  period  immediately  preceding  the 
close  of  the  taxable  year  (or  fofi  such  part  of  such  period  im- 
mediately preceding  the  close  of  such  taxable  year  as  may  be  ap- 
plicable) was  derived  from  sources  within  a possession  of  the 
United  States;  and  / 

H619  (2)  If,  in  the  case  of  such  corporation,  50  per  centum  or  2072 

more  of  its  gross  income  (computed  without  the  benefit  of  this 
section)  for  such  period  or  such  part  thereof  was  derived  from 
the  active  conduct  of  a trade  or  business  within  a possession  of 
the  United  States;  or 

H620  (3)  If,  in  the  case  of  such  citizen,  50  per  centum  or  more  of  2073 

his  gross  income  (computed  without  the  benefit  of  this  section) 
for  such  period  or  such  part  thereof  was  derived  from  the  active 
conduct  of  a trade  or  business  within  a possession  of  the  United 
States  either  on  his  own  account  or  as  an  employee  or  agent  of 
another. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THB  lESOA L INCOME  TAX  SEETICK 

n 


§1307. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law  Repeated 

Paragraph  at  U 

^[621  (b)  Notwithstanding  the  provisions  of  subdivision  (a)  there  2074 

shall  be  included  in  gross  income  all  amounts  received  by  such 
citizens  or  corporations  within  the  United  States,  whether 
derived  from  sources  within  or  without  the  United  States. 

^[622  (c)  As  used  in  this  section  the  term  “possession  of  the  2075 

United  States”  does  not  include  the  Virgin  Islands  of  the  United 
States. 

Effective  Date  of  [Income  Tax]  Title. 

^[623  Sec.  263.  That  this  title  shall  take  effect  as  of  January  1,  1921.  3004 

TITLE  XIII.— GENERAL  ADMINISTRATIVE  PROVISIONS. 

[Of  the  Revenue  Act  of  1921.] 

Laws  Made  Applicable. 

1f624  Sec.  1300.  (Revenue  Act  of  1921.)  That  all  administrative,  2709 
special,  or  stamp  provisions  of  law,  including  the  law  relating  to 
the  assessment  of  taxes,  so  far  as  applicable,  are  hereby  extended 
to  and  made  a part  of  this  Act,  and  every  person  liable  to  any  tax 
imposed  by  this  Act,  or  for  the  collection  thereof,  shall  keep  such 
records  and  render,  under  oath,  such  statements  and  returns, 
and  shall  comply  with  such  regulations  as  the  Commissioner, 
with  the  approval  of  the  Secretary,  may  from  time  to  time  pre- 
scribe. 

Rules  and  Regulations. 

^[625  Sec.  1303.  (Revenue  Act  of  1921.)  That  the  Commissioner,  2942 
with  the  approval  of  the  Secretary,  is  hereby  authorized  to  make 
all  needful  rules  and  regulations  for  the  enforcement  of  the  pro- 
visions of  this  Act.  * * * 

Fractional  Parts  of  a Cent. 

^626  Sec.  1306.  (Revenue  Act  of  1921.)  y*  That  in  the  pay-  2788 

ment  of  any  tax  under  this  Act  not  payable  by  stamp  a frac- 
tional part  of  a cent  shall  be  disregarded  unless  it  amounts 
to  one-half  cent  or  more,  in  which  case  it  shall  be  increased  to 
1 cent. 

Returns. 

1f627  Sec.  1307.  (Revenue  Act  of  1921.)  That  whenever  in  2592 

the  judgment  of  the  Commissioner  necessary  he  may  require 
any  person,  by  notice  served  upon  him,  to  make  a return  or 
such  statements  as  he  deems  sufficient  to  show  whether  or 
not  such  person  is  liable  to  tax. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


76 


2-27-22. 


THE  INCOME  TAX  LAW. 


§244. 


Law 

Paragraph 


Time  and  Place  for  Filing  Corporate  Returns. 


Repeated 
at  1 


^[479  Sec.  241.  (a)  That  returns  of  corporations  shall  be  made  at  2523 

the  same  time  as  is  provided  in  subdivision  (a)  of  section  227, 

1(480  except  that  in  the  case  of  foreign  corporations  not  1419 

having  any  office  or  place  of  business  in  the  United 
States  returns  shall  be  made  at  the  same  time  as 
provided  in  section  227  in  the  case  of  a nonresident 
alien  individual. 

1(481  (b)  Returns  shall  be  made  to  the  collector  of  the  district  in  1421 

which  is  located  the  principal  place  of  business  or  principal  2532 
office  or  agency  of  the  corporation,  or, 

K482  if  it  has  no  principal  place  of  business  or  principal  office  or  1422 
agency  in  the  United  States  then  to  the  collector  at  Baltimore,  1533 
Maryland. 

[Tax  on  Life  Insurance  Companies.] 

\ I 

K483  Sec.  242.  That  when  used  in  this  title  the  term  “life  in-  1309 

surance  company”  means  an  insurance  company  engaged  in  the 
business  of  issuing  life  insurance  and  annuity  contracts  (includ- 
ing contracts  of  combined  life,  health,  and  accident  insurance), 
the  reserve  funds  of  which  held  for  the  fulfillment  of  such 
contracts  comprise  more  than  50  per  centum  of  its  total  reserve 
funds. 

XI 

K484  Sec.  243.  That  in  Neu  of  the  taxes  imposed  by  sections  230  1310 

and  1000  and  by  Title  III,  there  shall  be  levied,  collected,  and 
paid  for  the  calendar  year  1921  and  for  each  taxable  year 
thereafter  upon  the  net  income  of  every  life  insurance  company 
a tax  as  follows: 

K485  (1)  In  the  case  of  d domestic  life  insurance  company,  the  1311 

same  percentage  of  its;:  net  iWome  as  is  imposed  upon  other 
corporations  by  section  230; 

i 

^486  (2)  In  the  case  of  a foreign  life  insurance  company,  the  1312 

same  percentage  of  its  net  income  from  sources  within  the 
United  States  as  is  imposed  upoh  the  net  income  of  other  cor- 
porations by  section  230. 

\ 

\ 

K487  Sec.  244.  (a)  That  in  the  case  of  a life  insurance  company  1314 

the  term  “gross  income”  means  the  gross  amount  of  income 
received  during  the  taxable  year  from  interest,  dividends,  and 
rents. 

^488  (b)  The  term  “reserve  funds  required  by  law”  includes,  in  1319 

the  case  of  assessment  insurance,  sums  actually  deposited 
by  any  company  or  association  with  State  or  Territorial  officers 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


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§245. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 

(11488)  pursuant  to  law  as  guaranty  or  reserve  funds,  and  any  funds 
maintained  under  the  charter  or  articles  of  incorporation  of 
the  company  or  association  exclusively  for  the  payment  of  claims 
arising  under  certificates  of  membership  or  policies  issued 
upon  the  assessment  plan  and  not  subject  to  any  other  use. 


Repeated 

at 

1319 


1j489  Sec.  245.  (a)  That  in  the  case  of  a life  insurance  company  1316 

the  term  “net  income”  means  the  gross  income  less — 

11490  (1)  The  amount  of  interest  received  during  the  taxable  year  1317 

which  under  paragraph  (4)  of  subdivision  (b)  of  section  213  is 
exempt  from  taxation  under  this  title. 

1f491  (2)  An  amount  equal  to  the  excess,  if  any,  over  the  deduction  1318 

specified  in  paragraph  (1)  of  this  subdivision,  of  4 per  centum 
of  the  mean  of  the  reserve  funds  required  by  law  and  held  at 
the  beginning  and  end  of  the  taxable  year,  plus  (in  case  of  life 
insurance  companies  issuing  policies  covering  life,  health,  and 
accident  insurance  combined  in  one  policy  issued  on  the  weekly 
premium  payment  plan,  continuing  for  life  and  not  subject  to 
cancellation)  4 per  centum,  of  the  mean  of  such  reserve  funds  (not 
required  by  law)  held  at  the  beginning  and  end  of  the  taxable 
year,  as  the  Commissioner  finds  to  be  necessary  for  the  pro- 
tection of  the  holders  of  such  policies  only; 

11492  (3)  The  amount  received  as  dividends  (A)  from  a domestic  1321 

corporation  other  than  a corporation  entitled  to  the  benefits  of 
section  262,  or  (B)  from  any  foreign  corporation  when  it  is  shown 
to  the  satisfaction  of  the  Commissioner  that  more  than  50  per 
centum  of  the  gross  income  of  such  foreign  corporation  for  the 
three-year  period  ending  with  the  close  of  its  taxable  year  pre- 
ceding the  declaration  of  such  dividends  (or  for  such  part  of  such 
period  as  the  foreign  corporation  has  been  in  existence)  was 
derived  from  sources  within  the  United  States  as  determined 
under  section  217 ; 


If 493  (4)  An  amount  equal  to  2 per  centum  of  any  sums  held  at  1323 

the  end  of  the  taxable  year  as  a reserve  for  dividends  (other 
than  dividends  payable  during  the  year  following  the  taxable 
year)  the  payment  of  which  is  deferred  for  a period  of  not  less 
than  five  years  from  the  date  of  the  policy  contract; 

1|494  (5)  Investment  expenses  paid  during  the  taxable  year:  1325 

1f495  Provided , That  if  any  general  expenses  are  in  part  1326 

assigned  to  or  included  in  the  investment  expenses , the 
total  deduction  under  this  paragraph  shall  not  exceed 
one-fourth  of  1 per  centum  of  the  book  value  of  the  mean 
of  the  invested  assets  held  at  the  beginning  and  end  of  the 
taxable  y ear\ 

1f496  (6)  Taxes  and  other  expenses  paid  during  the  taxable  year  1328 

exclusively  upon  or  with  respect  to  the  real  estate  owned  by  j 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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60 


2-27-22. 


THE  INCOME  TAX  LAW. 


§240. 


Law 

Paragraph 

11460 


(f)  For  the  purposes  of  this  section  a corporation  entitled 
to  the  benefits  of  section  262  shall  be  treated  as  a foreign 
corporation. 


Repeated 
at  ! 

1768 


11 46 1 


*1462 


11463 


H464 


11465 

11466 


H467 


H468 


Corporation  Returns. 

Sec.  239.  (a)  That  every  corporation  subject  to  taxation  2487 

under  this  title  and  every  personal  service  corporation  shall 
make  a return,  stating  specifically  the  items  of  its  gross  income 
and  the  deductions  and  credits  allowed  by  this  title. 

The  return  shall  be  sworn  to  by  th<3  president,  vice-president,  2510 
or  other  principal  officer  and  by  the  treasurer  or  assistant 
treasurer. 

If  any  foreign  corporation  has  no  qjffice  or  place  of  business  in  1420 
the  United  States  but  has  an  agent  in  the  United  States,  the 
return  shall  be  made  by  the  agent. 

K 

In  cases  where  receivers,  trustees  n bankruptcy,  or  assignees  2499 
are  operating  the  property,  or  business  of  corporations,  such 
receivers,  trustees,  or  assignees  shall  make  returns  for  such 
corporations  in  the  same  manner  a^d  form  as  corporations  are 
required  to  make  returns.  Any  t£x  due  on  the  basis  of  such 
returns  made  by  receivers,  trus  :ees,  or  assignees  shall  be 
collected  in  the  same  manner  as  i;  collected  from  the  corpora- 
tions of  whose  business  or  property 'they  have  custody  and 
control. 


A 


(b)  Returns  made  under  thisl  section  ^hall  be  subject  to 
the  provisions  of  sections  226  aijd  228. 

When  return  is  made  under  section  226  the  credit  provided  in 
subdivision  (b)  of  section  236  siiall  be  reduced  to  an  amount 
which  bears  the  same  ratio  to  the  full  credit  therein  provided 
as  the  number  of  months  in  the  period  for  which  such  return 
is  made  bears  to  twelve  months. 

(c)  There  shall  be  included  in  the  return  or  appended  there- 
to a statement  of  such  facts  as1  will  enable  the  Commissibner 
to  determine  the  portion  of  the1  earnings  or  profits  of  the  cor- 
poration (including  gains,  profits  and  income  not  taxed) 
accumulated  during  the  taxable  year  for  which  the  return  is 
made,  which  have  been  distributed  or  ordered  to  be  distributed, 
respectively,  to  its  stockholders  or  members  during  such  year. 

Consolidated  Returns  of  Corporations. 

Sec.  240.  (a)  That  corporations  which  are  affiliated  with- 

in the  meaning  of  this  section  may,  for  any  taxable  year  begin- 
ning on  or  after  January  1,  1922,  make  separate  returns 


2488 


2573 


2508 


2539 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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57 


{240. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law  Repeated 

Paragraph  at  H 

1469  or,  under  regulations  prescribed  by  the  Commissioner  with  2540 
the  approval  of  the  Secretary,  make  a consolidated  return  of 
net  income  for  the  purpose  of  this  title,  in  which  case  the  taxes 
thereunder  shall  be  computed  and  determined  upon  the  basis 
of  such  return. 


1470 


If  return  is  made  on  either  of  such  bases,  all  returns  thereafter 
made  shall  be  upon  the  same  basis  unless  permission  to  change 
the  basis  is  granted  by  the  Commissioner. 


2541 


1471  (b)  In  any  case  in  which  a tax  is  assessed  upon  the  basis  of  2549 

a consolidated  return,  the  total  tax  shall  be  computed  in  the 
first  instance  as  a unit  and  shall  then  be  assessed  upon  the 
respective  affiliated  corporations  in  such  proportions  as  may 
be  agreed  upon  among  them, or,  in  the  absence  of  any  such  agree- 
ment, then  on  the  basis  of  the  net  income  properly  assignable  to 
each. 


1472  There  shall  be  allowed  in  computing  the  income  tax  only  one  2550 
specific  credit  computed  as  provided  in  subdivision  (b)  of  section 
236. 


1473  (c)  For  the  purpose  of  this  section  two  or  more  domestic  2552 
corporations  shall  be  deemed  to  be  affiliated 

1474  (1)  if  one  corporation  owns  directly  or  controls  through  closely  2553 
affiliated  interests  or  by  a nominee  or  nominees  substantially 

all  the  stock  of  the  other  or  others,  or 


1475  (2)  if  substantially  all  the  stock  of  two  or  more  corporations  is  2554 

owned  or  controlled  by  the  same  interests. 


1476  (d)  For  the  purposes  of  this  section  a corporation  entitled  to  2558 
the  benefits  of  section  262  shall  be  treated  as  a foreign  corpora- 
tion: 

1477  Provided , Thai  in  any  case  of  two  or  more  related  trades  2560 
or  businesses  ( whether  unincorporated  or  incorporated 

and  whether  organized  in  the  United  States  or  not) 
owned  or  controlled  directly  or  indirectly  by  the  same 
interests,  the  Commissioner  may  consolidate  the  accounts 
of  such  related  trades  and  businesses,  in  any  proper  case, 
for  the  purpose  of  making  an  accurate  distribution  or 
apportionment  of  gains,  profits,  income,  deductions,  or 
capital  between  or  among  such  related  trades  or  businesses. 

1478  (e)  Corporations  which  are  affiliated  within  the  meaning  of  2542 
this  section  shall  make  consolidated  returns  for  any  taxable  year 
beginning  prior  to  January  1,  1922,  in  the  same  manner  and 
subject  to, the  same  conditions  as  provided  by^the  Revenue 
Acttof  1918. 

Copyright  1922,  by  Tht  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


(ft 

% 

» 


58 


2-27-22. 


THE  INCOME  TAX  LAW. 


§234. 


Law 

Paragraph 

(If 388) 


Repeated 
at  t 

1687 


payer)  the  interest  upon  which  is  wholly  exempt  from 
taxation  under  this  title; 

1389  (3)  Taxes  paid  or  accrued  within  the  taxable  year  except  1700 

1390  (a)  income,  war-profits,  and  exces/s-profits  taxes  im-  1701 

posed  by  the  authority  of  the  United  States, 

1391  (b)  so  much  of  the  income,  war-profits  and  excess-  1702 

profits  taxes  imposed  by  the  authority  of  any  foreign 

country  or  possession  of  the  United  States  as  is  allowed 
as  a credit  under  section  238,  and 

\ / 

If 392  (c)  taxes  assessed  against  local  benefits  of  a kind  tend-  1715 

ing  to  increase  the  value  of  the  property  assessed. 

^[393  In  the  case  of  obligors  specified  in  subdivision  (b)  1722 

of  section  221  no  deduction  Ijor  the  payment  of  the 
tax  imposed  by  this  title,  or  any  other  tax  paid  pur- 
suant to  the  contract  or  provision  referred  to  in  that 
subdivision,  shall  be  allowed 

1394  nor  shall  such  tax  be  jtacfpded  in  the  gross  1724 

income  of  the  obligee. 

1395  The  deduction  allowed  by  thi?  paragraph  shall  be  allowed  in  1719 
the  case  of  taxes  imposed  upon  a shareholder  or  member  of  a 
corporation  upon  his  interest  as  shareholder  or  member,  which 
are  paid  by  *he  corporation  without  reimbursement  from  the 
shareholder  or  member, 

1396  but  in  sucn  cases  no  deduction  shaH  be  allowed  the  1720 

shareholder  or  member  for  the  amount  of  such  taxes. 

ocHtosi2ii&2  ant  oj 

1397  For  the  purpose  of  this  paragraph,  estate,  inheritance,  legacy,  1727 
and  succession  taxes  accrue  on  the  due  date  thereof  except  as 
otherwise  provided  by  the  law  of  the  jurisdiction  imposing  such 
taxes; 

1398  (4)  Losses  sustained  during  the  taxable  year  and  not  com-  1777 
pensated  for  by  insurance  or  otherwise; 

1399  unless,  in  order  to  clearly  reflect  the  income,  the  loss  1785 

should  in  the  opinion  of  the  Commissioner  be  ac- 
counted for  as  of  a different  period. 

1400  No  deduction  shall  be  allowed  for  any  loss  claimed  to  have  been  1789 
sustained  in  any  sale  or  other  disposition  of  shares  of  stock 

or  securities  made  after  the  passage  of  this  Act  where  it  ap- 
pears that  within  30  days  before  or  after  the  date  of  such  sale 
or  other  disposition  the  taxpayer  has  acquired  (otherwise  than 
by  bequest  or  inheritance)  substantially  identical  property, 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


49 


§234. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 

(If 400)  and  the  property  so  acquired  is  held  by  the  taxpayer  for  any 
period  after  such  sale  or  other  disposition, 


Repeated 
at  H 

1789 


If  401  unless  such  claim  is  made  by  a dealer  in  stock  or 

securities  and  with  respect  to  a transaction  made  in 
the  ordinary  course  of  its  business. 

1f402  If  such  acquisition  is  to  the  extent  of  part  only  of  substantially 
identical  property,  then  only  a proportionate  part  of  the  loss 
shall  be  disallowed. 

If 403  In  case  of  losses  arising  from  destruction  of  or  damage  to 
property,  where  the  property  so  destroyed  or  damaged  was 
acquired  before  March  1,  1913,  the  deduction  shall  be  computed 
upon  the  basis  of  its  fair  market  price  or  value  as  of  March 
1,  1913; 

1f404  (5)  Debts  ascertained  to  be  worthless  and  charged  off 

within  the  taxable  year 

H405  (or  in  the  discretion  of  the  Commissioner,  a reasonable 

addition  to  a reserve  for  bad  debts); 

1f406  and  when  satisfied  that  a debt  is  recoverable  only  in  part,  the 
Commissioner  may  allow  such  debt  to  be  charged  off  in  part; 

1f407  (6)  The  amount  received  as  dividends 

1f408  (A)  from  a domestic  corporation  other  than  a corpora- 

tion entitled  to  the  benefits  of  section  262,  or 

11409  (B)  from  any  foreign  corporation  when  it  is  shown 

to  the  satisfaction  of  the  Commissioner  that  more 
than  50  per  centum  of  the  gross  income  of  such  foreign 
corporation  for  the  three-year  period  ending  with  the 
close  of  its  taxable  year  preceding  the  declaration  of 
such  dividends  (or  for  such  part  of  such  period  as  the 
foreign  corporation  has  been  in  existence)  was  derived 
from  sources  within  the  United  States  as  determined 
under  section  217; 

1f410  (7)  A reasonable  allowance  for  the  exhaustion,  wear  and 

tear  of  property  used  in  the  trade  or  business,  including  a 
reasonable  allowance  for  obsolescence. 

H411  In  the  case  of  such  property  acquired  before  March  1,  1913,  this 
deduction  shall  be  computed  upon  the  basis  of  its  fair  market 
price  or  value  as  of  March  1,  1913: 

H412  (8)  In  the  case  of  buildings,  machinery,  equipment,  or 

other  facilities,  constructed,  erected,  installed,  or  acquired,  on 

Copyright  1922,  by  The  Corporation  Trust  Compmmy, 

THE  FEDERAL  INCOME  TAX  SERVICE 


1790 


1791 


1782 


1807 

1821 

1809 

1824 

1825 

1826 


1829 

1830 
1861 

% 


50 


2-27-22. 


THE  INCOME  TAX  LAW. 


§229. 


Law 

Paragraph 


Repeated 
at  H 


(1f347)  be  increased,  and  upon  proof  of  the  amount  understated,  may  2577 
increase  the  same  accordingly. 

1f348  Such  taxpayer  may  furnish  sworn  testimony  to  prove  any  2578 
relevant  facts  and  if  dissatisfied  with  the  decision  of  the  col- 
lector may  appeal  to  the  Commissioner  for  his  decision,  under 
such  rules  of  procedure  as  may  be  prescribed  by  the  Commis- 
sioner with  the  approval  of  the  Secretary. 


tion  within  four  months  after  the  passage  of  this  Act  of  any 


net  income  of  a corpora- 

11352  nvested  capital  of  such  998 

if  such  corporation  had 


f353  gs  of  such  trade  or  busi-  999 

s imposed  in  section  211, 

^[354  anuary  1,  1921,  from  the  1000 

siness  accumulated  after 
> the  recipients  as  divi- 

^[355  I relating  to  corporations  1001 

h trade  or  business: 


of  the  Revenue  Act  of  1918  as  if  such  taxpayer  had  been 
a corporation  on  and  after  January  1,  1921. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

45 


Incorporation  of  Individual  or  Partnership  Business. 


I 


trade  or  business  in  which  capital  is  a material  income-produc- 
ing factor, 


^350  and  which  was  previously  owned  by  a partnership  or  individual,  996 


^[351  the  net  income  of  such  trade  or  business  from  January  1,  1921,  997 

n»M«w<itinn  rrm r at  the  option  of  the  in- 


ary  1,  1921, 


1f356  Provided , That  this  section  shall  not  apply  to  any  trade  1002 

or  business , the  net  income  of  which  for  the  taxable  year 
1921  was  less  than  20  per  centum  of  its  invested  capital 


for  such  year-. 


^357  Provided  further,  That  any  taxpayer  who  takes]  advantage  1003 

of  this  section  shall  pay  the  tax  imposed  by  section  1000 


§231. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law 

Paragraph 


Repeated 
at  *[ 


Part  III.— Corporations. 
Tax  on  Corporations. 


1358  Sec.  230.  That,  in  lieu  of  the  tax  imposed  by  section  230  972 


of  the  Revenue  Act  of  1918,  there  shall  be  levied,  collected, 
and  paid  for  each  taxable  year  upon  the  net  income  of  every 
corporation  a tax  at  the  following:  rates: 

1359  (a)  For  the  calendar  year  1921,  10  per  centum  of  the  973 

amount  of  the  net  income  in  excess  of  the  credits  provided  in 
section  236;  and 

^360  (b)  For  each  calendar  year  thereafter,  12^  per  centum  of  974 

such  excess  amount. 

Conditional  and  Other  Exemptions  of  Corporations. 

1361  Sec.  231.  That  the  following  organizations  shall  be  1004 
exempt  from  taxation  under  this  title — 

1362  (T)  Labor,  agricultural,  or  horticultural  organizations;  1005 

1363  (2)  Mutual  savings  banks  not  having  a capital  stock  repre-  1006 
sented  by  shares; 

1364  (3)  Fraternal  beneficiary  societies,  orders,  or  associations,  1007 
(a)  operating  under  the  lodge  system  or  for  the  exclusive 
benefit  of  the  members  of  a fraternity  itself  operating  under 

the  lodge  system;  and  (b)  providing  for  the  payment  of  life, 
sick,  accident,  or  other  benefits  to  the  members  of  such  society, 
order,  or  association  or  their  dependents; 

1365  (4)  Domestic  building  and  loan  associations  substantially  all  1008 
the  business  of  which  is  confined  to  making  loans  to  members; 

and  co-operative  banks  without  capital  stock  organized  and 
operated  for  mutual  purposes  and  without  profit; 

1366  (5)  Cemetery  companies  owned  and  operated  exclusively  1009 
for  the  benefit  ot  their  members  or  which  are  noi  operated 

for  profit;  and  any  corporation  chartered  solely  for  burial 
purposes  as  a cemetery  corporation  and  not  permitted  by  its 
charter  to  engage  in  any  business  not  necessarily  incident 
to  that  purpose,  no  part  of  the  net  earnings  of  which  inures 
to  the  benefit  of  any  private  stockholder  or  individual; 

1367  (6)  Corporations,  and  any  community  chest,  fund,  or  1010 
foundation,  organized  and  operated  exclusively  for  religious, 
charitable,  scientific,  literary,  or  educational  purposes,  or  for 

the  prevention  of  cruelty  to  children  or  animals,  no  part  of 
the  net  earnings  of  which  inures  to  the  benefit  of  any  private 
stockholder £or  individual; 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


46 


2-27-22. 


THE  INCOME  TAX  LAW. 


§216. 


Law 

Paragraph 


Repeated 
at  H 


Items  not  Deductible. 


1 88  Sec.  215.  (a)  That  in  computing  net  income  no  deduction  1620 

shall  in  any  case  be  allowed  in  respect  of — 

11189  (1)  Personal,  living,  or  family  expenses;  1622 

111 90  (2)  Any  amount  paid  out  for  new  buildings  or  for  perma-  1628 
nent  improvements  or  betterments  made  to  increase  the  value 

of  any  property  or  estate; 

^191  (3)  Any  amount  expended  in  restoring  property  or  in  making  1629 

good  the  exhaustion  thereof  for  which  an  allowance  is  or  has 
been  made;  or 

«t 292  (4)  Premiums  paid  on  any  life  insurance  policy  covering  the  163S 

life  of  any  officer  or  employee,  or  of  any  person  financially  in- 
terested in  any  trade  or  business  carried  on  by  the.  taxpayer, 
when  the  taxpayer  is  directly  or  indirectly  a beneficiary  under 
such  policy. 

193  (b)  Amounts  paid  under  the  laws  of  any  State,  Territory,  914 

District  of  Columbia,  possession  of  the  United  States,  or  foreign 
country  as  income  to  the  holder  of  a life  or  terminable  interest 
acquired  by  gift,  bequest,  or  inheritance  shall  not  be  reduced  or 
diminished  by  any  deduction  for  shrinkage  (by  whatever  name 
called)  in  the  value  of  such  interest  due  to  the  lapse  of  time, 
nor  by  any  deduction  a the  purpose  of 

computing  the  net  incoir  t.^utfn°t  allowed 

under  the  laws  of  such  f tict  of  Columbia, 

possession  of  the  United  mtry  for  the.  pur- 
pose of  computing  the  ir  holder  is  entitled. 


tion  entitled  to  the  ->  or 

(2)  from  a foreign  c„.r shown  to  the 

satisfaction  of  the  Commissioner  that  more  than  50  per 
centum  of  the  gross  income  of  such  foreign  corporation 
for  the  three-year  period  ending  with  the  close  of.  its 
taxable  year  preceding  the  declaration  of  such  divi- 
dends (or  for  such  part  of  such  period  as  the  corpora- 
tion has  been  in  existence)  was  derived  from  sources 
within  the  United  States  as  determined  under  the 
provisions  of  section  217; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


If  195 


shall  be  allowed  the  foll< 


Sec.  216.  That  for  t nal  tax  only  there 


(a)  The  amount  rec 


Credits 


2038 


2039 


2040 


29 


§217. 


THE  INCOME  TAX  LAW. 


Law 

Paragraph 

If198  .(b)  The  amount  received  as  interest  upon  obligations  of  the 

United  States  and  bonds  issued  by  the  War  Finance  Corpora- 
tion, which  is  included,  in  gross  income  under  section  213; 


Repeated 
at  U 

2042 


If  199 


^ie  Case  a single  Person,  a personal  exemption  of 

$1,U(J0; 


1|  200  or  in  the  case  of  the  head  of  a family  or  a married  person  living 
with  husband  or  wife,  a personal  exemption  of  $2,500,  unless 
the  net  income  is  in  excess  of  $5,000,  in  which  case  the  personal 
exemption  shall  be  $2,000. 


H201 


If  202 


If  203 


11204 


1f205 


If  206 


If  20  7 


A husband  and  wife  living  together  shall  receive  but  one  personal 
^™Ptl0n-.  Thf  amount  of  such  personal  exemption  shall  be 
$2  500,  unless  the  aggregate  net  income  of  such  husband  and 
wile  is  in  excess  of  $5,000,  in  which  case  the  amount  of  such 
personal  exemption  shall  be  $2,000.  If  such  husband  and  wife 
make  separate  returns,  the  personal  exemption  may  be  taken  by 
either  or  divided  between  them. 

In  no  case  shall  the  reduction  of  the  personal  exemption  from 
$2,500  to  $2,000  operate  to  increase  the  tax,  which  would  be 
payable  if  the  exemption  were  $2,500,  by  more  than  the  amount 
ol  the  net  income  in  excess  of  $5,000; 

(d)  $400  for  each  person  (other  than  husband  or  wife) 
oependent  upon  and  receiving  his  chief  support  from  the  tax- 
payer if  such  dependent  person  is  under  eighteen  years  of  age 
or  is  incapable  of  self-support  because  mentally  or  physicallv 
defective;  J 

. ,(e)  In  the  case  of  a nonresident  alien  individual  or  of  a 
citizen  entitled  to  the  benefits  of  section  262,  the  personal  exemp- 
tion shall  be  onjy  $1,000,  and  he  shall  not  be  entitled  to  the 
credit  provided  in  subdivision  (d). 

. (I)  T.he  credits  allowed  by  subdivisions  (c),  (d),  and  (e)  of 
this  section  shall  be  determined  by  the  status  of  the  taxpayer 
on  the  last  day  of  the  period  for  which  the  return  of  income  is 
made; 

but  in  the  case  of  an  individual  who  dies  during  the  taxable 
year,  such  credits  shall  be  determined  by  his  status  at  the 
time  of  his  death,  and  in  such  case  full  credits  shall  be  allowed 
to  the  surviving  spouse,  if  any,  according  to  his  or  her  status 
at  the  close  of  the  period  for  which  such  survivor  makes  return 
of  income. 

Net  Income  of  Nonresident  Alien  Individuals. 

• i-^j*  V)at  'n  .t^ie  case  °I  a nonresident  alien 

individual  or  of  a citizen  entitled  to  the  benefits  of  section  262, 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


2044 


2045 


2046 


2047 


2051 


2175 


2053 


2054 


2102 


30 


2-27-22 


THE  INCOME  TAX  LAW. 


§213. 


Law 

Paragraph 


(If  130)  moneys  belonging  to  such  foreign  governments,  or  from  any 
other  source  within  the  United  States; 


Repeated 

at  U 

1594 


1131 


1132 


H33 


(6)  Amounts  received,  through  accident  or  health  insurance 
or  under  workmen’s  compensation  acts,  as  compensation  for 
personal  injuries  or  sickness,  plus  the  amount  of  any  damages 
received  whether  by  suit  or  agreement  on  account  of  such 
injuries  or  sickness; 

(7)  Income  derived  from  any  public  utility  or  the  exercise 
of  any  essential  governmental  function  and  accruing  to  any 
State,  Territory,  or  the  District  of  Columbia,  or  any  political 
subdivision  of  a State  or  Territory,  lr  income  accruing  to  the 
Government  of  any  possession  of  the  United  States,  or  any 
political  subdivision  thereof. 

Whenever  any  State,  Territory,  or  the  District  of  Columbia, 
or  any  political  subdivision  of  a State  or  Territory,  prior  to  Sep- 
tember 8,  1916,  entered  in  good  faith  into  a contract  with  any 
person,  the  object  and  purpose  of  wfiich  is  to  acquire,  construct, 
operate,  or  maintain  a public  utility/,  no  tax  shall  be  levied  under 
the  provisions  of  this  title  upon 
operation  of  such  public  utility, 
will  impose  a loss  or  burden  upon 
of  Columbia,  or  political  subdivis 
intended  and  shall  not  be  constru 
any  financial  gain  or  exemption 
the  payment  of  a tax  as  provided  for  ii^  this  title  upon  the  part  or 
portion  of  such  income  to  which'  such\ person  is  entitled  under 
such  contract; 


If  134 


If  135 


11136 


11137 


1552 


1596 


1597 


e income  derived  from  the 
far  as  the  payment  thereof 
ch  State,  Territory,  District 
but  this  provision  is  not 
to  confer  upon  such  person 
relieve  such  person  from 


(8)  The  income  of  a nonresident  alieA  or  foreign  corporation 
which  consists  exclusively  of  earnings  deVived  from  the  opera- 
tion of  a ship  or  ships  documented  under  the  laws  of  a foreign 
country  which  grants  an  equivalent  exernption  to  citizens  of 
the  United  States  and  to  corporations  organized  in  the  United 
States; 

J 

(9)  Amounts  received  as  compensation,  family  allotments 
and  allowances  under  the  provisions  of  the  War\Risk  Insurance 
and  the  Vocational  Rehabilitation  Acts,  or  as  pensions  from  the 
United  States  for  service  of  the  beneficiary  or  another  in  the 
military  or  naval  forces  of  the  United  States  in  time  of  war; 

(10)  So  much  or  the  amount  received  by  an  individual  after 
December  31,  1921,  and  before  January  1,  1927,  as  dividends  or 
interest  from  domestic  building  and  loan  associations,  operated 
exclusively  for  the  purpose  of  making  loans  to  members,  as  does 
not  exceed  $300; 

(11)  The  rental  value  of  a dwelling  house  and  appurtenances 
thereof  furnished  to  a minister  of  the  gospel  as  part  of  his  com- 
pensation; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


2098 


1555 


1603 


1604 


23 


§214. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law  Repeated 

Paragraph  at  H 

1[1 38  (12)  The  receipts  of  shipowners’  mutual  protection  and  1605 

indemnity  associations,  not  organized  for  profit,  and  no  part  of 
the  net  earnings  of  which  inures  to  the  benefit  of  any  private 
stockholder  or  member,  but  such  corporations  shall  be.  subject 
as  other  persons  to  the  tax  upon  their  net  income  from  interest, 
dividends,  and  rents. 

1J139  (c)  In  the  case  of  a nonresident  alien  individual,  gross  2092 

income  means  only  the  gross  income  from  sources  within  the 
United  States,  determined  under  the  provisions  of  section  217. 

Deductions  Allowed  Individuals. 

Ifl40  Sec.  214.  (a)  That  in  computing  net  income  there  shall  be  1615 

allowed  as  deductions: 

lfl41  (1)  All  the  ordinary  and  necessary  expenses  paid  or  incurred  1618 

during  the  taxable  year  in  carrying  on  any  trade  or  business, 

lfl42  including  a reasonable  allowance  for  salaries  or  other  compensa-  1648 
tion  for  personal  services  actually  rendered; 

Tfl43  traveling  expenses  (including  the  entire  amount  expended  for  1677 
meals  and  lodging)  while  away  from  home  in  the  pursuit  of  a 
trade  or  business;  and 

^[144  rentals  or  other  payments  required  to  be  made  as  a condition  1681 
to  the  continued  use  or  possession,  for  purposes  of  the  trade  or 
business,  of  property  to  which  the  taxpayer  has  not  taken  or  is 
not  taking  title  or  in  which  he  has  no  equity; 


If  145  (2)  All  interest  paid  or  accrued  within  the  taxable  year  on  1684 

indebtedness, 

1U46  except  on  indebtedness  incurred  or  continued  to  pur-  1685 

chase  or  carry  obligations  or  securities  (other  than  ob- 
ligations of  the  United  States  issued  after  September 
24,  1917,  and  originally  subscribed  for  by  the  taxpayer) 
the  interest  upon  which  is  wholly  exempt  from  tax- 
ation under  this  title. 


*[[147  (3)  Taxes  paid  or  accrued  within  the  taxable  year  except  1697 

If  148  (a)  income,  war-profits,  and  excess-profits  taxes  1698 

imposed  by  the  authority  of  the  United  States, 

^f  149  (b)  so  much  of  the  income,  war-profits  and  excess-  1699 

profits  taxes,  imposed  by  the  authority  of  any  foreign 
country  or  possession  of  the  United  States,  as  is 
allowed  as  a credit  under  section  222, 


^f  150  (c)  taxes  assessed  against  local  benefits  of  a kind  tend- 

ing to  increase  the  value  of  the  property  assessed,  and 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


1714 


24 


2-27-22. 


.OOSI 


FEDERAL  INCOME  TAX  LAW. 
BEING  TITLE  II 
of  the 

REVENUE  ACT  OF  1921 
To  Which  Have  Been  Added 
Title  I — General  Definitions 
and  Parts  of 

Title  XIII — General  Administrative  Provisions 
and 

Title  XIV — General  Provisions 
of  the  Revenue  Act  of  1921. 


The  arbitrary  paragraphs  are  nufnbered  consecutively  on 
the  left.  Each  paragraph  will  be  foun<^  repeated,  followed  by  the 
provisions  of  the  regulations,  if  any, /relating  to  it,  in  the  body 
of  the  book,  beginning, on  page  103  a j the  running  paragraph,  the 
number  of  which  has  been  placed/on  the  right  opposite  that 
particular  paragraph  in' the  repriny  below. 

The  headings  are  a part  of  tlyte  Act  as  passed,  except  when 
shown  in  brackets. 

(See  Law  and  Regulations,  Page  103.) 

Be  it  enacted  by  the  Senate  and  House  of  Representatives 
of  the  United  States  of  Amewca  in  Congress  assembled, 


TITLE  I.— GE: 

Law 

Paragraph 

Hi  Section  1.  That  thi 

Act  of  1921.” 


H2 

H3 

H4 

H5 


Sec.  2.  That  when  used 


(1)  The  term  “person” 
tions,  as  well  as  individuals; 


DEFINITIONS. 

Act  Ynay  be  cited  as  the  “Revenue 
in  Act — 

includes  partnerships  and  corpora- 


Repeated 
at  f 


2770 


705 


(2)  The  terny  “corporation”  includes  associations,  joint-  986 
stock  companiey  and  insurance  companies; 

(3)  The  t/rm  “domestic”  when  applied  to  a corporation  or  2059 
partnership  'means  created  or  organized  in  the  United  States; 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


5200. 


THE  INCOME  TAX  LAW. 


2-27-22. 


Law  Repeated 

Paragraph  at  IT 

\6  (4)jfThe][term  “foreign”  when  applied  to  a corporation  or  1398 

partnership!^  means  created  or  organized  outside  the  United 
States;  fa  & 

117  (5)  The  term  “United  States”  when  used  in  a geographical  1399 

sense  includes  only  the  States,  the  Territories  of  Alaska  and 
Hawaii,  and  the  District  of  Columbia; 

1J8  (6)  The  term  “Secretary”  means  the  Secretary  of  the  740 

Treasury; 

H9  (7)  The  term  “Commissioner”  means  the  Commissioner  of  741 

Internal  Revenue; 

H10  (8)  The  term  “collector”  means  collector  of  internal  742 

revenue; 

Ifll  (9)  The  term  “taxpayer”  includes  any  person,  trust  or  703 

estate  subject  to  a tax  imposed  by  this  Act; 

H12  (10)  The  term  “military  or  naval  forces  of  the  United  States”  1556 

includes  the  Marine  Corps,  the  Coast  Guard,  the  Army  Nurse 
Corps,  Female,  and  the  Navy  Nurse  Corps,  Female,  but  this 
shall  not  be  deemed  to  exclude  other  units  otherwise  included 
within  such  terms;  and 

If  13  (1 1)  The  term  “Government  contract”  means  (a)  a contract  820 

made  with  the  United  States,  or  with  any  department,  bureau, 
officer,  commission,  board,  or  agency,  under  the  United  States 
and  acting  in  its  behalf,  or  with  any  agency  controlled  by  any 
of  the  above  if  the  contract  is  for  the  benefit  of  the  United 
States,  or  (b)  a subcontract  made  with  a contractor  performing 
such  a contract  if  the  products  or  services  to  be  furnished  under 
the  subcontract  are  for  the  benefit  of  the  United  States.  The 
term  “Government  contract  or  contracts  made  between  April  6, 

1917,  and  November  11,  1918,  both  dates  inclusive”  when 
applied  to  a contract  of  the  kind  referred  to  in  clause  (a)  of  this 
subdivision,  includes  all  such  contracts  which,  although  entered 
into  during  such  period,  were  originally  not  enforceable,  but 
which  have  been  or  may  become  enforceable  by  reason  of 
subsequent  validation  in  pursuance  of  law. 

TITLE  II.— INCOME  TAX. 

Part  I.  General  Provisions. 

Definitions. 

If  14  Sec.  200.  That  when  used  in  this  title — 

If  15  (1)  The  term  “taxable  year”  means  the  calendar  year,  or  the  1060 

fiscal  year  ending  during  such  calendar  year,  upon  the  basis  of 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


6 


9-IS-22. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS— (Continued.) 


T.  D.  Subject  Paragraph 

Report  No.  54,  September  13,  1933. 

3392  Sept.  7,  19  22  (Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  37,  of  the  1922  Series.] 


There^are'noJSuppiementary  Pages  34  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33. 


,SS  Ul-fl 

.bouotlnoD  .2TW3TKOO  tO  AA.IA.l  OFIIVMUfl  CMA  JiaaWH  XI  .T 


Jqsi^«iK“.  1 < i Ijj<  .* ! . I 

.’.VA  . V yy>-..  V,’.?.  ,•  > . 7.  .•  t ,‘a 

if-iji-'.'iioiM  • ‘ 1,7  , 

JltUoKo;  11O  t i-Ill..  I"’  ••.'.•«*! , 

-lu«!  • uc  v <>f  l;.i' . ■> ; n T ui  a 

[ •.  'AVI  «j ifj  V i iii  ■<! 


.in  ^ m : if.  M : Ot  !'  ■_  r cl  /-.hi*.  .tn->  qq  irijorj'- :a‘.n  .X  I 

. IVJHg  X c. r MOJ  I JA  -lHOiM  3HT 
.{X  in  '’qqa'i 


points  in  the  United  States  and  points  outside  the  United  States,  the  costs  and 
expenses  (including  taxes)  properly  apportioned  or  allocated  to  such  other 
business  should  be  excluded  both  from  the  deductions  and  from  the  apportion- 
ment process  prescribed  in  (1)  above;  but,  for  the  purpose  of  determining  net 
income,  a ratable  part  of  any  general  expenses,  losses  or  deductions  which 
cannot  definitely  be  allocated  to  some  item  or  class  of  gross  income,  may  be 
deducted  from  the  gross  income  from  sources  within  the  United  States,  after 
the  amount  of  such  gross  income  has  been  determined.  Such  ratable  part 
should  ordinarily  be  based  upon  the  ratio  of  gross  income  from  sources  within 
the  United  States  to  the  total  gross  income. 

3330  (4)  Application  for  permission  to  base  the  return  upon  the  taxpayer’s 

books  of  account  will  be  considered  by  the  commissioner  in  the  case  of 
any  taxpayer  subject  to  this  article,  who,  in  good  faith  and  unaffected  by  con- 
siderations of  tax  liability,  regularly  employs  in  his  books  of  account  a de- 
tailed allocation  of  receipts  and  expenditures  which  reflects  more  clearly  than 
the  process  prescribed  in  (1)  and  (2)  ajbove,  the  income  derived  from  sources 
within  the  United  States.  (T.  D.  338/,  signed  by  Commissioner  D.  H.  Blair, 
and  dated  August  23,  1922.) 


3331 

2969 

3299 


Personnel  of  the  Tax  Sirriplifidation  Board. — (September  8,  1922.) 
Joseph  E.  Sterrett 

vacancy) 
acancy) 

President  to  represent  the  public. 


Appointed  by 
Charles  P.  Smith 
George  W.  Skilton 
E.  H.  Chatterton 

Appointed  by 
resent  the 


the  Secretary  of  the  Treasury  to  rep- 
Bureau  of  Internal  Revenue. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


' 


.S£-8-e  (C)  .SS-8C-8 


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•ortto  i'/  a ol  ba;  »oIIa  10  bonoilioqqe  yh  piq  (soicbJ  griihubni)  nsnsq;’  » 
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J9fi  qniffirm , >!>  o •)  tqiuq  orfj  tol  f3r/d  jovodr,  (I)  nr  bodriof  iq  33000  ;q  too  i 
dohlv/  anor ; .ui.  >f . io  asaeol  eeoafloqx9  Ifiionag  y ' lo  iiaq  ddsifii  f.  prrrdonr 
ad  vj-.rn  . m-vjai  aaong  lo  a?,d  i m moji  onv»‘  oj  boisoollfi  od  ybimrl-ob  3onrrs.o  ' 
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idiivj  1 - 1 od  [J  r eg  od  yin  sn 

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-noD  yd  boJvoUnnu  bn*  Hjtsl  boog  rri  ,Ofb  ' oloiitB  ardJ  oJ  iosf  iua  vynqxrd  /ns 
-ob  £ snw  >D£  io  edoo  A eh  nr  ayolqrno  yhslngoi  yjilidt  x>; . lo  extoL  umbra 
.ifidJ  yheob  atom  aJoofbi  rbidw  aomJibnoqxo  bne  aJqioooi  lo  norJeoaflfi  boitEj 

. 

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(.1-Q I ,8  lodmoJqoS)  — .bTsoS  aoitfioftHqrntS  xbT  oril  lo  loamaisb  rtee 

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rbimo  ,3  wbys/O 
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-qoi  os  YTusBoi'f'  aril  lo  ytfiJonoS  0({j  vj  boinioqqA. 

. onsvaJI  ! :;mo3rtl  lo  russiaiS  srfj  tir  ■ 


x 


.•(Hti'Viwo  >*«•  • ' tVi  . " >•  ■ ' > 

30IVW8  A.1  3 MOO VI I JAaaOiH  MH  i 


2-27-22.  (2)  6-9-22.  (3)  9-13-22. 

BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


jf  March  1,  1913:  Attorney-General’s  opinion  on  the  computation  of  profit  or  loss  on 
disposition  of  property  acquired  prior  to  March  1,  1913:  1916,  1917,  and  1918 

Acts  (1-37-495:  Op.  A.  G.  4).. Bull.  I (’22)-37,  p.  1. 

M.nes  and  oil  and  gas  wells;  discovered  on  or  after  March  1,  1913;  valuation  at  date 
of  discovery  may  not  be  set  up  (29-20-1068:  Sol  Op.  26).  .Dec.  1920  Cum.  Bull, 
p.  44. 

Municipal  bonds;  contract  for  sale  of,  prior  to  issuance,  interest  running  from  date  of 
contract:  handling  of  accrued  interest  by  dealer  on  sale  by  him  when  issued 
(1-23-325:  I.  T.  1337)..  Bull.  I (’22)-23,  p.  1.  / 

Municipal  bonds  purchased  at  discount  and  (1)  held  A ill  maturity,  (2)  sold  for  more  than 
cost  (48-20-1321:  0.  D.  737).. Dec.  1920  Cum.  Bull.  p.  49.  Same,  made  more 
specific  (1-21-1369:  O.  D.  762).. June  1921  Cum.  Bull  p.  31.  Same  (3-21-1396: 

0.  D.  774).  .June  1921  Cum.  Bull.  p.  31.  (ace  at  “Discount;  non-interest  bearing 
securities,”  in  Cumulative  Index  following/*!;  1564.) 

Municipal  bonds  purchased  at  premium  and'  held  to  maturity  (46-20-1300:  O.  D. 
726).. Dec.  1920  Cum.  Bull.  p.  49.  / 

Original  issue  stock  for  invention;  establishing  “market  value”  when  received  as 
compensation  (1-20-656:  O.  962).  .June  1920  Cum.  Bull.  p.  74. 

Pecuniary  claim  owned  by  estate  on  March/l,  1913;  profit  or  loss  on  subsequent  settle- 
ment; interest  since  March  1,  1913;  /payment  in  securities  of  less  than  par  value 
(1-19-1 1 : 0.  D.  6) . . 1919  Cum.  Bull/  p.  37 

Real  estate  acquired  by  corporation  in  exchange  '’or  s stock  subsequent  to  Feb.  28. 

1913  (26-21-1699:  O.  D.  955) . . Junfe  1921  C.  B.  p.  44. 

Real  estate;  attorney’s  fees  p^d  to  secure  reduction  of  assessment  to  be  added  to 
“cost”  (48-20-1324:  O.  D.  739).  .Dec.  1920  Cum.  Bull.  p.  192. 

Real  estate;  benefit  of  deduction  tar  taAcs  paid,  lost  over  period  of  years  as  insufficient 
income;  not  to  be  added  to  ‘\o/t”  (1-6-64:  1.  T.  1188).  .Bull.  I (’22)- — 6,  p.  8. 
Also:  1921  Act  (1-23-326:  I.  Tv  1338) . .Bull.  I (’22)-23,  p.  2. 

Real  estate  :n  lots;  future  development  work  included  tn  selling  price  to  be  included 
in  “cost”  also  (27-20-1036:  0./ICy567).  .Dec.  1920  Cum.  Bull.  p.  108. 
Requisition  of  property  and  paymentAtherefor  by  government  (18-21-1604:  O D. 
897).  .June  1921  Cum.  Bull.  p.  43.\ 

Residence  (taxpayer’s  own  house);  costAnot  reduced  by  depreciation  on  sale  (30-20- 
1085:  O.  D.  600).  .Dec.  192 h Cum.  Bull.  p.  46. 

Short  sales  of  stock  (24-29-558:/S..1179) . \1919  Cum.  Bull.  p.  60. 

State-obligations  sold  between  interest  datta;;  interest:  discount  (1921  Act)  (1-6-63: 

1.  T.  1187).  .Bull.  I (’22)-/-6,  p.  7.  \ 

Stock;  market  quotations  (9-20-764:  A.  R.  33)  .June  1920  Cum.  Bui'  p.  30. 
Stock:  where  no  sales  (34-20-4  143:  A R.  R.  752).  .Dec.  1920  Cum.  Bull.  p.  46. 

Stock  dividends;  sale  of  sto^k  received  as  anefyin  respect  to  which  paid  (30-19-634: 
A.  R.  R.  6).  .1919  Cui/.  Bull.'p.  30.  Seeyurther  at  “Method  of  determining 
profit,  etc.”  in  Cumulative  Index  following  VU40.  I 

Stock  owned  on  March  1,  W13  sold  at  price  greateV,  than  market  value  then  but  less 
than  cost  (19-19-493:  JT.  B.  M.  73)..  1919  Cum\  Bull.  p.  35. 

Supreme  Court  decisions  Supplementary  Page  r89,  lfS346,  and  Supplementary 
Page  191  ^}S364.  i \ 

Support  for  life  and  life  insurance  as  part  consideration  tar  property  purchased;  what 
is  “cost”  in  connec/ion  with  subsequent  disposition  (24-21-1682:  O.  D.  945) 
..June  1921  Cum  Bull,  p 44.  \ 

Syndicate  liquidation  (15-21-1560:  A.  R.  R.  375).. June  1.921  Cum.  Bull.  p.  102. 

Also  (1-2-15:  I.  T.  1156).  . Bull.  I (’22)-2,  p.  7. 

Treasury  certificates  of  indebtedness  purchased  or  sold  at  discount  (46-20-1303: 
O.  D 729).  .Dec.  1920  Cum  Bull.  p.  123. 

Used  car  accepted  as  part  payment  for  new:  subsequent  sale  of  used  car  (5-21-1413: 
O.  D.  782) . .June  1921  Cum.  Bull,  p 31. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
295 


2-27-22.  (2)  6-9-22.  (3)  9-13-22. 

BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


1445  The  Determination,  in  the  Case  of  Stock,  of  “Fair  Market  Price  or 
Value”  as  of  March  I,  1913. — this  office  is  in  receipt  of  your 

letter  of  November  20,  1916,  in  matter  of  computing  gain  or  loss  on  sale 
of  property  acquired  prior  to  March  1,  1913,  and  asking  whether* 

In  case,  of  the  sale  of  stock  traded  in  on  the  exchange,  shall 
the  opening  price  on  March  1st,  or  .the  closing  price,  or  the  average 
price  for  the  day,  be  taken  as  the  basis?” 

1446  Under  paragraph  (c)  of  Section  2 and  paragraph  (4)  of  Section  5, 
•Act  of  September  8,  1916,  in  case  of  property  acquired  prior  to 

March  1,  1913,  “the  fair  market  price  or  value  of  such  property  as  of  March 
1,  1913,  shall  be  the  basis  for  determining  the  amount  of  gain  or  loss”  upon 
sale  or  other  disposition  of  the  property. 

1447  “The  fair  market  price  or  value  as  of  March  1”  is  held  to  be  the  fair 
market  price  or  value  as  of  the  entire  day  of  March  1,  which  in  the 

case  of  variation  between  “opening  and  closing  price”  for  the  day,  would 
mean  the  average  price  for  the  day.  This,  however,  would  be  conditioned 
upon  showing  that  the  exchange  quotation  represented  the  fair  market  price 
or  value  of  the  stock,  as  it  is  this  “fair  market  price  or  value”  which  is  to 
control,  however  that  fact  may  be  ascertained.  (Letter  to  The  Corporation 
Trust  Company,  signed  by  Commissioner  W.  H.  Osborn,  and  dated  November 
21,  1916.) 

1448  In  Determining  Value  of  Stock  as  of  March  1,  1913,  the  Good- 
will of  the  Corporation  is  to  be  Taken  Into  Consideration —Receipt 

is  acknowledged  of  your  letter  of  July  2,  1919.  in  which  you  refer  to  the 
consideration  to  be  given  to  the  value  of  goodwill  of  a corporation  where  it 
is  desired  to  establish  the  fair  market  value  of  its  outstanding  capital  stock 
on  March  1,  1913.  Ifln  reply,  you  are  advised  that  the  value  of  the  tangible 
and  intangible  assets  of  a corporation,  inclusive  of  the  value  of  goodwill,  as 
of  March  1,  1913,  is  to  be  taken  into  consideration,  together  with  such  other 
facts  as  may  be  necessary,  where  it  is  desired  to  establish  the  market  value  of 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
296 


2-27-22.  (2)  4-10-22.  (8)  4-18-22.  (4)  6-10-22.  (6)  6-16-22.  (G)  6-30-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES. 

amended , the  Revenue  Act  of  1917 , or  the  Revenue  Act  of  1918,  it  appears 
that  an  amount  of  income,  war-profits  or  excess-profits  tax  has  been  paid 
in  excess  of  that  properly  due , then,  notwithstanding  the  provisions  of 
section  3228  [^[2827]  of  the  Revised  Statutes,  the  amount  of  the  excess  shall 
be  credited  against  any  income,  war-profits  or  excess-profits  taxes , or  install- 
ment thereof,  then  due  from  the  taxpayer  under  any  other  return,  and  any 
balance  of  such  excess  shall  be  immediately  refunded  to  the  taxpayer:” — 
Law.  [Note:  The  1918  Act  so  provided,  though,  naturally,  the 

1921  Act  was  not  embraced  within  its 
terms.] 

2826  Law  If 583.  Five-year  Limitation  Generally  for  Making  Claim 
(Sec.  252.)  for  Credit  or  Refund. — “ Provided,  That  no  such  credit 

or  refund  shall  be  allowed  or  made  after  five  years  from 
the  date  when  the  return  was  due,  unless  before  the  expiration  of  such  five 
years  a claim  therefor  is  filed  by  the  taxpayer:” — Law.  [Note:  The 

\ 1918  Act  so  provided.] 

2827  Law  ^|656.  Font- Year  Limitation  on  Claims  for  Refunding  Other 
(Sec.  1316.)  Than^  Those  Based  on  an  Examination  of  a Return 

of  InOpme  under  1916,  1917,  1918,  and  1921  Acts. — 
“Sec.  1316.  That  section\3228  of  the  Revised  Statutes  is  amended  to  read 
as  follows: 

‘Sec.  3228.  All  claims  for  the  refunding  or  crediting  of  any  internal 
revenue  tax  alleged  to  have\been  erroneously  or  illegally  assessed  or  col- 
lected, or  of  any  penalty  allefafd  to  have  been  collected  without  authority,  or 
of  any  sum  alleged  to  have  beep,  excessive  or  in  any  manner  wrongfully  col- 
lected, must  be  presented  to  the  Commissioner  of  Internal  Revenue  within 
four  years  next  after  payment  of.  such  tax,  penalty,  or  sum.’  ” 

2828  Law  ^[657.  “ This  sjction^  except  as  modified  by  section  252  [^[2825], 

(Sec.  1316.)  shall  apply  retroactively  to  claims  for  refund  under  the 

Revenule  Act  df  1916,  the  Revenue  Act  of  1917,  and  the 
Revenue  Act  of  1918.” — Law.  \ [Note:  Section  3228  of  the  Revised 

Statutes,  prior  to  its  amendment  here 
(effective  generally  November  23,  1921, 
bat  to  be  retroactively  applied  as  stated 
in'.Law  ^[657,  ^[2828)  omitted  “or  credit- 
ing,” and  provided  that  all  claims  must 
bel  presented  “within  two  years  next 
aftir  the  cause  of  action  accrued.”] 

2829  Clauns  for  Credit  of  Taxes  Erroneously  Collected. — Any  amount 
of  income,  war  profits  or  excess  profits  tax  paid  in  excess  of  that 

properly  due  shall  be  credited  against  any  such  taxes  due  from  the  taxpayer 
under  any  other  return.  To  obtain  ufch  credit  the  taxpayer  should  proceed 
as  follows: 

2830  (1)  Where  the  credit  demanded  is  equal  to  or  less  than  any  outstand- 
ing assessment  of  tax,  a taxpayer  desiring  to  obtain  such  credit  shall 

file  with  the  collector  for  the  district  in  which  his  original  return  was  filed 
a claim  on  Form  843,  which  shall  be  sworn  to  and  shall  contain  the  follow- 
ing statements;  (a)  business  engaged  in  by  the  claimant;  (b)  character  of  as- 
sessment or  tax;  (c)  amount  of  tax  claimed  as  a credit;  (d)  unpaid  assessment 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
631 


2 27-22.  (2)  4-10-22.  (3)  4-18-22  14)  6-19-22.  (5)  6-16-22.  (6)  6-30-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES. 

against  which  credit  is  asked  and  for  what  taxable  year:  and  (e)  all  farts 
regarding  the  over-payment.  ' ' 

2831  (2)  Where  the  amount  claimed  as  a credit  is  greater  than  the  out- 

i stafndl,ng  assessment  of  tax,  a taxpayer  desiring  to  obtain  such  credit 
and  the  refund  to  which  he  is  entitled  shall  file  Form  843,  stating  thereon  the 

ffrS«l1Ve  aTJT?  Claimed  ,as  a ,credit  or  as  a refund-  See  article  1036 
[1I2835J.  All  the  facts  regarding  the  total  overpayment  should  be  stated  in 
the  claim.  (Art.  1034,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi 
Amortization  deduction  under  1918  Act  even  though  no  claim  made  in  return  for 
!’22J-2Q91p’  Jo20’  °r  192l!  1918  and  1921  ActS  (I'2°-273:  Sol.  Op.  138).  .Bull.  I 
Community  property:  single  claim,  applied  against  tax  of  either  spouse  bv  agreement 
■ 1068)' De" 1921  c”''  B“"'  -•  2«- 

Credit  allowed  constitutes  payment  to  that  extent  of  tax  against  which  credit  is  applied 

n^W  r6  *com,“8  subject  to  proper  refund  claim  (25-21-1697:  Soh  Oo’ 

107).  .June  1921  Cum.  Bull.  p.  336.  p 

* Effect  of  claim:  general  discussion:  also,  interest,  if  rejected  (19-20-924-  A R M 46i 

i.”t.  fnlf.iSr?  ('5hS^2.cti“  °f  *“• 

Ene™umUeBulierr02ei9US  UZ  withhe!d  at  source  (36-20-1185:  O.  D.  657).. Dec.  1920 

Husband  and  wife;  one  filed  return  and  paid  tax,  the  other  filed  no  return  because 
net  loss:  now  amended  joint  return  and  consequent  claim  (1918  and  1921  Acts) 
(1-2-23:  1.  r.  1162).. Bull.  1 (’22)-2,  p.  15. 

I artnership  electing  to  be  taxed  as  corporation:  claims  arising  by  virtue  of  (15-20-854- 
U.  D.  457).  .June  1920  Cum.  Bull.  p.  247. 

Partnership  members’  overpayments  of  income  tax  may  be  credited  against  excess- 
profits  tax  assessment  (1917  Act)  on  partnership  (1-15-217:  A.  R.  R.  859).  .Bull 

Afh1,5’  Si  *n'  T18/?’  \919  Cum-  Bul1-  p-  309>  which  is  modified  by 

(1-24-351:  I.  T.  1361).  .Bull.  I (’22)-24,  p.  13. 

Returns  for  two  years,  respectively,  filed  in  different  districts:  procedure  to  adjust 
tax  due  on  one  against  overpayment  on  other  (48-20-1327:  O.  D 740)  Dec 
1920  Cum.  Bull.  p.  310. 

Sole  owner  of  corporation  may  not  apply  corporation’s  credit  for  overpayment  against 
taxes  due  under  his  persona!  return:  1918  and  1921  acts  (1-13-189:  I.  T.  1259) 
Bull.  I ( 22) - 1 3,  p.  17.  ‘ ' ’ 

Sole  proprietor  files  partnership  return  and  pays  tax  on  such  in  error;  credit  allowed 
against  ms  future  personal  tax  installments  (26-21-1710:  O.  D.  962).. June  1921 
Cum.  Bull,  p,  33 8.  * J 

Stock  dividends:  instructions  for  making  claim  on  account  of  tax  paid  on  (11-20- 
M'  242y)-  -June  1 920  Cum.  Bull.  p.  245:  Further  instructions  (11-20- 
789B:  M.  2436)  June  1920  Cum.  Bull.  p.  245. 

Same:  stock  carried  on  margin  with  broker  (32-20-1123:  O.  D.  625)  Dec  1920 
Cum.  Bull.  p.  308. 

Successor  corporation  in  event  of  merger  or  consolidation  under  New  Tersev  statute 
.-p  (24-21-1690:  O.  D.  950).. June  1921  Cum.  Bull.  p.  335. 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (1917  Act)  (46-21-1924:  O.  D.  1103).  .Dec.  1921  Cum 
Bull.  p.  248. 

Texas  community  property  income:  claims  because  of  ruling  contained  in  T.  D.  3071 
(43-20-1270:  O.  L).  708).  .Dec.  1920  Cum.  Bull.  p.  309.  Modified  by  (51-20- 
1358:  O.  D.  757).. Dec.  1920  Cum.  Bull.  p.  310:  also  (12-21-1525:  O.  D. 
854).. June  1921  Cuin.  Bull.  p.  335. 

Abandoning  domicile  in  Texas  during  taxable  year  (7-21-1451:  0.  D.  810)  Iune 
1921  Cum.  Bull.  p.  235. 

In  event  of  death  of  either  spouse  (20-21-1643:  O.  D.  920).  .June  1921  Cum.  Bull 
p.  335. 

See.  “Community  property”  above. 

Undistributed  surplus  tax  on  corporations:  excess  may  be  credited  (1-20-662:  O 9741 
. .June  1920  Cum.  Bull.  p.  244. 

Copyright  1922,  by  '1  he  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 

632 


2-27-22.  (2)^4-10-22. 


COLLECTION  AND  PAYMENT  OF  TAX. 


2774  Law  1[698.  Continuing  Effect  of  The  Revenue  Act  of  1918  for 
(Sec.  1400.)  the  Assessment  and  Collection  of  Taxes,  and  the 
Imposition  of  Penalties,  that  have  Accrued  There- 
under.— “Sec.  1400.  ( Revenue  Act  of  1921.)  ( a ) That  the  following 

parts  of  the  Revenue  Act  of  1918  are  repealed , to  take  effect  ( except  as 
otherwise  provided  in  this  Act ) on  January  1,  1922,  subject  to  the  limi- 
tations provided  in  subdivision  (b):  Title  II  ( called  “Income  Tax ”) 

as  of  January  1,  1921;” — Law. 


27  7 S Law  11699. 
(Sec.  1400.) 


“ Sections  1314,  1315,  1316,  1317,  1319,  and  1320  of 
Title  XIII  ( being  certai\  1 ' ' *'  " ' 

on  the  passage  of  this  Act. 


administrative  provisions ) 

Law. 


2776  Law  If 700.  “(b)  The  parts  of  the  Revenue  Act  of  1918  which  are 

(Sec.  1400.)  repealed  by  this  Act  shall  (unless  otherwise  specifically 
provided  in  this  Act ) remain  in  force  for  the  assessment 
and  collection  of  all  taxes  which  have  accrued  under  the  Revenue  Act  of 
1918  at  the  time  such  parts  cease  to  be  in  effect , and  for  the  imposition 
and  collection  of  all  penalties  or  forfeitures  which  have  accrued  or  may 
accrue  in  relation  to  any  such  taxes.  In  the  case  of  any  tax  imposed  by 
any  part  of  the  Revenue  Act  of  1918  repealed  by  this  Act , if  there  is  a tax 
imposed  by  this  Act  in  lieu  thereof , the  provision  imposing  such  tax  shall 
remain  in  force  until  the  corresponding  tax  under  this  Act  takes  effect 
under  the  provisions  of  this  Act)\  The  unexpended  balance  of  any  appro- 
priation heretofore  made  and  now  available  for  the  administration  of  any 
such  part  of  the  Revenue  Act  of  1918  shall  be  available  for  the  adminis- 
tration of  this  Act  or  the  corresponding  ^provision  thereof.” — Law. 

For  explanation  of  Cumulatiite  Index  references  see  page  gi. 


Statute  of  limitations  on  assessments  u? 
to  be  secured  (12-19-409:  O.  D.  234) 


er  prior  Acts;  waivers  or  amended  returns 
.1919  Cum.  Bull.  p.  252. 


1 


2777  Law  If 634.  Duty  of  Collector  to  Report  Violations  of  Law. — 
(Sec.  1311.)  [Sec.  1311  of/the  Revenue  Act  of  1921  reenacts 

Sec.  3164,  Rfevised  Statutes,  without  change,  as 
follows]:  “Sec.  3164.  It  shall  be  the  duty  of  every  collector  of  internal 
revenue  having  knowledge  of  any  willful  violation  of  any  law  of  the  United 
States  relating  to  the  revenue , within  thirty  days  alter  coming  into  possession 
of  such  knowledge,  to  file  with  the  district  attorney  of  the  district  in  which 
any  fine,  penalty,  or  forfeiture  may  be  incurred,  a statement  of  all  the  facts 
and  circumstances  of  the  case  within  his  knowledge,  together  with  the  names 
of  the  witnesses,  setting  forth  the  provisions  of  law  believed  to  be  so  violated 
on  which  reliance  may  be  had  for  condemnation  or  conviction.” — Law. 

• [Note:  No  change.] 

2778  Violations  of  Law  to  Be  Reported  by  Internal  Revenue  Officers. — 
An  internal  revenue  officer  discovering  in  the  course  of  his  duty 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
617 


2-27-22.  (2)..4-10-22, 


COLLECTION  AND  PAYMENT  OF  TAX. 


information  leading  him  to  suspect  a possible  violation  of  any  law  with  the 
enforcement  of  which  he  is  not  directly  concerned  should  immediately  report 
the  matter  to  the  Commissioner,  who  is  authorized  to  communicate  with  the 
proper  department  involved.  (Art.  1094,  Reg.  62,  1922  Edition.) 

2 7 79  Collection  of  Tax  by  Distraint. — If  any  person  liable  to  pay  any 
taxes  neglects  or  refuses  to  pay  them  within  ten  days  after  notice 
and  demand,  it  shall  be  lawful  for  the  collector  or  his  deputy  to  collect  such 
taxes  with  5 per  cent  additional  and  interest  at  12  per  cent  per  annum  by 
distraint  and  sale  of  the  goods,  chattels  or  effects,  including  stocks  se- 
curities and  evidences  of  debt,  or  other  property  or  rights  of  property  of  the 
person  delinquent.  When  goods,  chattels,  or  effects  sufficient  to  satisfy  the 
taxes  and  penalties  imposed  upon  any  person  are  not  found  by  the  collector 
or  deputy  collector,  he  is  authorized  to  collect  such  taxes  by  seizure  and  sale 
of  real  estate:  See  further  sections  3186  (as  amended  by  the  Act  of  March 
3,  1913),  3187-3196,  3197  (as  amended  by  the  Act  of  March  1,  1879),  3198- 
3202,  3203  (as  amended  by  the  Act  of  March  1,  1879)  3204-3207  3208  (as 
amended  by  the  Act  of  March  1,  1879),  and  3209  of  the  Revised  Statutes  and 
Regulations  No.  12  (revised).  Distraint  may  also  be  used  against  a delin- 
quent collector.  See  section  3217  of  the  Revised  Statutes.  (Art.  1009 
Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  Qi. 

Estate  of  deceased  delinquent  (51-21-1986:  O.  D.  1144).  .Dec.  1921  Cum.  Bull.  p.  239. 
One  spouse  s property  not  liable  generally  to  distraint  on  account  other  spouse’s 
delinquent  tax  (40-21-1856:  O.  D.  1056).. Dec.  1921  Cum.  Bull,  p 239 
Procedure  (29-20-1080:  T.  D.  3042).  .Dec.  1920  Cum.  Bull.  p.  300.  Modified  (7-21- 
1454:  T.  D.  3126).  .June  1921  Cum.  Bull.  p.  324. 


2780  Collection  by  Distraint,  of  Tax  Assessed  By  Collector  ex  parte 

against  a long  since  dissolved  corporation,  the  business  being  con- 
tmued  by  the  foimer  stockholders  as  a partnership  (Pennsylvania),  and  the 
property  against  which  the  collector  is  proceeding  being  that  of  the  partner- 
ship, may  not  be  enjoined  by  the  members  of  the  partnership,  they  being 
taxable  persons  and  the  property  itself  being  such  as  to  be  liable  to  distraint 
for  any  tax  assessed  against  them.  (Substance  of  decision  of  U.  S.  District 
Court,  M.  D.  Pennsylvania,  September  27,  1920,  in  Markle  et  al.  vs.  Kirken- 
dall,  Collector  (267  Fed.  498).) 

2781  ^ Liens  and  Enforcement  of  Tax  Liens  by  Bill  in  Equity.— In  the 

event  of  nonpayment  of  a tax  and  penalties  after  demand,  the  amount 
becomes  a hen  in  favor  of  the  United  States  from  the  time  when  the  assess- 
ment list  was  received  by  the  collector  upon  all  property  and  rights  to  prop- 
erty belonging  to  the  taxpayer,  except  that  the  lien  is  not  valid  as  against 
any  bona  fide  mortgagee,  purchaser,  or  judgment  creditor  until  notice  thereof 
is  filed  in  the  proper  public  office  or  offices  on  Form  668.  The  collector  may 
file  such  notice  of  lien  upon  making  demand  for  payment  of  the  tax,  unless 
payment  is  made  immediately  upon  demand.  What  is  immediate  payment 
will  depend  upon  the  nature  of  the  demand.  Where  the  collector  contem 

Copyright  1922,  by  7 he  Corporation  t rust  Company. 

TU  nOEXAL  INCOME  TAX  SERVICE 
618 


2-27-22.  (2)  4-10-22.  (3)  4-14-22.  (4)  5-13-22.  (5)  7-7-22. 

WITHHOLDING  AT  THE  SOURCE. 

business,  paid  to  persons  not  engaged  in  business  in  the  United  States  and  not 
having  an  office  or  place  of  business  therein,  and  (3)  interest  upon  corporate 
bonds  containing  a tax-free  covenant  clause  [for  which  see  1)2240].  (Art.  361 
Reg.  62,  1922  Edition.) 

[For  exemption  claims  at  source  see  Arts.  315,  1[2180,  and  364,  1)2254-2256.] 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1921  specifically.  . *,[3022,  herein.  Tf3030  thereof  modified  to  authorize  filing  of  Form 
1115  subsequent  to  Feb.  1,  1922  (1-14-196:  I.  T.  1266).  .Bull.  1 (’22)-14,  p.  9. 

Appointment  of  agent  for  withholding  purposes  (10-19-359:  O.  D.  207)..  1919  Cum. 
Bull.  p.  183. 

Contractor  operating  portion  of  mine  on  lease:  duty  to  withhold  lies  with  contractor 
(7-19-298:  O.  I).  175). . 1919  Cum.  Bull.  p.  182. 

Debtor  assessed  if  he  fails  to  withhold  on  tax-free  bonds  when  Form  1000  is  filed 
(1-19-76:  O.  D.  56). . 1919  Cum.  Bull.  p.  182. 

+ Domestic  corporation  but  all  property  and  business  in  Porto  Rico;  all  withholding 
provisions  apply  to  its  bond  interest:  1921  Act  (1-27-392:  I.  T.  1384).  .Bull.  I 
f’22)-27,  p.  10. 

Domestic  corporation  doing  no  business  here  and/ owning  no  property  here;  interest 
payments  to  nonresident  aliens  (18-19-478:  O.  908).  . 1919  Cum.  Bull.  p.  100. 
Same:  citizen  or  resident  bondholders  (L5-20-852:  O.  D.  455).. June  1920 
Cum.  Bull.  p.  187.  / 

Domestic  corporation  with  principal  assets  abroad,  in  hands  of  U.  S.  receiver,  both 
corporation  and  receiver  having  offices  her/;  tax-free  bonds  owned  by  nonresident 
aliens  (21-20-955:  O.  D.  517) . .June  192y  Cum.  Bull.  p.  187. 

Exchange  and  effect  on  withholding;  here/ election  to  accept  coupon  payment  of 
5 pounds  sterling  in  London  rather  lhah  $24.34  gold  in  foreign  country,  the  £5 
netting  $19.75:  tax-Vee  bonds  of  dome/tic  corporation  owned  by  citizen  of  Great 
Britain  (43-20-1262:  v)-  D.  700) ..  Dec/ 1920  Cum.  Bull.  p.  214. 

Fiduciary  a nonresident  alien:  beneficia/ies  citizens  or  residents  of  U.  S.:  bona 
interest  (39-20-1212:  0\D.  670).  . Ddfc.  1920  Cum.  Bull.  p.  213. 

Fiscal  agents  here  of  foreign-corporation/  (26-20-1030:  O.  D.  561).  .June  1920  Cum. 
Bull.  p.  188.  \ / 

Foreign  government  obligation^  underv/itten  here  and  interest  payable  here,  owned 
by  nonresident  aliens  (1-19^46:  O.  / 86) . . 1919  Cum.  Bull.  p.  99. 

Foreign  legation  bank  deposit  fnteres/  (44-20-1275:  O.  D.  710).. Dec.  1920  Cum. 
Bull.  p.  125.  \ j 

Guardian  acquiring  citizenship  by  marriage  (44-21-1897:  O.  D.  1085).. Dec.  1921 
Cum.  Bull.  p.  191.  \ / 

“Highest  applicable  rate”  (21-20-95 b:  O.  D.  518).  .June  1920  Cum.  Bull.  p.  188. 

Interest-bearing  bank  deposits  of  Aionresident  aliens  resulting  from  collection  of 
interest  on  foreign  items  (18-lyA85:  O.  D.  269).  . 1919  Cum.  Bull.  p.  183. 

Interest  on  liquidated  collateral  aroltfcd  to  principal  debt  by  trustee  for  nonresid^i  t 
alien  bondholders  on  insolvency;)  payment  of  arrears  of  interest;  withholds  g 
(32-20-1120:  O.  D.  624)..  D/c.  19^0  Cum.  Bull.  p.  213. 

Life  insurance  installment  interest  payments  when  election  and  when  no  election  to  take 
principal  in  lieu  thereof  (1-11-13744  O.  D.  767).. June  1921  Cum.  Bull.  p.  231. 

Numbered  employees  when  claiming  exemption;  name  and  address  should  be  secured 
(7-19-298:  O.  D.  175).  . 19/9  Cum.  Bull.  p.  182. 

Purchase  of  coupons  abroad  by  bank  (1 1-19-385:  O.  D.  220). . 1919  Cum.  Bull.  p.  183. 

Rates  in  force  in  year  of  payment  of  bofed  interest  govern  for  withholding  against 
nonresident  aliens  (6-19-877:  O.  D.  1A7)..1919  Cum.  Bull.  p.  182. 

Scrip  certificates  representing  fractional  interest  in  bonds  on  reorganization:  interest 
held  in  trust  pending  presentation  sufficient  to  entitle  to  bond;  no  ownership 
certificates  on  conversion;  withholding  on  conversion  by  nonresident  aliens 
(41-20-1233:  O.  D.  680) . . Dec.  1920  CuVi.  Bull.  p.  213. 

Scrip  in  payment  of  interest  (20-19-512:  O.  Dt  279).  . 1919  Cum.  Bull.  p.  183. 

Seamen’s  wages;  occasional  coastwise  voyages  on  vessels  usually  engaged  in  foreign 
trade  (13-19-424:  O.  D.  245).  . 1919  Cum.YBull.  p.  183. 

Supplemental  tax-free  covenant  agreements  (li-20-797:  O.  D.  414).  .June  1920  Cum. 
Bull.  p.  187.  \ 

Tax-free  bonds  of  otner  than  corporation;  h^re  specifically  partnership  debtors 
(44-20-1278:  O.  D.  713).. Dec.  1920  Cum.  B\ill.  p.  214. 

Tax-free  covenant  bond  interest:  tax  paid  by  obligor  for  obligee  as  “additional 
income”  to  latter  (1-5-51:  Ct.  D.  20).  .Bull.  I (’22)-5,  p.  8. 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
487 


£•27-22.  (2)  4-10-22.  (3)  4-14-22.  (4)  5-19-22.  (5)  7-7-22. 

WITHHOLDING  AT  THE  SOURCE. 

Tax-free  covenant  bond  interest:  tax  (1917)  withheldand  paid  to  Government  though 
creditor  not  liable  to  normal  tax:  refund  or  credit  to  debtor  (46  2 1-1924*  O 
D.  1103).. Dec.  1921  Cum.  Bull.  p.  248. 

Yearly  visit  here  for  instructions  of  nonresident  alien  employee  (28-20  1053-  O D 
578).  .Dec  1920  Cum.  Bull.  p.  128. 


2198  Withholding— Partnerships— The  Revenue  Act  of  1921  provides  for 
withholding  in  the  case  of  payments  made  to  a partnership  composed 
in  whole  or  in  part  of  nonresident  aliens.  This  provision  does  not  apply  to 
such  payments  made  prior  to  November  23,  1921.  However,  in  the  case  of  a 
partnership  having  an  office  or  place  of  business  in  the  United  States,  with- 
holding will  not  be  required  (except  in  the  case  of  interest  upon  tax-free 
bonds)  even  though  one  or  more  of  the  members  thereof  is  a nonresident 
alien;  the  partnership,  however,  as  agent  of  the  nonresident  alien  member 
or  members,  should  file  a return  of  the  income  of  such  nonresident  alien 
member  or  members  in  accordance  with  the  provisions  of  article  404  [1(2182]. 
(Art.  371  (a),  Reg.  62,  1922  Edition.) 

21S9  Release  of  Tax  Withheld  From  Interest  on  Bank  Deposits. — Under 
the  Revenue  Act  of  1921  persons  carrying  on  the  banking  business 
within  the  United  States  are  not  required  to  withhold  any  tax  from  interest 
on  bank  deposits  which  is  paid  to  (or  credited  to  the  accounts  of)  persons  not 
engaged  in  business  within  the  United  States  and  not  having  an  office  or  place 
of  business  therein.  Any  tax  which,  subsequent  to  December  31,  1920,  and 
pursuant  to  the  Revenue  Act  of  1918,  had  been  withheld  by  persons  carrying 
on  the  banking  business  within  the  United  States  from  interest  on  bank 
deposits  paid  to  (or  credited  to  the  accounts  of)  nonresident  alien  individuals 
not  engaged  in  business  within  the  United  States  and  not  having  an  office  or 
place  of  business  therein,  or  foreign  corporation  not  engaged  in  business 
within  the  United  States  and  not  having  an  office  or  place  of  business  therein, 
shall  be  released  and  paid  over  to  such  nonresident  alien  individual  or  foreign 
corporation,  or  his  or  its  representative.  (Art.  372,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Import  and  export  firms  are  not  “persons  carrying  on  the  banking  business”;  hence 
interest  on  balances  with  such  firms  are  not  exempt:  1921  Act  (1-20-278:  I.  T. 
1311).  .Bull.  I (’22)-20,  p.  17. 

Refund  of  amounts  withheld  against  foreign  corporation  excessive  by  provisions  of 
retroactive  law  (2-19-159:  O.  811).  .1919  Cum.  Bull.  p.  186. 

Form  1078  filed  before  close  of  year  (3-19-196:  O.  D 128)  1919  Cum.  Bull.  p.  165. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
488 


2-27-22  (2)  6-2-22.  (3)  8-28-22.  (4)  9-1-22. 

TAX  ON  NONRESIDENT  ALIENS. 

2099  The  following  additional  exclusions  from  gross  income  not  provided  b 
the  Revenue  Act  of  1918  is  allowed  by  the  Revenue  Act  of  1921: 

Income  of  a nonresident  alien  or  foreign  corporation  consisting  exclusively  of 
earnings  derived  from  the  operation  of  a ship  or  ships  documented  under  the 
laws  of  a foreign  country  which  grants  an  equivalent  exemption  to  citizens 
of  the  United  States  and  corporations  organized  in  the  United  States.  Any 
taxpayer  claiming  this  exemption  must  file,  under  oath,  a statement  citing  the 
foreign  statute  which  grants  the  equivalent  exemption  and  stating  fully  the 
facts  upon  which  he  relies  to  establish  his  claim.  (Art.  89,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Foreign  countries  which  satisfy  equivalent  exemption  provision  (1921  Act): 

¥ Argentine  Republic  (I.  T.  1430:  1-35-480).  .Bull.  I (’22)-35,  p.  2. 

Norway  (1-22-314:  I.  T.  1327).. Bull.  I (’22)-22,  p.  11. 

Sweden  (1-22-315:  I.  T.  1328).. Bull.  I (’22)-22,  p.  11. 

¥ Venezuela  (1.  T.  1430:  1-35-480).  .Bull.  I (’22)-35,  p.  2. 

When  no  reciprocal  conditions  exist  see  Art.  327  (a),  Reg.  62,  Transportation  services 
by  foreign  corporation  between  U.  S.  and  foreign  points  (T.  D.  3387).  .^3323. 

2100  Income  of  Nonresident  Aliens  from  United  States  Bonds. — By 
virtue  of  section  4 of  the  Victory  Liberty  Loan  Act  of  March  3,  1919, 

amending  section  3 of  the  Fourth' Liberty  Bond  Act  of  July  9,  1918,  [^[2101], 
the  interest  received  on  and  after  March  3,  1919,  on  bonds,  notes  and  cer- 
tificates of  indebtedness  of  the/Onited  States  and  bonds  of  the  War  Finance 
Corporation,  while  beneficially  owned  by  a nonresident  alien  individual, 
or  a foreign  corporation,  partnership  or  association,  not  engaged  in  business 
in  the  United  States,  i\  exempt  from  all  income  and  war-profits  and  excess- 
profits  taxes.  See  Article  8*  [^[1587].  (Art.  94,  Reg.  62,  1922  Edition.) 

For  explanatioi\of  Cumulative  Index  references  see  page  gi. 

In  trust  for  life  beneficiarjW  16-20-861:  O.  D.  464) . .June  1920  Cum.  Bull.  p.  103. 

2101  Sec.  4.  That  seotibn  3 of  the  Fourth  Liberty  Bond  Act  is  hereby 
amended  to  read  /as Vollows: 

“Sec.  3.  That,  notwithstanding  the  provisions  of  the  Second  Liberty 
Bond  Act  or  of  the  War  Finance  Corporation  Act  or  of  any  other  Act,  bonds, 
notes,  and  certificates  cf  indebtedness  of  the  United  States  and  bonds  of 
the  War  Finance  Corporation  \ehall,  while  beneficially  owned  by  a non- 
resident alien  individual,  or  a foreign  corporation,  partnership,  or  associa- 
tion, not  engaged  in  business  in  Vhe  United  State0,  be  exempt  both  as  to 
principal  and  interest/  from  any  asd  all  taxation  now  or  hereafter  imposed 
by  the  United  Stated  any  State,  br  any  of  the  possessions  of  the*  United 
States  or  by  any  locAl  taxing  authwty.”  (Section  4 of  “An  Act  to  amend 
the  Liberty  Bond  Aits  and  the  War  Finance  Corporation  Act,  and  for  other 
purposes,”  known  £s  the  “Victory  \Libeity  Loan  Act,”  approved  by  the 
President,  March  3,  1919.)  \ 

2 1C2  Law  1j207.  * Gross  Income  oi  Nonresident  Aliens  from  Sources 
(Sec.  217.)  Within  the  United  States  Specifically. — “Sec.  217. 

(a)  That  in  the  case  of  a nonresident  alien  individual 
or  of  a citizen  entitled  to  the  benefits  of  section  262  H[2070],  the  following 
items  of  gross  income  shall  be  treated  as  income  from  sources  within  the 
United  States :” — Law.  [Note:  This  entire  section  is  new  to  the 

1921  Act,  in  terms,  but  in  effect,  with 
exceptions  to  be  noted,  in  large  measure 
carries  into  the  new  law:  the  provisions 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

469 


2-27-22.  (2)6-2-22.  (3)  8-28-22.  (4)  9-1-22. 

TAX  ON  NONRESIDENT  ALIENS. 

of  the  1918  Act  and  the  regulations 
based  thereon,  relating  to  gross  and 
net  income  of  nonresident  alien  indi- 
viduals and  foreign  corporations.  The 
application  of  the  rules  laid  down,  to  a 
citizen  and  a domestic  corporation 
entitled  to  the  benefits  of  section  262,  is 
new,  of  course.  The  exceptions  in  the 
case  of  interest  accruing  from  residents 
are  new.  The  dividends  provisions  are 
somewhat  changed.  The  provisions 
relative  to  the  allocation  and  appor- 
tionment of  expenses,  losses,  and  other 
deductions  which  cannot  definitely  be 
allocated  to  items  of  gross  income  either 
from  sources  within  or  without  the 
United  States,  the  provisions  for  allocat- 
ing to  sources  within  and  without  the 
United  States  items  of  gross  income  not 
specifically  mentioned  and  in  turn  al- 
locating thereto,  respectively,  the  ex- 
pense and  other  items,  etc.,  etc.,  and 
the  provisions  stating  the  rule  that 
profits  derived  from  certain  sources  are 
to  be  treated  as  derived  partly  from 
sources  within  and  partly  from  sources 
without  the  United  States,  are  new  to 
the  law,  and  to  the  letter  of  the  formal 
regulations,  at  least,  under  the  1918 
Act.  The  1918  Act  provided,  as  to 
gross  income,  that  “In  the  case  of  non- 
resident alien  individuals  [and  foreign 
corporations],  gross  income  includes  only 
the  gross  income  from  sources  within  the 
United  States,  including  interest  on 
bonds,  notes,  or  other  interest-bearing 
obligations  of  residents,  corporate  or 
..  otherwise,  dividends  from  resident  cor- 

porations, and  including  all  amounts 
received  (although  paid  under  a con- 
tract for  the  sale  of  goods  or  otherwise) 
representing  profits  on  the  manufacture 
and  disposition  of  goods  within  the 
United  States;”  and  as  to  the  deduc- 
tions “the  proper  apportionment  and 
allocation  of  the  deductions  with  re- 
spect to  sources  of  income  within  and 
without  the  United  States  shall  be 
determined  under  rules  and  regulations 
prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary  [see  Law 
IT  186,  1f2169].”] 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

470 


2-27-22.  (2)  4-10-22.  (8)  6-8-22.  (4)11-6-22, 


.22-3-11  (*)  .22-8-3(0  .22-01-*  (2)  .2S-VS-S 


03  sis  JdA  ISQI  orlj  oj  YliBorlboqa  gnilfibi  egnilm  11b  ,oJbJ3  gw  niBgfi) — 

Explanation  of  the  Cumulative  Indexes.  :(b3j£oibni 

3llj  II!  23gKq  OJ  316  eS3II313l31  3llT 
(.1  .oM)  .nijoIIuS  svijeluinuD  QIPI  = .Ilufl  .ttuiD  PiC’I  (I) 

Early  in  1920  the  GovernfmtmrtlpUbbshedo'kB  1919  Cumulative  Bulletin 

of  Special  isSto^cP'-ddn'fi'd'int^lly 

during  IfPJff  $20’ 

by  a change  of  policy/. ridings;- tveffe!  rnadelpiibjidiwedi  by  week.  Through 
1921,  also,  Bulletin's 'w’e¥6,i'i9a?d1.S()SO‘‘Mr*:a91I§dpe»t9  thbVewilKfeOn- 

. ^ i i , (.ISgl  iUAH^IOfn  Jain  o/li  annavoTJ) 

t.nue  to  & ^kly issues IS*!  wdn^d  = .fluH  .muD  IS<?1  .oad  (6) 

Subscribers  to  Thb.  lSertf  teei  ireeeLv'e  jth&rlweeklyc'Bulletins,  direct  from 
Washington,1  fbi°M^erfl^I$$  fhg^sed^l^l&ePMfciTg  W ! hp e f” I$hS ifib  Wltti i^  all 
prior  pubhshed8^|^Iini[^,  ^| 

.dj3  ,ts— (ssoi  .iiua*  (t) 

Each  ruling  is  allohStedlbydJthenSoveiimMiegrfitooa)  particular  Article  of 
Regal atic*n8<45  (.19118  Aet)Loih to  ,&  partieulaii  Article  of. Regfuktibb3v62i!(ll'92 1 
Act).  We  have  indexed  all  of  the  s tric!?^1 1 £6,ffilrl 1 

fewvjefeWn^ogpeoifedHjbooobifHe9(Riweiiufe)fMIsYbfe3l)9KJ^ntii3l9il645rBand 
hauirtfe'wo  ap^icbcibhictd  the  JrfHiSiaiAtidea  lA(^chn'cf4a^©pIade«lritliqsbdlg«3tq 
inbtex^efereiwtes,  ina  ctfiii  rcbmpiteltron)  begirnbatigiiccn'  fpsjgei  :iQ3p  iyidrifesKateftyn 
fbhowiing'4?lliell/e6pect?v^pxnti(ia&D(ArtiHb®flfml'shlTicK8flhtj<:4ieaT?n>>  Jnani/o  IIb 
-fnfn  •pfepdriw^  Ri%lilationi'162 . vA^nihevGdwniwrden^  itqofapq  a&rfoas  i 

rkdlfydpd^silfeile^spqrhatpls/dhflK)  nrbnb  <ba  dn  th  e i Art Lefesi i fcl  bn  t i*&  ttyo  f whrfcl  'j  t h fe] 
cbmsp®>bdlhg!iAa-t«iIesi  ofoRe^ulatibras  4ftl  (4&1'# s>Atfe)j r,ilTh a s xAbttcttofltf  of 
eabhlbtffieb^flwgUfetiobsiitiieaitfeiloiififWbdfl  kidridedate^r&s©'^  but 

‘lSbcgjvejKMibfylndttoedn^^radfifch^diisairssejilif^ArjKibOllof  Reg.  62,  is 
the  subject  matter  of  Art.  51  of  Reg.  45.  We  have  placed  eafch  Cumulative 
§JroprBrc *ubj set  hHtfl>t*r3®i t ibegulfeli«3ii>62}  and  in  the 
Table)  afiCcJniteintlJtbx  Regulationki62,  ■(bfcgiinpin^Joft'fpiige  UStyjhave  cross-refer- 
^edji%v/nuni^erbiiith^fi41jticie&^£)tf  Ringed a,Moii'«'j46  iarnid  62,  where  there  is 

^aHmlabwe  ghidex  references  sought 
itkky  -bftifo&if&^mfcdibtqEjk  .oM  niJoIluS  ni  bodeilduq 
itdME-refireritasitpiinliiyigsfbaslfflit!^  Act  are  so  indicated 

df&rlyi;  pthentjiefere®£tes  iit  *pBqulirog^ibtaiBei4'jdn,«he  1918  Act  or  on  prior 
Adtfs.o/I^feztrfTt  tob^likjh.blMSle  Jaffltei'  fiSKrigsdbflm  bearing  on  the  provisions 
of  thewrfid  lActti  iaqdio^vtd^qfMaHRhgiulafiawis  62  interpreting  that  Act  is 
left  to  the  judgment  of  the  reader.  AasanQaijd  we  have  indicated,  by  notes, 
differences,  if  any,  between  the  provisiorfSPlSf  the  1918  Act  and  those  of  the 
1921  Act.  Such  a comparative  note  is  appended  to  each  law  paragraph  or 
group  of  law  paragraphs  withfW'^^ompilation,  which  paragraph  or  para- 
graph  group  in  tura'itfliivajiaibly^Eetedes  its  interpreting  Article  or  Articles  of 
Regulations  62,  to  tf7flfcRBtftP^Mjlative  Index  references  are  subjoined. 

At  the  outset  (February  27,  1922),  in  the  nature  of  things,  scarcely  any 
of  the  indexed  rulings  will  be  found  to  be  based  specifically  on  the  1921  Act, 
as  most  of  these  were  issued  prior  to  the  passage  of  that  Act  in  November, 

Wk  a«o  °f  Regulations  62:  (Bulletin  1(  ^2)  9,  is 

crated  rcoruary^w^l^z^  This  will  appear  by  their  respective  designations 

CVffiVftz'h t 1922,  by  The  Corporation  'Trust  Company. 

THE  FEDEP.AI.  INCOME  TAX  SERVICE 

. 9l 


are  s© 


2-27-22.  (2)  4-10-22.  (3)  6-8-22.  (4)  11-6-22. 

— (again  we  state,  all  rulings  relating  specifically  to  the  1921  Act 
indicated): 

The  references  are  to  pages  in  the 

(1)  1919  Cum.  Bull.  = 1919  Cumulative  Bulletin.  (No.  1.) 

(Covering  all  of  1919.) 

(2)  June  1920  Cum.  Bull.  = June  1920  Cumulative  Bulletin.  (No.  2.) 

(Covering  the  first  six  months  of  1920.) 

(3)  Dec.  1920  Cum.  Bull.  = December  1920  Cumulative  Bulletin.  (No.  3.) 

(Covering  the  last  six  months  of  1920.) 

(4)  June  1921  Cum.  Bull.  =*  June  1921  Cumulative  Bulletin.  (No.  4.) 

(Covering  the  first  six  months  of  1921.) 

(5)  Dec.  1921  Cum.  Bull.  = December  1921  Cumulative  Bulletin.  (No.  5.) 

(Covering  the  last  six  months  of  1921.) 

(6)  June  1922  Cum.  Bull.  = June  1922  Cumulative  Bulletin.  (No.  1-1.) 

(Covering  the  first  six  months  of  1922.) 

(7)  *Bull.  I(’22) — 27,  etc.  ==  Bulletins  27,  28,  etc.  of  the  1922  Series. 

(Covering  the  last  six  months  of  1922.) 

*The  weekly  Bulletins  of  the  1922  Series  are  forwarded  promptly  as  issued,  for  inser- 
tion in  the  special  Bulletin  shoe-string  binder. 

Each  current  1922  weekly  Bulletin  will  be  indexed  at  once,  revised  Service 
pages  being  mailed  to  subscribers  for  substitution,  e ch  added  reference  being 
indicated  by  a star  in  the  margin  on  the  left.  In  like  manner,  as  issued, 
all  current  “new  matters”  published  in  the  Service  proper,  will  be  indexed 
in  the  appropriate  Cumulative  Index  groups.  Thus  will  the  Service  be  com- 
pletely indexed  at  all  times,  as  the  general  index  on  the  blue  pages  at  the  back  of 
the  book  indexes  exhaustively  the  law  and  regulations  in  the  compilation,  and 
the  Cumulative  Indexes  within  the  compilation  index  all  related  Bulletin 
rulings  and  all  day-by-day  Treasury  Decisions,  court  decisions,  special 
rulings,  etc.,  etc. 

Each  indexed  Bulletin  ruling  is  cited  to  its  source  as  (43-20-1273:  A.  R.  M. 
85).  This  particular  ruling,  then,  is  the  85th  recommendation  of  the  Com- 
mittee on  Appeals  and  Review,  is  the  1273d  ruling  made  (a  new  series  of 
ruling  numbers,  beginning  with  ruling  1,  was  started  in  the  first  weekly  issue 
of  1922),  and  was  first  published  in  Bulletin  No.  43,  of  the  1920  Series.  It 
has  been  reproduced  in  Cumulative  Bulletin  No.  3,  that  is,  in  the  December 
1920  Cumulative  Bulletin,  beginning  on  page  65.  Our  reference,  in  the 
Cumulative  Index,  is  to.. Dec.  1920  Cum.  Bull.  p.  65.  The  key  to  the 
Government’s  abbreviations  (such  as  A.  R.  M.,  above)  is  printed  below. 

Op.  A.  G.  ” Opinion  of  Attorney  General. 

O.  or  L.  O.  =•  Solicitor’s  Law  Opinion. 

S ™ Solicitor’s  Memorandum. 

Sol.  Op.  <=  Solicitor’s  Opinion. 

T.  B.  R.  =*  Advisory  Tax  Board  Recommendation. 

T.  B.  M.  =«  Advisory  Tax  Board  Memorandum. 

A.  R.  R.  “ Committee  on  Appeals  and  Review  Recommendation. 

A.  R.  M.  — Committee  on  Appeals  and  Review  Memorandum. 

0.  D.  >*»  Office  Decision. 

1.  T.  = Income  Tax  Unit  Office  Decision. 

Ct.  D.  =*>  Court  Decision. 

Mim.  ■«  Mimeograph  letter  to  Collectors  or  Agents. 

C.  B.  or  Cum.  Bull.  =»  Cumulative  Bulletin. 

See  Caution  Notice  on  front  cover,  and  “ Introductory  Notes”  on  page  3,  of 
any  weekly  issue  of  the  Internal  Revenue  Bulletin. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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2-27-22.  (2)  4-10-22. 


DEDUCTIONS—  CONTRlt.li  1:  Oi  . 


and  organizations  are  included  within  (b)  see  article  517  [^1030].  Deduc- 
tion of  contributions  to  posts  of  the  American  Legion  or  the  women’s  auxi- 
liary units  thereof  is  expressly  allowed  by  the  statute. 

2004  In  connection  with  claims  for  this  deduction  there  shall  be  stated 
on  returns  of  income  the  name  and  address  of  each  organization  to 
which  a gift  was  made  and  the  approximate  date  and  the  amount  of  the 
gift  in  each  case.  Where  the  gift  is  other  than  money  the  basis  for  calcula- 
tion of  the  amount  of  the  gift  shall  be  the  cost  of  the  property,  if  acquired 
after  February  28,  1913,  or  its  fair  market  value  as  of  March  1,  1913,  if 
acquired  prior  thereto,  after  deducting  from  such  cost  or  value  the  amount, 
of  depreciation  sustained  and  allowable  as  a deduction  in  computing  net 
income.  A gift  of  real  estate  to  a city  to  be  maintained  perpetually  as  a 
public  park  is  an  allowable  deduction  under  the  present  statute,  but  was 
not  an  allowable  deduction  under  the  Revenue  Act  of  1918.  The  propor- 
tionate share  of  contributions  irfade  by  a partnership  may  be  claimed  as 
deductions  in  the  personal  returns  of  the  partners  to  an  amount  which, 
added  to  the  amount  of  such  contributions  made  by  the  partner  individually, 
is  not  in  excess  of  15  per  cent  of  the  partner’s  net  income  computed  without 
the  benefit  of  the  deduction -for  such  contributions;  but  the  contributions 
made  by  the  partnership  shall  not  be  deducted  from  its  gross  income  in 
ascertaining  the  amount  of  its  net  income  to  be  reported  on  Form  1065. 
See  article  331  fl[787].  This  article  does  not  apply  to  gifts  by  estates  and 
trusts  or  corporations.  See  section  219  of  the  statute  and  articles  561 
[Tf  1617]  and  562  ffll675].  (Art.  251,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

American  Legiori'  (14-/o-834:  O.  D.  439).  .June  1920  Cum.  Bull.  p.  210. 

Athletic  purposes?,  public  high  school  (3-19-192:  O.  D.  126) ..  1919  Cum.  Bull.  p.  151. 

Board  of  education  of  a school  district  (8-19-321:  S.  1052).  . 1919  Cum.  Bull.  p.  146. 

*Cemetery  association  operating  on  behalf  of  municipality  cemetery  leased  from  the 
latter;  cost  of  building  donated  to  association  is  deductible:  1921  Act  (1-13-182: 
I.  T.  1256).  . Bull.  I (’22)-13,  p.  9. 

Citizens’  Club;  of  undoubted  benefit  to  community  but  does  not  meet  statutory  test 
(6-21-1435:  A.  R.\R.  379).  .June  1921  Cum.  Bull.  p.  203. 

Community  Service,  Inc.  (5-20-716:  O.  D.  389).  .June  1920  Cum.  Bull.  p.  148. 

Corporation  trustee  for  memorial  fund;  income  distributed  to  charitable  institutions 
and  worthy  individuals  (15-21-1563:  O.  D.  872).  . June  1921  Cum.  Bull.  p.  264. 

Council  of  National  Defence  (3-19-191:  S.  992).  .1919  Cum.  Bull.  p.  145. 

Coupons  from  nontax-free  Liberty  bonds  (3-19-181 : O.  D.  120) ..  1919  Cum.  Bull.  p.  84. 

Educational  associations:  test  (8-20-755:  S.  1246).. June  1920  Cum.  Bull.  p.  149. 

Estate  or  trust,  the  beneflpiary  organization  not  yet  operating  (20-19-511:  O.  D. 
278).  . 1919  Cum.  Bull.'p.  175. 

Family  cemetery  corporation:  New  York  (11-19-379:  O.  D.  217)..  1919  Cum.  Bull, 
p.  151./  \ 

Inducing  industrial  plant  to  locate  in  city  (1-19-56:  O.  D.  39) ..  1919  Cum.  Bull.  p.  150. 

Legislation:  association  to  further  passage  of  (22-20-971:  S.  1362).. June  1920 

Cum.  Bull.  p.  152. 

Same:  and  election  of  favorable  officials,  etc.  (43-20-1266:  O.  D.  704)..  Dec. 
1920  Cum.  Bull.  p.  240. 

Life  insurance  premiums:  beneficiary  being  charitable  corporation  (24-19-566 

O.  D.  299).  . 1919  Cum.  Bull.  p.  151. 

Monuments  and  memorials:  organizations  to  erect  (8-20-755:  S.  1246).. June  1920 
Cum.  Bull.  p.  149. 

Same:  including  trophy  museum  and  memorial  assembly  hall,  etc.,  the  use  of 
which  are  restricted  to  educational  purposes  (45-20-1294:  A.  R.  R.  301) 

. .Dec.  1920  Cum.  Bull.  p.  188. 

National  Dry  Federation  (1-19-61:  O.  D.  44). . 1919  Cum.  Bull.  p.  150. 

Orchestral  concert  association  (23-19-546:  S.  1176)..  1919  Cum.  Bull.  p.  147. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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DEDUCTIONS— CONTRIBUTIONS. 


Partnership;  members  (8-19-322:  0.  D.  185)..  1919  Cum.  Bull.  p.  151. 

Personal  service  corporations  and  their  stockholders  (1-6-74:  1.  T 1196)  Bull  1 

(’22)— 6,  p.  18. 

Pew  rent,  assessments,  dues,  and  basket  collections  (26-19-590:  A.  R.  M.  2).  . 1919 
Cum.  Bull.  p.  150. 

Police  pension  fund  (27-19-602:  S.  1202).  . 1919  Cum.  Bull.  p.  148. 

Porto  Rico:  earthquake  and  tidal  wave  (30-19-641:  O.  D.  345).. 1919  Cum.  Bull, 
p.  151. 

Presentation  gift  to  contributors  to  educational  organizations:  cost  of  (16-20-863: 
O.  D.  465).  .June  1920  Cum.  Bull.  p.  152. 

Public  park  for  A.  E.  F.  men  (2-19-152:  O.  D.  104).  . 1919  Cum.  Bull.  p.  150. 
Services  rendered  rather  than  cash  or  property  (44-20-1277:  0.  D.  712).  .Dec.  1920 
Cum.  Bull.  p.  188. 

Trust  company  trust  fund  for  charitable  purposes;  contributions  to  (39-20-1211: 
O.  D.  669).  .Dec.  1920  Cum.  Bull.  p.  187. 

Valuing  gift  when  made  in  property  other  than  money  (7-20-740:  O.  979 i . . Tune  1920 
Cum.  Bull.  p.  148. 


2005  Receipt  is  acknowledged  of  your  letter  dated  December  5,  1917, 
referring  to  contributions  or  gifts  made  by  citizen  and  resident 

individuals  of  the  United  Stated  to  corporations  or  associations  organized 
and  operated,  exclusively  for  religious,  charitable  or  scientific  purposes  which 
may  be  considered. as  a deduction  for  tax  purposes,  in  accordance  with  the 
provisions  of  the  ninth  paragraph  added  to  Section  5 (a),  Act  of  September 
8,  1916,  by  Section  1201,  Act  of  October  3,  1917. 

2006  You  present  several  inquiries  which  are  repeated  and  answered  in 
the  order  stated  by  you. 

2007  “Are  gifts  to  foreign  organizations  of  a character  specified  in  the 
Law  to  be  also  deducted?”  Such  contributions  or  gifts  may  be 

considered  in  computing  the  amount  allowable  as  a deducton  under  the 
provisions  of  paragraph  nine. 

2008  “Is  the  Red  Cross  to  be  included  as  a charitable  organization?” 
It  is  held  that  the  American  National  Red  Cross  falls  within  the  class 

of  associations  enumerated  in  paragraph  nine. 

2009  “Is  a church  to  be  considered  a religious  organization?  Of  course, 
we  know  that  ‘the  Church’  is  a religious  institution,  but  is  any  par- 
ticular church  so  considered?”  It  is  held  that  every  church  constitutes  a 
religious. corporation  or  association  for  the  purposes  of  the  deduction  provided 
by  the  ninth  paragraph. 

2010  “In  this  connection,  are  donations  made  to  missionary  funds,  to 
the  church  building  funds  and  for  the  benefit  of  other  activities  of 

the  church  to  be  deductible?”  It  is  held  that  all  such  donations,  being  for 
the  benefit  or  furtherance  of  religious  activities,  constitute  items  which  may 
be  considered  in  computing  the  deductions  provided  by  the  ninth  paragraph. 
(Letter  to  The  Corporation  Trust  Company,  signed  by  Commissioner  Daniel 
C.  Roper,  and  dated  Dec.  24,  1917.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22.  (2)  4-10-22.  (3)  6-9-22.  (4)  6-26-22.  (6)  7-27 

DEDUCTIONS— DEPRECIATION. 

taxpayer  using  the  reserve  method  should  make  a statement  in  his  return 
showing  the  volume  of  his  charge  sales  (or  other  business  transactions)  for 
the  year  and  the  percentage  of  the  reserve  to  such  amount,  the  total  amount 
of  notes  and  accounts  receivable  at  the  beginning  and  close  of  the  taxable 
year,  and  the  amount  of  the  debts  which  have  been  ascertained  to  be  wholly 
or  partially  worthless  and  charged  against  the  reserve  account  during  the 
taxable  year.  (Art.  155,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Insufficiency  of  net  addition  to  reserve  fund  during  a taxable  year  to  be  considered 
in  determining  amount  of  net  addition  to  such  fund  in  subsequent  year;  1921 
Act  (1-23-329:  I.  T.  1341).  .Bull.  I (’22)-23,  p.  4. 


1 823  Amounts  Received  as  Dividends  by  Individuals  as  a Credit  for 
Normal  Tax  Purposes. — See  1(2043. 

1824  Law  1(407.  Amounts  Received  as  Dividends  by  Corporations 
(Sec.  234.]  Are  Deductible  Generally. — “(6)  The  amount  received 

as  dividends” 

1825  Law  1(408.  “( A ) from  a domestic  corporation  other  than  a corpora- 

(Sec.  234.)  lion  entitled  to  the  benefits  of  section  262  [1(2070],  or” 

1 826  Law  1(409.  “(B)  from  any  foreign  corporation  when  it  is  shown 

(Sec.  234.)  to  the  satisfaction  of  the  Commissioner  that  more  than 

50  per  centfum  of  the  gross  income  of  such  foreign  cor- 
poration for  the  three-year  period  ending  with  the  close  of  its  taxable  year 
preceding  the  declaratio\  of  slch  dividends  (or  for  such  part  of  such  period 
as  the  foreign  corporation,  has  been  in  existence ) was  derived  from  sources 
within  the  United  Statestes  determined  under  section  217  [1(2102];” — Law. 

\ / [Note:  The  1918  Act  provided  here,  as 

\ I follows:  “(6)  Amounts  received  as  divi- 

d dends  from  a corporation  which  is  tax- 

A able  under  this  title  upon  its  net  in- 

/ \ come,  and  amounts  received  as  divi- 

/ \ dends  from  a personal  service  corpora- 

I \tion  out  of  earnings  or  profits  upon 
1 Nvhich  income  tax  has  been  imposed  by 
Art  of  Congress. ,x] 

[Read  statement  relative  to  deouctibility  of  dividends  at  1(1617.] 


1827  Law  1(166.  Reasonable  Allowance  for  Depreciation  of  Business 
(Sec.  214.)  Property  is  Deductible. — “(8)  A reasonable  allowance 

for  fhe  exhaustion,  wear  and  tear  of  property  used  in 
the  trade  or  business,  including  a reasonable  allowance  for  obsolescence.” 

1828  Law  1(167.  “Iii  the  case  of  such  property  acquired  before  March 

(Sec.  214.)  1,  1913,  this  deduction  shall  be  computed  upon  the  basis 

of  its  fair  market  price  or  value  as  of  March  1,  1913;” 

1829  Law  1(410.  [Corporations.] — “(7)  A reasonable  allowance  for  the 
(Sec.  234.)  exhaustion,  wear  and  tear  of  property  used  in  the  trade 

or  business,  including  a reasonable  allowance  for  obso- 
lescence” 

Copyright  1922,  by  The  Corporation  1 rust  Company. 

THE  EtUF.H AL  INCOME  TAX  SERVICE 
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*-27-22.  (2)  4-10-22.  (3)  6-9-22.  (4)  6-26-22.  (5)  7-27-22. 

DEDUCTIONS— DEPRECIATION. 


1830  Law  ^411.  “In  the  case  of  such  property  acquired  before  March 
(,occ.  234.)  1 1913,  this  deduction  shall  be  computed  upon  the  basis 

T rxr  ltiJair  market  price  or  value  as  of  March  1,  1913:” 

aw’  [Note:  I lie  1918  Act  (and  to  the  extent  of  the  provision 

relative  to  property  acquired  prior  to 
March  1,  1913,  the  regulations  under  the 
1918  Act)  so  provided.] 


1831  Depreciation.— A reasonable  allowance  for  the  exhaustion,  wear 
and  tear  and  obsolescence  of  property  used  in  the  trade  or  business 
may  he  deducted  from  gross  income.  For  convenience  such  an  allowance 
will  usually  be  referred  to  as  depreciation,  excluding  from  the  term  any  idea 
oi  a mere  reduction  in  market  value  not  resulting  from  exhaustion,  wear 
and  tear  or  obsolescence,  [he  proper  allowance  for  such  depreciation  of  any 
property  used  in  the  trade  or  business  is  that  amount  which  should  be  set 
aside  for  the  taxabje  year  in  accordance  with  a reasonably  consistent  plan  (not 
necessarily  at  a uniform  rate)  by  which  the  aggregate  of  such  amounts  for  the 
useful  life  of  the  property  in  the  business  will  suffice,  with  the  salvage  value, 
and  having  due  regard  for  expenditures  made  for  current  upkeep,  at  the  end 
ot  such  useful  life  to  provide  in  place  of  the  property  its  original  cost  (not 
replacement  cost)  or  its  value  as  of  March  1,  1913,  if  acquired  by  the  tax- 
payer before  that  date.  See  further  articles  839  and  844  [for  depreciation 
in  connection  with  invested  capital. — War  Tax  Service].  (Art.  161,  Reg  62 
1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Accrued  obsolescence  prior  to  Jan.  1,  1918  (31-21-1752:  Sol.  Op.  114)  . Dec.  1921 
Cum.  Bull.  p.  148. 

Brewery  turned  to  cereal  beverages,  then  abandoned  (34-21-1780:  0.  D.  1001) 
Dec.  1921  Cum.  Bull.  p.  150. 

Coast-wise  lumber  trade  steam  schooners  (42-20-1245:  A.  R R 279)  Dec  1920 
Cum.  Bull.  p.  168. 

Dipping  vats  for  cattle  tick  eradication  constructed  by  virtue  of  State  law  (48-20- 1 322  ■ 
0.  D.  738)  Dec.  1920  Cum.  Bull.  p.  168. 

Great  Lakes  bulk  freight  steamships  (9-20-773:  A.  R.  R.  27).  . June  1920  Cum.  Bull, 
p.  139.  Obsolescence  accrued  prior  to  Jan.  1,  1918  (31-21-1752:  Sol.  Op.  114).  . 
Bull.  31-21,  p.  18.  A.  R.  R.  27  reconsidered  and  Sol.  Op.  114  adhered  to;  lengthy 
discussion:  1918  and  1921  Acts  (1-25-357:  A.  R.  R.  963)..  Bull.  I (’22)-25,  p 8 

Ueased  apparatus  junked  at  expiration  of  lease  (44-21-1894:  O.  D.  1082)..  Dec 
1921  Cum.  Bull.  p.  175. 

Leased  properties  the  terms  requiring  that  lessee  turn  back  properties  at  expiration  of 
period  in  same  condition  as  when  leased  (35-21-1794:  O.  D.  1014)  Dec  1921 
Cum.  Bull.  p.  151. 

Oil  well  equipment  acquired  on  purchase  of  leases  (37-21-1818:  A.  R.  R.  570).  Dec 
1921  Cum.  Bull.  p.  152. 

* Railroad  siding  to  taxpayer’s  property  (36-21-1800:  O.  D.  1019). .Dec.  1921  Bull 
p.  151.  Same  (1-30-427:  A.  R.  R.  1008).. Bull.  I (’22)-30,  P.  14. 

Railroads  (See  “Railroads”  under  Art.  162  below). 

Reorganization  of  corporation;  capita!  sum  to  be  recovered  in  case  of  assets  thus 
acquired  (15-20-855:  O.  D.  458).  June  1920  Cum.  Bull.  p.  313. 

Uncertain  obsolescence;  that  is,  a building  may  become  obsolete  (4-20-704:  0.  D.  381) 

• June  1920  Cum.  Bull.  p.  138. 

“Useful  life”  interpreted:  new  buildings  in  course  of  construction  (11-21-1510:  O.  D. 
845).  .June  1921  Cum.  Bull.  p.  178. 

Vineyards;  prohibition  (8-19-320:  O.  862)..  1919  Cum.  Bull,  p 127. 


C op  y right  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
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DEDUCTIONS— TAXES. 


the  taxpayer  shall  notify  the  Commissioner , who  shall  redetermine  the  amount 
of  the  tax  due  under  Pari  II  of  this  title  for  the  year  or  years  *Wed,and 
the  amount  of  tax  due  upon  such  redetermination , if  any,  shall  be  paid  by 
the  taxpayer  upon  notice  and  demand  by  the  collector , or  the  amount  oj  tax 
overpaid , if  any,  shall  be  credited  or  refunded  to  the  taxpayer  in  accordance 
with  the  provisions  of  section  252  [f2825].”— Law.  jNote:  ^1918 


742  Law  t309. 

(Sec.  222.) 


“In  the  case  of  such  a tax  accrued  but  not  paid,  the  Com- 
missioner as  a condition  precedent  to  the  allowance  of 
this  credit  may  require  the  taxpayer  to  give  a bond  with 
sureties  satisfactory  to  and  to  be  approved  by  the  Commissioner  in  such 
penal  sum  as  the  Commissioner  may  require/,  conditioned  for  the  payment 
by  the  taxpayer  of  any  amount  of  tax  found  due  upon  any  such  redetermina- 
tion;  and  the  bond  herein  prescribed  shall  contain  such  father  conditions 
as  the  Commissioner  may  require.”— Law,  [Note:  The  1918  Act^so 


I 743 


Law  1[310.  Credits  for  Income  and  Excess-Profits  Taxes  Paid  to 
(Sec  222  ) Foreign  Countries  and  to  Possessions  of  the  United 
States  to  be  Allowed  Only  if  Satisfactory  Evidence  be 
Furnished. — “(c)  These  credits  shall  be  allowed  only  if  the  taxpayer  fur- 
nishes evidence  satisfactory  to  the  Commissioner  showing  the  amount  oj 
income  derived  from  sources  without  the  United  States,  and  all  other  in- 
formation necessary  for  the  verification  and  computation  of  such  credits. 

Law  [Note:  The  1918  Act  provided  for  the  furnishing  of  evidence 

showing  the  amount  of  income  derived 
from  sources  within  such  foreign  country 
or  such  possession  of  the  United  States; 
the  1918  Act  did  not  specifically  provide 
for  “the  verification.”] 

i 744  Law  H311.  Credit  for  Taxes  in  the  Case  of  a Taxpayer  Making 
(Sec.  222.)  Return  for  a Fiscal  Year  Ending  in  1921. — (a)  It 

the  taxpayer  makes  a return  for  a fiscal  year  beginning 
in  1920  and  ending  in  1921,  the  credit  for  the  entire-fiscal  year  shall,  not- 
withstanding any  provision  of  this  Act,  be  determined  under  the  provisions 
of  this  section;”— Law.  [Note:  This  provision  is  new  to  the  1921 

J Act.l 


1 745  Law  1[3 12.  “and  the  Commissioner  is  authorized  to  disallow,  in  whole 
(Sec.  222.)  or  part,  any  such  credit  which  he  finds  has  already  been 
taken  by  the  taxpayer.” — Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 

1 746  In  the  case  of  a fiscal  year  beginning  in  1920  and  ending  in  1921  there 
shall  be  no  prorating  of  the  tax  credits  allowed  by  the  Revenue  Act 
of  1918  and  by  section  222,  but  the  tax  credits  for  such  fiscal  year  shall  be 
determined  entirely  under  the  provisions  of  this  section.  The  Commissioner 
is  authorized  to  disallow  any  such  credit  which  he  finds  has  already  been 
taken  by  the  taxpayer.  (Art.  386,  Reg.  62,  1922  Edition.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 

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DEDUCTIONS— TAXES. 


1747  Analysis  of  Credit  for  Taxes.— (1)  In  the  case  of  a citizen  of  the 
United  States,  whether  resident  or  nonresident,  the  basis  of  the  credit 
for  taxes  is  as  follows:  (a)  “the  amount  of  any  income,  war-profits  and 
excess-profits  taxes  paid”  or  accrued  “during  the  taxable  year  to  any  foreign 
country  or  to  any  possession  of  the  United  States”;  and  (b)  his  “proportion- 
ate share  of”  any  “such  taxes  of”  a partnership  of  which  he  is  a partner  or 
of  an  estate  or  trust  of  which  he  is  a beneficiary  paid  or  accrued  “during 
the  taxable  year  to  a foreign  country  or  to  any  possession  of  the  United 
States,  as  the  case  may  be.” 

1 748  (2)  In  the  case  of  an  alien  resident  of  the  United  States  the  basis 

of  the  credit  for  taxes  is  as  follows:  (a)  “The  amount  of  any  such 
taxes  paid”  or  accrued  “during  the  taxable  year  to  any  possession  of  the 
United  States”;  (b)  “the  amount  of  any  such  taxes  paid”  or  accrued  “dur- 
ing the  taxable  year  to  any  foreign  country,  if  the  foreign  country  of  which 
such  alien  resident  is  a citizen  or  subject,  in  imposing  such  taxes,  allows  a 
similar  credit  to  citizens  of  the  United  States  residing  in  such  country;  and 
(c)  his  “proportionate  share  of”  any  “such  taxes  of”  a partnership  of  which 
he  is  a partner  or  of  an  estate  or  trust  of  which  he  is  a beneficiary  paid  or 
accrued  “during  the  taxable  year  to  any  foreign  country,  if  the  foreign  coun- 
try of  which  such  alien  resident  is  a citizen  or  subject,  in  imposing  such 
taxes,  allows  a similar  credit  to  citizens  of  the  United  States  residing  in 
such  country,”  “or  to  any  possessipn  of  the  United  States,  as  the  case  may 
be.”  As  to  credits  for  taxes  in  the  case  of  corporations  see  section  238  of  the 
statute  and  articles  611  [U 1758]  and  612  []fl767].  (Art.  381,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1918:  taxes  paid  in  (7-20-743:  O.  987).  .June  1920  Cum.  Bull.  p.  196. 

♦Canada  (1921  Act)_(I-10-132:  I.  T.  1234).  .Bull.  I (’22)-10,  p.  20. 

Citizen  of  U.  S.  residing  abroad  and  paying  foreign  income  and  profits  taxes  on  income 
from  U.  S.  (26-19-593:  O.  D.  317) . . 1919  Cum.  Bull.  p.  188. 

Cuba:  tax  on  corporations  operating  sugar  plantations  (3-20-688:  0.  D.  372).  .June 
1920  Cum.  Bull.  p.  115. 

France:  the  minimum  tax  based  on  seven  times  rental  value  of  French  residence  (45- 
21-1911:  O.  D.  1093).  .Dec.  1921  Cum.  Bull.  p.  194. 


1 749  Meaning  of  Terms. — “Amount  of  * * * taxes  paid  during  the 
taxable  year”  means  taxes  proper  (no  credit  being  given  for  amounts 
representing  interest  or  penalties)  paid  or  accrued  during  the  taxable  year 
on  behalf  of  the  individual  claiming  credit.  “Foreign  country”  includes 
within  its  meaning  any  foreign  sovereign  state  or  self-governing  colony 
(for  example,  the  Dominion  of  Canada),  but  does  not  include  a foreign 
municipality  (for  example,  Montreal)  unless  itself  a sovereign  State  (for 
example,  Hamburg).  “Any  possession  of  the  United  States”  includes, 
among  others,  Porto  Rico,  the  Philippines,  and  the  Virgin  Islands.  As  to 
the  meaning  of  “sources,”  see  section  217  [beginning  at  * 2102].  See  also 
section  2 of  the  statute.  (Art.  382,  Reg.  62,  1922  Edition.) 

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TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  239.  Corporation  returns 

Article  621.  Corporation  returns 2489,  2509 

622.  Returns  by  receivers 2500 

623.  Returns  of  insurance  companies 1362 

624.  Returns  of  personal  service  corporations 843 

625.  Returns  of  foreign  corporations 1423 

626.  Returns  for  fractional  part  of  year 2576 

Section  240.  Consolidated  returns  of  corporations 

Article  631.  Affiliated  corporations 2543 

632.  Consolidated  returns 2544 

633.  When  corporations  are  affiliated 2555 

634.  Change  in  ownership  during  taxable  year 2556 

636  635.  Domestic  corporation  affiliated  with  foreign  corporation 2559 

637  636.  Consolidated  net  income  of  affiliated  corporations 2551 

New.  . . .637.  Consolidated  accounts  of  related  trades  owned  by  same  interests.  . 2561 

638.  Different  fiscal  years  of  affiliated  corporations 2548 

Section  241.  Time  and  place  for  filing  corporate  returns 

Article  651.  Time  and  place  for  filing  returns 2535 

Sections  242  and  243.  Tax  on  life  insurance  companies 

New.Art.661.  Life  insurance  companies 1313 

Section  244. 

549.  .Art. 671.  Gross  income  of  life  insurance  companies 1315 

Section  245. 

New.Art.681.  Reserve  funds 1320 

New....  682.  Reserve  for  deferred  dividends 1324 

New....  683.  Investment  expenses 1327 

New.  . . .684.  Taxes  and  expenses  with  respect  to  real  estate 1331 

New....  685.  Other  deductions 1322,  1336,  1340 

New.... 686.  Home  office  properties 1343 

New.... 687.  Foreign  companies 1345 

Sections  246  and  247.  Insurance  companies  other  than  life  or  mutual  companies 

a cm  : •_ 


New.  . . .692.  Gross  income  of  insurance  companies 1378 

New....  693.  Deductions  allowed  insurance  companies 1394 

ADMINISTRATIVE  PROVISIONS 
Section  250.  Payment  of  taxes 

Article  1001.  Time  for  payment  of  tax 2602,2718,2720,2723,2732 

1002.  Payment  of  tax  when  no  proper  return 2624 

1003,  1006.1003.  Nonpayment  of  tax — interest  and  penalty 2727 

1004.  Penalty  for  failure  to  file  return 2625 

1005.  Deficiency  in  payment — interest  and  penalty 2603 

New.  . . ,1006.  Appeals  and  hearings 2763-  A 3406 

1007.  Notice  and  demand  for  payment 2730 

1008.  Collection  of  tax  by  suit 2756 

1009.  Collection  of  tax  by  distraint 2779 

1010.  Liens  and  enforcement  of  tax  liens  by  bill  in  equity 2781 

1011.  Compromise  of  tax  cases 2632 

1012.  Assessment  of  tax 2747 

1013.  Declaration  of  termination  of  taxable  period 2786 

New. . . . 1014.  Extension  of  time  for  payment  of  deficiency 2608 

Section  251.  Receipts  for  taxes 

Article  1021.  Receipts  for  tax  payments 2799 

Section  252.  Refunds 

Article  1031.  Authority  for  refund,  credit,  and  abatement  of  tax 2813 

New. ...  1031(a).  Refund,  credit,  and  abatement  adjustments 2817 

1032.  Claims  for  abatement  of  taxes  erroneously  assessed 2822 

1033.  Claims  for  abatement  of  uncollectible  taxes 2824 

1034.  Claims  for  credit  of  taxes  erroneously  collected 2829 

1035.  Action  on  claims  for  credit 2832 

1036.  Claims  for  refund  of  taxes  erroneously  collected 2835 

New 1037.  Special  relief  where  invested  capital  reduced  by  Commissioner. . 2851 

New....  1038.  Refunds  under  prior  Acts 2853 

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TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  1324.  Interest  on  refunds  and  judgments 

New. Art.  1040.  Interest  on  refunds  and  judgments 2859,  2918 

Sections  1318,  1319,  and  1320.  Limitations  upon  suits  and  prosecutions 

1037.  Art.  1050.  Suits  for  recovery  of  taxes  erroneously  collected .. 2752,  2871,  2r84,  2886 

1038.  . . . 1051.  Claims  for  refund  of  sums  recovered  by  suit ' 2920 

Section  253.  Penalties 

1041. Art. 1055.  Specific  penalties 2629 

Section  254.  Returns  of  payments  of  dividends 

1051. Art. 1060.  Return  of  information  as  to  payments  of  dividends 2379 

Section  255.  Returns  of  brokers 

1061. Art.  1065.  Return  of  information  by  brokers 2381 

Section  256.  Information  at  source 

Article  1071.  Return  of  information  as  to  payments  of  $1,000 2343 

1072.  Return  of  information  as  to  payments  to  employees 2345 

1074.  . . . 1073.  Cases  where  no  return  of  information  required 2350 

1075.  . . . 1074.  Return  of  information  as  to  interest  on  corporate  bonds 2355 

10^6 1075.  Return  of  information  as  to  payments  to  nonresident  aliens 2352 

1077  ....  1076.  Source  of  information  as  to  foreign  items 2357 

1078.  . . . 1077.  Ownership  certificates  for  foreign  items 2361 

1078a.  . . 1078.  Foreign  items  presented  for  collection  unaccompanied  by  owner- 
ship certificates 2366 

1079.  Return  of  information  as  to  foreign  items 2368 

1080.  Information  as  to  actual  owner 2370 

Section  257.  Returns  to  be  public  records 

1091. Art. 1090.  Inspection  of  returns 2663 

1091a  . . 1091.  Furnishing  of  copies  of  income  returns 2660 

1092.  Inspection  of  returns  by  State 2683 

1093.  Inspection  of  returns  by  stockholder 2693 

1094.  Penalties  for  disclosure  of  returns 2695  2778 

Section  258.  Publication  of  statistics 

Article  1101.  Statistics  of  income 2708 

Section  259.  Collection  of  foreign  items 

Article  1111.  License  to  collect  foreign  items 2374 

Section  260.  Citizens  of  possessions  of  the  United  States 

Article  1121.  Status  of  citizen  of  United  States  possession 770 

Section  261.  Porto  Rico  and  Philippine  Islands 

Article  1131.  Income  tax  in  Porto  Rico  and  Philippine  Islands 774 

1132.  Taxation  of  individuals  between  United  States  and  Porto  Rico 

and  Philippine  Islands 775 

1133.  Taxation  of  corporations  between  United  States  and  Porto  Rico 

and  Philippine  Islands 776 

Section  262.  Income  from  sources  within  the  possessions  of  the  United  States 
New. Art. 1135.  Citizens  of  the  United  States  deriving  income  from  sources  within 

a possession  of  the  United  States 2076 

New.  . . . 1136.  Domestic  corporation  deriving  income  from  sources  within  a pos- 
session of  the  United  States 2077 

New.  . . . 1137.  Income  received  within  the  United  States 2078 

Section  1312.  Final  determinations  and  assessments 

New.Art.1141.  Final  determination  of  tax  or  penalty 2867 


DEFINITIONS  AND  GENERAL  PROVISIONS 


Section  2.  General  definitions 

Article  1501.  Person 704,  706,  987 

1502.  Association 988 

1503.  Association  distinguished  from  partnership 989 

1504.  Association  distinguished  from  trust 990 

1505.  Limited  partnership  as  partnership 992 

1506.  Limited  partnership  as  corporation 993 

1507.  Joint  ownership  and  joint  adventure 994 

1508.  Insurance  company 1348 

1509.  Domestic  and  foreign  persons 1400,  2060 

1510.  Government  contract 821 


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Paragraph 


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TABLE  OF  CONTENTS  TO  REGULATIONS  62. 


Section  200.  Definitions 

Article  1521.  Fiduciary 923 

1522.  Fiduciary  distinguished  from  agent 924 

1523.  Personal  service  corporation 825 

1524.  Personal  service  corporation:  certain  corporations  excluded....  826 

1525.  Personal  services  rendered  by  personal  service  corporation 827 

1526.  Personal  services  rendered  by  personal  service  coporation:  more 

than  one  business 828 

1527.  Activities  of  stockholders  of  persona!  service  corporation 829 

1528.  Activities  of  stockholders  of  personal  service  corporation:  conduct 

of  affairs 830 

1529.  Activities  of  stockholders  of  personal  service  corporation:  stock 

interest  required 831 

1530.  Activities  of  stockholders  of  personal  service  corporation:  change 

in  ownership 832 

1531.  Capital  of  personal  service  corporation 833 

1532.  Capital  of  personal  service  corporation:  inference  from  use 834 

1533.  “Taxable  year,”  “withholding  agent,”  and  “paid”. . . . 1048,  1061,  2227 
Section  201.  Dividends 

Article  1541.  Dividends (....  1080,  1082 

1542.  Source  of  distribution 1107 

1543.  Distribution  out  of  earnings  or  profits  accumulated  prior  to 

March  1,  1913 1113,  1117 

1543.  ...  1544.  Distributions  other  than  those  out  of  earnings  or  profits 1123 

1548 .. ..  1545.  Distributions  in  liquidation 1125 

1549.  . . . 1546.  Distribution  from  depletion  or  depreciation  reserves 1 126 

1544.  ...  1547.  Dividends  paid  in  property 1084 

1547.  . . . 1548.  Sale  of  stock  received  as  dividend 1 136 

New....  1549.  Declaration  and  subsequent  redemption  of  a stock  dividend....  1151 

Section  202.  Basis  for  determining  gain  or  loss 

Article  1561.  Basis  for  determining  gain  or  loss  from  sale 1437 

1562.  Sale  of  property  acquired  by  gift  after  December  31,  1920 1452 

1562 .. ..  1563.  Sale  of  property  acquired  by  gift  on  or  before  December  31, 

1920,  or  by  bequest,  devise,  or  inheritance 1455 

1563.  ...  1564.  Exchange  of  property 1457 

1564.  . . . 1565.  Determination  of  gain  or  loss  from  the  exchange  of  property.  . . . 1458 

1566. . ) 

1567.  . )■  1566.  Exchange  of  property  which  results  in  no  gain  or  loss 1466 

1569. . ) 

1568.  . . . 1567.  Gain  or  loss  from  subsequent  sale 1477 

1565.  . . . 1568.  Exchanges  of  property  for  other  property  and  money 1482 

New....  1569.  Installment  sales 1489 

1570.  Readjustment  of  partnership  interests 1490 

Section  203.  Inventories 

Article  1581.  Need  of  inventories 1510 

1582.  Valuation  of  inventories 1511 

1583.  Inventories  at  cost 1516 

1584.  Inventories  at  market 1520 

1585.  Inventories  by  dealers  in  securities 1521 

1586.  Inventories  of  live-stock  raisers  and  other  farmers 1192;  A,  3344 

1587.  Inventories  of  miners  and  manufacturers 1524 

1588.  Inventories  of  retail  merchants 1525 

Section  204.  Net  losses 

Article  1601.  Net  losses,  definition  and  computation 1535 

1602,  1603.1602.  Claim  for  allowance  of  net  loss 1545 

New....  1603.  Net  losses  of  partnerships,  trusts,  estates,  and  insurance  com- 
panies  1547 

New. . . . 1604.  Net  losses,  for  what  periods  allowed 1549 

New....  1605.  Illustration  of  computation  of  net  loss v 1541 

Section  205.  Fiscal  years  1920-21  and  1921-22 

Article  1621.  Fiscal  years  1920-21  and  1921-22 869 

1622.  Fiscal  year  ending  in  1921 870 

1623.  Credits  in  the  case  of  fiscal  year  ending  in  1921 871 

1624.  Fiscal  year  ending  in  1922 872 


Copyright  1922,  by  The  Corporation  Trust  Company. 

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(2)  4-10-22.  (3)  10-11-22. 

TABLE  Oh  CONTENTS  TO  REGULATIONS  62. 


Section  206.  Capital  gain  Paragraph 

New. Art.  1651.  Definition  and  illustration  of  capital  net  gain 1503 

New 1652.  Returns  of  capital  net  gain 1506 

New 1653.  Partnerships,  estates,  and  trusts 1508 

Section  1300.  Laws  made  applicable— Returns— Examination  of  books  and  witnesses 

Article  1711.  Aids  to  collection  of  tax 2711 

Section  1306.  Fractional  parts  of  a cent 

Article  1721.  When  fractional  part  of  a cent  may  be  disregarded 2788a 

Section  1325.  Payment  of  taxes  by  check  or  United  States  securities 

Article  1731.  Payment  of  tax  by  certificates  of  indebtedness 2790 

1732.  Procedure  with  respect  to  certificates  of  indebtedness 2791 

1733.  Payment  of  tax  by  uncertified  checks ’ 2796 

1734.  Procedure  with  respect  to  dishonored  checks ’ ” 2797 

Section  1332.  Alternative  tax  on  personal  service  corporations 

New. Art.  1736.  Alternative  tax  on  personal  service  corporations Rfio 

Section  1303.  Rules  and  regulations 

Article  1800.  Promulgation  of  regulations 2943 

Cross  References  From  Regulations  45  to  Regulations  62. 

//  a particular  Article  of  Regulations  45  is  not  listed , its  general  subject  matter  is 


Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 


45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 


45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 


Reg.  45,  Art. 
Reg.  45,  Art. 


50 

— 

Art. 

51 

Art. 

52 

= 

Art. 

53 

= 

Art. 

54 

= 

Art. 

78 

= 

Art. 

79 

= 

Art. 

80 

== 

Art. 

80  a ) 

— 

Art. 

81 

= 

Art. 

82 

= 

Art. 

83 

= 

Art. 

84 

= 

Art. 

85 

= 

Art. 

S6 

= 

none 

87 

= 

Art. 

88 

= 

Art. 

91 

= 

Art. 

92 

= 

Art. 

92  a) 

= 

Art. 

93 

= 

Art. 

261) 

to  > 

= 

none 

268 

292 

= 

Art.  i 

203 

50 

61 

62 

53 

79 

81 

85 

82 

85 

83 

84 
84 

86 

87 

88 

90 

91 

92 
322 

93 

94 


of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 
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of  Reg.  62 
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Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 

Reg. 


45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 
45,  Art. 


Reg.  45,  Art 


Reg.  45,  Art. 

Reg.  45,  Art. 

Reg.  45,  Art. 

Reg.  45,  Art. 

Reg.  45,  Art. 

Reg.  45,  Art. 

Reg.  45,  Art. 

For  Cumulative  Index 


307 

311 

312 
312. aj 

313 

314 

315 

316 

321 

322 

323 

324 

325 

326 

327 

328 

329 

330 

331 
3321 

tO  f : 

335) 

363  a) : 

364  : 

365 

366  : 

367  : 

368  = 

369  = 


Reg.  45,  Art.  

Reg.  45,  Art.  1006 
Reg.  45,  Art.  1037  = 

Reg.  45,  Art.  1038  == 

Reg.  45,  Art.  1041  = 

Reg.  45,  Art.  1051  = 

Reg.  45,  Art.  1061  = 

Reg.  45,  Art.  1073  = 

Reg.  45,  Art.  1074  = 

Reg.  45,  Art.  1075  = 

Reg.  45.  Art.  1076  = 

Reg.  45,  Art.  1077  = 

Reg.  45,  Art.  1078  = 

Reg.  45,  Art.  1078ia'  = 
Reg.  45,  Art.  1091  == 

Reg.  45,  Art.  1091(.a)  = 
Reg.  45,  Art.  1543  = 

Reg.  45,  Art.  1544  = 

Reg.  45,  Art.  1545  = 

Reg.  45,  Art.  1546  = 

Reg.  45,  Art.  1547  = 

Reg.  45,  Art.  1548  = 

Reg.  45,  Art.  1549  = 

Reg.  45,  Art.  1562  = 

Reg.  45,  Art.  1563  = 

Reg.  45,  Art.  1564  = 

Reg.  45,  Art.  1565  = 

Reg.  45,  Art.  1667  = 

Reg.  45,  Art.  1568  = 

Reg.  45,  Art.  1569  = 

Reg.  45,  Art.  1603  = 

1621) 

Reg.  45,  Art.  to  ( = 

1625  J 

Reg.  45,  Art.  1641  = 

Reg.  45,  Art.  1642  = 

references  to  Articles  of  Reg.  45,  for  which  there  are  no 
(in  context)  of  Iteg,  62,  see  end  of  compilation, 
Copyright  1922,  by  Tlic  Corporation  Trust  Company. 
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292  / 01  Keg-  b4 

none 

Art.  329  of  Reg.  62 

Art.  311  of  Reg.  62 

Art.  311a  of  Reg.  62 

Art.  312  of  Reg.  62 

Art.  313  ' ~ 

Art.  314 

Art.  315 

Art.  331 

Art.  332 

Art.  333 

Art.  334 

none 
Art.  335 

Art.  335 

Art.  336 

Art.  337 

Art.  338 

Art.  339 


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Art.  364 
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Art.  369 
Art.  370 


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Reg.  45,  Art. 
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Keg.  45,  Art. 
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Reg.  45,  Art. 
Reg.  45,  Art. 


370  = 

371  = 

375  = 

376  == 

446  = 

447  = 

448  = 

504  = 

541,  a)  = 

542  = 

543  = 

544  — 

645  = 

546  = 

547  = 

548  = 

549  = 

635  = 

636  = 

637  = 


Art. 

none 

none 

Art. 

none 

Art. 

Art. 

none 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

Art. 

none 

Art. 


371  of  Reg.  62 
375  of  Reg.  62 


446 

447 

542 

543 

544 
645 

546 

547 
648 
549 
671 


of  Reg.  62 
of  Reg.  62 

of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
ol  Reg.  62 
of  Reg.  62 
of  Reg.  62 


635}  of  Reg‘  62 
636  of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 
of  Reg.  62 


Art.  1003 
Art.  1050 
Art.  1051 
Art.  1055 
Art.  1060 
Art.  1065 
none 
Art.  1073 
Art.  1074 
Art.  1075 
Art.  1076 
Art.  1077 
Art.  1078 
Art.  1090 
Art.  1091 
Art.  1543 
1544 
Art.  1547 
none 
none 

Art.  1648 
Art.  1545 
Art.  1546 
Art.  1563 
Art.  1564 
Art.  1565 
Art.  1568 
Art.  1566 
Art.  1567 
Art.  1566 
Art.  1602 
1621 
Art.  to 
1624 

none 

none 

corresponding  Articles 


of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 
of  Reg.  62 

of  Reg.  62 


2-27-22. 

INCOME  TAX  LIABILITY. 

703  Law  ^ 1 1 . “Taxpayer”  Defined. — “ The  term  ‘ taxpayer ’ includes 

(Sec.  2.)  any  person,  trust  or  estate  subject  to  a tax  imposed  by 
this  Acf” — Law.  [Note:  The  1918  Act  so 

pro\  ided.] 

704  A taxpayer  is  any  person,  trust  or  estate  subject  to  tax.  (Art. 
1501,  Reg.  62,  1922  Edition.) 

705  Law  ^3.  The  Term  “Person”  as  Used  in  the  Revenue  Act  of 

(Sec.  2.)  1921. — “ The  term  ‘ person ’ includes  partnerships  and 

corporations,  as  well  as  individuals — Law.  [Note: 

The  1918  Act  so  provided.] 

706  The  statute  recognizes  three  chief  classes  of  persons,  to  wit,  individ- 
uals, partnerships,  and  corporations.  Corporations  include  associa- 
tions, joint-stock  companies,  and  insurance  companies,  but  not  partner- 
ships properly  so-called.  (Art.  1501,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  1[987.] 

707  Income  Tax  Liability. — Except  as  otherwise  provided,  Title  I of  the 
statute  is  effective  January  1,  1921,  and  imposes  an  income  tax  on  in- 
dividuals, including  a normal  tax  and  a surtax.  See  section  211  of  the 
statute  [for  surtax  1[713].  The  tax  is  upon  net  income,  as  defined  in  the 
statute,  determined  by  deducting  from  gross  income,  as  defined  in  the  statute, 
the  allowable  deductions.  In  certain  cases  credits  are  allowed  against  net 
income,  and  against  the  amount  of  the  tax.  Special  provisions  of  the  statute 
deal  with  the  effect,  of  the  tax  on  nonresident  alien  individuals,  partner- 
ships, personal  service  corporations,  estates  and  trusts,  and  the  stock- 
holders of  corporations  which  unreasonably  accumulate  their  profits.  The 
tax  is  payable  upon  the  basis  of  returns  rendered  by  the  persons  liable  thereto, 
except  that  in  some  instances  it  is  to  be  paid  at  the  source  of  the  income 
The  statute  also  imposes  on  corporations  an  income  tax  at  a fixed  rate,  and,  for 
the  calendar  year  1921  only,  an  excess  profits  tax.  (Art.  1,  Reg.  62,  1922 
Edition.) 


708  Incorporation  of  Individual  or  Partnership  Business  and  Limited 
Election  to  be  Taxed  as  a Corporation. — Read  at  ^[995. 

709  Persons  Paying  Income  Taxes  to  Other  Countries.— American 
. citizens,  whether  residing  at  home  or  abroad,  resident  aliens,  and 

nonresident  aliens  receiving  income  from  property  owned  and  from  busi- 
ness, trade,  or  profession  carried  on  within  the  United  States,  all  of  whom 
are  subject  to  the  income  tax  law  of  October  3,  1913,  are  not  relieved  from 
tax  liability  under  that  act  by  reason  of  the  fact  that  they  are  also  subject 
to  the  income-tax  laws  of  other  countries.  [See  credit  for  such  taxes  at 
If  1733.]  (T.  D.  2152,  February  12,  1915.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

,/r  103' 


2-27-22. 


NORMAL  TAX  AND  SURTAX  ON  INDIVIDUALS. 


710  Law  If  104.  Normal  Tax  on  All  Individuals.—  “Sec.  210.  That,  in 
(Sec.  210.)  lieu  of  the  tax  imposed  by  section  210  of  the  Revenue  Act 
of  1918,  there  shall  be  levied,  collected,  and  paid  for  each 
taxable  year  upon  the  net  income  [for  “ net  losses ” read  at  If  1527]  of  every 
individual  a normal  tax  of  8 per  centum  of  the  amount  of  the  net  income  in 
excess  of  the  credits  provided  in  section  216  [If 2038]:” — Law.  [Note: 

The  1918  Act  so  provided.] 

71  1 Law  If  105.  Special  Rate  for  Citizens  and  Residents.—' “Provided, 
(Sec.  210.)  That  in  the  case  of  a citizen  or  resident  of  the  United 
States  the  rate  upon  the  first  $4,000  of  such  excess 
amount  shall  be  4 per  centum .” — Law.  [Note:  The  1918  Act  so 

provided.] 

712  The  normal  income  tax  on  individual  citizens  or  residents  of  the 
United  States  is  at  the  rate  of  4 per  cent  upon  the  first  $4,000  of  net 
income  subject  to  the  normal  tax  and  8 per  cent  upon  the  excess  over  that 
amount.  The  lower  rate  on  the  first  $4,000  applies  to  each  separate  indi- 
vidual, whether  married  or  unmarried,  and  should  not  be  confused  with  the 
joint  exemption  granted  married  persons.  In  the  case  of  nonresident  alien 
individuals  the  normal  tax  is  8 per  cent  and  there  is  no  reduction  of  the  rate 
upon  the  first  $4,000  of  net  income.  In  order  to  determine  the  income  to 
which  the  normal  tax  is  applied,  the  net  income,  as  defined  in  section  212  of 
the  statute  and  articles  21-26  of  the  regulations  [beginning  at  ^f  1042],  is  first 
entitled  to  the  credits  and  exemptions  specified  in  section  216  of  the  statute 
and  articles  301-306  fl[2043].  (Art.  2,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Fractional  year  return;  accounting  period  having  been  changed  (45-20-1296:  O.  D. 
723).  .Dec.  1920  Cum.  Bull.  p.  230. 


713  Law  ^f  106.  Surtax  on  Net  Income:  All  Individuals. — “Sec.  211. 
(Sec.  211.)  -(a.)  That,  in  lieu  of  the  tax  imposed  by  section  211 

[surtax  on  individuals — income  tax ] of  the  Revenue 
Act  of  1918,  but  in  addition  to  the  normal  tax  imposed  by  section  210 
ft[710]  of  this  Act,  there  shall  be  levied,  collected,  and  paid  for  each  taxable 
year  upon  the  net  income  of  every  individual — ” — Law.  [Note:  The 

1918  Act  so  provided.] 

714  In  addition  to  the  normal  tax  a surtax  is  imposed  at  the  rates  specified 
in  the  statute  upon  the  net  income  of  every  individual,  resident  or 

nonresident.  In  determining  the  taxable  net  income  for  the  purpose  of  the 
surtax,  the  credits  provided  by  section  216  fl[2038]  of  the  statute  in  the  case 
of  the  normal  tax  are  not  applicable.  As  to  optional  method  of  taxation  of 
capital  net  gain,  applicable  to  1922  and  succeeding  years  only,  see  section 
206,  and  articles  1651-1653  [^f  1503].  (Art.  11,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Fractional  year  return;  accounting  period  having  been  changed  (45-20-1296:  O.  D. 
723) . . Dec.  1920  Cum.  Bull.  p.  230. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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£-27-22. 


NORMAL  TAX  AND  SURTAX  ON  INDIVIDUALS. 


Joint  return  by  husband  and  wife  offsetting  losses  and  other  deductible  items  of  one 
against  gains  of  other  (7-21-1452:  Sol.  Op.  90).  .June  1921  Cum.  Bull.  p.  236. 

o ,M*a 


7 1 5 Maximum  aggregate  normal  tax  and  surtax  on  net  profits  resulting 
from  the  sale  of  capital  assets. — Read  at  If  1503. 

716  All  Taxable  Income  Received  by  Beneficiaries  Through  Fiduciar- 
ies is  Subject  to  Surtax. — A beneficiary  is  liable  for  the  normal  tax 

upon  the  amount  of  net  income  derived  by  him  from  a taxable  source  through 
a fiduciary  * * * and  is  also  liable  for  the  additional  tax  assessable  on 
the  amount  of  net  income  received  by  him  in  excess  of  [$5,000  for  1921; 
$6,000  for  1922],  and  in  order  to  determine  whether  the  net  income  of  a 
beneficiary  is  or  is  not  in  excess  of  [$5,000  or  $6,000]  and  subject  to  the 
additional  tax  the  amount  derived  by  him  from  an  estate  and  all  other 
taxable  sources  is  required  to  be  shown  on  his  personal  annual  return.  (T. 
D.  2090,  Dec.  14,  1914.) 

717  Corporations  Are  Not  Subject  to  Surtax. — Corporations  coming 
within  the  terms  of  this  law  are  subject  to  the  normal  tax  only;  that 

is,  a tax  computed  at  a level  rate  of  [10%  for  1921;  12p£%  for  1922]  of  their 
entire  net  income  regardless  of  the  amount  of  such  net  income  [in  excess  of 
the  credits,  if  any].  (Art.  185,  Reg.  33,  Jan.  5,  1914.) 

7 1 8 Dividends  Received  by  Beneficiaries  Through  Fiduciaries  are  Sub- 
ject to  Surtax. — Dividends  in  the  hands  of  a fiduciary  and  belong- 
ing to  a beneficiary  are  not  subject  to  the  normal  tax,  but  will  be  subject 
to  the  additional  tax  to  the  beneficiary  whenever  the  beneficiary’s  income 
from  all  taxable  sources  is  in  excess  of  [$5,000  for  1921;  $6,000  for  1922]. 
(T.  D.  2090,  Dec.  14,  1914.) 

719  Specific  Exemption  in  Its  Relation  to  the  Additional  Tax. — Per- 
sonal exemptions  from  tax  are  granted  in  respect  of  the  normal 

income  tax  only.  Where  the  total  of  allowable  exemptions  and  credits 
exceeds  the  amount  of  net  income,  the  excess  of  such  exemptions  may  not 
be  availed  of  as  against  the  additional  tax.  (Art.  14,  ^[  154,  Reg.  33,  Rev., 
Jan.  2,  1918.) 

720  In  Hyman  Cohen  vs.  John  Z.  Lowe,  Jr.,  Collector,  District  Court, 
Southern  District  of  New  York,  July  18,  1916  (234  Fed.  474)  the 

Court  held  against  the  contention  of  the  plaintiff,  that,  before  assessing  the 
additional  tax  on  the  excess  of  net  income  over  $20,000,  he  should  have 
been  allowed  an  exemption  of  $3,000,  as  in  the  case  of  the  normal  tax  (Act 
of  1913).  (Comment.) 

721  Surtax  imposed  by  Revenue  Act  of  1918  not  confiscatory. — [In 

Towne  vs.  McElligott  (274  Fed.  960)  decided  August  6,  1921  in  the 
U.  S.  District  Court,  Southern  District  of  New  York,  it  was  held  that  a 
tax  of  72%  on  the  last  increment  or  a tax  of  50%  upon  the  whole  income  is 
not  confiscatory  and,  therefore,  not  void  under  the  Fifth  Amendment  to 
the  Constitution.]  (274  Fed.  960:  T.  D.  3252,  Nov.  25,  1921.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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NORMAL  TAX  AND  SURTAX  ON  INDIVIDUALS. 


722  Law  1fl07.  Surtax  Rates  for  1921. — “(1)  For  the  calendar  year 
(Sec.  211.)  1921,  a surtax  equal  to  the  sum  of  the  following:''' 

“1  per  centum  of  the  amount  by  which  the  net  income 
exceeds  $5,000  and  does  not  exceed  $6,000; 

2 per  centum  of  the  amount  by  which  the  net  income  exceeds  $6,000  and 
does  not  exceed  $8,000; 

3 per  centum  of  the  amount  by  which  the  net  income  exceeds  $8,000  and 
does  not  exceed  $10,000; 

4 per  centum  of  the  amount  by  which  the  net  income  exceeds  $10,000 
and  does  not  exceed  $12,000; 

5 per  centum  of  the  amount  by  which  the  net  income  exceeds  $12,000 
and  does  not  exceed  $14,000; 

6 per  centum  of  the  amount  by  which  the  net  income  exceeds  $14,000 
and  does  not  exceed  $16,000; 

7 per  centum  of  the  amount  by  which  the  net  income  exceeds  $16,000 
and  does  not  exceed  $18,000; 

8 per  centum  of  the  amount  by  which  the  net  income  exceeds  $18,000 
and  does  not  exceed  $20,000; 

9 per  centum  of  the  amount  by  which  the  net  income  exceeds  $20,000 
and  does  not  exceed  $22,000; 

10  per  centum  of  the  amount  by  which  the  net  income  exceeds  $22,000 
and  does  not  exceed  $24,000; 

1 1 per  centum  of  the  amount  by  which  the  net  income  exceeds  $24,000 
and  does  not  exceed  $26,000; 

12  per  centum  of  the  amount  by  which  the  net  income  exceeds  $26,000 
and  does  not  exceed  $28,000; 

13  per  centum  of  the  amount  by  which  the  net  income  exceeds  $28,000 
and  does  not  exceed  $30,000; 

14  per  centum  of  the  amount  by  which  the  net  income  exceeds  $30,000 
and  does  not  exceed  $32,000; 

15  per  centum  of  the  amount  by  which  the  net  income  exceeds  $32,000 
and  does  not  exceed  $34,000; 

16  per  centum  of  the  amount  by  which  the  net  income  exceeds  $34,000 
and  does  not  exceed  $36,000; 

17  per  centum  of  the  amount  by  which  the  net  income  exceeds  $36,000 
and  does  not  exceed  $38,000; 

18  per  centum  of  the  amount  by  which  the  net  income  exceeds  $38,000 
and  does  not  exceed  $40,000; 

19  per  centum  of  the  amount  by  which  the  net  income  exceeds  $40,000 
and  does  not  exceed  $42,000; 

20  per  centum  of  the  amount  by  which  the  net  income  exceeds  $42,000 
and  does  not  exceed  $44,000; 

21  per  centum  of  the  amount  by  which  the  net  income  exceeds  $44,000 
and  does  not  exceed  $46,000; 

22  per  centum  of  the  amount  by  which  the  net  income  exceeds  $46,000 
and  does  not  exceed  $48,000; 

23  per  centum  of  the  amount  by  which  the  net  income  exceeds  $48,000  ^ 
and  does  not  exceed  $50,000; 

24  per  centum  of  the  amount  by  which  the  net  income  exceeds  $50,000 
and  does  not  exceed  $52,000; 

25  per  centum  of  the  amount  by  which  the  net  income  exceeds  $52,000 
fand  does  not  exceed  $54,000; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

106 


2-27-22. 


NORMAL  TAX  AND  SURTAX  ON  INDIVIDUALS. 


(722)  26  per  centum  of  the  amount  by  which  the  net  income  exceeds  $54,000 
and  does  not  exceed  $56,000; 

27  per  centum  of  the  amount  by  which  the  net  income  exceeds  $56,000 
and  does  not  exceed  $58,000/ 

28  per  centum  of  the  amount  by  which  the  net  income  exceeds  $58,000 
and  does  not  exceed  $60,000; 

29  per  centum  of  the  amount  by  which  the  net  income  exceeds  $60,000 
and  does  not  exceed  $62,000; 

30  per  centum  of  the  amount  by  which  the  net  income  exceeds  $62,000 
and  does  not  exceed  $64,000; 

31  per  centum  of  the  amount  by  which  the  net  income  exceeds  $64,000 
and  does  not  exceed  $66,000; 

32  per  centum  of  the  amount  by  which  the  net  income  exceeds  $66,000 
and  does  not  exceed  $68,000/ 

33  per  centum  of  the  amount  by  which  the  net  income  exceeds  $68,000 
and  does  not  exceed  $70,000; 

34  per  centum  of  the  amount  by  which  the  net  income  exceeds  $70,000 
and  does  not  exceed  $72,000; 

35  per  centum  of  the  amount  by  which  the  net  income  exceeds  $72,000 
and  does  not  exceed  $74,000; 

36  per  centum  of  the  amount  by  which  the  net  income  exceeds  $74,000 
and  does  not  exceed  $76,000; 

37  per  centum  of  the  amount  by  which  the  net  income  exceeds  $76,000 
and  does  not  exceed  $78,000; 

38  per  centum  of  the  amount  by  which  the  net  income  exceeds  $78,000 
and  does  not  exceed  $80,000; 

39  per  centum  of  the  amount  by  which  the  net  income  exceeds  $80,000 
and  does  not  exceed  $82,000; 

40  per  centum  of  the  amount  by  which  the  net  income  exceeds  $82,000 
and  does  not  exceed  $84,000; 

41  per  centum  of  the  amount  by  which  the  net  income  exceeds  $84,000 
and  does  not  exceed  $86,000; 

42  per  centum  of  the  amount  by  which  the  net  income  exceeds  $86,000 
and  does  not  exceed  $88,000; 

43  per  centum  of  the  amount  by  which  the  net  income  exceeds  $88,000 
and  does  not  exceed  $90,000; 

44  per  centum  of  the  amount  by  which  the  net  income  exceeds  $90,000 
and  does  not  exceed  $92,000; 

45  per  centum  of  the  amount  by  which  the  net  income  exceeds  $92,000 
and  does  not  exceed  $94,000; 

46  per  centum  of  the  amount  by  which  the  net  income  exceeds  $94,000 
and  does  not  exceed  $96,000; 

47  per  centum  of  the  amount  by  which  the  net  income  exceeds  $96,000 
and  does  not  exceed  $98,000; 

48  per  centum  of  the  amount  by  which  the  net  income  exceeds  $98,000 
and  does  not  exceed  $100,000; 

52  per  centum  of  the  amount  by  which  the  net  income  exceeds  $100,000 
and  does  not  exceed  $150,000; 

56  per  centum  of  the  amount  by  which  the  net  income  exceeds  $150,000 
and  does  not  exceed  $200,000; 

60  per  centum  of  the  amount  by  which  the  net  income  exceeds  $200,000 
and  does  not  exceed  $300,000; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

107 


2-27-22. 


NORMAL  TAX  AND  SURTAX  ON  INDIVIDUALS. 


63  per  centum  of  the  amount  by  which  the  net  income  exceeds  $300,000 
and  does  not  exceed  $500,000,' 

64  per  centum  of  the  amount  by  which  the  net  income  exceeds  $500,000 
and  does  not  exceed  $1,000,000; 

65  per  centum  of  the  amount  by  which  the  net  income  exceeds  $1,000,000.” 

— Law.  [Note:  The  above  rates  for  the  calendar  year  1921  under 

the  1921  Act,  are  the  same  as  those 
carried  in  the  1918  Act.] 

7 23  Application  of  the  Rates  for  Fiscal  Year  Embracing  Parts  of  Cal- 
endar Years  With  Differing  Rates. — Read  at  *[[861. 

724  Computation  of  Surtax  for  the  Taxable  Year  1921. — The  following 

tables  show  that  surtax  (1)  for  the  calendar  year  1921  (no  change 
from  previous  rates)  and  (2)  for  1922  and  subsequent  years,  on  net  incomes  of 
the  specified  amounts.  In  each  instance  the  first  figure  of  net  income  in  the 
net  income  column  is  to  be  excluded  and  the  second  figure  included.  The 
percentage  given  opposite  applies  to  the  excess  of  income  over  the  first 
figure  in  the  net  income  column,  and  the  sum  in  the  next  column  is  the  tax  on 
the  entire  difference  between  the  first  figure  and  the  second  figure  in  the  net 
income  column.  The  final  column  gives  the  total  surtax  on  a net  income  equal 
to  the  second  figure  in  the  net  income  column. 


725 

I.  Table  for  1921. 

Net  Income 

Per  Cent. 

Surtax 

Total  Surtax 

$5,000  to  $6,000 

1 

$10 

$10 

$6,000  to  $8,000 

2 

40 

50 

$8,000  to  $10, 000 

3 

60 

110 

$10,000  to  $12, 000 

4 

80 

190 

$12,000  to  $14, 000 

5 

100 

290 

$14,000  to  $16, 000 

6 

120 

410 

$16,000  to  $18, 000 

7 

140 

550 

$18,000  to  $20,000 

8 

160 

710 

$20,000  to  $22, 000 

9 

180 

890 

$22,000  to  $24,000 

10 

200 

1,090 

$24,000  to  $26,000 

11 

220 

1,310 

$26,000  to  $28,000 

12 

240 

1,550 

$28,000  to  $30,000 

13 

260 

1,810 

$30,000  to  $32, 000 

14 

280 

2,090 

$32,000  to  $34,000 

15 

300 

2,390 

$34,000  to  $36,000 

16 

320 

2,710 

$36,000  to  $38,000 

17 

340 

3,050 

$38,000  to  $40,000 

18 

360 

3,410 

$40,000  to  $42,000 

19 

380 

3,790 

$42,000  to  $44, 000 

20 

400 

4,190 

$44,000  to  $46,000 

21 

420 

4,610 

$46,000  to  $48,000 

22 

440 

5,050 

$48,000  to  $50,000 

23 

460 

5,510 

$50,000  to  $52, 000 

24 

480 

5,990 

$52,000  to  $54,000 

25 

500 

6,490 

$54,000  to  $56,000 

26 

520 

7,010 

$56,000  to  $5 8, 000 

27 

540 

7,550 

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Net  Income 

Per  Cent. 

Surtax 

Total  Surtax 

$58,000  to  $60,000 

28 

560 

8,110 

$60,000  to  $62,000 

29 

580 

8,690 

$62,000  to  $64,000 

30 

600 

9,290 

$64,000  to  $66,000 

31 

620 

9,910 

$66,000  to  $68,000 

32 

640 

10,550 

$68,000  to  $70, 000 

33 

660 

11,210 

$70,000  to  $72,000 

34 

680 

11,890 

$72,000  to  $74, 000 

35 

700 

12,590 

$74,000  to  $76,000 

36 

720 

13,310 

$76,000  to  $78, 000 

37 

740 

14,050 

$78,000  to  $80, 000 

38 

760 

14,810 

$80,000  to  $82,000 

39 

780 

15,590 

$82,000  to  $84,000 

40 

800 

16,390 

$84,000  to  $86,000 

41 

820 

17,210 

$86,000  to  $88,000 

42 

840 

18,050 

$88,000  to  $90, 000 

43 

860 

18,910 

$90,000  to  $92, 000 

44 

880 

19,790 

$92,000  to  $94,000. 

45 

900 

20,690 

$94,000  to  $96,000 

46 

920 

21,610 

$96,000  to  $98,000 

47 

940 

22,550 

$98,000  to  $100, 000 

48 

960 

23,510 

$100,000  to  $150, 000 

52 

26,000 

49,510 

$150,000  to  $200,000 

56 

28,000 

77,510 

$200,000  to  $300,000 

60 

60,000 

137,510 

$300,000  to  $500,000 

63 

126,000 

263,510 

$500,000  to  $1,000,000 

64 

320,000 

583,510 

$1,000,000  up 

65  ...  . 

726  The  surtax  for  any  amount  of  net  income  not  shown  in  the  above  table 
is  computed  by  adding  to  the  total  surtax  for  the  largest  amount  shown, 
which  is  less  than  the  income,  the  surtax  upon  the  excess  over  that  amount 
at  the  rate  indicated  in  the  table.  For  example,  if  the  amount  of  net  income 
is  $63,128,  the  surtax  for  calendar  year  1921  is  the  sum  of  $8,690  (the  surtax 
upon  $62,000  as  shown  by  Table  I)  plus  30  per  cent  of  $1,128,  or  $338.40, 
making  a total  surtax  of  $9,028.40.  (Art.  12,  Reg.  62,  1922  Edition.) 


727  Law  1[108.  Surtax  rates  for  1922. — “Tor  the  calendar  year  1922 
(Sec.  211.)  and  each  calendar  year  thereafter , a surtax  equal  to 
the  sum  of  the  following 

“1  per  centum  of  the  amount  by  which  the  net  income  exceeds  $6,000 
and  does  not  exceed  $10,000; 

2 per  centum  of  the  amount  by  which  the  net  income  exceeds  $10,000 
and  does  not  exceed  $12,000; 

3 per  centum  of  the  amount  by  which  the  net  income  exceeds  $12,000 
and  does  not  exceed  $14,000; 

4 per  centum  of  the  amount  by  which  the  net  income  exceeds  $14,000 
and  does  not  exceed  $16,000; 

5 per  centum  of  the  amount  by  which  the  net  income  exceeds  $16,000 
and  does  not  exceed  $18,000; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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(727)  6 per  centum  of  the  amount  by  which  the  net  income  exceeds  $18,000 
and  does  not  exceed  $20,000; 

8 per  centum  of  the  amount  by  which  the  net  income  exceeds  $20,000 
and  does  not  exceed  $22,000; 

9 per  centum  of  thi  amount  by  which  the  net  income  exceeds  $22,000 
and  does  not  exceed  $24,000; 

10  per  centum  of  the  amount  by  which  the  net  income  exceeds  $24,000 
and  does  not  exceed  $26,000; 

11  per  centum  of  the  amount  by  which  the  net  income  exceeds  $26,000 
and  does  not  exceed  $28,000; 

12  per  centum  of  the  amount  by  which  the  net  income  exceeds  $28,000 
and  does  not  exceed  $30,000; 

13  per  centum  of  the  amount  by  which  the  net  income  exceeds  $30,000 
and  does  not  exceed  $32,000; 

15  per  centum  of  the  amount  by  which  the  net  income  exceeds  $32,000 
and  does  not  exceed  $36,000; 

16  per  centum  of  the  amount  by  which  the  net  income  exceeds  $36,000 
and  does  not  exceed  $38,000; 

17  per  centum  of  the  amount  by  which  the  net  income  exceeds  $38,000 
and  does  not  exceed  $40,000; 

18  per  centum  of  the  amount  by  which  the  net  income  exceeds  $40,000 
and  does  not  exceed  $42,000; 

19  per  centum  of  the  amount  by  which  the  net  income  exceeds  $42,000 
and  does  not  exceed  $44,000; 

20  per  centum  of  the  amount  by  which  the  net  income  exceeds  $44,000 
and  does  not  exceed  $46,000; 

21  per  centum  of  the  amount  by  which  the  net  income  exceeds  $46,000 
and  does  not  exceed  $48,000; 

22  per  centum  of  the  amount  by  which  the  net  income  exceeds  $48,000 
and  does  not  exceed  $50,000; 

23  per  centum  of  the  amount  by  which  the  net  income  exceeds  $50,000 
and  does  not  exceed  $52,000; 

24  per  centum  of  the  amount  by  which  the  net  income  exceeds  $52,000 
and  does  not  exceed  $54,000; 

25  per  centum  of  the  amount  by  which  the  net  income  exceeds  $54,000 
and  does  not  exceed  $56,000; 

26  per  centum  of  the  amount  by  which  the  net  income  exceeds  $56,000 
and  does  not  exceed  $58,000; 

27  per  centum  of  the  amount  by  which  the  net  income  exceeds  $58,000 
and  does  not  exceed  $60,000; 

28  per  centum  of  the  amount  by  which  the  net  income  exceeds  $60,000 
and  does  not  exceed  $62,000; 

29  per  centum  of  the  amount  by  which  the  net  income  exceeds  $62,000 
and  does  not  exceed  $64,000; 

30  per  centum  of  the  amount  by  which  the  net  income  exceeds  $64,000 
and  does  not  exceed  $66,000; 

31  per  centum  of  the  amount  by  which  the  net  income  exceeds  $66,000 
and  does  not  exceed  $68,000; 

32  per  centum  of  the  amount  by  which  the  net  income  exceeds  $68,000 
and  does  not  exceed  $70,000; 

33  per  centum  of  the  amount  by  which  the  net  income  exceeds  $70,000 
and  does  not  exceed  $72,000; 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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(727)  34  per  centum  of  the  amount  by  which  the  net  income  exceeds  $72,000 
and  does  not  exceed  $74,000; 

35  per  centum  of  the  amount  by  which  the  net  income  exceeds  $74,000 
and  does  not  exceed  $76,000; 

36  per  centum  of  the  amount  by  which  the  net  income  exceeds  $76,000 
and  does  not  exceed  $78,000; 

37  per  centum  of  the  amount  by  which  the  net  income  exceeds  $78,000 
and  does  not  exceed  $80,000; 

38  per  centum  of  the  amount  by  which  the  net  income  exceeds  $80,000 
and  does  not  exceed  $82,000; 

39  per  centum  of  the  amount  by  which  the  net  income  exceeds  $82,000 
and  does  not  exceed  $84,000; 

40  per  centum  of  the  amount  by  which  the  net  income  exceeds  $84,000 
and  does  not  exceed  $86,000; 

41  per  centum  of  the  amount  by  which  the  net  income  exceeds  $86,000 
and  does  not  exceed  $88,000; 

42  per  centum  of  the  amount  by  which  the  net  income  exceeds  $88,000 
and  does  not  exceed  $90,000; 

43  per  centum  of  the  amount  by  which  the  net  income  exceeds  $90,000 
and  does  not  exceed  $92,000; 

44  per  centum  of  the  amount  by  which  the  net  income  exceeds  $92,000 
and  does  not  exceed  $94,000; 

45  per  centum  of  the  amount  by  which  the  net  income  exceeds  $94,000 
and  does  not  exceed  $96,000; 

46  per  centum  of  the  amount  by  which  the  net  income  exceeds  $96,000 
and  does  not  exceed  $98,000; 

47  per  centum  of  the  amount  by  which  the  net  income  exceeds  $98,000 
and  does  not  exceed  $100,000; 

48  per  centum  of  the  amount  by  which  the  net  income  exceeds  $100,000 
and  does  not  exceed  $150,000; 

49  per  centum  of  the  amount  by  which  the  net  income  exceeds  $150,000 
and  does  not  exceed  $200,000; 

50  per  centum  of  the  amount  by  which  the  net  income  exceeds  $200,000.” 

— Law.  [Note:  The  above  rates  for  the  calendar  year  1922  and 

thereafter  are  new  to  the  1921  Act.  The 
rates  for  the  respective  brackets  (1)  for 
1921  and  (2)  for  1922,  and  thereafter, 
differ  throughout,  except  that  in  both 
cases  the  rate  on  the  amount  by  which 
the  net  income  exceeds  $32,000  and  does 
not  exceed  $34,000  is  15%,  which  rate 
for  1922  and  thereafter,  applies  on 
the  amount  over  $32,000  to  $36,000.] 

728  II.  Table  for  1922  and  Subsequent  Years. 


Net  Income.  Per  Cent.  Surtax.  Total  Surtax. 

$6,000  to  $10,000 1 $40  $40 

$10,000  to  $12,000 2 40  80 

$12,000  to  $14,000 3 60  140 

$14,000  to  $16,000 4 80  220 

$16,000  to  $18,000.  . . 5 100  320 

$18,000  to  $20,000 6 120  440 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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(728)  Net  Income 

Per  Cent. 

Surtax 

Total  Surtax 

$20,000  to  $22,000 

8 

160 

600 

$22,000  to  $24,000 

9 

180 

780 

$24,000  to  $26,000 

10 

200 

980 

$26,000  to  $28,000 

11 

220 

1,200 

$28,000  to  $30,000 

12 

240 

1,440 

$30,000  to  $32,000 

13 

260 

1,700 

$32,000  to  $36,000 

15 

600 

2,300 

$36,000  to  $38,000 

16 

320 

2,620 

$38,000  to  $40,000 

17 

340 

2,960 

$40,000  to  $42,000 

18 

360 

3,320 

$42,000  to  $44,000 

19 

380 

3,700 

$44,000  to  $46,000 

20 

400 

4,100 

$46,000  to  $48,000 

21 

420 

4,520 

$48,000  to  $50,000 

22 

440 

4,960 

$50,000  to  $52,000 

23 

460 

5,420 

$52,000  to  $54,000 

24 

480 

5,900 

$54,000  to  $56,000 

25 

500 

6,400 

$56,000  to  $58,000 

26 

520 

6,920 

$58,000  to  $60,000 

27 

540 

7,460 

$60,000  to  $62,000 

28 

560 

8,020 

$62,000  to  $64,000 

29 

580 

8,600 

$64,000  to  $66,000 

30 

600 

9,200 

$66,000  to  $68,000 

31 

620 

9,820 

$68,000  to  $70,000 

32 

640 

10,460 

$70,000  to  $72,000 

33 

660 

11,120 

$72,000  to  $74,000 

34 

680  ’ 

11,800 

$74,000  to  $76,000 

35 

700 

12,500 

$76,000  to  $78,000 

36 

720 

13,220 

$78,000  to  $80,000 

37 

740 

13,960 

$80,000  to  $82,000 

38 

760 

14,720 

$82,000  to  $84,000 

39 

780 

15,500 

$84,000  to  $86,000 

40 

800 

16,300 

$86,000  to  $88,000 

41 

820 

17,120 

$88,000  to  $90,000 

42 

840 

17,960 

$90,000  to  $92,000 

43 

860 

18,820 

$92,000  to  $94,000 

44 

880 

19,700 

$94,000  to  $96,000 

45 

900 

20,600 

$96,000  to  $98,000 

46 

920 

21,520 

$98,000  to  $100,000 

47 

940 

22,460 

$100,000  to  $150,000 

48 

24,000 

46,460 

$150,000  to  $200,000 

49 

24,500 

70,960 

$200,000  up 

50  

729  The  surtax  for  any  amount  of  net  income  not  shown  in  the  above 
table  is  computed  by  adding  to  the  total  surtax  for  the  largest 
amount  shown,  which  is  less  than  the  income,  the  surtax  upon  the  excess 
over  that  amount  at  the  rate  indicated  in  the  table. . For  example,  if  the 
amount  of  net  income  is  $63,128,  the  surtax  for  calendar  year  1921  is  the  sum 
of  $8,690  (the  surtax  upon  $62,000  as  shown  by  Table  I)  plus  30  per  cent  of 
$1,128,  or  $338.40,  making  a total  surtax  of  $9,028.40.  For  calendar  year 
1922  the  surtax  upon  the  same  amount  of  net  income  would  be  $8,347.12. 
(Art.  12,  Reg.  62,  1922  Edition.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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730  Law  If  109.  Maximum  Surtax  Limitation  in  the  Case  of  the  Sale 
(Sec.  211.)  of  Certain  Mines,  or  Oil  or  Gas  Wells. — “(b)  In 

the  case  of  a bona  fide  sale  of  mines , oil  or  gas  wells , 
or  any  interest  therein , where  the  principal  value  of  the  property  has  been 
demonstrated  by  prospecting  or  exploration  and.  discovery  work  done  by  the 
taxpayer , the  portion  of  the  tax  imposed  by  this  section  attributable  to  such 
sale  shall  not  exceed , for  the  calendar  year  1921,  20  per  centum , a nd  for 
each  calendar  year  thereafter  16  per  centum , of  the  selling  price  of  such 
property  or  interest  ” — Law.  [Note:  The  1918  Act  provided  for  a 

continuing  20%  maximum.] 

731  Where  the  taxpayer  by  prospecting  and.  locating  claims,  or  by  ex- 
ploring and  discovering  undeveloped  claims,  has  demonstrated  the 

principal  value  of  mines,  oil  or  gas  wells,  which  prior  to  his  eiforts  had  a 
relatively  minor  value,  the  portion  of  the  surtax  attributable  to  a sale  of 
such  property  or  of  the  taxpayer’s  interest  therein  shall  not  exceed  for  the 
calendar  year  1921,  20  per  cent  and  for  subsequent  calendar  years  16  per  cent 
of  the  selling  price.  Exploration  work  alone  without  discovery  is  not 
sufficient  to  bring  a case  within  this  provision.  Shares  of  stock  in.  a cor- 
poration owning  mines,  oil  or  gas  wells.,  do  not  constitute  an  interest  in.  such 
property.  To  determine  the  application  of  this  provision  to  a.  particular 
case,  the  taxpayer  should  first  compute  the  surtax  in  the  ordinary  way 
upon  his  net  income,  including  his  net  income  from  any  such  sale.  ^ The 
proportion  of  the  surtax  indicated  by  the  ratio  which  the.  taxpayer  s net 
income  from  the  sale  of  the  property,  or  his  interest  therein,  computed,  as 
prescribed  in  article  714  [^[732],  bears  to  his  total  net  income  is  the  portion 
of  the  surtax  attributable  to  such  sale,  and  if  it  exceeds  for  the  calendar  year 
1921,  20  per  cent  and  for  subsequent  calendar  years  16  per  cent  of  the 
selling  price  of  the  property  or  interest,  such  portion  of  the  surtax  shall  be 
reduced  to  that  amount.  See  articles  219-221,  [for  discovery,  of  mine  or 
oil  or  gas  well,  beginning  at  ^[1957].  (Art.  13,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Limitation  not  applicable  to  sale  of  oil  or  gas  produced  (37-20-1190:  O.  D.  658) 
. .Dec.  1920  Cum.  Bull.  p.  74.  _ ... 

Sale  by  stockholders,  as  owners,  of  property  the  principal  value  of  which  was  dem- 
onstrated by  the  corporation,  as  owner  (3-19-176:  T.  B.  R.  8)..  1919  Cum.  Bull. 

Sale,  by  trustees  of  company’s  assets  (9-19-337:  O.  D.  194)..  1919  Cum.  Bull.  p.  58. 


732  Allocation  of  Net  Income  to  Particular  Source. — Whenever  it  is 
necessary  to  determine  the  portion  of  the  net  income  derived  from 
or  attributable  t:o  a particular  source,  the  corporation  shall  allocate  to  the 
gross  income  derived  from  such  source,  and  to  the  gross  income  derived  from 
each  other  source,  the  expenses,  losses,  and  other  deductions  properly  ap- 
pertaining thereto,  and  shall  apply  any  general  expenses,  losses,  and  deduc- 
tions (which  can  not  properly  be  directly  apportioned)  against  gross  income 
from  the  respective  sources  upon  a reasonable  basis  that  will  assign  to  each 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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source  a proper  proportion  of  such  deductions.  The  gross  income  derived  from 
a particular  source,  less  the  deductions  properly  appertaining  thereto  and  less 
its  proportion  of  any  general  deductions,  shall  be  the  net  income  derived  from 
such  source.  The  corporation  shall  submit  with  its  return  a statement  fully 
explaining  the  manner  in  which  such  expenses,  losses,  and  deductions  were 
allocated  or  distributed.  (Art.  714,  Reg.  62,  1922  Edition.) 

733  Law  1(270.  Evasion  of  Surtaxes  by  Incorporation. — “Sec.  220. 
(Sec.  220.)  That  if  any  corporation , however  created  or  organized , 

is  formed  or  availed  of  for  the  purpose  of  preventing 
the  imposition  of  the  surtax  upon  its  stockholders  or  members  through  the 
medium  of  permitting  its  gains  and  profits  to  accumulate  instead  of  being 
divided  or  distributed , there  shall  be  levied , collected , and  paid  for  each 
taxable  year  upon  the  net  income  of  such  corporation  a tax  equal  to  25 
per  centum  of  the  amount  thereof , which  shall  be  in  addition  to  the  tax 
imposed  by  section  230  of  this  title  and  shall  be  computed , collected,  and 
paid  upon  the  same  basis  and  in  the  same  manner  and  subject  to  the  same 
provisions  of  law , including  penalties , as  that  tax:”- — Law.  [See  note 

on  1918  Act  at  Law  1(271, 1(734  below.] 

734  Law  1j271.  “ Provided , That  if  all  the  stockholders  or  members 

(Sec.  220.)  of  such  corporation  agree  thereto,  the  Commissioner 

may,  in  lieu  of  all  income,  war-profits  and  excess-profits 
taxes  imposed  upon  the  corporation  for  the  taxable  year,  tax  the  stock- 
holders or  members  of  such  corporation  upon  their  distributive  shares  in 
the  net  income  of  the  corporation  for  the  taxable  year  in  the  same  manner 
as  provided  in  subdivision  ( a ) of  section  218  in  the  case  of  members  of 
a partnership .” — Law.  [Note:  The  1918  Act  provided  in  such 

cases,  that  the  shareholders,  no  agreement 
thereto  among  them  being  necessary, 
were  to  be  taxed  on  their  distributive 
shares  as  in  the  case  of  stockholders  of  a 
personal  service  corporation,  the  cor- 
poration then  being  relieved  of  income 
tax  but  not  of  excess-profits  tax,  the 
amount  of  the  latter,  however,  being  a 
deductible  item  before  distributable 
interests  were  determined.] 

735  Law  1(272.  “The  fact  that  any  corporation  is  a mere  holding  com- 
(Sec.  220.)  pany,  or  that  the  gains  and  profits  are  permitted  to 

accumulate  beyond  the  reasonable  needs  of  the  busi- 
ness, shall  be  prima  facie  evidence  of  a purpose  to  escape  the  surtax;'’ — 
Law.  [Note:  The  1918  Act  so  provided.] 

736  Law  1(273.  “but  the  fact  that  the  gains  and  profits  are  in  any  case 
(Sec.  220.)  permitted  to  accumulate  and  become  surplus  shall 

not  be  construed  as  evidence  of  a purpose  to  escape 
the  tax  in  such  case  unless  the  Commissioner  certifies  that  in  his  opinion 
such  accumulation  is  unreasonable  for  the  purposes  of  the  business." — Law. 

[Note:  The  1918  Act  so  provided.] 


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737  Law  1f274.  “ When  requested  by  the  Commissioner,  or  any  collector, 
(Sec.  220.)  every  corporation  shall  forward  to  him  a correct  state- 
ment of  such  gains  and  profits  and  the  names  and 

addresses  of  the  individuals  or  shareholders  who  would  be  entitled  to  the 
same  if  divided  or  distributed,  and  of  the  amounts  that  would  be  payable  , 
to  each  ” — Law.  [Note:  The  1918  Act  so  provided.] 

738  Profits  of  Corporation  Taxable  to  Stockholders. — Where  a domestic 
or  foreign  corporation  permits  its  gains  and  profits  to  accumulate 

for  the  purpose  of  preventing  the  imposition  of  the  surtax  upon  such  income 
if  distributed  to  its  stockholders,  it  shall  be  subject  to  an  income  tax  at  25 
per  cent  in  addition  to  the  taxes  imposed  by  section  230  of  the  statute. 
If,  however,  all  the  stockholders  agree  thereto,  the  Commissioner  may,  in 
lieu  of  all  income,  war-profits  and  excess-profits  taxes  imposed  upon  the 
corporation  for  the  taxable  year,  tax  them  upon  their  distributive  shares  in 
the  net  income  of  the  corporation  for  the  taxable  year  as  provided  in  sub- 
division (a)  of  section  218,  in  the  case  of  members  of  a partnership.  In  any 
case  the  Commissioner  or  a collector  may  require  a corporation  to  furnish  a 
statement  of  its  gains  and  profits  and  of  the  names,  addresses,  and  sharehold- 
ing of  the  stockholders,  and  of  the  amounts  that  would  be  payable  to  each. 
(Art.  351,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Complete  discussion  of  a particular  case:  certification  by  Secretary  of  Treasury,  which 
was  subsequently  recalled  (21-21-1653:  A.  R.  R.  475).. June  1921  Cum.  Bull, 
p.  227. 

Determination  is  at  a later  date  in  light  of  what  corporation  has  actually  done  with  the 
profits,  rather  than  the  present  (1-19-72:  T.  B.  M.  2)..  1919  Cum.  Bull.  p.  181. 

Effect  of  Eisner  vs.  Macomber  decision  (41-20-1232:  O.  D.  679).. Dec.  1920  Cum. 
Bull.  p.  198:  read  point  2 of  (21-21-1653:  A.  R.  R.  475).  .June  1921  Cum.  Bull, 
p.  227.  For  Eisner  vs.  Macomber  decision  (U.  S.  Supreme  Court)  see  Supple 
mentary  Page  173,  ^5244. 

Election  of  stockholders  to  be  taxed  as  partners  without  force  except  in  cases  where 
corporation  is  availed  of  to  avoid  surtaxes;  1921  Act  (1-17-242:  I.  T.  1289).  .June 
1922  Cum.  Bull.  p.  218. 

Limited  to  income  of  1918  and  later  (8-19-326:  O.  D.  188).  . 1919  Cum.  Bull.  p.  182. 

Liquidating  profits  held  prior  to  final  distribution  (10-21-1499:  O.  D.  838).  .June  1921 
Cum.  Bull.  p.  226. 

Liquor  business:  intention  to  reinvest  in  another  business:  limited  (2-19-156:  O.  D. 
106). . 1919  Cum.  Bull.  p.  181. 

Retiring  part  of  capital  stock  without  distributing  surplus  (2-20-667:  O.  D.  360) 
..June  1920  Cum.  Bull.  p.  25. 

Victory  notes:  surplus  invested  in  (2-19-156:  O.  D.  106)..  1919  Cum.  Bull.  p.  181. 


739  Subdivision  2 of  paragraph  A,  income  tax-law  of  October  3,  1913 
[^[733  et  seq.  above],  imposes  no  duty  on  the  taxpayer  to  ascertain  his 
distributive  interest  in  the  undivided  surplus  of  corporations  for  the  purpose 
of  making  return  of  the  amount,  in  addition  to  the  amount  of  dividends 
declared  on  his  stock,  unless  the  [Commissioner]  has  certified  that,  in  his 
opinion,  such  accumulation  is  unreasonable  for  the  purpose  of  the  business. 
(T.  D.  2135,  Jan.  23,  1915.) 

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NORMAL  TAX  AND  SURTAX  ON  INDIVIDUALS. 


740  Law  1(8. 

(Sec.  2.) 


741  Law  ^[9. 

(Sec.  2.) 


“Secretary”  Defined.—' “ The  term  ‘ Secretary ' means 
the  Secretary  of  the  Treasury” — Law.  [Note: 

The  1918  Act  so  provided.] 

“Commissioner”  Defined.—' “ The  term  ‘ Commissioner ' 
means  the  Commissioner  of  Internal  Revenue — Law. 

[Note:  The  1918  Act  so  provided.] 


742  Law  10.  “Collector”  Defined. — “The  term ‘collector'  means  col- 
(Sec.  2.)  lector  of  internal  revenue — Law.  [Note:  The 

1918  Act  so  provided.] 


743  Purpose  to  Escape  Surtax.— Section  220  of  the  statute  applies  where 
a corporation  is  formed  or  availed  of  for  the  purpose  of  preventing 
the  imposition  of  the  surtax  upon  its  stockholders  or  members  by  permitting 
its  gains  and  profits  to  accumulate  instead  of  being  divided  or  distributed. 
Prima  facie  evidence  of  a purpose  to  escape  the  surtax  exists  where  a 
corporation  has  practically  no  business  except  holding  stocks,  securities 
or  other  property  and  collecting  the  income  therefrom  or  where  a cor- 
poration other  than  a mere  holding  company  permits  its  gains  and 
profits  to  accumulate  beyond  the  reasonable  needs  of  the  business. 
The  business  of  a corporation  is  not  limited  to  that  which  it  has  pre- 
viously carried  on,  but  in  general  includes  any  line  of  business  which  it 
may  legitimately  undertake.  However,  a radical  change  of  business  when 
a considerable  surplus  has  been  accumulated  may  afford  evidence  of  a pur- 
pose to  escape  the  surtax.  When  one  corporation  owns  the  stock  of  another 
corporation  in  the  same  or  a related  line  of  business  and  in  effect  operates 
the  other  corporation,  the  business  of  the  latter  may  be  considered  in  sub- 
stance the  business  of  the  first  corporation.  Gains  and  profits  of  the  first 
corporation  put  into  the  second  through  the  purchase  of  stock  or  otherwise 
may  therefore,  if  a subsidiary  relationship  is  established,  constitute  employ- 
ment of  the  income  in  its  own  business.  To  establish  that  the  business  of  one 
corporation  can  be  regarded  as  including  the  business  of  another  it  is  ordi- 
narily essential  that  the  first  corporation  own  substantially  all  of  the  stock 
of  the  second.  Investment  by  a corporation  of  its  income  in  stock  and  secur- 
ities of  another  corporation  is  not  without  anything  further  to  be  regarded 
as  employment  of  the  income  in  its  business.  (Art.  352,  Reg.  62, 1922  Edition.) 


744  Unreasonable  Accumulation  of  Profits. — An  accumulation  of  gains 
and  profits  is  unreasonable  if  it  is  not  required  for  the  purposes 
of  the  business,  considering  all  the  circumstances  of  the  case.  No  attempt 
can  be  made  to  enumerate  all  the  ways  in  which  gains  and  profits  of  a corpo- 
ration may  be  accumulated  for  the  reasonable  needs  of  the  business.  Un- 
distributed income  is  properly  accumulated  if  invested  in  increased  inven- 
tories or  additions  to  plant  reasonably  needed  by  the  business.  It  is  properly 
accumulated  if  retained  for  working  capital  required  by  the  business  or  in 
accordance  with  contract  obligations  placed  to  the  credit  of  a sinking  fund 
for  the  purpose  of  retiring  bonds  issued  by  the  corporation.  In  the  case  of  a 
banking  institution  the  business  of  which  is  to  receive  and  loan  money, 

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NORMAL  TAX  AND  SURTAX  ON  INDIVIDUALS. 

using  capital,  surplus  and  deposits  for  that  purpose,  undistributed  income 
actually  represented  by  loans  or  reasonably  retained  for  future  loans  is  not 
accumulated  beyond  the  reasonable  needs  of  the  business.  The  nature  of 
the  investment  of  gains  and  profits  is  immaterial  if  they  are  not  in  fact  needed 
in  the  business.  f (Art.  353,  Reg.  62,  1922  Edition.) 
a t t'bi? ; it-  ■ '• 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Question  of  fact;  volume  of, business  done;  sound  business  management.  Example 
(15-19-443:  S.  1117). . 1919  Cum.  Bull.  p.  182. 


745  Status  of  Undistributed  Profits,  Unduly  Accumulated,  if  Invested 
in  United  States  Bonds. — In  reply  to  your  letter  of  March  20,  1919, 
you  are  advised  that  any  corporation  which  permits  its  gains  and  profits 
to  accumulate  for  the  purpose  of  preventing  the  imposition  of  the  surtax 
upon  its  stockholders  and  members  will  be  subject  to  the  provisions  of  Sec- 
tion 220,  of  the  Revenue  Act  of  1918  [same,  in  purpose,  as  Sec.  220,  Revenue 
Act  of  1921,  1f733  above],  regardless  of  whether  or  not  such  gains  and  profits 
are  invested  by  the  corporation  in  obligations  of  the  United  States.  (Letter 
to  The  Corporation  Trust  Company,  signed  by  Commissioner  Daniel  C. 
Roper,  and  dated  April  9,  1919.) 


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2-27-22.  (2)  4-10-22. 


INDIVIDUALS  LIABLE  TO  TAX. 

from  sources  within  the  Unit-prl  t?  nci  may  receive  no  income 

united  states.  Fiery  nonresident  alien  individual  is  liable  to  the  t»T  nn  Lie 
income  from  sources  within  the  TJniterl  c • ° r ie  , ?n  "1S 

subject  nonresident  aliens,  1J2093],  EstaTesTnTttusts  are  also 

trusts,  1T873].  s V*  34M48  lfor  «“«■ 

- 1918  a«  «**»- 

H)  J i ne  l n lT&.  Bdl”?  Is'’' t?’  ?T”?  °f  1 91 S . . (24-21-1684=  Ct.  D. 
reported  at  p.  73,  Dec.  1920  Cum.BuTl.2  "‘StnCt  C°Urt  dec,slon  here  affirmed  is 

566?0rDecb°ia9lonCuLVBun!  p.^T^^  agentS  t0  !nterro8ate  (27-20-1035:  0.  D. 


747  — rrhl? T°  Tax  0f  Y;  S:  ?itizens  Resident  in  Philippines  During  1921 

UnireasTLsJ^ 

S:  S±r»19sr,%^ 

ration  Trust  Company.]  (T.  D.  3178,  June  11,  1921.)’  P § ‘ Th  Corpo‘ 

748  . Citizen.— Every  person  born  in  the  United  States  sub- 

WLen  j 1 to  ,tS  Jrns,dic^?n’  or  naturalized  in  the  United  States  is  a citizen 
When  any  naturalized  citizen  has  left  the  United  States  and  resided  ^ 

--p'iei  aa&r 

rp^rWl  tLdfSafeS  and  becoPe  naturalized  here,  returned  to  Sweden  and 
resided  there  for  two  yccirs  Dnor  to  Anril  a ion  ,*«  j i 

more  an  ahVn  On  dJ FT  l •>  APr“.6»  1917»  is  presumed  to  be  once 

su^ecr  to  i,s  jurisdiction, ’of  w£ohasS“„g 

ber  foreign  country,  is  still  a citizen  of  the  United  States  A f nr  ' ^ 

who  has  come  to  the  United  States  and  filed  his  declaration  of  intendofof 
becoming  a citizen  but  who  has  not  yet  received  his  final  citizenship  papers 
s an  alien.  For  the  distinction  between  resident  alien  individuals  and  non’ 
1922  Edition.)  indl vlduaIs.  seeF  artides  ^3 1 2-3 1 4^  [1[ 758].  (Art.  4,  Reg.  62^ 

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2-27-22.  (2)  4-10-22.  (3)  10-4-22  (4)  11-4-22. 

INDIVIDUALS  LIABLE  TO  TAX. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Expatriation  of  American  women:  an  Act  of  Congress  (Public— No.  346— 67th  Con- 
gress) in  effect  Sept.  22,  1922,  provides  that  a woman  citizen  of  the  United  States 
does  not,  in  general,  ipso  facto  cease  to  be  a citizen  at  the  time  of  her  marriage 
* a foreigner. — The  Corporation  Trust  Company.  For  Act  in  full  see  'j[3384. 

Expatriation  and  repatriation  of  American  woman;  death  of  nonresident  alien  husband 
does  not  ipso  facto  restore  her  citizenship  (23-20-983:  0.  D.  533)..  June  1920 
Cum.  Bull.  p.  59.  Divorcing  husband  here  and  continuing  to  reside  here  ipso 
facto  restores  citizenship:  1918  and  1921  Acts  (1-40-534:  I.  T.  1459)  Bull. 
I (’22)-40,  p.  9.  fi  - j 

Minor  child  of  naturalized  father;  on  coming  of  age  (43-20-1256:  O.  D.  695).  .Dec. 
1920  Cum.  Bull.  p.  74. 

Minor  children  of  alien  acquiring  U.  S.  citizenship  by  marriage  (44-21-1897:  O.  D. 
1085).  .Dec.  1921  Cum.  Bull.  p.  191.  fi^j 

Naturalized  citizen  long  resident  abroad  but  making  trips  here  occasionally,  State 
Department  regularly  issuing  passports  to  him,  is  still  a citizen:  1918  and  1921 
Acts  (1-40-533:  I.  T.  1458).. Bull.  I (’22)-40,  p.  8. 

Repatriation  of  expatriated  naturalized  citizen  (14-21-1540:  O.  D.  861)  June  1921 
Cum.  Bull.  p.  59. 

749  American  Wife  of  a Nonresident  Alien. — An  American  woman 
who  marries  a foreigner  takes  the  nationality  of  her  husband  * * * 

(T.  D.  2090,  December  14,  1914.)  (See  “Expatriation  of  American  women” 
in  index-digest  above.) 

750  Citizenship. — Determination  by  State  Department  of  right  to 

, registry  is  not  conclusive  upon  the  Treasury  in  fixing  citizenship  for 

income  tax  purposes.  Held  that  native  and  naturalized  status  remains 
unless  changed  by  affirmative  action  or  forfeited  by  overt  act.  (T.  D. 
2135,  January  23,  1915.) 

751  Nonresident  Citizens  Against  Whom  the  Presumption  of  Expa- 
. . triation  Has  Arisen. — The  Department  has  received  several  in- 
quiries concerning  the  payment  of  the  income  tax  under  the  provision  of 
Section  2 of  the  Act  of  October  3,  1913,  by  persons  residing  abroad  who 
claim.  American  Citizenship.  These  inquiries  involve  particularly  two 
questions:  (1)  Whether  a naturalized  American  citizen  who  has  brought 
upon  himself  the  presumption  of  expatriation,  under  the  provision  of  the 
second  paragraph  of  Section  2 of  the  Act  of  March  2,  1907,  by  protracted 
residence  abroad,,  and  has  failed  to  overcome  such  presumption  under  the 
established  rules  is  required  to  pay  the  income  tax  as  an  American  citizen, 
and  (2)  whether  a naturalized  American  citizen  residing  abroad  can  over- 
come the  presumption  of  expatriation  by  payment  of  the  income  tax. 

752  The  question  as  to  the  liability  of  a particular  person  to  pay  the 
income  tax  must  be  determined  not  by  this  Department  but  by  the 

Treasury  Department,  under  which  the  income  tax  law  is  administered. 
Persons  making  inquiry  concerning  this  point  should,  therefore,  be  advised 
to  apply  to  the  Treasury  Department  for  information.  ^ 

753  With  reference  to  the  second  inquiry  mentioned  above  your  attention 
is  called  to  the  fact  that  naturalized  citizens  of  the  United  States 

who  have  brought  upon  themselves  the  presumption  of  expatriation,  under 
the  provision  of  the  second  paragraph  of  Section  2 of  the  Act  of  March  2, 
1907,  by  protracted  residence  abroad,  may  overcome  such  presumption 
only  upon  presenting  satisfactory  evidence  to  a diplomatic  or  consular 
officer  of  the  United  States,  under  such  rules  and  regulations  as  the  Depart- 
ment of  State  may  prescribe.  * The  Department  has  not  prescribed  a rule 

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INDIVIDUALS  LIABLE  TO  TAX. 

that  the  puresmption  of  expatriation  arising  under  the  law  mentioned  may 
be  overcome  by  showing  that  the  person  concerned  has  paid,  or  is  ready  to 
pay,  the  income  tax  of  the  United  States.  However,  if  a person  against 
whom  the  presumption  of  expatriation  has  arisen  presents,  in  connection 
with  an  application  for  a passport,  or  for  registration  in  a consulate  or  for 
actual  protection,  evidence  that  he  has  paid  the  income  tax,  the  fact  will 
receive  due  consideration  in  connection  with  other  evidence  submitted  to 
overcome  the  presumption  of  expatriation  under  the  established  rules,  and 
particularly  with  regard  to  the  question  of  the  intent  to  return  to  this  country 
to  reside.  The  payment  of  the  income  tax  will  be  duly  considered  in  de- 
ciding the  question  of  the  right  to  the  continued  protection  of  this  Govern- 
ment in  cases  of  native  American  citizens  who  have  resided  abroad  for  a 
period  so  long  that  the  natural  presumption  may  be  held  to  have  arisen  that 
they  have  abandoned  this  country.  (Letter  to  the  American  Diplomatic 
and  Consular  Officers,  signed  by  W.  J.  Bryan,  Secretary  of  State,  and  dated 
March  18,  1914.) 

754  Who  Is  a Nonresident  Alien. — A “nonresident  alien  individual” 
means  an  individual  (a)  whose  residence  is  not  within  the  United 
States  and  (b)  wdio  is  not  a citizen  of  the  United  States.  An  alien  actually 
present  in  the  United  States  who  is  not  a mere  transient  or  sojourner  is  a 
resident  of  the  United  States  for  purposes  of  the  income  tax.  Whether 
he  is  a transient  or  not  is  determined  by  his  intentions  with  regard  to  the 
length  and  nature  of  his  stay.  A mere  floating  intention,  indefinite  as 
to  time,  to  return  to  another  country  is  not  sufficient  to  constitute 
him  a transient.  If  he  lives  in  the  United  States  and  has  no  definite 
intention  as  to  his  stay,  he  is  a resident.  One  who  comes  to  the  United  States 
for  a definite  purpose  which  in  its  nature  may  be  promptly  accomplished 
is  a transient;  but  if  his  purpose  is  of  such  a nature  that  an  extended  stay 
may  be  necessary  for  its  accomplishment,  and  to  that  end  the  alien  makes 
his  home  temporarily  in  the  United  States,  he  becomes  a resident,  though 
it  may  be  his  intention  at  all  times  to  return  to  his  domicile  abroad  w'hen 
the  purpose  for  which  he  came  has  been  consummated  or  abandoned.  A 
foreign  corporation  is  one  incorporated  under  the  laws  of  a foreign  country. 
As  to  when  a citizen  or  domestic  corporation  is  entitled  to  the  benefits  of 
section  262,  see  articles  1135-1137  [^j 2076].  For  the  treatment  of  foreign 
life  insurance  companies,  see  section  245(c)  and  article  687  [^f  1345].  (Art. 
311,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alien  leaving  U.  S.  during  taxable  period  (16-20-867:  O.  D.  468).  .June  1920  Cum. 
Bull.  p.  243. 

Exemption  from  military  service:  weight  of  statements  in  affidavit  claiming  exemption 
under  Selective  Service  Act  ( 1 4-20-832:  O.  D.  438).  .June  1920  Cum.  Bull.  p.  162. 

Families  of  foreign  ambassadors  (9-19-343:  O.  D.  198).  .1919  Cum.  Bull.  p.  164. 

Member  of  foreign  partnership;  yearly  stay  in  U.  S.  of  several  months  (29-20-1072: 
O.  D.  592).  .Dec.  1920  Cum.'Bull.  p.  128. 

One  year’s  residence  in  U.  S.  as  presumption  of  residence  here  (9-19-342:  0.  D.  197) 

. . 1919  Cum.  Bull.  p.  164. 

Service  in  U.  S.  Army  constitutes  residence  in  U.  S.  (3-19-175:  O.  D.  117)..  1919 
Cum.  Bull.  p.  163. 


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755  For  Tax  on  Nonresident  Aliens  and  Withholding  of  the  Tax  at  the 
Source. — See  ^[2086  and  ^[2190. 

756  Alien  Seamen,  When  To  Be  Regarded  as  Residents. — In  order  to 
determine  whether  an  alien  seaman  is  a resident  within  the  meaning 

of  the  income  tax  law,  it  is  necessary  to  decide  whether  the  presumption  of 
nonresidence  is  overcome  by  facts  shoving  that  he  has  established  a resi- 
dence in  the  territorial  United  States,  which  consists  of  the  States,  the  Dis- 
trict of  Columbia,  and  the  Territories  of  Hawaii  and  Alaska,  and  excludes 
other  places.  Residence  may  be  established  on  a vessel  regularly  engaged 
in  coastwise  trade,  but  the  mere  fact  that  a sailor  makes  his  home  on  a vessel 
flying  the  United  States  flag  and  engaged  in  foreign  trade  is  not  sufficient 
to  establish  residence  in  the  United  States,  even  though  the  vessel,  while 
carrying  on  foreign  trade,  touches  at  American  ports.  An  alien  seaman 
may  acquire  an  actual  residence  in  the  territorial  United  States  within  the 
rules  laid  down  in  Art.  312  fl[758],  although  the  nature  of  his  calling  requires 
him  to  be  absent  from  the  place  where  his  residence  is  established  for  a long 
period.  An  alien  seaman  may  acquire  such  a residence  at  a sailor’s  board- 
ing house  or  hotel,  but  such  a claim  should  be  carefully  scrutinized  in  order 
to  make  sure  that  such  residence  is  bona  fide.  The  filing  of  Form  1078, 
or  taking  out  first  citizenship  papers,  is  proof  of  residence  in  the  United 
States  from  the  time  the  form  is  filed  or  the  papers  taken  out,  unless 
rebutted  by  other  evidence  showing  an  intention  to  be  a transient.  The 
fact  that  a head  tax  has  been  paid  on  behalf  of  an  alien  seaman  entering  the 
United  States  is  no  evidence  that  he  has  acquired  residence  because  the-, 
head  tax  is  payable  unless  the  alien  who  is  entering  the  country  is  merely- 
in  transit  through  the  country.  An  alien  may  remain  a nonresident  although 
he  is  not  in  transit  through  the  country.  As  to  when  the  w^ages  of  alien, 
seamen  are  subject  to  tax  see  Article  93  [^[ 2096].  (Art.  311(a),  Reg.  62y 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

“Foreign  trade”  includes  transportation  between  U.  S.  and  foreign  countries  (26-19- 
591:  O.  D.  315).  . 1919  Cum.  Bull.  p.  164. 

“Foreign  trade”  between  U.  S.  and  Porto  Rico  (23-20-987:  O.  D.  536)..  Tunc  1920 
Cum.  Bull.  p.  162. 


757  Alien  Seamen  Employed  on  a Vessel  Engaged  in  Coastwise  Trade. — 
Article  [311  (a),  If 756],  which  is  added  to  Regulations  45  by  Treasury 
Decision  2869,  provides  in  the  case  of  alien  seamen  that  “Residence  may  be 
established  on  a vessel  regularly  engaged  in  coastwise  trade.”  This  pro- 
vision, however,  merely  places  alien  seamen  employed  on  a vessel  regularly 
engaged  in  coastwise  trade  on  the  same  footing  with  an  alien  employed 
within  the  United  States  for  purposes  of  proving  residence  within  the  United 
States..  The  employer  should,  therefore,  be  governed  by  the  requirements 
of  Article  [314,  If 7 60]  of  Regulations  45  with  respect  to  the  necessity  for 
filing  Form  1078,  Revised.  (Letter  to  Shipowners’  Association  o?  the  Pacific 
Coast,  San  Francisco,  Calif.,  signed  by  P.  S.  Talbert,  Acting  Assistant  to 
the  Commissioner,  by  C.  R.  Trobridge,  Acting  Head  of  Division,  and  dated 
September  20,  1919.) 

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758  Proof  of  Residence  of  Alien.— The  following  rules  of  evidence  shall 
govern  in  determining  whether  or  not  an  alien  within  the  United 
States  has  acquired  residence  therein  within  the  meaning  of  the  Revenue 
Act.  An  alien,  by  reason  of  his  alienage,  is  presumed  to  be  a nonresident 
alien.  Such  presumption  may  be  overthrown  (1)  in  the  case  of  an  alien  who 
presents  himself  for  determination  of  tax  liability  prior  to  departure  for  his 
native  country,  by  (a)  proof  that  the  alien,  at  least  six  months  prior  to  the 
date  he  so  presents  himself,  has  filed  a declaration  of  his  intention  to  become 
a citizen  of  the  United  States  under  the  naturalization  laws,  (b)  proof 
that  the  alien,  at  least  six  months  prior  to  the  date  he  so  presents  himself, 
has  filed  Form  1078  or  its  equivalent,  or  (c)  proof  of  acts  and  state- 
ments of  the  alien  showing  a definite  intention  to  acquire  residence  in  the 
United  States  or  showing  that  his  stay  in  the  United  States  had  been  of  such 
an  extended  nature  as  to  constitute  him  a resident;  (2)  in  other  cases  by 
(a)  proof  that  the  alien  has  filed  a declaration  of  his  intention  to  become  a 
citizen  of  the  United  States  under  the  naturalization  laws,  (b)  proof  that 
the  alien  has  filed  Form  1078  or  its  equivalent,  or  (c)  proof  of  acts 
and  statements  of  an  alien  showing  a definite  intention  to  acquire  residence 
in  the  United  States  or  showing  that  his  stay  in  the  United  States  has  been 
of  such  an  extended  nature  as  to  constitute  him  a resident.  In  any  case  in 
which  an  alien  seeks  to  overcome  the  presumption  of  nonresidence  under 
(1)  (c)  or  (2)  (c)  above,  if  the  officer  who  examines  the  alien  is  in  doubt 
as  to  the  facts,  such  officer  may,  to  assist  him  in  determining  the  facts  require 
an  affidavit  or  affidavits  setting  forth  the  facts  relied  upon,  executed  byr  some 
credible  person  or  persons,  other  than  the  alien  and  members  of  his  family, 
who  have  known  the  alien  at  least  six  months  prior  to  the  date  of  execution 
of  the  affidavit  or  affidavits.  (Art.  312,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Foreign-army  service  by  erstwhile  resident  alien  (19-20-921:  O.  D.  498).  .June  1920 
Cum.  Bull.  p.  163. 

Resident  alien  enemies  (6-20-731:  O.  D.  400).  .June  1920  Cum.  Bull.  p.  163. 


759  Loss  of  Residence  by  Alien. — An  alien  who  has  acquired  residence 
in  the  United  States  retains  his  status  as  a resident  until  he  abandons 
the  same  and  actually  departs  from  the  United  States.  An  intention  to 
change  his  residence  does  not  change  his  status  as  a resident  alien  to  that  of 
a nonresident  alien.  Thus  an  alien  who  has  acquired  a residence  in  the  United 
States  is  taxable  as  a resident  for  the  remainder  of  his  stay  in  the  United 
States.  The  status  of  an  alien  on  the  last  day  of  his  taxable  year  or  period 
determines  his  liability  to  tax  for  such  year  or  period  as  a resident  or  non- 
resident. See  Article  305  [for  date  for  determining  exemption  status,  ^[2055] 
(Art.  313,  Reg.  62,  1922  Edition.) 


760  Duty  of  Employer  to  Determine  Status  of  Alien  Employee. — If 

wages  are  paid  to  aliens  without  withholding  the  tax,  except  as  per- 
mitted in  Article  315  fl[2l8‘0],  the  employer  should  be  prepared  to  prove 

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the  status  of  the  alien  as  provided  in  the  foregoing  articles.  An  employer 
may  rely  upon  the  evidence  of  residence  afforded  by  the  fact  that  an  alien 
has  filed  Form  1078  or  an  equivalent  certificate  of  the  alien  establishing 
residence.  An  employer  need  not  secure  Form  1078  from  the  alien  if  he  is 
satisfied  that  the  alien  is  a resident  alien.  An  employer  who  seeks  to  account 
for  failure  to  withhold  in  the  past,  if  he  had  not  at  the  time  secured  Form 
1078  or  its  equivalent,  is  permitted  to  prove  the  former  status  of  the  alien 
by  any  competent  evidence.  The  written  statement  of  the  alien  employee 
may  ordinarily  be  relied  upon  by  the  employer  as  proof  that  the  alien  is  a 
resident  of  the  United  States.  (Art.  314,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Certain  interrogatory  on  Form  1078  need  not  be  answered  (37-20-1194:  O.  D.  660) 
. .Dec.  1920  Cum.  Bull.  p.  196.  (New  form  omits  interrogatory.) 

Name  required  though  employee  designated  by  number  (7-19-298:  O.  D.  175).  .1919 
Cum.  Bull.  p.  182. 

Pay  rolls  as  material  evidence  (3-19-195:  O.  D.  127)..  1919  Cum.  Bull.  p.  165. 

Refund  on  filing  of  Form  1078  (3-19-196:  O.  D.  128). . 1919  Cum.  Bull.  p.  165;  also 
(15-19-447:  O.  D.  254)..  1919  Cum.  Bull.  p.  165;  also  (24-19-569:  O.  D.  302) 
. . 1919  Cum.  Bull.  p.  165. 

Waiving  oath  to  Form  1078  (1-19-68:  O.  D.  50). . 1919  Cum.  Bull.  p.  165. 


761  To  avoid  inconvenience  a resident  alien  individual  should  file  a cer- 
tificate of  residence  on  Form  1078  with  withholding  agents, 
who  shall  forward  such  certificates  to  the  Commissioner  with  a letter  of 
transmittal.  See  article  314  [1(760].  (Art.  363,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Author’s  serial  rights  sold  here:  profits  from  (32-21-1759:  O.  D.  988).. Dec.  1921 
Cum.  Bull.  p.  1 17. 

Form  1078  forwarded  to  Washington  by  employers  (4-19-224:  0.  D.  143)..  1919 
Cum.  Bull.  p.  184. 

Form  1078,  Rev.  Jan.  1920:  omission  of  certain  information  called  for  (37-20-1194: 
O.  D.  660).. Dec.  1920  Cum.  Bull.  p.  196. 

New  Form  1078  signed  after  refusal  to  sign  old  Form  1078  (2-19-158:  O.  D.  107) 
. . 1919  Cum.  Bull.  p.  184. 

Return  to  be  filed  for  nonresident  alien  by  agent  does  not  relieve  withholding  agent  of 
obligation  to  withhold  (26-21-1702:  O.  D.  958) . .June  1921  Cum.  Bull.  p.  111. 
Same:  here,  royalties  (44-21-1899:  O.  D.  1087).. Dec.  1921  Cum.  Bull.  p.  193. 


762  In  reply  you  are  advised  that  when  Form  1078  is  filed  with  the  em- 
ployer, the  alien  may  be  treated  as  a resident  of  the  United  States 
in  so  far  as  withholding  of  income  tax  at  source  is  concerned  and  it  is  not 
necessary  for  the  employer  to  secure  from  the  alien  employees  new  cer- 
tificates, Form  1078,  for  each  taxable  year.  The  ruling  contained  in  the  article 
quoted  herein  [see  Art.  314  at  1(760  above]  will  govern,  namely,  that  when 
Form  1078  is  filed,  the  employer  may  continue  to  rely  thereon  until  the  alien 
ceases  to  be  a resident  under  the  provisions  of  Article  313.  (Letter  to  W.  B. 
Reed,  Accounting  Secretary,  National  Coal  Association,  Washington,  D.  C., 
signed  by  Commissioner  Daniel  C.  Roper,  and  dated  July  9,  1919.) 

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763  Referring  to  your  fourth  inquiry  you  are  advised  that  every  em- 
ployer with  whom  affidavits  of  claim  on  Form  1078  are  filed  by  em- 
ployees, should  make  a record  thereof  and  forward  the  certificates  to  the 
Commissioner  of  Internal  Revenue,  Sorting  Division,  Washington,  D.  C., 
not  later  than  the  twentieth  day  of  the  month  succeeding  that  during  which 
such  certificates  were  received.  (Letter  to  The  Corporation  Trust  Com- 
pany, signed  by  Commissioner  Daniel  C.  Roper,  and  dated  May  21,  1919.) 

7 64  "*  Withholding  When  ^Resident  Status  Has  Not  Been  Established 
and  for  Procedure  on  Change  of  Residence  Status. — Read  dis- 
cussion at  ^[2214. 

765  Tax  on  Nonresident  Aliens  and  the  Withholding  of  the  Tax  at  the 
Source  Provisions. — See  beginning  at  *[2086  and  ^2190. 


766  Law  T|612.  The  Income  of  a Citizen  of  Any  Possession  of^the 
(Sec.  260.)  United  States  Who  Is  Not  a Resident  of  the  United 

States,  Is  Taxed  Under  This  Title  on  Income  Derived 
from  United  States  Sources  Only,  the  Tax  Being  Computed  and  Paid 
in  the  Same  Manner  and  Subject  to  the  Same  Conditions  as  in  the  Case 
of  Other  Persons  Liable  on  Such  Income  Only. — “Sec.  260.  That  any 
individual  who  is  a citizen  of  any  possession  of  the  United  States  ( but  not 
otherwise  a citizen  of  the  United  States)  and  who  is  not  a resident  of  the 
United  States , shall  be  subject  to  taxation  under  this  title  only  as  to  income 
derived  from  sources  within  the  United  States ,” — Law.  [Note: 

The  1918  Act  so  provided.] 

767  Law  ^[613.  “and  in  such  case  the  tax  shall  be  computed  and  paid 
(Sec.  260.)  in  the  same  manner  and  subject  to  the  same  conditions 

as  in  the  case  of  other  persons  who  are  taxable  only  as 
to  income  derived  from  such  sources .” — Law.  [Note:  The  1918  Act 

so  provided.] 

768  Law  ^[614.  “ Nothing  in  this  section  shall  be  construed  to  alter  or 

(Sec.  260.)  amend  the  provisions  of  the  Act  entitled  '‘An  Act  mak- 
ing appropriations  for  the  naval  service  for  the  fiscal 

year  ending  June  30,  1922,  and  for  other  purposes ,’  approved  July  12, 
1921,  relating  to  the  imposition  of  income  taxes  in  the  Virgin  Islands  of 
the  United  States .” — Law.  [Note:  This  provision  is  new  to  the 

1921  Act.  The  pertinent  provisions  of 
the  Act  of  July  12,  1921,  follow.] 

769  Federal  Income  Tax  Law  in  Force  in  the  Virgin  Islands. — “Provided 
further , That  the  income  tax  laws  now  in  force  in  the  United  States 

of  America  and  those  which  may  hereafter  be  enacted  shall  be  held  to  be 
likewise  in  force  in  the  Virgin  Islands  of  the  United  States,  except  that  the 
proceeds  of  such  taxes  shall  be  paid  into  the  treasuries  of  said  islands.” 

[The  matter  quoted  above  is  part  of  “An  Act  making  appropriations  for  the  naval 
service  for  the  fiscal  year  ending  June  30,  1922,  and  for  other  purposes,”  (Public — No.  35 — 
67th  Congress,  in  effect  July  12,  1921,)  being  embodied  in  the  paragraph  of  the  law  ap- 
propriating funds  for  the  temporary  government  for  the  West  Indian  Islands. — The  Cor- 
poration Trust  Company.) 

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7 70  Status  of  Citizen  of  United  States  Possession. — A citizen  of  a posses- 
sion of  the  United  States  (except  the  Virgin  Islands),  who  is  not  other- 
wise a citizen  or  a resident  of  the  United  States,  including  only  the  States, 
the  Territories  of  Alaska  and  Hawaii,  and  the  District  of  Columbia,  is  treated 
for  the  purpose  of  the  tax  as  if  he  were  a nonresident  alien  individual.  See 
articles  92-94,  271,  306,  311,  316,  and  404  [for  general  discussion  of  tax 
on  nonresidents,  ^[2086].  His  income  from  sources  within  the  United  States 
is  subject  to  withholding.  See  section  221  and  articles  361-375  [for  withhold- 
ing of  the  tax  at  the  source,  ^[2190].  The  Act  referred  to  in  section  260  of 
the  statute  provided  that  income  tax  laws  then  or  thereafter  in  force  in  the 
United  States  should  apply  to  the  Virgin  Islands,  but  that  the  taxes  should  be 
paid  into  the  treasury  of  the  Virgin  Islands  [see  1[769].  Accordingly,  a 
citizen  or  resident  of  the  Virgin  Islands  is  taxed  there  under  the  provisions  of 
the  Revenue  Act  of  1921.  (Art.  1121,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Porto  Rico;  resident  of,  employed  on  vessel  plying  between  there  and  U.  S.  (23-20- 
987:  O.  D.  536).  .June  1920  Cum.  Bull.  p.  162. 

Virgin  Islands  (28-19-619:  O.  D.  333)..  1919  Cum.  Bull.  p.  267. 


7 7 1 Law  *[615.  Income  Taxes  in  Porto  Rico  and  the  Philippine  Islands. 

(Sec.  261.)  — “Sec.  261.  That  in  Porto  Rico  and  the  Philippine 

Islands  the  income  tax  shall  be  levied , assessed , col- 
lected, and  paid  as  provided  by  law  prior  to  the  passage  of  this  Act.” — Law. 

[The  1918  Act  read,  “in  accordance  with 
the  provisions  of  the  Revenue  Act  of 
1916  as  amended.”] 

7 72  Law  ^[616.  “ The  Porto  Rican  or  Philippine  Legislature  shall 

(Sec.  261.)  have  power  by  due  enactment  to  amend , alter , modify , 
or  repeal  the  income  tax  laws  in  force  in  Porto  Rico  or 
the  Philippine  Islands , respectively .” — Law.  [Note:  The  1918 

Act  so  provided.] 

7 73  Section  1400  (not  repealed  by  the  Revenue  Act  of  1921)  of  the 
Revenue  Act  of  1918  provides  in  part  that  “Title  I of  the  Revenue 
Act  of  1916  as  amended  by  the  Revenue  Act  of  1917  shall  remain  in  force 
for  the  assessment  and  collection  of  the  income  tax  in  Porto  Rico  and  the 
Philippine  Islands,  except  as  may  be  otherwise  provided  by  their  respective 
legislatures.” 

[The  Legislature  of  Porto  Rico  has  repealed  in  Porto  Rico  Title  I of 
the  Revenue  Act  of  1916  as  amended  by  the  Revenue  Act  of  1917.  See 
Sec.  77.  “The  Income  Tax  Law,”  approved  June  26,  1919.  Laws  of  Porto 
Rico;  similarly  superseded  in  the  Philippines.  See  Sec.  20,  an  Act  Estab- 
lishing the  Income  Tax,  approved  March  7,  1919.  Laws  of  the  Philippines.] 

7 74  Income  Tax  in  Porto  Rico  and  Philippine  Islands.— The  Revenue 
Act  of  1921  is  not  in  force  in  Porto  Rico  and  the  Philippine  Islands. 
See  also  section  1400  of  the  statute  fl[773].  No  credit  against  net  income  is 

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allowed  individuals  and  no  deduction  from  gross  income  is  allowed  corpora- 
tions with  respect  to  dividends  received  from  a foreign  corporation  (foreign 
with  respect  to  the  United  States)  taxed  in  Porto  Rico  or  the  Philippines, 
but  having  no  income  from  sources  within  the  United  States.  (Art.  1131, 
Reg.  62,  1922  Edition.) 


77  5 Taxation  of  Individuals  Between  United  States  and  Porto  Rico 
and  Philippine  Islands. — (a)  A citizen  of  the  United  States  who 
resides  in  Porto  Rico,  and  a citizen  of  Porto  Rico  who  resides  in  the  United 
States,  are  taxable  in  both  places,  but  the  income  tax  in  the  United  States 
is  credited  with  the  amount  of  any  income,  war  profits,  and  excess  profits 
taxes  paid  in  Porto  Rico.  See  section  222  of  the  statute  and  articles  381- 
386  [for  credit  for  taxes  H 1 733].  (b)  A resident  of  the  United  States,  who 

is  not  a citizen  of  Porto  Rico,  is  taxable  in  Porto  Rico  as  a nonresident  alien 
individual  on  any  income  derived  from  sources  within  Porto  Rico,  but  the 
income  tax  in  the  United  States  is  credited  with  the  tax  paid  in  Porto  Rico, 
(c)  A resident  of  Porto  Rico,  who  is  not  a citizen  of  the  United  States,  is 
taxable  in  the  United  States  as  a nonresident  alien  individual  on  any  income 
derived  from  sources  within  the  United  States,  and  receives  no  such  credit. 
See  also  section  260  and  article  1121  [for  status  of  citizen  of  United  States 
possessions,  ^[770].  The  same  principles  apply  in  the  case  of  the  Philippine 
Islands.  (Art.  1132,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

U.  S.  citizen  residing  in  Philippines  during  entire  year  1918  (52-20-1361:  Ct.  D.  1) 
. .Dec.  1920  Cum.  Bull.  p.  73:  affirmed  by  C.  C.  of  A.  (24-21-1684:  Ct.  D.  14) 
. .June  1921  Cum.  Bull.  p.  55. 


77  3 Taxation  of  Corporations  Between  United  States  and  Porto  Rico 
and  Philippine  Islands. — (a)  A United  States  corporation  which 
derives  income  from  sources  within  Porto  Rico,  (b)  a Porto  Rico  corpora- 
tion which  derives  income  from  sources  within  the  United  States,  and  (c)  a 
corporation  of  a foreign  country  which  derives  income  both  from  sources 
within  Porto  Rico  and  from  sources  within  the  United  States,  are  all  taxable 
in  both  places.  In  the  case  of  the  United  States  corporation  the  income,  war 
profits,  and  excess  profits  taxes  in  the  United  States  are  credited  with  the 
amount  of  any  income,  war  profits,  and  excess  profits  taxes  paid  in  Porto 
Rico.  In  the  case  of  the  Porto  Rico  corporation  there  is  no  such  credit. 
See  section  238  of  the  statute  and  article  611  [for  credit  for  taxes,  1752] 
The  corporation  of  the  foreign  country  deriving  income  from  both  places 
is  subject  to  no  double  taxation  so  far  as  the  United  States  and  Porto  Rico 
are  concerned.  For  the  purpose  of  withholding,  a Porto  Rico  corporation 
is  a foreign  corporation.  See  action  237  and  article  601  [for  withholding  in 
the  case  of  nonresident  foreign  corporations,  ^[2225].  The  same  principles 
apply  in  the  case  of  the  Philippine  Islands.  (Art.  1133,  Reg.  62,  1922 
Edition.) 

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,>-2  7-22. 


PORTO  RICO,  PHILIPPINES  AND  VIRGIN  ISLANDS. 


l:or  explanation  of  Cumulative  Index  references  sec  page  9/. 

Domestic  corporation  having  principal  office,  books,  and  all  business  in  Porto  Rico, 
and  deriving  all  income  therefrom  (1917  Act)  (25-21-1694:  L.  O.  1066).. June 
1921  Cum.  Bull,  p.  259. 

Foreign  corporation  transacting  business  and  having  an  office  in  both  U.  S.  and 
Porto  Rico  (1-20-663:  O.  976).  .June  1920  Cum.  Bull,  p,  260. 


777  Income  of  U.  S.  Citizens  and  Domestic  Corporations  From  Sources 
Within  the  Possessions  of  the  U.  S.— Read  at  * 2070. 


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127 


2-27-22. 

PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

77  8 Law  1f237.  Common-Law  Partnerships  Are  Not  Taxable  as  Such. 

(Sec.  218.)  — “Sec.  218.  ( a ) That  individuals  carrying  on  business 

in  partnership  shall  be  liable  for  income  tax  only  in 
their  individual  capacity — Law.  [Note:  The  1918  Act  so  provided.] 

7 79  Limited  Partnerships.— For  discussion  of  status  of  various  types, 
see  ^[992. 

7 80  Partnership  Eanks  Considered  Corporations  in  Certain  Cases. — 

Read  at  1(989. 

73  J Domestic  and  Foreign  Partnerships  Defined. — Read  at  * 1400. 

782  Withholding  in  the  Case  of  Partnerships.— See  1(2192  and  1(224 5. 

7 83  Hawaiian  Partnerships  Composed  of  Corporations. — [Such  part- 
nerships, permitted  under  the  laws  of  Hawaii,  were  held  to  be  part- 
nerships for  Federal  income  tax  purposes  rather  than  joint-stock  associations 
in  Haiku  Sugar  Company,  et  ah,  vs.  Johnstone.  Circuit  Court  of  Appeals, 
Ninth  Circuit.  April  1,  1918  (249  Fed.  103).  However,  “joint-stock 
associations”  are  no  longer  included  in  the  definition  of  “corporations.” 
The  wording  now  is  “associations”  and  “joint-stock  comnanies.”  See 
11986.] 

7 84  Partnerships. — Partnerships  as  such  are  not  subject  to  taxation 

under  the  statute,  but  are  required  to  make  returns  of  income. 
See  section  224  of  the  statute  and  articles  411  and  412  [for  returns 
by  partnerships,  H 794].  Individuals  carrying  on  business  in  partnership 
are,  however,  taxable  upon  their  distributive  shares  of  the  net  income  of 
such  partnerships,  whether  distributed  or  not,  and  are  required  to  include 
such  distributive  shares  in  their  returns.  (Art.  331,  Reg.  62,  1922  Edition.) 
[See  Cumulative  Index  following  1f787.] 

785  Incorporation  of  Individual  or  Partnership  Business  and  Limited 
Election  to  be  Taxed  as  a Corporation. — Read  at  1[995. 

7 88  Law  1J241 . Manner  of  Computing  Net  Income  by  Partnerships 
(Sec.  218.)  to  Determine  Taxable  Distributive  Interests. — 

“(c)  The  net  income  of  the  partnership  shall  be  com- 
puted in  the  same  manner  and  on  the  same  basis  as  provided  in  section 
212  [1[  1 040]  except  that  the  deduction  provided  in  paragraph  (11)  [contribu- 
tions, 1(2001]  of  subdivision  (a)  of  section  214  shall  not  be  allowed .” — Law. 

[Note:  The  1918  Act  so  provided.] 

787  The  net  income  of  the  partnership  shall  be  computed  in  the  same 
manner  and  on  the  same  basis  as  the  net  income  of  an  individual, 
except  that  the  deduction  of  contributions  or  gifts  is  not  permitted,  as  these 
are  allowable  deductions  to  the  respective  partners  in  their  individual  returns. 
See  section  212  and  articles  21-26  [for  net  income  generally,  U 1 042] . In  the 
case  of  a partnership  closely  related  to  other  trades  or  businesses,  see  section 
240  (d)  and  article  637  [1(2561].  (Art.  331,  Reg.  62,  1922  Edition.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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I 


t-t 7 22.  (*)  4-10-22.  (8)  4-18-22.(4)  6-30-22.  (5)  8-10-22.  (6)  10-11-22. 

PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 


For  explanation  of  Cumulative  Index  references  see  page  pr. 

Joint  ownership  and  joint  adventure.  .See  Cumulative  Index  following  ^[994. 
Limited  partnership  as  corporation.  .See  Cumulative  Index  following  ^[993. 

Limited  partnership  as  partnership.  .See  Cumulative  Index  following  *1| 992. 
Partnership  distinguished  from  association.  .See  Cumulative  Index  following  1[989. 
Readjustment  of  partnership  interests.  .See  Cumulative  Index  following  Tj  1 490. 


1921  fiscal  year  returns  under  1918  Act  having  been  filed  no  return  under  1921  Act 
for  same  period  required:  1921  Act  (1-15-216:  I.  T.  1277).  .June  1922  Cum. 
Bull.  p.  291. 

Agriculture:  one  party  furnishes  land,  etc.,  the  other  labor:  no  partnership  agreement 
(1-6-62:  I.  T.  1186).  .June  1922  Cum.  Bull.  p.  3. 

Contributions  by  personal  service  corporations  (1-6-74:  I.  T.  1196).  .June  1922  Cum. 
Bull.  p.  189. 

Dividends  received  by  partner  through  partnership:  Court  decision,  1913  Act  (7-19- 
294:  T.  D.  2858)..  1919  Cum.  Bull.  p.  166. 

Expenditure  by  partner  on  account  of  firm  (29-20-1073:  O.  D.  593).  .Dec.  1920  Cum 
Bull.  p.  130. 

Foreign  partnership  with  office  here  for  purchase  of  goods  to  be  sold  abroad  (29-20- 
1072:  O.  D.  592).. Dec.  1920  Cum.  Bull.  p.  128. 

Husband  and  wife  in  joint  practice  of  profession  in  Maine;  held  not  to  be  partner- 
ship: 1921  Act  (1-26-371:  I.  T.  1371).  .June  1922  Cum.  Bull.  p.  208. 

Husband  and  wife  in  joint  trading  transaction;  held  to  be  a partnership  in  State  of  Y 
(41-21-1865:  A.  R.  R.  636).  .Dec.  1921,  Cum.  Bull.  p.  257. 

Loss  during  remainder  of  calendar  year  by  corporation  into  which  partnership  is 
reorganized  (29-21-1736:  A.  R.  R.  571).. Dec.  1921,  Cum.  Bull.  p.  181. 

Loss  in  inventory:  abatement  claim  (1 1-19-380:  O.  D.  218) ..  1919  Cum.  Bull.  p.  159 
Mining  partnerships;  Colorado  (45-21-1902:  A.  R.  R.  652) . . Dec.  1921,  Cum.  Bull,  p 9. 
Partner  pays  partnership  employee’s  salary  under  partnership  agreement  (24-21 
1686:  O.  D.  947).. June  1921  Cum.  Bull.  p.  137. 

Partnership  beneficiary  of  life  insurance  policy  (6-19-270:  T.  B.  R.  22). . 1919  Cum. 
Bull.  p.  82. 

Private  banking  business;  special  conditions  (44-21-1895:  O.  D.  1083).. Dec. 
1921  Cum.  Bull.  p.  9. 

Single  isolated  business  venture;  a special  case  considered  (40-21-1850:  A.  R.  R. 
629).  .Dec.  1921  Cum.  Bull.  p.  13. 

7 88  Deduction  by  Members  on  Account  of  Non-Deductible  Donations 
Made  by  a Partnership. — See  1f2004. 


7 89  Law  ][322.  Returns  by  Partnerships. — uSec.  224.  That  every 
(Sec.  224.)  partnership  shall  make  a return  for  each  taxable  [If  1063] 
year” — Law.  [Note:  The  1918  Act  so  provided.] 


790  Law  1f322.  Return  of  Gross  Income  and  Deductions. — “ stating 
(Sec.  224.)  specifically  the  items  of  its  gross  income  and  the  de- 
ductions allowed  by  this  t\tle  [If 786],  and" — Law. 

[Note:  The  1918  Act  so  provided.] 


781  Law  1f322.  Return  to  Disclose  Names  and  Addresses  of  All 
(Sec.  224.)  Members. — “ shall  include  in  the  return  the  names 
and  addresses  of  the  individuals  who  uould  be  entitled 
to  share  in  the  net  income  if  distributed  and.” — Law.  [Note:  The 

1918  Act  so  provided.] 

792  Law  1J322.  Return  to  Show  Distributive  Share  of  Each  Mem- 
(Sec.  224.)  ber. — “ the  amount  of  the  distributive  share  of  each 
individual  [If 798].” — Law.  [Note:  The  1918 

Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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129 


2 £7-22.  (2)  4-10-22.  (3)  4-18-22.  (4)  6-30-22.  (5)  8-10-22.  (6)  10-11-22. 

PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

793  Law  ^322.  Return  to  Be  Sworn  to  by  One  of  the  Partners.— 

(Sec.  224.)  “The  return  shall  be  sworn  to  [^[2510]  by  any  one  of 
the  partners .” — Law.  [Note:  The  1918  Act  so 

provided.] 

794  Partnership  Returns. — Every  partnership  must  make  a return  of 
income,  regardless  of  the  amount  of  its  net  income.  The  return 

shall  be  on  Form  1065  and  shall  be  sworn  to  by  one  of  the  partners. 
Such  return  shall  be  made  for  the  taxable  year  of  the  partnership,  that 
is,  for  its  annual  accounting  period  (fiscal  year  or  calendar  year  as  the 
case  may  be),  irrespective  of  the  taxable  years  of  the  partners.  See  section 
218  of  the  statute  and  articles  331-335  ft[787  et  seq.].  If  the  partnership 
makes  any  change  in  its  accounting  period,  it  shall  make  its  return  in  ac- 
cordance with  the  provisions  of  section  226  and  article  431  [for  returns  when 
accounting  period  changed,  1f2574].  See  also  article  424  [for  return  by  re- 
ceiver, 1f956].  (Art.  411,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Business  incorporated  but  continued  as  partnership  (43-21-1887:  O.  D.  1078)  Dec, 

1921  Cum.  Bull.  p.  232 

Business  continued  as  a partnership  following  dissolution  of  corporation:  1921  Act 
(1-32-452:  I.  T.  1416)..  Bull.  I (’22)-32,  p.  8. 

Extension  of  time  for  filing  1921  returns.  .^3009. 

On  death  or  withdrawal  of  partner  (12-19-403:  O.  D.  228) . . 1919  Cum.  Bull.  p.  190. 


795  Contents  of  Partnership  Return. — The  return  of  a partnership 
shall  state  specifically  (a)  the  items  of  its  gross  income  enumer- 
ated in  section  213  of  the  statute:  (b)  the  deductions  enumerated  in  sec- 
tion 214,  other  than  the  deduction  provided  in  paragraph  (11)  of  subdivi- 
sion (a)  of  that  section  [contributions:  see  ^[787];  (c)  the  amounts  specified 
in  subdivisions  (a)  and  (b)  of  section  216  received  by  the  partnership;  (d) 
the  amount  of  any  income,  war  profits  and  excess  profits  taxes  of  the  part- 
nership paid  during  the  taxable  year  to  a foreign  country  or  to  any  posses- 
sion of  the  United  States,  and  the  amount  of  any  such  taxes  accrued  but  not 
paid  during  the  taxable  year;  (e)  the  names  and  addresses  of  the  individuals 
who  would  be  entitled  to  share  in  the  net  income  of  the  partnership  if  dis- 
tributed; (f)  the  amount  of  the  distributive  share  of  such  net  income  of  each 
such  individual;  and  (g)  such  other  facts  as  are  required  by  Form  1065. 
See  also  sections  222  and  227  and  articles  381-386  [for  credit  for 
taxes,  ^[1733]  and  441-447  [for  time  and  place  for  filing  returns,  ^[2529]. 
(Art.  412,  Reg.  62,  1922  Edition.) 


796  General  Law  Provisions  and  Applicable  Regulations  Relative  to 
Returns. — Read  beginning  at  ^[2382. 


797  Returns  of  Information  at  the  Source. — Read  at  ^[2336. 

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130 


2-27-22.  (2)  5-19-22.  (3)  10-11-22. 

PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 


798  Law  1J238.  Distributive  Share  of  Partnership’s  Net  Income, 
(Sec.  218.)  Whether  Distributed  or  Not,  to  Be  Accounted  for 

by  Each  Partner. — “ There  shall  be  included  in  com- 
puting the  net  income  of  each  partner  his  distributive  share , whether  dis- 
tributed or  not,  of  the  net  income  of  the  partnership  for  the  taxable  year, 
or,” — Law.  [Note:  The  1918  Act  so  provided.] 

799  Law  1[239.  Partner’s  Accounting  Period  Differing  from  That  of 

(Sec.  218.)  the  Partnership. — “if  his  net  income  for  such  taxable 
year  is  computed  upon  the  basis  of  a period  different 
from  that  upon  the  basis  of  which  the  net  income  of  the  partnership  is  com- 
puted, then  his  distributive  share  of  the  net  income  of  the  partnership  for 
any  accounting  period  of  the  partnership  ending  within  the  fiscal  or  calendar 
year  upon  the  basis  of  which  the  partner's  net  income  is  computed.” — 
Law.  [Note:  The  1918  Act  so  provided.] 

800  Distributive  Shares  of  Partners. — The  distributive  share  of  the 
net  income  of  the  partnership  which  a partner  is  required  to  include  in 

his  return  is  his  proportionate  share  of  the  net  income  of  the  partnership, 
either  (a)  for  the  taxable  year  upon  the  basis  of  which  the  partner’s  net 
income  is  computed,  or  (b),  if  the  partner’s  net  income  is  computed  upon 
the  basis  of  a taxable  year  different  from  that  upon  the  basis  of  which  the 
net  income  of  the  partnership  is  computed,  for  the  taxable  year  of  the  part- 
nership ending  within  the  taxable  year  upon  the  basis  of  which  the  partner’s 
net  income  is  computed.  Amounts  earned  and  distributed  to  a partner  by  a 
partnership  after  the  end  of  its  taxable  year  and  before  the  end  of  his  cor- 
responding taxable  year  should  be  accounted  for  both  by  the  partnership 
and  by  the  partners  in  their  returns  for  their  next  succeeding  taxable  years. 
Where  the  result  of  partnership  operation  is  a net  loss,  the  loss  will  be  divisible 
by  the  partners  in  the  same  proportion  as  net  income  would  have  been  divisible, 
unless  the  partnership  agreement  provides  for  the  division  of  a loss  in  a 
manner  different  from  the  division  of  a gain,  and  may  be  used  by  the  indi- 
vidual partners  in  their  returns  of  income.  (Art.  332,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Allocation  of  particular  income  to  one  partner;  not  permitted  (4-19-221:  0.  D.  140) 
..1919  Cum.  Bull.  p.  174. 

Assignment  of  prospective  profits  (20-19-505:  0.  912).  .1919  Cum.  Bull.  p.  -80. 
Compensation  of  partner  for  military  services  turned  over  to  partnership  (3-19-182: 
O.  D.  121).  . 1919  Cum.  Bull.  p.  97. 

Distributions  during  firm’s  fiscal  year,  rather  than  at  end  thereof  (3-19-197:  0.  816) 
. . 1919  Cum.  Bull.  p.  168. 

Distributions  in  kind  (3-19-197:  0.  816)..  1919  Cum.  Bull.  p.  168;  also  (36-20-1182: 
Sol.  Op.  42).  .Dec.  1920  Cum.  Bull.  p.  61. 

Distribution  in  securities  at  less  than  cost  (10-19-354:  T.  B.  R.  34)..  1919  Cum. 
Bull.  p.  46. 

No  return  permitted  for  period  exceeding  12  months  (3-19-197:  O.  816).  . 1919  Cum. 
Bull.  p.  168. 

Notarial  fees  received  by  member  and  turned  over  to  firm  (35-20-1167:  O.  D.  648) 
. .Dec.  1920  Cum.  Bull.  p.  125. 

Partnership  changes  its  fiscal  year  accounting  period;  no  redress  to  members  on 
calendar  year  basis  thus  forced  to  include  distributive  interests  for  period  of 
more  than  twelve  months:  1918  Act  (1-20-277:  A.  R.  R.  916).  . Tune  1922  Cum. 
Bull.  p.  208. 

Rule  laid  down  in  Art.  332  as  to  distributive  interests  and  the  return  thereof  must 
be  adhered  to  (22-19-536:  T.  B.  R.  64). . 1919  Cum.  Bull.  p.  171. 

Two  partnerships  in  joint  venture  under  agreement  no  distribution  for  two  year* 
(8-19-325:  O.  D.  187) . . 1919  Cum.  Bull.  p.  174. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 


801  Readjustment  of  Partnership  Interests. — Read  If  1490. 

802  Liberty  bond  exemptions  in  the  case  of  partnerships. — See  1(1587. 

803  Benefit  of  the  Special  “Capital  Gain”  Provision  Accrues  to  Members 
of  a Partnership  on  and  Alter  January  1,  1922. — Read  at  1(1507. 

804  Benefit  of  the  Special  “Net  Losses”  Provision  Accrues  to  Members 
of  a Partnership. — Read  at  1(1546  and  last  sentence  of  1(800,  above. 

805  Undistributed  Distributable  Interests  Once  Taxed  Are  Not  Taxed 
Again  When  Distributed. — Undivided  annual  net  profits  of  part- 
nerships thus  returned  by  the  individual  members  thereof,  and  tax  paid 
thereon,  shall  not,  when  said  profits  are  actually  distributed  and  paid  to 
such  members,  be  again  included  in  their  annual  return  as  a part  of  their 
gross  income.  (Art.  14,  Reg.  33,  Jan.  5,  1914.) 

-806  Law  1(240.  Credits  Allowed  Members  of  Partnerships  for  Normal 

(Sec.  218.)  Tax  Purposes. — “(b)  The  partner  shall , for  the  purpose 
of  the  normal  tax , be  allowed  as  credits , in  addition  to 
the  credits  allowed  to  him  under  section  216  [1J2038],  his  proportionate  share 
of  such  amounts  specified  in  subdivisions  (a)  [ dividends , 1(2039]  and  ( b ) 
[United  States  bond  interest  included  in  gross  income,  1(2042]  of  section 
216  as  are  received  by  the  partnership .” — Law.  [Note:  The  1918  Act  so 

provided.] 

807  Credits  Allowed  Partners. — In  addition  to  the  credits  ordinarily 
allowed  to  an  individual,  a partner  is  entitled  to  the  following  credits: 
(a)  A credit  against  net  income  for  the  purpose  of  the  normal  tax  only  of 
proportionate  shares  of  such  dividends  specified  in  section  216  (a)  and 
article  301  [1(2043],  and  of  such  interest  not  entirely  exempt  from  tax  upon 
obligations  of  the  United  States  and  bonds  of  the  War  Finance  Corporation  as 
are  received  by  the  partnership;  and  (b)  a credit  against  income  tax  of  the 
partner’s  proportionate  share  of  any  income,  war  profits,  and  excess  profits 
taxes  of  the  partnership  paid  or  accrued  during  the  taxable  year  to  a foreign 
country,  or  to  any  possession  of  the  United  States,  subject  to  the  limitations 
of  section  222  of  the  statute  [1(1733].  See  sections  216  and  222  and  articles 
301  [for  credits  against  income,  1(2043]  and  381-386  [for  credits  for  taxes 
1(1747].  (Art.  333,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gr. 

Foreign  income  tax  withheld  by  foreign  licensee  on  patent  royalties  of  domestic 
partnership  (28-20-1059:  O.  D.  583).  .Dec.  1920  Cum.  Bull.  p.  220. 


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808  Law  ^[88.  Fiscal  Year  of  Partnership  Embracing  Parts  of  Two 
(Sec.  205.)  Calendar  Years  for  Which  the  Law  Provisions  or  the 

Rates  Differ. — “(c)  If  a fiscal  year  of  a partnership 
begins  in  1920  and  ends  in  1921,  or  begins  in  1921  and  ends  in  1922,  then”— 
Law.  [Note:  The  1918  Act  so  provided,  in  effect,  the  years  there 

being  1917-1918,  and  1918-1919.] 

809  Law  *89.  “(1)  the  rates  for  the  calendar  year  during  which  such 

(Sec.  205.)  fiscal  year  begins  shall  apply  to  an  amount  of  each 

partner  s share  of  such  partnership  net  income  (deter- 
mined under  the  law  applicable  to  such  year)  equal  to  the  proportion  which 
the  part  of  such  fiscal  year  falling  within  such  calendar  year  bears  to  the 
full  fiscal  year , and”— Law.  [Note:  The  1918  Act  so  provided.] 

810  Law  *90.  “(2)  the  rates  for  the  calendar  year  during  which  such 

(Sec.  205.)  fiscal  year  ends  shall  apply  to  an  amount  of  each  part- 
ner s share  of  such  partnership  net  income  (determined 

under  the  law  applicable  to  such  calendar  year)  equal  to  the  proportion 
which  the  part  of  such  fiscal  year  falling  within  such  calendar  year  bears 
to  the  full  fiscal  year.”— Law.  [Note:  The  1918  Act  so  provided.] 


811  Taxation  of  Partners  in  Partnership  With  Fiscal  Year  Ending  in 
1921.  If  the  fiscal  year  of  a partnership  began  in  the  calendar  year 
1920  and  ended  in  the  calendar  year  1921,  the  method  of  computing  the  taxes 
of  the  partners  is  as  follows:  (a)  The  amount  of  each  partner’s  distributive 
share  of  the  net  income  of  the  partnership  for  such  fiscal  year  attributable 
to  the  calendar  year  1920  is  found  by  determining  the  net  income  of  the 
partnership  for  its  entire  fiscal  year  in  accordance  with  the  law  applicable 
to  the  calendar  year  1920  (Title  II  of  the  Revenue  Act  of  1918)  and  the 
distributive  share  thereof  of  each  partner,  and  then  taking  such  proportion 
of  that  distributive  share  as  the  part  of  the  taxable  period  falling  within  the 
calendar  year  1920  bears  to  the  entire. taxable  period;  (b)  the  amount  of  each 
partner  s distributive  share  of  the  net  income  of  the  partnership  for  such  fiscal 
year  attributable  to  the  calendar  year  1921  is  found  by  determining  the  net 
income  of  the  partnership  for  its  entire  fiscal  year  in  accordance  with  the  law 
applicable  to  the  calendar  year  1921  and  the  distributive  share  thereof  of 
each  paitner,  and  then  taking  such  proportion  of  that  distributive  share  as  the 
part  of  the  taxable  period  falling  within  the  calendar  year  1921  bears  to  the 
full  taxable  period.  See  section  205  (c)  of  the  statute  and  article  1621 
[1F869].  (Art.  334,  Reg.  62,  1922  Edition.) 


812  Taxation  of  Partners  in  Partnership  With  Fiscal  Year  Ending  in 
1922.— If  the  fiscal  year  of  the  partnership  began  in  the  calendar 
\ ear  1921  and  ends  in  the  calendar  year  1922  the  rates  of  tax  for  the  calendar 
year  1921  apply  to  the  amount  of  each  partner’s  distributive  share  of  the  net 
income  of  the  partnership  for  such  fiscal  year  attributable  to  the  calendar 
year  1921,  and  the  rates  for  the  calendar  year  1922  to  the  amount  of  each 
paitner  s distributive  share  of  such  income  of  the  partnership  attributable 
to  the  calendar  year  1922.  ( a ) The  amount  of  each  partner’s  distributive 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

share  of  the  net  income  of  the  partnership  for  such  fiscal  year  attributable 
to  the  calendar  year  1921  is  found  by  determining  the  net  income  of  the  part- 
nership for  its  entire  fiscal  year  in  accordance  with  the  law  applicable  to  the 
calendar  year  1921  and  the  distributive  share  thereof  of  each  partner,  and 
then  taking  such  proportion  of  the  distributive  share  as  the  part  of  the  taxable 
period  falling  within  the  calendar  year  1921  bears  to  the  entire  taxable  period; 

(b)  the  amount  of  each  partner’s  distributive  share  of  the  net  income  of  the 
partnership  for  such  fiscal  year  attributable  to  the  calendar  year  1922  is 
found  by  determining  the  net  income  of  the  partnership  for  its  entire  fiscal 
year  in  accordance  with  the  law  applicable  to  the  calendar  year  1922  and  .the 
distributive  share  thereof  of  each  partner,  and  then  taking  such  proportion 
of  that  distributive  share  as  the  part  of  the  taxable  period  falling  within 
the  calendar  year  1922  bears  to  the  entire  taxable  period.  See  section  205 

(c)  of  the  statute  and  art.  1621  (®869].  In  determining  the  rates  of  tax 
applicable  to  the  amounts  of  the  distributive  shares  of  the  partners  at- 
tributable to  the  calendar  years  1921  and  1922,  respectively,  the  amounts 
subject  to  the  rates  for  the  calendar  year  1922  shall  be  placed  in  the  lower 
brackets  of  the  rates  schedule  provided  in  the  present  statute,  and  the 
amounts  attributable  to  the  calendar  year  1921  in  the  next  higher  brackets  of 
the  rates  schedule  applicable  to  that  year.  (Art.  335,  Reg.  62,  1922  Edition.) 


Taxation  of  Personal  Service  Corporations  and  the  Individual  Stockholders 
Thereof  for  the  Calendar  Year  1921. 

813  Stockholders  of  Personal  Service  Corporations  Ceased  to  be  Taxed 
in  the  Same  Manner  as  the  Members  of  Partnerships  after  Decem- 
ber 31,  1921. — See  ^[841. 

814  Personal  Service  Corporations  Ceased  to  be  Exempt  From  the 
Corporation  Income  Tax  After  December  31,  1921. — See  1)842. 

815  Law  1)21.  “Personal  Service  Corporation”  Defined. — “ The 

(Sec.  200.)  term  ‘ personal  service  corporation ’ means  a corporation 
whose  income  is  to  be  ascribed  primarily  to  the  activities 
of  the  principal  owners  or  stockholders  who  are  themselves  regularly  engaged 
in  the  active  conduct  of  the  affairs  of  the  corporation  and  in  which  capital 
(■ whether  invested  or  borrowed ) is  not  a material  income-producing  f actor — 
Law.  [Note:  The  1918  Act  so  provided.] 


816 


Law  1)22.  “ but  does  not  include  any  foreign  corporation ,” — Law. 

(Sec.  200.)  [Note:  The  1918  Act  so  provided.] 


817  Law  1f23.  “nor  any  corporation  50  per  centum  or  more  of  whose 
(Sec.  200.)  gross  income  consists  either ” — Law.  [Note:  The 

1918  Act  so  provided.] 


818  Law  1f24.  “(1)  of  gains , profits,  or  income  derived  from  trading  as 

(Sec.  200. )_  a principal , or” — Law.  [Note:  The  1918  Act 

so  provided.] 


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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

819  Law  1f2S.  “(2)  of  gains , profits , commissions , or  other  income , 
(Sec.  200.)  derived  from  a government  contract  or  contracts  made 
between  April  6,  1917,  and  November  11,  1918,  both 
dates  inclusive .”  [Read  at  If 825.] — Law.  [Note:  The  1918  Act  so 

provided.] 


820  Law  1[13.  “Government  Contract”  Defined. — “ The  term  ‘ Gov - 
(Sec.  2.)  ernment  contract ’ means  (a)  a contract  made  with  the 

United  States , or  with  any  department , bureau , officer, 
commission,  board , or  agency,  under  the  United  States  and  acting  in  its 
behalf,  or  with  any  agency  controlled  by  any  of  the  above  if  the  contract 
is  for  the  benefit  of  the  United  States,  or  (b)  a subcontract  made  with  a 
contractor  performing  such  a contract  if  the  products  or  services  to  be  fur- 
nished under  the  subcontract  are  for  the  benefit  of  the  United  States.  The 
term  ‘ Government  contract  or  contracts  made  between  April  6,  1917,  and 
November  11,  1918,  both  dates  inclusive ’ when  applied  to  a contract  of  the 
kind  referred  to  in  clause  (a)  of  this  subdivision,  includes  all  such  contracts 
which,  although  entered  into  during  such  period , were  originally  not  en- 
forceable, but  which  have  been  or  may  become  enforceable  by  reason  of 
subsequent  validation  in  pursuance  of  law.” — Law.  [Note:  The  1918 

Act  so  provided.] 

821  Government  contracts  may  include  (a)  a contract  with  the  United 
States,  (b)  a contract  with  an  agency  of  the  United  States,  (c)  a 

contract  with  an  agency  of  such  agency,  and  (d)  a subcontract  with  a con 
tractor  under  any  such  contract;  provided  in  every  case  the  contract  or 
subcontract  is  for  the  benefit  of  the  United  States.  The  term  “Government 
contract  or  contracts  made  between  April  6,  1917,  and  November  11,  1918, 
both  dates  inclusive,”  includes  contracts  which  although  entered  into  during 
such  period  were  originally  not  enforceable  but  which  have  been  or  may 
become  enforceable  by  reason  of  subsequent  validation  in  pursuance  of  law. 
The  Commissioner  may  require  any  contractor  to  file  with  him  copies  of  his 
Government  contracts  entered  into  on  or  after  April  6,  1917,  and  shall  have 
access  to  the  information  in  the  possession  of  the  Government  relating  to 
such  contracts.  See  section  1408  of  the  Revenue  Act  of  1918  [if 822]. 
The  realization  by  a corporation  of  income  from  a Government  contract 
may  affect  its  status  under  the  consolidated  returns  provision  and  the 
amount  of  its  war  profits  and  excess  profits  tax.  See  sections  240  (e)  [affili- 
ated corporations,  ^[2542],  301  (b),  and  327  (d)  [war-profits  tax  on  income 
derived  from  Government  contracts. — War  Tax  Service].  (Art.  1510,  Ree.  62. 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Amended  and  modified,  in  1918  and  1919  (24-19-557:  O.  D.  295)..  1919  Cum  Bull 

p.  12.  Also  (1-2-16:  Sol.  Op.  128).  .June  1922  Cum.  Bull.  p.  5. 

Any  contract  with  U.  S.;  not  necessary  to  be  a war  contract  (41-20-1228:  O.  D.  677) 

. .Dec.  1920  Cum.  Bull.  p.  21. 

Awarded  contract  accepted  Nov.  6,  1918,  confirmed  by  formal  contract  after  Nov  11 
1918  (24-20-993:  O.  D.  540).  .June  1920  Cum.  Bull.  p.  14. 

Director  General  of  railroads  (12-19-394:  O.  D.  224).  .1919  Cum.  Bull.  p.  11. 
Enforceable  against  corporation  prior  to  April  6,  1917  but  not  against  Government 
until  after  that  date  (12-20-791:  O.  D.  412).  .June  1920  Cum.  Bull.  p.  13. 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

Inventories;  advertising  and  sales  promotion  expenses  (5-20-721:  O.  D.  394).  .June 

1920  Cum.  Bull.  p.  12. 

K.  C.  or  Y.  M.  C.  A.  (17-19-468:  0.  D.  261) . . 1919  Cum.  Bull.  p.  12. 

On  Executive  Order  under  Naval  Appropriations  Acts  of  March  4,  1917  and  July  1, 
1918  (17-20-809:  O.  D.  477).. June  1920  Cum.  Bull.  p.  13. 

Oral:  standard  goods:  from  stock  in  hand,  immediate  delivery  (29-19-519:  O.  916) 
..1919  Cum.  Bull.  p.  10. 

Procurement  orders  issued  after  Nov.  11,  1918  confirmatory  of  informal  orders 
entered  into  prior  to  Nov.  12,  1918  (5-20-721:  O.  D.  394).  .June  1920  Cum.  Bull. 

p.  12. 

Subcontract  subsequent  to  Nov.  11,  1918  based  on  principal  contract  between  April  6, 
1917,  and  Nov.  11,  1918  (38-20-1200:  O.  D.  662).  .Dec.  1920  Cum.  Bull.  p.  20. 
Subcontractor;  a manufacturer  of  machinery  contracting  with  a manufacturer  of 
ammunition  to  supply  machinery,  without  more,  is  not  a subcontractor  (2-20-666: 
O.  D.  359).  .June  1920  Cum.  Bull.  p.  12. 

Supplementary  contract  (subsequent  to  Nov.  11,  1918)  to  original  contract  entered 
into  between  April  6,  1917  and  Nov.  11,  1918  (42-21-1867:  O.  D.  1063).. Dec. 

1921  Cum.  Bull.  p.  18. 


822  Sec.  1408,  of  the  Revenue  Act  of  1918,  which  section  was  not  repealed 

by  the  Revenue  Act  of  1921,  reads  as  follows:  “That  every 

person  who  on  or  after  April  6,  1917,  has  entered  into  any  contract,  under- 
taking, or  agreement  with  the  United  States,  or  with  any  department, 
bureau,  officer,  commission,  board,  or  agency  under  the  United  States 
or  acting  in  its  behalf,  or  with  any  other  person  having  contract  re- 
lations with  the  United  States,  for  the  performance  of  any  work  or  the 
supplying  of  any  materials  or  property  for  the  use  of  or  for  the  account 
of  the  United  States,  shall,  within  thirty  days  after  a request  of  the  Com- 
missioner therefor,  file  with  the  Commissioner  a true  and  correct  copy  of 
every  such  contract,  undertaking,  or  agreement. 

823  “Whoever  fails  to  comply  with  such  request  of  the  Commissioner 
shall  be  guilty  of  a misdemeanor  and  shall  be  punished  by  a fine 

of  not  more  than  $1,000,  or  by  imprisonment  for  not  more  than  one  year, 
or  both. 

824  “The  Commissioner  shall  (when  not  violative  of  the  technical  mili- 
tary or  naval  secrets  of  the  Government)  have  access  to  all  informa- 
tion and  data  relating  to  any  such  contract,  undertaking,  or  agreement, 
in  the  possession,  control  or  custody  of  any  department,  bureau,  board, 
agency,  officer  or  commission  of  the  United  States  and  may  call  upon  any 
such  department,  bureau,  board,  agency,  officer  or  commission  for  a full 
statement  and  description  of  any  allowance  for  amortization,  obsolescence, 
depreciation  or  loss,  or  of  any  valuation,  appraisal,  adjustment  or  final 
settlement,  made  in  pursuance  of  any  such  contract,  undertaking,  or  agree- 
ment.” (Sec.  1408,  Revenue  Act  of  1918.) 


825  Personal  Service  Corporation. — The  term  “personal  service  cor- 
poration” means  a corporation,  not  expressly  excluded,  the  income  of 
which  is  derived  from  a profession  or  business  (a)  which  consists  principally 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

of  rendering  personal  service,  (b)  the  earnings  of  which  are  to  be  ascribed 
primarily  to  the  activities  of  the  principal  owners  or  stockholders,  and  (c) 
in  which,  the  employment  of  capital  is  not  necessary  or  is  only  incidental. 
No  definite  and  conclusive  tests  can  be  prescribed  by  which  it  can  be  finally 
determined  in  advance  of  an  examination  of  the  corporation’s  return  whether 
or  not  it  is  a personal  service  corporation.  In  the  following  articles  are  laid 
down  the  general  principles  under  which  such  determination  will  be  made. 
See  also  section  303  of  the  statute  and  articles  741-743  [for  excess  profits 
tax. — War  Tax  Service].  (Art.  1523,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Agency  with  advances  to  principal  plus  trading  on  own  account:  more  than  nominal 

capital  (1917  Act)  (1-17-238:  Ct.  D.  25).  .June  1922  Cum.  Bull.  p.  8. 

Commission  and  brokerage  business  combined  (3-21-1395:  A.  R.  R.  364). . Tune  1921 
Cum.  Bull.  p.  16. 

Earned  surplus  of  $2,000  used  in  business:  nominal  capital,  1917  Act  (29-21-1740’ 

T.  D.  3183).. Dec.  1921  Cum.  Bull.  p.  281. 

Effect  of  Eisner  vs.  Macomber  decision  on  taxability  of  (41-20-1232:  O.  D.  679).  .Dec 
1920  Cum.  Bull.  p.  198.  For  U.  S.  Supreme  Court  Decision  in  Eisner  vs.  Ma- 
comber, see  Supplementary  Page  173. 

Freight  forwarding  business,  advancing  various  costs  (29-19-622:  A.  R.  R.  7)..  1919 
Cum.  Bull.  p.  13. 

Income  resulting  from  ownership,  merely,  of  property  (1-19-135:  T.  B.  M.  9)..  1919 
Cum.  Bull.  p.  13. 

Insurance  brokerage  and  average  adjusting  (13-20-802:  A.  R.  R.  46).. June  1920 
Cum.  Bull.  p.  17. 

Managers  who  are  not  stockholders  being  in  large  part  responsible  for  income  (26-20- 
1023:  A.  R.  M.  59).  .June  1920  Cum.  Bull.  p.  20. 

Patents;  income  as  result  of  ownership,  merely  (1-19-135:  T.  B.  M.  9)  1919  Cum 

Bull.  p.  13;  also  (3-21-1394:  A.  R.  R.  363).  June  1921  Cum.  Bull.  p.  14. 

Court  decision  inferentially  holds  otherwise  (1917  Act).  . ^[835. 

Personal  earnings  of  principal  stockholder,  from  same  line  of  business  as  that  of  cor- 
poration and  taken  up  on  corporation’s  books  must  be  considered  part  of  corpora- 
tion’s income  (1917  Act)  (28-21-1721:  A.  R.  R.  564).  .Dec.  1921  Cum.  Bull.  p.  18. 
Personal  service  subsidiaries  of  p.  s.  c.  (13-20-802:  A.  R.  R.  46— last  sentence). . Tune 
1920  Cum.  Bull.  p.  17. 

Purchasing  agent,  extending  to  customers  substantial  credit  (20-20-929:  A.  R.  M. 

50).  .June  1920  Cum.  Bull.  p.  19. 

School  (7-20-736:  A.  R.  R.  24).  .June  1920  Cum.  Bull.  p.  16. 

School  (48-21-1939:  A.  R.  R.  683).. Dec.  1921  Cum.  Bull.  p.  20. 

Selling  real  estate  on  commission  (31-20-1097:  A.  R.  R.  210).  .Dec.  1920  Cura.  Bull 
P-  2L 

Same  but  substantial  part  of  income  due  to  efforts  of  non-stockholding  employees 
(17-21-1588:  A.  R.  R.  464).  June  1921  Cum.  Bull.  p.  17. 


826  Personal  Service  Corporation:  Certain  Corporations  Excluded. — 
The  following  classes  of  corporations  are  expressly  excluded  from 
classification  as  personal  service  corporations:  (a)  Foreign  corporations; 
(b)  corporations  50  per  cent  or  more  of  whose  gross  income  consists  of  gains, 
profits  or  income  derived  from  trading  as  a principal;  and  (c)  corporations 
50  per  cent  or  more  of  whose  gross  income  consists  of  gains,  profits,  com- 
missions, or  other  income  derived  from  a Government  contract  or  contracts 
made  between  April  6,  1917,  and  November  11,  1918,  inclusive.  See  article 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

1510  [for  discussion  of  “Government  contract,”  ^[821],  A corporation  is 
not  a personal  service  corporation  merely  because  less  than  50  per  cent  of 
its  gross  income  was  derived  from  trading  as  a principal  or  from  Government 
contracts.  A corporation  can  not  be  considered  a personal  service  cor- 
poration when  another  corporation  (not  itself  a personal  service  corpora- 
tion) owns  or  controls  substantially  ali  of  its  stock,  or  when  substantially 
all  of  its  stock  and  of  the  stock  of  another  corporation  (not  itself  a personal 
service  corporation)  forming  part  of  the  same  business  enterprise  is  owned 
or  controlled  by  the  same  interests.  See  section  240  of  the  statute  and  articles 
631-638  [for  consolidated  returns  by  affiliated  corporations,  ^[2543].  (Art. 
1524,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

25%  trading  as  principal;  advances  from  foreign  correspondents  (1917  Act)  (15-21- 
1558:  A.  R.  M.  120).  .June  1921  Cum.  Bull.  p.  22. 

50%  or  more  personal  service  not  conclusive  in  determining  personal  service  classifi- 
cation (1-19-4:  O.  D.  1) . . 1919  Cum.  Bull.  p.  14. 

55%  trading  as  principal,  and  borrowed  capital  (18-20-904:  A.  R.  R.  78).  .June  1920 
Cum.  Bull.  p.  273. 

Personal  service  subsidiaries;  amendment  to  Art.  1524  (of  Reg.  4.5)  recommended 
(13-20-802:  A.  R.  R.  46).  .June  1920  Cum.  Bull.  p.  17. 


S27  Personal  Services  Rendered  by  Personal  Service  Corporation. — 
In  order  that  a corporation  may  be  deemed  to  be  a personal  service 
corporation  its  earnings  must  be  derived  principally  from  compensation  for 
personal  services  rendered  by  the  corporation  to  the  persons  with  whom  it 
does  business.  Merchandising  or  trading  either  directly  or  indirectly  in 
commodities  or  the  services  of  others  is  not  rendering  personal  service.  Con- 
ducting an  auction,  agency,  brokerage  or  commission  business  strictly  on 
the  basis  of  a fee  or  commission  is  rendering  personal  service.  If,  how- 
ever, the  corporation  assumes  any  such  risks  as  those  of  market  fluctua- 
tion, bad  debts,  failure  to  accept  shipments,  etc.,  or  if  it  guarantees  the 
accounts  of  the  purchaser  or  is  in  any  way  responsible  to  the  seller  for  the 
payment  of  the  purchase  price,  the  transaction  is  one  of  merchandising  or 
trading,  and  this  is  true  even  though  the  goods  are  shipped  directly  from 
the  producer  to  the  consumer  and  are  never  actually  in  the  possession  of 
the  corporation.  The  fact  that  earnings  of  the  corporation  are  termed  com- 
missions or  fees  is  not  controlling.  The  fact  that  a commission  or  fee  is 
based  on  a difference  in  the  prices  at  which  the  seller  sells  and  the  buyer 
buys  raises  a presumption  that  the  transaction  is  one  of  merchandising  or 
trading,  and  it  will  be  so  considered  in  the  absence  of  satisfactory  evidence 
to  the  contrary.  (Art.  1525,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Commission  business,  taxpayer  having  title  to  merchandise  sold,  however  (6-20-724: 
A.  R.  R.  23).  .June  1920  Cum.  Bull.  p.  23. 

Consignee  agency  on  commission  basis  strictly  (17-20-880:  A.  R.  M.  42).  .June  1920 
Cum.  Bull.  p.  24. 

Retailing  automobiles  (19-19-492:  T.  B.  R.  58). . 1919  Cum.  Bull.  p.  14. 

Stevedoring  when  trafficking  in  the  labor  of  others  (32-20-1 1 13:  A.  R.  R.  2 13) ..  Dec. 
1920  Cum.  Bull.  p.  22. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

Stevedoring  when  not  trafficking  in  the  labor  of  others:  a special  case  (41-21-1858: 

A.  R.  R.  463) ..  Dec.  1921  Cum.  Bull.  p.  22. 


828  Personal  Services  Rendered  by  Personal  Service  Corporation: 
More  than  One  Business— It  frequently  happens  that  corpora- 
tions are  engaged  in  two  or  more  professions  or  businesses  which  are  more 
or  less  related,  one  of  which  does  not  consist  of  rendering  personal  service. 
Thus  an  engineering  concern  may  also  engage  in  contracting,  which  amounts 
to  trading  m materials  and  labor,  a brokerage  concern  may  guarantee  some 
of  its  accounts,  a photographer  may  sell  pictures,  frames,  art  goods  and 
supplies,  or  a dealer  in  a commodity  may  furnish  expert  advice  or  services 
with  respect  to  its  installation,  use,  etc.  In  such  case  the  corporation  is  not 
a personal  service  corporation  unless  the  non-personal  service  element  is 
negligible  or  merely  incidental  and  no  appreciable  part  of  its  earnings  are 
to  be  ascribed  to  such  sources.  See  also  section  303  of  the  statute  and 
articles  741-743  [for  excess-profits  tax.— War  Tax  Servicel.  (Art.  1526. 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Sanitarium,  including  housing  patients  (1-19-5:  0.  D.  2) . . 1919  Cum.  Bull,  p.  15. 


829  Activities  of  Stockholders  of  Personal  Service  Corporation. — In 

. determining  whether  a corporation  is  a personal  service  corpora- 

tion, no  weight  can  be  given  to  the  fact  that  it  renders  personal  services 
unless  (a)  the  principal  owners  or  stockholders  are  regularly  engaged  in 
the  active  conduct  of  its  affairs  and  are  engaged  in  such  a manner  that  the 
earnings  are  to  be  ascribed  primarily  to  their  activities,  and  (b)  its  affairs 
are  conducted  principally  by  such  owners  or  stockholders.  (Art.  1527. 
Reg.  62,  1922  Edition.) 

830  Activities  of  Stockholders  cf  Personal  Service  Corporation:  Con- 
duct of  Affairs. — Where  the  principal  owners  or  stockholders  do 

not  render  the  principal  part  of  the  services,  but  merely  supervise  or  direct  a 
force  of  employees,  the  corporation  is  not  a personal  service  corporation. 
If  employees  contribute  substantially  to  the  services  rendered  by  a corpora- 
tion, it  is  not  a personal  service  corporation  unless  in  every  case  in  which 
services  are  so  rendered  the  value  of  and  the  compensation  charged  for 
such  services  are  to  be  attributed  primarily  to  the  experience  or  skill  of  the 
principal,  owners  or  stockholders  and  such  fact  is  evidenced  in  some  definite 
manner  in  the  normal  course  of  the  profession  or  business.  The  fact  that 
the  principal  owners  or  stockholders  give  personal  attention  or  render  valu- 
able services  to  the  corporation  as  a result  of  which  its  earnings  are  greater 
than  those  of  a corporation  engaged  in  a like  or  similar  business,  the  princi- 
pal owners  or  stockholders  of  which  do  not  devote  personal  attention  to  the 
management  or  supervision  of  its  affairs,  does  not  of  itself  constitute  the 
corporation  a personal  service  corporation.  (Art.  1528,  Reg.  62,  1922 
Edition.) 

Copyright  J922j  by  The  Corporation  Trust  Company. 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

831  Activities  of  Stockholders  of  Personal  Service  Corporation:  Stock 
Interest  Required. — No  definite  percentage  of  stock  or  interest  in 
the  corporation  which  must  be  held  by  those  engaged  in  the  active  con- 
duct of  its  affairs  in  order  that  they  may  be  deemed  to  be  the  principal 
owners  or  stockholders  can  be  prescribed  as  a conclusive  test,  as  other  facts 
may  affect  any  presumption  so  established.  No  corporation  or  its  owners 
or  stockholders  shall,  however,  make  a return  in  the  first  instance  on  the  basis 
of  its  being  a personal  service  corporation  unless  at  least  80  per  cent  of  its 
stock  is  held  by  those  regularly  engaged  in  the  active  conduct  of  its  affairs 
(Art.  1529,  Reg.  62,  1922  Edition.) 

83  ^ Activities  of  Stockholders  of  Personal  Service  Corporation: 
Change  in  Ownership. — The  fact  that  the  owners  or  stockholders 
of  the  corporation  may  change  during  the  course  of  the  taxable  year  does 
not  take  a corporation  which  is  normally  in  the  personal  service  class  out 
of  that  class.  Frequent  changes  in  the  ownership  of  any  substantial  interest 
or  number  of  shares  are,  however,  evidence  bearing  on  the  question  as  to 
whether  the  principal  owners  or  stockholders  are  actively  engaged  in  the 
conduct  of  the  affairs  of  the  corporation.  The  incapacity,  retirement  or  death 
of  a principal  owner  or  stockholder  who  has  been  actively  engaged  in  the 
conduct  of  its  affairs  will  not  be  deemed  to  make  any  change  in  the  status 
of  the  corporation  during  a reasonable  time  thereafter.  (Art.  1530,  Rep.  62 


833  Capital  of  Personal  Service  Corporation. — In  determining  whether 
a corporation  is  a personal  service  corporation,  no  weight  can  be 
given  to  the  fact  that  the  invested  capital  of  the  corporation  for  the  purpose 
of  the  war  profits  and  excess  profits  tax  or  the  actual  investment  of  the 
principal  owners  or  stockholders  is  comparatively  small.  The  test  estab- 
lished by  the  statute  with  respect  to  capital  is  entirely  different.  That  test 
is  the  nature  of  the  profession  or  business  as  indicated  (a)  by  the  kind  of 
services  it  renders  and  (b)  the  extent  to  which  capital  is  required  to  carry 
on  such  profession  or  business.  If  the  use  of  capital  is  necessary  or  more  than 
incidental,  capital  is  a material  income-producing  factor  and  the  corporation 
is  not  a personal  service  corporation.  No  corporation  is  a personal  service 
corporation  if  ip  carries  on  business  of  a kind  which  ordinarily  requires  the 
use  of  capital,  irrespective  of  whether  the  owners  or  stockholders  have 
actually  invested  a substantial  amount  of 'capital.  (Art.  1531.  Ree.  62. 
1922  Edition.)  S 

I' or  explanation  of  Cumulative  Index  references  see  page  gi. 

Lease  of  wharf  acquired  without  bonus;  no  paid  up  capital:  business — subletting 
wharf  (1917  Act  specifically)  (46-20-1307:  A.  R.  R.  315).  .Dec.  1920  Cum.  Bull, 
p.  341. 


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2-27-:2. 


834  Capital  of  Personal  Service  Corporation:  Inference  from  Use. — 

The  term  “capital”  as  used  in  section  200  of  the  statute  and  in 
articles  1523-1532  [beginning  at  ^[825]  means  not  only  capital  actually 
invested  by  the  owners  or  stockholders,  but  also  capital  secured  in  other 
ways.  Thus  if  capital  is  borrowed  either  directly  as  shown  by  bonds,  de- 
bentures, certificates  of  indebtedness,  notes,  bills  payable  or  other  paper, 
or  indirectly  as  shown  by  accounts  payable  or  other  forms  of  credit,  or  if 
the  business  of  the  corporation  is  in  any  way  financed  by  or  through  any  of 
the  owners  or  stockholders,  these  facts  will  be  deemed  evidence  that  the 
use  of  capital  is  necessary,  if  a substantial  amount  of  capital  is  used  to  finance 
or  carry  the  accounts  of  clients  or  customers,  it  will  be  inferred  that  because 
of  competition  or  other  reasons  such  practice  is  necessary  in  order  to  secure 
or  hold  business  which  otherwise  would  be  lost,  and  that  the  corporation  is 
not  a personal  service  corporation.  If  a corporation  engaged  in  an  agency, 
brokerage  or  commission  business  regularly  employs  a substantial  amount 
of  capital  to  lend  to  principals,  to  buy  and  carry  goods  on  its  own  account, 
or  to  buy  and  carry  odd  lots  in  order  that  it  may  render  more  satisfactory 
service  to  its  principals  or  customers,  it  is  not  a personal  service  corporation. 
In  general  the  larger  the  amount  of  the  capital  actually  used  the  stronger 
is  the  evidence  that  capital  is  necessary  and  is  a material  income-producing 
factor  and  that  the  corporation  is  not  a personal  service  corporation.  (Art. 
1532,  Reg.  62,  1922  Edition.) 

835  A corporation  whose  entire  income  is  derived  from  patents  in  which 

it  has  no  investment  inferentially  held  to  be  a “personal  service 

corporation.” — [In  De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  Iredell, 
Collector  of  Internal  Revenue  (268  Fed.  377)  (War  Tax  Service,  1922, 
page  386),  decided  November  9,  1920,  in  the  United  States  District  Court, 
District  of  New  Jersey,  District  Judge  Bodine  in  dismissing  the  Government’s 
motion  to  strike  out  plaintiff’s  complaint  in  an  action  to  recover  an  addi- 
tional war  excess  profits  tax  for  the  year  1917  imposed  under  Section  210  of 
the  Revenue  Act  of  1917  (the  original  tax  having  been  paid  by  plaintiff  in 
accordance  with  the  provisions  of  Section  209  of  that  Act,  on  the  theory  that 
it  was  a corporation  “having  no  invested  capital  or  not  more  than  a nominal 
capital”),  said,  in  part:  “Patents  were  never  capital  in  an  economic  sense. 
Congress  included  them  within  the  term  ‘invested  capital’  to  the  extent  only 
of  the  investment  in  them;  if  no  investment  in  them,  then  they  remain  in 
the  same  class  as  that  intangible  something  which  makes  for  the  wealth 
of  the  professional  man,  the  broker,  or  others  engaged  in  a personal  service, 
which  could  never  be  ‘capital,’  except  in  name  only.  The  decision  of  this 
case,  however,  need  not  depend  solely  upon  the  meaning  of  the  word  ‘capital,’ 
to  be  found  in  the  distinction  between  ‘invested  capital’  and  ‘nominal  capital,’ 
as  used  in  the  act.  The  patents  which  the  plaintiff  owned  were  the  concrete 
embodiment  of  the  skill  which  the  plaintiff  possessed  in  its  field  of  activity. 
This  skill  or  service  it  bartered  for  a consideration.  Such  skill  or  service  is 
like  the  service  a lawyer  in  large  practice  renders  for  an  annual  retainer 
and  is  very  nearly  akin  to  the  service  which  a commission  house  renders 
to  those  who  buy  and  sell  through  it,  or  the  service  of  a concern  engaged  in 
selling  or  leasing  real  estate,  and  in  writing  insurance.  The  plaintiff’s  source 
of  income  was  that  which  certain  persons  were  willing  to  pay  it  for  the  use 
of  its  skill  and  knowledge.  It  is  true  that  skill  and  knowledge  had  been 
reduced  to  concrete  form;  but  the  payment  was  for  the  use  of  the  skill  and 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 


knowledge,  and  not  for  any  part  or  parcel  of  the  form  to  which  the  skill  and 
knowledge  had  been  reduced.  Hence  it  would  seem  that  in  a very  real  sense 
the  plaintiff  was  engaged  in  rendering  a personal  service,  and  was  not  em- 
ploying ‘capital,’  and  certainly  no  more  than  a ‘nominal  capital’  (268 
Fed.  377.)] 

836  Law  If 242.  Tax  Liability  of  Personal  Service  Corporations  and 

(Sec.  218.)  Their  Stockholders  for  1921. — “(d)  Personal  service 

corporations  shall  not  be  subject  to  taxation  under  this 
title , but  the  individual  stockholders  thereof  shall  be  taxed  in  the  same  manner 
as  the  members  of  partnerships.” — Law.  [Note:  The  1918  Act  so 

provided.] 

83  7 Law  *[243.  “ All  the  provisions  of  this  title  relating  to  partnerships 

(Sec.  218.)  and  the  members  [^f 778,  et  seq.\  thereof  shall  so  far  as 
practicable  apply  to  personal  service  corporations  and 
the  stockholders  thereof:”- — Law.  [Note:  The  1918  Act  so  provided.] 

[For  Lnited  States  Supreme  Court  decision  in  the  Eisner  vs.  Macomber 
stock  dividend  case  (252  U.  S.  189)  see  ^[S244,  Supplementary  Page  173; 
and  for  possible  alternative  tax  on  personal  service  corporations  for  1918,  1919, 
1920,  and  1921,  see  1f852.] 


838  Law  ^[244.  Amounts  Distributed  or  Distributable  by  Personal 

(Sec.  218.)  Service  Corporation. — “ Provided , That  for  the  purpose 
of  this  subdivision  amounts  distributed  by  a personal 
service  corporation  during  its  taxable  year  shall  be  accounted  for  by  the 
distributees;  and  any  portion  of  the  net  income  remaining  undistributed 
at  the  close  of  its  taxable  year  shall  be  accounted  for  by  the  stockholders  of 
such  corporation  at  the  close  of  its  taxable  year  in  proportion  to  their  re- 
spective shares.”  [Read  at  “Dividends”  If  1077.] — Law.  [Note:  The 

1918  Act  so  provided.] 


839  Law  1f245.  Personal  Service  Corporations  Not  Distinguished 
(Sec.  218.)  from  Other  Corporations  for  Tax  Purposes  after  De- 
cember 31,  1921. — “This  subdivision  [(d),  beginning  at 
If 836  above]  shall  not  be  in  effect  after  December  31,  1921.” — Law. 

[Note:_  This  provision  is  new  to  the  1921  Act.] 


840 jj  Law  lf246. 

[ (Sec.  218.) 


Personal  Service  Corporation  with  Fiscal  Year  begin- 
ning in  1921  and  Ending  in  1922 : Amounts  Distributed 
W-  and  Distributable  to  Shareholders. — “In  the  case  of  a 

personal  service  corporation  having  a fiscal  year  beginning  in  1921  and  end- 
ing in  1922,  amounts  distributed  prior  to  January  1,  1922,  to  its  stockholders 
out  of  earnings  or  profits  accumulated  after  December  31,  1920,  shall  be  taxed 
to  the  distributees ; and  the  stockholders  of  record  on  December  31,  1921,  shall 
be  taxed  upon  their  distributive  shares  of  the  difference  (if  any)  between  such 
distributive  profits  and  the  portion  of  the  corporation's  net  income  assignable 
to  the  calendar  year  1921,  determined  in  the  manner  provided  in  clause  (1) 
of  subdivision  (c)  of  section  205  [^[808]  of  this  Act.” — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 


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84  * °i  ul°Bn 

k rir„s 

service  corporation  is  subject  to  ta  ;nc0me  of  the  corporation 

shio  upon  his  distributive  share  of  the  net  incom  The  net 

2?ned  Pon  or  after  January  1,  19.8,  and  prior  to M*g & ’pgid  “ 

ineome  of  > P'^^“  “P^arSship.  shall  be  computed  in  the  same 
Sffffe  same  basis  as  Z net  income  of  an  individua  £«§**« 

articles 21-26  '^042J;A  Corporation  which  is  Ux- 

84^2  to  Decenfber^H^bAf^arAA'axe^to^h^corporatio^ 

at  H2487].  (Art.  336,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Extension  of  time  for  filing  1921  returns.  -^009  1920  Cum  BulL  p 198. 

?rWoare0onk  SSSjto  establish  status  of  P-  s.c!  after  making  return  on  Form  1120 
(31-20-1103:  O.  D.  614).  .Dec.  1920,  Cum.  Bull.  p.  198. 


84  3 Returns  of  Personal  Service  Corporations.— Every  Pe^onal  serv- 

ice  corporation^ must  make  a return  of  ™come, , Kg*  f ^ personal 

calendar  year,  as  the  case  ma;  , rega  statute  and  articles 

stockholders  See  Sections  200  212  and  218  ot  rationSi  U82S], 

1523-1532  (for  general  discussion  of  persona  , n()  33^.339  [for  discus- 

25  26  [for  discussion  of  accounting  periods,  11106  1,  ,■  p the 

Sion  of  the  taxation  of  persona  service  'the  personal 

calendar  year  1921  the  return  sV\).^“bs  accounts  period  it  shall  render 
service  corporation  makes  any  c lang  section  226  of  the  statute  and 

the  return  in  accordance  with  the  proxrrntonn  »f  1 sectKn  226  « ^ 

article  431  [H2574J  The  return  o a per-  should  state  specifically 

any  period  beginning  prior  to  January  1,  1922  should  St  p 

(a)  the  items  of  its  gross  income  enumerated  in  section  -U  or  he 

(b)  the  deductions  enumerated  in  section  214  ot  the  statute,  otne 

Copyright  1922,  by  The  Corporation  Trust  Company. 
the  federal  income  tax  service 

143 


2-2T-22. 


PAR TNERsHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

ofd:S°n^rOV^d  ^ ParaSraPh  (11)  [contributions  to  charitable  institutions! 
of  subd.vis.on  (a)  of  that  section;  (c)  the  amounts  specified  in  subd  visTon 

corDoration  216  °f  SUtUte  reCeived  by  the  PersonaI 

taxes  of  t£  d hCl  am°Unt  °f  any  !ncome>  war  Profits  and  excess-profits 
Wiln  P service  corporation  paid  during  the  taxable  year  to  a 

reign  country  or  to  any  possession  of  the  United  States,  and  the  amount 
of  any  such  taxes  accrued  but  not  paid  during  the  taxable  year;  (e)  the 
mounts  distributed  by  the  corporation  during  its  taxable  year  with  the 
dates  of  distribution  and  the  names  of  the  distributees;  (f)  the  names  and 
d dresses  of  the  stockholders  of  the  corporation  and  their  respective  shares  in 
such  corporation  at  the  close  of  its  taxable  year,  and  on  December  31,  1921  - 
(g)  such  facts  as  tend  to  show  whether  or  not  the  corporation  is  a personal 

rri922C°andrafnn  ^ trfferefnce  to  an>r  Period  beginning  prior  to  January 
— > and  (b)  oUch  other  facts  as  are  required  by  the  form  Earning 

Dcrsoim?^  t0  th<3  Calenc^ar  year  1922  and  subsequent  years  are  taxed  to  the 
personal  service  corporation  in  the  same  manner  as  the  earnings  of  ordinary 

jorp^ons  are  taxed.  In  the  cate  of  a corporation  rendering  plrZZ 
sen  ice,  affiliated  with  one  or  more  corporations  in  which  capital  is  a material 
lac  tor  in  producing  income,  see  sections  200,  240,  and  303  of  the  statute  and 
articles  1524  [11826]  632-633  [12544  and  12555)  and  74J743  [War-Tax 
emce]  For 'the  calendar  year  1922,  returns  should  be  made  on  Form  1120 

See  article  6_1  [H2489].  Relative  to  the  report  of  income  in  the  case  of  a 

?T7Sr£ol  .SierV/CAe  corPoratlon  having  a fiscal  year  ending  in  1922,  see  article 
337  HI844],  (Art.  624,  Reg.  62,  1922  Edition.)  ’ 

Extension  of  time  for  filing  1921  returns  ^[3009 

Procedure  to  establish  status  when  Form  1120  has  been  filed  (31-20-1  103:  O.  D.  614) 
..cec.  iy2(J  Lum.  Bull.  p.  198.  ' 


844  Persona!  Service  Corporation  With  Fiscal  Year  Ending  in  1921 
or  1922.  In  the  case  of  a personal  service  corporation  having  a fiscal 

year  beginning  m 1920  and  ending  in  1921,  the  corporation  must  make  a return 
of  income  on  Form  1065.  The  income  for  such  vear  is  not  taxable  to 
the  corporation  but  is.  taxable  to  the  shareholders  in  a manner  similar  to 

KnniiS?mjarnmgS  °f  Partner8h^  are  taxed-  See  articl-  331-335 

845  In  the  case  of  a personal  service  corporation  having  a fiscal  year 

both  on Tn'\«  192J  and^^  hr  1922,  the  return  must  be  filed 
ro  tl,  / i and  on  Form  D20.  The  net  income  attributable 

Form6  iCoicnf ar  year  921  that  portion  of  the  net  income  reflected  upon 
5 K ^ ?65  (comPuted  as  if  the  fiscal  year  were  the  calendar  year  1921) 

which  the  part  of  the  taxable  period  falling  within  the  calendar  year  1921 
bears  to  the  entire  period;  and  this  amount  is  taxable  to  the  shareholders 

338  ^Sl0ratmf  at  the  ratCS  lr\_effect  as  of  December  31,  1921.  See  article 
^38  Jll847j.  I he  income  attributable  to  the  calendar  year  19??  is  that 
portion  of  the  net  income  reflected  upon  Form  1120  (computed  as  if  the 
fiscal  year  were  the  calendar  year  1922),  which  the  part  of  the  taxable  period 
falling  withm  the  calendar  year  1922  is  of  the  entire  period;  and  this  amount 
taxable  to  the  corporation  as  the  income  of  ordinary  corporations  is  taxed 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

[see  particularly  ^[868].  See  sections  205  and  335  of  the  statute  and  articles 
1621-1624  [for  fiscal  with  different  rates  H869]  and  951  [for  fiscal  year  with 
different  rates:  Excess-profits  tax.— War  Tax  Service].  (Art.  337,'  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Extension  of  time  for  Sling  1921  returns.  . *y  3009. 


846  General  Law  Provisions  and  Applicable  Regulations  Relative  to 
Returns. — Read  beginning  at  ^[2382. 

847  Distributive  Shares  of  Stockholders  in  Personal  Service  Corpora- 
tion.— A stockholder  of  a personal  service  corporation  is  required 

to  include  in  his  gross  income  for  each  taxable  year  up  to  and  including  that 
taxable  year  within  which  falls  the  end  of  the  last  taxable  period  of  the  per- 
sonal service  corporation  prior  to  January  1,  1922:  (a)  Any  dividends  paid 
by  the  corporation  in  such  year  out  of  earnings  of  profits  accumulated  since 
February  28,  1913,  and  before  January  1,  1918;  (b)  his  share  of  any  distribu- 
tion made  by  the  corporation  in  such  year  out  of  earnings  or  profits  accumu- 
lated since  the  close  of  its  taxable  year  ending  with  or  during  his  next  pre- 
ceding taxable  year;  and  ( c ) his  distributive  share  of  the  undistributed  net 
income  of  the  corporation  for  its  taxable  year  ending  with  or  during  his 
taxable  year  provided  he  was  at  the  close  of  its  taxable  year  a stockholder  in 
the  corporation,  notwithstanding  he  might  since  have  ceased  to  be  a stock- 
holder. See  section  201  of  the  statute  and  articles  1541-1549  [for  dividends 
TT 1 077]. 

848  In  the  case  of  a personal  service  corporation  having  a fiscal  year 
beginning  in  1921  and  ending  in  1922,  amounts  distributed  prior  to 

January  1,  1922,  to  its  stockholders  out  of  earnings  or  profits  accumulated 
during  its  current  taxable  year  are  taxable  to  the  distributees  and  should  be 
reported  in  the  personal  returns  of  such  distributees,  and  the  stockholders  of 
record  on  December  31,  1921,  of  such  personal  service  corporation  must  report 
as  income  their  distributive  shares  of  the  difference  (if  any)  between  such 
distributive  profits  and  the  portion  of  the  corporation’s  net  income  assignable 
to  the  calendar  year  1921,  determined  in  the  manner  provided  in  section 
205(c)  (1)  of  the  statute  and  articles  334,  335,  and  337  [beginning  at  H81lj. 
843  The  earnings  of  the  personal  service  corporation  attributable  to 
the  period  subsequent  to  December  31,  1921,  are  taxable  to  the  stock- 
holder only  when  distributed,  as  in  the  case  of  dividends  of  ordinary  corpo- 
rations. See  section  201  and  article  1541  [H1080].  (Art.  338,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Change  in  corporation’s  accounting  period:  effect  on  stockholders’  return  (15-20-850: 
O.  D.  453).. June  1920  Cum.  Bull.  p.  170. 

Effect  of  Eisner  vs.  Macomber  decision  (41-20-1232:  O.  D.  679).  .Dec.  1920  Cum 
Bull.  p.  198. 

Net  operating  loss  suffered  by  corporation  (28-20-1057:  O.  D.  581).  .Dec.  1920  Cum. 
Bull.  p.  198. 

On  the  reporting  of  1917  income  by  sdeh  a personal  service  corporation  for  purposes 
of  checking  against  returns  of  individual  stockholders  (46-21-1922:  O.  D.  1101) 
..Dec.  1921  Cum.  Bull.  p.  182. 

Partnership  being  stockholder  (49-21-1963:  O.  D.  1127).  .Dec.  1921  Cum.  Bull.  p.  183. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS 

Return  of,  when  actually  received  later  (4-19-222:  0.  D.  141)..  1919  Cum.  Bull. 

p.  174. 


850  Personal  Service  Corporation  with  Fiscal  Year  beginning  in  1921 

and  ending  in  1922:  Tax  Liability  of  the  Corporation  itself.— Read 

at  ^868. 

851  Credits  Allowed  Stockholders  of  Personal  Service  Corporation  — 

A stockholder  of  a personal  service  corporation  is  entitled  to  credit 
for  the  purpose  of  the  normal  tax  only  for  amounts  received  in  distribution 
of  earnings  or  profits  of  the  corporation  accumulated  since  February  28, 
1913,  except  such  amounts  as  represent  earnings  of  the.  personal  service 
corporation  accumulated  after  December  31,  1917,  and  prior  to  January  1, 
1922,  which  would  have  been  taxed  directly  to  the  stockholder.  See  sections 
201  and  216  of  the  statute  and  articles  1541  [for  dividends  If  1080]  and  301 
[for  credit  for  dividends  for  normal  tax  purposes  1[2043[.  In  addition  to  the 
credits  ordinarily  allowed  to  an  individual,  a stockholder  of  a personal  service 
corporation  is  entitled  relative  to  income  properly  allocated  to  the  period 
beginning  with  January  1,  1918,  and  ending  with  December  31,  1921,  to  the 
following  credits:  (a)  A credit  against  net  income  for  the  purpose  of  the 
normal  tax  only  of  his  proportionate  share  of  such  dividends  and  interest 
allowed  as  credits  by  section  216  as  are  received  by  the  personal  service  cor- 
poration, and  ( b ) a credit  against  income  tax  of  the  stockholder’s  proportionate 
share  of  income,  war  profits,  and  excess  profits  taxes  of  the.  personal  service 
corporation  paid  or  accrued  during  the  taxable  year  to  a foreign  country  or  to 
any  possession  of  the  United  States,  subject  to  the  limitations  of  section  222 
of  the  statute.  See  articles  381-386  [for  credit  for  taxes,  beginning  at  1J1733J. 
(Art.  339,  Reg.  62,  1922  Edition.) 


852  Law  If 691.  Possible  Alternative  Tax  on  Personal  Service  Corpora- 
te. 1332.)  tions  for  1918,  1919,  1920,  and  1921.—' “Sec.  1332 .(a) 

That  if  either  subdivision  ( e ) of  section  218  of  the  Revenue 
Act  of  1918  or  subdivision  ( d ) [1[836]  of  section  218  of  this  Act  is  by  final 
adjudication  declared  invalid , there  shall , in  addition  to  all  other  taxes,  be 
levied,  collected , and  paid  on  the  net  income  (as  defined  in  section  232 
[1[1041])  received  during  the  calendar  years  1918,  1919,  1920,  and,  1921, 
by  every  personal  service  corporation  (as  defined  in  section  200)  included, 
within  the  provisions  of  such  subdivisions,  a tax  equal  to  the  taxes  imposed 
by  Titles  II  and  III  of  the  Revenue  Act  o/  1918  and,  in  the  case  of  income 
received  during  the  calendar  year  1921,  by  Titles  II  and  III  of  this  Act. 
Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

853  Law  *[[692.  “(b)  In  such  event  every  such  personal  service  corporation 

(Sec.  1332.)  shall,  on  or  before  the  fifteenth  day  of  the  sixth  month 

following  the  date  of  entry  of  decree ^up on  such  final 
adjudication , make  a return  of  any  income  received  during  each  of  the  calendar 
years  1918,  1919,  1920,  and  1921  in  the  manner  prescribed^,  by „ the  Revenue 

Copyright  1022,  by  The  Corporation  Trust  Company. 

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PARTNERSHIPS  AND  PERSONAL  SERViCE  CORPORATIONS. 

Act  of  1918  (or  in  the  manner  prescribed  by  this  Act , in  the  case  of  income 
received  during  the  calendar  year  1921).  Such  return  shall  be  made  and  the 
net  income  shall  be  computed  on  the  basis  of  the  taxpayer's  annual  accounting 
period  ( fiscal  year  or  calendar  year , as  the  case  may  be)  in  the  manner  pro- 
vided for  other  corporations  under  the  Revenue  Act  of  1918  and  this  Act." — 
Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

854  Law  1f693.  “(c)  If  either  subdivision  (e)  of  section  218  of  the  Revenue 

(Sec.  1332.)  Act  of  1918  or  subdivision  (d)  [1f836]  of  section  218  of 

this  Act  is  so  declared  invalid , claims  for  credit  or  refund 
of  taxes  paid  under  both  such  sections  shall  be  allowed , if  made  within  the 
time  provided  in  subdivision  (f)  [11857]  of  this  section .” — Law.  [Note: 

This  subdivision  is  new  to  the  1921  Act.] 

855  Law  1f694.  “(d)  In  case  the  claims  for  credit  or  refund,  filed  within 

(Sec.  1332.)  six  months  from  such  date  of  entry  of  decree , represent 

less  than  30  per  centum  of  the  outstanding  stock  or  shares 
in  the  corporation , the  amount  of  taxes  imposed  by  this  section  upon  such 
corporation  shall  be  reduced  to  that  proportion  thereof  which  the  number  of 
stock  or  shares  owned  by  the  shareholders  or  members  making  such  claimr 
bears  to  the  total  number  of  stock  or  shares  outstanding.” — Law.  [Note : 

This  provision  is  new  to  the  1921  Act.] 

856  Law  If 695.  “(e)  The  tax  imposed  by  this  section  shall  be  assessed , 

(Sec.  1332.)  collected , and  paid  upon  the  same  basis,  in  the  same  man- 
ner, and  subject  to  the  same  provisions  of  law , including 

penalties,  as  the  taxes  imposed  by  sections  230  and  301  of  the  Revenue  Act 
of  1918  (or  by  sections  230  and  301  [income  and  excess-profits  taxes  on 
corporations ] of  this  Act,  in  the  case  of  income  received  during  the  calendar 
year  1921),  but  no  interest  or  penalties  shall  be  due  or  payable  thereon  for 
any  period  prior  to  the  date  upon  which  the  return  is  by  this  section  required 
to  be  made  and  the  first  installment  paid.  The  amount  of  tax  paid  by  any 
shareholder  or  member  of  a personal  service  corporation  pursuant  to  the  pro- 
visions of  subdivision  (e)  of  section  218  of  the  Revenue  Act  of  1918  or  sub- 
division (d)  [If  836]  of  section  218  of  this  Act  shall  be  credited  against  the  tax 
due  from  such  corporation  under  this  section  upon  the  joint  written  application 
■ of  such  corporation  and  such  shareholder  or  member  or  his  representatives , 
heirs,  or  assigns , if  such  application  is  filed  with  the  Commissioner  within 
six  months  from  such  date  of  entry  of  decree.” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.} 

857  Law  If 696.  “(f)  Notwithstanding  any  other  provision  of  law,  no 

(Sec.  1332.)  claim  for  a credit  or  refund  of  taxes  paid  under  sub- 
division (e)  of  section  218  of  the  Revenue  Act  of  1918  or 

subdivision  (d)  [If 836]  of  section  218  of  this  Act , may  be  filed  after  the  ex- 
piration of  six  months  from  such  date  of  entry  of  decree :” — Law.  [Note : 

This  provision  is  new  to  the  1921  Act.] 

858  Law  1f697.  “Provided,  however , That  a personal  service  corporation 
(Sec.  1332.)  of  which  no  shareholder  or  member  has  filed  such  claim. 

within  such  period  of  six  months  shall  not  be  subject  to 
the  tax  imposed  by  this  section.” — Law.  [Note:  This  provision  is 

new  to  the  1921  Act.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS. 

859  [Comment:  At  this  writing,  February  15,  1922,  no  court  has  held  to 
be  invalid  the  provisions  of  the  Revenue  Act  of  1918  (or  of  the  Revenue 

Act  of  1921)  by  which  the  stockholders  of  a personal  service  corporation  are 
taxed  on  their  undistributed  as  well  as  on  their  distributed  interests  in  the 
profits  of  the  corporation.  The  question  is  not  before  the  United  States 
Supreme  Court.  In  the  opinion  of  that  Court  in  its  decision  in  Eisner  vs. 
Macomber  (252  U.  S.  189),  If  S 244,  Supplementary  Page  173  herein,  the  sug- 
gestion is  carried  that  had  the  court,  as  then  constituted,  been  called  on  to 
decide  the  point,  the  provision  would  have  been  declared  to  be  invalid. — 
The  Corporation  Trust  Company.] 

860  Alternative  Tax  on  Personal  Service  Corporations. — Section  1332  of 
the  statute  is  an  alternative  measure  and  is  of  no  effect  unless  and 

until  either  subdivision  (e)  of  section  218  of  the  Revenue  Act  of  1918  or 
subdivision  (d)  of  section  218  of  the  statute  of  1921  is  declared  invalid  by 
final  adjudication.  (Art.  1736,  Reg.  62,  1922  Edition.) 


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FISCAL  YEARS  1920-1921  AND  1921-1922. 


861  Law  1f80.  Taxable  Years  Embracing  Parts  of  Two  Calendar 
(Sec.  205.)  Years  for  Which  the  Law  Provisions  or  the  Rates 

Differ. — “Sec.  205.  (a)  That  if  a taxpayer  maker 

return  for  a fiscal  year  beginning  in  1920  and  ending  in  1921,  his  tax 
under  this  title  for  the  taxable  year  1921  shall  be  the  sum  of-” 

862  Law  lf81.  “(1)  the  same  proportion  of  a tax  for  the  entire  period 

(Sec.  205.)  computed  under  Title  II  of  the  Revenue  Act  of 

1918  at  the  rates  for  the  calendar  year  1920  which  the 
portion  of  such  period  falling  within  the  calendar  year  1920  is  of  the  entire 
period , and ” 

863  Law  ^[82.  “(2)  the  same  proportion  of  a tax  for  the  entire  period 

(Sec.  205.)  computed  under  this  title  at  the  rates  for  the  calendar 

year  1921,  which  the  portion  of  such  period  falling  within 
the  calendar  year  1921  is  of  the  entire  period.” — Law  [Note:  The 

1918  Act  so  provided,  in  principle.] 

864  Law  ^[83.  “ Any  amount  paid  before  or  after  the  passage  of  this 

(Sec.  205.)  Act  on  account  of  the  tax  imposed  for  such  fiscal  year 

by  Title  II  of  the  Revenue  Act  of  1918  shall  be  credited 
toward  the  payment  of  the  tax  imposed  for  such  fiscal  year  by  this  Act , 
and  if  the  amount  so  paid  exceeds  the  amount  of  such  tax  imposed  by  this 
Act , the  excess  shall  be  credited  or  refunded  in  accordance  with  the  provisions 
of  section  252  [^[2825].”— Law.  [Note:  The  1918  Act  so  provided,  in 

principle.] 


865  Law  If 84.  “(b)  If  a taxpayer  makes  return  for  a fiscal  year  begin- 

(Sec.  205.)  ning  in  1921  and  ending  in  1922,  his  tax  under  this 

title  for  the  taxable  year  1922  shall  be  the  sum  of-” 

866  Law  1f85.  “(1)  the  same  proportion  of  a tax  for  the  entire  period 

(Sec.  205.)  computed  under  this  title  (as  in  force  on  December  31, 

1921)  at  the  rates  for  the  calendar  year  1921  which 
the  portion  of  such  period  falling  within  the  calendar  year  1921  is  of  the 
entire  period,  and” 

867  Law  ^[86.  “(2)  the  same  proportion  of  a tax  for  the  entire  period 

(Sec.  205.)  computed  under  this  title  (as  in  force  on  January  1, 

1922)  at  the  rates  for  the  calendar  year  1922  which  the 

portion  of  such  period  falling  within  the  calendar  year  1922  is  of  the  entire 
period — Law.  [Note:  The  1918  Act  so  provided,  in  principle.] 


868  Law  ^[87.  “ Provided , That  in  the  case  of  a personal  service  corpo- 

(Sec.  205.)  ration  the  amount  to  be  paid  shall  be  only  that  specified 

in  clause  (2)  [^f 867]”  [See  particularly  ^[844.] — Law. 

[Note:  The  1918  Act  so  provided,  in 

principle.] 

869  Fiscal  Years  1920-1921  and  1921-1922. — Section  205  of  the  statute 
applies  to  income  taxes.  For  the  provisions  with  respect  to  war 

profits  and  excess  profits  taxes  see  section  335  and  articles  951-955  [War 
Tax  Service].  Subdivision  (a),  which  deals  with  fiscal  years  beginning  in 
1920  and  ending  in  1921,  applies  to  corporations,  not  including  personal 
service  corporations,  and  to  individuals.  Subdivision  (b),  which  deals  with 
fiscal  years  beginning  in  1921  and  ending  in  1922,  applies  to  corporations, 


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FISCAL  YEARS  1920-1921  AND  1921-1922. 

including  personal  service  corporations,  and  to  individuals.  Subdivision  (c), 
which  deals  with  fiscal  years  beginning  in  1920  or  1921  and  ending  in  1921  or 
1922,  applies  to  partnerships  and  to  personal  service  corporations.  See  as  to 
partnerships,  articles  331-335  [^[784]  and  as  to  personal  service  corporations 
articles  336-339  [H841].  (Art.  1621,  Reg.  62,  1922  Edition.) 

870  Fiscal  Year  Ending  in  1921. — The  method  provided  for  computing 
the  tax  for  a fiscal  year  beginning  in  1920  and  ending  in  1921,  is  as 

follows:  ( a ) The  tax  attributable  to  the  calendar  year  1920  is  found  by  com- 
puting the  income  of  the  taxpayer  and  the  tax  thereon  in  accordance  with 
Title  II  of  the  Revenue  Act  of  1918  as  if  the  fiscal  year  was  the  calendar  year 
1920,  and  determining  the  proportion  of  such  tax  which  the  portion  of  such 
period  falling  within  the  calendar  year  1920  is  of  the  entire  period;  ( b ) the 
tax  attributable  to  the  calendar  year  1921  is  found  by  computing  the  income  of 
the  taxpayer  and  the  tax  thereon  in  accordance  with  the  present  statute,  as 
if  the  fiscal  year  was  the  calendar  year  1921,  and  determining  the  proportion 
of  such  tax  which  the  portion  of  such  period  falling  within  the  calendar  year 
1921  is  of  the  entire  period;  and  ( c ) the  tax  for  the  fiscal  year  is  found  by 
adding  the  tax  attributable  to  the  calendar  year  1920  and  the  tax  attributable 
to  the  calendar  year  1921.  (Art.  1622,  Reg.  62,  1922  Edition.) 

871  Credits  in  the  Case  of  Fiscal  Year  Ending  in  1921. — In  computing 
the  tax  attributable  to  the  calendar  year  1920  the  net  income  com- 
puted for  the  entire  period  under  Title  II  of  the  Revenue  Act  of  1918  shall  be 
credited  with  the  amount  of  the  excess-profits  tax  computed  for  the  entire 
period  under  Title  III  of  the  Revenue  Act  of  1918.  In  computing  the  tax 
attributable  to  the  calendar  year  1921  the  net  income  computed  for  the  entire 
period  under  the  present  statute  shall  be  credited  with  the  amount  of  the 
excess-profits  tax  computed  for  the  entire  period  under  Title  III  of  this  statute. 
See  section  236  of  the  statute  and  article  591  [^[1415].  Amounts  previously 
paid  by  the  taxpayer  on  account  of  the  income  tax  for  such  fiscal  year  shall 
be  credited  towards  the  payment  of  the  income  tax  imposed  for  such  fiscal 
year  by  the  present  statute.  Any  excess  shall  be  credited  or  refunded  in 
accordance  with  the  provisions  of  section  252.  See  articles  103.1 . [^[2813] 
and  1034-1036  [beginning  at  *[[2829].  (Art.  1623,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

■¥■  $2,000  credit  not  allowed  in  computing  tax  at  1921  rate  if  net  income  exceeds  $2o,900: 
1921  Act  (1-43-557:  I.  T.  1476)..  Bull.  I (’22)-43,  p.  2. 

872  Fiscal  Year  Ending  in  1922.— In  computing  the  tax  for  a fiscal  year 
beginning  in  1921  and  ending  in  1922  the  procedure  is  as  follows: 

(a)  The  tax  attributable  to  the  calendar  year  1921  is  found  by  computing 
the  income  of  the  taxpayer  and  the  tax  thereon  in  accordance  with  the 
statute  as  in  force  on  December  31,  1921,  as  if  the  fiscal  year  was  the  calendar 
year  1921  and  determining  the  proportion  of  such  tax  which  the  portion  of 
such  period  within  the  calendar  year  1921  is  of  the  entire  period;  before 
calculating  the  tax  the  net  income  computed  for  the  entire  period  shall  be 
credited  with  the  excess-profits  tax  computed  for  the  entire  period  under 
Title  III  of  this  statute  as  if  the  fiscal  year  was  the  calendar  year  1921; 
(&)  the  tax  attributable  to  the  calendar  year  1922  is  found  by  computing  the 
income  of  the  taxpayer  and  the  tax  thereon  in  accordance  with  the  statute  as 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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150 


2-29-22.  (2)  4-10-22  (8)  7-7-22.  (3)  10-11-22. 

FISCAL  YEARS  1920-1921  AND  1921-1922. 

in  force  on  January  1,  1922,  as  if  the  fiscal  year  was  the  calendar  year  1922, 
and  determining  the  proportion  of  such  tax  which  the  portion  of  such  fiscal 
year  falling  within  the  calendar  year  1922  is  of  the  entire  period;  and  (c) 
the  tax  for  the  fiscal  year  is  found  by  adding  the  tax  attributable  to  the 
calendar  year  1921  to  the  tax  attributable  to  the  calendar  year  1922.  See 
section  236  of  the  statute  and  article  591  [^[2067].  (Art.  1624,  Reg.  62, 
1922  Edition.) 

Partnership  Fiscal  Years  1920-1921  and  1921-22.— Read  at  If 808. 

Personal  Service  Corporation  Fiscal  Years  1920-1921  and  1921-1922.— 
Read  at  ]f840  and  ^[844. 


r; 


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THE  FEDERAL  INCOME  TAX  SERVICE 

151 


-1-27-22.  (2)  4-10-22.  (3)  7-7-22.  (4)  10-11-22 

ESTATES  AND  TRUSTS. 


b 73  Law  H247.  Income  of  Estates  and  Trusts  is  Taxable. — “Sec. 

(Sec.  219.)  219.  ( a ) That  the  tax  imposed  by  sections  210  [normal 

tax  on  individuals]  and  211  [surtax]  shall  apply  to 
the  income  of  estates  or  of  any  kind  of  property  held  in  trust , including — ” 

— Law.  [Note:  The  1918  Act  so  provided.] 

874  Law  ^[248.  Income  Received  by  Estate  During  Period  of  Settle- 
(Sec.  219.)  ment  is  Taxable. — “(1)  Income  received  by  estates 

of  deceased  persons  during  the  period  of  administra- 
tion or  settlement  of  the  estate — Law.  [Note:  The  1918  Act  so 

provided.] 

875  Decedent’s  Estate  During  Administration.— The  “period  of  admin- 
istration or  settlement  of  the  estate”  is  the  period  required  by  the 

executor  or  administrator  to  perform  the  ordinary  duties  pertaining  to 
administration,  in  particular  the  collection  of  assets  and  the  payment  of  debts 
and  legacies.  It  is  the  time  actually  required  for  this  purpose,  whether 
longer  or  shorter  than  the  period  specified  in  the  local  statute  for  the  settle- 
ment of  estates.  Where  an  executor,  who  is  also  named  as  trustee, . fails 
to  obtain  his  discharge  as  executor,  the  period  of  administration  continues 
up  to  the  time  when  the  duties  of  administration  are  complete  and  he 
actually  assumes  his  duties  as  trustee,  whether  pursuant  to  an  order  of  the 
court  or  not.  No  taxable  income  is  realized  from  the  passage  of  property 
to  the  executor  or  administrator  on  the  death  of  the  decedent,  even  though 
it  may  have  appreciated  in  value  since  the  decedent  acquired  it.  In  the 
event  of  delivery  of  property  in  kind  to  a legatee  or  distributee,  no  income 
is  realized.  Where,  however,  the  executor  sells  property  of  the  estate  for 
more  than  its  value  at  the  death  of  the  decedent,  the  excess  is  income,  or  may 
be  capital  gain,  taxable  to  the  estate.  See  articles  1562  and  1563  [for  sale  of 
property  acquired  by  gift,  bequest,  etc.,  ^[  1452  and  1455].  (Art.  343,  Reg. 
62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

1Q18  Revenue  Act  applicable  to  1918  income  though  administration  closed  before 
enactment  of  that  Act  (29-21-1737:  A.  R.  R.  565).  .Dec.  1921  Cum.  Bull.  p.  187. 
Annual  basis:  income  to  be  placed  on,  for  any  period  of  less  than  12  months:  1921 
Act  (1-12-160:  I.  T.  1250)  and  (1-12-161:  I.  T.  1251).  .June  1922  Cum.  Bull, 
p.  243.  See  (1-27-391:  I.  T.  1383).  .Bull.  I (’22)-27,  p.  8. 

Assessment  on  bank  stock  owned  by  estate  (20-21-1640:  O.  D.  918) . .June  1921  Cum 


Bull.  p.  213.  , . 

Commissions  paid  by  executor  on  sale  of  property  by  another:  on  sale  of  property 
by  executor  himself  (33-20-1135:  O.  D.  632).  .Dec.  1920  Cum.  Bull.  p.  204. 
Community  property;  amended  returns  and  claims  (20-21-1643:  O.  D.  920).  .June  1921 
Cum.  Bull.  p.  335. 

Defending  title  to  land  in  estate;  attorney’s  fees  paid  by  executor  (42-20-1248: 
A.  R.  R.  284).  .Dec.  1920  Cum.  Bull.  p.  208. 

District  of  Columbia  real  estate  (13-20-811:  S.  1229-A) . . June  1920  Cum.  Bull.  p.  175. 
Enemy  alien  beneficiary:  duty  of  administrator  or  executor  prior  to  turning  over 
property  to  Alien  Property  Custodian  (29-20-1082:  O.  D.  598).  .Dec.  1920  Cum. 

Bull.  p.  203.  . , . ...... 

Executor-beneficiaries  continuing  decedent’s  business  during  period  of  administra- 
tion; income  from  real  estate  bequeathed  to  same  beneficiaries  involved  also 
(I_4-44:  A.  R.  M.  151).  .June  1922  Cum.  Bull.  p.  214. 

Executors  continuing  decedent’s  business  (Texas  particularly)  (8-21-1463:  bol.  Up. 

88).  .June  1921  Cum.  Bull.  p.  119. 

Executory  contract  for  deferred  payment  sale  entered  into  by  decdeent  (33-20-1134: 
O.  D.  631).  .Dec.  1920  Cum.  Bull.  p.  204:  modified  (7-21-1448:  O.  D.  807).  .June 
1921  Cum.  Bull.  p.  224. 

Expenses  deductible  (23-20-988:  O.  D.  537).  .June  1920  Cum.  Bull.  p.  175. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

the  federal  income  tax  service 
152 


8-27-22.  (2)  4-10-22.  (8)  4-14-22.  (4)  6-26-22.  (6)  7-7-22.  (6)  8-24-22. 

ESTATES  AND  TRUSTS. 


(7)  0-1-22.  (8)  1 0-11-22. 


Mortgage  accepted  at  face  value  in  part  payment  of  debt  due  decedent  (44-21-1896' 
O.  D.  1084).. Dec.  1921  Cum.  Bull.  p.  189. 

New  York,  application  under  1916  and  1918  Acts  of  rule  that  one  who  receives  a be- 
quest  of  the  income  of  a specified  sum,  the  decedent’s  property  being  income 
producing  at  time  of  death,  is  entitled  to  such  income  from  time  of  death  (38-20- 
1206:  L.  O.  1051)..  .Dec.  1920  Cum.  Bull.  p.  205.  See  (1-4-44:  A.  R.  M.  151) 
. .June  1922  Cum.  Bull.  p.  214. 

Partner  in  firm  which  had  acquired  interest  of  member  retiring  some  month’s  prior  to 
former  s death,  promissory  notes  being  medium  of  payment;  also,  surviving 
members  pay  to  decedent’s  estate,  waiving  their  rights  thereto,  his  share,  as  though 
living,  of  profits  on  old  firm’s  unfinished  business  at  time  of  his  death-  1921  Act 
(1-27-391:  I.  T.  1383).  .Bull.  I (’22)-27,  p.  8. 

Partner’s  estate  to  capitalize  decedent’s  interest  in  uncollected  fees,  his  share  of  fees 
collected  to  day  of  death  being  income  to  decedent  on  cash  basis  113305 

Personal  service  corporation  stockholder  (1-19-71:  O.  D.  52). . 1919  Cum  Bull  p 180 

Promissory  notes  coindorsed  by  decedent  (25-20-1017:  O.  D.  556).  June  1920  Cum' 
Bull.  p.  137. 

Promissory  notes  of  decedent;  accrued  interest  on  which  was  deducted  for  estate  tas 
purposes;  interest  capitalized  by  giving  a new  note  (21-20-953:  A R.  R 113) 
June  1920  Cum.  Bull.  p.  114. 

Sale  of  real  estate  on  installment  plan  by  decedent  (1-6-70:  I.  T.  1192)  Tune  197? 
Cum.  Bull.  p.  78. 

Securities  distributed  to  residuary  legatees  on  basis  of  market  value,  this  exceeding 
value  at  date  of  testator’s  death;  no  income  to  estate,  and  value  at  death  is  basis 
for  determining  gain  or  loss  on  future  disposition  (39-20-1209:  O.  D 667)  Dec 

1920  Cum.  Bull.  p.  52. 

Securities  held  at  death:  no  profit  or  loss  to  decedent,  to  estate  during  settlement,  on 
transfer  to  legatee  or  to  trustee  or  to  substituted  trustee,  appraised  value  at 
time  of  death  remaining  as  basis  on  subsequent  disposition  (11-19-383:  O.  D. 
219)..  1919  Cum.  Bull.  p.  180.  Same  in  part  (35-20-1168:  A.  R.  R.  249).. 
Dec.  1920  Cum.  Bull.  p.  145.  Same  in  part  (property  in  general)  (46-20- 
1306:  O.  D.  731) . .Dec.  1920  Cum.  Bull.  p.  210. 

See  “Assessment  on  bank  stock”  above. 

Stamp  taxes  on  deeds  conveying  property  sold  by  estate  (33-20-1135:  O.  D 632) 
Dec.  1920  Cum.  Bull.  p.  204. 

Trustees  holding  trust  fund  by  terms  of  will  creating,  for  one  year  after  life  tenant’s 
death,  then  distributing  and  turning  over  to  administrators  with  the  will  annexed; 
return  obligations  of  trustees  and  administrators  (7-21-1447:  O.  D 806)  Tun* 

1921  Cum.  Bull.  p.  223. 

Widow-administratrix  sole  beneficiary:  return  liability  for  each  of  the  several  years 
of  settlement  (21-21-1652:  O.  D.  926)..  June  1921  Cum.  Bull.  p.  225. 

Widow  s personal  allowance  payable  out  of  personal  property  and  income  from  real 
estate  by  probate  court’s  order  (9-21-1482:  O.  D.  829).. June  1921  Cum  Bull 
p.  224. 


B76  Law  1f249.  Income  Accumulated  in  Trust  is  Taxable. — HI873. 
(Sec.  219.)  The  taxes  imposed  by  sections  210  and  211  apply  toj 

“(2)  Income  accumulated  in  trust  for  the  benefit  of 
unborn  or  unascertained  persons  or  persons  with  contingent  interests-”— 
Law.  [Note:  The  1918  Act  so  provided.] 

877  Law  1f250.  Income  Held  for  Future  Distribution  Under  Terms 
(Sec.  219.)  of  Will  or  Trust  is  Taxable.— “(3)  Income  held 

f0T  future  distribution  under  the  terms  of  the  will  or 
trust-,  —Law.  [Note:  The  1918  Act  so  provided.] 

878  Law  1j256.  Taxes  to  Be  Paid  by  Fiduciary  on  Income  (1)  Re- 
(Sec.  219.)  ceived  During  Period  of  Settlement,  (2)  Accumulated 

to  Trust,  and  (3)  Held  for  Future  Distribution  under 
Terms  of  Will  or  Tmst.— ‘‘(r)  In  cases  under  paragraphs  (1)  [If 874],  (2) 
11I8/6J,  or  (3)  [i|877J  of  subdivision  (a)  or  in  any  other  case  within  sub - 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22. 


(3)4-14-22.  (4)  6-26-22.  (5)17-7-22.  (6)  8-24-22.  (7)9-1-22.(8)  10-11-22. 

ESTATES  AND  TRUSTS. 


division  (a)  of  this  section  except  paragraph  (4)  [1(889]  thereof  the  taxshall 
be  imposed  upon  the  net  income  of  the  estate  or  trust  and  shall  be  paid  by 
the  fiduciary” — Law.  (Note:  The  1918  Act  did  not  carry  “or  in 

any  other  case  within  subdivision  (a)  of 
this  section  except  paragraph  (4) 
thereof.”] 

879  Estates  and  Trusts  Taxed  to  Fiduciary— In  the  case  of  (a)  estates 
of  decedents  before  final  settlement,  fb)  trusts,  whether  created 
by  will  or  deed,  for  accumulation  of  income,  whether  for  unascertained 
persons  or  persons  with  contingent  interests  or  otherwise,  and  in  any  other 
case  within  section  219  (a)  except  paragraph  4 [1(889]  thereof  the  income  is 
taxed  to  the  fiduciary  as  to  any  single  individual,  except  that  from  the  income 
of  a decedent’s  estate  there  may  first  be  deducted  any  amount  of  income 
properly  paid  or  credited  to  a beneficiary.  See  section  200  of  the  statute  and 
articles  1521  and  1522  [for  definition  of  “fiduciary  1(923].  Where  under 
the  terms  of  the  will  or  deed  the  trustee  may  in  his  discretion  distribute 
the  income  or  accumulate  it,  the  income  is  taxed  to  the  trustee  irrespective 
of  the  exercise  of  the  discretion.  The  imposition  of  the  tax  is  not  affected 
bv  the  fact  than  an  ultimate  beneficiary  may  be  a person  exempt  from  tax. 
An  allowance  paid  a widow  out  of  the  corpus  of  the  estate  is  not  deductible 
from  gross  income.  As  an  intestate’s  real  estate  does  not  pass  to  his  ad- 
ministrator, upon  a sale  by  the  heirs,  whether  before  or  after  settlement  of 
the  estate,  each  heir  is  taxed  individually  on  any  profit  derived.  (Art.  342, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Amounts  properly  paid  or  credited  during  administration  or  in  final  distribution  m^l 
be  deduced  by  fiduciary  and  included  by  beneficiary  (27-21-1714.  O.  D.  767).. 

Dec.  1921  Cum  Bull.  p.  186.  , , . „ , „ 

Business  trust,  “dividends”  discretionary  with  trustees,  therefore  income  taxed  to 
trustees:  1918  and  1921  Acts  (1-35-483:  I.  T.  1431).. Bull.  I .22)-35,  p.  8. 

Decedent’s  income  prior  to  death:  no  profit  or  loss  on  securities  held  at  death  (11- 
19-383:  O.  D.  219).  .1919  Cum.  Bull.  p.  180. 

lame  'in  *part  (property*inAge^emi)^(46-20-f306:  O.  D^hl).  ‘Dec.  1920  Cum. 

Discretionary  trusts:  general  discussion  1916-17  and  1918  Acts  (11-19-382:  S.  1088) 

Estates  anVtrust/ not  taxable  as  entities  under  1913  Act:  U.  S.  Supreme  Court 

decision  (1-13-183:  Ct.  D.  24).  .June  1922  Cum.  Bull.  p.  210.  Same  as  at 

Indians'  whose'  property  is  under  control  of  Office  of  lndian  Affairs^  1921  Act  (I-25- 

Indians  whose  property  is  under  control  of  Office  of  Indian  Affairs.  1921  Act  (I  -5  3 . 

I T 1566)  Tune  1922  Cum.  Bull.  p.  242. 

Life  tenancy:  profit  from  sale,  held  for  remainderman  taxable  to  estate  as  entity 
(26-20-1029:  O.  D.  560).  .June  1920  Cum.  Bull.  p.  175. 

Same:  Here  proceeds  of  sale  of  intestate’s  real  estate  to  create  a life  egate  for 
husband  with  remainder  over  to  son  by  agreement  (38-21-1830.  17.  D.  1040) 
Dec  1921  Cum.  Bull.  p.  186.  . , 

Life  tenants  in  trust  with  power  of  appointment,  remainderman  (if  exercise  of  power 
did  not  exhaust  principal)  a charitable  institution:  sale  by  trustee  of  rights  o 
subscribe  to  stock,  proceeds  being  added  to  corpus-taxable  to  estate  as  entity 
(20-20-939:  0.  D.  507).  June  1920  Cum.  Bull.  p.  174.  . 1091 

Massachusetts;  profit  on  sale  of  intestate’s ; realty  by  administrator:  1918  and  1721 
Acts  (1-14-197:  I.  T.  1267).  .June  1922  Cum.  Bull.  p.  2L.  . 

Nonresident  alien  creator  and  beneficiary  of  discretionary  trust;  foreign  bond  interest 
Of  re.ideu.  fiduciary  (See  “IW.ident  al.o  creator”  belo.) 
<49-20-1355- O D.  743)  . Dec  1920  Cum.  Bull.  p.  203.  . 

Nonresident  alien  creator  and  beneficiaries  of  trust  estate  resident  fiduc^ary^  un- 
distributed income  and  income  during  settlement  (13-20-810.  A.  K.  M.  o ) • ■ 
June  1920  Cum.  Bull.  p.  172. 

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<t)  *-10-21  (3)  6-9-22.  (4)  7-7-22.  (6)  10-11-22.  (6)  11-4-22. 

ESTATES  AND  TRUSTS. 


Nonresident  alien  fiduciaries:  undistributed  income  and  income  during  settlement 
from  sources  within  U.  S.,  irrespective  of  status  of  creator  or  of  beneficiaries 
(13-20-810:  A.  R.  M.  37)  . June  1920  Cum.  Bull.  p-  172.  ... 

Period  of  settlement:  amounts  which  were  not  paid  or  credited  to  legatee  but  to  which 
he  was  entitled  as  matter  of  law  (16-19-462:  T B.  R.  47) ..  1919  Cum.  Bull , p.  178 
However,  there  being  actual  payment  or  crediting  the  trustee  has  no  ' 
must  deduct  for  return  purposes  (27-21-1714:  O.  D.  96/)..  Dec.  1921  Cum.  u . 

Sabbatical  year  trust  fund  of  college;  income  of  is  taxable  to  the  trust;  1921  Act 

(1-23-331:  I.  T.  1343).  .June  1922  Cum.  Bull.  p.  213. 

Sale  of  stock  by  trustees  under  will:  basis  ot  determining  gain  or  loss  (IZ-ZU-/9Z. 

O.  1012).  .June  1920  Cum.  Bull.  p.  34..  . . 

State,  city,  etc.,  as  remainderman  beneficiary  of  trust-estate  income  (28-2I-17Z4. 

O.  D.  972).  .Dec.  1921  Cum.  Bull.  p.  104.  . . . ... 

Stock  dividends:  profit  or  loss  on  sale  of  stock  received,  and  of  that  in  respect  of  which 

Stoc^worthlesJ as  determined  by  appraisal  at  decedent’s  death;  no  loss  allowable  to 
estate:  1921  Act  (1-27-389:  I.  T.  1381).  . Bull.  I ( 22)-27,  p.  6. 

* Ultimate  beneficiary  being  a person  exempt  from  tax  (See  at  11880  below,  and  footnote.) 

Unascertained  beneficiary:  income  accumulated  and  added  to  corpus  (1913  ana 
1916-17  Acts)  (9-20-774:  O.  1001).  .June  1920  Cura.  Bull.  p.  170. 


880  Ultimate  Beneficiary  of  a Trust  Subject  to  Tax  as  an  Entity  Being 
a Person  Exempt  from  Tax.  (Decision  C.  C.  of  A.,  3d  circuit. 
Lederer  vs.  Stockton  (266  Fed.  676)*.)— Buffington,  Circuit  Judge.  In  the 
court  below,  Stockton,  trustee  under  the  will  of  Alexander  J.  Derbyshire, 
brought  suit  and  recovered  a verdict  against  Lederer,  United  States  collector 
of  internal  revenue,  to  recover  income  taxes  illegally,  as  he  alleged,  collected 
from  him.  On  entry  of  judgment  on  such  verdict,  the  defendant  sued  out 

this  writ.  wilj  Alexander  J.  Derbyshire,  who  died  in  1879  devised  his 

residuary  estate  to  “the  contributors  to  the  Pennsylvania  Hos- 
pital,” a corporation  of  Pennsylvania  created  for  charitable  uses  and  purposes, 
and  no  part  of  the  net  income  thereof  i9  for  the  benefit  of  any  private  stock- 
holder or  individual.  The  devise  was  subject  to  the  payment  to  certain 
annuitants,  all  of  whom,  save  one,  have  died.  The  residuary  estate  amounts 
to  several  hundred  thousand  dollars,  its  annual  income  is  substantially 
$15,000  and  upwards,  and  the  remaining  annuity  is  for  a few  hundred  dollars 
per  year.  The  construction  of  the  will  came  before  the  Supreme  Court  ol 
Pennsylvania  in  Biddle’s  Appeal,  99  Pa.  525,  wherein  the  title  to  the  residuary 
estate  was  adjudged  vested  in  the  hospital;  the  court  saying. 

“The  residuary  devise,  being  in  trust  for  a charitable  use  and  pur- 
pose,  comes  within  the  proviso  to  the  ninth  section  of  the  act  of  April 
18,  1853,  and  therefore  is  not  within  the  prohibitory  clause  of  the  section 
forbidding  accumulations  after  the  death  of  the  testator  for  a term  longer 

than  therein  specified.”  ... 

882  The  court  further  held  that  it  should  not  be  paid  to  the  hospital 
until  after  the  death  of  all  the  annuitants.  As  stated  by  the  court 

below  in  its  opinion:  . , . . 

“Resort  was  then  had  to  the  practical  expedient  of  the  trustee 
investing  the  funds  of  the  estate  in  the  form  of  a loan  to  the  institution 
representing  the  charity,  upon  which  loan  the  charity  paid  an  interest 
sufficient  to  take  care  of  the  administrative  charges  and  the  payment 
of  the  annuities.  The  annuities  have  all  fallen  in,  except  one  small  ooe. 


•Affirmed  by  U.  S.  Supreme  Court,  Oct.  16,  1922,  Tf3355. 

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ESTATES  AND  TRUSTS. 

883  It  will  thus  be  seen  that,  while  the  residuary  estate  remains  theo- 
retically and  for  purposes  of  accounting  in  the  hands  of  the  trustee, 

it  is  already  in  the  possession  of  the  hospital  in  the  shape  of  money  loaned  on 
mortgage,  and  upon  such  loan  the  hospital  is  paying  to  the  trustee  only 
such  interest  as  takes  care  of  administrative  charges  and  the  surviving 
annuity.  Under  such  circumstances,  the  collector  assessed  and  collected, 
under  protest,  from  the  trustee  on  June  26,  1917,  the  sum  of  $4,273.42, 
being  on  the  income  of  the  residuary  estate  for  the  years  1913,  1914,  1915, 
and  1916,  and  on  June  11,  1918,  an  income  and  excess  profit  tax  of  $6,842.02 
upon  the  income  of  the  residuary  estate  of  1917.  It  is,  of  course,  apparent 
the  trustee  has  no  financial  interest  in  the  residuary  payment,  and  while 
this  large  sum  is  in  theory  assessed  as  a tax  on  income  received  by  the  trustee 
of  the  testator’s  estate,  the  whole  sum  is  paid  at  the  expense,  and  from  the 
property  of  the  hospital.  The  question,  then,  in  substance  and  practice, 
resolves  itself  into  this:  Is  this  hospital  liable  for  income  tax? 

884  In  view  of  the  fact  that  Congress  in  the  pertinent  taxing  act  of 
1913  (Act  Oct.  3,  1913,  c.  16,  38  Stat.  168,  172)  said: 

“All  persons,  firms,  companies,  copartnerships,  corporations, 
joint-stock  companies  or  associations,  and  insurance  companies  ex- 
cept as  hereinafter  provided,  in  whatever  capacity  acting,  having 
the  control,  receipt,  disposal,  or  payment  of  fixed  or  determinable 
annual  or  periodical  gains,  profits,  and  income  of  another  person  subject 
to  tax , shall  in  behalf  of  such  person  deduct  and  withhold  from  the  pay- 
ment an  amount  equivalent  to  the  normal  income  tax  upon  the  same  and 
make  and  render  a return.  * * * Nothing  in  this  section  shall 

apply  * * * to  any  corporation  or  association  organized  and  operated 

exclusively  for  religious,  charitable,  scientific,  or  educational  purposes, 
no  part  of  the  net  income  of  which  inures  to  the  benefit  of  any  private 
stockholder  or  individual.” 

— it  follows  that  he  who  construes  and  applies  that  statute  to  warrant  taxa- 
tion of  a charity  is  doing  what  Congress  said  should  not  be  done,  viz.,  “that 
nothing  in  this  section  shall  apply,”  etc.  So,  also,  when  Congress  in  the 
act  of  1916  (Act  Sept.  8,  1916,  c.  463.  39  Stat.  756)  again  said: 

“That  there  shall  not  be  taxed  under  this  title  any  income  received 
by  any  * * * corporation  or  association  organized  and  operated 

exclusively  for  religious,  charitable,  scientific,  or  educational  purposes, 
no  part  of  the  net  income  of  which  inures  to  the  benefit  of  any  private 
stockholder  or  individual.”  _ . . 

— it  follows  that  he  who  taxes,  under  this  statute,  the  income  of  a hospital, 
is  taxing  that  which  Congress  expressly  said  should  not  be  taxed,  viz.,^  that 
there  shall  not  be  taxed  under  this  title  any  income  received  by  any  * 
corporation  for  * * * charitable  * * * purposes.”  Section  11  (Comp. 

St.  §6336k).  . . ^ L „ 

885  As  justification  for  assessing  this  tax,  it  contended,  however,  that 
as  the  act  of  1916  forbids  taxation  on  “any  income  received  by  any 
* * * corporation  * * * for  * * * charitable  * * * purposes, 
that  the  income  of  this  residuary  estate  was  not  exempt  because  it  has  not  been 
“received,”  but  remains  in  the  hands  of  the  trustee.  But,  apart  from  the  fact 
that  the  corpus  of  the  residuary  estate  has  in  fact  already,  been  received 
by  the  hospital  in  the  shape  of  a mortgage,  and  the  hospital  itself  is  pro  forma 
paying  to  its  own  trustee  the  money  which,  pro  forma,  constitutes  the  income 
here  taxed,  the  construction  thus  urged  and  the  effect  given  to  the  word 

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“received”  does  not  commend  itself  to  our  judgment.  The  sections  in  question 
in  the  acts  of  1913  and  1916  are  to  be  considered  and  construed  jointly.  They 
concern  the  same  subject-matter,  and  that  of  1916  was  evidently  meant  to 
continue  the  broad  and  absolute  purpose  and  provisions  of  the  act  of  1913 
“that  nothing  in  this  section  shall  apply  * * * to  any  corporation 

* * * operated  exclusively  for  * * * charitable  * * * purposes.” 

Such  being  the  case,  the  residuary  estate  which  produced  this  income  being  the 
property  solely  of  the  hospital,  no  one  but  the  hospital  owning  the  income 
thereof,  and  the  temporary  holding  of  the  income  being  by  a trustee,  who 
was  the  agent  and  representative  solely  of  the  hospital,  it  is  clear  that  when 
substance  and  spirit,  and  not  mere  form  and  words,  are  the  interpreters  of  the 
statute,  the  receipt  of  this  income  by  the  hospital’s  agent  and  representative 
was  in  truth  and  reality  a receiving  by  the  hospital,  for  he  who  acts  by  the 
hand  of  another  himself  acts.  If  this  income  was  received  from  a third 
person  by  the  trustee  and  afterwards  lost,  surely  the  hospital  could  never 
have  collected  it  again  from  such  third  person  on  the  theory  the  hospital 
had  never  received  it.  Moreover,  it  will  also  appear  that,  if  the  trustee  had, 
without  protest,  used  the  money  of  the  hospital  to  pay  this  income  tax,  such 
trustee  could  not,  on  settlement  of  his  trusteeship’,  have  justified  such  pay- 
ment under  section  2 of  the  act  of  1913,  for  that  section  only  warrants  such 
deduction  and  withholding  where  the  income  is  the  “income  of  another  person 
subject  to  tax,”  and  elsewhere,  as  we  have  seen,  the  same  section  provided 
“that  nothing  in  this  section  shall  apply  * * * to  any  corporation 

* * * operated  exclusively  for  * * * charitable  * * * purposes.” 

888  From  the  above,  it  is  clear  to  us,  first,  that  the  United  States,  the 

taxing  power  and  real  defendant  in  this  case,  speaking  by  its  leg- 
islative branch  in  plain  language  enacted  its  purpose  and  will  to  exempt 
from  taxation  the  income  of  “any  corporation  or  association  organized 
and  operated  exclusively  for  religious,  charitable,  scientific,  or  educational 
purposes,  no  part  of  the  net  income  of  which  inures  to  the  benefit  of  any 
private  stockholder  or  individual;”  second,  that  the  action  of  the  United 
States  by  its  executive  officer,  in  this  case  the  collector  of  internal  revenue, 
in  assessing  and  collecting  tins  income  tax  from  the  hospital,  was  not  war- 
ranted by  the  taxing  statutes;  and,  third,  that  it  is  the  duty  of  the  United 
States,  acting  by  its  third  agency,  the  federal  courts,  to  prevent  its  executive 
branch  from  illegally  defeating  its  expressed  will  in  the  law  enacted  by  its 
legislative  branch. 

8S7  It  follows,  therefore,  that  the  judgment  entered  by  the  court  be- 
low in  favor  of  the  hospital  and  against  the  collector  should  be  and 
is  affirmed.  (266  Fed.  676.) 

888  Incidence  of  Tax  on  Estate  or  Trust. — Liability  for  payment  of 
the  tax  attaches  to  the  person  of  an  executor  or  administrator  up 
to  and  after  his  discharge,  where  prior  to  distribution  and  discharge  he 
had  notice  of  his  tax  obligations  or  failed  to  exercise  due  diligence  in  determin- 
ing whether  or  not  such  obligations  existed.  Liability  for  the  tax  also  follows 
the  estate  itself,  and  when  by  reason  of  the  distribution  of  the  estate  and  the 
discharge  of  the  executor  or  administrator  it  appears  that  collection  of  the 
tax  can  not  be  made  from  the  executor  or  administrator,  the  legatees  or  dis- 
tributees must  account  for  their  proportionate  share  of  the  tax  due  and 
unpaid.  The  same  considerations  apply  to  other  trusts.  Where  the  tax 
has  been  paid  on  the  net  income  of  an  estate  or  trust  by  the  fiduciary,  such 

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ESTATES  AND  TRUSTS. 


income  is  free  from  tax  when  distributed  to  the  beneficiaries.  (Art.  344, 
Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  91. 


Annuities,  the  will  creating  the  trust  providing  that  they  shall  be  free  from  all  taxes  , 
such  to  be  paid  out  of  the  trust  estate  (1918  and  1921  Acts)  (1-8-105:  I.  T.121a).  . 
June  1922  Cum.  Bull.  p.  217.  , , ,,  , . 

Conversion  of  all  property  into  cash  at  profit,  distribution  of  all  cash,  followed  by 

death;  liability  for  tax  on  profit  and  on  other  income  of  decedent  (28-20-1058) 
O.  D.  582)..  Dec.  1920  Cum.  Bull.  p.  211. 

Oil  wells,  principal  value  having  been  demonstrated  by  prospecting,  etc.,  sold  by 
trustees  of  assets  of  oil  company  (9-19-337 : O.  D.  194) . . 1919  Cum.  Bull.  p.  58. 
Residuary  legatee  liable  for  any  unpaid  tax  on  income  of  estate  during  settlement 
(45-20-1295:  O.  D.  722).. Dec.  1920  Cum.  Bull.  p.  211. 


889  Law  1)251.  Income  Received  by  a Fiduciary,  Which  is  Distributa- 
(Sec.  219.)  ble  to  Beneficiaries  is  Taxable.— [The  taxes  imposed  by 
sections  210  and  211  apply  to]  “(4)  Income  which  is 
to  he  distributed  to  the  beneficiaries  periodically , whether  or  not  at  regular 
intervals,  and  the  income  collected  by  a guardian  of  an  infant  to  be  held  or 
distributed  as  the  court  may  direct.” — Law.  [Note:  The  1918  Act 

so  provided.] 


890  Law  1)259. 

(Sec.  219.) 


Beneficiaries  Liable  on  Distributable  Income. — “{d)Jn 
cases  under  paragraph  (4)  [^[889]  of  subdivision  (a),” — 
Law.  [Note:  The  1918  Act  so  provided.] 


89 1  Lav/  1[260.  Legatees  Liable  on  Amount  Properly  Paid  or  Credited 
(Sec.  219.)  to  Them  During  Period  of  Administration. — “ and  in 
the  case  of  any  income  of  an  estate  during  the  period  of 
administration  or  settlement  permitted  by  subdivision  (c)  111 899]  to  be 
deducted  from  the  net  income  upon  which  tax  is  to  be  paid  by  the  fiduciary, 
— Law.  [Note:  The  1918  Act  so  provided.] 


892  Law  1)261.  Distributable  Income  to  Be  Included  in  Beneficiary’s 
(Sec.  219.)  Return. — “the  tax  shall  not  be  paid  by  the  fiduciary, 
but  there  shall  be  included  in  computing  the  net  income 
of  each  beneficiary  that  part  of  the  income  of  the  estate  or  trust  for  its  taxable 
year  which,  pursuant  to  the  instrument  or  order  governing  the  distribution , 
is  distributable  to  such  beneficiary,  whether  distributed  or  not,  or,  pee 
H911.]  Law.  [Note:  The  1918  Act  so  provided,  in  principle  and  in  effect.] 


893  Law  1)262.  “if  his  taxable  year  is  different  from  that  of  the  estate  or 
(Sec.  219.)  trust,  then  there  shall  be  included  in  computing  his  net  in- 
come his  d istnbutive  share  of  the  income  of  the  estate  or  trust 

for  its  taxable  year  ending  within  the  taxable  year  of  the  beneficiary . 

Law.  [Note:  The  1918  Act  so  provided,  in  effect.] 

894  Estates  and  Trusts  Taxed  to  Beneficiaries.— In  the  case  of  (a)  a 
trust  the  income  of  which  is  distributable  periodically,  (b)  an  ordinary 

guardianship  of  a minor,  and  (c)  an  estate  of  a decedent  before  final  settle- 
ment as  to  any  income  properly  paid  or  credited  as  such  to  a beneficiary,  the 
income  is  taxable  directly  to  the  beneficiary  or  beneficiaries,  bach  such 


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ESTATES  AND  TRUSTS. 

beneficiary  must  include  in  his  return  his  distributive  share  of  the  net  income, 
even  though  not  yet  paid  him,  but  if  his  taxable  year  is  different  from  that  of 
the  estate  or  trust,  then  he  need  only  include  in  computing  his  net  income  his 
distributive  share  of  the  income  of  the  estate  or  trust  for  its  taxable  year 
ending  within  his  taxable  year.  The  regulations  governing  partnerships 
are  generally  applicable  to  such  an  estate  or  trust-  See  articles  331-335 
[for  partnerships,  778].  (Art.  345,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alimony:  stated  amount  in  lieu  of:  trust  fund  in  connection  therewith  (45-21-191): 
0.  D.  1092).  .Dec.  1921  Cum.  Bull.  p.  190.  This  reverses  ruling  (6-20-730:  O.  D. 
399).  .June  1920  Cum.  Bull.  p.  15  . 

Beneficiaries  (needy  individuals)  in  selection  of  trustee  year  by  year,  no  authority 
in  him  to  accumulate  income;  income  is  “distributable”:  1918  and  1921  Acts 
(1-40-538:.  I.  T.  1462).  .Bull.  I (’22)-40,  p.  16. 

Bequest  annuities  provided  for  by  purchase  by  executor  of  single-paymtnt  2-year 
endowment  insurance  policy  calling  for  establishment  of  trust  fund  with  proceeds, 
principal  and  accrued  income  distributable  to  residuary  legatees  on  death  of 
annuitants:  annuities  are  taxable,  as  is  (to  the  established  trust)  the  excess  of 
policy  proceeds  over  cost  (51-20-1355:  O.  D.  755)..  Dec.  1920  Cum.  Bull.  p.  212. 

Distribution  of  income  to  beneficiary  “when  received”  by  trustee,  up  to  stated  amount 
the  principal  and  undistributed  income  reverting  to  trustor  (1-19-69:  S.  961).. 
1919  Cum.  Bull.  p.  180. 

Irrevocable  oral  trust  (Kentucky)  the  trustor  being  the  trustee  and  a sister  the  bene- 
ficiary (20-21-1635:  A.  R.  R.  492).. June  1921  Cum.  Bull.  p.  108. 

Life  tenant  foregoes  trust  income  being  party  to  agreement  by  which  remainderman 
receives  part  and  by  which  part  is  added  to  corpus  (i.e.,  put  back  in  business  of 
trust)  (1-17-243:  A.  R.  R.  877).  .June  1922  Cum.  Bull.  p.  239. 

Loss  on  sale  of  property  constituting  corpus,  the  income  being  distributable  periodically 
(5-19-255:  O.  D.  156).  . 1919  Cum.  Bull.  p.  181.  .See  Art.  347,  1(913. 

Securities  transferred  to  corporation  in  consideration  of  fruits  thereof  during  tran9- 
ferree’s  life  (1-9-113:  I.  T.  1220).  .June  1922  Cum.  Bull.  p.  79. 

Self  beneficiary  of  income  of  trust  to  extent  demanded  (1917  Act)  (10-20-780:  S.  1344) 
. .June  1920  Cum.  Bull.  p.  176. 

Stock  dividends  distributable  to  beneficiaries  or  otherwise;  profit  or  loss  or  sale  of 
stock  received  and  of  that  in  respect  of  which  received.  .1(3010. 

Trusts  from  residue  not  yet  created,  settlement  of  estate  not  being  completed;  bene- 
ficiaries agree  to  nondistribution  of  income;  income  is  taxable  to  estate:  1918  and 
1921  Acts  (1-23-332:  I.  T.  1344).  .June  1922  Cum.  Bull.  p.  217. 

Waiving  payment  of  distributable  income  (30-20-1093:  O.  D.  606).  .Dec.  1920  Cum. 
Bull.  p.  211. 

895  Credits  to  Beneficiaries.— See  H917. 

896  Law  ^253.  How  Net  Income  of  an  Estate  or  Trust  Is  to  Be  Com- 
(Sec.  219.)  puted. — “ The  net  income  of  the  estate  or  trust  shall  be 

computed  in  the  same  manner  and  on  the  same  basis  as 
provided  in  section  212  [^1040],” — Law.  [Note:  The  1918  Act  so 

provided.] 

897  Benefit  of  the  Capital  Net  Gain  Provision  Accrues  to  Estates  and 
Trusts  and  to  the  Beneficiaries  Thereof,  on  and  After  January  1, 1922. 

. — Read  at  1507. 

898  Law  ^[254.  Deduction  Because  of  Payments  Made  for  Religious, 
(Sec.  219.)  Charitable,  Educational,  etc.,  Purposes,  Pursuant 

to  Terms  of  Will  or  Deed  of  Trust. — “ except  that 
(in  lieu  of  the  deduction  authorized  by  paragraph  (11)  fl[2001]  of  sub- 
division (a)  of  section  214)  there  shall  also  be  allowed  as  a deduction , without 
limitation , any  part  of  the  gross  income  which , pursuant  to  the  terms  of  the 
will  or  deed  creating  the  trust , is  during  the  taxable  year  paid  or  permanently 
set  aside  for  the  purposes  and  in  the  manner  specified  in  paragraph  (ll)*o/ 

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ESTATES  AND  TRUSTS. 


subdivision  fa)  of  section  214. 


899 


’ — Law  [Note:  The  1918  Act  did 

not  restrict  deductible  gifts,  etc.,  to  the 
United  States,  States,  etc.,  to  those  “for 
exclusively  public  purposes;”  and  it 
did  not  authorize  as  a deduction  the 
amount  of  contributions  to  the  special 
fund  for  vocational  rehabilitation. 
Otherwise  this  provision  is  the  same  as 
the  corresponding  one  of  the  1918  Act, 
weight  being  given  to  the  changes  in 
paragraph  (11)  of  Sec.  214  (a)  to  which 
reference  is  made.] 

Law  ^[257.  Additional  Deduction  of  Amounts  Properly  Paid  or 
(Sec.  219.)  Credited  to  Legatee  During  Period  of  Administration. 

— “ except  that  in  determining  the  net  income  of  the 
estate  of  any  deceased  person  during  the  period  of  administration  or  settle- 
ment there  may  be  deducted  the  amount  of  any  income  properly  paid  or 
credited  to  any  legatee , heir , or  other  beneficiary.”  Law.  l^ote: 

The  1918  Act  so  provided.] 


800 


Estates  and  Trusts.— While  certain  estates  and  trusts  are  sub- 
let to  tax  as  such  and  others  are  not,  the  fiduciary  in  every  easels 
required  to  make  a return  of  income.  See  section  225  °f  the  statute  and 
articles  421-425  [for  returns  by  fiduciaries,  beginning  at  11939].  I he  net 
income  of  an  estate  or  trust  shall  be  computed  in  the  same  manner  and  on 
the  same  basis  as  the  net  income  of  an  individual,  except  that  m place  ot  the 
deduction  allowed  individuals  of  certain  gifts  or  contributions  there  may.be 
deducted  without  limitation,  from  the  gross  income  any  part  of  it  which  during 
the  taxable  year  is  pursuant  to  the  will  or  trust  deed  paid  or  permanently 
set  aside  in  the  manner  specified  in  section  214  (a)  (11)  [![200l].  . See  section 
212  and  articles  21-26  [for  manner  and  basis  of  computing  net  income  gen- 
erally, beginning  at  ^[1042].  (Art.  341,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  pr. 

Alien  Property  Custodian  is  not  a trustee  of  enemy  alien  but  merely  agent  of  U.  S. 

Government  (30-20-1092:  Op.  A.G.  n /o?  1919  Cum 

Ancillary  executor  of  estate  of  nonresident  alien  (2-- 19-54/.  O.  D / -) . . 

Assefs^f  liquidating  corporation  turned  over  to  estate  which  is  sold  stockholder  as 

ASS  wclVasqcreditor(17-20-877:  A.  R.  R.  67)  • J une  1920 .Cum.  Bull  p .27. 

Associations:  when  trusts  are  not  {10-19-351:  S.  1068)  1919  Cum.  Bull.  p.  5. 

Same:  (32-20-1112:  0.  D.  620)..  Dec.1920  Cum  Bull,  p 9 

Bankruptcy:  “trustee”  and  the  incividual  bankrupt  (7-19-297.  O.  D.  174J..191V 

DecedenUs^ncome1  prior  to  death:  accrued  interest  (15-20-851:  O.  D.  454)..  June 

DeceS’s 'income 'prior  \o  death:  beneficiaries  jointly  or  any  one  by  sc^IOJ1 

make  return  if  no  administrator  appointed  (43-20-1264.  O.  D.  702).  . Uec. 

Cum.  Bull.  p.  229. 

Estate  tax  (13-19-419:  O.  812).  . 1919  Cum.  Bull.  p.  11a. 

Same:  (16-20-875:  Op.  A.  G.  1).  . June  1920  Cum  Bull.  p.  1 D-  Dec  ,92() 

Estate  tax:  interest  on  amount  set  aside  to  pa>  (36-20-1183. 

Cum.  Bull.  p.  90.  1074.-  O D SQ4f  Dec  1920  Cum  Bull  p.  148. 

Estate  tax:  inr<  rest  on  unpaid  (29-20-n*74  <>  u.  ' 1 1 - 

Overruled:  1921  Act  (1-21-298:  I.  T.  1317).  .June  1922  Cum.  Bull.  p.  132. 

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• xempt  organization  chartered  but  not  operating:  income  to  be  paid  to  or  permanentle 

set  aside  for  is  not  deductible  (20- 1 9-5  U : O.  D.  278). .1919  Cum.  Bull.  p.  175. 

Exempt  organization  in  existence:  reinvestment  of  income  by  executors  or  trustees 
permanently  set  aside  for  by  terms  of  will  or  deed  (-16-20- 1305:  A.  R.  R.  280) 
. . Dec.  1920  Cum.  Bull.  p.  203. 

Irrevocable  trust  created  by  life  tenant  having  power  of  appointment,  the  trustor  being 
beneficiary  during  life,  the  trust  to  terminate  on  death  of  creator,  charitable, 
etc.,  institutions  then  taking  (2-1-21-1688:  A.  R.  R.  521).  . June  1921  Cum 
Bull.  p.  221. 

Local  benefit  assessments:  amounts  paid  on  account  of  (31-20-1 102:  O.  D.  613) 
. . Dec.  1920  Cum.  Bull.  p.  149. 

Property  given  to  municipality  in  trust  (1916-1917  Acts)  (14-19-433:  O.  895)..  1919 
Cum.  Bull.  p.  91. 

Revocable  trust  (32-20-1116:  O.  D.  621)  and  (40-20-1124:  O.  D.  676)..  Dec.  1920 
Cum.  Bull.  p.  202. 

Numerous  grantors  and  revocable  by  unanimous  consent  only  (52-21-1993: 
A.  R.  R.  684).. Dec.  1921  Cum.  Bull.  p.  184. 

*Reversal:  the  income  of  the  instant  revocable  trust,  and  generally  when  no  question 
of  fraud  or  intent  to  evade  taxation,  is  not  taxable  to  the  grantor,  as  such,  but  to 
the  beneficiaries  of  whom  the  grantor  may  be  one:  full  discussion:  1916-17, 

and  1918  Acts  (1921  Act)  (1-30-425:  L.  O.  1102).  .Bull.  I (’22)-30,  p.  5. 

Sale  of  securities  held  in  trust  the  investment  income  being  distributable  to  beneficiary 
(3-19-198:  O.  D.  129)  1919  Cum.  Bull.  p.  175. 

Satisfaction  of  executor’s  liability  for  interest  to  estate  by  personal  settlement  of  obli- 
gations of  estate  (1-19-70:  O.  D.  51).  . 1919  Cum.  Bull.  p.  175. 

Several  trusts,  same  trustee  (26-19-592:  O.  D.  316).  1919  Cum.  Bull.  p.  175. 

State  beneficiary  of  bequest:  income  on  during  period  of  settlement  other  assets 
being  ample  to  satisfy  all  liabilities  (18-20-896:  S.  1374).. June  1920  Cum 
Bull.  p.  96 


901  Creation  of  a Sinking  Fund  in  Trust  by  a Corporation. — Read  at 
Hi  274. 

902  Capital  Expenditures  Not  Deductible. — Read  at  1T630. 

903  Dividends  Declared  from  Surp'us  Earned  and  Accumulated  Dur- 
ing Life  of  Deceden.  and  Subsequent  to  March  1,  1913,  are  Tax- 
able Income  for  Year. — This  office  is  in  receipt  of  your  letter  of  October 

11,  1915,  requesting,  as  attorneys  for , executor  of  the  estate  of  A , 

a reconsideration  by  this  office  of  its  holding  September  25,  1915,  in  letter 
to  the  Collector  for  the  Second  District  of  New  York  in  matter  of  assess- 
ment of  tax  upon  certain  dividends  received  by  the  executor  as  trustee  in 
September  and  December,  1913,  not  included  in  his  return  as  income. 

904  It  appears  that  the  dividends  in  question  were  declared  and  paid 
in  1913  from  the  surplus  of  a bank,  accumulated  during  a period 

of  several  years.1  The  dividends  amounted  to  $20,000  and  $13,666.68  was 
excluded  from  the  return  under  the  theory  and  belief  that  the  amount  so 
excluded  was  capital  and  did  not  have  the  status  of  income  for  the  purposes 
of  the  income  tax  for  the  reason  that  this  proportion  of  the  dividends  was 

earned  by  the  bank,  a corporation,  prior  to  the  death  of , a 

stockholder  of  the  bank.  You  cite,  as  authority, ^Matter  of  Osborne,  209 
N.  Y.  App.,  450. 

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905  You  are  advised  that  the  case  has  been  reviewed  and  the  decision 
of  this  office,  September  25,  1915,  is  affirmed. 

906  The  dividends  in  question,  being  a distribution  in  1913  of  corporate 
profits,  had  the  status  of  income  for  income  tax  purposes  to  the  stock- 
holders of  the  corporation.1 

907  The  principle  of  decision  in  Matter  of  Osborne,  209  N.  Y.  App., 
450,  is  that  so  far  as  possible  (in  the  absence  of  testamentary  di- 
rection to  the  contrary),  the  corpus  of  a trust  fund  in  which  life  tenants 
and  remaindermen  are  interested  should  be  kept  at  the  value  it  possessed 
when  the  fund  was  originally  created.  The  court  did  not  attempt  to  change 
the  rule  that  a dividend,  however  evidenced  and  paid,  declared  and  paid 
from  corporate  surplus,  has  the  status  of  income,  but  only  that  in  holding 
evenly  the  balance  between  life  tenants  and  remaindermen  “the  court  should 
look  into  the  fact,  circumstances  and  nature  of  the  transaction  and  determine 
the  nature  of  the  dividend  and  the  rights  of  the  contending  parties  according 
to  justice  and  equity.” 

908  Trustees  are  required  to  make  return  and  pay  tax  for  the  persons 
for  whom  they  act.  Where  they  act  for  and  make  distribution  within 

a taxable  period  to  an  individual  they  are  required  to  make  return.  * * * 
Where  they  act  for  an  individual  not  determined,  or  for  an  individual  not 
entitled  to  receive  within  the  taxable  period,  they  are  held  to  have  the  status, 
for  the  purposes  of  the  income  tax,  not  only  as  a fiduciary  but  also  that  of 
agency  for  such  beneficiary,  and  as  such  fiduciary  and  agent  are  required  to 
make  return  and  pay  the  tax  upon  the  amount  received  and  held.  For  the 
purpose  of  the  income  tax  the  effect  of  accumulation  in  the  hands  of  a trustee 
is  held  to  be  the  equivalent  of  distribution  in  the  sum  of  the  accumulation. 

909  In  this  case  the  fiduciary  received  within  the  taxable  period,  re- 
tained and  did  not  distribute,  the  sum  of  $39,154.50.  All  this  sum 

had  the  status  of  “gains,  profits  and  income”  under  the  Act  of  Octobei 
3,  1913,  and,  therefore,  under  the  provisions  of  T.  D.  2231  [or  Art.  342, 
[1(879],  is  taxable  to  the  trustee.  (Letter  to  Bowers  & Sands,  New  York, 
N.  Y.,  signed  by  Deputy  Commissioner  L.  F.  Speer,  and  dated  October 
19,  1915.) 

‘For  taxable  status  of  dividends  under  the  present  law  see  107  7 

9 1 o Law  1(264.  Estates  and  Trusts  With  Income  Which  is  Distributed 
(Sec.  219.)  Periodically,  and  Other  Income. — “(e)  In  the  case  of 
an  estate  or  trust  the  income  of  which  consists  both  of 
income  of  the  class  described  in  paragraph  (4)  of  subdivision  (a)  [^[889]  of 
this  section  and  other  income,  the  net  income  of  the  estate  or  trust  shall  be 
computed  and  a return  thereof  made  by  the  fiduciary  in  accordance  with 
subdivision  (b)  [1(935]  and  the  tax  shall  be  imposed,  and  shall  be  paid  by  the 
fiduciary  in  accordance  with  subdivision  (c)  [1(878],” 

91  1 Law  1(265.  “ except  that  there  shall  be  allowed  as  an  additional  de- 

(Sec.  219.)  duction  in  computing  the  net  income  of  the  estate  or  trust 
that  part  of  its  income  of  the  class  described  in  paragraph 
(4)  of  subdivision  (a)  [1(889]  which,  pursuant  to  the  instrument  or  order 
governing  the  distribution,  is  distributable  during  its  taxable  year  to  the 
beneficiaries .” — Law.  [Note:  These  provisions  are  new,  in  terms, 

to  the  1921  Act,  but,  in  effect,  do  no 
more,  apparently,  than  to  state  the 
rule  prescribed  by  regulations  under  the 
1918  Act.] 

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o i 9 Law  51266.  “In  cases  under  this  subdivision  there  shall  be  included , 
(Sec.  219.)  as  provided  in  subdivision  (d)  [If 8921  of  this  section, 
in  computing  the  net  income  of  each  beneficiary , that 
tart  of  the  income  of  the  estate  or  trust  which,  pursuant  to  the  instrument 
or  order  governing  the  distribution , is  distributable  during  the  taxable  year 
°to  suck  beneficiary. ” — Law.  [Note:  This  provision  is  new  m terms 

1 ' to  the  1921  Act,  but,  in  effect,  does  no 

more,  apparently,  than  to  state  the  rule 
prescribed  by  regulations  under  the 
1918  Act.) 

913  In  the  case  of  an  estate  or  trust,  the  income  of  which  consists  both  of 
income  to  be  distributed  to  beneficiaries  periodically  and  other  income 
the  net  income  of  the  estate  or  trust  shall  be  computed  and  a .return ^thereof 
made  by  the  fiduciary  in  accordance  with  section  219  (b)  n!935J  ■ } 

tax  shall  be  imposed  and  paid  by  the  fiduciary  in  accordance  with  sect  on 
219  (c)  [If 878],  except  that  there  shall  be  allowed  as  an  additional  deduct 
in  computing  the  net  income  of  the  estate  or  trust  that  part  of  its  income  of  the 
dasrdescribed  in  section  219  (a)  (4)  [If 889]  which,  pursuant  to  the  will 
or  trust  deed,  is  distributable  during,  its  taxable  year  to  the  beneficiaries 
Each  of  such  beneficiaries  shall  include,  in  computing  his  net  income,  that 
part  of  the  income  of  the  estate  or  trust  which,  pursuant  to  the  instrumen 
or  order  governing  the  distribution,  is  distributable  to  him  during  the  taxable 
year.  (Art.  347,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Duties  of  fiduciaries  and  obligations  of  beneficiaries  (12-20-795:  0.  1013) . .June  192o 

bj  5bich3A„.u34,  ~ 

Rights'to  subscribe  to  stock  sold  by  trustee  remainderman  and  fractional  interest t Me 
tenants  being  charitable  and  educational  institutions  (7-21-1449.  O.  V.  808).. 

S ale  of  re Ji  estate  aff ecting  corpus  only  as  result t of  sale  dic  estate  as  a^whok  suffered 

Stock  dividends  dlstributable^t to  Vif  tenant : pro  ft  t or  loss  on  sale  of 'stock  received  and 
of  that  in  respect  of  which  received  .<[3010 


914  Law  If  193.  A life  or  terminable  interest  is  not  subject  to  amor- 
( Sec.  215.)  tization,  nor  are  receipts  thereunder  to  oe  reduced 
by  deductions  not  allowed  by  local  law  though 
authorized  to  the  trust-estate  by  the  Federal  statute—  “(b)  Amounts 
paid  under  the  laws  of  any  State,  Territory , D istnctoj  C 
of  the  United  States,  or  foreign  country  as  income  to  the  holder  of  a life  or 
terminable  interest  acquired  by  gift,  bequest,  or  inner  dance  shall  not  be 
reduced  or  diminished  by  any  deduction  for  shrinkage  {by  whatever  name 
railed)  in  the  value  of  such  interest  due  to  the  lapse  of  time,  nor  by  ay 
'deduction  allowed  by  this  Act  for  the  purpose  of  computing  the  net  income 
of  an  estate  or  trust  but  not  allowed  under  the  laws  of  suen  Stale,  Territory, 

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District  of  Columbia,  possession  of  the  United  States,  or  foreign  country 
for  the  purpose  of  computing  the  income  to  which  such  holder  is  entitled .” 
— Law.  [Note:  These  provisions  are  new  to  the  1921  Act, though, 

in  effect,  the  second  does  no  more,  ap- 
parently than  to  state  the  rule  prescribed 
by  regulations  under  the  1918  Act.] 

916  Amounts  paid  to  the  holder  of  a life  or  terminable  interest  acquired 
. by  gift,  bequest,  or  inheritance  shall  not  be  subject  to  any  deduction 
for  shrinkage  (whether  called  depreciation  or  any  other  name)  in  the  value  of 
such  interest  due  to  the  lapse  of  time.  In  other  words,  the  holder  of  such  an 
interest  so  acquired  may  not  set  up  the  value  of  the  expected  future  payments 
as  corpus  or  principal  and  claim  deductions  for  shrinkage  or  exhaustion 
thereof  due  to  the  passage  of  time. 

9 1 6 No  deduction  shall  be  allowed  in  the  case  of  a life  or  terminable  interest 
acquired  by  gift,  bequest,  or  inheritance,  where  the  estate  or  trust  is 
entitled  to  a deduction  under  the  statute  but  there  is  no  reduction  of  the 
income  of  the  life  or  terminable  interest.  For  example,  an  estate  or  a trust 
in  a certain  State  sells  securities  at  a loss;  if,  under  the  laws  of  that  State, 
the  beneficiary  suffers  no  actual  loss,  then  even  though  the  estate  or  trust  is 
permitted  to  deduct  such  loss  in  making  its  return,  the  beneficiary  whose 
income  has  not  been  diminished  thereby  is  not  entitled  to  a deduction  on 
account  of  such  loss  but  must  include  in  his  return  the  full  amount  distributed 
or  distributable.  See  article  347  fl[913].  (Art.  295,  Reg.  62,  1922  Edition.) 


817  Law  263.  Credits  Allowed  to  Beneficiaries  When  Making 
(Sec.  219.)  Returns  Including  Distributable  Income. — “In  such 
cases  the  beneficiary  shall,  for  the  purpose  of  the  normal 
tax,  be  allowed  as  credits,  in  addition  to  the  credits  allowed  to  him  under 
section  216  fl[2038],  his  proportionate  share  of  such  amounts  specified  in 
subdivisions  (a)  [ dividends , 1f2039]  and  (b)  [interest  on  Government  bonds 
included  in  gross  income,  H2042]  of  section  216  as  are  received  by  the  estate 
or  trust.” — Law.  [Note:  The  1918  Act  so  provided.] 

9 1 8 Their  Proportionate  Shares  of  the  Net  Losses  Suffered  by  an  Estate 
or  Trust  During  the  Taxable  Year  May  be  Deducted  by  Benefic- 
iaries.— Read  at  ^[1546 

9 1 9 Law  H258.  Credits  Allowed  to  Estate  or  Trust  for  Normal  Tax. — 
(Sec.  219.)  “In  such  cases  the  estate  or  trust  shall,  for  the  purpose 

of  the  normal  tax,  be  allowed  the  same  credits  as  are 

allowed  to  single  persons  under  section  216  [1(2044].” — Law.  [Note: 

The  1918  Act  so  provided.] 

920  Credits  to  Trust  or  Beneficiary. — (a)  An  estate  or  trust  taxed  to  the 
fiduciary  is  allowed  the  same  credits  against  net  income  as  a single 

person,  including  a personal  exemption  of  $1,000  but  no  credit  for  dependents, 
(b)  In  the  case  of  an  estate  or  trust  taxed  to  the  beneficiaries  each  beneficiary 

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is  allowed  for  the  purpose  of  the  normal  tax,  in  addition  to  his  individual 
credits,  his  proportionate  share  of  such  dividends  as  described  in  article  301 
[If 2043]  and  of  such  interest  not  entirely  exempt  from  tax  upon  obligations 
of  the  United  States  and  bonds  of  the  War  Finance  Corporation  as  are  received 
by  the  estate  or  trust.  Each  beneficiary  is  entitled  to  but  one  personal 
exemption,  no  matter  from  how  many  trusts  he  may  receive  income.  See 
section  216  of  the  statute  and  articles  301-306  [for  credit  on  account  of 
personal  exemption,  ^[2044].  (Art.  346,  Reg.  62,  1922  Edition.) 

921  Law  *[[323.  Fiduciary  Returns.—' “Sec.  225.  (a)  That  every  fiduci- 

(Sec.  225.)  ary  ( except  a receiver  appointed  by  authority  of  law  in 

possession  of  part  only  of  the  property  of  an  individual) 
[shall  make  return,  ^[928]” — Law.  [Note:  The  1918  Act  so 

provided.] 

922  Law  If  18.  The  Term  “Fiduciary”  Defined. — “ The  term  ‘ fiduciary' 

(Sec.  200.)  means  a guardian,  trustee,  executor,  administrator, 

receiver,  conservator,  or  any  person  acting  in  any 
fiduciary  capacity  for  any  person,  trust  or  estate ;” — Law.  [Note: 

The  1918  Act  so  provided.] 

©23  “Fiduciary”  is  a term  which  applies  to  all  persons  that  occupy 
positions  of  peculiar  confidence  toward  others,  such  as  trustees, 
executors,  and  administrators,  and  a fiduciary  for  income  tax  purposes  is  a 
person  who  holds  in  trust  an  estate  to  which  another  has  the  beneficial 
title  or  in  which  another  has  a beneficial  interest,  or  receives  and  controls 
income  of  another  as  in  the  case  of  receivers.  A commitee  or  guardian  of  the 
property  of  an  incompetent  person  is  a fiduciary.  See  sections  219  and  225  of 
the  statute  and  articles  341-344  [for  estates  and  trusts,  1[900]  and  421-425 
[for  fiduciary  returns,  'If 93 9].  (Art.  1521,  Reg.  62,  1922  Edition.) 

924  Fiduciary  Distinguished  from  Agent. — There  may  be  a fiduciary 
relationship  between  an  agent  and  a principal,  but  the  word  “agent” 
does  not  denote  a fiduciary.  A fiduciary  relationship  can  not  be  created 
by  a power  of  attorney.  An  agent  having  entire  charge  of  property,  with 
authority  to  effect  and  execute  leases  with  tenants  entirely  on  his  own  respon- 
sibility and  without  consulting  his  principal,  merely  turning  over  the  net 
profits  from  the  property  periodically  to  his  principal  by  virtue  of  authority 
conferred  upon  him  by  a power  of  attorney,  is  not  a fiduciary  within  the  mean- 
ing of  the  statute.  In  cases  where  no  legal  trust  has  been  created  in  the 
estate  controlled  by  the  agent  and  attorney  the  liability  to  make  a return 
rests  with  the  principal.  (Art.  1522,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alien  property  custodian  (30-20-1092:  Op.  A.  G.  2).  .Dec.  1920  Cum.  Bull.  p.  199. 

Trustee  vs.  agent:  here  one  designated  as  trustee  by  an  agreement  under  which  no 
property  was  conveyed  to  him  however  (16-21-1569:  0.  D.  875).. June  1921 
Cum.  Bull.  p.  14. 


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ESTATES  AND  TRUSTS. 


925  Law  If 321.  Duly  authorized  Agent  May  Make  Return.  (c)  If 

(Sec  223  ) the  taxpayer  is  unable  to  make  his  own  return,  the 
return  shall  be  made  by  a duly  authorized  agent  or  by  the 
guardian  or  other  person  charged  with  the  care  of  the  person  or  property  of 
such  taxpayer.-- Law.  [Note:  The  1918  Act  so  provided.] 

926  The  return  may  be  made  by  an  agent  when  by  reason  of  illness, 
absence  or  nonresidence  the  person  liable  for  the  return  is  unable 

to  make  it,  the  agent  assuming  the  responsibility _ for  making  the  return 
and  incurring  liability  to  the  specific  penalties  provided  for  erroneous,  false, 
or  fraudulent  returns.  See  section  253  and  article  1055  [for  specific  penalties, 
1[2629].  (Art.  402,  Reg.  62,  1922  Edition.) 


927 

928 


acts , 


Return  for  Nonresident  Alien  by  Agent.— Read  at  1J2182. 

Law  11324.  Every  Fiduciary  to  Make  Return.  “[Every  fiduciary] 
(Sec.  225.)  shall  make  under  oath  [If 2 154]  a return  for  any  of  the 
following  individuals , estates , or  trusts  for  which  he 
’’—Law.  [Note:  The  1918  Act  so  provided.] 

Law  1[326  “(1)  Every  individual  having  a net  income  for  the 

(Sec.  225.)  taxable  year  of  $1,000  or  over , if  single  or  if  married 
and  not  living  with  husband  or  wife,  Law. 

[Note:  The  1918  Act  so  provided. J 

Law  H327. — “(2)  Every  individual  having  a net  income  for  the 
(Sec.  225.)  taxable  year  of  $2,000  or  owr,  if  married  and  living 
with  husband  or  wife;”— Law.  [Note.  The  1918 

Act  so  provided. J 

Law  H328 — “(3)  Every  individual  having  a gross  income  for  the 
(Sec.  225.)  taxable  year  of  $5,000  or  over , regardless  of  the  amount 
of  his  net  income;”— Law.  [Note:  This  pro- 

vision  is  new  to  the  1921  Act.J 

Law  11329.  “(4)  Evtry  estate  or  tTUSt  the  net  incomf  °f  which  for 
(Sec  225.)  the  taxable  year  is  $1,000  or  over;  and  Law. 
v ' ' [Note:  The  1918  Act  so  provided.] 

933  Law  If 330.  “(5)  Every  estate  or  trust  of  which  any 

(Sec  225.)  is  a nonresident  alien.  ■ — Law.  [Note.  The  19 

v ' ' Act  so  provided. J 

Law  11332.  Fiduciary  to  Make  Return  Under  Oath  as  to  Correct- 

(Sec.  225.)  ness. — “ Such  fiduciary  shall  make  oath  (1)  that  he  has 
sufficient  knowledge  of  the  affairs  of  the  individual,  estate 
or  trust  for  which  the  return  is  made , to  enable  him  to  make  the  return,  and 
(2)  that  the  return  is,  to  the  best  of  his  knowledge  and  belief , true  and  cone  . 
—Law.  [Note:  The  1918  Act  so  provided.] 

Law  1f252.  Responsibility  for  Making  Return  Rests  with  Fidu- 

iSec  219  ) ciary. — “(b)  The  fiduciary  shall  be  responsible  for  mak- 
^ ing  the  return  of  income  for  the  estate  or  trust  for  which 

he  acts.”— Law.  [Note:  The  1918  Act  so  provided.] 

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929 


930 


931 


932 


934 


935 


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(8)  4-10-22.  (4)  4-14-22.  (5)  4-28-22.  (6)  6-16-22.  (7)  8-24-22.  (8)  10-11-22. 

ESTATES  AND  TRUSTS. 


836  Law  ^[331.  Return  by  One  of  Two  or  More  Joint  Fiduciaries.— 

(Sec.  225.)  “(b)  Under  such  regulations  as  the  Commissioner  with 

the  approval  of  the  Secretary  may  prescribe  a return  made 
by  one  of  two  or  more  joint  fiduciaries  and  filed  in  the  office  of  the  collector 
of  the  district  where  such  fiduciary  resides  shall  be  sufficient  compliance 
with  the  above  requirement.” — Law.  [Note:  The  1918  Act  so 

provided.] 

937  Law  H325.  Contents  of  Return  by  Fiduciaries. — “ stating  specific- 
(Sec.  225.)  ally  the  items  of  gross  income  thereof  and  the  deductions 
and  credits  allowed  under  this  title — ” — Law. 

[Note:  The  1918  Act  so  provided.] 


938  Law  ^[255.  Beneficiaries’  Distributive  Shares  to  Be  Listed. — “In 
(Sec.  219.)  cases  in  which  there  is  any  income  of  the  class  described 

in  paragraph  (4)  of  subdivision  (a)  of  this  section  the 
fiduciary  shall  include  in  the  return  a statement  of  the  income  of  the  estate 
or  trust  which , pursuant  to  the  instrument  or  order  governing  the  distribution , 
is  distributable  to  each  beneficiary , whether  or  not  distributed  before  the 
close  of  the  taxable  year  for  which  the  return  is  made.” — Law.  [Note: 

The  1918  Act  so  provided,  in  effect.] 

939  Every  fiduciary,  or  at  least  one  of  joint  fiduciaries,  must  make  a 
return  of  income  (a)  for  the  individual  whose  income  is  in  his 

charge,  if  the  gross  income  of  such  individual  is  $5,000  or  over,  or  if  the  net 
income  of  such  individual  is  $2,000  or  over  if  married  and  living  with  husband 
or  wife,  or  is  $1,000  or  over  in  other  cases,  or  (b)  for  the  estate  or  trust  for 
which  he  acts,  if  the  net  income  of  such  estate  or  trust  is  $1,000  or  over, 
or  if  any  beneficiary  of  such  estate  or  trust  is  a nonresident  alien.  The 
return  in  case  (a)  and  also  in  case  (b)  if  the  tax  is  payable  by  the  fiduciary 
shall  be  on  Form  1040,  or  on  Form  1040  A if  the  net  income  does  not  exceed 
$5,000.  In  cases  under  (b)  where  the  tax  is  payable  by  the  beneficiaries  the 
return  shall  be  made  on  Form  1041.  In  such  a case  the  fiduciary  shall 
include  in  the  return  a statement  of  each  beneficiary’s  distributive  share 
of  the  net  income,  whether  or  not  distributed  before  the  close  of  the  taxable 
year  for  which  the  return  is  made.  See  section  219  of  the  statute  and  articles 
341-348  [beginning  at  1f900].  If  the  net  income  of  a decedent  from  the  begin- 
ning of  the  taxable  year  to  the  date  of  his  death  was  at  the  rate  of  $1,000  or 
more  a year  if  unmarried,  or  $2,000  or  more  a year  if  married,  or  if  his  gross 
income  for  the  same  period  was  at  the  rate  of  $5,000  or  over  a year,  the 
executor  or  administrator  shall  make  a return  for  such  decedent.  See 
section  226  and  articles  305  [for  specific  exemption,  ^[2055]  and  431  [for 
returns  for  periods  of  less  than  twelve  months,  ^2574].  (Art.  421,  Reg.  62, 
1922  Edition.) 


For  explanation  of  Cumulative  Index  references  tee  page  pr. 

Ancillary  executor:  both  being  domestic  (28-20-1060:  O.  D.  584).. Dec.  1920  Cum. 
Bull.  p.  231. 

Decedent:  income  to  be  placed  on  annual  basis — 1921  Act.  .^3098.  Same  (1-12-160: 
I.  T.  1250)  and  (1-12-161:  I.  T.  1251).  .June  1922  Cum.  Bull.  p.  243.  Same 
again  (1-14-199:  Mim.  2934).  .June  1922  Cum.  Bull.  p.  244. 

Decedent  partner:  Income  on  cash  basis  includes  his  share  of  fees  collected  to  death; 

uncollected  fees  capitalized  by  estate.  .^[3305. 

Decedent:  when  no  necessity  for  administrator  (43-20-1264:  O.  D.  702).. Dec.  1920 
Cum.  Bull.  p.  229. 

Decedent  who  gave  away  all  property  prior  to  death  (28-20-1058:  O.  D.  582).  .Dec. 
1920  Cum.  Bull.  p.  211. 

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ESTATES  AND  TRUSTS. 


Enemy  alien  beneficiary:  obligation  of  fiduciary  to  Alien  Property  Custodian  (29-20- 
1082:  O.  D.  598).  Dec.  1920  Cum.  Bull,  p 203. 

Extension  of  time  for  filing  1921  returns.  .',[3009. 

Fiduciary  also  being  beneficiary  of  same  trust  (10-19-360:  O.  D.  208)..  1919  Cum. 
Bull.  p.  190. 

Fractional  year  net  income  placed  on  annual  basis  less  than  $1,000;  no  return  unless 
gross  income  is  at  rate  of  $5,000  or  over  a year:  1921  Act  (1-24-347:  I.  T.  1358) 

. .June  1922  Cum.  Bull.  p.  241. 

Guardian  acquiring  citizenship  by  marriage:  the  minor*  reside  abroad  (44-21-1897: 
0.  D.  1085)..  Dec.  1921  Cum.  Bull.  p.  191. 

Irrevocable  trust  with  trustor  as  life  beneficiary  of  income:  thereafter  all  income 
distributable  during  life  of  trustee,  in  effect  to  beneficiaries  chosen  by  him; 
thereafter  principal  distributed  to  named  beneficiaries  (50-20-1344:  O.  D.  749) 

. .Dec.  1920  Cum.  Bull.  p.  229. 

Life  tenant  foregoes  trust  income  by  agreement  to  divert  to  remainderman  and  to 
corpus  of  trust-estate  (1-17-243:  A.  R.  R.  877).  .June  1922  Cum.  Bull.  p.  239. 

Nonresident  alien  beneficiaries:  return  necessary  though  share  derived  from  dividend* 
and  les*  than  $5,000  (1-19-79:  O.  D.  58).  . 1919  Cum.  Bull.  p.  190. 

Revocable  trust  (32-20-1116:  O.  D.  621).  .Dec.  1920  Cum.  Bull.  p.  202. 

Same:  (40-20-1224:  O.  D.  676)..  Dec.  1920  Cum.  Bull.  p.  202. 

Settlor  and  beneficiary  same  person  (1917  Act)  (10-20-780:  S.  1344).  .June  1920  Cum. 
Bull.  p.  176.  J # 

Title  to  trust  fnnd  vested  in  exempt-corporation  beneficiary  on  death  of  trustor: 
income  accruing  prior  to  distribution  of  fund  (24-21-1688:  A.  R.  R.  521).. June 
1921  Cum.  Bull.  p.  221.  ( 

Trust  terminated  prior  to  completion  of  administration  of  decedent  creator  s estate 
(7-21-1447:  O.  D.  806).  .June  1921  Cum.  Bull.  p.  223. 

Trustee  in  bankruptcy  (7-19-297:  O.  D.  174).  .1919  Cum.  Bull.  p.  175.  . 

★ Trustee’s  commissions  satisfied  in  part  from  dividend  income,  other  income  being 
insufficient;  how  fiduciary  reports:  1921  Act  (1-41-545:  I.  1.  1468)..  Bull.  I 


(’22)-41,  p.  5. 

Widow-administratrix  sole  beneficiary  during  process 
O.  D.  926).. June  1921  Cum.  Bull.  p.  225 


of  administration  (21-21-1652: 


940  Constructive  Receipt  of  Income  During  the  Taxable  Year  by  a De- 
cedent Prior  to  His  Death. — Reference  is  made  to  your  letter  of  re- 
cent date,  relative  to  the  proper  treatment,  for  income  tax  purposes,  of  in- 
come received  after  the  death  of  an  individual  in  1918.  \ou  state  that  you 
represent  a decedent  who  died  on  June  25,  1918,  and  whose  accounts  were 
kept  upon  a cash  receipt  and  disbursement  basis.  On  June  1,  1918,  divi- 
dends were  declared  on  stock  which  he  owned  but  which  were  not  paid 
until  July  1,  1918,  and  interest  accrued  on  bonds  and  mortgages  during  his 
lifetime  was  not  paid  until  after  his  death.  T.  he  question  presented  is 
whether  the  dividends  and  interest  referred  to  should  be  reported  in  the 
return  for  the  period  from  January  1,  1918,  to  the  date  of  his  death  or  in 
the  return  for  the  period  from  the  date  of  his  death  to  December  31,  1918. 
In  this  connection  you  are  advised  that  under  Section  213  of  the  Revenue 
Act  of  1918,  income  which  is  credited  to  the  account  of  or  set  apart  for  a 
taxpayer  and  which  may  be  drawn  upon  by  him  at  any  time  is  subject  to 
tax  for  the  year  during  which  so  credited  or  set  apart,  although  not  yet 
actually  reduced  to  possession.  Where  interest  coupons  have  matured,  but 
have  not  been  cashed,  such  interest  payment,  though  not  collected  when 
due  and  payable,  is  nevertheless  available  to  the  taxpayer  and  should  be 
included  in  his  gross  income  for  the  year  during  which  the  coupons  ma- 
tured. Dividends  on  corporate  stock  are  subject  to  tax  when  set  apart 
for  the  stockholder,  although  not  yet  collected  by  him.^Similarly  interest 
on  mortgages  should  be  included  in  gross  income  for  the  year  m^which^it 

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becomes  due  and  payable.  (Regulations  45,  Articles  [532  ^[1271]  and  [53 
T[  1272].  Therefore,  if  the  income  referred  to  in  your  letter  was  made  avail- 
able to  the  decedent  during  1918  so  that  it  could  have  been  drawn  upon  by 
him  prior  to  his  death  it  should  be  reported  in  the  return  for  the  period 
from  January  1,  1918,  to  June  25,  1918.  (Letter  to  Douglas,  Armitage 
and  McCann,  New  York,  N.  Y.,  signed  by  J.  H.  Callan,  Assistant  to  the 
Commissioner,  by  P.  S.  Talbert,  and  dated  May  31,  1919.) 

941  Appreciation  in  Value  of  Decedent’s  Assets  Prior  to  His  Death. — 

Your  Mimeograph  Letter  to  Collectors,  dated  August  14,  1914,  states 
no  appreciation  in  value  of  assets  due  to  appraisal  or  adjustment  is  taxable 
income  until  such  appreciation  has  been  converted  into  cash.  T.  D.  2090 
[see  Articles  1562  and  1563,  beginning  at  1452]  states  if  property  acquired 
by  gift  is  sold  at  price  greater  than  appraised  value  at  time  property  acquired 
by  gift,  such  gain  is  taxable  income.  We  assume  from  these  rulings  and 
request  your  confirmation  by  wire,  collect,  that  when  individual  dies  after 
March  1,  1913,  leaving  property,  all  gains  or  losses  on  subsequent  sales 
thereof  should  be  computed  from  value  at  date  of  death,  not  date  of  his 
acquisition,  and  that  executor  should  make  no  return  of  book  gains  or  losses 
up  to  date  of  death.  Also  that  on  transfer  of  property  in  question  by  his 
executor  to  legatee  or  to  trustee  under  will  or  from  one  trustee  to  succeeding 
trustee  no  tax  is  due  though  there  be  book  gain  at  date  of  such  transfer. 
(Telegram  to  the  Commissioner  of  Internal  Revenue  from  Ropes,  Gray, 
Boyden  and  Perkins,  of  Boston,  dated  January  31,  1917.)  ( Ansvjer .)  When 

individual  dies  after  March  1,  1913,  leaving  property,  all  gains  or  losses  on 
subsequent  sales  should  be  computed  on  basis  of  appraised  value  at  date  of 
death  and  executors  should  not  make  return  of  book  gains  or  losses  either  up 
to  date  of  death  or  on  transfer  of  property  to  legatee  or  to  trustee  under  will 
or  from  one  trustee  to  succeeding  trustee,  the  appraised  value  at  date  of 
death  remaining  as  basis  for  all  subsequent  realization  of  losses  or  gains  in 
cash.  (Telegram  to  Ropes,  Gray,  Boyden  and  Perkins,  Boston,  Mass.,  signed 
by  Commissioner  W.  H.  Osborn,  and  dated  February  3,  1917.) — [Read  *[  1455.] 

942  Taxability  of  Income  Accrued  to  Decedent  Dying  After  March 
1,  1913,  but  Before  October  3,  1913. — The  appended  decision  [Feb. 

8,  1917]  of  the  Circuit  Court  of  Appeals,  Second  Circuit,  in  the  case  of 
Nicholas  F.  Brady,  et  al.  v.  Charles  W.  Anderson,  collector  of  internal 
revenue,  is  published  for  the  information  of  internal-revenue  officers  and 
others  concerned.  The  United  States  Supreme  Court  on  May  21,  1917,  re- 
fused to  grant  a writ  of  certiorari  in  this  case.  (T.  D.  2494,  June  2,  1917.) 
United  States  Circuit  Court  of  Appeals,  for  the  Second  Circuit. 

(240  Fed.  665.) 

Ward,  Circuit  Judge: 

943  This  is  an  action  against  the  Collector  of  Internal  Revenue  by 
the  executors  of  Anthony  N.  Brady,  deceased,  to  recover  taxes 

assessed  by  the  Commissioner  of  Internal  Revenue  and  paid  by  them  under 
protest  upon  income  received  by  Brady  during  his  lifetime  before  the  income 
tax  of  October  3,  1913,  imposing  a tax,  had  been  passed. 

944  The  Sixteenth  Amendment,  by  virtue  of  which  the  statute  was 
enacted,  was  ratified  February  28,  1913,  and  the  Supreme  Court 

has  for  that  reason  held  that  Congress  had  power  to  make  it  retroactive 
to  March  1,  1913.  Brushaber  v.  Union  Pacific  R.  R.  Co.,  240  U.  S.  1,  20 
[Supplementary  Page  125]. 

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945  Anthony  N.  Brady  died  July  22,  1913,  and  his  executors,  in  ac- 
cordance with  the  requirement  of  the  Commissioner  of  Internal 
Revenue,  made  a return  of  the  income  received  by  him  between  March 
1,  when  the  act  went  into  effect,  and  July  22,  1913,  when  he  died.  The 
Commissioner  assessed  a tax  of  $61,654.72. 

©4  6 The  case  having  come  on  for  trial  before  Grubb,  J.,  and  each  side 
having  moved  for  the  direction  of  a verdict,  he  directed  a verdict 
for  the  defendant.  This  is  a writ  of  error  to  the  judgment  entered  thereon. 
S47  The  questions  presented  are  purely  of  law,  involving  only  the  con- 
struction of  the  statute.  We  confine  ourselves  to  the  consideration  of 
the  provisions  relating  to  citizens  and  residents  of  the  United  States. 

948  Section  II  of  the  act  reads  as  follows: 

“A.  Subdivision  1.  That  there  shall  be  levied,  assessed,  collected  and 
paid  annually  upon  the  entire  net  income  arising  or  accruing  from  all  sources 
in  the  preceding  calendar  year  to  every  citizen  of  the  United  States,  whether 
residing  at  home  or  abroad,  and  to  every  person  residing  in  the  United  States, 
though  not  a citizen  thereof,  a tax  of  1 per  centum  per  annum  upon  such  in- 
come, except  as  hereinafter  provided;  and  a like  tax  shall  be  assessed,  levied, 
collected  and  paid  annually  upon  the  entire  net  income  from  all  property 
owned  and  of  every  business,  trade,  or  profession  carried  on  in  the  United 
States  by  persons  residing  elsewhere. 

“D.  The  said  tax  shall  be  computed  upon  the  remainder  of  said  net 
income  of  each  person  subject  thereto,  accruing  during  each  preceding 
calendar  year  ending  December  thirty-first:  Provided,  however,  That 

for  the  year  ending  December  thirty-first,  nineteen  hundred  and  thirteen, 
said  tax  shall  be  computed  on  the  net  income  accruing  from  March  first  to 
December  thirty-first,  nineteen  hundred  and  thirteen,  both  dates  inclusive, 
after  deducting  five-sixths  only  of  the  specific  exemptions  and  deductions 
herein  provided  for.  On  or  before  the  first  day  of  March,  nineteen  hundred 
and  fourteen,  and  the  first  day  of  March  in  each  year  thereafter,  a true  and 
accurate  return,  under  oath  or  affirmation  shall  be  made  by  each  person  of 
lawful  age,  except  as  hereinafter  provided,  subject  to  the  tax  imposed  by  this 
section,  and  having  a net  income  of  $3,000  or  over  for  the  taxable  year,,  to  the 
collector  of  internal  revenue  for  the  district  in  which  such  person  resides,  or 
has  his  principal  place  of  business,  or,  in  the  case  of  a person  residing  in  a foreign 
country,  in  the  place  where  his  principal  business  is  carried  on  within  the 
United  States,  in  such  form  as  the  Commissioner  of  Internal  Revenue.,  with  the 
approval  of  the  Secretary  of  the  Treasury,  shall  prescribe,  setting  forth 
specifically  the  gross  amount  of  income  from  all  separate  sources  and  from 
the  total  thereof,  deducting  the  aggregate  items  of  expenses  and  allowances 
herein  authorized;  guardians,  trustees,  executors,  administrators,  agents, 
receivers,  conservators,  and  all  persons,  corporations,  or  associations  acting  in 
any  fiduciary  capacity,  shall  make  and  render  return  of  the  net  income  of 
the  person  for  whom  they  act,  subject  to  this  tax,  coming  into  their  custody 
or  control  and  management,  and  be  subject  to  all  the  provisions  of  this  section 
which  apply  to  individuals.  * * * 

“E.  * * * Nothing  in  this  section  shall  be  construed  to  release  a taxable 
person  from  liability  for  income  tax,  nor  shall  any  contract  entered  into  after 
this  Act  takes  effect  be  valid  in  regard  to  any  Federal  income  tax  imposed 
upon  a person  liable  to  such  payment.  * * * 

“The  provisions  of  this  section  relating  to  the  deduction  and  payment 
of  the  tax  at  the  source  of  income  shall  only  apply  to  the  normal  tax  herein- 
before imposed  upon  individuals. 

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***** 

“G.  a)  That  the  normal  tax  hereinbefore  imposed  upon  individuals 
likewise  shall  be  lev.ed,  assessed,  and  paid  annually  upon  the  entire  net 
income  arising  or  accruing  from  all  sources  during  the  preceding  calendar 
year  to  every  corporation,  joint-stock  company  or  association,  and  every 
insurance  company,  organized  in  the  United  States,  no  matter  how  created 
or  organized,  not  including  partnerships;  but  if  organized,  authorized,  or 
existing  under  the  laws  of  any  foreign  country,  then  upon  the  amount  of  net 
income  accruing  from  business  transacted,  and  capital  invested  within  the 
United  States  during  such  year.  * * * 

949  The  plaintiffs  contend  that  the  tax  is  against  persons  who  are  citizens 
or  residents  of  the  United  States. 

950  The  government  contends  that  the  tax  is  upon  the  property  and  not 
upon  the  persons,  which  was  the  view  taken  by  the  trial  judge. 

951  The  plaintiffs  argue  that  'as  Brady,  having  died  July  22,  was  neither 
a citizen  nor  a resident  of  the  United  States  October  3,  1913,  at  the 

time  the  act  was  passed,  its  language  does  not  authorize  collection  of  any  tax 
upon  income  received  by  him.  On  the  other  hand,  the  Government  says 
that  as  the  tax  is  upon  the  property,  it  makes  no  difference  whether  Brady  was 
living  or  dead  at  that  time.  _ 

952  In  our  opinion  the  tax  is  against  citizens  and  residents  of  the  United 
States  personally.  They  are  chargeable  in  respect  to  income  received 

by  them.  The  statement  that  the  tax  is  upon  this  income  does  not  create  an 
obligation  in  rem.  It  is  only  a way  of  saying  that  the  owner  is  taxable  with 
reference  to  the  income.  Taxable  persons  are  spoken  of  throughout  the  act. 

953  The  effect  of  making  the  act  retroactive  is,  in  our  opinion,  to  apply 
it  to  Brady  exactly  as  if  it  had  been  enacted  March  1,  1913,  and  as, 

by  reason  of  his  death,  he  cannot  make  a return,  his  executors,  into  whose 
hands  his  estate  has  come,  must  do  so.  The  judgment  is  affirmed.  (240 
Fed.  665.)  [T.  D.  2494,  June  2,  1917.] 

954  Time  for  Filing  Return  Upon  Death  or  Termination  of  Trust.— 

As  soon  as  possible  after  his  appointment  and  qualification,  without 
waiting  for  the  close  of  the  taxable  year,  an  executor  or  administrator 
shall  file  a return  of  income  for  the  decedent.  Upon  the  completion  of 
the  administration  of  an  estate  and  final  accounting  an  executor  or  adminis- 
trator shall  file  a return  of  income  of  the  estate  for  the  portion  of  the  taxable 
year  in  which  the  administration  was  closed,  attaching  to  the  return  a 
certified  copy  of  the  order  for  his  discharge.  An  ancillary  administrator 
need  make  no  separate  return  if  the  domiciliary  administrator  includes,  in 
his  return  the  entire  income  of  the  estate.  Similarly,  upon  the. termination 
of  any  other  trust  the  trustee  shall  make  a return  without  waiting  for  the 
close  of  the  taxable  year.  In  any  such  case  the  requirements  with  respect 
to  the  payment  of  the  tax  are  the  same  as  if  the  return  were  for  a full 
taxable  year  closing  at  the  end  of  the  month  during  which  the  decedent 
dies  or  the  estate  is  settled  or  the  trust  is  terminated,  as  the  case  may  be. 
The  payment  of  the  tax  before  the  end  of  the  taxable  year  in  such  circum- 
stances does  not  relieve  the  taxpayer  from  liability  for  any  additional  tax 
which  might  subsequently  be  imposed  upon  income  of  the  taxable  year. 
See  section  250  (d)  and  article  1012  [for  assessment  of  tax,  1[2747].  (Art.  442, 
Reg.  62,  1922  Edition.) 

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For  explanation  of  Cumulative  Index  references  see  page  gi. 

Death  before  return  filed,  extension  of  time  having  been  granted  before  death  (41-20- 
1234:  O.  D.  681).  .Dec.  1920  Cum.  Bull.  p.  230. 


955  Returns  Where  Two  Trusts. — In  the  case  of  two  or  more  trusts 
the  income  of  which  is  taxable  to  the  beneficiaries,  which  were 

created  by  the  same  peison  and  are  in  charge  of  the  same  trustee,  the  trustee 
shall  make  a single  return  on  Form  1041  for  all  such  trusts,  notwithstanding 
that  they  may  arise  from  different  instruments.  When,  however,  a trustee 
holds  trusts  created  by  different  persons  for  the  benefit  of  the  same  beneficiary, 
he  shall  make  a return  on  Form  1041  for  each  trust  separately.  (Art.  423, 
Reg.  62,  1922  Edition.) 

956  Return  by  Receiver. — A receiver  who  stands  in  the  stead  of  an 
individual  or  corporation  must  render  a return  of  income  and  pay  the 

tax  for  his  trust,  but  a receiver  of  only  part  of  the  property  of  an  individual 
or  corporation  need  not.  If  the  receiver  acts  for  an  individual  the  return 
shall  be  on  Form  1040  or  1040A.  When  acting  for  a corporation  a receiver 
is  not  treated  as  a fiduciary,  and  in  such  a case  the  return  shall  be  made  as  if 
by  the  corporation  itself.  See  Section  239  of  the  Statute  and  Article  622 
[for  returns  by  receivers  in  the  case  of  corporations,  ^[2500].  A receiver  in 
charge  of  the  business  of  a partnership  shall  render  a return  on  Form  1065. 
A receiver  of  the  rents  and  profits  appointed  to  hold  and  operate  a 
mortgaged  parcel  of  real  estate,  but  not  in  control  of  all  the  property  or 
business  of  the  mortgagor,  and  a receiver  in  partition  proceedings,  are  not 
required  to  render  returns  of  income.  In  general,  statutory  receivers  and 
common  law  receivers  of  all  the  property  or  business  of  an  individual  or  cor- 
poration must  make  returns.  See  also  section  256  of  the  statute  and  articles 
1071-1080  [for  returns  of  information  at  the  source,  ^[2343].  (Art.  424,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alien  Property  Custodian  not  a trustee  or  fiduciary  but  an  agent  of  the  Government 
130-20-1092:  Op.  A.  G.  2)..  Dec.  1920  Cum.  Bull.  p.  199. 


957  Return  of  Income  of  Minor. — An  individual  under  the  statutory  age 
of  majority  is  required  to  render  a return  of  income  if  he  has  a net 
income  of  his  own  of  $1,000  or  over,  or  a gross  income  of  $5,000  or  over,  for 
the  taxable  year.  If  he  is  married  see  Article  401  [^[2390].  If  a minor  has 
been  emancipated  by  his  parent  his  earnings  are  his  own  income,  and  such 
earnings,  regardless  of  amount,  are  not  required  to  be  included  in  the  return 
of  the  parent.  If  the  aggregate  of  the  net  income  of  a minor  from  any 
property  which  he  possesses,  and  from  any  funds  held  in  trust  for  him  by  a 
trustee  or  guardian,  and  from  his  earnings  in  case  he  has  been  emancipated, 
is  at  least  $1,000,  or  his  gross  income  is  at  least  $5,000,  a return  as  in  the 
case  of  any  other  individual  must  be  made  by  him,  or  by  his  guardian,  or 
some  other  person  charged  with  the  care  of  his  person  or  property  for  him 

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(6)  11-1-22. 


2-27-22.  (2)  4-10-22.  (3)  6-26-22.  (4)  8-24-22.  (6)  10-11-22. 

ESTATES  AND  TRUSTS. 

See  Article  422  [for  return  by  guardian  1[95S].  In  the  absence  of  proof^to 
the  contrary,  a parent  will  be  assumed  to  have  the  legal  right  to  the  earnings 
of  the  minor  and  must  include  them  in  his  return.  (Art.  403,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Emancipation  of  minor  discussed:  New  York  particularly  (1-8-106:  I.  T.  1216).  . 
June  1922  Cum.  Bull.  p.  238. 

Unemancipated  sons  earning  over  $1,000  each  (6-21-1436:  0.  D.  797).. June  1921 
Cum.  Bull.  p.  214. 


958  Return  by  Guardian  or  Committee. — A fiduciary  acting  as  the 
guardian  of  a minor  having  a net  income  of  $1,000  or  more,  or  $2,000 

or  more,  according  to  the  marital  status  of  such  person,  or  having  a gross 
income  of  $5,000  or  over,  must  make  a return  for  such  minor  on  Form  1040 
or  1040A  and  pay  the  tax,  unless  such  minor  himself  makes  a return  or  causes 
it  to  be  made.  A fiduciary  acting  as  a guardian  or  the  committee  of  an  insane 
person  having  an  income  of  $1,000  or  more  or  $2,000  or  more,  according  to  the 
marital  status  of  such  person,  or  having  a gross  income  of  $5,000  or  over, 
must  make  a return  for  such  incompetent  on  Form  1040  or  1040A  and  pay 
the  tax.  (Art.  422,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  fJ. 

Amended  returns  where  guardian  misappropriates  funds  (50-21-1974:  A.  R.  M.  144) 
Dec.  1921  Cum.  Bull.  p.  199.  _ . 

Indians  whose  property  is  under  control  of  the  Office  of  Indian  Affairs  (1-25-358:  I.  T. 
1366).  .June  1922  Cum.  Bull.  p.  242. 

Insane  person  dies;  return  by  legal  guardian  (1921  Act)  (1-2-20:  I.  T.  1159).  .June 
1922  Cum.  Bull.  p.  242. 

Substituted  guardian  in  midyear:  1921  Act  (1-5-58:  I.  T.  1185).  .June  1922  Cum. 

¥ Ward  declared  sui  juris  during  year:  1921  Act  (1-43-563:  I.  T.  1480).  .Bull.  I (’22)- 
43,  p.  10. 

959  Fiduciaries  acting  for  minors  or  incompetent  persons  are  permitted 
to  take  the  personal  exemption  as  to  income  derived  from  property 

of  which  they  have  charge  in  favor  of  each  ward  or  beneficiary.  (Art.  14, 
Tfl5 1,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

960  Return  for  Nonresident  Alien  Beneficiary— Where  a citizen  or 
resident  fiduciary  has  the  distribution  of  the  income  of  a trust  any 

beneficiary  of  which  is  a nonresident  alien,  the  fiduciary  shall  make  a return 
on  Form  1040B  for  such  nonresident  alien  and  pay  any  tax  shown  thereon  to 
be  due.  Unless  such  return  is  a true  and  accurate  return  of  the  nonresident 
alien  beneficiary’s  income  from  all  sources  within  the  United  States  the  bene- 
fits of  the  credits  and  deductions  to  which  the  beneficiary  is  entitled  can  not 
be  obtained  in  the  return  filed  by  the  fiduciary.  See  section  217  (g)  fl[2177]. 
If  the  beneficiary  appoints  a person  in  the  United  States  to  act  as  his  agent 
for  the  purpose  of  rendering  income  tax  returns  the  fiduciary  shall  be  relieved 
from  the  necessity  of  filing  Form  1040B  in  behalf  of  the  beneficiary  and  from 
paying  the  tax.  In  such  a case  the  fiduciary  shall  make  a return  on  Form 
1041  and  attach  thereto  a copy  of  the  .notice  of  appointment.  If  there  are 
two  or  more  nonresident  alien  beneficiaries  the  fiduciary  shall  render  a return 
on  Form  1041  and  also  a return  on  Form  1040B  for^each  nonresident  alien 

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ESTATES  AND  TRUSTS. 

beneficiary.  In  no  case  will  a fiduciary  be  required  to  withhold  tax  at  the 
rate  of  8 per  cent  and  render  a return  on  Form  1042  with  respect  to  income  of 
a nonresident  alien  beneficiary,  as  a complete  return  thereof  will  be  included 
in1' Form  1040B.  See  further  article  404  [for  return  of  income  of  nonresident 
alien,  ^2182].  (Art.  425,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ancillary  executor  as  agent  for  foreign  executor  (23-19-547:  O.  D.  292)..  1919  Cum. 
Bull.  p.  190. 

Filing  of  return  by  beneficiary  does  not  relieve  trustee  of  liability  for  payment  of 
total  tax  due  on  trust  income:  1921  Act  (1-34-467:  I.  T.  1426).. Bull.  I (’22)- 
34,  p.  4. 

Surtax  liability  satisfied  by  beneficiary  (1916-17  Acts) ..  (12-20-798:  O.  1011).. June 
1920  Cum.  Bull.  p.  199. 

Two  separate  trusts  for  same  beneficiary:  each  trustee  makes  return:  one  trustee 
appointed  agent:  third  party  appointed  agent  (27-20-1042:  (3.  D.  572).. Dec. 
1920  Cum.  Bull.  p.  229. 


661  Liability  cf  Foreign  Fiduciaries  for  Nonresident  Alien  Beneficiaries 
in  Connection  with  Income  Received  from  Sources  Within  the 
United  States. — Receipt  is  acknowledged  of  your  letter  of  December  1, 
1916,  reading  as  follows: 

“A  trust  company  in  Canada  holds  certain  bonds  of  American  corpora- 
tions for  estates,  trusteeships,  etc.  Is  it  necessary  for  the  corporation  to 
file  the  annual  return  Form  No.  1041,  Revised?  If  so,  what  deductions 
will  it  be  allowed  against  income  received  from  the  United  States?  * * * 
What  form  of  ownership  certificates  shall  such  corporation  file  in  order  to 
obtain  exemption  from  deduction  at  the  source  if  it  stipulates  and  agrees 
to  file  the  annual  return  and  account  for  the  tax  annually  on  payments  made 
to  beneficiaries?” 

962  In  reply  you  are  advised  that  if  the  foreign  trust  company  has 
charge  of  an  estate  or  trust,  the  net  income  of  which  is  distributed 

annually  or  periodically  among  nonresident  alien  beneficiaries,  the  fidu- 
ciary should  execute  a return  on  Form  1041,  Revised,  covering  the  total 
income  of  the  estate  or  trust  derived  from  sources  within  the  United  States, 
and  a personal  return  on  Form  1040B  (*  * *)  in  behalf  of  each  non- 

resident alien  beneficiary,  * * * 

963  If  the  fiduciary  has  charge  of  an  estate  in  process  of  administration 
or  settlement,  or  an  estate  or  trust  the  net  income  of  which  is  held 

in  trust  for  the  benefit  of  unborn  or  unascertained  persons,  or  for  future 
distribution  under  the  terms  of  a will  or  trust,  the  estate  or  trust  will  be 
considered  a taxable  entity  and  the  fiduciary  .required,  to  render,  a return 
on  Form  1040B  (*  * *)  covering  so  much  of  its  total  income  as  is  derived 

from  sources  within  the  United  States,  * * * 

964  Whether  the  return  of  the  total  income  derived  by  the  estate  or 
trust  from  sources  within  the  United  States  is  made  on  Form  1040B 

•(***)  or  1041,  Revised,  the  benefit  of  such  of  the  deductions  enumerated 
in  Section  6 of  the  Act  of  Sept.  8,  1916,  as  the  estate  or  trust  is  entitled  to 
may  be  claimed. 

965  No  form  of  exemption  certificate  has  been  prescribed  for  the  use  of 
a foreign  fiduciary,  as  it  is  not  permitted,  under  the  law,  that  such  a 

fiduciary  may  assume  liability  for  payment  of  the  income  tax  found  to  be 
due  on  income  derived  by  the  estate  or  trust  from  sources  within  the  United 

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States  and  subject  to  withholding  of  normal  tax  at  the  source.  Interest 
coupons  detached  from  domestic  bonds  should  be  accompanied  by  owner- 
ship certilicates,  Form  [1000],  Revised,  when  presented  for  payment  or 
collection  by  a foreign  fiduciary,  and  the  interest  paid  on  such  coupons 
will  be  subject  to  withholding  of  normal  tax  at  the  source,  * * * (Letter  to 
The  Corporation  Trust  Company,  signed  by  Commissioner  W.  H.  Osborn, 
and  dated  December  28,  1916.) 

966  Law  ^[333.  Law  Provisions  Applicable  to  Individuals  Apply  to 

(Sec.  225.)  Fiduciaries. — “ Any  fiduciary  required  to  make  a return 
under  this  Act  shall  be  subject  to  all  the  provisions  oj  this 
Act  which  apply  to  individuals .” — Law.  [Note:  The  1918  Act  so 

provided.] 

967  General  Law  Provisions  and  Applicable  Regulations  Relative  to 
Returns. — Read  beginning  1J2382. 

968  Law  1[267.  Trust  Created  by  an  Employer  as  Part  of  a Stock 
(Sec.  219.)  Bonus  or  Profit-Sharing  Plan. — “(/)  A trust  created 

by  an  employer  as  a part  oj  a stock  bonus  or  profit- 
sharing  plan  for  the  exclusive  benefit  of  some  or  all  oj  his  employees , to 
which  contributions  are  made  by  such  employer , or  employees , or  both , 
for  the  purpose  oj  distributing  to  such  employees  the  earnings  and  principal 
of  the  fund  accumulated  by  the  trust  in  accordance  with  such  plan , shall 
not  be  taxable  under  this  section,''1 

969  Law  H26S.  “but  the  amount  actually  distributed  or  made  available 
(Sec.  219.)  to  any  distributee  shall  be  taxable  to  him  in  the  year  in 

which  so  distributed  or  made  available  to  the  extent  that 
it  exceeds  the  amounts  paid  in  by  him." 

970  Law  !{269.  “ Such  distributees  shall  for  the  purpose  oj  the  normal 

(Sec.  219.)  tax  be  allowed  as  credits  that  part  oj  the  amount  so  dis- 
tributed or  made  available  as  represents  the  items  specified 

in  subdivisions  (a)  [ dividends , ^[2039]  and  (b)  [interest  on  Government 
bonds,  etc.,  included  in  gross  income  1[2042]  oj  section  216.” — Law. 

[Note:  These  provisions  are  new  to  the 

1921  Act.] 

971  Subdivision  (f)  of  section  219  provides  that  a trust  created  by  an 
employer  as  a part  of  a stock  bonus  or  profit-sharing  plan  for  the 

exclusive  benefit  of  some  or  all  of  his  employees,  to  which  contributions  are 
made  by  such  employer,  or  employees,  or  both,  for  the  purpose  of  distributing 
to  such  employees  the  earnings  and  principal  of  the  fund  accumulated  by  the 
trust  in  accordance  with  such  plan,  shall  not  be  taxable  under  this  section, 
but  the  amount  actually  distributed  or  made  available  to  any  distributee  shall 
be  taxable  to  him  in  the  year  in  which  so  distributed  or  made  available  to  the 
extent  that  it  exceeds  the  amounts  paid  in  by  him.  Such  distributees  shall 
for  the  purpose  of  the  normal  tax  be  allowed  as  credits  that  part  of  the 
amount  so  distributed  or  made  available  as  represents  the  dividend  and 
interest  items  specified  in  subdivisions  (a)  [^[2039]  and  (b)  [*112042]  of  section 
216.  (Art.  348,  Reg.  62,  1922  Edition.) 


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TAX  ON  CORPORATIONS. 


972  Law  1[358.  Taxou  Corporations.—' “Sec.  230.  That , in  lieu  of  the 

(Sec.  230.)  tax  imposed  by  section  230  of  the  Revenue  Act  of  1918, 

there  shall  be  levied,  collected,  and  paid  for  each  taxable 
year  upon  thejiet  income  of  every  corporation  a tax  at  the  following  rates:" 

— Law.  [Note:  The  1918  Act  so  provided.] 

973  Law  1)359.  Tax  Rates  for  1921  Applicable  to  Corporations.— 

(Sec.  230.)  “(a)  For  the  calendar  year  1921,  10  per  centum  of  the 

amount  of  the  net  income  in  excess  of  the  credits  provided 
in  section  236  [1[2056];  Law.  [Note:  I he  1918  Act  so  provided.] 

974  Law  1f360.  Tax  Rates  for  1922  Applicable  to  Corporations  — 

(Sec.  230.)  “(b)  For  each  calendar  year  thereafter  [i.  e.,  after  1921], 

12J4  per  centum  of  such  excess  amount .”  ★ — Law. 

[Note:  The  rate  imposed  by  the  1918 
Act,  for  1919  and  each  year  thereafter, 
was  10%.] 

¥ [Amended;  China  Trade  Act  corporations,  (J3168.J 

9 75  The  statuteNmposes  an  income  tax  at  a fixed  rate  on  all  corpora- 

tions not  expressly  exempt.  See  section  231  of  the  statute  [for 
exempt  corporations,  If  1004].  The  tax  is  upon  net  income,  as  defined  in  the 
statute,  after  deducting  from  gross  income,  as  defined  in  the  statute,  the 
allowable  deductions.  Certain  credits  are  allowed  against  net  income 
and  against  the  amount  of  the  tax.  The  tax  is  payable  upon  the  basis  of 
returns  rendered  by  the  corporations  liable  thereto,  except  that  in  some 
cases  it  is  to  be  paid  at  the  source  of  the  income.  The  statute  continues  in 
effect  for  the  calendar  year  1921  the  war  profits  and  excess  profits  tax  on 
corporations.  (Art.  501,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1909  Act;  deducting  interest  on  basis  of  full  amount  received  for  capital  stock  sold  at 
premium  (3-21-1400:  Ct.  D.  3).  .June  1921  Cum.  Bull.  p.  256. 

¥ Voluntary  dissolution  (New  York);  income  to  corporation  is  receivable  during  period, 
to  be  returned  by  officers:  1918  Act  (1-38-514:  A.  R.  R.  1115).  .Bull.  I (’22)-38, 

p.  8. 

9 76  The  income  tax  on  corporations  is  at  the  rate  of  10  per  cent  of  the 
net  income  subject  to  tax  for  the  calendar  year  1921  and  at  the 
rate  of  \2Yi  per  cent  of  the  net  income  subject  to  tax  for  the  calendar  year 
1922  and  subsequent  years.  In  order  to  determine  the  amount  subject  to 
tax  the  net  income,  as  defined  in  section  232  of  the  statute  and  article  531 
HI  1043]  of  the  regulations,  is  first  entitled  to  the  credits  specified  in  section 
236  of  the  statute  and  article  591  fl]2067].  (Art.  502,  Reg.  62,  1922  Edition.) 

97  7 Application  of  the  Rates  for  Fiscal  Year  Embracing  Parts  of  Cal- 
endar Years  with  Different  Rates. — Read  at  ^861. 

978  Corporations  Liable  to  Tax. — Every  corporation,  domestic  or  foreign, 

not  exempt  under  section  231  [^1004]  of  the  statute,  is  liable  to  the 
tax.  It  makes  no  difference  that  a domestic  corporation  (unless  entitled  to 
the  benefits  of  section  262  [^|2070])  may  receive  no  income  from  sources 
within  the  United  States.  On  the  other  hand,  a foreign  corporation  is 
taxed  only  on  its  income  from  sources  within  the  United  States.  See  section 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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233  of  the  statute  and  article  550  [for  gross  income  of  foreign  corporations, 
If  1410].  For  what  the  term  “corporation”  includes  and  for  the.  difference 
between  domestic  and  foreign  corporations  see  section  2 and  articles  1501- 
1509  [beginning  at  ^[987;  and  If  1400].  (Art.  503,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  91. 

Changin0'  from  corporation’ to  trust  or  partnership  for  purpose  of  avoiding  tax  as  a 
corporation  on  profit  from  contemplated  sale  of  assets,  the  sale  being  mace  after 
change  was  effected  (19-20-92S:  S.  1385).  .June  1920  Cum.  Bull.  p.  203. 
Liquidating:  selling  all  assets  (11-19-386:  S.  1090).  .1919  Cum.  Bull.  p. 

Pooling  interests  by  stockholders  does  not  change  corporation  to  partnersnip  (4-13- 
227:  S.  1001) . . 1919  Cum.  Bull.  p.  193. 

Porto  Rico:  U.  S.  corporation  having  principal  office,  keeping  its  accounts,  and  doing 
all  business  in,  and  deriving  all  income  from,  Porto  Rico  (1917  Act)  v25-21-lo94. 
L.  O.  1066).  .June  1921  Cum.  Bull.  p.  259. 

Trusts  taxed  as  corporations  (10-19  351 : S.  1068) . . 1919  Cum.  Bu.l.  p.  5. 

(It  would  be  well  to  note  citations  under  Art.  1504,  ‘(990.) 


979  The  tax  imposed  by  the  Federal  income  tax  law  is  not  imposed  only 
upon  such  corporations  as  are  organized  and  operated  for  profit. 

Any  corporation,  joint-stock  company,  or  association,  and  any  insurance 
company,  no  matter  how  created  or  organized,  or  what  the  purposes  of  its 
organization  may  be,  unless  it  comes  within  the  class  of  organizations  specif- 
ically enumerated  in  the  act  as  exempt,  will  be  required  to  make  returns 
of  annual  net  income  and  pay  income  tax  upon  the  net  income  which  arises 
and  accrues  to  it  during  the  year.  ..... 

980  A corporation  is  not  exempt  simply  and  only  because  it  is  primarily 
not  organized  and  operated  for  profit.  If  income  within  the  meaning 

of  the  law  arises  and  accrues  to  a corporation  which  is  not  organized  and 
operated  for  profit,  such  income  will  be  subject  to  the  tax  imposed  by  this  act. 

981  It  is  therefore  held  that  commercial  men’s  associations,  * and 
like  organizations  come  within  the  requirements  of  the  law.  (T.  D. 

2152,  Feb.  12,  1915.) 

982  Corporation  Formed  to  Avoid  Selling  at  a Sacrifice  in  Oraer  to 

Partition. — A corporation  formed  as  a family  affair  to  hold  prop- 
erty together  and  not  to  sacrifice  in  selling  does  not  come  within  the  class 
of  corporations  specifically  enumerated  as  exempt  from  the  requirements  of 
the  Federal  income  tax  law,  and  is  required  to  maxe  a return  of  annual  net 
income  showing  therein  all  income  arising  and  accruing  to  it  from  all  sources 
and  to  pay  any  income  tax  shown  by  such  return  to  be  due.  (T.  D.  2137, 
Jan.  30,  1915.) 

983  Corporations  Owned  by  Exempt  Organizations— A stock  corpo- 
ration all  of  whose  stock  is  owned  by  “a  corporation  or  association 

organized  and  operated  exclusively  for  religious,  charitable  scientific,  or 
educational  purposes,  no  part  of  whose  net  income  inures  to  the  benefit  of 
any  member,  stockholder,  or  individual,”  is  required  under  the  provisions  of 
the  Federal  income  tax  law  to  make  a return  of  annual  net  income  and  pay 
income  tax. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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984  The  fact  that  all  of  the  stock  of  the  corporation,  except  shares  quali- 
fying the  directors,  is  owned  by  a corporation  which  itself  comes  within 

the  class  specifically  enumerated  as  exempt,  does  not  relieve  the  first-named 
corporation  from  liability  under  the  income  tax  law.  The  liability  of  a 
corporation  to  the  requirements  of  the  Federal  income  tax  law  is  not  contin- 
gent upon  the  ownership  of  its  stock.  (T.  D 2137,  Jan.  30,  1915.) 

985  Public  Utility  Corporation  Intrusted  with  Use,  Merely,  of  Prop- 
erty Owned  by  State. — The  fact  that  the  plaintiff  was  a public 

utilities  corporation  which,  under  the  laws  of  the  State,  was  not  the  owner 
of  the  property  but  merely  intrusted  with  the  use  thereof  which  it  must 
devote  to  the  public,  does  not  entitle  it  to  more  favorable  treatment  than 
other  corporations,  it  being  a corporation  organized  for  profit,  having  a 
capital  stock  represented  by  shares,  and  the  act  making  no  exceptions  in 
favor  of  public  utilities,  [Caption:  Union  Hollywood  Water  Co.  vs.  John 
P.  Carter.  Collector,  Act  Aug.  5,  1909  (238  Fed.  329).]  (T.  D.  2475,  April 
4,  1917.) 

986  Law  1(4.  What  Constitutes  a Corporation  Under  the  Income 

(Sec.  2.)  Tax  Law. — “ The  term  ‘ corporation ’ includes  associations, 

joint-stock  companies , and  insurance  companies — Law. 

[Note:  The  1918  Act  so  provided.] 

98  7 Corporations  include  associations,  joint-stock  companies,  and  insur- 
ance companies,  but  not  partnerships  properly  so-called.  (Art. 

1501,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Joint  stock  company  reorganized  into  a corporation  (40-21-1851:  0.  D.  1051).  .Dec. 
1921  Cum.  Bull.  p.  58. 


9 88  Association. — Associations  and  joint-stock  companies  include  as- 

sociations, common  law  trusts,  and  organizations  by  whatever  name 
known,  which  act  or  do  business  in  an  organized  capacity,  whether  created 
under  and  pursuant  to  State  laws,  agreements,  declarations  of  trust,  or 
otherwise,  the  net  income  of  which,  if  any,  is  distributed  or  distributable 
among  the  members  or  shareholders  on  the  basis  of  the  capital  stock  which 
each  holds  or,  where  there  is  no  capital  stock,  on  the  basis  of  the  proportionate 
share  or  capital  which  each  has  or  has  invested  in  the  business  or  property 
of  the  organization.  A corporation  which  has  ceased  to  exist  in  contemplation 
of  law  but  continues  its  business  in  corporate  form  is  an  association  or  cor- 
poration within  the  meaning  of  section  2,  but  if  it  continues  its  business  in 
the  form  of  a trust,  it  becomes  subject  to  the  provisions  of  section  219. 
(Art.  1502,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Corporation’s  charter  expired,  business  continued  in  corporate  form  (14-21-1552:  Sol. 
Op.  93) . .June  1921  Cum.  Bull.  p.  305. 

Syndicate  status  in  certain  case  ( 1 S- 2 1-1 603 : O.  D.  896).. June  1921  Cum.  Bull.  p.  9. 

See  “Syndicate”  at  Art.  1507,  994. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TAX  ON  CORPORATIONS. 

Unincorporated  organization  without  partnership  agreement  (13-19-411:  O.  D.  236) 
. . 1919  Cum.  Bull.  p.  5. 


989  Association  Distinguished  from  Partnership. — An  organization  the 
membership  interests  in  which  are  transferable  without  the  consent 
of  all  the  members,  however  the  transfer  may  be  otherwise  restricted,  and 
the  business  of  which  is  conducted  by  trustees  or  directors  and  officers  with- 
out the  active  participation  of  all  the  members  as  such,  is  an  association  and 
not  a partnership.  A partnership  bank  conducted  like  a corporation  and  so 
organized  that  the  interests  of  its  members  may  be  transferred  without  the 
consent  of  the  other  members  is  a joint-stock  company  or  association  within 
the  meaning  of  the  statute.  [Read  at  If  1098.]  A partnership  bank  the 
interests  of  whose  members  can  not  be  so  transferred  is  a partnership.  (Art. 
1503,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Mining  partnerships:  Colorado  (45-21-1902:  A.  R.  R.  652).. Dec.  1921  Cum.  Bull, 

p.  9. 

Private  hanking  business:  special  conditions  (44-21-1895:  O.  D.  1083).. Dec.  1921 
Cum.  Bull.  p.  9.  Also  (1-1-1:  I.  T.  1150).  .June  1922  Cum.  Bull.  p.  1. 


990  Association  Distinguished  from  Trust. — Where  trustees  hold  real 

estate  subject  to  a lease  and  collect  the  rents,  doing  no  business  other 
than  distributing  the  income  less  taxes  and  similar  expenses  to  the  holders 
of  their  receipt  certificates,  who  have  no  control  except  the  right  of  filling 
a vacancy  among  the  trustees  and  of  consenting  to  a modification  of  the  terms 
of  the  trust,  no  association  exists  and  the  cestuis  que  trust  are  liable  to  tax 
as  beneficiaries  of  a trust  the  income  of  which  is  to  be  distributed  periodically, 
whether  or  not  at  regular  intervals.  But  in  such  a trust  if  the  trustees  pur- 
suant to  the  terms  thereof  have  the  right  to  hold  the  income  for  future  dis- 
tribution, the  net  income  is  taxed  to  the  trustees  instead  of  to  the  bene- 
ficiaries. See  section  219  of  the  statute  and  articles  341-348  [for  estates  and 
trusts,  ^[900].  If,  however,  the  cestuis  que  trust  have  a voice  in  the  conduct 
of  the  business  of  the  trust,  whether  through  the  right  periodically  to  elect 
trustees  or  otherwise,  the  trust  is  an  association  within  the  meaning  of  the 
statute.  (Art.  1504,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Control  of  trustees  vs.  control  of  beneficiary  certificate  holders  (27-19-600:  S.  1205) 
. . 1919  Cum.  Bull.  p.  7. 

Same  (9-20-762:  S.  1337).  .June  1920  Cum.  Bull.  p.  9. 

Same  (9-20-763:  O.  D.  407).. June  1920  Cum.  Bull.  p.  11. 

Same  (30-20-1083:  O.  D 598A).  .Dec.  1920  Cum.  Bull.  p.  9. 

Same  (32-20-1 112:  O.  D.  620).. Dec.  1920  Cum.  Bull.  p.  9. 

Same  (36-20-1177:  Sol.  Op.  56).. Dec.  1920  Cum.  Bull.  p.  10. 

Same  (36-20-1178:  O.  D.  654).  .Dec.  1920  Cum.  Bull.  p.  13. 

Same  (39-20-1208:  Sol.  Op.  49).. Dec.  1920  Cum.  Bull.  p.  13. 

Same  (6-21-1425:  0.  D.  790).  .June  1921  Cum.  Bull.  p.  10. 

Same  (15-21-1557:  O.  D.  868).  .June  1921  Cum.  Bull.  p.  10. 

Same  (17-21-1587:  O.  D.  886).  .June  1921  Cum.  Bull.  p.  11. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TAX  ON  CORPORATIONS. 


Same  (Minnesota)  (22-21-1658:  O.  D.  931).  .June  1921  Cum.  Bull.  p.  11. 
Same:  Court  Decision,  Act  of  1913.. Dec.  1921  Cum.  Bull.  p.  12. 

* Same  (1-41-541:  I.  T.  1464).  .Bull.  I (’22)-41,  p.  1. 

Crocker  vs.  Malley  (U.  S.  Supreme  Court).  .Supplementary  Page  153. 
“Massachusetts  Trust”  (10-19-351:  S.  1068).  .1919  Cum.  Bull.  p.  5. 


991  A Certain  Massachusetts  Trust  Held  Not  to  be  an  Association 
Under  the  Act  of  October  3,  1913. — Read  at  HS140,  Supplementary 

Page  153. 

992  Limited  Partnership  as  Partnership. — So-called  limited  Tjfpartner- 

ships  of  the  type  authorized  by  the  statutes  of  New  York  and  most 
of  the  States  are  partnerships  and  not  corporations  within  the  meaning  of 
the  statute.  Such  limited  partnerships,  which  can  not  limit  the  liability  of 
the  general  partners,  although  the  special  partners  enjoy,  limited  liability 
so  long  as  they  observe  the  statutory  conditions,  which  are  dissolved  by  the 
death  or  attempted  transfer  of  the  interest  of  a general  partner,  and  which 
can  not  take  real  estate  or  sue  in  the  partnership  name,  are  so  like  common 
law  partnerships  as  to  render  impracticable  any  differentiation  in  their 
treatment  for  tax  purposes.  Michigan  and  Illinois  limited  partnerships 
are  partnerships.  A California  special  partnership  is  a partnership.  [For 
partnerships,  see  11778.]  (Art.  1505,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Mississippi  limited  partnership  (20-19-501:  S.  1160).  .1919  Cum.  Bull.  p.  8. 
Pennsylvania;  varying  from  statutory  type  and  differing  from  common-law  type  at 
well  (30-20-1084:  O.  D.  599)..  Dec.  1920  Cum.  Bull.  p.  15. 

Same  (7-21-1440:  0.  D.  800).  .June  1921  Cum.  Bull.  p.  13. 


993  Limited  Partnership  as  Corporation. — On  the  other  hand,  lim- 
ited partnerships  of  the  type  of  partnerships  with  limited  liability  or 
partnership  associations  authorized  by  the  statutes  of  Pennsylvania  and  of  a 
few  other  States  are  only  nominally  partnerships.  Such  so-called  limited 
partnerships,  offering  opportunity  for  limiting  the  liability  of  all  the  mem- 
bers, providing  for  the  transferability  of  partnership  shares,  and  capable  of 
holding  real  estate  and  bringing  suit  in  the  common  name,  are  more  truly 
corporations  than  partnerships  and  must  make  returns  of  income  and  pay  the 
tax  as  corporations.  The  income  received  by  the  members  out  of  the  earn- 
ings of  such  limited  partnerships  will  be  treated  in  their  personal  returns  in 
the  same  manner  as  distributions  on  the  stock  of  corporations.  In  all  doubtful 
cases  limited  partnerships  will  be  treated  as  corporations  unless  they  submit 
satisfactory  proof  that  they  are  not  in  effect  so  organized.  A Michigan 
partnership  association  is  a corporation.  Such  a corporation  may  or  may  not 
be  a personal  service  corporation.  See  sections  200  and  218  of  the  statute 
and  articles  1523-1532  [for  personal  service  corporations,  1[825].  [Art.  4, 
Reg.  50,  Revised  (Capital  Stock  Tax)  reads,  in  part:  “The  liability  of  Vir- 
ginia limited  partnerships  is  determined  in  each  case  from  a consideration 
of  the  certificate  of  partnership  and  all  pertinent  facts  relative  thereto.”] 
(Art.  1506,  Reg.  62,  1922  Edition.) 

Copyriiht  1922,  by  The  Corporation  Trust  Campons. 

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TAX  ON  CORPORATIONS. 


For  explanation  of  Cumulative  Index  references  see  page  g i. 

Ohio  partnership  associations  and  limited  partnerships  (15-20-840:  O.  D.  444) 
. .June  1920  Cum.  Bull.  p.  1 1. 

Virginia  partnership  associations  and  limited  partnerships  (29-19-621:  O.  D.  334) 
. 1919  Cum.  Bull.  p.  9. 


994  Joint  Ownership  and  Joint  Adventure.— Joint  investment  in  and 
ownership  of  real  and  personal  property  not  used  in  the  operation  of 
any  trade  or  business  and  not  covered  by  any  partnership  agreement  does 
not  constitute  a partnership.  Co-owners  of  oil  lands  engaged  in  the  joint 
enterprise  of  developing  the  property  through  a common  agent  are  not  nec- 
essarily partners.  In  the  absence  of  special  facts  affirmatively  showing  an 
association  or  partnership,  where  a vessel  is  owned  by  several  individuals 
and  operated  by  a managing  owner  or  agent  for  the  account  of  all,  the  rela- 
tion does  not  constitute  either  a joint-stock  association  or  a partnership. 
The  participation  of  two  United  States  corporations  in  a joint  enterprise 
or  adventure  does  not  constitute  them  partners  [see  1[783].  (Art.  1507, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Agriculture:  one  party  furnishes  land,  etc.,  the  other  labor  (1-6-62:  I.  T.  1186).  . Tune 
1922  Cum.  Bull.  p.  3. 

Experimental  work,  carried  on  by  one  taxpayer,  financed  by  three  others  for  pros- 
pective ultimate  benefit  of  all  (52-21-1989:  O.  D.  1145).  .Dec.  1921  Cum.  Bull, 
p.  17. 

Husband  and  wife;  joint  business  (1-1-2:  I.  T.  1151).  .June  1922  Cum.  Bull.  p.  1. 

Oil  land  development;  joint  contributors  to  fund  (33-21-1772:  Sol.  Op.  117).. Dec. 
1921  Cum.  Bull.  p.  254. 

Oral  agreement  to  share  in  profits  and  losses,  there  being  no  compensation  for  moneys 
loaned  or  services  rendered,  here  constitutes  a partnership:  1921  Act  (1-33-455: 
I.  T.  1418).. Bull.  I (’22)-33,  p.  1. 

Pennsylvania:  a special  case  considered  (14-20-820:  S.  1361).. June  1920  Cum.  Bull 

p.  11. 

Single  isolated  business  venture;  a special  case  considered  (40-21-1850:  A.  R.  R. 
629).  . Dec.  1921  Cum.  Bull.  p.  13.  Reversed  on  submission  of  additional  evidence 
(1-11-137:  A.  R.  R.  789).  .June  1922  Cum.  Bull.  p.  3. 

Syndicate  of  the  usual  type:  status  (1-2-15:  I.  T.  1156).  .June  1922  Cum.  Bull.  p.  2. 
(See  “Syndicate”  at  Art.  1502,  ^[988. 

Texas:  a »pecial  case  considered  (35-20-1160:  A.  R.  R.  257).  .Dec.  1920  Cum.  Bull, 
p.  15. 

Two  corporations  or  corporation  and  an  individual  (2-19-139:  O.  D.  96).  .1919  Cum. 
Bull.  p.  9. 

Same  (36-20-1179:  Sol.  Op.  36).  .Dec.  1920  Cum.  Bull.  p.  18. 

Same:  Arkansas  (42-21-1866:  A.  R.  M.  139).. Dec.  1921  Cum.  Bull.  p.  16. 


895  Law  11349.  Incorporation  of  Individual  or  Partnership  Business 
(Sec.  229.)  and  Limited  Election  to  be  Taxed  as  a Corporation. — 
“Sec.  229.  That  in  the  case  of  the  organization  as  a cor- 
poration within  four  months  after  the  passage  of  this  Act  [t.  e.,  within  four 
months  after  Nov.  23,  1921]  of  any  trade  or  business  in  which  capital  is  a 
material  income-producing  factor, ” 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22.  (8)  4-21-22  (4)  5-8-22.  (5)  8-17-22.  (6)  10-11-22. 

TAX  ON  CORPORATIONS. 


996  Law  TT3S0.  “ and  which  was  previously  owned  by  a partnership  or 
(Sec.  229.)  individual,' ' 

997  Law  1f351.  “the  net  income  of  such  trade  or  business  from  January 

(Sec.  229.)  1,  1921,  to  the  date  of  such  organization  may  at  the 

option  of  the  individual  or  partnership  be  taxed  as  the 
net  income  of  a corporation  is  taxed  under  Titles  II  [Income  Tax ; Sec. 
230,  H972]  and  III  [Excess-Profits  Tax];” 

998  Law  1[352.  “in  which  event  the  net  income  and  invested  capital  of 
(Sec.  229.)  such  trade  or  business  shall  be  computed  as  if  such 

corporation  had  been  in  existence  on  and  after  January 


1,  1921,” 

999  Law  1[353. 

(Sec.  229.) 

1 OOO  Law  1[354. 
(Sec.  229.) 


“and  the  undistributed  profits  or  earnings  of  such  trade 
or  business  shall  not  be  subject  to  the  surtaxes  imposed 
in  section  211  [11713], 

“but  amounts  distributed  on  and  after  January  1,  1921, 
from  the  earnings  or  profits  of  such  trade  or  business 
accumulated  after  December  31,  1920,  shall  be  taxed 


to  the  recipients  as  dividends ;” 

1001  Law  1f355.  “ and  all  the  provisions  of  Titles  II  and  III  relating  to 
(Sec.  229.)  corporations  shall  so  far  as  practicable  apply  to  such 
trade  or  business :” 


1002  Law  H356.  “ Provided , That  this  section  shall  not  apply  to  any 

(Sec.  229.)  trade  or  business,  the  net  income  of  which  for  the  taxable 
year  1921  was  less  than  20  per  centum  of  its  invested 
capital  for  such  year’” 

1 003  Law  H357.  “Provided  further,  That  any  taxpayer  who  takes  advan- 
" (Sec.  229.)  tage  of  this  section  shall  pay  the  tax  imposed  by  section 
1000  [Capital  Stock  Tax]  of  the  Revenue  Act  of  1918  at 
if  such  taxpayer  had  been  a corporation  on  and  after  January  1,  1921.”— 
Law.  [Note:  The  1918  Act  carried  a quite  similar  provision  in 

Section  330  wherein  the  right  to  be  taxed, 


retroactively,  as  a corporation  was 
granted  if  incorporation  was  effected 
prior  to  July  1,  1919.] 


For  explanation  of  Cumulative  Index  references  see  page  91. 

Miscellaneous  references  (based  on  Sec.  330,  Revenue  Act  of  1918  Art.  933,  Reg.  45): 
(1-19-138:  O.  D.  95).  . 1919  Cum.  Bull.  p.  308. 

(6-19-286:  T.  B.  R.  27).  . 1919  Cum  Bull.  p.  307. 

(1 1-19-373:  O.  D.  211).  . 1919  Cum.  Bull.  p.  84. 

( 1 1-19-393:  0.  D.  223).  . 1919  Cum.  Bull.  p.  308. 

(15-20-854:  O.  D.  457).  .June  1920  Cum.  Bull.  p.  247. 

(16-20-872:  O.  1023).  .June  1920  Cum.  Bull.  p.  310. 

(13-21-1529:  O.  D.  855).  .June  1921  Cum.  Bull.  p.  54. 

What  constitutes  “organization”  within  the  4 month  period:  1921  Act  (1-16-229: 
I.  T.  1284).  .June  1922  Cum.  Bull.  p.  249.  _ 

Partners’  withdrawals  and  interest  on  their  capital  accounts;  treatment  01.  1921 
Act  (1-18-256:  I.  T.  1299).  .June  1922  Cum.  Bull.  p.  251.  _ 

“Within  four  months  after  the  passage  of  this  Act”  means  any  time  on  or  alter  Jan. 
1,  1921  to  the  end  of  the  4-month  period  (i.  e.  to  March  23,  1922);  1921  Act 
(i-18-255:  I.  T.  1298).  .June  1922  Cum.  Bull.  p.  250. 


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1 004  Law  H361.  Corporations  That  Are  Exempt  from  Tax.—' “Sec.  231. 
(Sec.  231.)  That  the  following  organizations  shall  be  exempt  from 
taxation  under  this  title — — Law.  [Note:.  The 

1918  Act  so  provided.] 


1005  Law  ^362.  “(1)  Labor,  agricultural,  or  horticultural  organiza- 

(Sec.  231.)  tions;”  [See  If  1020.]— Law.  [Note:  The  1918 

Act  so  provided.] 


1 006  Law  1f363.  “(2)  Mutual  savings  banks  not  having  a capital  stock 

(Sec.  231.)  represented  by  shares',”  [See  1 02 1 .]  Law.  [Note: 

The  1918  Act  so  provided.] 


1007  Law  1f364.  “(3)  Fraternal  beneficiary  societies,  orders,  or  associa- 

(Sec.  231.)  tions,  ( a ) operating  under  the  lodge  system  or  for  the 
exclusive  benefit  of  the  members  of  a fraternity  itself 
operating  under  the  lodge  system;  and  ( b ) providing  for  the  payment  of 
life,  sick,  accident,  or  other  benefits  to  the  members  of  such  society,  order, 
or  association  or  their  dependents ;”  [See  If  1022.]  Law.  [Note: 

The  1918  Act  so  provided.] 


1 008  Law  1f365.  “(4)  Domestic  building  and  loan  associations  substan- 

(Sec.  231.)  tidily  all  the  business  of  which  is  confined  to  making 
loans  to  members;  and  co-operative  banks  without  capital 
stock  organized  and  operated  for  mutual  purposes  and  without  profit ;” 
[See  If  1023.] — Law.  [Note:  The  1918  Act  did  not  carry  “substan- 

tially all  the  business  of  which  is  confined 
to  making  loans  to  members.”] 


1 009  Law  1[366.  “(5)  Cemetery  companies  owned  and  operated  exclu- 

(Sec.  231.)  sively  for  the  benefit  of  their  members  or  which  are  not 

operated  for  profit;  and  any  corporation  chartered  solely 
for  burial  purposes  as  a cemetery  corporation  and  not  permitted  by  its 
charter  to  engage  in  any  business  not  necessarily  incident  to  that  purpose , 
no  part  of  the  net  earnings  of  which  inures  to  the  benefit  of  any  private  stock- 
holder or  individual ;”  [See  1fl029.]  Law.  [Note:  The  1918  Act 

omitted  all  after  the  word  ‘ members.  J 

1010  Law  H367.  “(6)  Corporations,  and  any  community  chest,  fund,  or 

(Sec.  231.)  foundation,  organized  and  operated  exclusively  for  re- 
ligious, charitable,  scientific,  literary,  or  educational 

purposes,  or  for  the  prevention  of  cruelty  to  children  or  animals,  no  part 
of  the  net  earnings  of  which  inures  to  the  benefit  of  any  private  stockholder 
or  individual ;”  [See  1[1030.] — Law.  [Note:  The  1918  Act  omitted 

“and  any  community  chest,  fund,  or 
foundation,”  as  it  did  “literary.”] 

1011  Law  1f368.  “(7)  Business  leagues,  chambers  of  commerce,  or 

(Sec.  231.)  boards  of  trade,  not  organized  for  profit  and  no  part  of 

the  net  earnings  of  which  inures  to  the  benefit  of  any 
private  stockholder  or  individual;”  [See  If  1034.]  Law.  [Note:  The 

1918  Act  so  provided.] 

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1012  Law  H369.  “(8)  Civic  leagues  or  organizations  not  organized  for 
(Sec.  231.)  profit  hut  operated  exclusively  for  the  promotion  of 
social  welfare;”  [See '[1035.] — Law.  [Note:  The 

1918  Act  so  provided.] 


1013  Law  1 3 70.  “(9)  Clubs  organized  and  operated  exclusively  for 

(Sec.  231.)  pleasure , recreation , and  other  nonprofitable  purposes, 
no  part  of  the  net  earnings  of  which  inures  to  the  benefit 
of  any  private  stockholder  or  member [See  *[1036.]  Law.  [Note: 

The  1918  Act  so  provided.] 


1014  Law  K371.  “(10)  Farmers’  or  other  mutual  hail,  cyclone , or  fire 

(Sec.  231.)  insurance  companies,  mutual  ditch  or  irrigation  com- 
panies, mutual  or  co-operative  telephone  companies, 

or  like  organizations  of  a purely  local  character , the  income  of  which  con- 
sists solely  of  assessments,  dues,  and  fees  col'ected  from  members  for  the 
sole  purpose  of  meeting  expenses;”  [See  ^[  1037.]  Law.  [*sI.ot.e; 

The  1918  Act  so  provided.] 

1015  Law  H372.  “(11)  Farmers’,  fruit  growers’,  or  like  associations, 

(Sec.  231.)  organized  and  operated  as  sales  agents  for  the  purpose 

of  marketing  the  products  of  members  and  turning  back 
to  them  the  proceeds  of  sales,  less  the  necessary  selling  expenses,  on  the  basis 
of  the  quantity  of  produce  furnished  by  them;  or  organized  and  operated 
as  purchasing  agents  for  the  purpose  of  purchasing  supplies  and  equipment 
for  the  use  of  members  and  turning  over  such  supplies  and  equipment  to  such 
members  at  actual  cost,  plus  necessary  expenses”  [See  ^[1038. [—Law. 

[Note:  The  1918  Act  omitted  all  after 

the  semicolon.] 

1016  Law  ^[373.  “(12)  Corporations  organized  for  the  exclusive  purpose 

(Sec.  231.)  of  holding  title  to  property,  collecting  income  therefrom, 

and  turning  over  the  entire  amount  thereof,  less  ex- 
penses, to  an  organization  which  itself  is  exempt  from  the  tax  imposed  by 
this  title;”— Law.  [Note:  The  1918  Act  so  provided.] 

1017  Law  1[374.  “(13)  Federal  land  banks  and  national farm-loan  associa- 

(Sec.  231.)  lions  as  provided  in  section  26  of  the  act  approved  July  17, 

1916,  entitled  ‘ An  Act  to  provide  cap  tal  for  agricultural 
development,  to  create  standard  forms  of  investment  based  upon  farm  mort- 
gage, to  equalize  rates  of  interest  upon  farm  loans,  to  furnish  a market  for 
United  States  bonds,  to  create  Government  depositaries  and  financial 
averts  for  the  United  States,  and  for  other  purposes’ Law. 

[Note:  The  1918  Act  so  provided.] 

1018  Law  ^[375.  “(14)  Personal  service  corporations.  This  subdivision 

(Sec.  231.)  shall  not  be  in  effect  after  December  31,  1921.”  [l'°r 

definition  see  *1815.] — Law.  [Note:  d pe  1918 

Act  did  not  carry  the  limiting  last 
sentence.] 


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1019  Proof  of  Exemption. — In  order  to  establish  its  exemption,  and 
thus  be  relieved  of  the  duty  of  filing  returns  pf  income  and  paying 
the  tax,  it  is  necessary  that  every  organization  claiming  exemption,  except 
personal  service  corporations,  file  an  affidavit  with  the  collector  of  the  dis- 
trict in  which  it  is  located,  showing  the  character  of  the  organization,  the 
purpose  for  which  it  was  organized,  the  sources  of  its  income  and  its  disposi- 
tion, whether  or  not  any  of  its  income  is  credited  to  surplus  or  may  inure  to 
the  benefit  of  any  private  stockholder  or  individual,  and  in  general  all  facts 
relating  to  its  operations  which  affect  its  right  to  exemption.  To  such 
affidavit  should  be  attached  a copy  of  the  charter  or  articles  of  incorporation 
and  by-laws  of  the  organization.  Upon  receipt  of  the  affidavit  and  other 
papers  by  the  collector,  he  will  inform  the  organization  whether  or  not  it  is 
exempt.  If,  however,  the  collector  is  in  doubt  as  to  the  taxable  status  of 
the  organization,  he  will  refer  the  affidavit  and  accompanying  papers  to  the 
Commissioner  for  decision.  When  an  organization  has  established  its  right 
to  exemption,  it  need  not  thereafter  make  a return  of  income  or  any  further 
showing  with  respect  to  its  status  under  the  law,  unless  it  changes  the  character 
of  its  organization  or  operations  or  the  purpose  for  which  it  was  originally 
created.  Collectors  will  keep  a list  of  all  exempt  corporations,  to  the  end  that 
they  may  occasionally  inquire  into  their  status  and  ascertain  whether  or  not 
they  are  observing  the  conditions  upon  which  their  exemption  is  predicated. 
Personal  service  corporations  are  not  exempt  after  December  31,  1921,  see 
section  218  of  the  statute  and  articles  336-339  [H841].  (Art.  511,  Reg.  62, 
1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Foreign  corporation  has  equal  exemption  privilege:  here,  in  connection  with  necessity 
for  filing  ownership  certificates  (31-20-1105:0.  D.  616).. Dec.  1920  Cum. 

Income  turned  over  to  charitable  institution  (1-19-85:  O.  D.  60).  . 1919  Cum.  Bull. 


Income  toned  over  to  city  (7-19-300:  O.  D.  177).  . 1919  Cum  Bull  p.  194. 

Joint  stock  land  banks  (41-20-1235:  Sol.  Op.  68)..  Dec.  1920  Cum.  Bull,  p 233. 
Operating  in  nonexempt  manner,  or  carrying  on  industrial  pursuits  with  surplus 
funds,  causes  corporation  otherwise  exempt  to  be  non-exempt  (25-21-1695: 
O.  D.  953).  June  1921  Cum.  Bull.  p.  261. 

Provisions  of  articles  of  incorporation  and  by-laws  govern  rather  than  declarations  of 
officers  (8-19-328:  O.  D.  190).  . 1919  Cum.  Bull.  p.  194. 


1020  Agricultural  and  Horticultural  Organizations —Agricultural  or  horti- 
cultural organizations  exempt  from  tax  do  not  include  corporations 
engaged  in  growing  agricultural  or  horticultural  products  or  raising  live 
stock  or  similar  products  for  profit,  but  include  only  those  organizations 
which,  having  no  net  income  inuring  to  the  benefit  of  their  members,  are 
educational  or  instructive  in  character  and  have  for  their  purpose  the  bet- 
terment of  the  conditions  of  those  engaged  in  these  pursuits,  the  improve- 
ment of  the  grade  of  their  products,  and  the  encouragement  and  promotion 
of  these  industries  to  a higher  degree  of  efficiency.  Included  in  this  class 
as  exempt  are  organizations  such  as  county  fairs  and  like  associations  of  a 
quasi-public  character,  which  through  a system  of  awards,  prizes,  or  premi- 
ums are  designed  to  encourage  the  production  of  better  live  stock,  better  agri- 

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cultural  and  horticultural  products,  and  whose  income,  derived  from  gate 
receipts,  entry  fees,  donations,  etc.,  is  used  exclusively  to  meet  the  necessary 
expenses  of  upkeep  and  operation.  Societies  or  associations  which  have  for 
their  purpose  the  holding  of  annual  or  periodical  race  meets,  from  which 
profits  inure  or  may  inure  to  the  benefit  of  the  members  or  stockholders,  do 
not  come  within  the  terms  of  this  exemption.  A corporation  engaged  in  the 
business  of  raising  stock  or  poultry,  or  growing  grain,  fruits,  or  other  products 
of  this  character,  as  a means  of  livelihood  and  for  the  purpose  of  gain,  is  an 
agricultural  or  horticultural  society  only  in  the  sense  that  its  name  indicates 
the  kind  of  business  in  which  it  is  engaged,  and  it  is  not  exempt  from  tax. 
(Art.  512,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Breed  register  associations  (33-20-1137:  A.  R.  M.  79).. Dec.  1920  Cum.  Bull.  p.  235* 


1021  Mutual  Savings  Banks. — A Massachusetts  savings  bank,  other- 
wise exempt,  which  establishes  an  insurance  department  under  the 
statutes  of  that  State,  does  not  thereby  become  subject  to  tax  upon  the 
income  received  by  such  department.  (Art.  513,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Employees’  association  (43-20-1265:  O.  D.  703).  Dec.  1920  Cum.  Bull.  p.  235. 
Future  deposits  required  and  operated  for  speculation;  exemption  denied  (4-21-1410: 
O.  D.  780).. June  1921  Cum.  Bull.  p.  262. 

Savings  fund  association  (22-20-974:  O.  D.  528).  .June  1920  Cum.  Bull.  p.  207. 


1022  Fraternal  Beneficiary  Societies. — A fraternal  beneficiary  society 
is  exempt  from  tax  only  if  operated  under  the  “lodge  system,”  or 
for  the  exclusive  benefit  of  the  members  of  a society  so  operating.  Oper- 
ating under  the  lodge  system”  means  carrying  on  its  activities  under  a form 
of  organization  that  comprises  local  branches,  chartered  by  a parent  organi- 
zation and  largely  self-governing,  called  lodges,  chapters,  or  the  like.  In 
order  to  be  exempt  it  is  also  necessary  that  the  society  have  an  established 
system  for  the  payment  to  its  members  or  their  dependents  ofjdife,  sick, 
accident,  or  other  benefits.  (Art.  514,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Definition  (42-20-1250:  O.  D.  690).  .Dec.  1920  Cum.  Bull.  p.  236. 

Patriotic  chiefly  with  fraternal  and  benevolent  features  (20-20-940:  O.  D.  o08;.  .June 
1920  Cum.  Bull.  p.  207. 


1 023 


Building  and  Loan  Associations  and  Cooperative  Banks.— In  general 
a building  and  loan  association  entitled  to  exemption  isJ[one|orgamzed 

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pursuant  to  the  laws  of  any  State,  Territory,  or  the  District  of  Columbia, 
which  accumulates  funds  to  be  loaned  primarily  to  its  shareholders  for  the 
purpose  of  building  or  acquiring  homes.  In  order  to  be  exempt  the  associa- 
tion (I)  must  be  mutual,  that  is,  all  of  its  stockholders  or  members  must 
share  in  the  profits  on  substantially  the  same  footing;  and  (2)  must  be  oper- 
ated so  that  substantially  all  of  its  business  is  confined  to  the  making  of 
loans  to  bona  fide  shareholders.  A building  and  loan  association  otherwise 

exempt  does  not  lose  its  exempt  status  because — 

1024  (1)  It  has  paid-up  shares  which  are  (a)  preferred  as  to  earnings, 
and  (b)  have  a definite  rate  of  interest  which  may  be  higher  than  the 

rate  of  dividends  paid  on  other  stock.  . . , , 

1025  (2)  It  borrows  money  (accepting  deposits  is  held  to  be  a *or?1  OI 
borrowing)  which  it  uses  for  loans  to  shareholders,  the  dues,  fines, 

and  penalties  paid  by  shareholders  being  inadequate  for  this  purpose. 

1026  (3)  It  makes  loans  to  nonmembers  from  accumulated  funds  which 
are  not  needed  for  loans  to  shareholders.  In  any  such  case,  however, 

the  burden  will  be  upon  the  association  to  show  that  substantially  all  of  its 

loans  are  made  to  members.  . , . . . 

102  7 (4)  The  amount  of  its  prepaid  or  full-paid  stock  is  disproportionate 

to  running  or  installment  stock,  provided  the  issuance  of  such  prepaid 
or  full-paid  stock  is  ancillary  to  the  furtherance  of  the  main  business  of  the 
association;  that  is,  that  it  is  intended  to  provide  a fund  from  which  loans 
may  be  made  primarily  to  persons  subscribing  to  running  or  installment  stock 
to  enable  them  to  acquire  or  build  homes.  . , 

1028  Cooperative  banks  without  capital  stock  organized  and  operated 
for  mutual  purposes  and  without  profit  are  exempt..  Credit  unions 
such  as  those  organized  under  the  laws  of  Massachusetts,  being  in  substance 
and  in  fact  the  same  as  cooperative  banks,  are  likewise  exempt  from  tax. 
(Art.  515,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  91  ■ 

A particular  association  that  is  not  exempt  (27-20-1043:  0.  D.  573).  .Dec.  1920  Cum. 
Bull.  p.  236. 

Same  (44-21-1900:  0.  D.  1088).  .Dec.  1921  Cum.  Bull.  p.  201. 

Same:  1918  Act  (1-20-279:  Ct.  D.  27).. June  1922  Cum.  Bull.  p.  253.  (tor 
syllabus  see  T.  D.  3355,  ^3289.)  n T. 

Commission  on  money  loaned  in  lieu  of  membership  fee  (49-20-1336:  u.  u. 

. .Dec.  1920  Cum.  Bull.  p.  238. 

Extended  discussion  of  those  exempt  and  those  not  (19-19-499:  S 1140).  .1919  Cum. 
Bull.  p.  194.  Further  discussion  (48-20-1325:  Sol.  Op.  78).. Dec.  1420  Cum. 

Insurance  agency  business  carried  on  (49-21-1965:  O.  D.  1129).. Dec.  1921  Cum. 

Bull.  p.  201.  , . , „ r. 

Loaning  money  to  nonmembers  on  notes  not  secured  by  real  estate  generally,  prohts 
going  to  paid-up-certificate  holders  only  (1-21-1375:  O.  D.  768).. June  1921 
Cum.  Bull.  p.  262. 


1029  Cemetery  Companies. — A cemetery  company  in  order  to  be  exempt 
must  be  owned  and  operated  exclusively  for  the  benefit  of  its  lot 
owners  or  must  not  be  operated  for  profit.  Any  cemetery  corporation 
chartered  solely  for  burial  purposes  and  not  permitted  by  its  charter  to  engage 

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in  any  business  not  necessarily  incident  to  that  purpose,  no  part  of  the  net 
earnings  of  which  inures  to  the  benefit  of  any  private  stockholder  or  indi- 
vidual, is  exempt  from  income  tax.  A cemetery  company  of  which  all  lot 
owners  are  members,  issuing  preferred  stock  entitling  the  holder  to  a semi- 
annual dividend  of  4 per  cent,  and  whose  articles  of  incorporation  provide 
that  the  preferred  stock  shall  be  retired  at  par  as  soon  as  sufficient  funds 
are  realized  from  sales  and  that  all  funds  realized  in  addition  thereto  shall  be 
used  by  the  company  for  the  care  and  improvement  of  the  cemetery  property, 
is  within  the  exemption.  (Art.  516,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Must  be  owned  and  operated  exclusively  for  benefit  of  all  lot  owners  (39-21-1846: 
Sol.  Op.  120).. Dec.  1921  Cum.  Bull.  p.  201. 

1 030  Religious,  Charitable,  Scientific,  Literary,  and  Educational  Organiza- 

tions and  Community  Chests. — This  exemption  applies  to  corpora- 
tions, associations,  and  community  chests,  funds,  or  foundations.  In  order 
to  be  exempt,  the  organization  must  meet  three  tests:  (a)  it  must  be  or- 
ganized and  operated  for  one  or  more  of  the  specified  purposes;  (b)  it 
must  be  organized  and  operated  exclusively  for  such  purposes;  and  (c)  no 
part  of  its  net  income  must  inure  to  the  benefit  of  private  stockholders  or  indi- 
viduals. . . , , , 

1031  (1)  Charitable  corporations  include  an  association  for  the  relief  of 
the  families  of  clergymen,  even  though  the  latter  make  a contribution 

to  the  fund  established  for  this  purpose;  or  for  furnishing  the  services  of 
trained  nurses  to  persons  unable  to  pay  for  them;,  or  for  aiding  the  general 
body  of  litigants  by  improving  the  efficient  administration  of  justice.  .Edu- 
cational corporations  may  include  an  association  whose  sole  purpose  is  the 
instruction  of  the  public.  This  is  true  of  an  association  to  promote  acquaint- 
ance with  the  Spanish  language  and  literature,  although  it  has  incidental 
amusement  features;  of  an  association  to  increase  knowledge  of  the  civiliza- 
tion of  another  country;  and  of  a Chautauqua  association  whose  primary 
purpose  is  to  give  lectures  on  subjects  useful  to  the  individual  and  beneficial 
to  the  community  and  whose  amusement  features  are  incidental  to  this 
purpose.  But  associations  formed  to  disseminate  controversial  or  partisan 
propaganda  are  not  educational  within  the  meaning  of  the  statute.  Scientific 
corporations  include  an  association  for  the  scientific  study  of  law,  to  the  end 
of  improvement  in  its  administration. 

1032  (2)  Where  a religious  corporation  owns  a large  quantity  of  farm 
land  and  works  it,  and  also  manufactures  and  sells  clothing  and  other 

articles  for  profit,  it  is  not  operated  exclusively  for  religious  purposes  and  is 
not  exempt,  even  though  its  property  is  held  in  common  and  its  profits  do 
not  inure  to  the  benefit  of  individual  members  of  the  society. 

1 033  (3)  It  does  not  prevent  exemption  that  private  individuals,  for  whose 

benefit  a charity  is  organized,  receive  the  income  of  the  corporation  or 
association.  The  statute  refers  to  individuals  having  a personal  and  private 
interest  in  the  activities  of  the  corporation,  such  as  stockholders.  If,  how- 
ever a corporation  issues  “voting  shares,”  which  entitle  the  holders  upon 
the  dissolution  of  the  corporation  to  receive  the  proceeds  of  its  property, 
including  accumulated  income,  the  right  to  exemption  does  not  exist,  even 
though  the  by-laws  provide  that  the  shareholders  shall  not  receive  any  divi- 
dend or  other  return  upon  their  shares.  (Art.  517,  Reg.  62,  1922  Edition.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 
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TAX  ON  CORPORATIONS. 


For  explanation  of  Cumulative  Index  references  see  page  <?/. 

Chautauqua  and  lyceum  organized  to  take  over  business  of  partnership,  members,  of 
which  are  made  life  members  of  association:  entrance  fees  to  pay  operating 
expenses,  to  pay  for  partnership  assets  taken  over  and  to  build  up  surplus  (43-21- 
1 8S6 : 0.  D.  1077).. Dec.  1921  Cum.  Bull.  p.  203. 

Chautauqua;  assembly  similar  to:  income  from  ground  rental,  ticket  sales,  advcr- 
tising  space,  etc.  (11-20-786:  A.  R.  M.  36).  .June  1920  Cum.  Bull.  p.  208. 

Children:  preventing  employment  of  in  injurious  occupations  (43-20-1267:  O.  D. 

705).  .Dec.  1920  Cum.  Bull.  p.  240. 

Citizens’  Club  of  undoubted  benefit  to  community  but  not  meeting  statutory  test 
(6-21-1435:  A.  R.  R.  379).  June  1921  Cum.  Bull.  p.  203. 

Community  Service,  Inc.  (5-20-716:  O.  D.  389).  .June  1920  Cum.  Bull.  p.  148. 

Corporation  trustee  for  memorial  fund  distributing  income  to  charitable  organizations 
and  worthy  individuals  (15-21-1563:  O.  D.  872).. June  1921  Cum.  Bull.  p.  264. 

Day  nursery:  parents  at  work  (29-19-630:  0.  D.  340). . 1919  Cum.  Bull.  p.  202. 

Hospital:  contracts  with  corporations  covering  their  employees;  other  patients; 

no  free  patients  though  some  at  cost  (33-21-1769:  O.  D.  993).  .Dec.  1921  Cum. 


Bull.  p.  203.  . . 

League  to  foster  fair  and  openmitided  consideration  of  social,  industrial,  etc.,  ques- 
tions (1921  Act)  (1-9-118:  L T.  1224).  .June  1922  Cum.  Bull.  p.  256. 

Legislation:  propaganda  favoring  (22-20-971:  S.  1362).  .June  1920  Cum.  Bull.  p.  152. 
Same:  and  election  of  favorable  officials  (43-20-1266:  0.  D.  704).. Dec.  1920 


Cum.  Buli.  p.  240. 

Military  school:  private  (8-19-329:  T.  B.  R.  33)..  1919  Cum.  Bull.  p.  199. 

U.  S.  Dist.  Ct.  decision  (18-21-161 1 : Ct.  D.  11).. June  1921  Cum.  Bull.  p.  266. 
Monuments  and  memorials:  association  to  erect  and  maintain  (8-20-755:  S.  1246) 
..June  1920  Cum.  Bull.  p.  149.  _ . 

Commemorating  World  War;  assembly  halls,  etc.,  restricted  to  educational  uses 
(45-20-1294:  A.  R.  R.  301).. Dec.  1920  Cum.  Bull.  p.  188. 

Orchestral  association:  a particular  one  (23-19-546:  S.  1176) . . 1919  Cum.  Bull.  p.  147. 

Another  particular  one:  1921  Act  (1-42-554:  L T.  1475).. Bull.  I ( 22)-42,  p.  4. 
Pension  fund  organization,  for  benefit  of  a corporation’s  employees  is  not  a charitable 
organization  (18-21-1610:  A.  R.  R.  477).  .June  1921  Cum.  Bull.  p.  264. 
Publication,  primarily  religious  but  not  exclusively  so  (51-21-1983:  O.  D.  1142).. 
Dec.  1921  Cum.  Bull.  p.  204. 

Publishing  house  owned  and  operated  by  religious  institution  (20-20-942:  (J.  D. 

510).  .June  1920  Cum.  Bull.  p.  209. 

School:  private  (23-19-548:  O.  D.  293).  .1919  Cum.  Bull.  p.  201. 

(See  “Military  school,”  above.) 

School:  tuition  fees  charged,  but  no  profit  can  inure  to  any  stockholder  of  the  con- 
ducting private  corporation  (46-21-1923:  O.  D.  1102).. Dec.  1921  Cum.  Bull.  p. 


Schools;  common  law  trust  created  by  will  to  establish  and  maintain  is  not  an  associa- 
tion, is  not  exempt,  and  expenses  incident  to  schools,  are  not  deductible  (1-21- 
1376:  A.  R.  M.  104).. June  1921  Cum.  Bull.  p.  262. 

The  Teachers’  Insurance  and  Annuity  Association  of  America  (32-20-1121:  A.  R.  R. 

218) . . Dec.  1920  Cum.  Bull.  p.  238.  . .„  „ , 

Y.  M.  C.  A.  branch  disposing  of  needlework  of  self-supporting  women  (20-20-941: 
O.  D.  509).  .June  1920  Cum.  Bull.  p.  209. 


1034  Business  Leagues. — A business  league  is  an  association  of  persons 
having  some  common  business  interest,  which  limits  its  activities  to 
work  for  such  common  interest  and  does  not  engage  in  a regular  business  of 
a kind  ordinarily  carried  on  for  profit.  Its  work  need  not  be  similar  to  that 
of  a chamber  of  commerce  or  board  of  trade.  The  fact  that  it  engages  in  a 
regular  business  of  a kind  ordinarily  carried  on  for  profit  but  on  a cooperative 
basis  or  so  as  to  produce  only  sufficient  income  to  be  self-sustaining,  is  not 
ground  for  exemption.  An  association  engaged  in  furnishing  information 
to  prospective  investors,  to  enable  them  to  make  sound  investments,  is  not 
such  a league,  since  its  members  have  no  common  business  interest,  and  it  is 

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TAX  ON  CORPORATIONS. 

not  exempt,  even  though  all  of  its  income  is  devoted  to  the  purpose  stated. 
A clearing  house  association,  not  organized  for  profit,  no  part  of  the  net  in- 
come of  which  inures  to  any  private  stockholder  or  individual,  is  exempt 
provided  its  activities  are  limited  to  the  exchange  of  checks  and  similar 
work  for  the  common  benefit  of  its  members.  An  association  of  persons  who 
are  engaged  in  the  business  of  carrying  freight  and  passengers  by  boats 
propelled  by  steam,  which  is  designed  to  promote  the  legitimate  objects  of 
such  business,  and  all  of  the  income  of  which  is  derived  from  membership 
dues  and  is  expended  for  office  expenses  and  the  salary  of  a secretary-treasurer, 
is  exempt  from  tax.  An  incorporated  cotton  exchange,  whose  shares  carry 
the  right  to  dividends,  is  organized  for  profit  and  is  not  exempt.  (Art.  518, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ascertaining  causes  of  losses  in  line  of  business  of  members:  here  vessels  (1-19-86: 
O.  D.  61) . . 1919  Cum.  Bull.  p.  202. 

Association  of  creditmen  acting  on  occasion  as  receiver  and  trustee  for  insolvent  or 
embarrassed  businesses  for  fee  (5-21-1419:  O.  D.  786).. June  1921  Cum.  Bull, 
p.  269. 

Developing  scientifically  a certain  industry  (21-20-960:  0.  D.  522).. June  1920 
Cum.  Bull.  p.  210. 

Holding  or  licensing  of  patents  is  business  ordinarily  carried  on  for  profit:  1918  Act 
(1-33-458:  A.  R.  R.  1072).  .Bull.  I (’22)-33,  p.  5. 


1 035  Civic  Leagues. — A corporation  having  capital  stock  and  possess- 
ing a charter  which  authorizes  it  to  buy,  improve,  and  sell  real  estate 

is  organized  for  profit  within  the  meaning  of  the  statute  and  is  not  exempt 
from  tax  as  a civic  league  or  organization,  even  though  it  no  longer  ex- 
ercises such  powers  for  profit  and  is  operated  exclusively  for  the  promotion 
of  social  welfare.  (Art.  519,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

American  Legion  (14-20-834:  O.  D.  439).  .June  1920  Cum.  Bull.  p.  210. 

1036  Social  Clubs. — The  exemption  applies  to  practically  all  social  and 
recreation  clubs  which  are  supported  by  membership  fees,  dues,  and 

assessments.  If  a club,  by  reason  of  the  comprehensive  powers  granted  in 
its  charter,  engages  in  traffic,  in  agriculture  or  horticulture,  or  in  the  sale  of 
real  estate,  timber,  etc.,  for  profit,  such  club  is  not  organized  and  operated 
exclusively  for  pleasure,  recreation  or  social  purposes,  and  any  profit  real- 
ized from  such  activities  is  subject  to  tax.  (Art.  520,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Automobile:  for  improvement  of  roads,  etc.  (34-20-1152:  0.  D.  643).. Dec.  1920 
Cum.  Bull.  p.  241. 

Dining  room  adjunct  with  wine  and  cigars  (2-19-162:  0.  D.  108)..  1919  Cum.  Bull. 

p.  203. 

Fraternity  chapter:  here  exempt:  1921  Act  (1-34-468:  I.  T.  1427).. Bull.  I (’22)- 
34,  p.  4. 

Life  members  to  participate  in  assets  on  dissolution  (1-19-81:  S.  958) ..  1919  Cum. 
Bull.  p.  202. 

Political  (20-19-513:  0.  D.  280)..  1919  Cum.  Bull.  p.  203. 

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1037  Mutual  Insurance  Companies  and  Like  Organizations.  -It  is  nec- 
essary to  exemption  that  the  income  of  the  company  be  derived  solely 
from  assessments,  dues  and  fees  collected  from  members.  If  income  is 
received  from  other  sources,  such  as  cash  premiums  or  premium  deposits,  the 
corporation  is  not  exempt,  even  though  its  additional  income  is  tax  exempt. 
Income,  however,  from  sources  other  than  those  specified  does  not  prevent 
exemption  where  its  receipt  is  a mere  incident  of  the  business  of  the  company. 
Thus  the  receipt  of  interest  upon  a working  bank  balance,  or  of  the  proceeds 
of  the  sale  of  badges,  office  supplies  or  equipment,  will  not  defeat  the  exemp- 
tion. The  same  is  true  of  the  receipt  of  interest  upon  Liberty  bonds,  where 
they  were  purchased  as  a patriotic  duty  and  were  afterwards  sold.  Where, 
however,  such  bonds  are  bought  as  a permanent  investment,  the  receipt  of 
the  interest  destroys  the  exemption.  The  receipt  of  what  is  in  substance 
an  entrance  fee,  charged  by  a mutual  fire  insurance  company  as  a condition  of 
membership,  does  not  render  the  company  taxable,  although  this  fee  is  called 
a premium.  A farmers’  mutual  fire  and  lightning  insurance  company  does 
not  become  taxable  because  it  makes  advance  assessments  for  the  sole  pur- 
pose of  meeting  future  losses  and  expenses,  where  any  balance  of  such  assess- 
ments remaining  at  the  end  of  the  year  is  retained  to  meet  losses  and  expenses 
in  the  ensuing  year.  But  the  issuance  of  policies  for  stipulated  cash  premiums 
prevents  exemption.  A local  exchange  or  association  to  insure  the  owners  of 
automobiles  against  fire,  theft,  collision,  public  liability  and  property  damage, 
is  exempt,  since  it  performs  functions  of  the  same  character  as  a mutual  fire 
insurance  company,  and  is  a like  organization  within  the  meaning  of  the 
statute.  A local  reservoir  and  ditch  company  may  likewise  be  exempt  from 
tax  An  organization  doing  business  on  the  “interindemnity’  or  “reciprocal 
insurance”  plan  through  an  attorney  in  fact  subject  to  direction  of  an  advisory 
board  of  policyholders,  which  requires  advance  deposits  to  coyer  the  cost  of 
the  insurance  and  maintains  investments  or  deposits  from  which  substantial 
income  is  derived,  is  not  exempt.  The  exemption  does  not  include  a telephone 
clearing  association,  whose  business  is  to  apportion  toll  rates  between  inde- 
pendent telephone  companies  handling  the  same  calls  and  whose  income 
consists  of  compensation  paid  by  such  companies  and  receipts  from  the  sale 
of  form  blanks.  The  phrase  “of  a purely  local  character”  qualifies  all  the 
organizations  enumerated  in  subdivision  (10)  of  section  231.  An  organiza- 
tion of  a “purely  local  character”  is  one  whose  business  activities  are  con- 
fined to  a particular  community,  place  or  district,  irrespective,  however, 
of  political  sub-divisions.  The  word  “purely”  intensifies  and  limits  “local,” 
and  indicates  a clear  intention  on  the  part  ot  Congress  to  exempt  from  taxation 
only  such  organizations  as  are  entirely  and  unqualifiedly  “local”  in  their 
operations.  (Art.  521,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Automobiles:  association  organized  to  permit  exchange  of  policies  of  insurance  and 
indemnity  without  becoming  jointly  liable  (25-19-586:  0.  D.  312)..  1919  Cum. 
Bull.  p.  207. 

Casualty  company,  stipulated  cash  premiums;  covers  whole  State  (1-19-83:  O.  790).. 
1919  Cum.  Bull.  p.  203. 

Farmers’  Mutual:  unexpended  balances  retained  to  meet  future  losses  and  expense! 
(15-21-1564:  Sol.  Op.  99) . .June  1921  Cum.  Bull.  p.  270. 

Irrigating  ditch  company  (26-19-594:  0.  D.  318).  . 1919  Cum.  Bull.  p.  207. 

Life  insurance  company  is  not  a “like  organization’’  (1-14-201:  Ct.  D.  26).  .June  1922 
Cum.  Bull.  p.  259.  . . 

“Mutual  fire  insurance  company”:  what  the  term  embraces:  court  decision,  1913 
Act  (44-20-1279:  T.  D.  3078).. Dec.  1920  Cum.  Bull.  p.  247.  Reversed,  274 
Fed.  93. 

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TAX  ON  CORPORATIONS. 

Mutual  health  and  accident  are  not  exempt  (1-19-87:  O.  D.  62). . 1919  Cum.  Bull.  p. 
206. 

“Purely  local  character”  may  embrace  more  than  one  State  (1-19-82:  O.  792). . 1919 
Cum.  Bull.  p.  205. 

“Purely  local  character”  qualifies  all  named  organizations  as  well  as  “other  organiza- 
tions” (1-6-75 : Ct.  D.  22).  .June  1922  Cum.  Bull.  p.  256.  See  1(3111. 

Reciprocal  indemnity  exchange:  loss  by  fire  by  group  of  manufacturers  (23-20-989: 
O.  D.  538).  .June  1920  Cum.  Bull.  p.  210:  Overruled  by  (14-21-1551:  O.  D.  866) 

. .June  1921  Cum.  Bull.  p.  269. 

★ Reciprocal  or  interinsurance  plan;  special  case  considered,  the  company  being  held 
taxable:  1916,  1918,  and  1921  Acts  (1-41-546:  A.  R.  R.  1159).  .Bull.  I (’22)- 
41,  p.  5. 

Subscribers  to  mutual  arrangement  involving  contributions  to  common  fund,  power- 
of-attorney  to  common  agent,  and  an  advisory  committee  of  “subscribers” 
(19-21-1626:  L.  O.  1063).  .June  1921  Cum.  Bull.  p.  272. 

Travelers’  association  providing  for  fixed  death  benefits  (1-19-88:  O.  D.  63)..  1919 
Cum.  Bull.  p.  206. 

Workmen’s  compensation  payments:  mutual  liability  company  to  take  care  of  for 
members  (14-19-437:  O.  D.  252).  . 1919  Cum.  Bull.  p.  206. 


1038  Cooperative  Associations. — (a)  Cooperative  associations,  acting  as 
sales  agents  for  farmers,  fruit  growers,  dairymen,  etc.,  and  turning 

back  to  them  the  proceeds  of  the  sales,  less  the  necessary  selling  expenses, 
on  the  basis  of  the  produce  furnished  by  them,  are  exempt  from  income  tax. 
Thus  cooperative  dairy  companies,  which  are  engaged  in  collecting  milk  and 
disposing  of  it  or  the  products  thereof  and  distributing  the  proceeds,  less 
necessary  operating  expenses,  among  their  members  upon  the  basis  of  the 
quantity  of  milk  or  of  butter  fat  in  the  milk  furnished  by  such  members,  are 
exempt  from  the  tax.  If  the  proceeds  of  the  business  are  distributed  in  any 
other  way  than  on  such  a proportionate  basis  or  if  the  association  deducts 
more  than  necessary  selling  expenses,  it  does  not  meet  the  requirements  of  the 
statute  and  is  not  exempt.  The  maintenance  of  a reasonable  reserve  for 
depreciation  or  possible  losses  or  a reserve  required  by  State  statute  will  not 
necessarily  destroy  the  exemption.  A corporation  organized  to  act  as  a sales 
agent  for  farmers  and  having  a capital  stock  on  which  it  pays  a fixed  dividend 
amounting  to  the  legal  rate  of  interest,  all  of  the  capital  stock  being  owned 
by  such  farmers,  will  not  for  that  reason  be  denied  exemption. 

1039  (b)  Cooperative  associations  organized  and  operated  as  purchasing 
agents  for  farmers,  fruit  growers,  dairymen,  etc.,  for  the  purpose 

of  buying  supplies  and  equipment  for  the  use  of  members  and  turning  over 
such  supplies  and  equipment  to  members  at  actual  cost,  plus  necessary 
expenses,  are  also  exempt.  In  order  to  be  exempt  under  either  (a)  or  (b) 
an  association  must  establish  that  it  has  no  net  income  for  its  own  account. 
An  association  acting  both  as  a sales  and  a purchasing  agent  is  exempt  if  as 
to  each  of  its  functions  it  meets  the  requirements  of  the  statute.  (Art.  522, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Affording  employment  to  labor  union  members,  not  a part  of  union  though  owned 
and  controlled  by  it  (21-20-961:  0.  D.  523).  .June  1920  Cum.  Bull.  p.  211. 
Apartment  house  owned  and  operated  cooperatively,  the  stockholders  being  the 
tenants  (38-21-1832:  0.  D 1042).. Dec.  1921  Cum.  Bull.  p.  204. 

Buying  and  selling  on  own  account  (1-19-84:  S.  952) . .1919  Cum.  Bull.  p.  207. 
Creamery  buying  outright:  distributing  on  shares  held  rather  than  on  quantity  of 
milk  supplied  (8-19-330:  O.  D.  191) . .1919  Cum.  Bull.  p.  208. 

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TAX  ON  CORPORATIONS. 

Fixed  amount  paid  as  “interest  dividend”  on  small  amount  of  stock,  owned  however 
by  farmers  for  which  company  acts  as  sales  agent  (35-20-1172:  Sol.  Op.  57).. 
Dec.  1920  Cum.  Bull.  p.  241. 

Lumber;  a particular  company  is  not  exempt:  1916,1917  and  1918  Acts  (1-20-280: 
I.  T.  1312).  .June  1922  Cum.  Bull.  p.  263. 

Nonmembers  acquiring  stock  (1-19-89:  O.  D.  64).  .1919  Cum.  Bull.  p.  208. 

University  cooperative  store  (1-19-90:  O.  D.  65) . . 1919  Cum.  Bull.  p.  208. 


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NET  INCOME. 


1040  Law  ^ 110.  Net  Income  of  an  Individual  Defined. — “Sec.  212. 

(Sec.  212.)  (a)  That  in  the  case  of  an  individual  the  term  (net  income ' 

means  the  gross  income  as  defined  in  section  213  [^[  1067], 
less  the  deductions  allowed  hy  section  214  [If i 615].” — Law.  [Note: 

The  1918  Act  so  provided.] 

1041  Law  1f376.  Net  Income  of  a Corporation  Defined. — “Sec.  232. 
(Sec.  232.)  That  in  the  case  of  a corporation  subject  to  the  iax  im- 
posed by  section  230  [If 972]  the  term  ‘ net  income'  means 

the  gross  income  as  defined  in  section  233  [If  1073]  less  the  deductions  allowed 
by  section  234  [^[1616],  and  the  net  income  shall  be  computed  on  the  same 
basis  as  is  provided  in  subdivision  (b)  of  section  212  [If  1044]  or  in  section 
226  [returns  when  accounting  period  is  changed,  ^[2567].” — Law. 

[Note:  The  1918  Act  so  provided.] 

1042  Meaning  of  Net  Income. — The  tax  imposed  by  the  statute  is  upon 
income.  In  the  computation  of  the  tax  various  classes  of  income 

must  be  considered:  (a)  Income  (in  the  broad  sense),  meaning  all  wealth 
which  flows  in  to  the  taxpayer  other  than  as  a mere  return  of  capital.  It 
includes  the  forms  of  income  specifically  described  as  gains  and  profits, 
including  gains  derived  from  the  sale  or  other  disposition  of  capital  assets. 
Income  cannot  be  determined  merely  by  reckoning  cash  receipts,  for  the 
statute  recognizes  as  income-determining  factors  other  items,  among  which 
are  inventories,  accounts  receivable,  property  exhaustion,  and  accounts 
payable  for  expenses  incurred,  (b)  Gross  income,  meaning  income  (in  the 
broad  sense)  less  income  which  is  by  statutory  provision  or  otherwise  exempt 
from  the  tax  imposed  by  the  statute,  (c)  Net  income,  meaning  gross  income 
less  statutory  deductions.  The  statutory  deductions  are  in  general,  though 
not  exclusively,  expenditures,  other  than  capital  expenditures,  connected 
with  the  production  of  income,  (d)  Net  income  less  credits.  The  surtax  is 
imposed  upon  net  income;  the  normal  tax  upon  net  income  less  credits. 
Though  taxable  net  income  is  a statutory  conception  it  follows,  subject 
to  certain  modifications  as  to  exemptions  and  as  to  deductions  for  partial 
losses  in  some  cases,  the  lines  of  commercial  usage.  Subject  to  these  modi- 
fications statutory  “net  income”  is  commercial  “net  income.”  This  appears 
from  the  fact  that  ordinarily  it  is  to  be  computed  in  accordance  with  the 
method  of  accounting  regularly  employed  in  keeping  the  books  of  the  tax- 
payer. As  to  the  net  income  of  corporations  see  section  232  [^[1041]  and  article 
531  [If  1043].  (Art.  21,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Restrictions  on  taxpayer’s  activities  by  statute  or  regulation;  effect  on  his  taxable 
income  (18-20-899:  O.  D.  486).  .June  1920  Cum.  Bull.  p.  129. 


1 043  Net  Income  of  Corporations. — Net  income  is  that  portion  of  the 
gross  income  which  remains  after  all  proper  deductions  have  been 
taken  into  account.  The  net  income  of  corporations  is  determined  in 
general  in  the  same  manner  as  the  net  income  of  individuals,  but  the  deduc- 
tions allowed  corporations  are  not  precisely  the  same  as  those  allowed  in- 

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NET  INCOME. 


dividuals.  The  net  income  of  corporations  is  to  be  computed  on  the  same 
basis  as  to  accounting  periods  as  the  net  income  of  individuals.  (Art.  531, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Telephone  companies  under  Federal  Control  (15-19-449:  O.  D.  255) . . 1919  Cum.  Bull. 

p.  212. 

1044  Law  If  111.  Net  Income  to  Be  Based  on  Taxpayer’s  Annual  Ac- 
(Sec.  212.)  counting  Period. — “(£)  The  net  income  shall  be  com- 
puted, upon  the  basis  of  the  taxpayer’s  annual  accounting 
period  ( fiscal  year  or  calendar  year,  as  the  case  may  be) 

in  accordance  with  the  method  of  accounting  regularly  employed  in  keeping 
the  books  of  such  taxpayer — Law.  [Note:  The  1918  Act  so 

provided.] 

1045  Law  If  11 2.  Basis  of  Computation  to  Reflect  Income  Clearly. — 

(Sec.  212.)  “ but  if  no  such  method  of  accounting  has  been  so  em- 

ployed, or  if  the  method  employed  does  not  clearly  reflect 

the  income,  the  computation  shall  be  made  upon  such  basis  and  in  such 
manner  as  in  the  opinion  of  the  Commissioner  does  clearly  reflect  the  income .” 

— Law.  [Note:  The  1918  Act  so  provided.] 

1046  Computation  of  Net  Income. — Net  income  must  be  computed  with 
respect  to  a fixed  period.  Usually  that  period  is  twelve  months  and 

is  known  as  the  taxable  year.  Items  of  income  and  of  expenditures  which 
&•  gross  income  and  deductions  are  elements  in  the  computation  of  net  in- 
come need  not  be  in  the  form  of  cash.  It  is  sufficient  that  such  items,  if 
otherwise  properly  included  in  the  computation,  can  be  valued  in  terms  of 
money.  The  time  as  of  which  any  item  of  gross  income  or  any  deduction 
is  to  be  accounted  for  must  be  determined  in  the  light  of  the  fundamental 
rule  that  the  computation  shall  be  made  in  such  a manner  as  clearly  reflects 
the  taxpayer’s  income.  If  the  method  of  accounting  regularly  employed 
by  him  in  keeping  his  books  clearly  reflects  his  income,  it  is  to  be  followed 
with  respect  to  the  time  as  of  which  items  of  gross  income  and  deduction* 
are  to  be  accounted  for.  See  article  51  [If  12603-  If  the  taxpayer  does  not 
regularly  employ  a method  of  accounting  which  clearly  reflects  his  income, 
the  computation  shall  be  made  in  such  manner  as  in  the  opinion  of  the  Com- 
missioner clearly  reflects  it.  (Art.  22,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Accrual  basis  obligatory  in  mercantile  business;  amended  return*  (32-20-1115: 
A.  R.  R.  217) . . Dec.  1920  Cum.  Bull.  p.  76. 

Accrued  interest  where  practical  certainty  of  default:  here,  cotton  factors,  due  to 
depreciated  values  (1-6-68:  A.  R.  R.  737).  .June  1922  Cum.  Bull.  p.  52. 
Adjustments  of  railroad  income  involving  prior  years  under  instructions  of  I.  C.  C.; 

amended  returns  (1-19-18:  O.  D.  9)..  1919  Cum.  Bull.  p.  58. 

Cash  discounts;  two  methods  of  handling  sanctioned:  1918  and  1921  Acts  (1-24-337: 
I.  T.  1348).  .June  1922  Cum.  Bull.  p.  51. 

Excise  taxes  consistently  included  in  cost  during  prior  years  may  not  be  treated  a* 
expense  item  for  1918:  here  wholesale  liquor  dealer  (16-21-1574:  A.  R.  M.  121) 
..June  1921  Cum.  Bull.  p.  61. 

Foreign  exchange  rates;  conversion  of  items  involving  computation  of  net  income 
(3-20-682:  A.  R.  R.  15).  .June  1920  Cum.  Bull.  p.  60. 

Accepted  rates  prevailing  December  31,  1921  (1921  Act)  (1-7-87:  I.  T.  1202).. 
June  1922  Cum.  Bull.  p.  50. 

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NET  INCOME. 

Foreign  exchange  rates  (concluded), 

Accepted  rates  prevailing  Dec.  31,  1920  (7-21-1444:  O.  D.  803).. June  1921  Cum. 
Bull.  p.  60. 

Accepted  rates  prevailing  Dec.  31,  1919  (25-20-1010:  0.  D.  551) . .June  1920  Cum. 
Bull.  p.  61. 

Canada  (2-21-1386:  O.  D.  772).. June  1921  Cum.  Bull.  p.  60. 

Accepted  rates  prevailing  Dec.  31,  1916,  1917,  and  1918  (42-21-1869:  O.  D.  1065) 

. .Dec.  1921  Cum.  Bull.  p.  65.  Also  and  as  of  Dec.  31,  1913,  1914,  and  1915 
(1-22-310:  I.  T.  1325).  .June  1922  Cum.  Bull.  p.  51. 

Argentina  (51-21-1977:  O.  D.  1137).  .Dec.  1921  Cum.  Bull.  p.  66.  Corrected 
(1-21-296:  I.  T.  1315).  .June  1922  Cum.  Bull.  p.  50. 

Paper  peso  (38-21-1826:  0.  D.  1036)..  Dec.  1921  Cum.  Bull.  p.  65.  As  of 
Dec.  31,  1921;  1921  Act  (1-22-309:  I.  T.  1324).  .June  1922  Cum.  Bull.  p.  51. 
★Australian  pound:  Dec.  31,  1916,  1917,  1918,  and  1921  (1-44-567:  I.  T.  1483).. 
Bull.  I (’22)-44,  p.  1. 

Branch  office  abroad;  separate  set  of  books;  remittances  to  home  office  during 
year;  profits  retained  abroad  (25-20-1009:  O.  D.  550).. June  1920  Cum. 
Bull.  p.  61:  also  31-20-1109:  O.  D.  618,  Dec.  1920  Cum.  Bull.  p.  334. 

Brazil  (16-21-1575:  O.  D.  876).  June  1921  Cum.  Bull.  p.  63. 

Canada;  discount  rate  acceptable  as  of  December  31,  1919  (2-21-1386:  0.  D.  772) 

. .June  1921  Cum.  Bull.  p.  60. 

As  of  April  21,  1917  (40-21-1852:  0.  D.  1052) . .Dec.  1921  Cum.  Bull.  p.  65. 
As  of  December  31,  1920  (7-21-1444:  O.  D.  803).  .June  1921  Cum.  Bull.  p.  60. 
As  of  June  30,  1921  (34-21-1775:  O.  D.  996) ..  Dec.  1921  Cum.  Bull.  p.  64. 
As  of  December  31,  1921  (1921  Act)  (1-7-87:  I.  T.  1202).  .June  1922  Cum. 
Bull.  p.  50. 

American  employees  of  domestic  corporation  paid  in  Canadian  money  for 
work  done  in  Canada  (42-21-1870:  O.  D.  1066).  .Dec.  1921  Cum.  Bull.  p.  66. 
Cash  in  hand  abroad  at  end  of  taxable  year  (23-21-1672:  O.  D.  940).  .June  1921 
Cum.  Bull.  p.  64. 

Assets  and  liabilities  (other  than  capital  assets)  of  domestic  corporation  engaged  in 
business  abroad  (19-20-909:  O.  D.  489).  .June  1920  Cum.  Bull.  p.  60. 
Domestic  corporation  owned  and  indebted  to  foreign  interests;  debit  and  credit 
items  to  be  converted  at  rate  prevailing  at  dates  of  respective  transactions 
(29-20-1069:  O.  D.  590).  .Dec.  1920  Cum.  Bull.  p.  75. 

★German  mark:  Dec.  31,  1917  and  1918  (1-44-566:  I.  T.  1482).. Bull.  I (’22)- 
44,  p.  1. 

Hongkong;  (51-21-1978:  0.  D.  1138).  .Dec.  1921  Cum.  Bull.  p.  66. 

Interest  (1)  credited  abroad  on  foreign  securities,  or  (2)  paid  by  check  in  foreign 
standard  units  (Germany  specifically)  (7-21-1450:  O.  D.  809).. June  1921 
Cum.  Bull  p.  234. 

Manila,  P.  I.  (20-21-1632:  O.  D.  913).  .June  1921  Cum.  Bull.  p.  63. 

Note  payable  in  marks  for  marks  loaned;  payment  in  dollars  when  mark  had  de- 
preciated in  value:  1921  Act  (1-32-447:  I.  T.  1411).  .Bull.  I (’22)-32,  p.  2. 
Purchasing  goods  abroad  (19-20-909:  O.  D.  489).  .June  1920  Cum.  Bull.  p.  60. 
Reorganizations;  foreign  corporation  stock  exchanged  for  domestic  corporation 
stock  (41-21-1859:  O.  D.  1058).. Dec.  1921  Cum.  Bull.  p.  58. 

Selling  abroad  (German  securities  specifically  ) (7-2 1-1450:  O.  D.  809).  .June  1921 
Cum.  Bull.  p.  234 

Shanghai,  China  (18-21-1605:  0.  D.  898).  .June  1921  Cum.  Bull.  p.  63:  Corrected 
(51-21-1977:  0.  D.  1137).. Dec.  1921  Cum.  Bull.  p.  66. 

Time  of  receipt  of  income  governs  rate  (13-20-805:  O.  D.  419).  .June  1920  Cum. 
Bull.  p.  60. 

Same  (16-20-873:  O.  D.  459).  .June  1920  Cum.  Bull.  p.  60. 

Uruguay  (51-21-1977:  O.  D.  1137).  . Dec.  1921  Cum.  Bull.  p.  66.  Corrected 
(1-21-296:  I.  T.  1315).  .June  1922  Cum.  Bull.  p.  50. 

Foreign  exchange:  inventories  by  dealers  but  not  by  others  (10-21-1491:  O.  D.  834) 
June  1921  Cum.  Bull.  p.  61. 

Installment  sales:  amended  returns  to  reflect  change  in  method  of  reporting  profits 
not  permitted,  election  having  been  made:  1918  Act  (1-6-67:  I.  T.  1190).  .June 
1922  Cum.  Bull.  p.  49. 

Intercompany  service  profits  (all  stock  of  the  company  deriving  the  profits  owned  by 
two  other  companies  paying  for  the  service,  and  hence  not  affiliated)  are  taxable, 
and  are  not  subject  to  adjustment  after  close  of  year  by  reduction  of  service 
charge:  1921  Act  (1-29-410:  I.  T.  1392).. Bull.  I (’22)-29,  p.  4. 

Lawyers:  fees  for  services,  though  entered  on  books  as  charge,  subject  to  adjustment 
and  compromise  (1-3-29:  A.  R.  R.  702).  .June  1922  Cum.  Bull.  p.  47. 

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NET  INCOME. 

I 047  Law  If 20.  “Paid  or  Incurred”  and  “Paid  or  Accrued”  Construed. 

(Sec.  200.)  — “ The  term  ‘ paid ' for  the  purposes  of  the  deductions 
and  credits  under  this  title,  means  lpaid  or  accrued.' 
or  * paid  or  incurred ,’  and  the  terms  ‘ paid  or  incurred ’ and  ‘ paid  or 
accrued ’ shall  be  construed  according  to  the  method  of  accounting  upon 
the  basis  of  which  the  net  income  is  computed  under  sect  on  212  [1J1044]:” 

Law.  [Note:  The  1918  Act  so  provided.] 

1 048  “Paid”  is  to  be  construed  in  each  instance  in  the  light  of  the  method 
used  in  computing  net  income,  whether  on  an  accrual  or  a receipts 
basis.  See  article  23  [for  bases  of  computing  income,  If  1049].  (Art.  1533, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

“Paid,”  under  Revenue  Act  of  1916  as  amended,  construed  as  “paid  or  accrued”  if 
corporation  kept  books  on  accrual  basis  (10-21-1503:  L.  O.  1059).. June  1921 
Cum.  Bull.  p.  147. 

1049  Bases  of  Computation. — (1)  Approved  standard  methods  of  ac- 
counting will  ordinarily  be  regarded  as  clearly  reflecting  income.  A 

method  of  accounting  will  not,  however,  be  regarded  as  clearly  reflecting 
income,  unless  all  items  of  gross  income  and  all  deductions  are  treated  with 
reasonable  consistency.  See  Section  200  [^f  1 047 ] of  the  statute  for  defini- 
tions of  “paid,”  “paid  or  accrued,”  and  “paid  or  incurred.”  All  items  of 
gross  income  shall  be  included  in  the  gross  income  for  the  taxable  year  in 
which  they  are  received  by  the  taxpayer,  and  deductions  taken  accordingly, 
unless  in  order  clearly  to  reflect  income  such  amounts  are  to  be  properly 
accounted  for  as  of  a different  period.  See  Section  213  (a).  For  instance, 
in  any  case  in  which  it  is  necessary  to  use  an  inventory,  no  accounting  in 
regard  to  purchases  and  sales  will  correctly  reflect  income  except  an  accrual 
method.  A taxpayer  is  deemed  to  have  received  items  of  gross  income  which 
have  been  credited  to  or  set  apart  for  him  without  restriction.  See  Article 
53  [If  1272].  On  the  other  hand,  appreciation  in  value  of  property  is  not  even 
an  accrual  of  income  to  a taxpayer  prior  to  the  realization  of  such  appreciation 
through  sale  or  conversion  of  the  property.  But  see  section  203  [for  in- 
ventories, If  1509]. 

1050  (2)  For  the  taxable  year  1921,  the  true  income,  computed  under  the 
Revenue  Act  of  1921  and,  where  the  taxpayer  keeps  books  of  account, 

in  accordance  with  the  method  of  accounting  regularly  employed  in  keeping 
such  books,  shall  in  all  cases  be  entered  in  the  return.  Where  for  any  reason 
the  basis  of  reporting  income  subject  to  tax  is  changed,  the  taxpayer  shall 
attach  to  his  return  a separate  statement  setting  forth  for  the  taxable  year 
and  for  the  preceding  year  the  classes  of  items  differently  treated  under  the 
two  systems,  specifying  in  particular  all  amounts  duplicated  or  entirely 
omitted  as  the  result  of  such  change. 

1051  (3)  A taxpayer  who  changes  the  method  of  accounting  employed  in 
keeping  his  books  for  the  taxable  year  1921  or  thereafter  should,  be- 
fore computing  his  income  upon  such  new  basis  for  purposes  of  taxation, 
secure  the  consent  of  the  Commissioner.  Application  for  permission  to 
change  the  basis  of  the  return  shall  be  made  at  least  30  days  before  the  close 
of  the  period  to  be  covered  by  the  return  and  shall  be  accompanied  by  a state- 
ment specifying  the  classes  of  items  differently  treated  under  theitwo  systems 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
197 


2-27-22. 


(2)  4-10-22.  (3)  4-18-22.  (4)  9-1-22.  (5)  10-11-22. 

NET  INCOME. 


and  specifying  all  amounts  which  would  be  duplicated  or  entirely  omitted  as  a 
result  of  the  proposed  change. 

1 062  (4)  Banks  which  in  the  past  have  treated  discount  as  income  before 

it  was  actually  earned  and  during  the  taxable  year  have  placed 
the  discount  account  upon  an  accrual  basis  will  be  permitted  to  submit  (or  the 
Commissioner  may  require)  amended  returns  for  the  prior  year  affected. 
Additional  taxes  for  prior  years  found  to  be  due  upon  such  re-examinations, 
will  be  paid  upon  the  basis  of  the  amended  returns  in  the  ordinary  way. 
Where  it  appears  that  prior  taxes  have  been  paid  in  excess  of  the  amount 
properly  due,  such  excess  will  to  the  extent  possible  be  credited  against  future 
income  and  profits  taxes  under  the  provisions  of  Section  252  [®|2825]  of  the 
Revenue  Act  of  1921.  (Art.  23,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Accrued  interest  to  decedent  (15-20-851:  O.  D.  454).  .June  1920  Cum.  Bull.  p.  170. 

Agent  on  percentage  of  agency  profits  basis  which  he  may  appropriate  but  is  net  his 
until  he  does  so;  amount  actually  appropriated  is  returnable  income  (7-20-738: 
S.  1312).  .June  1920  Cum.  Bull.  p.  64. 

Amended  return  simply  to  change  from  cash  to  accrual  basis,  even  though  income  is 
the  same  generally  on  the  two  bases,  is  not  permitted  (50-21-1971:  0.  D.  1133).. 
Dec.  1921  Cum.  Bull.  p.  79. 

Application  made  at  end  of  taxable  year;  to  change  basis  for  such  year  denied  (48-21 
1941 : O.  D.  1 1 13) . .Dec.  1921  Cum.  Bull.  p.  79.  . 

Averaging  total  earnings,  inventory  being  taken  every  other  year  only,  not  permissible 
(4-19-211:  O.  D.  133).  . 1919  Cum.  Bull.  p.  62. 

Commissions  received  by  cash  receipt  and  disbursement  basis  corporation  on  real 
estate  installment  payments  (17-21-1588:  A.  R.  R.  464).. June  1921  Cum.  Buli. 

Deferred  royalties  received  in  one  year  by  taxpayer  on  cash  return  basis;  handling 
depletion  allowance  (2-20-674:  A.  R.  M.  17).  .June  1920  Cum.  Bull.  p.  1^4. 

Farmers;  returns  on  accrual  basis;  changing  from  cash  to  accrual;  inventories  (bee 
Art.  1586,  1 192.)  (6-19-268:  O.  844).  .1919  Cum.  Bull.  p.  59. 

Same:  and  amended  returns  (18-20-893:  O.  D.  481) . .June  1920  Cum.  Bull, 
p.  66:  modified  by  (34-20-1144:  O.  D.  636) ..  Dec.  1920  Cum  Bull,  p^  80: 
further  modified  by  (42-20-1241:  O.  D.  685).  .Dec.  1920  Cum.  Bull.  p.  81. 

Income  of  one  of  taxpayer’s  businesses  computed  on  accrual  basis;  partrtersnip  income 
on  cash  basis,  however:  permission  denied  to  taxpayer  to  change  from  cash  to 
accrual  basis  (29-21-1731:  O.  D.  977).  .Dec.  1921  Cum.  Bull.  p.  67. 

Income  taxes  under  1916  Act  deductible  in  1916  return  where  books  kept  on  accrual 
basis:  1916  Act  (1-35-481:  A.  R.  R.  1082).. Bull.  I (’22)-35,  p.  2. 

Open  “hedges”  against  spot  or  cash  transactions  in  cotton,  grain,  etc.  v.H-21-i/ou. 
ARM  135)  Dec.  1921  Cum.  Bull.  p.  67.  Applicable  to  dealers  in  other  com- 
modities (1-3-30:  I.  T.  1 166).  . June  1922  Cum.  Bull.  p._52  . 

Opening  books  after  close  of  taxable  year  to  enter  retroactively  elTec  ive  increase  in 
salaries  (20-21-1637:  A.  R.  R.  493).  .June  1921  Cum.  Bull  p.  131. 

Oysters,  propagation  and  culture  or:  no  inventories;  amended  returns  (4_  20  1240. 
O.  D.  684).  .Dec.  1920  Cum.  Bull.  p.  80.  ,,  ., 

“Paid,”  under  Revenue  Act  of  1916  as  amended,  construed  a*  Pa’d  °r  aTccr,0,, 
corporation  kept  books  on  accrual  basis  (10-21-1503:  L.  O.  1059).. June  1921 
Cum.  Bull.  p.  147. 

Short  sales  (24-19-558:  S.  1179).  .1919  Cum.  Bull.  p.  60.  . 

Uniform  accounting  and  inventories  for  all  branches  or  lines  of  business  required,  after 

1918  (23-19-541:  O.  D.  289).  .1919  Cum.  Bull.  p.  62.  , ,, 

Vendee  agreeing  to  pav  taxes  of  vendor  (income  and  excess  Profi^  t®xe6B taxatJle 
yearsgof  the  two  differing  (2-20-669:  A.  R.  M.  16)  .June  1920  Cum  Bui • Pc62. 

Wisconsin;  accrual  of  State  income  tax  for  one  year  when  its  assessment  in  following 
year  fray  be  .ati.S.d  in  par,  or  in  whole  by  preKnJ.ng  tax  ,ec|,p.,  for  personal 
property  taxes  assessed  during  same  year  (1-15-210.  I.  1.  1272;.  .June  *22 
Cum.  Bull.  p.  123. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


8-J7-22.  («)  4-10-22.  (8)  4-14-22.  (4)  5-10-22.  (5)  6-16-22.  (6)  7-27-22.  (7)  8-10-22.  (8)  10-11-22. 

NET  INCOME. 

1053  Methods  of  Accounting. — It  is  recognized  that  no  uniform  method 
of  accounting  can  be  prescribed  for  all  taxpayers,  and  the  law  con- 
templates that  each  taxpayer  shall  adopt  such  forms  and  systems  of  accounting 
as  are  in  his  judgment  best  suited  to  his  purpose.  Each  taxpayer  is  required 
by  law  to  make  a return  of  his  true  income.  He  must,  therefore,  maintain 
such  accounting  records  as  will  enable  him  to  do  so.  See  section  1300  of  the 
statute  and  article  1711  [for  general  provisions  of  law  as  aids  to  collection  of 
the  tax,  ^[27 11].  Among  the  essentials  are  the  following: 

1054  (1)  In  all  cases  in  which  the  production,  purchase,  or  sale  of  mer- 
chandise of  any  kind  is  an  income-producing  factor  inventories  of 

the  merchandise  on  hand  (including  finished  goods,  work  in  process,  raw 
materials,  and  supplies)  should  be  taken  at  the  beginning  and  end  of  the  year 
and  used  in  computing  the  net  income  of  the  year  (see  Articles  1581-1588 
[for  “inventories,”  see  1510]); 

1C55  (2)  Expenditures  made  during  the  year  should  be  properly  classi- 

fied as  between  capital  and  income,  that  is  to  say.  that  expenditures 
for  items  of  plant,  equipment,  etc.,  which  have  a useful  life  extending  sub- 
stantially beyond  the  year  should  be  charged  to  a capital  account  and  not 
to  an  expense  account;  and 

1 056  (3)  In  any  case  in  which  the  cost  of  capital  assets  is  being  recov- 

ered through  deductions  for  wear  and  tear,  depletion,  or  obsolescence 
any  expenditure  (other  than  ordinary  repairs)  made  to  restore  the  property 
or  prolong  its  useful  life  should  be  added  to  the  property  account  or  charged 
against  the  appropriate  reserve  and  not  to  current  expenses.  But  see  article 
222  [for  allowable  capital  additions  in  case  of  mines,  ^[1970].  (Art.  24,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  reference s see  page  9/. 

Banks,  depreciation  of  house  and  fixtures:  special  books  for  income  tax  purposes 
(5-21-1415:  A.  R.  R.  377).  .June  1921  Cum.  Bull.  p.  64.  Force  and  application 
of  the  foregoing  (1-30-424:  A.  R.  M.  172).  .Bull.  I (’22)-30,  p.  4. 

Open  “hedges”  against  spot  or  cash  transactions  in  cotton,  grain,  etc.  (31-21-1750: 
A.  R.  M.  135).  .Dec.  1921  Cum.  Bull.  p.  67.  Applicable  to  dealers  in  other 
commodities  (1-3-30:  I.  T.  1166).  .June  1922  Cum.  Bull.  p.  52. 

1 057  When  Charges  Deductible. — Each  year’s  return,  so  far  as  prac- 
ticable, both  as  to  gross  income  and  deductions  therefrom,  should 
be  complete  in  itself,  and  taxpayers  are  expected  to  make  every  reasonable 
effort  to  ascertain  the  facts  necessary  to  make  a correct  return.  See  Articles 
21  [for  meaning  of  net  income  ^[1042],  22  [for  computation  of  net  income  ^[  1 046], 
23  [for  bases  of  computation,  1 049],  24  [for  methods  of  accounting,  If  1053]. 
and  51  [for  when  items  are  included  in  gross  income,  1260].  The  expenses, 
liabilities  or  deficit  of  one  year  can  not  be  used  to  reduce  the  income  of  a 
subsequent  year.  But  see  section  204  and  articles  1601-1605  [for  net  losses, 
beginning  at  ^[  1535).  A taxpayer  has  the  right  to  deduct  all  authorized 
allowances,  and  it  follows  that  if  he  does  not  within  any  year  deduct  certain 
of  his  expenses,  losses,  interest,  taxes,  or  other  charges,  he  can  not  deduct 
them  from  the  income  of  the  next  or  any  succeeding  year.  It  is  recognized, 
however,  that  particularly  in  a going  business  of  any  magnitude  there  are 
certain  overlapping  items  both  of  income  and  deduction,  and  so  long  as  these 
overlapping  items  do  not  materially  distort  the  income  they  may  be  included 
in  the  year  in  which  the  taxpayer,  pursuant  to  a consistent  policy,  takes  them 
into  his  accounts.  Judgments  or  other  binding  adjudication,  such  as  decisions 
of  referees  and  boards  of  review  under  workmen’s  compensation  laws,  on 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

199  i : ; 


2-27-22.  (2)  4-10-22.  (8)  4-14-22.  (4)  6-10-22.  (6)  6-16-22.  (6)  7-27-22.  (7)  8-10-22.  l8)  10-11-22. 

NET  INCOME. 


account  of  damages  for  patent  infringement,  personal  injuries,  or  other  cause, 
are  deductible  from  gross  income  when  the  claim  is  so  adjudicated  or  paid, 
unless  taken  under  other  methods  of  accounting  which  clearly  reflect  the 
correct  deduction,  less  any  amount  of  such  damages  as  may  have  been  con- 
pensated  for  by  insurance  or  otherwise.  If  subsequently  to  its  occurrence, 
however,  a taxpayer  first  ascertains  the  amount  of  a loss  sustained  during  a 
prior  taxable  year  which  has  not  been  deducted  from  gross  income,  he  may 
render  an  amended  return  for  such  preceding  taxable  year  including  such 
amount  of  loss  in  the  deductions  from  gross  income  and  may  file  a claim  for 
refund  of  the  excess  tax  paid  by  reason  of  the  failure  to  deduct  such  loss  in 
the  original  return.  A loss  from  theft  or  embezzlement  occurring  in  one  year 
and  discovered  in  another  is  ordinarily  deductible  for  the  year  in  which 
sustained.  But  see  article  146  [for  “accounting  for  losses  to  reflect  income,” 
1786].  See  section  252  of  the  statute  and  articles  1031-1038  [for  refunds, 
etc.,  1J2813];  see  also  section  214  (a)  (6)  [losses,  *[1779].  (Art.  Ill,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Advertising  expenses  of  one  year  not  to  be  apportioned  over  period  of  years  (38-21 
1829:  O.  D.  1039).. Dec.  1921  Cum.  Bull.  p.  139. 

Baseball  player’s  contract  for  period  of  years  purchased  by  another  club  (10-21-1494: 
O.  D.  836).  .June  1921  Cum.  Bull.  p.  142 

Bond  issue  flotation  expenses;  allocation  where  bonds  mature  serially:  1918  and 
1921  Acts  (1-32-448:  I.  T.  1412).  .Bull.  I (’22)-32,  p.  3.  _ 

Bond  sold  by  mortgagee  who  agrees  to  pay  additional  1%  interest  to  investor  over 
period  of  loan;  annual  prorated  deduction  not  aggregate  of  additional  interest 
for  year  of  sale:  1916-17  and  1918  Acts  (1-30-426:  A.  R.  R.  866).  .Bull.  I ( 22)- 

30,  p.  11.  , . . . , 

Burglary;  insurance  companies  disclaim  liability;  litigation;  court  decisions  in  subse- 
quent years  (26-21-1705:  A.  R.  R.  542).  .June  1921  Cum.  Bull.  p.  143 

Carrying  charges  on  property  purchased  and  held  for  profit  (6-20-728:  O.  D.  3 >8) 
. . June  1920  Cum.  Bull.  p.  112.  (See  Law  Sec.  202.  Art.  1561,  111 437.) 

Claims  adjusted  in  one  year  involving  sales  of  goods  in  prior  year  not  up  to  specifica- 
tions as  to  weight  and  grade  (42-20-1242:  A.  R.  R.  275).  .Dec.  1920  Cum.  Bull, 
p.  147.  See  (1-19-264:  A.  R.  R.  921).  .June  1922  Cum.  Bull.  p.  126. 

Confiscation  by  Government  of  automobiles  sold  on  term  contracts  (47-21-1929. 
0.  D.  1106).  .Dec.  1921  Cum.  Bull.  p.  83. 

Contingent  fund  for  unforeseen  expenses  and  for  special  service  and  loyalty  bonuses; 
deduction  on  account  bonuses  deductible  as  of  year  authorized  only;  1918  and 
1921  Acts  (1-24-339:  I.  T.  1350).  .June  1922  Cum.  Bull.  p.  131. 

Contingent  liability  may  be  setup  without  prejudice  (5-19-260:  O.  D.  159) . . 1919  turn. 


Bull.  p.  109.  ... 

Though  adjusted  at  end  of  year  to  approximate  outstanding  claims  not  deductible 
(16-21-1578:  O.  D.  879).  .June  1921  Cum.  Bull.  p.  142. 

Damage  claim  reduced  to  judgment  in  1919,  master  s report  in  1918  (1-19-94.  o.  yZo) 

. .1919  Cum.  Bull.  p.  108.  1071.  n rt 

Defective  goods  returned  in  year  other  than  that  in  which  sold  (42-21-1871.  \J.  u. 
1067).  .Dec.  1921  Cum.  Bull.  p.  130.  See  (1-19-264:  A.  R.  R.  921).  .June  1922 

Embezzlement  of  securities  held  in  bailment  (40-20-1221:  A.  R.  R.  269).  .Dec.  1920 


Cum.  Bull.  p.  158.  ...  . , i • 11  - mi  70 

Employer’s  liability  payments  over  a period  of  years  in  weekly  installments  (AZ-i!  ~ 
1243:  O.  D.  686).  .Dec.  1920  Cum.  Bull.  p.  148.  Revoked  (1918  and  1921  Acts) 
by  (1-14-193:  I.  T.  1263).  .June  1922  Cum.  Bull.  p.  123. 

Forged  notes  purchased  and  advances  made  on  fraudulent  bills  of  sale  in  or)®  year  ralh 
discovered  in  next  year  (30-20-1090:  O.  D.  604).. Dec.  1920  Cum.  Bull.  p. 

Freight  reserve  on  account  goods  sold  f.  o.  b.  destination,  but  freight  paid  by  and  t len 
credited  to  customer;  freight  deductible  when  credited  only:  1921  Act  (1-24-340: 
I.  T.  1351).  .June  1922  Cum.  Bull.  p.  132.  , . . 

Government  contract  cancelled;  satisfaction  of  claim  at  less  than  lace  (48-Zi-iv^o. 
A.  R.  R.  685).  .Dec.  1921  Cum.  Bull.  p.  131.  . 

Interest  on  dividends  paid  on  affirmation  by  higher  court  in  one  year  of  lower  court 
decree  of  a prior  year  (4-21-1407:  O.  D.  778).. June  1921  Cum.  Bull.  p.  141. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
200 


2-*T-J2.  (2)  4-10-22.  (•)  4-14-22.  (4)  4-18-22.  (5)  6-10-22.  (6)  8-17-22.  (7)  10-11-22.  (8)  11-4-22. 

NET  INCOME. 


Judgment  on  account  patent  infringement  (20-21-1638:  O.  D.  917).  .June  1921  Cum. 

Bull*.  p.  142.  

Differentiated  from  case  where  title  to  land,  royalty  rights  being  dependent  on 
ownership,  is  in  litigation  (51-21-1981 : O.  D.  1141)..  Dec.  1921  C.  Bp.  134. 
Lease  canceled:  consideration  paid  to  lessor  by  lessee  (28-21-1726:  O.  D.  974).  .Dec. 

1921  Cum.  Bull.  p.  129.  . , , 

Leasehold  (oil  and  gas)  to  be  paid  for  (in  a stated  amount)  in  installments  out  of  the 

yield,  plus  assuming  of  income  tax  of  lessors  on  profits,  plus  interest  (28-21-1723: 
O.  D.  971).  .Dec.  1921  Cum.  Bull.  p.  80.  . . ~' 

Leasing  privilege  purchased,  payment  covering  2}4-year  period  between  execution  of 
lease  and  possession  (35-21-1793:  O.  D.  1013).. Dec.  1921  Cum.  Bull.  p.  130. 
Liquidated  damages  for  release  from  contract  for  delivery  of  goods  (3-19-188:  S. 

983).  .1919  Cum.  Bull.  p.  217.  . 

Munitions  tax  (See  “Munitions  Tax”  in  Cumulative  Index  under  11703.) 

New  York  State  franchise  tax  (3-20-687:  0.  D.  371).  .June  1920  Cum.  Bull.  p.  112. 
¥ Also,  and  particularly  amount  of  additional  tax  on  reassessment:  1917  and 
1918  Acts  (1-43-558:  A.  R.  R.  1153).. Bull.  I (’22)-43,  p.  3. 

New  York  State  income  tax;  amounts  withheld  at  source  against  nonresidents:  1921 
Act  (1-15-211:  I.  T.  1273).  .June  1922  Cum.  Bull.  p.  125. 

Ohio;  Workmen’s  Compensation  (33-21-1768:  O.  D.  992).. Dec.  1921  Cum.  Bull, 
p.  118.  Revoked  (1918  and  1921  Acts)  by  (1-14-193:  I.  T.  1263).  .June  1922 
Cum.  Bull.  p.  123. 

Pennsylvania:  Workmen’s  Compensation  (49-21-1959:  O.  D.  1123).  .Dec.  1921  Cum. 
Bull.  p.  133.  Revoked  (1918  and  1921  Acts)  by  (1-14-193:  I.  T.  1263).  .June 

1922  Cum.  Bull.  p.  123. 

Receiver’s  and  attorney’s  fees  (1-19-6:  O.  D.  3).  .1919  Cum.  Bull.  p.  109. 

Rentals  in  part  withheld  by  contract  during  first  3 years  of  18-year  lease  (6-21-1430: 
0.  D.  794).  .June  1921  Cum.  Bull.  p.  141. 

Sales  in  1918,  goods  returned  in  1919  and  resold  at  loss  (26-20-1028:  A.  R.  R.  155) 
. .June  1920  Cum.  Bull.  p.  155.  (See  “Sales  on  warranty”  below.) 

Sales  on  warranty  in  one  year,  goods  returned  in  subsequent  year;  1918  Act  (1-19- 
264:  A.  R.  R.  921).  .June  1922  Cum.  Bull.  p.  126. 

Wisconsin:  retroactive  supertax  imposed  (48-21-1949:  O.  D.  1118).. Dec.  1921  Cum. 

Bull.  p.  133.  , . _ . 

Wisconsin;  tax  receipts  for  personal  property  taxes  assessed  in  one  year  ottsetting  tax 
on  income  of  prior  year  (1-15-210:  I.  T.  1272).  .June  1922  Cum.  Bull.  p.  123. 

1058  Adjustment  of  Accounts  and  Amended  Returns  Because  of  Exces- 
sive Tariff  Duties  and  Excise  Tax  Paid  in  One  Year  and  Refunded 
by  Government  in  Another  Year. — Read  17 05  and  H 1 7 13. 


1 069  Law  Hi  13.  Basis  of  Computation  to  be  the  Calendar  Year  in  Cer- 
(Sec.  212.)  tain  Instances. — “7/  the  taxpayer's  annual  accounting 
period  is  other  than  a fiscal  year  as  defined  in  section 
200  [If  1060]  or  if  the  taxpayer  has  no  annual  accounting  period  or  does  not 
keep  books , the  net  income  shall  be  computed  on  the  basis  of  the  calendar 
year." — Law.  [Note:  The  1918  Act  so  provided.] 

1060  Law.  H15.  “Taxable  Year”  Defined.—' 11  The  term  ‘ taxable  year' 
(Sec.  200.)  means  the  calendar  year , or  the  fiscal  year  ending  during 
such  calendar  year , upon  the  basis  of  which  the  net  income 
is  computed  under  section  212  [ individuals , Hi 044]  or  section  232  [corpora- 
tion/, H1041].”— Law.  [Note:  The  1918  Act  so  provided.] 


1061  The  taxable  year  is  the  time  unit  for  the  purpose  of  the  tax.  See 
section  212  of  the  statute  and  article  22,  [for  computation  of  net 
income  with  respect  to  a fixed  period,  H 1 046].  (Art.  1533,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  reference t tee  page  p /. 

Fiscal  year  corporation  organized  in  1918;  “taxable  year”  (1-19-3:  S.  930)..  1919 
Cum.  Bull.  p.  15 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
201 


i-*7-22.  (2)4-10-22.  (3)4-14-22.  (4)  4-18-22.(6)  5-10-22.  (6)  8-17-22.(7)  10-11-22.(8)  11-4-22. 

NET  INCOME. 


1 062  Law  If  16.  “Fiscal  Year”  Defined. — “The  term  ‘ fiscal  year ’ mcanj 
(Sec.  200.)  an  accounting  period,  of  twelve  months  ending  on  the 
last  day  of  any  month  other  than  December .”■ — Law. 

[Note:  The  1918  Act  so  provided.] 


1063  Law  ^ 17. 

(Sec.  200.) 

1921;”— Law. 


The  Taxable  Year  1921. — “The  first  taxable  year , to  be 
called  the  taxable  year  1921,  shall  be  the  calendar  year 
1921  or  any  fiscal  year  ending  during  the  calendar  year 
[Note:  The  1918  Act  so  provided,  as  to  1918.] 


1064  Accounting  Period. — The  return  of  a taxpayer  is  made  and  hi» 
income  computed  for  his  taxable  year,  which  means  his  fiscal  year, 
or  the  calendar  year  if  he  has  not  established  a fiscal  year.  The  term  “fiscal 
year”  means  an  accounting  period  of  12  months  ending  on  the  last  day  of 
any  month  other  than  December.  No  fiscal  year  will,  however,  be  recognized 
unless  before  its  close  it  was  definitely  established  as  an  accounting  period 
by  the  taxpayer  and  the  books  of  such  taxpayer  were  kept  in  accordance 
therewith.  The  taxable  year  1921  is  the  calendar  year  1921  or  any  fiscal 
year  ending  during  the  calendar  year  1921.  See  section  200  of  the  statute. 
A person  having  no  such  fiscal  year  must  make  return  on  the  basis  of  the 
calendar  year.  Except  in  the  case  of  a first  return  for  income  tax.  a taxpayer 
shall  make  his  return  on  the  basis  (fiscal  or  calendar  year)  upon  which  he  made 
his  return  for  the  taxable  year  immediately  preceding  unless,  with  the  approval 
of  the  Commissioner,  he  has  changed  his  accounting  period.  (Art.  25,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  pi. 


Application  in  1919  for  retroactive  change,  books  . not  closed  and  no  inventory  taken 
at  end  of  proposed  1918  fiscal  period:  denial  sustained:  1918  Act  (1-33-456: 
A.  R.  R.  1052).  .Bull.  1 (’22)-33,  p.  3. 

Books  close'*  Dec.  31,  also  Aug.  31;  returns  always  made  on  calendar  year  basii: 
Committee  overrules  Unit’s  insistence  that  amended  returns  on  fiscal  year  basil 
be  filed  (21-21-1646:  A.  R.  R.  501).  .June  1921  Cum.  Bull.  p.  69. 

Books  of  account  essential  to  fiscal  year  basis  (43-20-1257:  O.  D.  696).  .Dec.  1920 


Cum.  Bui.  p.  81. 

Calendar  year  returns  but  differing  fiscal  year  books  prior  to  1918;  resolution  in  1918 
to  change  to  calendar  year  books;  return  for  1918  on  calendar  year  basis  must  be 
accepted  no  application  to  change  having  been  made  (50-20-1340:  A.  R.  R.  342) 
Dec.  1920  Cum.  Bull.  p.  81:  somewhat  similar  but  by-law  to  change  not  being 
adopted  until  1919  (8-21-1458:  A.  R.  R.  391)  June  1921  Cum.  Bull.  p.  67. 

Maryland  public-service  colorations  (2-19-146:  O.  D.  100).  .1919  Cum  Bull.  p.  62. 

New  corporations  starting  on  fiscal  year  basis  (8-20-749:  O.  D.  404).  .June  1920  Cum. 
Bull.  p.  67.  . . , - . 

Sole  proprietor  to  maintain  personal  books  on  fiscal  year  basis  in  order  that  nscal  year 
return  be  permitted  (23-21-1673:  O.  D.  941).. June  1921  Cum.  Bull.  p.  71. 


1066  Law  ^f  1 14.  Changing  from  One  Accounting  Period  to  Another. 

(Sec.  212.)  “(c)  If  a taxpayer  changes  his  accounting  period  from 

fiscal  year  to  calendar  year , from  calendar  year  to  fiscal 
year , or  from  one  fiscal  year  to  another , the  net  income  shall , with  the  approval 
of  the  Commissioner , be  computed  on  the  basis  of  such  new  accounting 
period , subject  to  the  provisions  of  section  226  [1f2567].” — Law.  [Note: 

The  1918  Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
202 


2-27-22.  (2)  3-14-22.  (3)  4-14-22.  (4)  8-17-22.  (5)  10-11-22. 

NET  INCOME. 


1066  If  a taxpayer  changes  his  accounting  period  he  shall  as  soon  as 
possible  give  to  the  collector  for  transmission  to  the  Commissioner  writ- 
ten notice  of  such  change  and  of  his  reasons  therefor.  The  Commissioner 
will  not  approve  a change  of  the  basis  of  computing  net  income  unless  such 
notice  is  given  thirty  days  before  the  close  of  the  proposed  or  new  taxable 
year  or  period.  The  due  date  of  the  separate  return  for  such  period  is  the  fif- 
teenth day  of  the  third  month  following  the  close  of  that  period.  If  the 
change  in  the  basis  of  computing  the  net  income  of  the  taxpayer  is  approved 
by  the  Commissioner,  the  taxpayer  shall  thereafter  make  his  returns  and 
compute  his  net  income  upon  the  basis  of  the  new  accounting  period.  See 
article  431  [If 25 74].  (Art.  26,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Application  in  1919  for  retroactive  change,  books  not  closed  and  no  inventory  taken 
at  end  of  proposed  1918  fiscal  period:  denial  of  right  to  change  sustained:  1918. 
Act.  (1-33-456:  A.  R.  R.  1052).  .Bull.  I (’22)-33,  p.  3. 

Application  must  be  made  by  taxpayer  or  his  agent  and  permission  having  been,  granted 
change  must  be  made.  .(14-21-1541:  Mim.  2738).. June  1921  Cum.  Bull.  p.  71. 

Closed  accounting  period  may  not  be  changed  (30-20-1087:  T.  D.  3044).  .Dec.  1920 
Cum.  Bull.  p.  83. 

“Due  date”  in  connection  with  application  for  change  means  original  and  not  that 
established  by  granted  extension  (10-19-355:  O.  D.  205).  . 1919  Cum.  Bull.  p.  65. 

Fiscal  year  ended  June  30  and  return  filed:  change  to  calendar  year  (24-20-996:  Sol. 
Op.  5).  .June  1920  Cum.  Bull.  p.  67. 

Instructions  for  making  request  for  change:  1921  Act  (I.  T.  Mini.  Coll.  No.  2927).  . 

. ,1f3079.  Same  as  (1-13-178).  .June  1922  Cum.  Bull.  p.  57. 

Not  lightly  approved:  must  be  for  sound  business  reasons  and  following  accomplished 
change  in  books  (11-19-370:  T.  B.  R 37).  . 1919  Cum.  Bull.  p.  63. 

Notice  in  1918  of  change  from  fiscal  to  calendar  year  according  to  statute  and  regula- 
tions then  in  effect:  return  from  close  of  fiscal  year  to  end  of  calendar  year 
accepted  notwithstanding  Reg.  45  (1-19-19:  O.  D.  10) . . 1919  Cum.  Bull.  p.  64. 


■vi-ywo')  1W- '.  vVT  V<\  ,Wt 

Copyright  19-22,  by  7 he  Corporation  7 ru  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

203 


2-27-22.  (2)  3-14-22.  (3)  4-14-22.  (4)  8-17-22.  (5)  10-11-22. 

GROSS  INCOME. 


1067  Law  1(115.  Gross  Income  Defined. — “Sec.  213.  That  for  the 
(Sec.  213.)  purposes  of  this  title  ( except  as  otherwise  provided 

in  section  233  [S<r*  1(378])  the  term  ‘ gross  income ’ — ” 
— Law.  [Note:  The  1918  Act  so  provided.] 

1068  Law  1(116.  “(a)  Includes  gains , profits,  and  income  derived  from 

(Sec.  213.)  salaries,  wages,  or  compensation  for  personal  service 

(including  in  the  case  of  the  President  of  the  United 
States,  the  judges  of  the  Supreme  and  inferior  courts  of  the  United 
States,  and  all  other  officers  and  employees,  whether  elected  or  appointed, 
of  the  United  States,  Alaska,  Hawaii,  or  any  political  subdivision  thereof, 
or  the  District  of  Columbia , the  compensation  received  as  such),  of  what- 
ever kind  and  in  whatever  form  paid,” — Law.  [Note:  The  1918 

Act  so  provided.] 

[For  salaries  of  officials  of  a State  or  political  subdivision  see  1(1599.] 

1069  Law  K 1 17.  “from  professions,  vocations,  trades,  businesses , com- 
(Sec.  213.)  merce,  or  sales,  or  dealings  in  property,  whether 

real  or  personal,  growing  out  of  the  ownership  or  use  of 
or  interest  in  such  property” — Law.  (Note:  The  1918  Act  so 

provided.] 


1070  Law  1(118.  “also  from  interest,  rent,  dividends,  securities,  or  the 
(Sec.  213.)  transaction  of  any  business  carried  on  for  gain  or 
profit,” — Law.  [Note:  The  1918  Act  so  provided.] 


107  1 Law  1(119.  “gains  or  profits  and  income  derived  from  any  source 
(Sec.  213.)  whatever.” — Law.  [Note:  The  1918  Act  so 

provided.] 


1072  Law  1(120.  “ The  amount  of  all  such  items  (except  as  provided  in 

(Sec.  213.)  subdivision  (e)  [1(1081]  of  section  201)  shall  be  included 
in  the  gross  income  for  the  taxable  year  in  which  received 
by  the  taxpayer,  unless , under  methods  of  accounting  permitted  under 
subdivision  (b)  of  section  212  [1(1044],  any  such  amounts  are  to  be  properly  ac- 
counted for  as  of  a different  period',” — Law.  [Note:  The  1918  Act 

did  not  carry  the  exception  relative  to 
Sec.  201  (e),  dividends.] 


1 073  Law  K378.  Gross  Income  of  a Corporation  Defined.—' “Sec.  233. 

(Sec.  233.)  (a)  That  in  the  case  of  a corporation  subject  to  the  tax 

imposed  by  section  230  [1(972]  the  term  ‘gross  income ’ 
means  the  gross  income  as  defined  in  sections  213  [1(1067  ] and  217  [1(2102], 

— Law.  [Note:  The  1918  Act  omitted  “and  217.”] 

1 074  The  gross  income  of  a corporation  for  the  purpose  of  the  tax  in 
general  includes  and  excludes  the  same  things  as  the  gross  income 

of£  an  individual.  It  embraces  not  only  the  operating  revenues,  but  also 
gains, [, profits  and  income  from  ail  other  sources,  such  as  rentals,  royalties, 
interest,  dividends  from  stock  in  other  corporations,  and  profits,  front  the 
sale  of  capital  assets.  Under  the  Revenue  Act  of  1921,  the  proceeds  of  life 
insurance  policies  paid  upon  the  death  of  the  insured  to  any  beneficiary 
(corporate^or  otherwise)  are  not  to  be  included  in  the  beneficiary  s gross 

Copyright  1922,  hy  The  Corporation  Trust  Company. 

THE  FEDEUAL  INCOME  TAX  SERVICE 

204 


3-27-22.  (2)  4-10-22.  (S)  4-28-22.  (4)  5-10-22.  (5)  6-2-22.  (6)  6-30-22.  (7)  10-11-22. 

GROSS  INCOME. 

income.  In  the  case  of  mutual  insurance  [1[1350]  companies  and  of  foreign 
corporations  [If  1407]  there  are  special  provisions.  (Art.  541,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  qi. 

Apartment  house  lessor  corporation,  shareholders  being  proprietary  lessees;  assess- 
ments on  shareholders  are  income  to  corporation;  1921  Act  (1-19-266:  I.  T.  1302) 
★ . .June  1922  Cum.  Bull.  p.  193.  Overruled  in  part  (1-41-547:  I.  T.  1469)  Bull 

I (’22)-41,  p.  8.  ' 

Banks:  Liberty  bonds  and  Victory  notes  on  account  of  subscribers  and  in  excess  thereof 
(8-19-331:  O.  D.  192)..  1919  Cum.  Bull.  p.  211. 

Before  incorporating:  sales  made  by  individuals  under  agreement  to  incorporate  (21-19- 
523:  O.  D.  282).  . 1919  Cum.  Bull.  p.  980. 

Foreign  partnership  owned  in  large  part  by  domestic  corporation  (12-19-405:  O.  D. 
230) ..  1919  Cum.  Bull.  p.  212. 

Insurance  policy  on  life  of  officer  sold  for  less  than  aggregate  premiums  paid  (45-20- 
1297:  O.  D.  724).  .Dec.  1920  Cum.  Bull.  p.  244. 

Insurance  policy  proceeds  paid  in  installments  (1-19-92:  O.  D.  66). . 1919  Cum.  Bull. 

p.  211. 

Interest  accrued  but  not  paid  on  loan  by  parent  to  subsidiary  (1909  Act)  ( 13-2 1-1533  • 
T.  D.  3133).  .June  1921  Cum.  Bull.  p.  286. 

Life  insurance  proceeds  of  policy  carried  on  his  own  life  by  sole  owner  of  corporation’s 
stock  (50-20-1345:  A.  R.  R.  335).  .Dec.  1920  Cum.  Bull.  p.  244. 

Liquidation:  sale  of  assets  during  (11-19-386:  S.  1090)..  1919  Cum.  Bull.  p.  209. 

(See  also  Cumulative  Index  following  Art.  548,  If  1294.) 

Public  utilities:  mere  book  entries  permitted  by  I.  C.  C.  classification  (13-19-425’ 
0.  D.  246)..  1919  Cum.  Bull.  p.  212. 

Principles  of  above  are  applicable  to  1916  and  1917  Acts  (41-21-1862:  0.  D.  1061) 
.Dec.  1921,  Cum  Bull.  p.  206. 

Railroads;  book  entry  charging  construction  account  and  crediting  income  due  to 
charging  rental  on  own  equipment  (7-21-1453:  O.  D.  811).  .June  1921  Cum.  Bull, 
p.  276. 

Rental  received  by  payment  by  lessee  direct  to  lessor’s  stockholders,  of  which  lessee 
was  one  (30-21-1747:  A.  R.  R.  589).. Dec.  1921  Cum.  Bull.  p.  205. 

Telephone  companies  during  period  of  Federal  control  (12-19-404:  O D 229)  1919 

Cum.  Bull.  p.  212;  also  (15-19-449:  O.  D.  255)..  1919  Cum.  Bull.  p.  212. 


1075  What  Included  in  Gross  Income  Generally— Gross  income  includes 
n general  compensation  for  personal  and  professional  services,  busi- 
ness income,  profits  from  sales  of  and  dealings  in  property,  interest,  rent, 
dividends,  and  gains,  profits,  and  income  derived  from  any  source  what- 
ever, unless  exempt  from  tax  by  law.  See  section  213  (b)  ffll550l.  In 
general,  income  is  the  gain  derived  from  capital,  from  labor,  or  from  both 
combined,  provided  it  be  understood  to  include  profit  gained  through  a sale 
or  conversion  of  capital  assets.  Profits  of  citizens,  residents,  or  domestic 
corporations  derived  from  sales  in  foreign  commerce  must  be  included  in  their 
gross  income;  but  special  provisions  are  made  for  nonresident  aliens  by  section 
217  [1[2 1 02]  and  for  citizens  and  domestic  corporations  deriving  at  least  80 
per  cent  of  their  gross  income  from  sources  within  possessions  of  the  United 
States  by  section  262  [^[207 0].  Income  may  be  in  the  form  of  cash  or  of 
property.  A husband  and  wife  domiciled  in  Texas,  Washington,  Arizona, 
Idaho,  New  Mexico.  Louisiana,  and  Nevada,  in  rendering  separate  income  tax 
returns,  may  each  report  as  gross  income  one-half  of  the  income  which,  under 
the  laws  of  the  respective  States,  becomes  simultaneously  with  its  receipt 
community  property.  As  to  dividends,  whether  in  cash  or  in  property,  see 
section  201  and  articles  1541-1549  [beginning  at  1F1077].  Under  the  Revenue 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-21-22.  (2)  4-10-22.  (3)  4-28-22.  (4)  5-10-22.  (5)  6-2-22. 

GROSS  INCOME. 


(6)  6-30-22.  (7)  10-11-22. 


Act  of  1918  the  amount  of  income  tax  paid  for  a bondholder  by  the  obligor 
pursuant  to  a so-called  tax-free  covenant  in  its  bonds  was  treated  as  additional 
interest  paid  the  bondholder  who  was  required  to  include  it  in  his  gross 
income;  but  section  234  (a)  (3)  of  the  Revenue  Act  of  1921  1111724]  provides 
that  a bondholder  shall  not  include  such  amount  in  his  gross  income.  Under 
both  statutes  the  bondholder  is  entitled  to  credit  such  amount  against  his 
total  income  tax  otherwise  due.  See  section  221  ,(b)  ^ ®%tuteAfn^ 

article  375  [for  return  of  income  from  which  tax  withheld,  il-330J.  As  to 
the  basis  for  determining  gain  or  loss  from  sale  or  disposition  of  property, 
see  section  202  and  articles  1561-1570  [H 1437].  As  to  the  gross  income  of  cor- 
porations, see  section  233  and  articles  541-550  [<[1074  and  beginning  at 
1274].  (Art.  31,  Reg.  62,  1922  Edition.) 

hor  explanation  of  Cumulative  Index  references  see  page  gi. 

Agreement  not  to  engage  in  particular  business;  amount  received  in  consideration 
(39-20-1210:  O.  D.  668).  .Dec.  1920  Cum.  Bull.  p.  93.  . 

Agreement  to  pay  stated  amount  monthly  during  life  for  lump  sum  consideration, 
income  to  payor  in  event  of  beneficiaries’  deaths  before  principal  is  returned  to 
them;  1921  Act  (1-12-149:  I.  T.  1242).  .June  1922  Cum.  Bulb  p.  61. 

Bonds  purchased  at  premium;  interest  received  or  accrued  (32-20-1 117.  U. . U.  b22) 
..Dec.  .920  Cum.  Bull.  p.  89.  See  also  (1/-20-887.  O.  D.  475).. June  1V2U 

Bond^UpurchasedPbet«7een  interest  dates;  interest  on  (37-20-1191:  Sol.  Op.  46).  .Dec. 

1920  Cum.  Bull,  p no.  . ^ r\ 

Bonuses  paid  but  not  deducted  by  payor  as  income  to  payee  (27-20-10JV.  u.  u 

570).  .Dec.  J 920  Cum.  Bull.  p.  144. 

Commiss:  ms  advmiced  (1-19-31:  O.  D.  19)..  1919  Cum.  ^ull.p.  . rune 

Community  property;  each  spouse  to  report  in  detail  (19-^1-1625.  O.  . ' ;.’Agn 

1921  Cum.  Bull.  p.  254.  See  “Community  Property’;  references  following  .390. 
Consignee  jelling  for  consignor;  no  notification  of  sale  till  subsequent  yea. 

Damages  for  aliemidon  oTa^e^tion  (24-20-997 : S.  1384).  June  1920  Cum.  BuH.  p.  71. 

Above  revoked;  all  acts  (1-17-240:  Sol.  Op.  132)  June  1922  Cum  Bull.  p.  92 
Damages  for  breach  of  promise:  annual  payment  for  life  (20-2G-.J1.  U.  U.  ) 

DamagesnforUbelC(M9-21:  SP  957).  . 1919  Cum.  Bull.  p.  65.  Modified;  all  acts  (1-17- 

Damages  ^ £aSon  prior  profits  from  the  patent 

DiSchm,ge;Cforce^  ba^pay9(^l-20-^8?  O.  512) . . June  1920  Cum. 

Discount  on  ll count  advance  payment  of  taxes  under  1917  Act  is  not  taxable  income 
(1-22-311:  Mim.  2961).  .June  1922  Cum.  Bull.  p.  63. 

Dividends  paid  in  promissory  notes:  subsequent  disposition  of  notes  (17-20  883. 

O.  D.  471).  .June,  1920  Cum.  Bull.  p.  26.  ...  O H 

Estate  tax;  income  from  fund  set  aside  to  pay,  is  income  to  estate  (36-20-1183.  Q.  D. 

656).. Dec.  1920  Cum.  Bull.  p.  90.  

Excess  payments  in  error  (1-19-26:  O.  D.  14)  . *919  Cum.  Bull.  p.  • 

E snorts*  nrofit  from  U.  S.  Supreme  Court  decision,  Supplementary  Page  140,  * S70. 
FMuciary  also  a beneficiary  of  aUt 

Foreign  government;  compensation  irom  (1-19-32.  U ' D-  20). . - * 

Hawaiian  teachers  (1-19-24:  O.  D.  12) . . 1919  Cum.  Bu  . p.  • 1098) 

Indians;  royalties  under  mining  lease  of  restricted  allotment  (1-26-367.  L.  U.  10  ) 

* e^ectedj  but^notWng  more,  on  sale  of  par. of  fe,, 

amount  received  is  income:  1921  Act  (1-41-543:  I.  T.  1466).  . Bull.  1 ( 22)  4 , p.  s. 

Insurance  premiums  received  by  vendor  of  automobiles  on  term  contracts  (47-21-1929. 

Insurance  rVceived^yC assignee*1 creditor  corporation  on  death  of  insured,  balance  after 
f bearing  loan  being  turned  over  to  ...Jgnor  e.r.tet  no,  to 
be  included  in  corporation’*  gross  income  (7-21-1445.  O.  D.  804).. June 
Cum.  Bull.  p.  72. 


Copyright  1922.  by  The  Corporation  Trust  Company. 
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(8)  9-20-22.  (9)  10-11-22. 


GROSS  INCOME 


Labor  union  unemployment  benefits  received  by  members  are  to  be  included  in  gross 
income:  1021  Act  (1-18-248:  I.  T.  1293).  .June  1922  Cum.  Bull.  p.  63. 

Leasehold  (oil  and  gas)  yield,  leasehold  to  be  paid  for  (in  a stated  amount)  in  install- 
ments out  of  the  yield,  plus  assuming  of  income  tax  of  lessors  on  profits,  plus 
interest  (28-21-1723:  O.  D.  971).  .Dec.  1921  Cum.  Bull.  p.  80. 

Liberty  bonds:  interest  received  by  banks  on  loans  to  subscribers  for  (1-19-28:  O.  D.  16) 
. . 1919  Cum.  Bull.  p.  67.  Also  (8-19-331:  O.  D.  192).  .1919  Cum.  Bull.  p.  211. 

Membership  initiation  fees  in  unincorporated  exchange;  special  facts:  1921  Act 

(1-16-223:  I.  T.  1280).  .June  1922  Cum.  Bull.  p.  62.  Modified  (1-28-400: 
I.  T.  1387).  .Bull.  I (’22)-28,  p.  1. 

Mineral  lease:  annual  rentals;  bonuses  where  land  had  no  value  for  mineral  purposes 
on  March  1,  1913  (1-5-56:  A.  R.  M.  148).  .June  1922  Cum.  Bull.  p.  186. 

Mineral,  oil  and  gas  rights;  sale  of,  when  acquired  without  consideration  in  prior  pur- 
chase of  land  (35-20-1163:  O.  D.  644) . . Dec.  1920  Cum.  Bull.  p.  89. 

Note  payable  in  marks  for  marks  loaned;  profit  by  payment  in  dollars:  1921  Act 
(1-32-447:  I.  T.  1411).  .Bull.  I (’22)-32,  p.  2. 

Option  to  purchase  interest  in  patent  royalties;  payment  made  to  bind  (37-21-1813: 
O.  D.  1028).  .Dec.  1921  Cum.  Bull.  p.  83. 

Perpetual  easement  sold  (43-21-1881:  0.  D.  1072).  .Dec.  1921  Cum.  Bull.  p.  89. 

Profits  involuntarily  acquired  (25-19-581:  A.  R.  M.  1).  .1919  Cum.  Bull.  p.  66. 

Profit-sharing  fund  of  employees,  invested  in  firm’s  business,  profit-sharing  certificates 
being  subject  to  cancellation  by  the  firm:  income  from  fund  is  firm’s  (9-20-766: 
S.  1329).  .June  1920  Cum.  Bull.  p.  69. 

Receiver’s  fees  going  to  third  party:  here,  bank  president  acting  for  insolvent  debtor 
of  bank  on  condition  that  fees  be  turned  over  to  bank  (35-21-1789:  O.  D.  1009) 
. .Dec.  1921  Cum.  Bull.  p.  81. 

Red  Cross  worker;  no  salary  but  maintenance  (1-19-23:  O.  D.  1 1) ..  1919  Cum.  Bull. 

p.  66. 

Rescinding  of  illegally  paid  dividend  and  refund  by  stockholders  (20-19-502:  T.  B.  M. 
77). . 1919  Cum.  Bull.  p.  25. 

Rescinding  of  legally  paid  dividend  and  refund  by  stockholders  (12-19-398:  T.  B.  R. 
42)  . . 1919  Cum.  Bull.  p.  65.  Same  though  no  purported  rescinding  by  corporation 
but  refunding  by  action  of  stockholders  (25-2 1-169 1 : Sol.  Op.  110).  June  1921 
Cum.  Bull.  p.  73. 

Revocable  trust  (32-20-1 116:  0.  D.  621).  .Dec.  1920  Cum.  Bull.  p.  202.  Reversal: 
the  income  of  the  instant  revocable  trust,  and  generally  when  no  question  of 
fraud  or  intent  to  evade  taxation,  is  not  taxable  to  the  grantor  but  to  the  ben- 
eficiaries of  whom  the  grantor  may  be  one;  full  discussion:  1916-17,  and  1918 
Acts  (1921  Act)  (1-30-425:  L.  0.  1102).  .Bull.  I _(’22)-30,  p.  5. 

Rhode  Island;  amount  of  tax  assessed  against  depositor  of  savings  in  national  bank 
but  paid  by  bank  is  income  to  depositor:  1921  Act  (1-28-401:  I.  T.  1388).  .Bull. 
I (’22)-28,  p.  3. 

Sale  of  capital  assets  by  one  not  a dealer  therein:  May  taxable  “profit”  arise? 
Supreme  Court  decisions.  .Supplementary  Pages  186,  189,  190,  191,  and  200. 

Profits  not  included  in  returns  for  1920  (23-21-1674:  Mim.  2791).  June  1921 
Cum.  Bull.  p.  72. 

Sale  of  farm  in  1910;  partial  payments  and  interest  running  into  years  when  there 
was  income  tax  (35-20-1165:  O.  D.  646).  .Dec.  1920  Cum.  Bull.  p.  90. 

Sale  of  investment  assets:  Is  an  amount  of  realized  capital  increment  “profit?” 
Supreme  Court  decisions.  .Supplementary  Pages  186,  189,  190,  191,  and  200. 

Profits  not  included  in  returns  for  1920  (23-21-1674:  Mim.  2791).  .June  1921 
Cum.  Bull.  p.  72. 

Savings  stamps;  profit  on  sale  (1-19-33:  O.  D.  21) ..  1919  Cum.  Bull.  p.  67. 

Scrip  for  bond  interest  (26-20-1032:  O.  D.  563).  .June  1920  Cum.  Bull.  p.  193 

Spruce  Division;  salary  of  employee  of  (11-19-376:  O.  D.  214). . 1919  Cum.  Bull.  p.  98. 

State  or  municipal  obligations;  discount  on  non-interest  bearing  (13-19-416:  O.  D. 
238)  . . 1919  Cum.  Bull.  p.  68.  See  however  (35-20-1 166:  O.  D.  647) . . Dec.  1920 
Cum.  Bull.  p.  123. 

Stock  issued  to  third  party  in  consideration  for  property  transferred  to  corporation; 
no  taxable  income  to  prior  owner  of  property:  1917  Act  (1-38-509:  A.  R.  M. 
177).  .Bull.  I (’22)-38,  p.  1. 

Storage,  etc.,  charges  reimbursed  (in  part)  by  landlord  to  tenant  on  account  antici- 
pated termination  of  lease  (37-21-1812:  A.  R.  R.  617.  .Dec.  1921  Cum.  Bull.  p.  81. 

Strike  benefits  (25-20-1011:  0.  D.  552).  .June  1920  Cum.  Bull.  p.  73. 


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(8)  9-20-22.  (9)  10-11-22. 


GROSS  INCOME— DIVIDENDS. 


Tax-free-covenant  bond  interest;  taxes  paid  by  obligor  for  obligee  on  account  of, 
as  “additional  interest”  to  the  latter  (277  Fed.  123)  (1-5-51:  Ct.  D.  20).  .June 
1922  Cum.  Bull.  p.  58.  Syllabus  at  *[3113  herein. 

Income  and  excess-profits  taxes  paid  by  vendee  for  vendor  as  income  for  latter  (2-20- 
669:  A.  R.  M.  16) . .June  1920  Cum.  Bull.  p.  62.  _ 

Thirty-day  repurchase  of  “substantially  identical”  securities  sold  at  a profit— 1921 

Act  (1-11-141:  1.  T.  1239).  .June  1922_Cum.  Bull.  p.  149. 

Underwriting  profits  income  to  partnership  although  work  undertaken  to  protect 
decedent  member’s  estate  and  profits  all  turned  over  to  estate  (24-20-998.  O.  D. 
542).  .June  1920  Cum.  Bull.  p.  72.  v „ „ 

Use  and  occupancy  insurance  (35-20-1164:  O.  D.  645).  .Dec.  1920  Cum.  Bu.l.  p.  89, 
Usurious  interest  accrued  on  notes  not  collectible  by  legal  process  (51-21-1979:  O.  D. 


1139).  .Dec.  1921  Cum.  Bull.  p.  84.  _ 

Warrants  purchased  at  discount  by  bank  (15-21-1561:  O.  D.  870).  .June  1921  Cum 

Witness  for  “State”;  fees  (9-19-338:  O.  D.  193)..  1919  Cum,  Bull.  p.  67. 


107  6 Gross  Income  of  United  States  Citizens  and  Domestic  Corporations 
from  Sources  within  Possessions  of  the  United  States.  Read 

at  H2070. 


1077  Law  H26.  “Dividends”  Defined.—' “Sec.  201.  (a)  That  the 

(Sec.  201.)  term  ‘ dividend n when  used  in  this  title  ( except  in  para- 
graph (10)  of  subdivision  (a)  of  section  234  [^1 135 1 ] 

and  paragraph  (4)  of  subdivision  (a)  of  section  245  [If  1323])  means 
any  distribution  made  by  a corporation  to  its  shareholders  or  members , 
whether  in  cash  or  tn  other  property , out  of  its  earnings  or  profits  accumu- 
lated since  February  28,  1913,” — Law.  [Note:  The  1918  Act  ^in- 

cluded here  distributions  made  in 
stock  of  the  corporation”;  “and  para- 
graph (4)  of  subdivision  (a)  of  section 
245”,  life  insurance  companies,  is  new.] 

1078  Law  H27.  Distribution  by  Personal  Service  Corporations.— 

(Sec.  201.)  “ except  a distribution  made  by  a personal  service 

corporation  out  of  earnings  or  profits  accumulated  since 
December  31,  1917,  and  prior  to  January  1,  1922.”  Law.  [Note: 

The  limitation  to  “prior  to  January  1, 
1922”  is  new  to  the  1921  Act.  (Personal 
service  corporations  cease  to  be  dis- 
tinguished on  and  after  January  1, 
1922.)] 

1C79  No  Withholding  on  Dividends  in  Any  Event.— Read  at  H2200. 

1080  Dividends. — Dividends  for  the  purpose  of  the  statute  compiise 
any  distribution  in  the  ordinary  course  of  business,  even  though 
extraordinary  in  amount,  made  by  a domestic  or  foreign  corporation  to 
its  shareholders  out  of  its  earnings  or  profits  accumulated  since  February 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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(8)  6-9-22.  (9)  9-13-22.  1(0)  10-4-22.  (11)  10-11-22. 

GROSS  INCOME— DIVIDENDS. 

28,  1913.  Although  interest  on  state  bonds  and  certain  other  obligations  is 
not  taxable  when  received  by  a corporation,  upon  amalgamation  with  the 
other  funds  of  the  corporation  such  income  loses  its  identity  and  when  dis- 
tributed to  stockholders  in  dividends  is  taxable  to  the  same  extent  as  other 
dividends.  See  further  articles  53  [for  constructive  receipt  of  dividends, 
fl272]  and  858  [for  effect  of  ordinary  dividend  on  invested  capital — War 
Tax  Service].  The  term  “dividends”  does  not,  however,  include  a dis- 
tribution made  by  a personal  service  corporation  out  of  earnings  or  profits 
accumulated  since  December  31,  1917,  and  prior  to  January  1,  1922.  (Art. 
1541,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Agreement  to  buy  stock  in  another  corporation  with  proceeds,  through  trustee,  the 
stockholders  receiving  no  cash;  is  a taxable  dividend:  1921  Act  (1-23-324:  I.  T. 
1336).  .June  1922  Cum.  Bull.  p.  12. 

Bank  capital  stock  tax  (West  Virginia)  payable  by  bank  on  stockholders’  account; 
payment  by  bank  to  stockholder  of  amount  of  tax  bank  was  relieved  from  paying 
because  stockholder  claimed  exemption  is  additional  dividend  to  stockholder: 
1921  Act  (1-19-262:  I.  T.  1300).  .June  1922  Cum.  Bull.  p.  11. 

Cash  distribution  with  option  to  buy  stock  with  dividend  checks  is  not  a stock  dividend 
(22-19-529:  T.  B.  R.  63) . . 1919  Cum.  Bull.  p.  24. 

Same  (27-20-1034:  O.  D.  565).  .Dec  1920  Cum.  Bull.  p.  22. 

Same:  National  banks  (29-20-1066:  O.  D.  588).  .Dec.  1920  Cum.  Bull.  p.  24. 
Crediting  stockholders  with  profits  without  formal  dividend  declaration  constitutes  a 
“dividend”;  1917-1918  Acts  (1-37-507:  A.  R.  R.  1004)..  Bull.  I (’22)-37,  p.  16. 
Debenture  bonds;  payments  on  account  of,  are  not  dividends  (41-21-1861:  O.  D. 
1060).  .Dec.  1921  Cum.  Bull.  p.  193. 

Debenture  bonds;  dividends  paid  in ..  (24-21-1681 : T.  D.  3170).. June  1921  Cum. 
Bull.  p.  25. 

Declared  and  credited  but  not  paid;  also  credited  though  not  formally  declared;  no 
interest;  all  by  agreement:  (Massachusetts)  (34-21-1786:  O.  D.  1006).. Dec. 
1921  Cum.  Bull.  p.  276. 

Declared  prior  to  March  1,  1913  but  payable  thereafter  is  not  taxable  under  1913 
Act  (1-7-86:  Ct.  D.  23)  (278  Fed.  363).  .June  1922  Cum.  Bull.  p.  15.  Relied  on 
in  decision  at  ^[3 1 27 . 

Employees  buying  stock;  dividends  credited  contingently,  corporation  retaining  title 
to  stock  until  paid  for,  are  additional  compensation  ( 1-2 1-1370:  O.  D.  763) 

. .June  1921  Cum.  Bull.  p.  76. 

Same,  but  stock  held  by  trustees  (6-21-1426:  O.  D.  791).. June  1921  Cum. 
Bull.  p.  76. 

Incorporation  of  partnership  business  “within  4 months”  after  Nov.  23,  1921;  treat- 
ment of  withdrawals  bv  partners  and  interest  on  partners’  capital  accounts:  1921 
Act  (1-18-256:  I.  T.  1299).  .June  1922  Cum.  Bull.  p.  251. 

Interest  on  installment  payments  for  stock  pending  authorization  to  corporation  to 
increase  its  capital  stock;  1918  Act  (1-22-322:  I.  T.  1334).  . June  1922  Cum. 
Bull.  p.  341. 

Missouri  corporations  may  declar  stock  dividends  (17-21-1589:  O.  D.  887).. June 
1921  Cum.  Bull.  p.  24. 

Mutual  savings  bank  without  capital  stock;  interest  paid  on  deposits  is  not  “divi- 
dends”; 1921  Act  (1-40-537:  I.  T.  1461).. Bull.  I (’22)-40,  p.  15. 

Net  deficit  over  period  of  years;  prior  losses  do  not  offset  profits,  which  will  conse- 
quently, be  deemed  to  have  been  distributed  by  dividends  (31-20-1098:  0.  D. 
610).  .Dec.  1920  Curn.  Bull.  p.  24.— Also  (40-20-1219:  A.  R.  M.  82).  .Dec.  1920 
Cum.  Bull.  p.  36. 

Non-iaxable  profits  (because  of  March  1,  1913  valuation  in  excess  of  cost  but  not  in 
excess  of  selling  price)  distributed  as  taxable  dividends  (43  21-1878:  L.  O.  1073) 
. .Dec.  1921  Cum.  Bull.  p.  26.  The  foregoing  superseded  by  Art.  1543  of  Reg. 
62  (fill  13)  (1-20-268:  I.  T.  1303).  .June  1922  Cum.  Bull.  p.  17. 

Paid  in  December,  received  in  January  (2-19-140:  O.  D.  97) . . 1919  Cum.  Bull.  p.  79. 
Premiums  on  life  insurance  of  officer,  stockholders  being  beneficiaries,  are  dividends 
to  them  (37-20-1193:  O.  D.  659).. Dec.  1920  Cum,  Bull.  p.  192. 

Rescission  of  illegal  dividend  (20-19-502:  T.  B.  M.  77). . 1919  Cum.  Bull.  p.  24. 
Rescission  of  legal  dividend;  i.  e.,  voluntary  repayment  by  stockholders  (12-19-398: 
T.  B.  R.  42) . . 1919  Cum.  Bull.  p.  65. 

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(8)  6-9-22.  (9)  9-13-22.  (10)  10-4-22.  (11)10-11-22. 

GROSS  INCOME- DIVIDENDS. 

Scrip  for  fractional  shares,  corporation  selling  in  open  market  as  agent  for  stockholders 
who  so  elect  (14-21-1538:  O.  D.  859).  .June  1921  Cum.  Bull.  p.  24:  See  “Frac- 
tional shares”  under  Art.  1547,  II 1 084. 

Stock  (?)  dividends  paid  in  preferred  utock  (7-21-1441:  O.  D.  801).  .June  1921  Cum. 

Bull.  p.  24. 

Stock  dividends  do  not  “distribute,”  hence  surplus  acquired  since  March  1,  1913, 
is  deemed  to  be  distributed  by  a cash  dividend  subsequent  to  or  simultaneously 
with  a stock  dividend  (29-20-1065:  O.  D.  587).  Dec.  1920  Cum.  Bull.  p.  23. 
Same;  also  cash  dividend  after  first  60-days  distributes  earnings  of  year  though 
prior  stock  dividend  capitalized  earnings  of  year  to  date  of  issue:  1918  Act  (I- 
40-529:  Sol.  Op.  144)..  Bull.  I (’22)-40,  p.  1. 

Stock  dividends  not  taxable;  Supreme  Court  decisions 
1913  Act.  .Supplementary  Page  137,  fS54. 

1916-1918  Acts.  Supplementary  Page  173,  ^fS244 

1031  Law  H38.  As  of  V/ hat  Date  Dividends  are  Included  in  the 

(Sec.  201.)  Gross  Income  of  the  Distributees. — “(e)  For  the 
purposes  of  this  Act , a taxable  distribution  made  by  a 
corporation  to  its  shareholders  or  members  shall  be  included  in  the  gross 
income  of  the  distributees  as  of  the  date  when  the  cash  or  other  property  is 
unqualifiedly  made  subject  to  their  demands.” — Law.  [Note:  This 

provision  is  new,  in  terms,  to  the  1921 
Act.  The  regulations  under  the  1918 
Act  read  “when  set  apart  for  the 
stockholder.”] 

1082  A taxable  distribution  made  by  a corporation  to  its  stockholders  or 
members  shall  be  included  in  the  gross  income  of  the  distributees 

when  the  cash  or  other  property  is  unqualifiedly  made  subject  to  their 
demands.  See  article  53  [^[1272],  (Art.  1541,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  ^[1080,  above.] 

1083  Return  of  Corporate  Dividends. — Dividends  on  stock  of  domestic 
corporations  or  resident  foreign  corporations  are  prima  facie  in- 
come of  the  record  owner  of  the  stock,  and  such  record  owner  will  be  liable 
for  any  additional  tax  based  thereon,  unless  a disclosure  of  the  actual  owner- 
ship is  made  to  the  Commissioner  on  Form  1087  which  shall  show  that 
the  record  owner  is  not  the  actual  owner  and  who  the  owner  is  and  his  address. 
In  all  cases  where  the  actual  owner  is  a nonresident  alien  individual  and  the 
record  owner  is  a person  in  the  United  States,  the  record  owner  will  be 
considered  for  tax  purposes  to  have  the  receipt,  custocdy,  control,  and  dis- 
posal of  the  dividend  income  and  will  be  required  to  make  return  for  the 
actual  owner,  regardless  of  the  amount  of  the  income,  and  to  pay  any  surtax 
found  by  such  return  to  be  due.  (Art.  405,  Reg.  62,  1922  Edition.) 

1 QS4  Dividends  Paid  in  Property. — Dividends  paid  in  securities  or  other 
property  (other  than  its  own  stock),  in  which  the  earnmgs  of  a 
corporation  have  been  invested,  are  income  to  the  recipients  to  the  amount 
of  the  market  value  of  such  property  when  receivable  by  the  stockholders. 
A dividend  paid  in  stock  of  another  corporation  is  not  a stock  dividend 
[see  Hi  134],  even  though  the  stock  distributed  was  acquired  through  the 
transfer  by  the  corporation  declaring  the  dividend,  of  property  to  the  cor- 
poration the  stock  of  which  is  distributed  as  a dividend.  Where  a corpo- 
ration declares  a dividend  payable  in  stock  of  another  corporation,  setting 
aside  the  stock  to  be  so  distributed  and  notifying  the  stockholders  of  its  action, 
the  income  arising  to  the  recipients  of  such  stock  is  its  market  value  at 
the  time  the  dividend  becomes  payable.  [For  gain  or  loss  on  subsequent 

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disposition  see  1 1 34] . See  article  53  [If  1272  for  constructive  receipts  of 

dividends].  Scrip  dividends  are  subject  to  tax  in  the  year  in  which  the 
warrants  are  issued.  (Art.  1547,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Interest-bearing  promissory  notes  (17-20-883:  0.  D.  471).. June  1920  Cum.  Bull. 
P-  26. 

Insurance  companies;  certificates  of  profits  based  on  premiums  received  on  marked- 
off  risks  (29-20-1067:  O.  D.  589).  .Dec.  1920  Cum.  Bull.  p.  37. 

Liberty  Bonds  having  market  value  below  par  (17-19-469:  O.  D 262).. 1919  Cum. 
Bull.  p.  28. 

Securities  which  have  depreciated  in  value  (13-21-1528:  A.  R.  R.  435).  .June  1921 
Cum.  Bull  p.  27.  _ 

Stock  of  another  corporation  created  out  of  a corporation’s  surplus  (5-19-243:  O D. 
152)..  1919  Cum.  Bull.  p.  28:  See  however  (13-21-1528:  A.  R.  R.  435).. June 
1921  Cum.  Bull.  p.  27. 

United  States  Supreme  Court  decision  as  to  taxability  in  hands  of  recipient  share- 
holders of  original  corporation  (1913  Act).  . T[S237,  Supplementary  Page  170. 
Stock  of  another  corporation  organized  to  take  over  the  declaring  corporation’s  assets 
(United  States  Supreme  Court  decision,  1913  Act) . . 1[S219,  Supplementary 
Page  167. 


1 035  Dividends  Paid  in  Liberty  Bonds. — The  appended  opinion  of  the 
Attorney  General  on  the  question  of  exemption  from  income  tax 
of  corporation  dividends  paid  in  the  form  of  Liberty  Loan  bonds  is  published 
for  the  information  of  internal-revenue  officers  and  others  concerned.  (T. 
D.  2512,  June  8,  1917.) 

1086  The  Secretary  of  the  Treasury.  Sir:  Pursuant  to  section  356  of 
the  Revised  Statutes  you  ask  my  opinion  upon  the  following  ques- 
tions arising  under  the  administration  of  your  department: 

1087  (1)  Whether  the  stockholders  of  a corporation  receiving  a dividend 
declared  payable  and  distributable  in  bonds  issued  under  the  act 

of  Congress  approved  April  24,  1917,  will  have  to  pay  an  income  tax. 

1 088  (2)  Whether  a corporation  owning  these  bonds  would  be  to  that 
extent  exempt  from  excise  taxes,  franchise  taxes,  and  other  cor- 
poration taxes  of  the  LTnited  States  and  of  the  several  States. 

1089  I am  of  the  opinion  that  an  affirmative  answer  must  be  returned  to 
the  first  question  and  a negative  answer  to  the  second. 

1090  The  Act  of  April  24,  1917,  provides  as  to  the  bonds  thereby  auth- 
orized that — 

The  principal  and  interest  thereof  * * * shall  be  exempt,  both  as  to  princi- 
pal and  interest,  from  all  taxation,  except  estate  or  inheritance  taxes,  imposed 
by  authority  of  the  United  States,  or  its  possessions,  or  by  any  State  or  local 
taxing  authority. 

1091  Like  every  exemption  from  taxation,  this  provision  must  be  literally 
construed  and  can  not  be  extended  beyond  its  precise  terms.  It 

protects  an  owner  of  these  bonds  from  any  tax  of  whatever  character,  except 
estate  or  inheritance  taxes,  levied  upon  them  by  reason  of  his  possession  and 

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GROSS  INCOME— DIVIDENDS. 


ownership;  but  a tax  levied  upon  one’s  net  income  or  annual  gain  can  not 
be  evaded  because  the  income  or  gain  happens  to  be  liquidated  by  the  de- 
livery of  a certain  number  of  these  bonds  or  other  nontaxable  securities.  Such 
a tax  is  upon  the  income  itself  as  an  entirety  and  not  upon  the  specific  articles 
into  which  this  income  is  finally  transmuted.  When  these  bonds,  therefore, 
are  used  as  a ri  edium  of  payment,  whether  in  the  discharge  of  a private 
debt  or  a corporate  dividend,  the  profit  or  gain  to  the  recipient  is  neverthe- 
less subject  to  income  tax. 

1092  Similar  principles  control  in  answering  your  second  question.  I 
assume  that  in  speaking  of  “excise  taxes,  franchise  taxes,  and  other 
corporation  taxes”  you  refer  to  those  taxes  which  are  laid,  not  upon  the 
property  of  a corporation  by  reason  of  possession  or  ownership,  but  upon 
the  value  of  the  exercise  of  corporate  privileges — a value  which  may  be 
measured  by  the  size  of  its  annual  income,  the  amount  of  its  capital  stock, 
or  such  other  standard  of  measurement  as  the  taxing  power  may  select. 

1 083  Such  a tax,  for  instance,  was  the  special  excise  tax  upon  corpora- 
tions under  the  act  of  August  5,  1909  (36  Stat.,  11,  112),  discussed 

by  the  Supreme  Court  of  the  United  States  in  the  case  of  Flint  v.  Stone 
Tracy  Co.  (220  U.  S.  107),  in  which  the  court  said: 

1094  “It  is  therefore  well  settled  by  the  decisions  of  this  court  that  when 
the  sovereign  authority  has  exercised  the  right  to  tax  a legitimate 
subject  of  taxation  as  an  exercise  of  a franchise  or  privilege,  it  is  no  objection 
that  the  measure  of  taxation  is  found  in  the  income  produced  in  part  from 
property  which  of  itself  considered  is  non-taxable.  Applying  that  doctrine 
to  this  case,  the  measure  of  taxation  being  the  income  of  the  corporation 
from  all  sources,  as  that  is  but  the  measure  of  a privilege  tax  within  the 
lawful  authority  of  Congress  to  impose,  it  is  no  valid  objection  that  this 

measure  includes  in  part  at  least,  property  which  as  such  could  not  be  directly 

taxed  (p.  165).” 

1 095  The  special  excise  tax  levied  upon  corporations  by  the  act  of  Sep- 
tember 8,  1916  (39  Stat.,  756,  789),  and  measured  by  the  fair  value 
of  their  capital  stock  is  a tax  of  the  same  general  character,  imposed  with 
respect  to  the  carrying  on  or  doing  business  by  such  corporations,  and  the 
rule  laid  down  in  the  case  of  Flint  v.  Stone  Tracy  Co.  applies  equally  to  it. 
Quoting  again  from  that  decision:  “*  * * The  distinction  lies  between  the 
attempt  to  tax  the  property  as  such  and  to  measure  a legitimate  tax  upon 
the  privileges  involved  in  the  use  of  such  property  (p.  163).” 

Respectfully, 

T.  Wk  GREGORY,  Attorney  General. 

(T.  D.  2512,  June  8,  1917.) 

1096  Determination  of  Cash  Value  to  the  Shareholder  of  a Dividend 
Paid  in  Liberty  Bonds. — Acknowledgment  is  made  of  your  letter 

of  October  23,  1918,  reading  in  part  as  follows: 

“Where  a corporation  distributed  Liberty  Bonds  among  its  stock- 
holders as  a dividend: 

1.  Should  an  individual  stockholder  make  return  of  that  dividend  for 
surtax  purposes  at  the  par  value  or  at  the  market  value  of  the  Liberty  Bonds? 

2.  If  the  corporation  bought  the  Liberty  Bonds  at  99.25  and  the  market 
value  thereof  wrhen  received  by  the  stockholder  was  94.25,  should  the  stock- 
holder make  return  of  the  dividend  at  99.25  or  at  94.25?” 

1097  In  reply  you  are  advised  that,  for  the  purposes  of  the  income  tax 
income,  in  both  instances,  should  be  predicated  on  the  cash  value 

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GROSS  INCOME— DIVIDENDS. 


of  the  Liberty  Bonds  at  the  time  of  their  receipt  by  the  stockholders.  (Letter 
to  Ropes,  Gray,  Boyden  & Perkins,  Boston,  Mass.,  signed  by  Deputy  Com- 
missioner L.  F.  Speer,  and  dated  November  12,  1918.) 

1098  Income  from  Private  Banks  Considered  as  Dividends.— In  the 

case  of  private  banks  which  have  the  form  of  corporations  and 
which  are  held  to  be  associations  v/ithin  the  meaning  of  the  Federal  income- 
tax  law,  it  is  not  the  purpose  of  this  office  to  assess  the  income  tax  against 
such  banking  associations  and  then  also  against  the  individual  members  of  the 
association.  [See  1(989.] 

1 099  Income  which  the  members  of  the  association  receive  from  the 

bank  because  of  their  investment  therein  will  be  considered  divi- 
dends, * * * . (T.  D.  2152,  Feb.  12,  1915.) 

1100  Private  banks  which  have  the  form  of  corporate  organizations, 
elect  officers  and  a board  of  managers,  have  a distinctive  name, 

a fixed  situs,  and  distribute  their  net  earnings  upon  the  basis  of  the  amount 
of  capital  invested  by  the  members  or  owners,  are  held  to  be  associations 
within  the  meaning  of  the  Federal  income  tax  law,  and  in  their  organized 
capacity  should  make  returns  of  annual  net  income  and  pay  any  income  tax 
thereby  showrn  to  be  due.  [See  1(989.] 

1101  The  holders  of  the  stock  or  the  owners  of  the  bank  will  be  exempt 
from  the  normal  tax  to  the  extent  of  the  dividends,. or  earnings  which 

they  receive  from  such  private  banks  as  make  returns  in  their  organized 
capacity  and  pay  income  tax  in  accordance  therewith.  * * * . (T.  D.  2137, 

Jan.  30,  1915.) 

1102  Profits  of  Limited  Partnerships  Considered  as  Dividends. — 1(993. 

1103  Dividends  Paid  on  Life  Insurance  Policies. — Read  at  K 125 1 

1 1 04  Law  1(28.  Presumption  as  to  Source  of  Distribution.— “(£)  For 
(Sec.  201.)  the  purposes  of  this  Act  every  distribution  is  made  out 
of  earnings  or  profits , and  from  the  most  recently  ac- 
cumulated earnings  or  profits , to  the  extent  of  such  earnings  or  profits  ac- 
cumulated since  February  28,  1913;” — Law.  [Note: . Ihe  1918  Act 

qualified  “every  distribution  is  made  out 
of  earnings  or  profits”  by  adding  “unless 
all  earnings  or  profits  have  first  been 
distributed.”] 


1 1 05  Law'  K39. 

(Sec.  201.) 


“(/)  Any  distribution  made  during  the  first  sixty  days 
of  any  taxable  year  shall  be  deemed  to  have  been  made  from 
earnings  or  profits  accumulated  during  preceding  taxable 


years ; 

1106  Law  1(40. 

(Sec.  201.) 


“ but  any  distribution  made  during  the  remainder  of  the 
taxable  year  shall  be  deemed  to  have  been  made  from 
earnings  or  profits  accumulated  between  the  close  of  the 
preceding  taxable  year  and  the  date  of  distribution,  to  the  extent  of  such 
earnings  or  profits,  and  if  the  books  of  the  corporation  do  not  show  the 
amount  of  such  earnings  or  profits , the  earnings  or  profits  for  the  accounting 
period  within  which  the  distribution  was  made  shall  be  deemed  to  have  been 
accumulated  ratably  during  such  period.  This  subdivision  [1(1105  and 
this  paragraph ] shall  not  be  in  effect  after  December  31,  1921.” — Law. 

[Note:  The  1918  Act  so  provided,  except  to  the 
extent  of  the  limitation  carried  in  the  last  sentence,  here.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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GROSS  INCOME— DIVIDENDS. 

1 1 07  (a)  For  the  purpose  of  income  taxation  every  distribution  made  by  a 

corporation  is  made  out  of  earnings  or  profits  and  from  the  most 
recently  accumulated  earnings  or  profits,  to  the  extent  of  such  earnings  or 
profits  accumulated  since  February  28,  1913; 

1108  (b)  Every  distribution  made  by  a corporation  during  the  first  60 
days  of  a taxable  year  shall  be  deemed  to  have  been  made  from 

earnings  or  profits  accumulated  during  preceding  taxable  years.  Every  dis- 
tribution made  during  the  remainder  of  the  taxable  year  after  the  first  60 
days  shall  be  deemed  to  have  been  made  from  earnings  or  profits  accumulated 
during  the  taxable  year  up  to  the  date  of  the  distribution  to  the  extent  of  such 
earnings  or  profits.  The  presumptions  contained  in  this  paragraph  affect 
the  determination  of  invested  capital  for  the  purpose  of  the  excess  profits 
tax,  and  are  not  in  effect  after  December  31,  1921.  They  have  no  effect 
upon  the  rates  at  which  dividends  paid  in  1921  and  subsequent  years  are  taxed. 
In  ascertaining  whether  or  not  a distribution  waj  made  out  of  earnings  or 
profits  of  the  taxable  year  there  should  first  be  set  aside  a proper  reserve 
for  the  payment  of  accrued  income  and  excess  profits  taxes.  See  article 
857  [Excess-profits  tax. — War  Tax  Service]. 

1109  In  the  case  of  a personal  service  corporation  every  distribution  is 
made  out  of  earnings  or  profits  and  from  the  most  recently  accumu- 
lated earnings  or  profits,  to  the  extent  of  such  earnings  or  profits  accumulated 
since  February  28,  1913.  Such  a distribution,  if  made  during  the  first  60 
days  of  a taxable  year,  shall  be  deemed  to  have  been  made  rom  the  most 
recently  accumulated  earnings  or  profits  of  preceding  taxable  years,  and  if 
made  during  the  remainder  of  the  taxable  year  after  the  first  60  days,  from 
earnings  or  profits  accumulated  during  the  taxable  year  up  to  the  date  of 
distribution  to  the  extent  of  such  earnings  or  profits.  The  presumption  con- 
tained in  the  preceding  sentence  is  not  in  effect  after  December  31,  1921. 
As  stated  in  article  1541  [^1080]  the  term  “dividend”  does  not  include  a dis- 
tribution made  by  a personal  service  corporation  out  of  earnings  or  profits 
accumulated  since  December  31,  1917,  and  prior  to  January  1,  1922.  (Art. 
1542,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  oi. 

First  60  days  of  taxable  year  when  no  surp'us  between  March  1 1913,  and  beginning 
of  taxable  year  but  ample  surplus  since  beginning  of  taxable  year  (12-19-395: 
T.  B.  R.  43).  .1919  Cum.  Bull.  p.  26.  Again  (1-19-263:  Sol.  Op.  140).  .June 
1922  Cum.  Bull.  p.  12. 

First  60  days  of  taxable  year  includes  March  1 except  in  leap  year  (1-19-8:  O.  D.  4) 

. . 1919  Cum.  Bui  . p.  27. 

First  60  days;  presumption  that  distribution  is  from  prior  earnings  not  rebuttable: 
1921  Act  (1-26-377:  I.  T.  1375).  .June  1922  Cum.  Bull.  p.  373. 

First  60  days  provision  has  no  bearing  on  rates  at  which  taxable  (1-19-9:  O.  D.  5) 
. . 1919  Cum.  Bull.  p.  28.  1918  specifically  (22-20-992:  A.  R.  R.  127) . .June  1920 

Cum.  Bull.  p.  25. 

First  60  days,  stock  dividend  issued  during,  and  capitalizing  year’s  earnings  to  date 
of  issue,  does  not  render  such  earnings  unavailable  for  cash  distribution  during 
same  year  after  first  60  days:  1918  Act  (1-40-529:  Sol.  Op.  144)..  Bull.  I ( 22)- 
40,  p.  1. 

Impairment  of  capital  more  than  offset  by  book  surplus  based  on  valuation  of  good 
will,  trade-marks,  etc.  (6-19-266:  O.  D.  163)..  1919  Cum.  Bull  p.  28. 

No  corporation  records  of  1917  income  prior  to  early  1917  dividend  distributions 
(1917  Act)  (38-21-1824:  A.  R.  R.  577).. Dec.  1921  Cum.  Bull.  p.  28. 

Repayment  of  additional  assessment  on  stock  (paid-in  surplus  or  invested  capita' 
purposes)  (23-19-552:  T.  B.  M.  82) . . 1919  Cum.  Bull.  p.  275. 


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GROSS  INCOME— DIVIDENDS. 

Retiring  stock  fulfilling  stock  contract  (2-20-667:  O.  D.  360).  .June  1920  Cum.  Bull, 
p.  25. 


1110  The  Most  Recently  Accumulated  Undivided  Profits  and  Surplus 
Shall  Be  Deemed  to  Have  Been  Distributed  on  Payment  of  a Dividend 

Even  Though  Such  Funds  Are  Invested  in  United  States  Bonds. — In  reply 
you  are  advised  that  in  accordance  with  Treasury  Decision  2700  investments 
in  obligations  of  the  United  States  issued  after  September  1,  1917,  may  be 
treated  as  made  from  any  earnings  which  the  corporation  may  designate;  but, 
as  the  investment  of  earnings  does  not  prevent  them  from  being  distributed 
as  dividends,  earnings  used  in  the  purchase  of  such  obligations  will  not  be 
relieved  from  taxation  as  dividends,  ^fln  the  case  cited  by  you,  if  the 
corporation  distributed  a dividend  in  the  year  1918,  as  it  would  appear  is 
contemplated,  and  it  has  no  undistributed  earnings  for  the  year  1918,  at  the 
time  of  payment,  the  dividend  will  be  deemed  to  have  been  paid  from  the 
undistributed  earnings  of  the  year  1917,  regardless  of  the  fact  that  such 
earnings  have  been  invested  in  obligations  of  the  United  States  issued  after 
September  1,  1917.  (Letter  to  Arthur  Young  & Company,  Kansas  City,  Mo., 
signed  by  Deputy  Commissioner  L.  F.  Speer,  and  dated  May  27,  1918.) 

1111  Corporation  to  Include  in  Return  a Statement  Giving  Facts  Relative 
to  Distributions  of  Earnings  or  Profits  Accumulated  During  the 

Taxable  Year. — Read  at  ^[2508. 

1112  Law  H29.  Distributions  That  Are  Tax-Free  as  Dividends. — “but 
(Sec.  201.)  any  earnings  or  profits  accumulated  or  increase  in 

value  of  property  accrued  prior  to  March  1,  1913,  may  be 
distributed  exempt  from  the  tax,  after  the  earnings  and  profits  accumulated 
since  February  28,  1913,  have  been  distributed .” — Law.  [Note:  “or 

increase  in  value  of  property  accrued 
prior  to  March  1,  1913”  is  new  to  the 
1921  Act.  Otherwise,  the  1918  Act 
provided  that  such  accumulations  were 
distributable  tax-free  in  “stock  divi- 
dends, or  otherwise.”] 

1113  Any  distribution  by  a corporation  out  of  earnings  or  profits  accumu- 
lated prior  to  March  1,  1913,  or  out  of  increase  of  value  of  property 

accrued  prior  to  March  1,  1913  (whether  or  not  realized  by  sale  or  other 
disposition),  is  not  a dividend  within  the  meaning  of  the  Act.  The  pro- 
visions of  the  preceding  sentence  shall  be  applied  uniformly  to  cases  arising 
under  the  Revenue  Act  of  1916,  the  Revenue  Act  of  1917,  and  the  Revenue 
Act  of  1918,  as  well  as  the  Revenue  Act  of  1921.  A corporation  can  not 
distribute  earnings  or  profits  accumulated  or  increase  in  value  of  property 
accrued  prior  to  March  1,  1913,  unless  and  until  all  earnings  or  profits  accumu- 
lated since  February  28,  1913,  have  been  distributed.  In  determining  whether  a 
dividend  is  out  of  earnings  or  profits  accumulated  prior  or  subsequent^to 

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GROSS  INCOME— DIVIDENDS. 

March  1,  1913,  due  consideration  must  be  given  to  the  facts,  and  mere  book- 
keeping entries  increasing  or  decreasing  surplus  will  not  be  conclusive.  (Art. 
1543,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Above  not  applicable  to  1913,  1914,  or  1915  distributions  (1-20-268:  I.  T.  1303) 

. .June  1922  Cum.  Bull.  p.  17. 

“Deemed”  in  “deemed  to  have  been  made  from  earnings  accumulated  since  February 
28,  1913”  means  “adjudged”  (such  earnings  being  available)  and  does  not  create 
a rebuttable  presumption  merely;  1918  Act  (1-29-409:  A.  R.  R.  1000).. Bull. 
I (’22)-29,  p.  1. 


5114  Law  ^30.  Tax-free  Distributions  to  Be  Considered  in  Determin- 
(Sec.  201.)  ing  Deductible  Loss  from  Subsequent  Sale  or  other 
Disposition  of  Stock. — “If  any  such  tax-free  dis- 
tribution has  been  made  the  distributee  shall  not  be  allowed  as  a deduction 
from  gross  income  any  loss  sustained  from  the  sale  or  other  disposition  of 
his  stock  or  shares  unless , and  then  only  to  the  extent  that , the  basis  provided 
in  section  202  exceeds  the  sum  of  ” 

1115  Law  ^[31.  “(1)  the  amount  realized  from  the  sale  or  other  disposition 

(Sec.  201.)  of  such  stock  or  shares , and ” 

1116  Law  ^[32.  “(2)  the  aggregate  amount  of  such  distributions  received 

(Sec.  201.)  by  him  thereon — -Law.  [Note:  This  provision 

is  new  to  the  1921  Act.  (See  note  at 
]Law  ^[36,  ^[1122  below.) 


1117  A distribution  made  by  a corporation  out  of  earnings  or  profits 
accumulated  or  increase  in  value  of  property  accrued  prior  to  March 
1,  1913,  is  exempt  from  tax,  even  if  in  excess  of  the  cost  or  other  basis  provided 
in  articles  1561-1563  [*111437]  and  1568  Hi  1482],  of  the  stock  on  which  declared. 
However,  where  any  tax-free  distribution  out  of  earnings  or  profits  accumu- 
lated or  increase  in  value  of  property  accrued  prior  to  March  1,  1913,  has 
been  made,  the  distributee  can  not  deduct  any  loss  from  the  sale  or  other 
disposition  of  the  stock  unless  and  then  only  to  the  extent  that  the  cost,  or 
other  basis,  exceeds  the  sum  of  (1)  the  amount  realized  from  the  sale  or  other 
disposition  of  the  stock,  and  (2)  the  aggregate  amount  of  such  distribution, 
received  by  him  thereon. 

1113  Example. — A purchased  certain  stock  subsequent  to  March  1,  1913, 
for  $10,000  and  received  in  1921  a distribution  thereon  of  $2,000, 
paid  out  of  the  earnings  or  profits  of  the  corporation  accumulated  prior  to 
March  1,  1913.  This  distribution  does  not  constitute  taxable  income  to  A. 
If  A subsequently  sells  the  stock  for  $6,000  a deductible  loss  of  $2,000  is 
sustained.  If  he  sells  the  stock  for  $12,000,  a taxable  gain  of  $2,000  is  realized. 
No  gain  or  loss  is  recognized  if  he  sells  the  stock  for  an  amount  ranging 
between  $8,000  and  $10,000.  (Art.  1543,  Reg.  62,  1922  Edition.) 


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GROSS  INCOME— DIVIDENDS. 


M19  Law  ^[33.  Distributions  Other  Than  Taxable  Dividends  and 
(Sec.  201.)  Statutory  Tax-free  Distributions  to  be  Considered  in 
Ascertaining  Gain  or  Loss  from  Subsequent  Sale  or 
Other  Disposition  of  Stock  by  the  Distributee. — “(c)  Any  distribution 
( whether  in  cash  or  other  property ) made  by  a corporation  to  its  shareholders 
or  members  otherwise  than  out  of ” 

“(1)  earnings  or  profits  accumulated  since  February  28, 
1913,  or” 

“(2)  earnings  or  profits  accumulated  or  increase  in 
value  of  property  accrued  prior  to  March  1,  1913,” 

“ shall  be  applied  against  and  reduce  the  basis  provided 
in  section  202  for  the  purpose  of  ascertaining  the  gain 
derived  or  the  loss  sustained  from  the  sale  or  other  dis- 
position of  the  stock  or  shares  by  the  distributee .” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act,  in 
terms.  The  1918  Act  carried  the  follow- 
ing, which  does  not  appear  in  the  1921 
Act:  “Amounts  distributed  in  the 

liquidation  of  a corporation  shall  be 
treated  as  payments  in  exchange  for 
stock  or  shares,  and  any  gain  or  profit 
realized  thereby  shall  be  taxed  to  the 
distributee  as  other  gains  or  profits.” 


1 120 

Law  *[[34. 

(Sec.  201.) 

1 121 

Law  1f35. 

(Sec.  201.) 

1 1 22 

Law  Tf36. 

(Sec.  201.) 

1 1 23  Any  distribution  made  by  a corporation  to  its  stockholders  otherwise 
than  out  of  (1)  earnings  or  profits  accumulated  since  February  28, 
1913,  or  (2)  earnings  or  profits  accumulated  or  increase  in  value  of  property 
accrued  prior  to  March  1,  1913,  is  not  a dividend  and  is  not  taxable  to  the 
recipient.  Any  such  distribution,  however,  shall  be  applied  against  and 
reduce  the  cost,  or  other  basis,  of  the  stock  upon  which  declared,  for  the 
purpose  of  determining  the  gain  or  loss  from  the  subsequent  sale  of  the  stock. 
1124  Example. — A purchased  certain  stock  in  1915  for  $10,000  and  re- 
ceived in  1921  a distribution  thereon  of  $2,000  paid  by  the  corporation 
otherwise  than  out  of  its  earnings  or  profits  or  the  increase  in  value  of  property 
accrued  prior  to  March  1,  1913.  This  distribution  does  not  constitute 
taxable  income  to  A.  If  A subsequently  sells  the  stock  the  difference  between 
the  amount  realized  therefor  and  $8,000  is  taxable  gain  or  deductible  loss,  as 
the  case  may  be.  (Art.  1544,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Cash  dividend  declared  prior  to  March  1,  1913,  payable  thereafter  is  not  taxable  under 
1913  Act  (1-7-86:  Ct.  D.  23).  .June  1922  Cum.  Bull.  p.  15.  Relied  on  in  decision 
at  ^[3 127. 


1125  Distributions  in  Liquidation. — Where  a corporation  distributes  ail  of 
its  property  in  complete  liquidation  or  dissolution,  the  gain  realized 
by  the  stockholder  from  the  transaction,  computed  under  section  202,  is 
taxable  as  a dividend  to  the  extent  that  it  is  paid  out  of  earnings  or  profits 
of  the  corporation  accumulated  since  February  28,  1913.  If  the  amount 

• Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22. 


(8)  4-18-22.  (4)  6-2-22.  (5)|10-ll-22. 

GROSS  INCOME— DIVIDENDS. 


received  by  the  stockholder  in  liquidation  is  less  than  the  cost  or  other  basis 
of  the  stock,  a deductible  loss  is  sustained.  (Art.  1545,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  pi. 

Corporation  sole  stockholder  of  liquidating  corporation;  1917  Act  (1-12-148:  Sol.  Op. 

131).  .June  1922  Cum.  Bull.  p.  18.  . 

Estate  being  principal  stockholder,  as  well  as  a creditor  (17-20-877:  A.  K.  K.  67} 

Extending  over  period  of  years  for  which  the  rates  differed  (2-19-141 : S.  971) . . 1919 

Cum.  Bull-  p.  79.  . . ..  .,  . ,,,, 

General  discussion:  partial  and  final;  sale  of  stock  after  partial  liquidation  (26-21- 
1699:  O.  D.  955).  .June  1921  Cum.  Bull.  p.  44.  _ 

Large  surplus  required  for  needs  of  business  which  is  profitable;  corporation  ceases 
business  distributing  surplus,  then  liquidates  assets  and  makes  final  distribution 
(47-20-1309:  A.  R.  M.  93).  .Dec.  1920  Cum.  Bull.  p.  40. 

Made  in  installments  (30-19-635:  O.  D.  343).  .1919  Cum.  Bull.  p.  80. 

Made  in  installments  by  trustees  to  whom  assets  have  been  assigned  (16-ZU-8/.. 
O.  D.  461).  .June  1920  Cum.  Bull.  p.  85. 

National  Banks  on  consolidating  (36-21-1797:  Sol.  Op.  115) . .Dec.  1921  Cum.  u . 

Partial  liquidating  dividend  claimed,  though  original  capital  remained  intact  (17-20- 
878:  A.  R.  R.  69).  .June  1920  Cum.  Bull.  p.  28. 

Partnership  of  former  stockholders  continues  business  of  corporation  (20-21-1630. 
O.  D.  912).  - June  1921  Cum.  Bull.  p.  30.  Also  (1-22-308:  I.  T.  1323).. June 

1922  Cum.  Bull.  p.  24.  . , . , . f , 

Redemption  of  preferred  stock  at  a premium,  simultaneously  with  payment  ot  three 
long  deferred  dividends,  all  in  accordance  with  contract  (19-20-908:  O.  D.  488} 
. .June  1920  Cum.  Bull.  p.  29.  . . f , . . , l 

Reduction  of  capital  by  50%:  stockholder  receiving  for  10  shares,  5 shares  and  cash 
(43-20-1254:  O.  D.  693).. Dec.  1920  Cum.  Bull.  p.  40. 

Retirement  of  portion  of  stock  at  a premium  (18-20-891:  O.  D.  479) . .June  1920  Cu  . 

Stockholders’  liability  for  corporation’s  unpaid  taxes  (1-3-27:  I.  T.  1164).  .June  1922 
Cum.  Bull.  p.  17. 


112©  Distribution  from  Depletion  or  Depreciation  Reserves.  A reserve 
set  up  out  of  gross  income  by  a corporation  and  maintained  for  the 
purpose  of  making  good  any  loss  of  capital  assets  on  account  of  depletion  or 
depreciation  is  not  a part  of  surplus  out  of  which  ordinary  dividends  may 
be  paid.  A distribution  made  from  a depletion  or  depreciation  reserve  based 
upon  the  cost  of  the  property  will  not  be  considered  as  having  been  paid  out 
of  earnings  or  profits,  but  the  amount  thereof  shall  be  applied  against  and 
reduce  the  cost,  or  other  basis,  of  the  stock  upon  which  declared  for  the 
purpose  of  determining  the  gain  or  loss  from  the  subsequent  sale  of  the  stock. 
A distribution  made  from  that  portion  of  a depletion  reserve  based  upon  a 
valuation  as  of  March  1,  1913,  which  is  in  excess  of  the  depletion  reserve 
based  upon  cost,  will  not  be  considered  as  having  been  paid  out  of  earnings 
or  profits,  but  the  distributee  shall  not  be  allowed  as  a deduction  from  gross 
income  any  loss  sustained  from  the  sale  or  other  disposition  of  his  stock  or 
shares  unless,  and  then  only  to  the  extent  that,  the  basis  provided  in  section 
202  exceeds  the  sum  of  (1)  the  amount  realized  from  the  sale  or  other  dis- 
position of  such  stock  or  shares,  and  (2)  the  aggregate  amount  of  such  dis- 
tributions received  by  him  thereon.  No  distribution,  however,  can  be  made 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


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GROSS  INCOME— DIVIDENDS. 

from  such  a reserve  until  all  the  earnings  or  profits  of  the  corporation  have 
first  been  distributed.  (Art.  1546,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Distribution  from  that  portion  of  reserve  based  on  March  1,  19?  3,  value  as  exceeds 
reserve  based  on  cost  to  be  clearly  distinguished  from  one  made  from  reserve 
based  on  cost:  1921  Act  (1-40-530:  I.  T.  1456).. Bull.  I (’22)-40,  p.  5. 

Dividends  received  by  domestic  corporation  from  foreign  corporation  of  which  it  is 
sole  stockholder  are  taxable  under  Acts  of  1909,  1913  916,  1917  and  1918 

(1-8-103:  A.  R.  M.  153).  .June  1922  Cum.  Bull.  p.  179. 

Dividends  which  practically  exhaust  earnings  (1917  Act;  (lJ-21-1497:  A.  R.  M. 
112).. June  1921  Cum.  Bull.  p.  180. 

“Surplus  and  undivided  profits”  referred  to  in  this  Article  m ans  those  accumulated 
since  Feb.  28,  1913;  method  of  determining  taxable  gain  to  stockholder  on  final 
liquidation  or  on  sale  of  his  stock  (48-20-1320:  O.  D.  736).  .Dec.  1920  Cum.  Bull, 
p.  42. 

1127  Law  ^[37.  Stock  Dividends. — “(d)  A stock  dividend  shall  not 
(Sec.  201.)  be  subject  to  tax  but  if  after  the  distribution  of  any  such 

dividend  the  corporation  proceeds  to  cancel  or  redeem 
its  stock  at  such  time  and  in  such  manner  as  to  make  the  distribution  and 
cancellation  or  redemption  essentially  equivalent  to  the  distribution  of  a 
taxable  dividend , the  amount  received  in  redemption  or  cancellation  of  the 
stock  shall  be  treated  as  a taxable  dividend  to  the  extent  of  the  earnings  or 
profits  accumulated  by  such  corporation  after  February  28,  1913.” — Law. 

[Note:  This  provision  is  new  to  the 
1921  Act.  The  1918  Act  provided, 
“A  dividend  paid  in  stock  of  the  corpo- 
ration shall  be  considered  income  to  the 
amount  of  the  earnings  or  profits  dis- 
tributed.”] 

1128  Stock  Dividends  under  the  1913,  1916,  1917  and  1918  Acts. — [See 
Towne  vs.  Eisner  (Revenue  Act  of  1913)  at  1[S54,  Supplementary 

Page  137;  and  Eisner  vs.  Macomber  (Revenue  Act  of  1916,  and  applicable  to 
Revenue  Acts  of  1917  and  1918)  at  ^[S244,  Supplementary  Page  173,  for 
United  States  Supreme  Court  stock  dividend  decisions  under  or  applicable 
to  prior  Acts. — Banks  may  not  declare  stock  dividend,  ^[1144.] 

1 1 29  The  following  applications  of  the  decision  of  the  Supreme  Court  of 
the  United  States  in  the  case  of  Eisner  v.  Macomber  in  the  deter- 
mination of  the  taxability  of  dividends  declared  by  corporations  are  published 
for  the  information  and  guidance  of  internal  revenue  officers  and  others 
concerned: 

1130  1.  Where  a corporation,  being  authorized  so  to  do  by  the  laws  of 
the  state  in  which  it  is  incorporated,  transfers  a portion  of  its  sur- 
plus to  capital  account,  issues  new  stock  representing  the  amount  of  the 
surplus  so  transferred,  and  distributes  the  stock  so  issued  to  its  stockholders, 
such  stock  is  not  income  to  the  stockholders  and  the  stockholders  incur  no 
liability  for  income  tax  by  reason  of  its  receipt. 

1131  2.  Where  a corporation,  being  thereunto  lawfully  authorized, 
increases  its  capital  stock,  and  simultaneously  declares  a cash  divi- 
dend equal  in  amount  to  the  increase  in  its  capital  stock,  and  gives  to  its 
stockholders  a real  option  either  to  keep  the  money  for  their  own  or  to 
reinvest  it  in  the  new  shares,  such  dividend  is  a cash  dividend  and  is  income 
to  the  stockholders  whether  they  reinvest  it  in  the  new  shares  or  not.  j 

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GROSS  INCOME— DIVIDENDS. 

1 132  3.  Where  a corporation,  which  is  not  permitted  under  the  laws  of 

the  state  in  which  it  is  incorporated  to  issue  a stock  dividend,  in- 
creases its  capital  stock  and  at  the  same  time  declares  a cash  dividend  under 
an  agreement  with  the  stockholders  to  reinvest  the  money  so  received 
in  the  new  issue  of  capital  stock,  such  dividend  is  subject  to  tax  as  income 
to  the  stockholder. 

1 133  4.  Where  a corporation,  having  a surplus  accumulated  in  part  prior 

to  March  1,  1913,  and  being  thereunto  lawfully  authorized,  trans- 
fers to  its  capital  account  a portion  of  its  surplus,  issues  new  stock  repre- 
senting the  amount  so  transferred  to  the  capital  account  and  then  declares 
a dividend  payable  in  part  in  cash  and  in  part  in  shares  of  the  new  issue 
of  stock,  that  portion  of  the  dividend  paid  in  cash  will,  to  the  amount  of  the 
surplus  accumulated  since  March  1,  1913,  be  deemed  to  have  been,  paid 
out  of  such  surplus,  and  be  subject  to  tax,  but  the  portion  of  the  dividend 
paid  in  stock  will  not  be  subject  to  tax  as  income. 

1 134  5.  A dividend,  paid  in  stock  of  another  corporation  held  as  a part 

of  the  assets  of  the  corporation  paying  the  dividend,  is  income  to 
the  stockholder  at  the  time  the  same  is  made  available  for  distribution  to 
the  full  amount  of  the  then  market  value  of  such  stock  (Peabody  v.  Eisner, 
247  U.  S.  347  HIS119,  Supplementary  Page  148]);  and  if  such  stock  be  sub- 
sequently sold  by  the  stockholder,  the  difference  between  its  market  value 
at  date  of  receipt  and  the  price  for  which  it  is  sold  is  additional  income  or 
loss  to  him,  as  the  case  may  be  [see  Art.  1547,  1 084]. 

1135  6.  The  profit  derived  by  a stockholder  upon  the  sale  of  stock  re- 

ceived as  a dividend  is  income  to  the  stockholder  and  taxable  as 
such  even  though  the  stock  itself  was  not  income  at  the  time  of  its  receipt 
by  the  stockholder.  For  the  purpose  of  determining,  the  amount  of  gain 
or  loss  derived  from  the  sale  of  stock  received  as  a dividend  or  of  the  stock 
with  respect  to  which  such  dividend  was  paid,  the  cost  of  each  share  of  stock 
(provided  both  the  dividend  stock  and  the  stock  with  respect  to  which  it 
is  issued  have  the  same  rights  and  preferences)  is  the  quotient  of  the  cost  of 
the  old  stock  (or  its  fair  market  value  as  of  March  1,  1913,  if  acquired  prior 
to  that  date)  divided  by  the  total  number  of  shares  of  the  old  and  new  stock. 
[See  Art.  1548,  If  1136,  for  sale  of  stock  received  as  dividend.]  (T.  D.  3052, 
Aug.  4,  1920.) 

1 13S  Sale  of  Stock  Received  as  Dividend  and  of  Stock  with  Respect  to 
Which  a Stock  Dividend  is  Issued. — Stock  issued  by  a corporation 
as  a dividend  does  not  constitute  taxable  income  to  a stockholder  in  such 
corporation,  but  gain  may  be  derived  or  loss  sustained  by  the  stockholder 
from  the  sale  of  such  stock.  The  amount  of  taxable  gain  derived  or  deducti- 
ble loss  sustained  from  the  sale  of  such  stock,  or  from  the  sale  of  the  stock 
with  respect  to  which  it  is  issued,  shall  be  determined  as  provided  in  article 
1561  [If  1437],  after  the  cost,  or  both  the  cost  and  fair  market  value  as  of 
March  1,  1913,  if  acquired  prior  thereto,  of  both  the  old  and  the  new  shares 
is  determined  in  accordance  with  the  following  rules: 

1137  (1)  Where  the  stock  issued  as  a dividend  is  all  of  substantially  the 

same  character  or  preference  as  the  stock  upon  which  the  stock  divi- 
dend is  paid,  the  cost  of  each  share  (or  when  acquired  prior  to  March  1, 
1913,  the  fair  market  value  as  of  such  date)  will  be  the  quotient  of  the  cost 
(or  such  fair  market  value)  of  the  old  shares  of  stock,  divided  by  the  total 
number  of  the  old  and  new  shares. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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GROSS  INCOME— DIVIDENDS. 

I 138  (2)  Where  the  stock  issued  as  a dividend  is  in  whole  or  in  part  of  a 

character  or  preference  materially  different  from  the  stock  upon 
which  the  stock  dividend  is  paid,  the  cost,  (and  when  acquired  prior  to  March 
1,  1913,  the  fair  market  value  as  of  such  date,  (of  the  old  shares  of  stock  shall 
be  divided  between  such  old  stock  and  the  new  stock,  in  proportion,  as  nearly 
as  may  be,  to  the  respective  values  of  each  class  of  stock,  old  and  new,  at  the 
time  the  new  shares  of  stock  are  issued,  and  the  cost  (or  when  acquired 
prior  to  March  1,  1913,  the  fair  market  value  as  of  such  date)  of  each  share  of 
stock  will  be  the  quotient  of  the  cost  (or  such  fair  market  value  as  of  March  1 , 
1913)  of  the  class  to  which  such  share  belongs  divided  by  the  number  of  shares 
in  that  class. 

1139  (3)  Wliere  the  stock  with  respect  to  which  a stock  dividend  is  issued 
was  purchased  at  different  times  and  at  different  prices  and  the  iden- 
tity of  the  lots  cannot  be  determined,  any  sale  of  the  original  stock  will  be 
charged  to  the  earliest  purchases  of  such  stock  (see  article  39  [for  sale  of 
stock  and  rights,  12 19]),  and  any  sale  of  dividend  stock  issued  with  respect 
to  such  stock  will  be  presumed  to  have  been  made  from  the  stock  issued  with 
respect  to  the  earliest  purchased  stock,  to  the  amount  of  the  dividend  charge- 
able to  such  stock. 

1140  (4)  Where  the  stock  with  respect  to  w'hich  a stock  dividend  is  declared 
was  purchased  at  different  times  and  at  diffeient  ptices,  and  the 

dividend  stock  issued  with  respect  to  such  stock  can  not  be  identified  as  having 
been  issued  with  respect  to  any  particular  lot  of  such  stock,  then  any  sale  of 
such  dividend  stock  will  be  presumed  to  have  been  made  from  the  stock 
issued  with  respect  to  the  earliest  purchased  stock,  to  the  amount  of  the 
stock  dividend  chargeable  to  such  stock.  (Art.  1548,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Banks  may  declare  stock  dividends  under  certain  circumstances.  . K3123. 
Capitalization  of  current  earnings  (1-19-7:  T.  B.  R.  3) . . 1919  Cum.  Bull.  p.  29.  (Note. 

See  “Stock  dividends  do  not  distribute”  in  Cumulative  Index  following  *"1080.) 
Fractional  shares  united  into  whole  shares  by  treasurer  who  sells  for  cash  which  is  then 
distributed  (5-21-1412:  0.  D.  781).. June  1921  Cum.  Bull.  p.  28:  See  (14-21- 
1538:  O.  D.  859).. June  1921  Cum.  Bull.  p.  24. 

Method  of  determining  profit  as  laid  down  in  T.  D.  2734  (and  hence  generally  in 
Art.  1548)  held  to  be  correct  on  appeal  to  the  Committee  (30-19-634:  A.  R.  R. 
6) . . 1919  Cum.  Bull.  p.  30. 

Same  (18-20-890:  0.  D.  478).  .June  1920  Cum.  Bull.  p.  26. 

Each  dividend  share  sold  to  be  allocated  to  particular  lot  of  purchased  stock — 
to  any  lot  if  identifiable,  otherwise  lo  earliest  purchases  (48-20-1319:  0.  D. 
735).  .Dec.  1920  Cum.  Bull.  p.  40. 

Example  of  Rule  2 (stock  issued  being  different  in  character  or  preference) 
(47-20-1308:  0.  D.  732).. Dec.  1920  Cum.  Bull.  p.  39. 

Supreme  Court  decision  (indirectly,  in  connection  with  sale  of  “rights”)  under 
1918  Act:  1918  and  1921  Acts.  . ^[3217.  Same  reported  as  (1-25-352:  Ct. 
D.  29).  .June  1922  Cum.  Bull.  p.  72. 

Refund  of  tax  paid  on  stock  dividerds:  stock  carried  on  margin  in  broker’s  name 
(32-20-1123:  O.  D.  625).  .Dec.  1920  Cum.  Bull.  p.  308. 

See  “Stock  dividends”  and  “Debenture  bonds”  in  Cumulative  Index  following  r1080. 

Stock  acquired  in  part  through  exercise  of  right  to  subscribe  and  in  part  as  result  of 
capitalization  of  iurplus  (22-21-1659:  A.  R.  M.  128).. June  1921  Cum.  Bull.  p. 
29. 

Trust-estate  with  life-tenant  to  whom  stock  dividend  is  distributable  u:  i-r  the 
Pennsylvania  or  American  rule.  .^3010,  herein. 


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GROSS  INCOME— DIVIDENDS. 


1141  In  Henry  R.  Towne  vs.  Richard  J.  McEUigott,  Acting  Collector, 
!,.•  U.  S.  District  Court,  Southern  District  oi  New  York,  (Revenue  Act 

ot  1918-274  Fed.  960)  the  plaintiff  argued  that,  in  determining  the  taxable 
profit  resulting  from  the  sale  of  stock  on  which  he  had  received  a stock 
dividend,  he  should  be  credited  with  the  actual  cost  of  each  certificate,  com- 
puting the  cost  of  the  shares  declared  as  a stock  dividend  at  nothing.  Judge 
Learned  Hand  in  laying  down  a rule,  substantially  in  accord  with  Art.  1547 
(1)  Regulations  45,  Revised  [Art.  1548,  Reg.  62,  If  1137],  for  the  calculation 
of  the  taxable  profit,  said  in  part: 

114-5  “The  old  certificate  represented  precisely  the  same  property  as  the 
old  and  new  do  thereafter.  The  old  shares  have  proliferated,  as 
it  were  and  although  the  right  they  represented  has  now  suffered  a cellular 
division  into  smaller  units  of  gi  eater  number,  that  is  all  that  has  happened. 
In  view  of  this  it  seems  to  me  difficult  to  avoid  regarding  the  old  and  new 
shares  together  as  anything  more  than  the  evidence  of  a right  which  has 
persisted  unchanged  through  the  declaration  of  the  dividend.  It  mig  t 
have  been  possible  to  look  at  the  new  shares  as  declared  from  the  surplus 
and  the  surplus  as  not  included  in  the  old  shares,  (at  least  not  m the  same 
sense  as  the  new  shares  comprise  it),  but  all  such  notions  were  expressly 
repudiated  in  the  prevailing  opinion.  If  so,  each  of  the  new  shares  whether 
contained  in  the  old  or  the  new  certificate  represents  a part  of  the  original 
propertv  purchased  and  in  selling  the  first  certificate  the  stock  holder  has 
not  said  the  whole  of  what  he  originally  bought  and  should  not  be  credited 
with  the  whole  purchase  price.  Judge  Rose,  in  Safe.  Deposit,  ere.,  Co.,  v. 
Miles  [111220],  has  adopted  the  same  theory  of  computing  an  income  tax  in  a 
stronger  case.  There  the  plaintiff  sold  some  “rights”  declared  upon  his  stock 
and  judge  Rose  computed  his  profit  in  substantially  the  same  way  as  i 
suggest  here  .”]  (274  Fed.  960:  T.  D.  3252,  Nov.  25,  1921.) 

1 1 43  Credit  and  Refund  Claims  on  Account  of  Taxes  Paid  in  Prior  Years 
on  Stock  Dividends. — See  June  1920  Cumulative  Bulletin,  page  245. 

1144  National  Banks  May  Not  Lawfully  Declare  Stock  Dividends.— 
[Comment:  In  an  opinion  given  to  the  Secretary. of  the  treasury 

on  October  26,  1920,  Acting  Attorney-General  Wm.  L.  Frierson  so  holds. 
The  Corporation  Trust  Company.]  Modified  at  ^{3 123. 


1 145  Looking  through  form  to  substance,  a dividend  payable  in  cash  DUt 
paid  in  the  paying  corporation’s  stock,  the  acceptance  of  such  pay- 
ment being  a matter  of  agreement  by  a majority  of  the  stockholders  as  a 
part  of  a refinancing  arrangement,  is  held  here,  in  view  of  the  incident  facts, 
to  be  in  the  nature  of  a stock  dividend  to  those  accepting,  and  so  not  taxable. 
United  States  by  C.  G.  Lewellyn,  Collector  of  Internal  Revenue,  vs.  William 
Larimer  Mellon.  (In  the  District  Court  of  the  United  States  for  the  Western 
District  of  Pennsylvania.)  (July  13,  1921.)  (Act  of  Oct  3,  1913.)— Orr, 
District  judge:  A stipulation  was  filed  m this  case,  signed  by  the  attorneys 
for  the  defendant,  containing,  among  other  things,  a waiver  of.  trial,  by 
jury.  The  case,  therefore,  was  tried  by  the  Judge.  In  said  stipulation, 
many  facts  were  agreed  upon.  To  supplement  said  stipulation,  the.  testi- 
mony of  several  witnesses  was  taken.  During  the  taking  of  the  testimony 
various  objections  were  made  by  the  attorneys  for.  the  plaintiff  all  of  which, 
except  where  now  and  then  a particular  question  was  withdrawn,  were 


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overruled,  with  the  intention  of  the  Court  to  grant  an  exception  to  each 
ruling.  Therefore,  where  the  stenographer’s  minutes  fail  to  show  the  grant- 
ing  of  exceptions  in  favor  of  the  Government,  an  exception  is  now  allowed. 
From  the  said  stipulation  and  the  testimony,  the  Trial  Judge  has  found  the 
following: 

1 146  Findings  of  Fact:  [Brief  summary  of  findings  of  fact:  To  refinance 
the  Gulf  Oil  Corporation  it  was  decided  early  in  1913  to  issue  a 100% 
dividend  on  the  then  outstanding  shares,  declared  to  be  payable  in  cash,  but 
payment  to  be  accepted  in  stock,  such  payment  being  made  possible  by  a 
concurrent  increase  in  capital  stock  which  increase  was  in  part  effected  by  the 
capitalization  of  surplus  acquired  by  its  subsidiaries  prior  to  1913  and  taken 
over  from  them  in  1913  (see  ^[Sl38  on  Supplementary  Page  152  herein), 
and  to  dispose  of  an  amount  of  such  increase  equal  to  the  original  outstanding 
stock,  for  cash,  at  par,  the  principal  stockholders  undertaking  to  accept  the 
dividend  in  stock,  and  to  purchase  their  pro  rata  share  of  the  new  stock; 
and,,  further,  the  majority  stockholders,  A.  W.  Mellon  and  R.  B.  Mellon 
(acting  in  the  name  of  “T.  Mellon  & Sons”)  undertook  to  purchase  for  cash, 
at  par,  so  much  of  the  100%  new  issue  as  might  be  declined  by  minority 
stockholders.  Of  112,082  shares  originally  outstanding  the  defendant, 
W.  L.  Mellon,  owned  12,655  shares.  The  plan  was  put  through,  the  holders 
of  all  but  1,740  shares  accepting  stock  in  payment  of  the  dividend,  and 
subscribing  for  their  pro  rata  share  of  the  new  stock  at  par.  Thus  did  the 
defendant.  A 100%  cash  dividend  was  paid  on  account  of  the  1,740  declining 
shares,  and  in  accordance  with  the  agreement  the  majority  stockholders 
purchased  1,740  shares  of  the  new  issue,  at  par,  in  addition  to  their  own  pro 
rata  allotment.  Suit  was  for  recovery  of  an  income  tax  of  $71,301  from  the 
defendant,  on  the  ground  that  the  dividend,  though  paid  in  stock,  was 
actually  a cash  dividend. — The  Corporation  Trust  Company.] 

1 147  Discussion:  The  sole  question  in  this  case  is  whether  the  dividend 

received  by  the  defendant  from  the  Gulf  Oil  Corporation  in  1913, 
constituted  taxable  income  within  the  meaning  of  the  Act  of  Congress.  If 
it  be  a stock  dividend,  then  the  plaintiff  cannot  recover,  for  'the  Supreme 
Court  in  Towne  vs.  Eisner,  245  U.  S.  424  [Supplementary  Page  137  herein], 
has  held  that  a dividend  received  by  the  stockholder  in  shares  of  stock  of 
the.  corporation,  was  not  income  within  the  meaning  of  the  Act  of  1913. 
It  is.  clear  that  if  the  resolution  declaring  the  dividend  in  question,  had 
provided  for  the  payment  of  the  dividend  in  stock,  the  dividend  would  not 
have  been  taxable.  It  is  also  clear  that  the  defendant  received  payment 
of  the  dividend  in  shares  of  stock,  and  that  he  did  this  pursuant  to  an  agree- 
ment made  prior  to  the  declaration  of  the  dividend,  which  agreement  was 
communicated  to  the  corporation  before  that  declaration  was  made.  It  is 
clear  that  out  of  112,080  shares,  the  holders  of  all  but  1,740  shares  actually 
accepted  payment  of  the  dividend  in  stock,  and  that  the  money  to  pay  cash 
to  the  holders  of  said  1,740  shares  was  provided  by  T.  Alellon  & Sons  pur- 
suant to  an  agreement  made  before  the  declaration  of  the  dividend,  that  they 
would  take  and  pay  for  any  such  shares  as  the  holders  might  refuse  to  accept 
as  payment  therefor.  After  the  transaction,  the  defendant  had  two  shares 
to  represent  the  interest  in  the  same  property,  which  prior  thereto  was 
represented  by  one.  After  the  transaction,  there  .were  twice  as  many 
shares  of  the  corporation  in  the  hands  of  stockholders  as  there  were  before. 
The  corporate  assets  had  not  been  diminished  by  the  transaction.  There- 
fore, for  two  shares  which  defendant  possessed  at  the  close,  there  was  for 


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him  the  same  value  as  for  one  share  represented  at  the  beginning,  ft  was 
fair  and  reasonable  that  the  large  stockholders  should  have  regard  to  the 
interests  of  the  small  investors,  who  perhaps  were  more  in  need  of  pecuniary 
returns  from  their  holdings,  in  that  while  giving  them  an  equality  of  advan- 
tage they  provided  the  means  whereby  such  pecuniary  returns  would  be  made 
to  them,  not  by  the  corporation  itself  but  by  T.  Mellon  & Sons  through  the 
medium  of  the  corporation,  at  a time  too  when  the  shares  of  the  corporation 
were  not  listed  upon  any  public  exchange,  and  had  no  market  value.  In 
every  view  of  the  transaction,  we  find  that  its  substance  is  clear.  In  cases 
like  the  present,  substance  is  controlling,  and  not  form.  The  courts  look 
through  all  forms  of  corporate  transactions,  and  have  regard  to  the  substance. 
Southern  Pacific  Co.  vs.  Lowe,  247  U.  S.  330  [Supplementary  Page  149, 
herein];  Gulf  Oil  Corporation  vs.  Lewellyn,  248  U.  S.  71  [Supplementary 
Page  152  herein].  The  majority  opinion  of  the  Supreme  Court  in  Eisner  v. 
Macomber,  352  U.  S.  189-211  [Supplementary  Page  172,  HS266,  herein],  is 
helpful: 

“A  ‘stock  dividend’  shows  that  the  company  s accumulated  profits 
have  been  capitalized,  instead  of  distributed  to  the  stockholders,  or 
retained  as  surplus  available  for  distribution  in  money  or  in  kind 
should  opportunity  offer.  Far  from  being  a realization  of  profits  of  the 
stockholders  it  tends  rather  to  postpone  such  realization,  in  that  the 
fund  represented  by  the  new  stock  has  been  transferred  from  surplus 
to  capital,  and  no  longer  is  available  for  actual  distribution. 

The  essential  and  controlling  fact  is  that  the  stockholder  has  re- 
ceived nothing  out  of  the  company’s  assets  for  his  separate  use  and 
benefit,  on  the  contrary,  every  dollar  of  his  original  investment,  together 
with  whatever  accretion  and  accumulations  have  resulted  from,  em- 
ployment of  his  money  and  that  of  the  other  stockholders  in  the  business 
of  the  company,  still  remains  the  property  of  the  company,  and  subject 
to  business  risks  which  may  result  in  wiping  out  the  entire  investment. 
Having  regard  to  the  very  truth  of  the  matter,  to  substance  and  not  to 
form,  he  ha's  received  nothing  that  answers  the  definition  of  income  within 
the  meaning  of  the  Sixteenth  Amendment.” 

1 143  In  the  suit  at  bar,  the  learned  counsel  for  the  Government  urged 
upon  the  Court  the  necessity  of  observing  the  form,  not  in  so  many 
words  but  by  their  brief  filed.  They  insist  that  the  dividend  was  a.  cash  divi- 
dend, because  the  resolution  of  the  Board  so  stated.  By  implication,,  there- 
fore, they  would  place  the  defendant  in  the  position  of  having  the  right  to 
use  the  check  of  the  corporation,  which  as  a matter  of  fact,  never  came  into 
his  hands,  and  which  as  a matter  of  fact,  must  have  been  drawn  against 
“no  funds,”  notwithstanding  his  agreement  with  his  associates  and  with 
T.  Mellon  & Sons,  and  notwithstanding  the  important  fact  that  without 
such  agreements  the  resolution  of  the  Board  would  never  have  been  passed. 
That  the  Board  would  never  have  passed  such  resolution  if  there  had  been 
no  such  agreement,  seems  clear,  not  only  from  the  testimony  of  the  witnesses 
to  that  effect,  but  from  other  facts  which  appear  in  evidence,  as,  for  instance 
the  absence  of  sufficient  money  and  the  limited  credit  possessed  by  the 
corporation,  whose  obligations  to  banks  were  given  high  standing  by  the 
endorsement  of  some  of  the  very  men  who  entered  into  the  said  agreement. 
In  every  aspect  of  this  case,  the  defendant  was  not  in  the  position  where 
he  was  merely  entitled  to  carry  out  his  agreement,  but  he. was^ bound  to  do 
so.  The  dividend  in  question  seems  to  be  a final  step  in  a series  01  transactions 


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GROSS  INCOME. 

having  for  their  object  the  refinancing  of  the  corporation,  and  was  based 
upon  earnings  and  accumulations  by  subsidiary  companies  through  a period 
of  years.  > . 

1149  Indeed,  the  evidence  in  this  case  discloses  much  which  was  before 
the  Courts  in  Gulf  Oil  Corporation  vs.  Lewellyn,  supra,  and  in  the 
light  of  that  case,  it  is  properly  concluded  that  the  surplus  which  was  dealt 
with  by  the  action  of  the  Gulf  Oil  Corporation  here  involved,  was  capital 
of  that  corporation  before  the  beginning  of  the  year  1913.  The  dividend 
in  question  was  not  an  ordinary  dividend  to  an  ordinary  stockholder,  but  was 
extraordinary  both  in  respect  to  the  nature  and  the  character  of  the  trans- 
action. 

1 150  Further  elaboration  of  the  views  of  this  Court  would  be  of  no  great 
value.  Judgment  must  be  entered  in  favor  of  the  defendant.  (De- 
cision. U.  S.  by  Lewellyn,  Collector,  vs.  Mellon,  U.  S.  Dist.  Ct.,  W.  D.  of 
Penn.,  July  13,  1921.)  Affirmed  by  C.  C.  of  A.,  3d  Circuit,  ^3293. 

1151  Declaration  and  Subsequent  Redemption  of  a Stock  Dividend. 

A true  stock  dividend  is  not  subject  to  tax  on  its  receipt  in  the  hands 
of  the  recipient.  See  article  1548  1 136] . Nevertheless,  if  a corporation, 

after  the  distribution  of  a stock  dividend,  proceeds  to  cancel  or  redeem  its 
stock  at  such  time  and  in  such  manner  as  to  make  the  distribution  and  can- 
cellation or  redemption  essentially  equivalent  to  the  distribution  of  a taxable 
dividend,  the  amount  received  in  redemption  or  cancellation  of  the  stock  shall 
be  treated  as  a taxable  dividend  to  the  extent  of  the  earnings  or  profits 
accumulated  by  such  corporation  after  February  28.  1913.  (Art.  1549,  Reg. 
62,  1922  Edition.) 


1152  Amounts  withheld  from  the  salaries  of  government  employees,  and 
of  annuities  paid  to  retired  employees. — The  amounts  deducted  and 
withheld  from  the  basic  salary,  pay,  or  compensation  paid  to  employees  in 
the  civil  service  of  the  United  States,  in  accordance  with  the  provisions  of 
the  Act  approved  May  22,  1920,  should  be  reported  by  such  employees  for 
income  tax  purposes.  The  total  compensation  of  the  employees  should  be 
reported  in  gross  income  and  no  corresponding  deduction  can  be  taken  for 
the  amounts  withheld,  inasmuch  as  such  amounts  are  payments  made  toward 
the  purchase  of  annuities  provided  for  in  the  Act  and  are  not  allowable  de- 
ductions for  income  tax  purposes. 

1 153  The  annuities  paid  to  retired  employees  are  subject  to  tax  to  the 
extent  that  the  aggregate  amount  of  the  payments  exceeds  the 
amounts  withheld  from  the  compensation  of  the  employees.  (T.  D.  3112, 
January  10,  1921.) 


1 1 54  Taxes,  on  Profits  on  Sale  of  Property,  Paid  by  Vendee  for  the  Vendor. 

L — A vendee  of  a business  agrees  that  in  addition  to  the  purchase 

price”of  the  business  he  will  pay  the  income  and  excess  profit  taxes  of  the 
vendor  arising  from  the  sale  of  said  business.  Query.  Does  the  payment 
of  the  said  taxes  by  the  vendee  constitute  income  to  the  vendor  which  the 
vendor  would  have  to  report  on  his  income  tax  statement  and  pay  a tax 

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GROSS  INCOME. 

thereon?  As  extremely  urgent  please  reply  by  telegram  as  promptly^as 
possible.  (Answer.)  Your  telegram  April  30.  Income,  excess  profits  and 
war  profits  taxes  paid  by  vendee  for  vendor  on  profits  from  sale  of  property 
to  vendee  constitute  additional  taxable  income  to  vendor.  (Telegram  of 
inquiry  from  The  Corporation  Trust  Company,  and  the  reply  thereto  signed 
by  Commissioner  Daniel  C.  Roper,  and  dated  May  2,  1919.) 

1 155  Payments  of  Income  Made  in  Liberty  Loan  Bonds. — Read  If  1085. 

1156  Compensation  for  Personal  Services. — Where  no  determination  of 
compensation  is  had  until  the  completion  of  the  services,  the  amount 

received  is  ordinarily  income  for  the  taxable  year  of  its  determination,  if  the 
return  is  rendered  on  the  accrual  basis;  or,  for  the  taxable  year  in  which  re- 
ceived, if  the  return  is  rendered  on  a receipts  and  disbursements  basis.  [See 
Article  51,  If  1260.]  Commissions  paid  salesmen,  compensation  for  services  on 
the  basis  of  a percentage  of  profits,  commissions  on  insurance  premiums,  tips, 
pay  of  persons  in  the  military  or  naval  forces  of  the  United  States,  retired 
pay  of  Federal  and  other  officers,  and  pensions  or  retiring  allowances  paid  by 
private  persons  or  by  the  United  States  (except  war  pensions  exempted 
by  paragraph  9 of  subdivision  (b)  of  section  213)  are  income  to  the  recipients; 
as  are  also  marriage  fees,  baptismal  offerings,  sums  paid  for  saying  masses  for 
the  dead,  and  other  contributions  received  by  a clergyman,  evangelist  or 
religious  worker  for  services  rendered.  However,  so-called  pensions  awarded, 
by  one  to  whom  no  services  have  been  rendered  are  mere  gifts  or  gratuities 
and  are  not  taxable.  The  salaries  of  Federal  officers  and  employees  are 
subject  to  tax,  except  that,  in  view  of  the  provisions  of  the  Constitution  of  the 
United  States  as  construed  by  the  Supreme  Court,  the  salaries  of  the  President 
of  the  United  States  and  Federal  judges  are  not  subject  to  a new  tax  or  an 
increased  tax  if  elected  or  appointed  to  office  prior  to  the  passage  of  the  taxing 
statute.  The  Revenue  Act  of  1921,  however,  imposes  no  new  or  increased 
tax  upon  such  salaries;  hence  the  salaries  of  all  Federal  judges  appointed 
since  February  24,  1919,  are  subject  to  the  tax  imposed  by  the  Revenue  Act 
of  1921.  See  article  88  as  to  compensation  of  State  officers  and  employees 
HI  1599].  (Art.  32,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Attorney’s  fees  for  services  rendered  for  period  of  years  before  and  after  1913,  amount 
not  determined  until  1917  (Acts  of  1916-1917)  (26-21-1700:  O.  D.  956).. June 
1921  Cum.  Bull.  p.  83. 

Bequest  received  by  executor,  conditioned  on  continuous  performance  of  duties  (4-20- 
700:  O.  980).  .June  1920  Cum.  Bull.  p.  73. 

★ Bequest  received  by  executor  in  lieu  of  commissions  . ‘.3361 

Board  of  U.  S.  General  Appraisers  (19-21-1616:  O.  D.  902).. June  1921  Cum. 
Bull.  p.  83. 

Bonus  at  termination  of  service  (37-21-1814:  O.  D.  1029) . . Dec.  1921  Cum.  Bull.  p.  85. 

Carnegie  Foundation  for  Advancement  of  Teaching;  retiring  allowances  paid  by 
(28-20-1051:  L.  O.  1040).. Dec.  1920  Cum.  Bull.  p.  120. 

Chaplains  of  Army  or  Navy;  allowance  in  lieu  of  quarters  is  not  exempt:  1921  Act 
(1-20-272:  I.  T.  1307).  .June  1922  Cum.  Bull.  p.  110. 

Deceased  employee’s  salary  continued  to  widow  without  consideration  (36-21-1798: 
O.  D.  1017).. Dec.  1921  Cum.  Bull.  p.  101. 

Determined  on  completion  of  service:  receivers,  trustees,  etc.  (3-19-178:  T.  B.  R.  12) 
1919  Cum.  Bull.  p.  68.  (See  “Receiver”  in  Cumulative  Index  following  1260.) 

Dividends  credited  to  employee  purchasing  stock,  title  to  stock  remaining  in  corpora- 
tion, and  special  allowances,  similarly  credited,  on  fulfillment  of  certain  condition!, 
are  additional  compensation  to  employee  but  for  year  of  completion  of  terms  of 
agreement  (1-21-1370:  O.  D.  763) . . June  1921  Cum.  Bull.  p.  76.  Same:  but  held 
by  trustees  (6-21-1426:  O.  D.  791).  .June  1921  Cum.  Bull.  p.  76. 

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GROSS  INCOME. 

Experimentor  financed  by  others  in  joint  adventure  for  period  of  years  for  the  work 
in  hand  and  personal  expenses  (52-21-1989:  O.  D.  1145).. Dec.  1921  Cum.  Bull. 

Federal  Reserve  agents  and  bank  employees  (1-19-27:  O.  D.  15)..  1919  Cum.  Bull. 

Government  employees  (Act  of  May  22,  1920)  leaving  service  before  being  eligible 
to  retirement  (9-21-1475:  O.  D.  823).  .June  1921  Cum.  Bull.  p.  77. 

Judges  of  territorial  courts  (18-21-1606:  0.  D.  899).  .June  1921  Cum.  Bull.  p.  83. 

Judges  of  U.  S.  Courts:  U.  S.  Supreme  Court  Decision.  .Supplementary  1 age  193, 
TIS375. 

Judges  of  U.  S.  Courts  appointed  since  passage  of  tax  imposing  Act  (33-20-1127: 
T.  D.  3049).. Dec.  1920  Cum.  Bull.  p.  103.  . , . 

Judges  of  U.  S.  Courts  having  retired  are  no  longer  “in  office”;  hence  retired  pay  is 
taxable:  1921  Act  (1-12-150:  I.  T.  1243).  .June  1922  Cum.  Bull.  p.  70. 

Marine  transferred  from  Corps  to  Fleet  Marine  Corps  Reserve  after  20  years  service; 
subsequent  monthly  payments  for  life — 1921  Act  (1-11-139:  I.  T.  1237).  .June 
1922  Cum.  Bull.  p.  70.  T 

National  Guard  officers  paid  by  Federal  government  (23-21-1675:  O.  D.  942).. June 
1921  Cum.  Bull.  p.  112. 

Pensions  to  clergymen  (1-2-17:  I.  T.  1157).  .June  1922  Cum.  Bull.  p.  69. 

Pensions  to  soldiers’  widows  (26-21-1701:  O.  D.  957).  .June  1921  Cum.  Bull.  p.  i 84. 

Post  allowances  of  diplomatic  and  consular  officers  (34-21-1776:  O.  D.  997).. Dec. 
1921  Cum.  Bull.  p.  84.  ...  . 

Referees  in  bankruptcy:  the  Evans  vs.  Gore  decision  has  no  application  to  (,41-JO- 
1229:  O.  D.  678).  .Dec.  1920  Cum.  Bull.  p.  104.  t 

Renewal  premium  commissions  paid,  under  agreement,  to  decedent  solicitor  s widow 
over  period  of  years  (1 1-21-1505:  A.  R.  M.  1 15) . .June  1921  Cum.  Bull.  p.  77. 

Reward  for  special  service  such  as  prevention  of  bank  robbery  (30-20-1088:  O.  D. 
602).  .Dec.  1920  Cum.  Bull.  p.  93. 

Vocational  Rehabilitation  Act:  compensation  paid  under  including  value  of  courses, 
books,  etc.  (14-21-1543:  Sol.  Op.  97)..  June  1921  Cum.  Bull.  p.  79. 


1157  Salaries  of  Federal  Judges  Appointed  Subsequent  to  the  Enact- 
ment of  Revenue  Act  of  1918  Were  Subject  to  Tax  Thereunder.— 

In  the  case  of  Evans  vs.  Gore,  [253  U.  S.  245,  HS375,  Supplementary  Page 
193]  the  Supreme  Court  held  that  salaries  of  Federal  Judges,  appointed 
before  the  incidence  of  the  Revenue  Act  of  1918,  are  not  subject  to  payment 
of  income  tax  thereunder.  The  Attorney  General  in  response  to  a request 
from  the  Secretary  of  the  Treasury  has  advised  []fll59]  that  the  salary  of  a 
Federal  Judge  may  be  subjected  to  a Federal  income  tax  where  the  Act 
imposing  such  tax  is  passed  prior  to  the  time  the  judge  in  question  took  office. 

1158  This  office  will  be  governed  by  the  Opinion  of  the  Acting  Attorney 
General.  (T.  D.  3049,  July  27,  1920.) 

1159  Dear  Mr.  Secretary:  I have  the  honor  to  acknowledge  receipt  of 
your  request  to  be  advised  whether  in  view  of  the  Supreme  Court’s 

decision  in  the  case  of  Evans  v.  Gore,  to  refrain  from  the  collection  of  incorne 
taxes  under  the  Revenue  Act  of  1918  from  judges  and  the  President  taking 
office  after  the  passage  of  the  Act  as  well  as  from  those  in  office  when  the  law 
was  passed.  bd 

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1160  In  the  opinion  of  the  Solicitor  accompanying  your  request  certain 
quotations  are  made  from  the  opinion  of  the  court  in  the  case  above 
referred  to  as  indicating  that  the  court  intended  to  hold  that  the  salary  of 
no  Federal  Judge  could  constitutionally  be  included  in  his  taxable  income 
regardless  of  whether  he  became  a judge  before  or  after  the  passage  of  the 
Act.  I do  not  think,  however,  that  anything  that  was  said  in  that  opinion 
can  fairly  bear  this  construction.  1 hat  question  was  not  before  the  court. 
The  judge  then  contesting  the  constitutionality  of  the  law  was  appointed 
many  years  ago,  and  the  rights  of  one  appointed  subsequent  to  the  enactment 
of  the  law  were  in  no  wise  involved,  i he  only  question  was  whether  the 
requirement  that  a judge’s  salary  should  be  included  in  his  taxable  income 
was,  within  the  meaning  of  the  Constitution,  a diminution  of  his  compensation 
as  it  had  been  fixed  by  Act  of  Congress  prior  to  the  enactment  of  this  tax 
law.  Congress  has  the  same  power  to  fix  the  compensation  of  judges  that  it 
has  to  levy  taxes,  except  that  it  has  no  power  during  the  term  of  office  of  a judge 
to  fix  his  compensation  at  a sum  less  than  it  was  when  he  became  a judge. 
The  effect  of  the  recent  decision  is  to  hold  that  the  levying  of  a tax  upon 
the  compensation  thus  fixed  is  a diminution  of  that  compensation  in  the 
constitutional  sense.  In  fixing  the  compensation,  however,  which  judges 
hereafter  appointed  shall  receive  there  is  no  limitation  upon  the  power  of 
Congress.  It  may  fix  the  compensation  of  such  judges  at  a figure  less  than 
that  now  received  by  judges  of  the  same  rank,  and  which  the  latter  will  be 
entitled  to  receive  during  the  remainder  of  their  service.  In  fixing  such 
compensation,  I see  no  reason  why  Congress  may  not  say  that  the  compensa- 
tion shall  be  a certain  amount  less  a fixed  percentage  thereof  which  shall  be 
paid  or  retained  as  an  income  tax.  When,  therefore,  after  the  salary  of  the 
judges  has  been  fixed  by  law  and  another  Act  has  been  passed  making  those 
salaries  subject  to  a fixed  and  definite  income  tax,  a judge  who  is  appointed 
takes  his  office  with  his  actual  compensation  fixed  at  the  amount  of  the  salary 
less  the  amount  of  income  tax.  Upon  assuming  the  duties  of  the  office  he  is 
entitled  to  receive  no  more  than  this;  and  when  he  pays  the  tax  previously 
fixed  by  law  there  has  been  no  diminution  of  the  compensation  to  which  he 
was  entitled  at  the  beginning  of  his  term  of  service.  I am  unable  to  see, 
therefore,  that  there  is  anything  in  the  recent  opinion  of  the  Supreme  Court 
which  relieves  a judge  appointed  since  the  enactment  of  the  income  tax 
law  from  paying  the  tax  imposed  by  that  law.  (Opinion  of  Wm.  L.  hrierson. 
Acting  Attornev-General,  June  21,  1920,  appended  to  and  made  a part  of 
T.  D.  3049  [1J1157].) 

1161  Compensation  for  Services  as  Trustees.  If  no  determination  was 
made  of  the  amount  due  the  trustee  of  an  estate  as  compensation 

for  his  services  over  a period  of  years  until  the  trust  was  terminated,  the 
amount  allowed  him  should  be  returned  in  full  subject  to  allowable  deduc- 
tions, as  income  for  the  year  in  which  paid;  and  should  not  be  prorated  over 
the  length  of  time  during  which  he  served  as  trustee.  (T.  D.  2135,  Jan.  _3, 
1915.) 

1162  Commission  Determined  and  Credited  But  Not  Drawn.— -Reference 
is  made  to  your  letter  of  March  14,  1918,  relating  to  an  individual, 

paid  on  a commission  basis,  w'ho  during  1917  earned  about  $20,000  against 
which  earnings  but  $4,000  has  been  withdrawn.  You  request  to  be  advised 
whether  the  individual  must  account  for  the  full  amount  of  his  income  for  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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GROSS  INCOME. 

year  1917.  ^[In  reply  you  are  advised  that  under  the  regulations  it  is  held 
that  income  credited  to  or  made  available  to  the  recipient  is  a constructive 
receipt  and  the  amount  is  to  be  returned  for  income  tax  purposes  for  the 
year  in  which  such  income  was  credited  or  made  available.  Accordingly 
the  salesman  must  include  in  his  return  the  $20,000  commission  earned. by 
him  during  the  year  1917.  (Letter  to  Certified  Audit  Company  of  America, 
New  York,  N.  Y.,  signed  by  Deputy  Commissioner  L.  F.  Speer,  and  dated 
April  30,  1918.) 

1 1 63  When  Special  Compensation  (Bonus)  is  Considered  Taxable  In- 
come.— Special  payments  made  by  a corporation  as  extra  com- 
pensation to  certain  of  its  employees  may  be  deducted  from  gross  income 
if  it  is  clearly  shown  that  such  payments  are  made  as  compensation  for 
services  rendered  and  are  paid  in  pursuance  of  a contract  expressed  or  implied. 

1164  If  such  so-called  “compensation”  is  a gratuity  or  voluntary  pay- 
ment, for  which  no  service  is  rendered,  the  amounts  so  paid  are 

not  deductible.  In  cases  wherein  the  payments,  are  made  as  compensa- 
tion for  services  rendered,  the  employee  receiving  the  same,  if  he  be  a /‘tax- 
able person,”  will  be  required  to  include  the  amount  of  such  compensation  in 
his  personal  income  tax  return. — [Read  discussion  of  subject  at  paragraph 
1650.]  (T.  D.  2152,  Feb.  12,  1915.) 

1 1 65  Salaries  Paid  by  Exempt  Organizations.— Salaries  paid  by  cor- 
porations, which  corporations  have  been  held  to  be  exempt  from 

the  income  tax  under  [the  provisions]  of  the  income  tax  law,  are  subject 
to  the  income  tax  and  should  be  returned  as  income  by  the  individual 
* * * . (T.  D.  2090,  Dec.  14,  1914.) 

1 1 66  Commissions  on  Renewal  Premium.— Commissions  on  renewal 
premium  for  insurance  received  by  agents  on  account  of  business 

written  is  income  to  be  accounted  for  as  such  and  for  the  calendar  [taxable] 
year  of  its  receipt.  (Art.  4,  ^[56,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

1167  A commission  retained  by  a life  insurance  agent  on  his  own  life 
insurance  policy  is  held  to  be  income  accruing  to  the  agent,  and 

should  be  included  in  his  return  of  income  for  the  assessment  of  the  income 
tax.  (T.  D.  2137,  Jan.  30.  1915.) 

1 1 63  Compensation  Paid  Other  Than  in  Cash— Where  services  are  paid 
for  with  something  other  than  money,  the  fair  market  value,  if  readily 
realizable,  of  the  thing  taken  in  payment  is  the  amount  to  be  included  as 
income.  If  the  services  were  rendered  at  a stipulated  price,  in  the  absence  of 
evidence  to  the  contrary  such  price  will  be  presumed  to  be  the  fair  value  of  the 
compensation  received.  Compensation  paid  an  employee  of  a corporation  in 
its  stock  is  to  be  treated  as  if  the  corporation  sold  the  stock  for  its  market 
value  and  paid  the  employee  in  cash.  When  living  quarters  such  as  camps 
are  furnished  to  employees  for  the  convenience  of  the  employer,  the  ratable 
value  need  not  be  added  to  the  cash  compensation  of  the  employees,  but 
where  a person  receives  as  compensation  for  services  rendered  a salary 
and  in  addition  thereto  living  quarters,  the  value  to  such  person  of  the 
quarters  furnished  constitutes  income  subject  to  tax.  But  see  section  213  (b) 
(11)  [for  parsonage  furnished  minister,  ^[1604].  Premiums  paid  by  an  em- 

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GROSS  INCOME. 


ployer  on  policies  of  group  life  insurance  covering[the[lives*of  his  employees, 
the  beneficiaries  of  which  are  designated  by  the  employees,  are  not  income 
to  the’employees.  See  article  294  [^1639].  (Art.  33,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  tee  page  gi. 

Army  officers;  quarters,  light,  and  heat  both  at  and  away  from  Post  (21-21-1647: 
O.  D.  921).  .June  1921  Cum.  Bull.  p.  86. 

Transportation  of  family  from  one  station  to  another  at  Government  expense 
(50-21-1975:  O.  D.  1135).. Dec.  1921  Cum.  Bull.  p.  174. 

Board  and  lodging  furnished  domestic  servants  (15-21-1566:  0.  D.  874).. June  1921 
Cum.  Bull.  p.  348. 

Board  and  lodging  furnished  employees  in  fishing  and  canning  industry  (8-21-1459: 
O.  D.  814).  .June  1921  Cum.  Bull.  p.  84. 

Board  and  lodging  furnished  seamen  (18-19-475:  0.  D.  255).  .1919  Cum.  Bull.  p.  71. 
Hospital  employees  (20-21-1634:  O.  D.  915).  .June  1 92 1 Cum.  Bull.  p.  85. 

Parsonage  free  of  charge  to  clergyman  (14-21-1544:  O.  D.  862).. June  1921  Cum. 
Bull.  p.  85. 

Premiums  on  employee’s  life  insurance  the  employee  naming  beneficiary  (33-20- 
1128:  O.  D.  627).. Dec.  1920  Cum.  Bull.  p.  104. 

Premiums  on  group  insurance;  beneficiaries  being  named  by  employees  insured; 

not  taxable  income  (12-20-793:  O.  1014).  .June  1920  Cum.  Bull.  p.  88. 

Property  given  by  corporation  to  officer  in  recognition  of  unusual  but  valuable  services 
rendered  voluntarily  to  it  by  him  (1-14-192:  I.  T.  1262).  .June  1922  Cum. 
Bull.  p.  71. 

Quarters,  etc.,  furnished  officers  of  Public  Health  Service  (46-21-1917:  O.  D.  1098) 
. .Dec.  1921  Cum.  Bull.  p.  85. 

Quarters  furnished  chaplains  of  Army  and  Navy;  value  of  is  exempt  but  allowance 
in  lieu  of  is  not:  1921  Act  (1-20-272:  I.  T.  1307).  .June  1922  Cum.  Bull.  p.  110. 
Quarters  furnished  employees  of  the  Indian  Service  of  the  Interior  Department 
(20-21-1633:  O.  D.  914).  .June  1921  Cum.  Bull.  p.  85. 

Schooling,  books,  etc.,  furnished  employees;  amount  so  expended  by  employer  is 
income  to  them:  1921  Act  (1-20-269:  I.  T.  1304).  . June  1922  Cum.  Bull.  p.  72. 
Stock,  based  on  new  and  untried  invention:  determining  market  value  (1-20-656: 
O.  962).. June  1920  Cum.  Bull.  p.  74. 


1169  Quarters,  Mileage,  Expenses  of  Government  Officers  and  Em- 
ployees.— Quarters:  Commutation  of  quarters  and  the  money 

equivalent  of  quarters  furnished  in  kind  shall  be  returned  as  income. 

1170  When  quarters  are  furnished  in  kind,  of  a less  number  of  rooms 
than  the  number  allowed  by  law,  the  money  equivalent  only  of  the 

number  of  rooms  actually  assigned  shall  be  returned  as  income.  When 
quarters  are  furnished  in  kind,  of  a greater  number  of  rooms  than  the  number 
allowed  by  law,  it  is  to  be  assumed  that  the  excess  number  is  assigned  for  the 
convenience  of  the  Government,  and  the  money  equivalent  only  of  the 
number  of  rooms  allowed  by  law  shall  be  returned  as  income. 

1171  This  includes  the  money  equivalent,  as  fixed  by  the  Government 
of  heat  and  light  furnished  to  an  officer  occupying  public  quarters. 

1172  Mileage:  The  difference  between  the  amount  received  as  mileage 
and  the  amount  of  actual  necessary  expenses  incurred  on  a journey 

shall  be  returned  as  income.  . 

1173  Mileage,  as  such,  is  not  gain,  profit,  or  income  to  the  officer,  as 
he  is  required  to  pay  his  actual  expenses  while  traveling  under  mileage 

orders.  The  gain,  profit,  or  income  is  the  difference  between  the  amount 
received  as  mileage  and  the  amount  properly  expended  by  the  officer  while 
traveling;  and  this  difference,  only,  should  be  returned  asincome. 

1174  The  actual  expenses  to  be  deducted  by  the  individual  before  as- 
certaining his  gain,  profit,  or  income  on  account  of  mileage  are  the 

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expenses  for  which  reimbursement  would  be  made  by  the  Government  if 
he  had  traveled  on  an  actual  expense  basis  instead  of  a mileage  basis. 

1175  Reimbursement  for  actual  expenses:  Amounts  paid  by  the  Gov- 
ernment in  the  nature  of  reimbursement  for  subsistence  and  other 

items  of  actual  expenses  incurred  while  absent  on  business  for  the  Govern- 
ment are  not  required  to  be  returned  as  income.  (T.  D.  2079,  Nov.  24,  1914.) 

1176  Per  diem  allowance  in  lieu  of  subsistence  while  under  traveling 
orders;  the  total  allowance  is  income  and  there  may  be  taken  as  a 

deduction  for  expense  the  amount  actually  expended  from  such  allowance 
for  actual  necessary  traveling  expenses.  (Art.  4,  *J[55,  Reg.  33,  Rev.,  Jan. 

2,  1918.) 

1177  Status  of  Board  and  Lodging  Furnished  Seamen. — Receipt  is  ac- 

knowledged of  your  letter  of  July  2,  1919,  transmitting  a letter  ad- 
dressed to  you  by  , Auditor  for  the  — — - — - Steamship  Company, 

in  which  a ruling  is  requested  as  to  the  value  which  should  be  placed  on 
board  and  lodging  furnished  seamen  in  the  employ  of  that  company  for 
the  purpose  of  including  same  as  part  of  their  compensation  in  their  personal 
income  tax  returns.  IfYou  ask  to  be  advised  further  whether  the  Depart- 
ment has  decided  upon  a fixed  sum  for  all  steamship  companies  covering 
the  value  of  such  board  and  lodging,  ^fln  reply  you  are  advised  that  this 
office  holds  that  board  and  lodging  furnished  seamen  in  addition  to  their 
cash  compensation  is  supplied  for  the  convenience  of  their  employers  and  for 
this  reason  the  value  thereof  is  not  required  to  be  reported  in  such  employees’ 

income  tax  returns.  ^Accordingly,  the  seamen  employed  by  the  

Steamship  Company  are  not  required  to  include  in  any  income  tax  returns 
they  may  be  required  to  render  the  value  of  board  and  lodging  supplied  them 
by  that  company.  (Letter  to  the  Collector  of  Internal  Revenue,  Jackson- 
ville, Fla.,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated  July  21, 
1919.) 

1 1 78  Compensation  Paid  in  Notes — Notes  or  other  evidences  of  indebted 
ness  received  in  payment  for  services,  and  not  merely  as  security  fo 
such  payment,  constitute  income  to  the  amount  of  their  fair  market  value.  A 
taxpayer  receiving  as  compensation  a note  regarded  as  good  for  its  face 
value  at  maturity,  but  not  bearing  interest,  shall  treat  as  income  as  of  the 
time  of  receipt  the  fair  discounted  value  of  the  note  at  such  time.  Thus,  if  it 
appears  that  such  a note  is  or  could  be  discounted  on  a six  or  seven  per  cent 
basis,  the  recipient  shall  include  such  note  in  his  gross  income  to  the  amount 
ofjts  face  value  less  discount  computed  at  the  prevailing  rate  for  such  trans- 
actions. If  the  payments  due  on  a note  so  accounted  for  are  met  as  they 
become  due,  there  should  be  included  as  income  in  respect  of  each  such  pay- 
ment so  much  thereof  as  represents  recovery  for  the  discount  originally 
deducted.  (Art.  34,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

^Example;  1917  and  1918  Acts  (1-30-426:  A.  R.  R.  866).  .Bull.  I (’22)-30,  p.  11. 

1179  Gross  Income  from  Business. — In  the  case  of  a manufacturing, 
merchandising  or  mining  business  “gross  income”  means  the  total 
sales,  less  the  cost  of  goods  sold,  plus  any  income  from  investments  and  from 
incidental  or  outside  operations  or  sources.  In  determining  the  gross  income 
subtractions  should  not  be  made  foi  depreciation,  depletion,  selling  expenses 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
231 


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GROSS  INCOME. 


or  losses,  or  for  items  not  ordinarily  used  in  computing  the  cost  of  goods  sold. 
(Art.  35,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  or 

Bills  receivable  extended  and  discountable  at  a loss  only  (30-21-1742:  0.  1).  979) 
. .Dec.  1921  Cum.  Bull.  p.  85. 

Cash  discount  earned  (28-19-010:  0.  1).  326)..  1919  Cum.  Bull.  p.  56. 

Sole  proprietor  in  provision  business;  no  books;  provisions  withdrawn  for  family 
use  (34-21-1777:  0.  D.  998).. Dec.  1921  Cum.  Bull.  p.  86. 


1 1 80  Long-term  Contracts. — Income  from  long-term  contracts  is  taxable 
for  the  period  in  which  the  income  is  determined,  such  determination 
depending  upon  the  nature  and  terms  of  the  particular  contract.  As  used 
herein  the  term  “long-term  contracts”  means  building,  installation,  or  con- 
struction contracts  covering  a period  in  excess  of  one  year.  Persons  whose 
income  is  derived  in  whole  or  in  part  from  such  contracts  may,  as  to  such 
income,  prepare  their  returns  upon  the  following  bases: 

1181  (a)  Gross  income  derived  from  such  contracts  may  be  reported 

upon  the  basis  of  percentage  of  completion.  In  such  case  there 
should  accompany  the  return  certificates  of  architects  or  engineers  showing  the 
percentage  of  completion  during  the  taxable  year  of  the  entire  work  to  be 
performed  under  the  contract.  There  should  be  deducted  from  such  gross 
income  all  expenditures  made  during  the  taxable  year  on  account  of  the  con- 
tract, account  being  taken  of  the  material  and  supplies  on  hand  at  the  begin- 
ning and  end  of  the  taxable  period  for  use  in  connection  with  the  work  under 
the  contract  but  not  yet  so  applied.  If,  upon  completion  of  a contract,  it  is 
found  that  the  taxable  net  income  arising  thereunder  has  not  been  clearly 
reflected  for  any  year  or  years,  the  Commissioner  may  permit  or  require  an 
amended  return. 

1 1 32  (b)  Gross  income  may  be  reported  in  the  taxable  year  in  which  the 

contract  is  finally  completed  and  accepted  if  the  taxpayer  elects  as 
a consistent  practice  to  so  treat  such  income,  provided  such  method  clearly 
reflects  the  net  income.  If  this  method  is  adopted  there  should  be  deducted 
from  gross  income  all  expenditures  during  the  life  of  the  contract  which  are 
properly  allocated  thereto,  taking  into  consideration  any  material  and  supplies 
charged  to  the  work  under  the  contract  but  remaining  on  hand  at  the  time  of 
completion. 

1 1 83  Where  a taxpayer  has  filed  his  return  in  accordance  with  the  method 
of  account'ng  regularly  employed  by  him  in  keeping  his  books  and 
uch  method  clearly  reflects  the  income,  he  will  not  be  required  to  change  to 
either  of  the  methods  above  set  forth.  If  a taxpayer  desires  to  change  his 
method  of  accounting  in  accordance  with  paragraphs  (a)  and  (b)  above,  a 
statement  showing  the  composition  of  all  items  appearing  upon  his  balance 
sheet  and  used  in  connection  with  the  method  of  accounting  formerly  em- 
ployed by  him,  should  accompany_his  return.  (Art.  36,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p I. 

Election  having  been  made,  change  not  permitted  (22-21-J661:  O.  D.  933).. June 
1921  Cum.  Bull.  p.  86. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  EEDEKAL  INCOME  TAX  SKKV1CE 

232 


2-27-22.  (2)  4-10-22.  (8)  6-30-22.  (4)  10-11-22. 

GROSS  INCOME. 

Partial  payment  on  completion  of  contract;  open  account  for  balance  due  (52-21-1991: 
0.  D.  1147).. Dec.  1921  Cum.  Bull.  p.  87. 


1 1 84  State  Contracts. — Any  profit  received  from  a State  or  political 
subdivision  thereof  by  an  independent  contractor  is  taxable  in- 
come. Where  warrants  are  issued  by  a city,  town,  or  other  political  sub- 
division of  a State,  and  are  accepted  by  the  contractor  in  payment  for  public 
work  done,  the  fair  market  value  of  such  warrants  should  be  returned  as  in- 
come. If  for  any  reason  the  contractor  upon  conversion  of  the  warrants  into 
cash  does  not  receive  and  can  not  recover  the  full  value  of  the  warrants,  so 
returned,  he  may  allowably  deduct  from  gross  income  for  the  year  in  which 
the  warrants  are  converted  into  cash  any  loss  sustained,  and  if  he  realizes 
more  than  the  value  of  the  warrants  so  returned  he  should  include  such  amount 
in  his  gross  income  of  the  year  in  which  realized.  (Art.  37,  Reg.  62,  1922 
Edition.) 

1 1 85  Private  Bank  Owned  by  an  Individual  or  by  a Partnership. — When 
it  can  be  clearly  shown  that  a private  bank  is  owned  by  one  man,  it 

is  evident  that  such  bank  is  not  an  association  within  the  meaning  of  the 
Federal  income  tax  law,  and  that  therefore  such  bank  will  not  be  required 
to  make  a return  such  as  corporations  and  associations  are  required  to  make, 
but  the  individual  owner,  * * * will  be  required  to  make  a return  on  form 
1040,  showing  in  such  return  the  income  which  he  receives  not  only  from  the 
bank  but  from  all  other  sources.  (T.  D.  2137,  Jan.  30,  1915.) 

1 1 86  Gross  Income  of  Farmers. — A farmer  reporting  on  the  basis  of 
receipts  and  disbursements  (in  which  no  inventory  to  determine 

profits  is  used)  shall  include  in  his  gross  income  for  the  taxable  year  (1)  the 
amount  of  cash  or  the  value  of  merchandise  or  other  property  received  from 
the  sale  of  live  stock  and  produce  which  were  raised  during  the  taxable  year  or 
prior  years,  (2)  the  profits  from  the  sale  of  any  live  stock  or  other  items  which 
were  purchased,  and  (3)  gross  income  from  all  other  sources.  The  profit 
from  the  sale  of  live  stock  or  other  items  which  were  purchased  is  to.  be  as- 
certained by  deducting  the  cost  from  the  sales  price  in  the  year  in  which  the 
sale  occurs,  except  that  in  the  case  of  the  sale  of  animals  purchased  as  draft 
or  work  animals  or  solely  for  breeding  or  dairy  purposes  and  not  for  resale,  the 
profit  shall  be  the  amount  of  any  excess  of  the  sales  price  over  the  amount 
representing  the  difference  between  the  cost  and  the  depreciation  theretofore 
sustained  and  allowable  as  a deduction  in  computing  net  income. 

1187  In  the  case  of  a farmer  reporting  on  the  accrual  basis  (in  which 
an  inventory  to  determine  profits  is  used),  his  gross  profits  are  as- 
certained by  adding  to  the  inventory  value  of  live  stock  and  products  on 
hand  at  the  end  of  the  year  the  amount  received  from  the  sale  of  live  stock 

nd  'products,  and  miscellaneous  receipts  for  hire  of  teams,  machinery,  and 
the  like,  during  the  year,  and  deducting  from  this  sum  the  inventory  value  of 
live  stock  and  products  on  hand  at  the  beginning  of  the  year  and  the  cost  of 
live  stock  and  products  purchased  during  the  year.  In  such  cases  all  live 
stock  raised  or  purchased  for  sale  shall  be  included  in  the  inventory  at  their 
proper  valuation  determined  in  accordance  with  the  method  authorized  and 
adopted  for  theflpurpose.  Also  live  stock  acquired  for  draft,*breeding, ^or 

Copyright  1922,  by  Ths  Corporation  Trust  Company. 
the  federal  income  tax  beetice 

233 


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GROSS  INCOME. 

dairy  purposes  and  not  for  sale  may  be  included  in  the  inventory,  instead  of 
being  treated  as  capital  assets  subject  to  depreciation,  provided  such  practice 
is  followed  consistently  by  the  taxpayer.  In  case  of  the  sale  of  any  live  stock 
included  in  an  inventory  their  cost  must  not  be  taken  as  an  additional  de- 
duction in  the  return  of  income,  as  such  deduction  will  be  reflected  in  the 
inventory.  See  article  1586  [^[1192]. 

1188  In  every  case  of  the  sale  of  machinery,  farm  equipment,  or  other 
capital  assets  (which  are  not  to  be  included  in  an  inventory  if  one 

is  used  to  determine  profits)  any  excess  over  the  cost  thereof  less  the  amount 
of  depreciation  theretofore  sustained  and  allowable  as  a deduction  in  com- 
puting net  income,  shall  be  included  as  gross  income.  Where  farm  produce 
is  exchanged  for  merchandise,  groceries,  or  the  like  the  market  value  of 
the  article  received  in  exchange  is  to  be  included  in  gross  income.  Rents 
received  in  crop  shares  shall  be  returned  as  of  the  year  in  which  the  crop 
shares  are  reduced  to  money  or  a money  equivalent.  Proceeds  of  insurance, 
such  as  hail  and  fire  insurance,  on  growing  crops  should  be  included  in  gross 
income  to  the  amount  received  in  cash  or  its  equivalent  for  the  crop  injured 
or  destroyed.  If  a farmer  is  engaged  in  producing  crops  which  take  more 
than  a year  from  the  time  of  planting  to  the  time  of  gathering  and  dis- 
posing, the  income  therefrom  may  be  computed  upon  the  crop  basis;  but  in 
any  such  cases  the  entire  cost  of  producing  the  crop  must  be  taken  as  a 
deduction  in  the  year  in  which  the  gross  income  from  the  crop  is  realized. 

1189  As  herein  used  the  term  “farm”  embraces  the  farm  in  the  ordi- 
narily accepted  sense,  and  includes  stock,  dairy,  poultry,  fruit,  and 

truck  farms,  also  plantations,  ranches,  and  all  land  used  for  farming  operations. 
All  individuals,  partnerships,  or  corporations  that  cultivate,  operate,  or 
manage  farms  for  gain  or  profit,  either  as  owners  or  tenants,  are  designated 
farmers.  A person  cultivating  or  operating  a farm  for  recreation  or  pleasure, 
the  result  of  which  is  a continual  loss  from  year  to  year,  is  not  regarded  as  a 
farmer. 

1190  Form  1040  F should  be  filled  in  and  attached  to  his  income  tax  return 
by  every  farmer  who  either  keeps  no  records  or  only  records  of  cash 

receipts  and  disbursements;  its  use  is  optional  with  other  farmers.  (Art.  38 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Accrual  basis:  returns  and  inventories  (6-19-268:  O.  844)..  1919  Cum.  Bull.  p.  59: 
also  (18-20-893:  O.  D.  481).. June  1920  Cum.  Bull.  p.  66;  modified  by  (34-20- 
1144:  0.  D.  636).  .Dec.  1920  Cum.  Bull.  p.  80;  further  modified  by  (42-20-1241: 
O.  D.  685).  .Dec.  1920  Cum.  Bull.  p.  81. 

Same;  particularly  growing  crops:  1921  Act  (1-26-368:  I.  T.  1368).  .June  1922 
Cum.  Bull.  p.  72. 

Use  of  1040  F optional  (18-19-476:  O.  D.  266) ..  1919  Cum.  Bull.  p.  71.  See  1190. 


1191  Gentlemen  Farmers. — See  court  decision  at  1J1197. 

1192  Inventories  of  Livestock  Raisers  and  Other  Farmers. — (1)  Farmers 
may  change  the  basis  of  their  returns  from  that  of  receipts  and 

disbursements  to  that  of  an  inventory  basis,  which  necessitates  the  use  of 
opening  and  closing  inventories  for  the  year  in  which  the  change  is  made. 
There  should  be  included  in  the  opening  inventory  all  farm  products  (including 
livestock),  purchased  or  raised,  which  were  on  hand  at  the  date  of  the  inven- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

234 


£-27-22.  (2)  4-10-22.  (8)0-80-22.  (4)  10-11-22.  (5)  11-4-22. 

GROSS  INCOME. 

tory,  but  inventories  must  not  include  real  estate,  buildings,  permanent  im- 
provements or  any  other  assets  subject  to  depreciation. 

1193  (2)  Because  of  the  difficulty  of  ascertaining  actual  cost  of  livestock 
and  other  farm  products,  farmers  who  render  their  returns  upon  an  in- 
ventory basis  may  at  their  option  value  their  inventories  for  the  current  tax- 
able year  according  to  the  “farm-price  method”  which  provides  for  the 
valuation  of  inventories  at  market  price  less  cost  of  marketing.  If  the 
use  of  the  “farm-price  method”  of  valuing  inventories  for  any  taxable 
year  involves  a change  in  method  of  pricing  inventories  from  that  employed  in 
prior  years,  the  opening  inventory  for  the  taxable  year  in  which  the  change 
is  made  should  be  brought  in  at  the  same  value  as  the  closing  inventory  for 
the  preceding  taxable  year.  If  such  valuation  of  the  opening  inventory  for  the 
taxable  year  in  which  the  change  is  made  results  in  an  abnormally  large  income 
for  that  year,  there  may  be  submitted  with  the  return  for  such  taxable  year 
an  adjustment  statement  for  the  preceding  year  based  on  the  “farm-price 
method”  of  valuing  inventories;  upon  the  amount  of  which  adjustments  the 
tax,  if  any  be  due,  shall  be  assessed  and  paid  at  the  rate  of  tax  in  effect  for 
such  preceding  year. 

1194  (3)  Where  returns  have  been  made  in  which  the  taxable  net  income 
has  been  computed  upon  incomplete  inventories,  the  abnorma'ity 

should  be  corrected  by  submitting  with  the  return  for  the  current  taxable 
year  a statement  for  the  preceding  year  in  which  such  adjustments  shall  be 
made  as  are  necessary  to  bring  the  closing  inventory  for  the  preceding  year  into 
agreement  with  the  opening  complete  inventory  for  the  current  taxable  year. 
If  necessary  to  reflect  the  income,  similar  adjustments  may  be  made  as  at  the 
beginning  of  the  preceding  year,  and  the  tax.  if  any  be  due,  shall  be  assessed 
at  the  rate  of  tax  in  effect  for  such  year.  (Art.  1586,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  pr. 

(See  “Farmers”  in  Cumulative  Index  following  1515.) 

* Art.  1586,  Reg.  62,  amended  (T.  D.  3399)  . .^[3344 

Adjustments  for  1915  and  1916  under  Article  as  amended  Dec.  27,  1920  (7-21-1443: 
O.  D.  802).  . June  1921  Cum.  Bull.  p.  53:  See  “Permission”  below. 

Adjustments  for  1917  and  subseouent  years  and  the  recomputation  of  taxes  (47-21- 
1928:  O.  D.  1 105) . . Dec.  1921  Cum.  Bull.  p.  64 
Approval  of  farm-price  method  (2-20-668:  A.  R.  R.  14)..  June  1920  Cum.  Bull.  p.  56. 
Florists;  growing  plants  (34-21-1774:  O.  D.  995) ..  Dec.  1921  Cum.  Bull.  p.  63 
Nurserymen;  young  trees:  1921  Act  (1-26-368:  1.  T.  1368).  .June  1922  Cum. 

Bull.  p.  72.  . ..  . . 

Permission  to  change  to  inventory  basis  not  necessary;  adjustment  sheets  tor  pnor 
years  (1 1-21-1504:  O.  D.  841) . . J une  192 1 Cum.  Bull.  p.  53. 

Adjustment  by  calculating  income  for  taxable  year  without  taking  as  credit  tbt 
live-stock,  etc.,  inventory  at  beginning  of  year,  not  permissible  (23-21-1671? 
O.  D.  939).  June  1921  Cum.  Bull.  p.  54. 

★ Reg.  45,  Art.  1586  amended  (T.  D.  3296) . 43073:  again  amended  (T.  D.  3399 

..^3344. 

1195  Expenses  of  Farmers. — A farmer  who  operates  a farm  for  profit 
is  entitled  to  deduct  from  gross  income  as  necessary  expenses  all 
amounts  actually  expended  in  the  carrying  on  of  the  business  of  farming. 
The  cost  of  ordinary  tools,  of  short  life  or  small  cost,  such  as  hand  tools, 
including  shovels,  rakes,  etc.,  may  be  included.  The  cost  of  feeding  and  rais- 
ing live  stock  may  be  treated  as  an  expense  deduction,  in  so  far  as  such  cost 
represents  actual  outlay,  but  not  including  the  value  of  farm  produce  grown 
qpon  the  farm  or  the  labor  of  the  taxpayer.  Where  a farmer  is  engaged  in 
producing  crcps  which  take  more  than  a year  from  the  time  of  planting  to 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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GROSS  INCOME. 

the  process  of  gathering  and  disposal,  expenses  deducted  may  be  determined 
upon  the  crop  basis,  and  such  deductions  must  be  taken  in  the  year  in  which 
the  gross  income  from  the  crop  has  been  realized.  The  cost  of  farm  ma- 
chinery, equipment,  and  farm  buildings  represents  a capital  investment  and 
is  not  an  allowable  deduction  as  an  item  of  expense.  Amounts  expended  in 
the  development  of  farms,  orchards,  and  ranches  prior  to  the  time  when  the 
productive  state  is  reached  may  be  regarded  as  investments  of  capital. 
Amounts  expended  in  purchasing  work,  breeding,  or  dairy  animals  are 
regarded  as  investments  of  capital  and  may  be  depreciated  unless  such  ani- 
mals are  included  in  an  inventory  in  accordance  with  article 38  |*  1 186j.  1 he 

purchase  price  of  an  automobile,  even  when  wholly  used  in  carrying  on  farm- 
ing operations,  is  not  deductible,  but  is  regarded  as  an  investment  of 
capital.  The  cost  of  gasoline,  repairs,  and  upkeep  of  an  automobile  if  used 
wholly  in  the  business  of  farming  is  deductible  as  an  expense;  if  used  partly 
for  business  purposes  and  partly  for  the  pleasure  or  convenience  of  the  tax- 
payer or  his  family,  such  cost  may  be  apportioned  according  to  the  extent  of 
the  use  for  purposes  of  business  and  pleasure  or  convenience,  and  only  the  pro- 
portion of  such  cost  justly  attributable  to  business  purposes  is  deductible 
a a a necessarv  expense.  If  a farm  is  operated  for  recreation  or  pleasure  and 
not  on  a commercial  basis,  and  if  the  expenses  incurred  in  connection  with 
the  farm  are  in  excess  of  the  receipts  therefrom,  the  entire  receipts  from  the 
•ale  of  products  may  be  ignored  in  rendering  a return  of  income,  and  the 
expenses  incurred,  being  regarded  as  personal  expenses,  will  not  constitute 
allowable  deductions.  (Art.  110,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Executor  of  estate  of  deceased  “gentleman  farmer,”  during  administration  (35-20- 
1168:  A.  R.  R.  249)..  Dec.  1920  Cum.  Bull.  p.  145. 

♦ Breeding  of  blooded  horses  and  the  incidental  racing  thereof;  expenses  in  connection 
therewith  held  to  be  deductible  in  a particular  case:  Court  decision,  1913  Act.  . 
113392.  See  H 3127  also. 

1196  Losses  of  Farmers. — Losses  incurred  in  the  operation  of  farms  as 
business  enterprises  are  deductible  from  gross  income.  If  farm 
products  are  held  for  favorable  markets,  no  deduction  on  account  of  shrinkage 
in  weight  or  physical  value  or  by  reason  of  deterioration  in  storage  shall  be 
allowed,  except  as  such  shrinkage  may  be  reflected  in  an  inventory  if  used  to 
determine  profits.  The  total  loss  by  frost,  storm,  flood,  or  fire  of  a prospective 
crop  is  not  a deductible  loss  in  computing  net  income.  A farmer  engaged  in 
raising  arid  selling  stock,  cattle,  sheep,  horses,  etc.,  is  not  entitled  to  claim  as 
a loss  the  value  of  animals  that  perish  from  among  those  animals  that  were 
raised  on  the  farm,  except  as  such  loss  is  reflected  in  an  inventory  if  used. 
If  live  stock  has  been  purchased  for  any  purpose,  and  afterwards  dies  from 
disease,  exposure,  or  injury,  or  is  killed  bv  order  of  the  authorities  of  a State 
or  the  United  States,  the  actual  purchase  price  of  such  stock,  less  any  de- 
preciation sustained  and  allowable  as  a deduction  in  computing  net  income, 
with  respect  to  such  perished  live  stock,  and  less  also  any  insurance  or  in- 
demnity recovered,  may  be  deducted  as  a loss.  1 he  actual  cost  of  other 
property,  less  depreciation  sustained  and  allowable  as  a deduction  in  com- 
puting net  income,  destroyed  by  order  of  the  authorities  of  a State  or  of  the 
United  States,  may  in  like  manner  be  claimed  as  a loss;  but  if  reimbursement 
is  made  by  a State  or  the  United  States  in  whole  or  in  part  on  account  of  stock 

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killed  or  property  destroyed,  the  amount  received  shall  be  reputed  as 
inrnme  for  the  year  in  which  reimbursement  is  made,  lhe  cost  . 

feed  pasturage  or  care  which  has  been  deducted  as  an  expense  of  operation 
shall  not  be  fncluded  as  part  of  the  cost  of  the  stock  for  the  Purpose  o as- 
certaining the  amount  of  a deductible  loss.  If  gross  income  is  ascerta 

SW^-w^u^  fofresale  ‘^tcS 

then  the  amount  of  loss  sustained  may  be  deducted  from  gross  income  re- 
ceived  from  all  sources,  provided  the  farm  is  not  operated  for  recreation 
pleasure.  (Art.  145,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

*“Gentlemen  farmers”;  court  decision  under  1913  Act.  .';3127. 

1197  Gentleman  Farmers— Losses  Sustained  in  the  Operation  of  a Farm 
peuses  £ gS£Ed  SI'SsE^s^Comment; 

’rft;cts  as  rendered.  No  opinions.— The  Corporation  trust  Company.] 

1 l 98  Stuyvesant  Fish , Plaintiff , v.  Roscoe  Irwin,  Defendant— This  action 
was  brought  by  Stuyvesant  Fish  to  recover  the  amount  of  additional 
income  tax  assessed  against  him  in  October,  1917,  through  the  disallowance  of 
deductions  from  gross  income  claimed  by  Mr.  Fish  in  his  income  tax  repor  s 

Questions’ were  submitted  to  the  jury  in  the  following  form;  _ 

Was  the  plaintiff  engaged  in  carrying  on  farming  as  a business 

as  a business  in  1914, 

was  located  in  Putnam  County,  and 
consisted  of  1,300  acres,  900  of  woodland  and  400  cultivated.  The 
place  was  equipped  with  cow  barns  and  there  were  40  cows  there,  and  there 
was  e^den^e  of  it  being  a cattle  farm.  There  were  no  profits  upon  the 
farm  although  there  was  reasonable  probability  of  believing  that  some  day 
there  would  be.  The  jury  found  that  Fish  was  carrying  on  the  business  of 

?!  farmer  and  the  Court  sustained  the  finding.  . j 

1201  The  Glenclyffe  farm  consisted  of  480  acres,  and  only  7 0 were  cultivated 
and  the  testimony  was  that  there  never  was  a profit  or  reasonable 
expectancy  of  a profit,  that  the  expenses  were  far  in  excess  of  what  legiti- 
mately would  be  a farm  venture,  that  the  raising  of  crops  was  more  hobby 
than  l business.  The  jury  found  against  the  plaintiff  and  the  Court  sus- 
tained the  finding.  ...  , ,, 

i»o2  The  Court  charged  the  jury  as  follows:  ...  . 

“That  if  the  plaintiff  was  a person  cultivating  and  operating  a 
farm  for  recreation  or  pleasure,  other  than  on  the  recognized  principles  of 
commercial  farming,  then  he  was  not  a farmer. 

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the  federal  income  tax  service 

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“That  if  the  jury  find  that  the  plaintiff  was  the  owner  of  a body  of  land 
devoted  to  agriculture,  either  to  the  raising  of  crops  or  pasture,  for  the 
purpose  of  selling  the  products  as  a business,  then  they  are  entitled  to  find 
a verdict  in  favor  of  plaintiff  on  this  issue.” 

“Business  is  that  which  occupies  the  time,  attention  and  labor  of  men 
for  the  purpose  of  a livelihood  or  profit.  It  is  that  which  is  his  personal  con- 
cern, interest  or  regular  occupation.”  . 

1203  Chester  Chapin , Plaintiff , v.  Roscoe  Irwin , Defendant.  This  is  a 
sister  case  of  the  Fish  case.  The  issues  were  practically  the  same. 
Questions  were  sent  to  the  jury  as  follows: 

Was  the  plaintiff  engaged  in  carrying  on  a business  in  1914,  1915,  and  1916 
at  Towners,  Putnam  County,  N.  Y. ? 

Were  the  expenses  incurred  at  Towners  during  the  years  1914,  1915  and 

1916  necessary  expenses  of  carrying  on  business?  . 

1 204  Similar  questions  were  asked  as  to  the  Lebanon  Lake  farm.  The  jury 
answered  the  first  question  in  the  affirmative  and  the  second  in  the 
negative.  The  only  reason  for  this  could  have  been  that  while  they  considered 
the  plaintiff  engaged  in  carrying  on  a business  at  Towners,  they  also  con- 
sidered the  expenses  to  be  so  gross  and  unreasonable  as  not  to  be  necessary. 
The  Court  refused  to  set  aside  the  verdict  upon  the  ground  that  both  sides 
apparently  elected  to  stand  on  presenting  the  matter  of  expenses  to  the  jury 
in  such  form  that  the  jury  had  to  decide  that  all  or  none  were  necessary. 
They  both  must  accept  the  decision  as  rendered  by  the  jury.  . 

1 205  Upon  the  question  as  to  Lebanon  Lake  the  Court  sustained  the  verdict 
of  the  jury  that  Chapin  was  merely  a gentleman  farmer  running  the 
place  as  a forest  preserve  for  his  own  pleasure.  . 

1206  In  addition  to  the  above  questions  it  appeared  that  Chapin  had  an 
office  in  New  York  City  where  he  went  to  receive  his  mail  and  through 
which  he  contended  he  conducted  his  business.  The  Collector  objected  to  a 
deduction  of  the  moneys  necessary  to  running  the  office  upon  the  ground  that 
as  Chapin  had  no  regular  business  the  office  was  unnecessary  but was  merely 
conducted  for  the  personal,  convenience  of  Chapin..  He  testified,  that  he 
operated  his  farms  through  the  office  in  New  York  City,  and.  questions  were 
submitted  to  the  jury  as  to  whether  or  not  he  was  engaged  in  a business  in 
New  York  City  and  whether  the  expenses  were  necessary  and  both  questions 
were  answered  in  the  affirmative  and  sustained  in  the  finding  by  the  Court. 
1 207  As  the  Fish  and  Chapin  cases  were  the  first  of  their  kind  in  the  United 
States  Courts,  so  far  as  is  known,  it  was  decided  to  try  them  upon 
stipulation,  sending  various  questions  to  the  jury  as  to  whether,  or  not  a certain 
venture  was  a business,  and  also,  if  they  found  in  the  affirmative,  whether  t e 
expenses  were  necessary.  The  Court  was  to  be  left  the  sole  arbitrator  as  to 
whether  or  not  the  special  findings  were  to  be  sustained  and  then.  to  render 
verdict  as  if  sitting  without  a jury  as  in  an  equity  case.  (Court  Decisions.) 

1208  Depreciation  in  the  Case  of  Farmers— A reasonable  allowance  for 
depreciation  may  be  claimed  on  farm  buildings  (other  than  a dwelling 
occupied  by  the  owner),  farm  machinery,  and  other  physical  property.  A 
reasonable  allowance  for  depreciation  may  also  be  claimed  on.  live  stock 
acquired  for  work,  breeding,  or  dairy  purposes,  unless  they  are  inc\“ded ‘,n 
an  inventory  used  to  determine  profits  in  accordance  with  article  38  111  J- 
Such  depreciation  should  be  based  on  the  cost  and  the  estimated  life  of  the  live 
•tock.  If  such  live  stock  be  included  in  an  inventory  no  depreciation  thereot 

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will  be  allowed,  as  the  corresponding  reduction  in  their  value  will  be  reflected 
in  the  inventory.  (Art.  171,  Reg.  62,  1922  Edition.) 

1209  Depreciation  of  Fruit  Trees  and  the  Computation  of  Deductible 
Loss  in  Event  of  Death. — Receipt  is  acknowledged  of  your  letter 

dated  February  24,  1920,  quoted  here  as  follows:  “I  have  a 20-acre  prune 
orchard  of  two  thousand  (2,000)  six-year-old  trees.  Last  year,  two  hundred 
and  fifty  (250)  of  them  died  from  some  unavoidable  cause.  Am  I allowed 
any  depreciation  on  same?”  ^iln  reply,  you  are  advised  that  the  loss  sus- 
tained by  the  killing  of  the  trees  is  the  cost  of  the  trees  killed,  and  the  amount 
of  such  loss  is  deductible  from  your  income  for  the  taxable  year  1919.  If  the 
orchard  had  not  reached  an  income  producing  stage  at  the  time  the  trees  were 
killed,  the  cost  of  the  trees  would  be  the  initial  cost,  or  fair  market  value  on 
March  1,  1913,  if  the  trees  were  acquired  prior  to  that  date,  plus  the  capitalized 
expenditure  incurred  in  bringing  them  to  maturity.  In  the  event  the  orchard 
had  reached  the  income  producing  stage  at  the  time  the  trees  were  destroyed, 
the  cost  would  be  the  initial  cost  or  fair  market  value  as  of  March  1,  1913,  plus 
the  capitalized  expenditures  incurred  in  bringing  them  to  maturity  less 
depreciation  sustained. 

1210  The  basis  of  computing  depreciation  is  the  cost. of  the  trees  at  the 
time  the  orchard  has  reached  an  income  producing  stage,  including 

initial  cost  and  capitalized  expenditures  incurred  in  bringing  them  to  ma- 
turity, and  the  rate  of  depreciation  is  to  be  determined  by  the  average  life 
of  the  trees  from  the  income  producing  stage  under  normal  conditions. 
(Letter  to  C.  M.  McKinney,  Walla  Walla,  Washington,  signed  by  G.  V. 
Newton,  Acting  Assistant  to  the  Commissioner,  by  S.  Alexander,  Head  of 
Division,  dated  March,  1920,  and  made  available  through  the  courtesy  of 
Moore  and  Booth  of  Seattle,  Washington.) 


1211  Accrued  Interest  on  Bonds  Purchased  Between  Interest  Dates.— 

Interest  accrued  to  the  time  of  purchase  (advanced  by  purchaser)  is 
not  to  be  accounted  for  as  income  by  the  purchaser.  Only  the  amount  of 
interest  assignable  to  the  portion  of  the  interest  period  subsequent  to  the 
purchase  has  a status  of  income  for  the  purposes  of  return  and  tax  by  pur- 
chaser. 

1212  The  amount  of  accrued  interest  so  advanced  by  the  purchaser  is 
taxable  income  to  be  accounted  for  in  the  return  of  the  vendor. 

(Art.  4,  H15-16,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

1213  Interest  Received  and  Paid  by  Brokers  in  Connection  with  Pur- 
chase and  Carrying  of  Securities  for  Customers. — The  appended 

decision  [captions  only]  of  the  United  States  Circuit  Court  of  Appeals,  in 
the  case  of  Altheimer  & Rawlings  Investment  Co.  v.  Allen,  collector,  is  pub- 
lished for  the  information  of  internal-revenue  officers  and  others  concerned. 
(U.  S.  Circuit  Court  of  Appeals,  Eighth  Circuit.  248  bed.  688.) 

1214  1.  Gross  Income.  A corporation  which  did  a brokerage  business 
and  bought  securities  for  its  customers,  who  paid  only  a part,  of  the 

purchase  price,  paying  interest  on  balances,  the  corporation  also  paying  for 
the  securities  purchased  only  part  of  the  purchase  price  and  owing  balances 
on  which  it  paid  interest,  including  in  return  of  gross  income  the  difference 
between  the  interest  received  and  the  interest  paid,  made  incorrect  return. 

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1215  2.  Interest.  The  interest  received  by  plaintiff  from  its  customers 
should  be  included  in  gross  income.  In  determining  net  income, 

interest  can  be  deducted  only  to  an  amount  not  exceeding  the  paid-up  capital 
stock  outstanding  at  the  close  of  the  year  (i.  e.,  under  Act  of  Aug.  5,  1909). 

1216  3.  Judgment  Affirmed.  The  judgment  of  the  United  States  Dis- 
trict Court  (246  Fed.  270;  T.  D.  2441)  is  affirmed.  (248  Fed.  688.) 

(T.  D.  2686,  April  1,  1918.) 

12  17  Discount  for  Cash  in  Relation  to  Income  and  Capital  Account. — 

Reference  is  made  to  your  letter  of  the  15th  instant,  in  which  you 
state  that  a corporation  has  purchased  a large  quantity  of  equipment  and  in 
consideration  of  making  a prompt  payment  therefor  has  been  allowed  a 
cash  discount.  You  ask  to  be  advised  whether  or  not  this  discount  should 
be  reported  as  income.  Ifln  reply  you  are  informed  that  the  discount  allowed 
to  the  corporation  purchasing  this  new  equipment  need  not  be  reported  as 
income,  but  the  cost  of  the  equipment  as  charged  to  capital  must  represent 
only  the  net  cost  after  making  allowance  for  the  discount  in  question.  (Letter 
to  E.  G.  Shorrock  & Co.,  Seattle,  Washington,  signed  by  Deputy  Commissioner 
L.  F.  Speer,  and  dated  November  26,  1918.) 

1218  Payments  Made  to  Holders  of  Stock  Trust  Certificates. — Stock 
trust  certificates  or  leased  line  certificates,  as  the  case  may  be,  issued 

by  the  lessee  for  the  purpose  of  securing  or  holding  control  of  the  stock  of 
the  lessor  are  held  to  be  issued  in  lieu  of  the  certificates  of  capital  stock,  and 
for  the  purpose  of  this  tax  will  be  treated  as  capital  stock  and  the  amounts 
received  by  the  holders  of  these  certificates  are  dividends  to  the  holders  to 
be  treated  as  rentals  by  both  lessee  and  lessor  and  constitute  an  allowable 
deduction  in  the  one  case  and  an  item  of  income  in  the  other,  accordingly 
as  they  are  paid  and  received.  (Art.  104,  1f371,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

1219  Sale  of  Stock  and  Rights. — When  shares  of  stock  in  a corporation  are 
sold  from  lots  purchased  at  different  dates  and  at  different  prices  and 

the  identity  of  the  lots  can  not  be  determined  the  stock  sold  shall  be  charged 
against  the  earliest  purchases  of  such  stock.  The  excess  of  the  amount 
realized  on  the  sale  over  the  cost  of  the  stock  will  constitute  gain.  However, 
the  gain  to  be  included  in  gross  income  in  the  case  where  the  stock  was  ac- 
quired before  March  1,  1913,  when  its  fair  market  value  as  of  that  date  is  in 
excess  of  its  cost,  is  the  excess  of  the  amount  realized  by  the  sale  over  such 
value.  No  gain  is  recognized  when  stock  is  sold  at  more  than  its  cost  but  at 
less  than  its  fair  market  value  as  of  March  1,  1913.  In  the  case  of  stock  in 
respect  of  which  any  stock  dividend  was  paid,  the  cost  of  each  share  of  such 
stock  shall  be  ascertained  as  specified  in  article  1548  []fl  136],  Where  common 
stock  is  received  as  a bonus  with  the  purchase  of  preferred  stock  or  bonds,  the 
total  purchase  price  shall  be  fairly  apportioned  between  such  common  stock 
and  the  securities  purchased  for  the  purpose  of  determining  the  portion  of  the 
cost  attributable  to  each  class  of  stock  or  securities,  but  if  that  should  be  im- 
practicable in  any  case,  no  profit  on  any  subsequent  sale  of  any  part  of  the 
stock  or  securities  will  be  realized  until  out  of  the  proceeds  of  sales  shall  have 
been  recovered  the  total  cost.  See  article  1567  ft[1477].  The  entire  amount 
realized  from  the  sale  of  rights  to  subscribe  for  stock  is  income,  but  no  income 
is  realized  from  the  exercise  of  the  right  to  subscribe.  (Art.  39,  Reg.  62,  1922 
Edition.) 


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For  explanation  of  Cumulative  Index  references  see  page  p i. 

¥ Art.  39,  Reg.  62,  amended. — Rights.  . 1[3375. 

¥ Art.  39,  Peg.  45,  amended. — Rifrhts.  .^3372. 

Rights:  full  discussion  (19-19-495:  T.  B.  M.  73).  .1919  Cum.  Bull.  p.  71. 

See  (22-21-1659:  A.  R.  M.  128).  .June  1921  Cum.  Bull.  p.  29. 

Rights:  U.  S.  Supreme  Court  Decision,  May  29,  1922.  .^[3217. 

¥ Art.  39,  Reg.  62  (and  Art.  39,  Reg.  45,  f3372)  amended  because  of  above  cited 
Supreme  Court  decision.  .^[3375. 

1 220  Court  Decision.  Sale  of  Rights  to  Subscribe  For  Stock  (Reg.  45, 
1918  Act.) — Safe  Deposit  & Trust  Company  of  Baltimore,  Guardian 

of  Frank  R.  Brown  v.  Joshua  W.  Miles,  Collector  of  Internal  Revenue. 
(273  Fed.  822.)  United  States  District  Court  for  the  District  of  Maryland. 
Revenue  Act  of  1918. — Rose,  District  Judge:  The  plaintiff,  the  Safe  Deposit 
and  Trust  Company  of  Baltimore,  as  guardian  of  one  Frank  R.  Brown, 
an  infant,  sold  for  $12,546.80  the  right  to  subscribe  for  thirty-five 
shares  of  the  Hartford  Fire  Insurance  Company.  The  defendant,  as  Collector 
of  Internal  Revenue,  insisted  that  this  entire  sum  was  taxable  income 
of  the  ward,  and  demanded  $1,130.77  as  the  tax  thereon.  The  plaintiff 
paid  it  under  protest,  unavailingly  appealed  to  the  Commissioner,  and 
brought  this  suit.  Its  contention  that  what  it  received  for  the  rights  was 
capital,  and  not  constitutionally  taxable  as  income,  has  since  been  negatived 
by  the  Supreme  Court.  The  Merchants’  Loan  & Trust  Co.  vs.  Smietanka, 
decided  \ larch  28,  1921  [^[ S3 1 3,  Supplementary  Page  186]. 

1221  There  remains  for  consideration  its  further  cla:m  that  it  is  taxable 
upon  such  part  only  of  the  proceeds  of  the  rights  as  was,  in  fact, 

gain  or  profit  derived  from  the  sale  of  or  dealing  in  its  property  in  the  Insur- 
ance Company. 

1222  The  Government  on  the  other  hand  says  that  as  the  plaintiff  paid 
nothing  directly  for  the  rights  as  such,  all  that  it  got  from  their  sale 

was  a clear  profit  to  it. 

1223  The  issue  thus  joined  is  whether  the  law  will  look  to  the  transaction 
as  whole,  or  will  close  its  eyes  to  everything  that  preceded  the  issue 

of  the  rights,  and  to  all  that  came  after  their  sale. 

1224  There  is  appa.ently  only  one  case  which  has  passed  upon  the  precise 
question  here  raised.  Tax  Commissioner  vs.  Putman.  227  Mass.  522. 

There  the  Government’s  position  was  squarely  sustained,  as  was  natural  if 
not  inevitable  after  the  Court  had  held  that  stock  dividends  were  taxable 
income,  for  while  the  returns  from  rights  are' different  things  and  may  be 
income  although  such  dividends  are  not,  the  reverse  is  scarcely  possible. 

1225  If  the  stockholder  must  pay  an  income  tax  upon  the  full  nominal 
amount  of  a stock  dividend,  he  can  hardly  escape  from  paying  upon 

all  he  gets  from  the  sale  of  stock  rights.  It  :s  impossible  to  be  sure  that  the 
Supreme  Judicial  Court  would  have  held  the  latter  taxable,  had  it  not  first 
reached  the  conclusion  that  the  former  were.  The  expiess  refusal  of  the 
United  States  Supreme  Court  to  accept  the  ruling  that  stock  dividends  were 
not  income,  necessarily  deprives  the  Massachusetts  case  of  persuasive  force 
in  the  Federal  Courts.  Eisner  v.  Macomber,  252  U.  S.  189-216  [Supple- 
mentary Page  173].  The  question  must  therefore  be  dealt  with  as  one  upon 
which  there  is  no  direct  authority.  The  reiterated  declarations  of  the  Su- 
preme Court  have,  however,  it  is  believed,  made  plain  the  principles  which 
should  govern  its  decision.  What  is  taxable  is  the  gain,  profit  or  income 
derived  from  the  sale  or  dealing  in  property,  whether  real  or  personal.  39 
Stat.  757.  40  Stat.  300-307;  Goodrich  v.  Edwards,  decided  March  28,  1921 
[1]346,  Supplementary  Page  189], 

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1226  Congress,  it  i»  true,  has  very  ample  authority  to  adjust  its  income 
taxes  according  to  its  discretion,  and  the  rules  it  prescribes  for  the 

ascertainment  of  taxable  income  are  binding  upon  the  Courts  unless  thev  are 
palpab'y  arbitrary  and  unjust.  LaBelle  Iron  Works  v.  The  United  State*, 
decided  May  16,  1921.  The  net  revenue  from  some  peculiar  kind  of  property, 
luch  as  mines,  may  include  not  only  profit  from  operation,  but  a portion  of 
the  capital  as  well.  The  problems  of  apportionment  may  be  too  difficult 
and  some  of  their  factors  too  uncertain  for  adjustment  by  the  Courts,  and 
the  tax  may  have  to  be  assessed  upon  the  entire  net  proceeds  with  such  de- 
ductions only  if  any  as  Congress  may  have  authorized.  Von  Baumbach  v. 
Sargent  Land  Co.,  242  U.  S.,  503.  Nevertheless  by  and  large  the  statute 
means  what  it  says,  and  that  is  that  the  tax  is  to  be  levied  on  nothing  else 
except  gains,  profits  and  income,  and  upon  them  only  when  actually  realized 
in  money  or  in  money’s  worth,  and  in  determining  what  is  included 
therein,  the  Courts  will  look  through  form  to  substance.  Doyle  v.  Mitchell 
Bros.  Co.,  247  U.  S.,  179;  Eisner  v.  Macomber  Supra). 

1227  What  are  the  facts  to  which  these  general  rules  are  to  be  applied? 

1228  The  shares  of  the  Hartford  Fire  Insurance  Company  were  worth  on 
March  1,  1913,  $760  apiece.  At  the  time  of  the  death  intestate  of 

the  ward’s  father,  the  Government  said  that  for  the  purpose  of  the  estate 
tax,  they  were  each  of  the  value  of  $710  and  that  may  be  taken  as  their  cost 
to  the  plaintiff.  The  Insurance  Company  determined  to  double  the  number 
of  its  shares  and  to  give  each  of  its  stockholders  the  right,  upon  payment  of 
$150  a share,  to  obtain  as  many  new  shares  as  he  held  old. 

1229  The  plaintiff  in  the  right  of  every  share  it  held  and  which  had  cost  it 
as  just  mentioned,  $710,  could,  by  paying  $150  a share  more,  get 

another,  so  that  it  would  have  two,  which  in  the  aggregate  would  have 
cost  it  $860  or  $430  apiece.  There  would  be  no  way  of  distinguishing  between 
the  old  and  the  new.  If  the  latter  was  something  which  had  not  before  existed 
almost  the  same  might  be  truthfully  be  said  of  the  former.  Its  character- 
istics had  undergone  a great  change.  Before  the  issue  of  the  new  stock, 
it  represented  one  twenty-thousandth  of  the  capital  of  the  company;  after- 
wards it  stood  for  but  only  one  forty-thousandth.  Moreover,  if  the  plaintiff 
had  in  person  taken  the  new  stock,  and  had  had  its  old  and  new  consolidated 
into  one  certificate,  and  had  subsequently  sold  a part  of  its  holdings,  it  could 
not  say  that  with  which  it  parted  was  out  of  the  old  or  out  of  the  new,  or 
partly  out  of  both.  In  determining  its  cost  for  the  calculation  of  the  profit 
or  loss  upon  resale,  it  would  be  necessary  to  assume  that  they  had  one  and 
all  cost  the  holder  an  equal  amount,  which  in  the  case  of  the  plaintiff  here 
was  $430  a share. 

1230  It  certainly  could  make  no  difference  that  without  waiting  until  the 
stock  was  issued,  and  then  selling,  it  sold  the  right  to  the  new  stock, 

and  made  it  a part  of  the  consideration  that  the  buyer  should  assume  for  it 
the  payment  of  the  $150  per  share  exacted  by  the  company.  All  that  would 
have  to  be  borne  in  mind  in  comparing  the  two  ways  of  reaching  the  same 
end,  is  that  if  the  right  was  sold,  the  price  really  received  for  the  new  share 
was  $150  more  than  the  sum  paid  to  the  seller,  which  in  the  case  at  bar  was 
$358.48.  That  was  equivalent  to  $508.48  for  a fully-paid-for  share,  and  the 
$78.48  by  which  it  exceeded  the  $430  which  the  share  cost  the  plaintiff,  was 
the  gain  or  profit  it  made  out  of  the  transaction. 

1231  That  is  the  whole  story.  If  $78.48  be  multiplied  by  35,  the  number 
or  shares  of  rights  sold  by  the  plaintiff,  the  product  will  be  $2,746-80, 

and  upon  that  it  was  properly  taxable  and  upon  nothing  more. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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242 


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GROSS  INCOME. 


1232  It  still  retains  thirty-five  shares.  When,  if  ever,  they,  or  any  of 
them  are  sold,  there  must  be  returned  as  profit  in  the  year  in  which 

the  price  is  received  for  them,  the  amount,  if  any,  by  which  that  price  exceeds 
$430. 

1233  It  is  of  course  immaterial  that  if  the  plaintiff  had  chosen  at  the  time 
it  parted  with  the  rights  to  the  other  thirty-five,  to  sell  any  of  those 

it  still  held,  it  would  have  made  a taxable  profit  of  nearly  $80  a share  upon 
those  so  disposed  of.  There  is  no  tax  upon  a profit  until  that  profit  is  realized. 
1 234  The  counsel  for  the  opposing  parties  can  doubtless  agree  upon  the 
figures  for  which,  in  accordance  with  the  conclusions  herein  reached, 
the  plaintiff  is  entitled  to  a verdict.  (273  Fed.  822.)* 


•This  case  is  in  the  United  States  Supreme  Court  on  direct  writ  (Docket  Number 
416,  October,  1921  term).  Affirmed  by  U.  S.  Supreme  Court,  May  29,  1922.  .^[3217. 

1235  Sale  of  Patents  and  Copyrights. — A taxpayer  disposing  of  patents 
or  copyrights  by  sale  should  determine  the  profit  or  loss  arising  there- 
from by  computing  the  difference  between  the  selling  price  and  the  cost. 
The  taxable  income  in  the  case  of  patents  or  copyrights  acquired  prior  to 
March  1,  1913,  should  be  ascertained  in  accordance  with  the  provisions  of 
article  1561  [^f  1437].  The  profit  or  loss  thus  ascertained  should  be  increased 
or  decreased,  as  the  case  may  be,  by  the  amounts  deducted  on  account  of 
depreciation  of  such  patents  or  copyrights  since  February  28,  1913,  or  since 
the  date  of  acquisition  if  subsequent  thereto.  See  article  167  [for  deprecia- 
tion 1[1849].  (Art.  40,  Reg.  62,  1922  Edition.)]  jj 


1236  Sale  of  Good  Will. — Any  profit  or  loss  resulting  from  a sale  of  good 
will  can  be  taken  only  when  the  business,  or  a part  of  it,  to  which 
the  good  will  attaches  is  sold,  in  which  case  the  profit  or  loss  will  be  determined 
upon  the  basis  of  the  cost  of  the  assets,  including  good  will.  If  the  good  will 
was  acquired  prior  to  March  1,  1913,  the  taxable  gain  or  deductible  loss 
should  be  ascertained  in  accordance  with  the  provisions  of  article  1561 
[^[1437].  If  specific  payment  was  not  made  for  good  will  acquired  after 
February  28,  1913,  there  can  be  no  deductible  loss  with  respect  thereto,  but 
profit  may  be  realized  from  the  sale  of  good  will  built  up  through  expenditures 
which  have  been  currently  deducted.  It  is  immateral  that  good  will  may 
never  have  been  carried  on  the  books  as  an  asset,  but  the  burden  of  proof  is 
on  the  taxpayer  to  establish  the  cost  or  fair  market  value  on  March  1,  1913, 
of  the  good  will  sold.  See  article  163  [for  depreciation  of  intangible  property 
1fl834].  j.(Art.  41,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Corporation’s  assets,  including  good  will:  contemporary  sales  of  stock  of  greater 
■w,  weight  than  appraisal  (1-19-22:  O.  791) . . 1919  Cum.  Bull.  p.  73. 

March  1,  1913,  value:  how  determined  (10-20-777:  A.  R.  M.  34).. June  1920  Cum. 
Bull.  p.  31:  the  foregoing  amplified  and  explained  (28-20-1048:  A.  R.  M.  68) 
..Dec.  1920  Cum.  Bull.  p.  43:  further  amplified  (23-21-1669:  O.  D.  937).. June 
1921  Cum.  Bull.  p.  43 

Income  taxes  not  to  be  deducted  in  ascertaining  average  earnings  (1-1-3:'*  A.  R.  M. 
145).  .June  1922  Cum.  Bull.  p.  24 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
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GROSS  INCOME. 


1237  Sale  of  Personal  Property  on  Installment  Plan. — Dealers  in  per- 
sonal property  ordinarily  sell  either  for  cash  or  on  the  personal 

credit  of  the  buyer  or  on  the  installment  plan.  Occasionally  a fourth  type 
of  sale  is  met  with,  in  which  the  buyer  makes  an  initial  payment  of  such  a 
substantial  nature  (for  example,  a payment  of  more  than  25  per  cent)  that 
the  sale,  though  involving  deferred  payments,  is  not  one  on  the  installment 
plan.  Dealers  in  personal  property  who  sell  on  the  installment  plan  usually 
adopt  one  of  four  ways  of  protecting  themselves  in  case  of  default:  (a) 
Through  an  agreement  that  title  is  to  remain  in  the  seller  until  the  buyer  has 
completely  performed  his  part  of  the  transaction;  (b)  by  a form  of  contract 
in  which  title  is  conveyed  to  the  purchaser  immediately,  but  subject  to  a lien 
for  the  unpaid  portion  of  the  purchase  price;  (c)  by  a present  transfer  of  title 
to  the  purchaser,  who  at  the  same  time  executes  a reconveyance  in  the  form 
of  a chattel  mortgage  to  the  seller;  or  (d)  by  conveyance  to  a trustee  pending 
performance  of  the  contract  and  subject  to  its  provisions.  The  general  pur- 
pose and  effect  being  the  same  in  all  of  these  plans,  it  is  desirable  that  a uni- 
formly applicable  rule  be  established. 

1238  The  rule  prescribed  is  that  in  the  sale  or  contract  for  sale  of  personal 
property  on  the  installment  plan,  whether  or  not  title  remains  in  the 

vendor  until  the  property  is  fully  paid  for,  the  income  to  be  returned  by  the 
vendor  will  be  that  proportion  of  each  installment  payment  which  the  gross 
profit  to  be  realized  when  the  property  is  paid  for  bears  to  the  gross  contract 
price.  Such  income  may  be  ascertained  by  taking  as  profit  that  proportion 
of  the  total  cash  collections  received  in  the  taxable  year  from  installment  sales 
(such  collections  being  allocated  to  the  year  against  the  sales  of  which  they 
apply),  which  the  annual  gross  profit  to  be  realized  on  the  total  installment 
sales  made  during  each  year  bears  to  the  gross  contract  price  of  all  such 
sales  made  during  that  respective  year.  In  any  case  where  the  gross  profit 
to  be  realized  on  a sale  or  contract  for  sale  of  personal  property  has  been 
reported  as  income  for  the  year  in  which  the  transaction  occurred,  and  a 
change  is  made  to  the  installment  plan  of  computing  net  income,  no  part  of 
any  installment  payment  received  subsequent  to  the  change,  representing 
income  previously  reported  on  account  of  such  transaction,  should  be  reported 
as  income  for  the  year  in  which  the  installment  payment  is  received;  the  intent 
and  purpose  of  this  provision  is  that  where  the  entire  profit  from  installment 
sales  has  been  included  in  gross  income  for  the  year  in  which  the  sale  was 
made,  no  part  of  the  installment  payments  received  subsequently  on  account 
of  such  previous  sales  shall  again  be  subject  to  tax  for  the  year  or  years  in 
which  received.  Where  the  taxpayer  makes  a change  to  this  method  of 
computing  net  income  his  balance  sheet  should  be  adjusted  conformably. 
If  for  any  reason  the  vendee  defaults  in  any  of  his  installment  payments  and 
the  vendor  repossesses  the  property,  the  entire  amount  received  on  install- 
ment payments,  less  the  profits  already  returned,  will  be  income  of  the 
vendor  for  the  year  in  which  the  property  was  repossessed,  and  the  property 
repossessed  must  be  included  in  the  inventory  at  its  original  cost  to  himself, 
less  proper  allowance  for  damage  and  use,  if  any. 

1239  If  the  vendor  chooses  as  a matter  of  consistent  practice  to  treat  the 
obligations  of  purchasers  as  the  equivalent  of  cash,  such  a course  is 

permissible.  (Art.  42,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Accrued  accounts  to  be  valued  at  face  irrespective  of  market  value  of  evidences  of 
indebtedness  unless  deferred  payment  sale  is  clearly  on  installment  basis:  1921 
Act  (1-6-69:  I.  T.  1191).  .June  1922  Cum.  Bull.  p.  76. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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GROSS  INCOME. 

Suggested  amended  balance  sheets  on  change  to  prescribed  installment  plan  (all 
prior  to  amendment  of  Art.  42  by  T.  D.  3082,  Oct.  20,  1920)  (8-19-313:  T.  B.  R. 
24)..  1919  Cum.  Bull.  p.  73:  modified  by  (32-20-1 118:  O.  D.  623)..  Dec.  1920 
Cum.  Bull.  p.  105:  the  modifying  ruling  explained  (6-21-1428:  O.  D.  793).  .June 
1921  Cum.  Bull.  p.  87.  Further  explanation  of  the  modifying  ruling:  1918  and 
1921  Acts  (1-28-405:  I.  T.  1391).  .Bull.  I (’22)-28,  p.  5. 

Cash  and  installment  basis;  both  employed;  manner  of  reporting  (1-19-35:  O.  D. 
23).. 1919  Cum.  Bull.  p.  75:  Also  (47-21-1930:  O.  D.  1107).. Dec.  1921  Cum. 
Bull.  p.  89. 

Change  to  installment  plan  will  not  be  approved  merely  because  taxpayer  derives  tax 
benefit  therefrom:  manner  of  reporting  if  approved  (1-19-36:  0.  D.  24)..  1919 
Cum.  Bull.  p.  75. 

Continuous  accounts:  application  of  payments  to  earliest  items  in  absence  of  vendee’s 
contrary  application  (8-21-1460:  O.  D.  815).. June  1921  Cum.  Bull.  p.  88;  also 
(39-21-1838:  O.  D.  1045)..  Dec.  1921  Cum.  Bull.  p.  88. 

Cost  of  goods  not  shown  on  books:  average  percentage  of  gross  profits  on  gross  sales 
(1-19-37:  O.  D.  25).  . 1919  Cum.  Bull.  p.  75. 

Default  and  failure  to  repossess  (6-21-1427:  0.  D.  792) . .June  1921  Cum.  Bull.  p.  86. 

Expenses  not  to  be  allocated  (11-21-1508:  O.  D.  844).. June  1921  Cum.  Bull.  p.  123, 
Also:  (1-10-124:  I.  T.  1227).  .June  1922  Cum.  Bull.  p.  77. 

Leasehold  interest  in  real  estate;  is  personalty  not  realty;  sale  made  prior  to  Dec.  31, 
1921,  installments  received  in  1922  and  thereafter  not  within  provisions  of  Sec. 
206  (profit  on  sale  of  capital  assets):  1921  Act  (1-25-353:  I.  T.  1362).  .June  1922 
Cum.  Bull.  p.  77. 

Not  limited  to  dealers  nor  to  chattels;  applies  equally  to  stock;  retention  of  lien  on 
property  no  bar  (13-20-806:  S.  1353).. June  1920  Cum.  Bull.  p.  77:  also,  for 
“not  limited  to  dealers”  (18-20-894:  O.  D.  482).  .June  1920  Cum.  Bull.  p.  77. 

Operating  expenses  and  losses  properly  assignable  to  one  year  for  income  tax  pur- 
poses should  be  applied  against  all  profits  for  that  year  (1-10-124:  I.  T.  1227).  . 
June  1922  Cum.  Bull.  p.  77. 

Stock  by  stockholders;  vendees  depositing  collateral  with  trustees  as  security  for 
contracted  semi-annual  installment  payments  (23-19-542:  O.  D.  290)..  1919 
Cum.  Bull.  p.  75. 

Stock  to  employees:  sale  by  stockholder  (4-19-212:  O.  D.  134)..  1919  Cum.  Bull, 
p.  75. 

Substantial  initial  payment  and  notes  discountable  at  heavy  loss  only  because  of  lack 
of  credit  on  part  of  vendee  (45-20-1287:  0.  D.  715).  .Dec.  1920  Cum.  Bull, 
p.  107. 

(See  “Notes  which  cannot  be  discounted  or  sold”  in  Cumulative  Index  following 
'll  1248.) 

1 240  Sale  of  Farm  Land  Since  Depreciated  in  Value,  Title  Passing,  Payment 
in  Cash  and  One  Not-Readily-Marketable  Interest-Bearing  10-Year 

Note  Secured  by  Mortgage  on  the  Land,  Principal  Payable  in  Part  or  in 
Whole  on  any  Interest  Date  at  Option  of  Maker,  Treated  as  Sale  on 
Installment  Plan. — Receipt  is  acknowledged  of  your  letter  of  April  23,  1921,  in 
which  you  request  a ruling  regarding  the  proper  method  to  be  followed  by 
* * * as  administrators,  in  reporting  for  income  tax  purposes  the  profit 

realized  on  a sale  of  real  estate  by  * * * , who  died  on  October  13,  1920, 

approximately  eight  months  following  the  date  of  such  sale.  You  submit  for 
examination  an  affidavit  prepared  by  the  administrators  concerning  the  terms 
of  sale,  a copy  of  a mortgage  representative  of  the  security  given  by  the 
vendees  in  each  of  the  transactions,  and  a letter  from  the  * * * Trust 

Company,  regarding  the  negotiability  of  the  notes  secured  by  the  real  estate 
mortgage  on  the  land. 

1241  It  is  stated  that  in  the  summer  and  fall  of  1919  certain  memoranda 
of  agreement  were  entered  into  by  the  decedent  and  various  pros- 
pective purchasers  of  the  farm  land  owned  by  such  decedent.  During  the 
months  of  February  and  March,  1920,  the  vendor  executed  absolute  deeds 
to  the  farm  land  and  made  delivery  thereof  to  the  various  purchasers,  receiv- 
ing at  that  time  an  initial  payment  in  each  case  ranging  from  one-eighth  to 
one-sixth  of  the  total  contract  price.  For  the  unpaid  balance  of  the  purchase 

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GROSS  INCOME. 


price  the  decedent  accepted  from  each  of  the  purchasers  mentioned  one  note 
payable  ten  years  after  date,  bearing  interest  at  five  per  cent  per  annum,  with 
the  option  to  the  maker  thereof  to  pay  any  part  of  the  principal  in  the  denom- 
inations of  $100.00  upon  any  interest  date.  It  is  claimed  that  the  notes 
secured  by  the  mortgage  mentioned  are  not  readily  merchantable  because 
of  the  fact  that  the  farm  land  has  decreased  in  value  since  1919  and  further 
because  the  financial  condition  of  a majority  of  the  makers  of  the  notes  is  such 
that  it  is  doubtful  if  even  the  interest  payments  can  be  met.  These  facts 
are  supported  by  a letter  from  the  * * * Trust  Company  from  which  the 

administrators  of  the  decedent’s  estate  sought  to  obtain  a loan,  using  as 
collateral  security  therefor  the  notes  in  question. 

1 242  In  reply  you  are  advised,  after  careful  consideration  of  the  facts  pre- 
sented, that  inasmuch  as  the  notes  covering  the  unpaid  balance  of  the 

purchase  price  are  not  merchantable  because  of  lack  of  credit  on  the  part  of  the 
purchasers  and  the  decrease  in  the  value  of  farm  land  since  the  date  of  the  oiig- 
inal  sale  agreement,  it  is  held  that  the  transactions  in  question  should  be 
treated  for  income  tax  purposes  as  deferred  payment  sales  of  real  estite  on  the 
installment  plan.  The  administrators  of  the  estate  of  * * * should, 

therefore,  include  in  the  income  tax  return  of  the  decedent  for  the  period 
from  the  beginning  of  his  taxable  year  to  the  date  of  his  death,  that  pro- 
portion of  each  installment  payment  received  by  the  decedent  during  such 
period  which  the  gross  profit  to  be  realized  when  the  property  is  paid  for 
bears  to  the  gross  contract  price. 

1 243  The  basis  to  be  used  in  determining  the  profit  derived  from  the  trans- 
actions will  be  the  fair  market  value  of  the  land  as  of  March  1,  1913, 

if  acquired  prior  to  that  date  or  its  cost  if  acquired  subsequent  to  such  date. 
The  fair  market  value  or  cost  of  the  land,  as  the  case  may  be,  should  first  be 
reduced  by  depreciation  sustained  on  depreciable  property  from  March  1, 
1913,  or  the  date  of  acquisition,  whichever  is  later,  to  the  date  of  sale.  (Letter 
to  John  E.  Hughes,  Chicago,  111.,  signed  by  Acting  Deputy  Commissioner 
E.  H.  Batson,  by  M.  E.  Stickley,  Head  of  Division,  and  dated  April  27,  1921.) 


1244  Sale  of  Real  Estate  in  Lots. — Where  a tract  of  land  is  purchased 
with  a view  to  dividing  it  into  lots  or  parcels  of  ground  to  be  sold  as 
such  the  cost  shall  be  equitably  apportioned  to  the  several  lots  or  parcels 
and  made  a matter  of  record  on  the  books  of  the  taxpayer,  to  the  end  that 
any  gain  derived  from  the  sale  of  any  such  lots  or  parcels  which  constitute 
taxable  income,  may  be  returned  as  income  for  the  year  in  which  the  sale  was 
made.  This  rule  contemplates  that  there  will  be  a measure  of  gain  or  loss 
on  every  lot  or  paicel  sold,  and  not  that  the  capital  invested  in  the  entire 
tract  shall  be  extinguished  before  any  taxable  income  shall  be  returned. 
The  sale  of  each  lot  or  parcel  will  be  treated  as  a separate  transaction  and  the 
gain  or  loss  will  be  accounted  for  as  provided  in  article  1561  1437].  (Art. 

43,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Cost  when  contemplated  development  work  not  yet  completed  (12-19-399:  O.  D. 
226)..  1919  Cum.  Bull.  p.  76:  also  (27-20-1036:  O.  D.  567).. Dec.  1920  Cum. 
Bull.pp.  108.  , , , 

Selling  part  of  parcel  intended  to  have  been  sold  as  whole;  sale  of  perpetual  easement 
(43-21-1881:  O.  D.  1072).  .Dec.  1921  Cum.  Bull.  p.  89. 


Copyright  1922,  by  Tht  Corporation  Trust  Company. 
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GROSS  INCOME. 


1245  Sale  of  Real  Estate  Involving  Deferred  Payments. — Deferred  pay- 
ment sales  of  ieal  estate  ordinarily  fall  into  two  classes  when  con- 
sidered with  respect  to  the  terms  of  sale,  a<=  follows: 

1246  (1)  Installment  transactions,  in  which  the  initial  payment  is  rela- 
tively small  (generally  less  than  one-fourth  of  the  purchase  price) 

and  the  deferred  payments  usually  numerous  and  of  small  amount.  They  in- 
clude (a)  sales  where  there  is  immediate  transfer  of  title  when  a small  initial 
payment  is  made,  the  seller  being  protected  by  a mortgage  or  other  lien 
as  to  deferred  payments,  and  (b)  agreements  of  purchase  and  sale  which  con- 
template that  a conveyance  is  not  to  be  made  at  the  outset,  but  only  after 
all  or  a substantial  portion  of  the  agreed  installments  have  been  paid. 

1247  (2)  Deferred  payment  sales  not  on  the  installment  plan,  in  which 
there  is  a substantial  initial  payment  (ordinarily  not  less  than  one- 

fourth  of  the  purchase  price),  deferred  payments  being  secured  by  a mort- 
gage or  other  lien.  Such  sales  are  distinguished  from  sales  on  the  install- 
ment plan  by  the  substantial  character  of  the  initial  payment  and  also 
usually  by  a relatively  small  number  of  deferred  payments. 

1248  In  determining  how  these  classes  shall  be  treated  in  levying  the 
income  tax,  the  question  in  each  case  is  whether  the  income  to  be 

reported  for  taxation  shall  be  based  only  on  amounts  actually  received  in  a 
taxing  year,  or  on  the  entire  consideration  made  up  in  part  of  agreements 
to  pay  in  the  future.  (Art.  44,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p /. 

Notes  which  cannot  be  discounted  or  sold  for  lack  of  credit  of  buyers  of  realty  (8-19 
314:  O.  D.  181)..  1919  Cum.  Bull.  p.  76.  See  also  (45-20-1287:  0.  D.  715} 

. .Dec.  1920  Cum.  Bull.  p.  107. 

Parcels  of  property  released  as  payments  are  made  for  cash  vendors  giving  bond  for 
execution,  and  warranty  deed  on  final  payment;  distributable  estate  was  owner 
of  undivided  share  of  disposed  property — basis  for  determining  profit  to  heir* 
(10-21-1493:  0.  D.  835).  .June  1921  Cum.  Bull.  p.  88. 

Specific  illustrative  case  (1917  Act  but  equally  applicable  to  1918  Act)  (46-21-1918: 
A.  R.  M.  140).  .Dec.  1921  Cum.  Bull.  p.  90. 


1249  Sale  of  Real  Estate  on  Installment  Plan. — In  the  two  kinds  of 
transactions  included  in  class  (1)  in  the  foregoing  article,  install- 
ment obligations  assumed  by  the  buyer  are  not  ordinarily  to  be  regarded  as 
having  a readily  realizable  market  value,  and  the  vendor  may  report  as  his 
income  from  such  transactions  in  any  year  that  proportion  of  each  payment 
actually  received  in  that  year  which  the  gross  profit  to  be  realized  when  the 
property  is  paid  for  bears  to  the  gross  contract  price.  If  the  return  is  made  on 
this  basis  and  the  vendor  repossesses  the  property  after  default  by  the  buyer, 
retaining  the  previous  payments,  the  entire  amount  of  such  payments,  less 
the  profit  previously  returned,  will  be  income  to  the  vendor  and  will  be  so 
returned  for  the  year  in  which  the  property  was  repossessed,  and  the  property 
repossessed  must  be  included  in  the  inventory  at  its  original  cost  to  himself 
(less  any  depreciation  as  defined  in  articles  161  [1(1831]  and  162  [1(1832]). 
If  the  taxpayer  chooses  as  a matter  of  settled  practice  consistently  followed 
to  treat  the  obligations  of  the  purchaser  as  having  a readily  realizable  market 
value  and  to  report  the  profit  derived  from  the  entire  consideration,  cash  and 
deferred  payments,  as  income  for  the  year  when  the  sale  is  made,  this  is 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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GROSS  INCOME. 


permissible.  If  so  treated  the  rule  prescribed  in  article  46  [H1250]  will  apply. 
(Art.  45,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Purchase  money  mortgage  for  four-fifths  of  purchase  price,  payable  in  installments : 
vendor  dies  before  making  return  after  sale:  accounting  for  decedent  for  estate 

in  process,  and  by  devisee  (1-6-70:  I.  T.  1192).  .June  1922  Cum.  Bull.  p.  78. 


1250  Deferred-Payment  Sales  of  Real  Estate  Not  on  Installment  Plan. 

—In  class  (2)  in  article  44  [see  at  ^1247  above]  the  obligations  as- 
sumed by  the  buyer  are  much  better  secured  because  of  the  margin  afforded 
by  the  substantial  first  payment,  and  experience  shows  that  the  greater 
number  of  such  sales  are  eventually  carried  out  according  to  their  terms. 
If  these  obligations  have  a readily  realizable  market  value,  as  defined  by  article 
1564  [^[1457],  they  are  to  be  considered  as  the  equivalent  of  cash  and  the  profit 
realized  from  the  transaction  is  taxable  income  for  the  year  in  which  the  initial 
payment  wras  made  and  the  obligation  assumed.  If  the  buyer  defaults  and 
the  seller  regains  title  to  the  land  by  agreement  or  process  of  law,  retaining 
payments  previously  made,  he  may  deduct  from  his  gross  income  as  a loss  in 
the  year  of  repossession  any  excess  of  the  amount  previously  reported  as 
income  over  the  amount  actually  received,  and  must  include  such  real  estate 
in  his  inventory  at  its  original  cost  to  himself  (less  any  depreciation  as  defined 
in  arts.  161  tfflS3l]  and  162  ffll832]).  If  the  obligations  have  no  readily 
realizable  market  value,  the  amount  of  the  initial  payment  shall  be  applied 
against  and  reduce  the  basis,  as  provided  in  section  202  and  articles  1561- 
1564  [beginning  at  ^[1437]  of  the  property  sold  and  if  in  excess  of  such  basis, 
shall  be  taxable  to  the  extent  of  the  excess.  See  article  1568 J*f  1482].  Gain  or 
loss  is  realized  when  the  obligations  are  disposed  of  or  satisfied,  the  amount 
being  the  difference  between  the  basis  as  provided  above  and  the  amount 
realized  therefor.  See  articles  153  [for  uncollectible  deficiency  on  sale  of 
mortgaged  or  pledged  property,  If  1815],  1561  [for  basis  for  determining  gain  or 
loss,  1437],  and  1568  [for  exchanges  of  property  for  other  property  and 
money,  1fl482].  (Art.  46,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Annual  deferred  payments  in  notes  secured  by  vendor’s  lien:  executory  contract 

here  (11-21-1506:  O.  D.  842).  .June  1921  Cum.  Bull.  p.  89. 

Miscellaneous  conditions  as  to  payments  (27-20-1037:  0.  D.  568)  and  (27-20-1038. 

0.  D.  569).  .Dec.  1920  Cum.  Bull.  p.  108. 

Same:  decedent  and  executor  (33-20-1134:  0.  D.  631).. Dec.  1920  Cum.  Bull. 

Miscellaneous  consideration:  cash,  assuming  of  mortgage  held  by  State  (the  State 
however  refusing  to  accept  the  vendee’s  note  in  lieu  of  that  of  the  vendor  held  by 
it)  and  a mortgage  (11-20-784:  O.  D.  409).. June  1920  Cum.  Bull.  p.  77. 

Oil  land;  oil  in  part  payment,  if  struck,  no  recourse  if  oil  not  tound  (.17-21-15*1. 
O.  D.  889).  .June  1921  Cum.  Bull.  p.  89. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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1-17-21  (2)  4-10-22.  (3)  6-26-22.  (4)  9-20-22.  (6)  10-11-22.  (6)  11-4-22. 

GROSS  INCOME. 


1251  Annuities  and  Insurance  Policies. — Annuities  paid  by  religious, 
charitable,  and  educational  corporations  under  an  annuity  contract 
are  subject  to  tax  to  the  extent  that  the  aggregate  amount  of  the  payments 
to  the  annuitant  exceeds  any  amounts  paid  by  him  as  consideration  for 
the  contract.  An  annuity  ch  rged  upon  devised  land  is  income  taxable 
to  the  annuitant,  whether  paid  by  the  devisee  out  of  the  rents  of  the  land 
or  from  other  sources.  The  devisee  is  not  required  to  return  as  taxable 
income  the  amount  of  rent  paid  to  the  annuitant,  and  he  is  not  entitled  to 
deduct  from  his  taxable  income  any  sums  paid  to  the  annuitant.  Where  an 
insured  receives  under  life  insurance,  endowment,  or  annuity  contracts  sums 
in  excess  of  the  premiums  paid  therefor,  such  excess  is  income  for  the  year 
of  its  receipt.  See  article  72  [for  proceeds  of  insurance,  * 1555].  Dis- 
tributions on  paid-up  policies  which  are  made  out  of  earnings  of  the  insurance 
company  subject  to  tax  are  in  the  nature  of  corporate  dividends  and  are 
income  of  an  individual  only  for  the  purpose  of  the  suitax.  (Art.  47,  Reg.  45f 
1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Annuity  charged  upon  estate  to  be  paid  by  residuary  legatee  if  estate’s  income  i* 
insufficient  is  not  deductible  by  him:  1917  and  1918  Acts  (1-38-510:  I.  T.  1448). . 
Bull.  I (’22)-38,  p.  3. 

★Annuity  purchased  by  one  for  self;  status  of  all  payments  made  and  received  by  both 
parties:  all  Acts  (I-44-56S:  I.  T.  1484).  .Rull.  I (’22)-44,  p.  1. 

Annuity  purchased  for  one  by  another  (7-19-289:  O.  D.  170).  . 1919  Cum.  Bull.  p.  76. 

Assignment  of  policy  (1)  to  some  one  other  than  insurance  company;  (2)  to  company 
(4-20-701:  O.  D.  379).  .June  1920  Cum.  Bull.  p.  7.7. 

Exchanging  policies;  one  kind  for  another  kind  (36-20-1181:  Sol.  Op.  55).  .Dec.  1920 
Cum.  Bull.  p.  54.  . . , . . . 

Interest  on  proceeds  of  policies  left  with  company  on  exercise  of  option  by  beneticiarie* 
(31-20-1101:  O.  D.  612).  .Dec.  1920  Cum.  Bull.  p.  120.  See  (1-21-1374:  O.  D. 
767).  .June  1921  Cum.  Bull.  p.  231. 

Proceeds  of  endowment  policy  paid  in  monthly  installments  to  named  benehciarte* 
(47-21-1931:  O.  D.  1108).  Dec.  1921 1 Cum.  Bull.  p.  92. 

Securities  transferred  to  a corporation  in  consideration  of  the  fruits  thereof  during 
life  of  transferree  (1-9-113:  1.  T.  1220).  June  1922  Cum.  Bull.  p.  79.  See 
(1-25-354:  I.  T.  1363).  . June  1922  Cum.  Bull.  p.  79,  which  also  involves  conversion 
of  securities  into  cash  and  annual  payment  to  taxpayer  of  amount  equivalent  to 
5%  of  proceeds:  1918  and  1921  Acts. 

1252  Improvements  by  Lessees. — When  buildings  are  erected  or  improve- 
ments made  by  a lessee  in  pursuance  of  an  agreement  with  the  lessor, 

and  such  buildings  or  improvements  are  not  subject  to  removal  by  the  lessee, 
the  lessor  may  at  his  option  report  the  income  therefrom  upon  either  of  the 
following  bases:  _ . • 

1253  (a)  The  lessor  may  report  as  income  at  the  time  when  such  building* 
t ~ ^ or  improvements  are  completed  the  fair  market  value  of  such  buildings 
or  improvements  subject  to  the  lease.  This  amount  would  ordinarily  be  the 
difference  between  the  value  of  the  land  free  from  the  lease  without  such 
improvements  and  the  value  of  the  land  subject  to  the  lease  with  such  im- 
provements 

1254  (b)  The  lessor  may  spread  over  the  life  of  the  lease  the  estimated 
depreciated  value  of  such  buildings  or  improvements  at  the  termina- 
tion of  the  lease  and  report  as  income  for  each  year  of  the  lease  an  aliquot  part 
thereof. 

1255  If  for  any  other  reason  than  a bona  fide  purchase  from  the  lessee 
by  the  lessor  the  lease  is  terminated,  so  that  the  lessor  comes  into 

possession  or  control  of  the  property  prior  to  the  time  originally_fixed  for  the 

c»pyri[ht  1922.  by  The  Corporation  Trust  Company. 

TBS  FIDEKAI.  INCOME  TAX  SEXVICX 
249 


2-27-22.  (2)  4-10-22  (8)  6-26-22.  (4)  P-20-22.  (5)  10-11-22.  (6)  11-4-22. 

GROSS  INCOME. 


termination  of  the  lease,  the  lessor  receives  additional  income  for  the  year  in 
which  the  lease  is  so  terminated  to  the  extent  that  the  value  of  such  buildings 
or  improvements  when  he  became  entitled  to  such  possession  exceeds  the 
amount  already  reported  as  income  on  account  of  the  erection  of  such  buildings 
or  improvements.  No  appreciation  in  value  due  to  causes  other  than  the 
premature  termination  of  the  lease  shall  be  included.  Conversely,  if  the 
buildings  or  improvements  are  destroyed  prior  to  the  expiration  of  the  lease, 
the  lessor  is  entitled  to  deduct  as  a loss  for  the  year  when  such  destruction 
takes  place  the  amount  previously  reported  as  income  because  of  the  erection 
of  such  buildings  or  improvements,  less  any  salvage  value  subject  to  the  lease 
to  the  extent  that  such  loss  was  not  compensated  for  by  insurance.  If  the 
buildings  or  improvements  destroyed  were  acquired  prior  to  March  1,  1913, 
the  deduction  shall  be  based  on  the  cost  or  the  value  subject  to  the  lease  as  of 
that  date,  whichever  is  lower,  less  any  salvage  value  subject  to  the  lease  to  the 
extent  that  such  loss  was  not  compensated  for  by  insurance.  See  articles  109 
[H  1683]  and  164  [1|1840].  (Art.  48,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  reference!  see  page  gj. 

Improvements  by  lessee  as  income  to  lessor;  Art.  48,  Reg.  45,  as  amended  by  T.  D. 
3062  construed  and  illustrated  (8-21-1474:  M.  2714).  .June  1921  Cum.  Bull.  p.  90. 

Local  benefit  assessments  paid  by  tenant  (3-20-689:  O.  D.  373)  June  1920  Cum 
Bull.  p.  123. 

1 256  Board  and  Lodging  in  Lieu  of  Rental. — Board,  lodging  or  other  con- 
sideration received  in  lieu  of  rental  is  considered  income  equal  in 
amount  to  the  indebtedness  in  payment  of  which  it  is  received,  and  should 
be  included  in  any  return  of  annual  net  income  its  recipient  is  required  to 
render  under  the  provisions  of  the  income-tax  law.  (T.  D.  2135,  Tan.  23 
1915.) 

1257  Compensation  for  Loss. — In  the  case  of  property  which  has  been 
compulsorily  or  involuntarily  converted  into  cash  or  its  equivalent 

as  a result  of  (a)  its  destruction  in  whole  or  in  part,  (b)  theft  or  seizure,  or 
(c)  an  exercise  of  the  power  of  requisition  or  condemnation  or  the  threat  or 
imminence  thereof,  that  amount  received  by  the  owner  as  compensation  for 
the  property  which  is  in  excess  of  the  cost  of  the  property  (or  other  basis) 
should  be  included  in  gross  income.  However,  the  gain  to  be  included  in 
gross  income  in  the  case  where  the  property  was  acquired  before  March  1, 
1913,  and  its  fair  market  value  as  of  that  date  was  greater  than  its  cost,  is 
the  excess  over  such  value  of  the  amount  received.  No  taxable  gain  results 
when  the  amount  received  is  more  than  the  cost  but  less  than  he  fair  market 
value  of  the  property  as  of  March  1,  1913.  In  any  case  proper  provision  shall 
be  made  for  depreciation  to  the  date  of  the  loss,  damage,  or  transfer.  How- 
ever, if  the  taxpayer  proceeds  forthwith  in  good  faith  to  replace  the  property 
as  provided  in  section  214  (a)  (12,)  see  articles  261-263  [beginning  at  ^[2034] . 
(Art.  49,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  ^[2034.] 

1258  Forgiveness  of  Indebtedness. — The  cancellation  and  forgiveness 
of  indebtedness  is  dependent  on  the  circumstances  for  its  effect.  It 

may  amount  to  a payment  of  income  or  to  a gift  or  to  a capital  transaction. 
If,  for  example,  an  individual  performs  services  for  a creditor,  who  in  consid- 
eration thereof  cancels  the  debt,  income  to  that  amount  is  realized  by  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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GROSS  INCOME. 

debtor  as  compensation  tor  his  services.  If,  however,  a creditor  merely 
desires  to  benefit  a debtor  and  without  any  consideration  therefor  cancels 
the  debt,  the  amount  of  the  debt  is  a gift  from  the  creditor  to  the  debtor 
and  need  not  be  included  in  the  latter’s  gross  income.  If  a stockholder  in 
a corporation  which  is  indebted  to  him  gratuitously  forgives  the  debt,  the 
transaction  amounts  to  a contribution  to  the  capital  of  the  corporation. 
See  sections  213  (b)  (3)  and  240  of  the  statute  and  articles  544  [contributions 
by  stockholders,  ^[1278]  and  631-638  [affiliated  corporations  ^1 2543 ].  (Art. 
50,  Reg.  62,  1922  Edition.) 

1259  [The  Circuit  Court  of  Appeals,  Second  Circuit,  held  in  U.  S.  vs. 
Oregon-Washington  R.  & Nav.  Co., April  24,  1918  (251  Fed.  211). 

that  a debt  forgiven  is  not  income  to  the  debtor.  The  parties  in  interest  here 
were  affiliated  corporations.] 

1260  When  Included  in  Gross  Income. — Gains,  profits  and  income  are 
to  be  included  in  the  gross  income  for  the  taxable  year  in  which  they 

are  received  by  the  taxpayer,  unless  they  are  included  when  they  accrue  to 
him  in  accordance  with  the  approved  method  of  accounting  followed  by  him. 
See  articles  21-24  [beginning  at  1|1042].  As  to  dividends,  see  section  201  (e) 
and  articles  1541-1549  [beginning  at  *[1077].  A person  may  sue  in  one  year 
on  a pecuniary  claim  or  for  property,  but  money  or  property  recovered  on  a 
judgment  therefor  rendered  in  a later  year  would  be  income  in  that  year, 
assuming  that  it  would  have  been  income  in  the  earlier  year  if  then  received. 
This  is  true  of  a recovery  for  patent  infringement.  Bad  debts  or  accounts 
charged  off  subsequent  to  March  1,  1913,  because  of  the  fact  that  they  were 
determined  to  be  worthless,  which  are  subsequently  recovered,  whether  or 
not  by  suit,  constitute  income  for  the  year  in  which  recovered,  regardless  of 
the  date  when  the  amounts  were  charged  off.  See  articles  111  [when  charges 
are  deductible,  ^[1057]  and  151  [bad  debts,  ^[1810].  Such  items  as  claims  for 
compensation  under  canceled  Government  contracts  constitute  income  for  the 
year  in  which  they  are  allowed  or  their  value  is  otherwise  definitely  determined. 
(Art.  51,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Act  of  Feb.  25,  1920:  Oil.  Public  oil  land  locations  prior  to  1908;  litigation  over 
Government’s  withdrawal  order;  settlement  in  1921  under  Act  (39-21-1839: 
0.  D.  1046).. Dec.  1921  Cum.  Bull.  p.  97. 

Assignment  of  approved  departmental  oil  and  gas  lease  covering  restricted  Indian 
land,  consideration  being  held  in  escrow  pending  Secretary’s  approval  of  assign- 
ment (1-3-31:  L.  O.  1082).  .June  1922  Cum.  Bull.  p.  80. 

Assignment  of  mortgage  by  corporation  to  trust  with  stockholders  as  beneficiaries; 
annual  installment  payments  on  mortgage  and  interest  distributable  to  bene- 
ficiaries; corporation  dissolves;  determination  of  profit  or  loss  on  surrender  of 
stock  (16-20-874:  0.  D.  461).  .June  1920  Cum.  Bull.  p.  85. 

Board  of  Arbitration  award;  1917  transactions,  1918  award  (8-20-750:  S.  1335) 
. .June  1920  Cum.  Bull.  p.  82. 

Bonuses  paid  in  1919  for  1916  services  (19-20-917:  O.  D.  497) . .June  1920  C.  B.  p.  111. 

Bonus  set  aside  Dec.  31,  1916,  paid  Jan.  2,  1917,  is  income  for  1917  (Act  of  1917) 
(29-20-1070:  A.  R.  R.  182)..  Dec.  1920  Cum.  Bull.  p.  111. 

Commissions  collected  in  excess  of  Government  schedule  and  held  in  escrow  pending 
final  adjudication  (30-21-1743:  O.  D.  980).  .Dec.  1921  Cum.  Bull.  p.  97. 

Condemnation  of  estate  property  for  public  purposes  in  1906;  property  destroyed  in 
1917  when  award  was  made  with  interest  from  1906;  award  with  interest  and  cost! 
recovered,  under  mandamus  proceedings,  in  1920:  handling  of  principal  sura, 
interest  and  costs  (29-20-1071:  O.  D.  591).. Dec.  1920  Cum.  Bull.  p.  113. 

Copyright  1922 , by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

251 


3-&T-S1.  (2)  4-10-22.  (3)  6-8-22.  (4)  6-2-22.  (6)  10-11-22.  (6)  11-4-22. 

GROSS  INCOME. 

Contested  election:  salary  paid  to  seated  official  (14-20-824:  O.  D.  432)..  tune  1920 

Cum.  Bull.  p.  84. 

CubaD  moratorium  (15-21-1559:  0.  D.  869).. June  1921  Cum.  Bull.  p.  98. 

* Discount  allov, ed  on  payment  of  inheritance  tax  in  year  subsequent  to  year  tax  was 

deducted  by  accrual  basis  beneficiary  is  income  to  him  as  of  year  of  tax  payment: 
1918  and.  1921  Acts  (1-43-559:  1.  T.  1477).. Bull.  1 (’22)-43,  p.  6. 

Dissolution  distribution:  stockholders  of  record  determined  as  of  one  year,  distribu- 
tion to  such  in  later  year,  rates  differing  (1916  Act)  (2-19-141  S.  971).  1919 
Cum.  Bull.  p.  79-  affirmed  6 1 5-2 1 - 1 560:  A.  R.  R.  375).  June  1921  C.  B p.  102. 
Dissolution  distribution  in  installments:  and  sale  by  corporation  of  its  assets  for  in- 
stallment payments  these  being  distributed  to  stockholders  (30-19-635:  O.  D. 
343).  1919  Cum.  Bull.  p.  80, 

Dividend  paid  in  December  received  in  January  (2-19-140:  O.  D.  97)..  1919  Cum. 
Bull.  p.  79. 

* Embezzled  funds  recovered:  1918  and  1921  Acts  (1-42-548:  I.  T.  1470).  .Bull.  I (’22)- 

42,  p.  1. 

Executory  contract  for  sale  of  real  estate  (2-20-671:  A.  R.  R.  13).  .June  1920  Cum. 
Bull.  p.  78.  Same  (8-20-751:  O.  988).  . June  1920  Cum.  Pull.  p.  84. 

Same:  here,  1920  6-year  contract,  1921  substantial  initial  payment  and  posses- 
sion by  vendee,  purchase  money  mortgage  for  balance  in  1926;  1921  profit 
or  loss  to  vendor  (51-20-1350:  O.  D.  751).  .Dec.  1920  Cum.  Bull.  p.  116. 
Same:  here,  annual  deferred  payment  in  notes  secured  by  vendor’s  lien  (11-21- 
1506:  O.  D.  842).  June  1921  Cum.  Bull  p.  89. 

Exports : draft  with  bill  of  lading  attached,  title  not  passing  until  draft  accepted 
(9-21-1476  O.  D.  824)  June  1921  Cum.  Bull.  p.  94. 

Forced  distribution  of  surplus  to  stockholders  in  1919  on  affirmation  then  by  upper 
court  of  lower  court  decision  in  1917,  is  1919  income  (25-20-1012:  A.  R.  R.  124) 
. .June  1920  Cum.  Bull.  p.  87. 

Future  delivery  sales  contracts  (9-21-1478:  O.  D.  826).  .June  1921  Cum.  Bull.  p.  93. 
Government  contract  cancelled;  satisfaction  of  claim  (48-21-1948:  A.  R.  R.  685).. 
Dec.  1921  Cum.  Bull.  p.  131. 

Judgment;  proceeds  recovered  in  1918  are  income  then  not  when  right  of  action 
accrued  (34-20-1  159:  Sol.  Op.  41).  Dec.  1920  Cum.  Bull.  p.  364. 

Judgments  on  account  patent  infringement  and  settlements  from  other  infringers,  for 
period  of  years  prior  and  subsequent  to  March  1,  1913:  1918  and  1921  Acts  (1-18- 
249:  I.  T.  1294).  .June  1922  Cum.  Bull.  p.  111. 

Maryland  ground  rent  (45-21-1905:  0.  D.  1089).. Dec.  1921  Cum.  Bull.  p.  98. 

Notes  secured  by  second  mortgage  payable  over  term  of  years  without  interest,  at 
commission  to  actual  receipts  basis  corporation  (46-20-1302:  O.  D.  728)..  Dee. 
1920  Cum.  Bull.  p.  114. 

Overdrafts  over  period  of  years  finally  charged  to  salary  account  (17-21-1592:  Ct.  D. 

10)  June  1921  Cum.  Bull  p.  98. 

Ownership  of  profits  of  corporation  in  dispute;  lump  sum  payment  (by  Government) 
in  one  year  of  profits  of  several  years,  corporation  on  receipts  basis  (24-21-1687: 
O.  D.  948).  June  1921  Cum.  Bull.  p.  180. 

Purchase  price  put  in  escrow  on  sale  because  of  certain  claims  (6-20-725:  S.  1313) 

. .June  1920  Cum.  Bull.  p.  82. 

* Railroad  Administration:  compromise  settlement  in  one  year  covering  disputed 

claims  for  just  compensation  for  several  years:  1921  Act  (1-42-549:  I.  T.  1471) 
..Pull.  T C22V42.  p.  I. 

Raflroad  Administration;  settlement  pending  on  diverted  coal  shipments:  setting  up 
“Suspense  Account”  (8-21-1461:  O.  D.  816)  June  1921  Cum.  Bull,  p 93. 
Railroad’s  transactions  of  prior  years,  involving  profit  and  loss  adjustments  on  order 
of  I C.  C.  (1-19-18:  O.  D.  9)  . . 1919  Cum.  Bull.  p.  58. 

Railroads;  guaranty  deficit  received  from  U.  S Government  under  Transportation 
Act  of  Feb.  28.  1920:  1 92 1 Act  (1-22-3 1 2:  I.  T.  1326)  . June  1922  Cum.  Bull.  p.  91. 
Railway  mail  carriers’  additional  compensation  awarded  by  I.  C.  C.  in  one  year  for 
prior  years  (1-7-88:  L.  O.  1086).  .June  1922  Cum.  Bull.  p.  87. 

Receiver:  lump  sum  payment  covering  period  of  years;  court  order  apportioning; 
no  books  kept  (14-21-1545:  Ct.  D.  5).  June  1921  Cum.  Bull.  p.  96.  District 
Court  decision  here  affirmed  is  reported  at  p.  80,  June  1920  Cum.  Bull. 

Refund  of  customs  duties  paid  over  period  of  years  due  to  lower  exchange  rate  pre- 
vailing than  that  used  as  basis  for  payment  (49-20-1332:  O.  D.  741),. Dec.  1920 
Cum.  Bull.  p.  115. 


Copyright  1922.  by  The  Corporation  Trust  Company . 
THE  FEDERAL  INCOME  TAX  SERVICE 

252 


1-27-22.  (2)  5-10-22.  (8)  10-11-22.  (4)  11-4-22. 

GROSS  INCOME. 

Reorganization  of  corporation;  year  stockholder  actually  exchanges  stock  rather 
than  year  privilege  given  governs  for  returning  profit  (44-20-1274:  A.  R.  R.  289) 
. . Dec.  1920  Cum.  Bull,  p 57. 

Royalties  on  oil  the  producing  properties  being  in  litigation  (9-21-1477:  O.  D.  825) 
..  J une  192 1 Cum.  Bull  p.  95.  Also,  the  royalties  being  withheld  by  lessee  pending 
settlement  (1918-1921  Acts)  (1-8-99:  I.  T.  1212).  .June  1922  Cum.  Bull.  p.  90. 
Differentiated  from  patent  infringement  case  (51-21-1 98 1 : O.  D.  1141).. Dec. 
1921  Cum.  Bull,  p 184. 

Sale  of  goods  on  warranty;  hence  possibility  of  return  for  full  credit;  1918  Act  (1-19- 
264:  A.  R.  R.  921).  June  1922  Cum.  Bull.  p.  126. 

Sale  of  property  by  individuals  as  and  for  a corporation  but  prior  to  incorporation, 
subject  to  ratification,  purchase  money  in  escrow  (21-19-523:  O.  D.  282)..  1919 
Cum.  Bull.  p.  80. 

Services  performed  in  1909,  compensation  in  excess  of  value  of  claim  on  March  1, 
1913  is  taxable  income  when  received  in  1919  under  conditions  stated  (45-20- 
1289:  O.  D.  717).  .Dec.  1920  Cum.  Bull.  p.  114. 

Stock  for  stock  and  drafts  payable  in  1916  but  accepted  in  1915  is  completed  transactioa 
for  1915  (1916  Act)  (23-20-984:  A.  R.  M.  56).  June  1920  Cum.  Bull.  p.  86. 

Stock  “issued”  for  property  in  year  subsequent  to  consummation  of  sale  (47-20-1310: 
A.  R M.  94) . . Dec.  1 920  Cu m.  Bull.  p.  114. 

Stockholder  in  personal  service  corporation  which  changes  its  accounting  period  from 
fiscal  to  calendar  year,  stockholder  being  on  calendar  year  basis  (15-20-830! 
O D.  453).. June  1920  Cum  Bull.  p.  170 

Syndicate:  dividends  on  stock  (1-2-15:  I.  T.  1156).  .June  1922  Cum.  Bull.  p.  2. 

Tontine  insurance;  receipt  of  accumulated  dividends  and  principal  sum  (19-20-910! 
O.  D.  490) . .June  1920  Cum.  Bull.  p.  85, 


T%61  As  an  amount  received  in  1916  in  settlement  of  claim  for  damages 
existent  on  March  1,  1913,  is  not  profit  arising  since  that  date,  tha 
distribution  of  this  amount  to  the  shareholders,  all  current  surplus  earnings 
having  been  distributed  previously,  does  not  constitute  a taxable  dividend. — 
Amounts  credited  merely  as  dividends,  not  being  “actually  segregated  from 
the  general  assets  of  the  company,”  are  not  income,  then,  to  stockholders. — 
Decision  of  Court  (Revenue  Act  of  1916),  June  11,  1921.  District  Court  of 
the  United  States,  Southern  District  of  Ohio,  Western  Division:  Godfrey  F. 
Park,  Plaintiff,  vs.  Andrew  C.  Gilligan,  United  States  Internal  Revenue 
Collector,  etc.,  Defendant. — Susan  R.  Park,  Plaintiff,  vs.  Andrew  C.  Gilligan, 

Copyright  1922  hy  Tkr  Corporation  Trust  Company. 

THE  rEDEXAl,  UCOUI  TAX  SUTICK 

253 


2-27-22.  (2)  5-10-22.  (3)  10-11-22.  (4)  11-4-22. 

GROSS  INCOME. 

United  States  Internal  Revenue  Collector,  etc.,  Defendant. — Peck,  District 
Judge:  These  cases  are  submitted  together  upon  an  agreed  statement  of 
facts  and  evidence.  The  questions  involved,  identical  in  each  case,  are  as 
to  the  taxability,  as  income,  under  the  law  of  1916  of  two  certain  items. 
The  first  is  that  part  which  each  plaintiff  received  as  a stockholder  from  the 
proceeds  of  a settlement  of  the  case  of  John  D.  Park  & Sons  Co.  against 
various  persons  by  which  the  sum  of  $85,000  was  realized  upon  a claim  for 
damages  by  way  of  loss  of  profits  resulting  from  an  unlawful  restraint  of 
trade  suffered  in  the  years  1891  to  1904,  which  was  in  litigation  long  prior 
to  March  1,  1913,  and  was  settled  by  the  payment  of  the  aforesaid  amount 
about  November  1,  1916.  At  the  time  it  was  received  John  D.  Park  & Sons 
Co.  had  ceased  to  be  a corporation  and  had  become  a voluntary  association 
organized  under  the  laws  of  Ohio;  but  I take  it  that  fact  makes  no  material 
difference  in  any  aspect  of  this  case.  The  amount  was  received  by  the 
association  and  apportioned  among  its  shareholders  and  credited  to  them  upon 
its  books. 

1262  The  item  represented,  therefore,  the  distribution  of  the  proceeds  of 
a chose  in  action  arising  ex  delicto  long  prior  to  March  1,  1913.  It 

was  compensation  for  an  injury  which  John  D.  Park  & Sons  Co.  had  suffered 
by  reason  of  a violation  of  the  anti-trust  law.  It  was  not  in  itself  a profit, 
but  was  indemnification  for  a wrong  which  had  caused  a loss  of  profits.  On 
March  1,  1913,  it  was  represented  by  an  accrued  chose  in  action.  On  Novem- 
ber 1,  1916,  it  was  reduced  to  cash. 

1263  By  the  Act  of  1913  dividends  were  taxable  if  paid  after  March  1, 
1913,  whether  from  profits  theretofore  accrued  or  thereafter.  Lynch 

v.  Hornby,  247  U.  S.  339  [Supplementary  Page  141,  herein.].  But  by  the 
Act  of  1916  taxable  dividends  were  limited  to  those  made  out  of  earnings 
or  profits  accrued  since  March  1,  1913.  And,  I take  it,  whatever  claims  the 
corporation  had  upon  that  date,  whether  arising  from  profit  or  otherwise, 
are  to  be  considered  as  capital  then  accrued,  for  the  purposes  of  this  act,  and 
that  profit  since  accrued  means  after-acquired  gain,  which  did  not  then  exist, 
and  that  the  mere  fact  that  a then  existing  claim,  even  though  representing  a 
profit,  was  afterwards  collected,  would  not  make  it  a profit  accrued  after  the 
prescribed  date.  The  same  limitation  was  carried  in  the  amendment  of 
October  3,  1917,  and  substantially  the  same  in  Section  201  of  the  Act  of  1918, 
the  date  being  there  changed  to  February  28, . 1913.  Any  distribution  of 
property  or  money  accumulated  by  a corporation  prior  to  March  1,  1913, 
has  not  been  taxable  as  income  at  any  time  since  the  enactment  of  the  Act 
of  September  8,  1916.  And  it  was  under  that  act  that  the  taxes  in  question 
were  imposed.  Therefore,  the  distribution  of  the  sum  realized  from  the 
compromise  of  the  chose  in  action  under  discussion  was  not  a dividend  taxable 
as  income  unless  that  sum  can  be  regarded  as  representing  profit  accrued 
after  March  1,  1913. 

1264  The  brief  filed  by  the  Government  rests  its  contention  upon  the 
proposition  that  when  a dividend  is  declared  and  paid  by  a corpora- 
tion such  dividend  is  presumed  to  have  been  paid  from  profits,  and  not  from 
capital,  and  that  if  the  value  of  the  capital  of  this  corporation,  after  the 
distribution  of  said  sum  of  $85  000,  was  equal  to  its  value  on  March  1,  1913, 
the  distribution  of  the  $85,000  was  a distribution  of  the  profits,  and  the  shares 
received  by  the  plaintiffs  were  taxable  income.  But  the  evidence  is  that  all, 
or  practically  all,  of  the  profits  that  accrued  to  this  corporation  betwee* 
March  1,  1913,  and  January  1,  1917,  were  paid  out  in  other  dividends,  and 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
254 


2-27-22. 


GROSS  INCOME. 


it  was  impossible  that  this  $85,000  could  have  been  paid  out  of  earnings  on 
hand.  The  corporate  surplus  was  practically  exhausted  by  the  payment  of 
such  other  dividends  from  year  to  year.  Therefore,  the  presumption  upon 
which  the  argument  of  the  Government,  as  set  forth  in  the  brief,  rests,  to-wit, 
that  this  distribution  was  made  from  profits  accumulated  within  the  taxable 
period,  is  overcome  by  the  evidence.  The  fact  is  that  this  asset,  which  had 
accrued  and  existed  in  the  form  of  a chose  in  action  at  and  long  prior  to  March 
1,  1913,  was  on  November  1,  1916,  realized  upon  and  distributed,  and  the 
corporate  property  as  it  stood  at  the  former  date  was  thereby  diminished 
accordingly.  There  is  no  evidence  that  this  chose  in  action  was  of  any 
greater  value  on  the  latter  date  than  it  was  on  the  former.  Therefore,  as 
this  distribution  was  not  out  of  profits  accrued  since  the  statutory  date,  it 
was  not  taxable  to  the  distributees  as  income. 

1 265  As  to  the  second  class  of  items  involved  in  this  controversy,  it  appears 
that  in  the  year  1916  the  earnings  of  the  company  were  distributed 
to  the  stockholders  by  crediting  them  with  their  pro  rata  shares  thereof 
upon  the  books  of  the  corporation.  This  dividend  was  not,  however,  actually 
segregated  from  the  general  assets  of  the  company.  Godfrey  F.  Park  thus 
received  credit  for  $21,120.94  and  Susan  R.  Park  for  $17,836.33. 

1266  It  is  well  settled  that  the  declaration  of  a dividend  creates  a debt 
from  the  corporation  to  the  stockholders.  If  the  amount  of  the 

dividend  be  segregated  and  set  apart  from  the  other  corporate  assets  in  money 
or  securities  or  other  property,  then  the  same  becomes  a trust  fund,  for  the 
benefit  of  the  stockholders,  respectively.  But  that  does  not  seem  to  have 
been  done  in  this  case.  Therefore,  the  crediting  of  the  pro  rata  shares  of  the 
plaintiffs,  Godfrey  F.  Park  and  Susan  R.  Park,  of  this  amount  to  their  re- 
spective accounts  upon  the  books  of  the  company  merely  evidenced  the 
indebtedness  of  the  company  to  them,  and  did  not  constitute  the  receipt 
of  income  by  them.  Income  means  actual  cash  or  its  equivalent  received, 
as  opposed  to  contemplated  revenue  due  or  unpaid.  Maryland  Casualty 
Co.  v.  U.  S.,  52  Ct.  Cls.  201,  209  (Affirmed  251  U.  S.  342,  345  [Supplementary 
Page  157  herein.]). 

1267  Although  the  dividends  were  not  income  simply  because  credits  to 
the  extent  thereof  had  been  created,  yet  when  the  plaintiffs  subse- 
quently drew,  as  they  did,  against  those  credits  and  obtained  the  money 
thereon,  then  they  did  become  income.  And  therefore,  they  are  properly 
chargeable  with  the  income  tax  upon  what  they  actually  received  and  drew. 
The  evidence  before  the  court  being  not  in  shape  to  accurately  adjust  this 
account,  the  court  ruled  at  the  hearing  that  unless  the  parties  could  agree, 
an  auditor  would  be  appointed  to  make  the  calculation.  But  thereupon 
Mr.  Matthews,  counsel  for  plaintiffs,  stated  that  plaintiffs  would  have  no 
objection  to  the  item  representing  income  for  1916  being  taxed;  that  inas- 
much as  it  would  have  to  be  paid  at  some  time  it  might  as  wrell  be  paid  now. 
Accordingly,  there  being  no  objection  upon  the  part  of  plaintiffs,  they  may 
be  charged  with  the  appropriate  tax  upon  the  credits  which  they  received, 
respectively,  upon  the  books  of  the  company  as  the  result  of  the  earnings, 
that  is  to  say,  the  dividends  declared  in  regular  course  as  distinguished  from 
this  distribution  of  the  $85,000  resulting  from  the  settlement  of  the  lawsuits. 
The  plaintiffs  may  have  judgment  for  so  much  of  their  claims,  respectively, 
as  is  based  upon  the  collection  of  income  tax  on  their  pro  rata  shares  of  the 
$85,000  distributed. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

255 


2-27-22. 


GROSS  INCOME. 


1268  The  petition  is  denied  as  to  its  claim  for  refunder  of  the  tax  upon 
the  regular  dividend  except  as  to  the  normal  tax.  Section  5-b  reads: 

“For  the  purpose  of  the  normal  tax  only,  the  income  embraced  in  a personal 
return  shall  be  credited  with  the  amount  received  as  dividends  upon  the 
stock  or  from  the  net  earnings  of  any  corporation,  joint-stock  company  or 
association,  trustee,  or  insurance  company,  which  is  taxable  upon  its  net 
income  as  hereinafter  provided.”  There  is  no  doubt  but  that  this  concern 
of  John  D.  Park  & Sons  Co.  was  taxable  on  its  net  income.  And  therefore, 
let  the  plaintiffs  be  credited  in  an  account  as  upon  an  amended  return  for 
the  year  1916,  with  the  dividends  received,  so  far  as  the  normal  tax  is  con- 
cerned, but  the  dividends  will  be  included  in  computing  the  amount  of  the 
super-tax. 

1269  The  general  rule  is  that  claimants  are  not  entitled  to  interest  against 
the  United  States,  but  this  does  not  apply  to  actions  like  the  present 

(Erskine  v.  Van  Arsdale,  15  Wall.  75;  National  Home  v.  Parrish,  229  U.  S. 
494),  and  plaintiffs  are  entitled  to  interest  upon  the  amount  herein  found  to 
have  been  erroneously  exacted. 

1270  A certificate  that  there  was  reasonable  and  probable  cause  for  the 
collector  of  internal  revenue  to  receive  this  money  will  be  made. 

(Park  vs.  Gilligan,  U.  S.  D.  C.,  S.  D.  of  Ohio,  June  11,  1921.) 

1271  Income  Not  Reduced  to  Possession. — Income  which  is  credited 
to  the  account  of  or  set  apart  for  a taxpayer  and  which  may  be  drawn 

upon  by  him  at  any  time  is  subject  to  tax  for  the  year  during  which  so 
credited  or  set  apart,  although  not  then  actually  reduced  to  possession. 
To  constitute  receipt  in  such  a case  the  income  must  be  credited  to  the 
taxpayer  without  any  substantial  limitation  or  restriction  as  to  the  time  or 
manner  of  payment  or  condition  upon  which  payment  is  to  be  made.  A 
book  entry,  if  made,  should  indicate  an  absolute  transfer  from  one  account 
to  another.  If  the  income  is  not  credited,  but  is  set  apart,  such  income 
must  be  unqualifiedly  subject  to  the  demand  of  the  taxpayer.  Where  a 
corporation  contingently  credits  its  employees  with  bonus  stock,  but  the 
stock  is  not  available  to  such  employees  until  some  future  date,  the  mere 
crediting  on  the  books  of  the  corporation  does  not  constitute  receipt.  (Art. 
52,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Drawing  account  against  commissions;  privilege  not  fully  exercised  by  the  one  who 
was  both  manager  and  controlling  stockholder  (4-21-1404:  A.  R.  R.  366).. June 
1921  Cum.  Bull.  p.  100. 

Partial  future  delivery  sales  on  coupon  system  (9-21-1479:  0.  D.  827).. June  1921 

Cum.  Bull.  p.  102. 


1272  Examples  of  Constructive  Receipt.-  -When  interest  coupons  have 
matured  and  are  payable,  but  have  not  been  cashed,  such  interest 
payment,  though  not  collected  when  due  and  payable,  is  nevertheless  avail- 
able to  the  taxpayer  and  should  therefore  be  included  in  his  gross  income  for 
the  year  during  which  the  coupons  matured.  This  is  true  if  the  coupons  are 
exchanged  for  other  property  instead  of  eventually  being  cashed.  Defaulted 
coupons  are  income  for  the  year  in  which  paid.  Dividends  on  corporate 
stock  are  subject  to  tax  when  unqualifiedly  made  subject  to  the  demand  of 

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GROSS  INCOME. 


the  stockholder.  See  section  201  of  the  statute  and  articles  1541-1549  [be- 
ginning at  1077].  The  distributive  share  of  the  profits  of  a partner  in  a 
partnership  is  regarded  as  received  by  him,  although  not  distributed.  See 
section  218  of  the  statute  and  articles  33 1-335  [partnerships,  beginning  at 
1)778].  Interest  credited  on  savings  bank  deposits,  even  though  the  bank 
nominally  have  a rule,  seldom  or  never  enfoiced,  that  it  may  require  so 
many  days’  notice  in  advance  of  cashing  depositors’  checks,  is  income  to 
the  depositor  when  credited.  An  amount  credited  to  shareholders  of  a 
building  and  loan  association,  when  such  credit  passes  without  restriction 
to  the  shareholder,  has  a taxable  status  as  income  for  the  year  of  the  credit. 
Where  the  amount  of  such  accumulations  does  not  become  available  to  the 
shareholder  until  the  maturity  of  a share,  the  amount  of  any  share  in  excess  of 
the  aggregate  amount  paid  in  by  the  shareholder  is  income  for  the  year  of 
the  maturity  of  the  share.  But  see  section  213  (b)  (10)  and  article  89 
[H 1607].  (Art.  53,  Reg.  62,  1922  Edition.)  y ; 

[See  statement  in  court  decision  relative  to  dividends  credited  merely, 
and  amount  thereof  not  segregated  from  other  assets  of  the  corporation 
(1916  Act),  at  1[1265.] 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Building  and  loan  associations;  amounts  credited  to  shareholders  (15-20-82:  O.  D 
446).  ,j  one  1920  Cum.  Bull.  p.  87. 

Commissions  on  renewal  premiums  assigned  to  wife  in  consideration  of  love  and 
affection,  taxable  to  husband:  1921  Act  (1-23-327:  1.  T.  1339).  .June  1922  Cum. 
Bull.  p.  97. 

Cooperative  bank;  credits  to  shareholders  (44-21-1892:  O.  D.  1081).  .Dec.  1921  Cum. 
Bull.  p.  99. 

Debtor  making  gift  on  account  of  creditor  in  reduction  of  debt  (20-19-505:  O.  912) 
. . 1919  Cum.  Bull.  p.  80. 

Interest  on  maintenance  trust  fund  created  by  corporation  for  its  own  benefit  (39-21- 
1840:  O.  D.  1047).. Dec.  1921  Cum.  Bull.  p.  120. 

Interest  payable  for  period  ending  Feb.  28,  1913,  due  March  1,  1913  held  not  to  be 
taxable  in  court  decision  under  1913  Act.  . H3127. 

Liquidation  of  corporation,  notice  carrying  option  offer  sent  in  one  year,  actual  dis- 
tribution in  the  next  year  (15-21-1560:  A.  R.  R.  375).. June  1921  Cum.  Bull, 
p.  102.  (See  2-19-141:  S.  971..  1919  Cum.  Bull.  p.  79.) 

Premiums  paid  by  corporation  on  officer’s  life  insurance,  the  stockholders  being  bene- 
ficiaries, constitute  dividends  to  them  (37-20-1193:  O.  D.  659).  .Dec.  1920  Cum. 
Bull.  p.  192. 

Rental  received  by  payment  by  lessee  direct  to  lessor’s  stockholder,  of  which  lessee 
was  one  (30-21-1747:  A.  R.  R.  589).. Dec.  1921  Cum.  Bull.  p.  205. 

1273  Bond  Interest  Due  Prior  to  March  1,  1913. — [For  discussion  of 
withholding  on  coupon  interest  maturing  in  years  1913  to  1918, 

coupons  not  being  presented  for  payment  until  1919,  read  at  ^[2235.] 

1274  Concerning  the  Creation  of  a Sinking  Fund  by  a Corporation  in 
Order  to  Secure  the  Payment  of  its  Bonds  or  Other  Indebtedness. 

— If  a corporation,  in  order  solely  to  secure  the  payment  of  its  bonds  or 
other  indebtedness,  places  property  in  trust,  or  sets  aside  certain  amounts 
in  a sinking  fund  under  the  control  of  a trustee,  who  may  be  authorized 
to  invest  and  reinvest  such  sums  from  time  to  time,  the  property  or  fund 
thus  set  aside  by  the  corporation  and  held  by  the  trustee  is  an  asset  of  the 
corporation,  and  any  gain  arising  therefrom  is  income  of  the  corporation 
and  shall  be  included  as  such  in  its  annual  return.  The  trustee,  however, 
is  not  taxable  as  such  on  account  of  the  property  or  fund  so  held.  See  Sec- 
tion 219  and  Articles  341  to  348  [as  to  estates  and  trusts,  beginning  at  1|873] 
(Art.  542,  Reg.  62,  1922  Edition.) 

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GROSS  INCOME. 


1275  Sale  of  Capital  Stock. — The  proceeds  from  the  original  sale  by  a 
corporation  of  its  shares  of  capital  stock,  whether  such  proceeds 
are  in  excess  of  or  less  than  the  par  value  of  the  stock  issued,  constitute  the 
capital  of  the  company.  If  the  stock  is  sold  at  a premium,  the  premium  is 
not  income.  Likewise,  if  the  stock  is  sold  at  a discount,  the  amount  of  the 
discount  is  not  a loss  deductible  from  gross  income.  If,  for  the  purpose  of 
enabling  a corporation  to  secure  working  capital  or  for  any  other  purpose, 
the  stockholders  donate  or  return  to  the  corporation  to  be  resold  by  it  certain 
shares  of  stock  of  the  company  previously  issued  to  them,  or  if  the  corporation 
purchases  any  of  its  stock  and  holds  it  as  treasury  stock,  the  sale  of  such 
stock  will  be  considered  a capital  transaction  and  the  proceeds  of  such  sale 
will  be  treated  as  capital  and  will  not  constitute  income  of  the  corporation. 
A corporation  realizes  no  gain  or  loss  from  the  purchase  of  its  own  stock. 
See  articles  563  [for  restatement  that  no  loss  is  sustained  on  sale  of  capital 
stock,  If  1696],  861,  and  862  [involving  invested  capital — War  Tax  Service]. 
(Art.  543,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Assets  exchanged  by  corporation  for  its  stock:  purchase  of  stock  vs.  sale  of  assets 
(5 1-21-1984:  A.  R.  R.  693).. Dec.  1921  Cum.  Bull.  p.  207. 

Commissions  paid  (11-19-391:  T.  B.  R.  40)..  1919  Cum.  Bull.  p.  281. 

Interest  on  deferred  payments  (40-20-1222:  L.  O.  1035  Rev.).  .Dec.  1920  Cum.  Bull, 
p.  160:  See  (14-21-1548:  L.  O.  1062).. June  1921  Cum.  Bull.  p.  168. 


1 276  Expenses  in  Connection  with  Sale  of  Capital  Stock. — Read  at  1]1635. 

1277  Redemption  of  Stock  on  a Stipulated  Premium  Basis  Considered 
a Capital  Transaction— The  office  is  jn  receipt  of  your  letter  of  the 

6th  instant,  in  which  you  ask  for  information  on  the  following  question: 
“A  corporation  in  1912  issued  preferred  stock  for  par.  It  was  provided  on 
the  certificates  that  said  stock  was  redeemable  at  110.  The  company  exer- 
cised its  option  and  redeemed  the  stock  at  1 10  by  calling  it  in.  The  difference 
appeared  on  the  books  as  a reduction  of  undivided  profits.  Is  this  difference 
a lawful  deduction?”  Ifln  reply  you  are  informed  that  this  office  will  hold 
that  the  redeeming  of  the  stock  at  a price  in  excess  of  par  represents  a capital 
transaction  in  which  there  can  be  no  gain  or  loss  to  the  corporation,  and  there- 
fore the  difference  between  the  selling  price  of  the  stock  and  the  price  at  which 
it  was  redeemed  will  not  be  deductible  in  a return  of  annual  net  income. 
(Letter  to  a subscriber,  signed  by  Deputy  Commissioner  G.  E.  Fletcher  and 
dated  April  11,  1917.) 

1278  Contributions  by  Stockholders.— Where  a corporation  requires 
m additional  funds  for  conducting  its  business  and  obtains  such  needed 
money  through  voluntary  pro  rata  payments  by  its  stockholders,  the  amounts 
so  received  being  credited  to  its  surplus  account  or  to  a special  capital  account, 
such  amounts  will  not  be  considered  income,  although  there  is  no  increase 

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GROSS  INCOME. 

in  the  outstanding  shares  of  stock  of  the  corporation.  The  payments  in 
• such  circumstances  are  in  the  nature  of  voluntary  assessments  upon,  and 
represent  an  additional  price  paid  for,  the  shares  of  stock  held  by  the  individual 
stockholders,  and  will  be  treated  as  an  addition  to  and  as  a part  of  the  operat- 
ing capital  of  the  company.  See  articles  50  [for  forgiveness  of  indebtedness, 
1[1258],  293  [for  assessments,  etc.,  as  capital  expenditures,  If  1630],  838  and  860 
[involving  invested  capital— War  Tax  Service].  (Art.  544,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Agreement  to  salary  reduction  for  year  at  end  thereof  (37-21-1821:  O.  D.  10341 
Dec.  1921  Cum.  Bull.  p.  277. 

Stock  surrendered  to  corporation  which  partially  satisfies  liabilities  therewith  (1921 
Act)  (1-3-33:  I.  T.  1168).  .June  1922  Cum.  Bull.  p.  194. 


12 79  Sale  and  Retirement  of  Corporate  Bonds.— (1)  (a)  If  bonds  are 
^issued  by  a corporation  at  their  face  value,  the  corporation  realizes 

no  gain  or  loss,  (b)  If  thereafter  the  corporation  purchases  and  retires 
any  of  such  bonds  at  a price  in  excess  of  the  issuing  price  or  face  value,  the 
excess  of  the  purchase  price  over  the  issuing  price  or  face  value  is  a deductible 
expense  for  the  taxable  year.  See  section  234  of  the  statute  and  article 
563  [for  similar  statement,  1[1696].  (c)  If,  however,  the  corporation  pur- 

chases and  retires  any  of  such  bonds  at  a price  less  than  the  issuing  price  or 
face  value,  the  excess  of  the  issuing  price  or  face  value  over  the  purchase 
price  is  gain  or  income  for  the  taxable  year. 

1280  (2)  (a)  If  bonds  are  issued  by  a corporation  at  a premium,  the 
net  amount  of  such  premium  is  gain  or  income  which  should  be  pro- 
rated or  amortized  over  the  life  of  the  bonds,  (b)  If  thereafter  the  corpora- 
tion purchases  and  retires  any  of  such  bonds  at  a price  in  excess  of  the  issuing 
price  minus  any  amount  of  premium  already  returned  as  income,  the  excess 
of  the  purchase  price  over  the  issuing  price  minus  any  amount  of  premium 
already  returned  as  income  (or  over  the  face  value  plus  any  amount  of 
premium  not  yet  returned  as  income)  is  a deductible  expense  for  the  taxable 
year,  (c)  If,  however,  the  corporation  purchases  and  retires  any  of  such 
bonds  at  a price  less  than  the  issuing  price  minus  any  amount  of  premium 
already  returned  as  income,  the  excess  of  the  issuing  price  minus  any  amount 
of  premium  already  returned  as  income  (or  of  the  face  value  plus  any  amount 
of  premium  not  yet  returned  as  income)  over  the  purchase  price  is  gain  or 
income  for  the  taxable  year. 

1281  (3)  (a)  If  bonds  are  issued  by  a corporation  at  a discount,  the  net 
amountToff such* discount  is  deductible  and  should  be  pro-rated 

or  amortized  over  the  life  of  the  bonds,  (b)  If  thereafter  the  corporation 
purchases  and  retires  any  of  such  bonds  at  a price  in  excess  of  the  issuing 
price  plus  any  amount  of  discount  already  deducted,  the  excess  of  the  pur- 
chase price  over  the  issuing  price  plus  any  amount  of  discount  already  de- 
ducted (or  over  the  face  value  minus  any  amount  of  discount  not  yet  de- 
ducted) is  a deductible  expense  for  the  taxable  year,  (c)  If,  however,  the 
corporation  purchases  and  retires  any  of  such  bonds  at  a price  less  than  the 
issuing  price  plus  any  amount  of  discount  already  deducted,  the  excess  of  the 
issuing  price  plus  any  amount  of  discount  already  deducted  (or  of  the  face 

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value  minus  any  amount  of  discount  not  yet  deducted)  over  the  purchase 
price  is  gain  or  income  for  the  taxable  > ear.  (Art.  545,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  <)i. 

Amortization  not  permiasible  to  investor  in  event  purchased  at  discount  or  premium 
(17-20-887:  0.  D.  475).. June  1920  Cum.  Bull.  p.  211. 

* Apartment  house  lessor  corporation,  shareholders  being  proprietary  lessees;  assess- 
ments on  shareholders  to  extent  utilized  for  capital  expenditures  and  credited  to 
“paid-in-surplus”  are  additional  payments  on  the  stock  and  not  income  to  the 
corporation:  1921  Act  (1-41-547:  I.  T.  1469).  .Bull.  I (’22)-41,  p.  8.  See  I.  T. 
1302,  June  1922  Cum.  Bull.  p.  193,  which  is  overruled  in  part  by  the  foregoing. 

Retiring  bonds  subsequent  to  March  1,  1913  at  less  than  original  selling  price  and 
for  no  more  than  could  have  been  paid  if  they  had  been  redeemed  on  March  1, 
1913  (27-21-1717:  A.  R.  R.  545).  .Dec.  1921  Cum.  Bull.  p.  211. 

Serial  maturities:  allocation  of  discount  and  expenses  (22-21-1665:  O.  D.  936).  .June 
1921  Cum.  Bull.  p.  276.  Similar:  1918  and  1921  Acts  (1-32-448:  I.  T.  1412) 

. .Bu'll.  I (’22)-32,  p.  3. 

12  82  Discount  on  Bonds  Issued  Prior  to  1909. — Discount  on  bonds  is- 
sued and  sold  prior  to  the  year  1909,  if  such  discount  was  then 
charged  against  surplus  or  against  the  income  of  the  year  in  which  the  bonds 
were  sold,  is  held  not  to  be  deductible  from  the  income  of  subsequent  years, 
for  the  reason  that  the  charging  off  prior  to  January  1,  1909,  of  the  entire 
amount  of  the  discount  constitutes  a closed  transaction,  and  such  transaction 
can  not  be  reopened  for  the  purpose  of  reducing  the  taxable  income  of  a 
corporation  for  subsequent  years  by  deducting  therefrom  an  aliquot  part  of 
the  discount.  (Art.  149, 1f461,  Reg.  33,  Rev.,  Jan.  2,  1918.)  (C.  & A.  R.  R.  v. 

U.  S.— Court  of  Claims  [^[1283]). 

1283  The  appended  opinion  [caption  only,  ^1284]  of  the  Court  of  Claims 
of  the  United  States  in  the  case  of  Chicago  & Alton  Railroad  Co.  v. 

United  States  (53  Ct.  Clms.  41)  is  published  for  the  information  of  internal- 
revenue  officeis  and  others  concerned. 

1284  Caption  referred  to  in  1283. — Where  a railroad  company  sold  bonds 
and  equipment  notes  at  a discount  in  1906  and  the  books  show  that 

the  loss  was  entirely  charged  off  under  the  profit  and  loss  account  for  1906, 
and  the  company  in  making  returns  under  the  act  of  August  5,  1909,  for 
purpose  of  assessment  of  excise  tax  for  years  1911  and  1912,  failed  to  deduct 
the  proportionate  amount  cf  discount  sustained,  it  has  no  right  to  claim  refund 
of  such  amount.  The  petition  of  claimant  for  refund  of  tax  dismissed. 
(T.  D.  2631,  Jan.  19,  1918.) 

1285  Discount  on  Bonds  Issued  Subsequent  to  January  1,  1909. — If. 
however,  the  bonds  were  sold  subsequent  to  January  1,  1909,  at  a 

discount,  and  the  amount  of  the  discount  was  then  charged  off  on  the  books, 
either  against  earnings  or  surplus,  but  not  deducted  in  the  corporation’s 
return  of  net  income,  such  discount  as  was  not  then  deducted,  may  be  spread 
over  the  life  of  the  bonds,  and  an  aliquot  part  of  the  discount  may  be  deducted 
from  the  gross  income  of  each  yea:  until  the  bonds  mature  or  are  redeemed. 

1286  In  cases  wherein  a corporation  sells  its  bonds  at  a discount  plus  a 
commission  for  selling,  the  amount  of  such  discount  and  commission, 

together  with  other  expenses  incidental  to  issuing  the  bonds,  constitutes  a 
loss  the  aggregate  amount  of  which  loss  will  for  the  purpose  of  an  income 
tax  return,  be  prorated  over  the  life  of  the  bonds  sold,  and  the  amount  thus 
apportioned  to  each  year  will  be  deductible  from  the  gross  income  of  each  such 
year  until  the  bonds  shall  have  been  redeemed. 

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1287  If  a corporation  having  sold  its  bonds  at  a discount,  the  discount 
having  been  deducted  from  gross  income  later  repurchases  or  redeems 

the  bonds  at  a price  less  than  par,  the  difference  between  the  price  at  which 
they  are  redeemed  and  their  par  value  will  be  returned  as  income.  If  bonds 
are  sold  at  a premium  the  premium  must  be  returned  as  income.  (Art.  150, 
If 462-464,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

1 288  The  appended  decision  of  the  United  States  Circuit  Court  of  Appeals 
for  the  Third  Circuit,  in  the  case  of  the  Baldwin  Locomotive  Works 

v.  McCoach,  collector,  [221  Fed.  59,  holding  that  if  the  loss  sustained  by 
selling  its  own  bonds  at  a discount  is  an  expense  of  the  business  of  a cor- 
poration the  expense  will  not  be  paid  until  the  maturity  of  the  bonds]  is 
published  for  the  information  of  internal  revenue  officers  and  others  con- 
cerned. (T.  D.  2185,  April  1,  1915.)  [Decision  reported  at  221  Fed.  59.] 

1 289  Loss  Due  to  Retirement  of  Bonds.— In  a case  wherein  a corporation, 
under  the  terms  of  its  indenture,  securing  an  issue  of  bonds,  is  re- 
quired annually  or  at  certain  specified  periods  to  purchase  and  retire  a 
certain  number  of  its  bonds  and  in  doing  so  pays  more  than  par  for  the 
bonds,  the  loss  sustained  is  an  allowable  deduction  from  gross  income  for 
the  year  in  which  such  purchase  is  made,  under  the  following  conditions: 

First.  If  the  bonds  were  sold  at  par,  then  the  loss  is  the  difference 
between  par  and  the  price  at  which  they  were  repurchased  for  retirement. 

1 2S0  Second.  If  the  bonds  were  sold  at  a premium  and  such  premium  was 
accounted  for  as  income  for  the  year  in  which  issued,  then  the  differ- 
ence between  par  and  the  repurchase  price  may  be  deducted  as  loss,  but 
if  the  premiums  at  which  the  bonds  were  issued  had  not  been  carried  into 
the  income  account  then  the  loss  to  be  claimed  should  be  the  difference 
between  the  price  at  which  the  bonds  were  sold  and  the  price  at  which  they 
were  repurchased. 

1291  Third.  If  the  bonds  were  sold  at  a discount  and  the  discount  was 
charged  against  the  earnings  of  the  year  in  which  issued,  the  differ- 
ence between  par  and  the  repurchase  price  may  be  deducted  as  a loss,  but 
if  the  discount  on  the  bonds  was  prorated  over  the  life  of  the  bonds  and 
the  annual  proportion  charged  against  the  yearly  income,  the  amount  to  be 
charged  off  as  a loss  for  the  year  in  which  the  bonds  are  repurchased  for 
retirement  should  be  the  difference  between  the  price  at  which  the  bonds 
were  sold  and  the  repurchase  price  minus  an  allowance  for  the  sum  that 
had  been  charged  off  annually  on  account  of  the  prorated  discount  on  such 
bonds.  (Art.  152,  ^467-470,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

1 292  Sale  of  Capital  Assets.— Where  property  is  acquired  and  later  sold 
for  a higher  price  the  gain  on  the  sale  is  income.  If,  however,  the 
property  was  acquired  before  March  1,  1913,  only  such  portion  of  the  apprecia- 
tion as  accrued  subsequently  to  February  28,  1913,  is  taxable.  Where,  then,  a 
corporation  sells  its  capital  assets  in  whole  or  in  part  it  shall  include  in  its 
gross  income  for  the  year  in  which  the  sale  was  made  the  amount  of  the 
excess  of  the  sales  price  over  the  cost  unless  it  acquired  such  assets  prior  to 
March  1,  1913,  and  the  fair  market  value  of  such  assets  as  of  such  date  was  in 
excess  of  the  cost,  in  which  case  it  shall  include  the  excess  of  the  amount  of  the 
sales  price  over  such  value.  No  gain  or  loss  is  recognized  in  case  the  assets 
are  sold  (a)  at  more  than  cost  but  at  less  than  their  fair  market  value  as  of 

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March  1,  1913,  or  (b)  at  less  than  cost  but  at  more  than  their  fair  market 
value  as  of  March  1,  1913.  In  every  case,  however,  in  ascertaining  the  gain, 
the  cost  of  the  assets,  including  any  expenditures  properly  charged  to  capital 
account  or  the  fair  market  value  as  of  March  1,  1913,  of  the  assets  acquired 
prior  thereto,  should  first  be  reduced  by  the  amount  of  depreciation,  ob- 
solescence, depletion,  sustained  and  allowable,  as  a deduction  in  computing 
net  income.  If  the  purchaser  takes  over  all  the  assets  and  assumes  the 
liabilities,  the  amount  so  assumed  is  part  of  the  purchase  price.  See  also 
article  563  [*[[  1696].  If  the  sale  is  made  for  stock  of  another  corporation,  the 
rules  contained  in  section  202  of  the  Statute  and  in  articles  1561-1568  [^[  1437] 
are  particularly  applicable.  (Art.  546,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Banks;  securities  purchased  with  deposited  funds  (9-21-1485  : 0.  D.  832).. June  1921 
Cum.  Bull.  p.  276. 

Corporation  vendee:  transaction  not  changed  if  sale  effected  by  surrender  of  stock 
by  stockholders  of  vendor  to  the  vendee  (2-20-676:  A.  R.  M.  21).. June  1920 
Cum.  Bull.  p.  211. 

Reorganizing  as  trust  or  partnership  to  save  tax  on  profits  (19-20-928:  S.  1385).  .June 
1920  Cum.  Bull.  p.  203. 

Sales  price  less  than  cost  but  greater  than  Dec.  31,  1908  value;  more  than  cost  but 
equal  to  Dec.  31,  1908  value:  1909  Act  (13-21-1532:  T.  D.  3147).. June  1921 
Cum.  Bull.  p.  277. 

1 293  Income  from  Leased  Property. — Where  a corporation  has  leased 
its  property  in  consideration  that  the  lessee  shall  pay  in  lieu  of  other 

rental  an  amount  equivalent  to  a certain  rate  of  dividend  on  the  lessor’s 
capital  stock  or  the  interest  on  the  lessor’s  outstanding  indebtedness,  to- 
gether with  taxes,  insurance  or  other  fixed  charges,  such  payments  shall 
be  considered  rental  payments  and  shall  be  returned  by  the  lessor  corpora- 
tion as  income,  notwithstanding  the  fact  that  the  dividends  and  interest  are 
paid  by  the  lessee  directly  to  the  stockholders  and  bondholders  of  the  lessor. 
The  fact  that  a corporation  has  conveyed  or  let  its  property  and  has  parted 
with  its  management  and  control,  or  has  ceased  to  engage  in  the  business 
for  which  it  was  originally  organized,  will  not  relieve  it  from  liability  to  the 
tax.  While  the  payments  made  by  the  lessee  directly  to  the  bondholders 
or  stockholders  of  the  lessor  are  rentals  as  to  both  the  lessee  and  lessor  (rentals 
paid  in  one  case  and  rentals  received  in  the  other),  to  the  bondholders  and 
the  stockholders  such  amounts  are  interest  and  dividend  payments  received 
as  from  the  lessor  and  as  such  shall  be  accounted  for  in  their  returns.  (Art. 
547,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Assignment  of  leases  proportionately  to  stockholders  by  a'  corporation;  accounting 
for  proceeds  of  oil  production  (1-9-119:  A.  R.  M.  157).  .June  1922  Cum.  Bull, 
p.  265. 

1294  Gross  Income  of  Corporation  in  Liquidation. — When  a corporation 
is  dissolved,  its  affairs  are  usually  wound  up  by  a receiver  or  trustees 

in  dissolution.  The  corporate  existence  is  continued  for  the  purpose  of 
liquidating  the  assets  and  paying  the  debts,  and  such  receiver  or  trustees 
stand  in  the  stead  of  the  corporation  for  such  purposes.  Any  sales  of  property 
by  them  are  to  be  treated  as  if  made  by  the  corporation  for  the  purpose  of 
ascertaining  the  gain  or  loss.  No  gain  or  loss  is  realized  by  a corporation 
from  the  mere  distribution  of  its  assets  in  kind  upon  dissolution,  however 
they  may  have  appreciated  or  depreciated  in  value  since  their  acquisition. 

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See  further  articles  622  [for  returns  by  receivers,  ^[2500]  and  1545  [for  dis- 
tributions in  liquidation,  ^[1125].  (Art.  548,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Income  producing  investments  held  during  liquidation:  entirely  out  of  business  (12-19- 
406:  O.  D.  231).  . 1919  Cum.  Bull.  p.  213. 

(See  also  “Liquidation”  in  Cumulative  Index  following  Art.  541,  ’11074.) 
Wisconsin  (8-21-1468:  O.  D.  821).. June  1921  Cum.  Bull.  p.  279. 


1295  Return  by  Corporation  for  Taxable  Year  During  Which  Its  Affairs 
Are  Placed  in  Hands  of  Receiver,  etc.,  for  Purposes  of  Dissolution. 

— Receipt  is  acknowledged  of  your  letter  dated  October  16,  1919, 
relative  to  the  meaning  of  Article  [548]  of  Regulations  [62].  ^[In  reply  you 
are  advised  that  your  question  as  to  whether,  under  Article  548  of  the  Regu- 
lations, any  profit  or  loss  resulting  from  the  sale  of  capital  assets  by  the 
trustees  or  receivers  during  the  process  of  liquidation  is  to  be  merged  with  the 
profit  or  loss  resulting  from  the  regular  business  of  the  corporation  during  the 
same  taxable  year  prior  to  the  taking  over  of  the  affairs  of  the  corporation 
by  the  trustees  or  by  the  receiver  is  answered  in  the  affirmative.  1[For 
information  as  to  the  meaning  of  the  term  “taxable  year”  as  used  in  the 
Revenue  Act  of  1918  and  for  further  information  as  to  the  requirements  of 
the  Statute  with  respect  to  the  filing  of  returns  by  receivers,  trustees  in  dis- 
solution, trustees  in  bankruptcy  and  assignees,  your  attention  is  invited  to 
Articles  25  [If  1064]  and  622  [^[2500]  of  Regulations  [62].  (Letter  to  The  Corpo- 
ration Trust  Company,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated 
October  24,  1919.) 

1296  Income  Tax  Liability  of  a Trustee  in  Bankruptcy. — In  re  Heller, 
Hirsh  & Co.,  U.  S.  Circuit  Court  of  Appeals,  Second  Circuit  (258 

Fed.  208 — Revenue  Act  of  1916.)  Appeal  from  the  District  Court  of  the 
United  States  for  the  Southern  District  of  New  York.  In  the  matter  of 
Heller,  Hirsh  & Co.,  a corporation,  bankrupt.  A petition  by  the  United 
States  attorney  for  an  order  directing  the  trustee  of  the  bankrupt  to  pay 
to  the  collector  of  internal  revenue  for  the  Second  District  of  New  York 
$2,400  as  taxes  on  income  under  Act  Sept.  8,  1916,  as  a preferred  claim,  was 
denied,  and  the  government  appeals.  Affirmed. 

Before  Ward,  Rogers,  and  Manton,  Circuit  Judges. 

1297  Per  Curiam.  The  United  States  attorney  filed  a petition  for  an 
order  directing  the  trustee  of  the  bankrupt  corporation  to  pay  to  the 

collector  of  internal  revenue  for  the  Second  District  of  New  York  of 
$2,400  under  Act  Sept.  8,  1916,  c.  463,  39  Stat.  756,  as  taxes  upon  income 
for  the  year  1916  as  a preferred  claim.  The  trustee  was  not  carrying  on 
the  business  of  the  bankrupt  and  the  funds  said  to  constitute  net  income 
were  the  result  of  a compromise  made  by  him  with  a foreign  corporation 
of  a claim  for  nonpayment  of  salary  and  commissions  by  the  foreign  cor- 
poration to  the  bankrupt  corporation  as  its  agents  between  the  years  1910 
and  1914.  The  referee,  John  J.  Townsend,  Esq.,  recommended  that  the 
prayer  of  the  petition  be  denied,  and  his  report,  which  is  set  out  below  [in 
part],  was  confirmed  without  opinion  by  Judge  Hough.  We  are  quire  clear 
that  under  section  13  (c)  of  the  act  of  1916  (Comp.  St.  Sec.  6336m)  [1921 

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Act,  *[2499  herein.]  only  net  income  earned  by  a trustee  while  operating 
the  business  of  a bankrupt  corporation  is  taxable. 

1298  The  order  is  affirmed. 

1299  Note. — Referee  Townsend’s  opinion,  referred  to  in  the  opinion, 
here  follows  [in  part]: 

1 300  ********* 

1301  “In  my  opinion  the  present  motion  depends  for  its  determination 
upon  a judicial  interpretation  of  the  act  of  September  8,  1916,  a 

copy  of  which  act  accompanies  this  report.  Such  interpretation  should  be  a 
fair  one.  It  is  not  the  duty  of  this  court  or  of  the  government  authorities 
to  resort  to  Procrustean  methods  of  interpretation  against  the  taxpayer. 

1302  “I  find  nothing  in  the  act  of  September  8,  1916,  to  indicate  that 
Congress  intended  to  impose  an  income  tax  upon  a trustee  in  bank- 
ruptcy in  respect  to  'the  assets  of  a bankrupt  corporation  which  he  has 
taken  over  to  be  marshaled  and  distributed  among  the  creditors  of  the 
corporation.  To  my  mind  the  text  of  the  act  of  September  8,  1916,  does 
not  indicate  any  such  purpose.  This  view  of  the  act  does  not  deprive  the 
government  of  its  just  due.  The  dividends  declared  and  distributed  to 
the  creditors  are  presumptively  income  in  the  hands  of  the  latter  subject 
to  an  income  tax  to  be  assessed  against  the  latter. 

1303  “Great  stress  is  laid  by  the  government  on  the  provisions  of  section 
13  (c)  of  the  act  of  September  8,  1916.  The  presence  of  subdivision 

(c)  in  the  act  of  September  8,  1916,  and  its  absence  from  the  prior  act  of 
October  3,  1913,  has  to  my  mind  no  significance  in  the  present  case  in  view 
of  the  peculiar  language  of  subdivision  (c). 

1304  “The  language  used  in  subdivision  (c)  shows  that  the  subdivision 
was  not  intended  by  Congress  to  apply  in  the  case  of  receivers  or 

trustees  in  bankruptcy  or  assignees  who  merely  marshaled  and  distributed 
the  assets  of  an  insolvent  corporation  among  its  creditors.  In  terms 
subdivision  (c)  applies  only  in  cases  where  receivers  or  trustees  in  bank- 
ruptcy or  assignees  ‘are  operating  the  property  or  business  of  corporations’ 
and  thus  may  be  in  the  receipt  of  a ‘net  income’  as  defined  in  the  prior 
sections  of  the  act.  I regard  the  quoted  words  as  of  marked  significance. 

1305  “To  my  mind  the  subdivision  was  inserted  in  the  act  to  meet  the 
specified  case  of  the  profitable  operation  of  the  business  of  a corpora- 
tion by  the  officers  mentioned;  for  instance  the  operation  of  the  business 
of  a railroad  corporation  by  receivers  or  the  operation  of  the  business  of  a 
manufacturing  corporation  by  a trustee  in  bankruptcy,  etc. 

********* 

1306  “The  decisions  cited  in  the  brief  filed  by  the  government,  such 
as  Edwards  v.  Keith,  Collector,  231  Fed.  Ill,  145  C.  C.  A.  298, 

L.  R.  A.  1918A,  498  (C.  C.  A.,  2d  Circuit),  and  Towne  v.  Eisner,  Collector, 
245  U.  S.  418,  38  Sup.  Ct.  158,  62  L.  Ed.  372,  L.  R.  A.  1918  D,254  (January 
1918)  turning  as  they  do  on  what  is  and  what  is  not  taxable  income,  no 
question  arising  in  those  cases  as  to  the  status  of  the  taxes,  are  not  pertinent 
in  my  view  of  the  case  before  me. 

1307  “For  like  reason  I have  not  discussed  the  correctness  of  the  amount 
of  net  income  upon  which  the  government  claims  a tax.  This 

amount,  as  well  as  his  liability  for  any  tax,  is  challenged  by  the  trustee  in 
bankruptcy. 

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1308  “I  am  of  the  opinion  that  the  trustee  in  bankruptcy  is  entitled  to 
an  order  denying  the  prayer  of  the  petition  filed  by  the  United 
States  attorney  for  the  Southern  district  of  New  York,  on  behatf  of  the 
collector  of  internal  revenue  for  the  Second  district  of  New  York.”  (258 
Fed.  208.) 


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TAX  ON  LIFE  INSURANCE  COMPANIES. 


Tax  on  Life  Insurance  Companies  for  1921  and  thereafter. 

1309  Law  If 483.  Life  Insurance  Company  Defined. — “Sec.  242.  That 
(Sec.  242.)  when  used  in  this  title  the  term  ‘ life  insurance  company ’ 
means  an  insurance  company  engaged  in  the  business 
of  issuing  life  insurance  and  annuity  contracts  ( including  contracts  of 
combined  life , health , and  accident  insurance ),  the  reserve  funds  of  which 
held  for  the  fulfillment  of  such  contracts  comprise  more  than  50  per  centum 
of  its  total  reserve  funds.” — Law.  [Note:  This  provision  is  new  to 

the  1921  Act.] 


1310  Law  ^[4 84.  Tax  Imposed  on  Domestic  and  Foreign  Life  Insurance 

(Sec.  243.)  Companies. — “Sec.  243.  That  in  lieu  of  the  taxes  im- 
posed by  sections  230  [income  tax,  ^]972J  and  1000 
[Capital  Stock  Tax } and  by  Title  III  [Excess-profits  tax],  there  shall  be 
levied,  collected,  and  paid  for  the  calendar  year  1921  and  for  each  taxable 
year  thereafter  upon  the  net  income  of  every  life  insurance  company  a tax 
as  follows :” 

1311  Law  ^f 485.  “(1)  In  the  case  of  a domestic  life  insurance  company, 

(Sec.  243.)  the  same  percentage  of  its  net  income  as  is  imposed  upon 

other  corporations  by  section  230  [10 % for  1921 ; 12  3^% 


1922];” 

1312  Law  * 486. 

(Sec.  243.) 


“(2)  In  the  case  of  a foreign  life  insurance  company,  the 
same  percentage  of  its  net  income  from  sources  within 
the  United  States  as  is  imposed  upon  the  net  income  of 
other  corporations  by  section  230  [10 % for  1921,  12%%  for  1922].” — Law. 

[Note:  Under  the  1918  Act  life  insur- 
ance companies  were  taxed  generally  as 
were  other  “corporations.”] 


1313  Life  Insurance  Companies. — For  the  calendar  year  1921  and  there- 
after, life  insurance  companies,  as  defined  in  section  242,  shall  pay  the 
tax  imposed  by  section  243,  in  lieu  of  the  taxes  imposed  by  sections  230  and 
1000  and  by  Title  III  of  the  statute.  The  rate  for  1921  is  10  per  cent  and 
for  subsequent  years  12^2  Per  cent,  as  in  the  case  of  other  corporations,  but 
the  net  income  upon  which  the  tax  is  imposed  differs  from  the  net  income  of 
other  corporations.  Insurance  companies  are  entitled  to  the  benefit  of  section 
204  (net  losses)  [^[  1 546]  but  not  of  section  206  (capital  net  gain)  [^[1449]. 
All  provisions  of  the  statute  and  of  these  regulations  not  inconsistent  with  the 
specific  provisions  of  sections  242  to  245,  inclusive,  are  applicable  to  the 
assessment  and  collection  of  this  tax,  and  life  insurance  companies  are  subject 
to  the  same  penalties  as  provided  in  the  case  of  returns  and  payment  of  income 
tax  by  other  corporations.  In  determining  whether  an  insurance  company  is 
a “life  insurance  company”  as  defined  in  section  242,  no  reserve  shall  be 
regarded  as  held  for  the  fulfillment  of  life  insurance  and  annuity  contracts 
unless  the  company  is  entitled  to  a deduction  from  gross  income  on  account 
thereof  under  the  provisions  of  section  245  (a)  (2)  and  article  681  [^[1320]. 
As  to  foreign  companies  see  section  245  (c)  and  article  687  [Tf  1345].  (Art.  661, 
Reg.  62,  1922  Edition.) 


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1314  Lav;  *| 487.  Gross  Income  of  Life  Insurance  Companies  Defined.  — 

(See.  244.)  “Sec.  244.  (a)  That  in  the  case  of  a life  insurance 

company  the  term  'gross  income ’ means  the  gross  amount 
of  income  received  during  the  taxable  year  from  interest , dividend s,  and 

rents.” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.) 

1315  Gross  Income  of  Life  Insurance  Companies. — Net  income  in  the 

case  of  life  insurance  companies  is  gross  income  from  interest,  divi- 
dends and  rents  less  the  deductions  allowed  by  section  245.  Gross  income 
comprises  items  25-34,  inclusive,  of  the  income  page  of  the  annual  statement 
for  life  companies  (edition  of  1920)  adopted  by  the  National  Convention  of 
Insurance  Commissioners  and  items  23-30,  inclusive,  of  the  income  page  of 
the  annual  statement  for  miscellaneous  stock  companies  if  any  other  branches 
of  the  insurance  business  are  conducted  by  the  company;  except  that  the 
rental  value  of  the  space  occupied  by  the  company  in  its  own  building  or 
buildings  if  included  in  gross  income  shall  be  determined  according  to  the 
provisions  of  section  245  (b)  and  article  686  [if  1343].  As  to  “reserve  funds 
required  by  law,”  see  article  681  1320].  (Art.  671,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 


Cash  dividends:  mutual  companies;  Supreme  Court  decision,  1913  Act.. Supple- 
mentary Page  161,  TJS201. 

Nebraska  (1913  and  1916  Acts)  (37-20-1195:  Sol.  Op.  40).. Dec.  1920  Cum.  Bull.  p. 


Net  premim  receipts;  annually  ascertained  overpayments  of  premiums  on  level 
premium  insurance  on  deferred  dividend  plan  (1913  specifically)  (44-20-1280: 
Sol.  Op.  70).  .Dec.  1920  Cum.  Bull.  p.  262. 

Premiums  not  in  excess  of  dividends  applied  to  purchase  additional  paid-up  insurance 
(33-21-1770:  O.  D.  994).. Dec.  1921  Cum.  Bull.  p.  218. 


1316  Law^[489.  Deductions  Allowed  from  the  Gross  Income  of  Life 
(Sec.  245.)  Insurance  Companies  in  Determining  Net  Income. — 

“Sec.  245.  ( a ) That  in  the  case  of  a life  insurance 

company  the  term  ‘ net  income ’ means  the  gross  income  less — ” — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 

1317  Law  ^[490.  Tax-free  Interest  Received  is  Deductible. — “(1)  The 
(Sec.  245.)  amount  of  interest  received  during  the  taxable  year 

which  under  paragraph  (4)  [^[1560]  of  subdivision  (b)  of 
section  213  is  exempt  from  taxation  under  this  title;” — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

1318  Law  ^[491.  Portion  of  Reserve  Funds  may  be  Deductible.— 

(Sec.  245.)  “(2)  An  amount  equal  to  the  excess,  if  any,  over  the 

deduction  specified  in  paragraph  (1)  [IT  1318]  of  this 
subdivision,  of  4 per  centum  of  the  mean  of  the  reserve  funds ■ required  by 
law  and  held  at  the  beginning  and  end  of  the  taxable  year , plus  ( in  case  of  life 
insurance  companies  issuing  policies  covering  life,  health,  and  accident 
insurance  combined  in  one  policy  issued  on  ihe  weekly  premium  payment 
plan,  continuing  for  life  and  not  subject  to  cancellation)  4 per  centum  of  the 

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mean  of  such  reserve  funds  ( not  required  by  law ) held  at  the  beginning  and 
end  of  the  taxable  year , as  the  Commissioner  finds  to  be  necessary  for  the 
protection  of  the  holders  of  such  policies  only” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

J319  Law  1|488.  “Reserve  Funds  Required  by  Law”  in  the  Case  of 

(Sec.  244.)  Assessment  Insurance. — “(b)  The  term  ‘ reserve  funds 
required  by  law ’ includes,  in  the  case  of  assessment 
insurance,  stuns  actually  deposited  by  any  company  or  association  with 
State  or  Territorial  officers  pursuant  to  law  as  guaranty  or  reserve  funds, 
and  any  funds  maintained  under  the  charter  or  articles  of  incorporation  of 
the  company  or  association  exclusively  for  the  payment  of  claims  arising 
under  certificates  of  membership  or  policies  issued  upon  the  assessment 
plan  and  not  subject  to  any  other  use.” — Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 

1320  Under  paragraphs  (1)  and  (2)  of  section  245  (a),  life  insurance 
companies  are  entitled  to  deduct  from  gross  income:  (1)  Interest 
which  is  exempted  in  the  case  of  other  taxpayers  by  section  213  (b)  (4) 
and  articles  74-83  [beginning  at  If  1564];  and  (2)  the  excess,  if  any,  of  the 
reserve  deduction  specified  in  section  245  (a)  (2)  over  the  amount  of  such 
interest.  The  reserve  deduction  is  based  upon  the  reserves  required  by  express 
statutory  provisions  or  by  the  rules  and  regulations  of  the  State  insurance 
departments  when  promulgated  in  the  exercise  of  a power  conferred  by 
statute;  but  such  reserves  do  not  include  assets  required  to  be  held  for  the 
ordinary  running  expenses  of  the  business  nor  do  they  include  the  reserve  or 
net  value  of  risks  reinsured  in  other  solvent  companies  to  the  extent  of  the 
reinsurance.  In  the  case  of  life  insurance  companies  issuing  policies  covering 
life,  health,  and  accident  insurance  combined  in  one  policy  issued  on  the 
weekly  premium  payment  plan,  continuing  for  life  and  not  subject  to  can- 
cellation, it  is  required  that  reserves  thereon  be  based  upon  recognized  tables 
of  experience  covering  disability  benefits  of  the  kind  contained  in  policies 
issued  by  this  particular  class  of  companies.  Only  reserves  peculiar  to  insur- 
ance companies  are  to  be  taken  into  consideration.  Reserves  “maintained 
to  provide  for  the  ordinary  running  expenses  of  a business,  definite  in  amount, 
and  which  must  be  currently  paid  by  every  company  from  its  income  if  its 
business  is  to  continue,  such  as  taxes,  salaries,  reinsurance  and  unpaid 
brokerage”  (Maryland  Casualty  Co.  v.  United  States,  251  U.  S.,  342  [Supple- 
mentary Page  157,  1fSl59]),  will  not  be  considered.  A company  is  permitted 
to  make  use  of  the  highest  aggregate  reserve  called  for  by  any  State  in  which 
it  transacts  business,  but  the  reserve  must  have  been  actually  held  as  shown 
by  the  annual  statement.  Generally  speaking,  the  following  will  be  con- 
sidered reserves  as  contemplated  by  the  law:  Items  7,  8,  9,  10,  and  11  of 
the  liability  page  of  the  annual  statement  for  life  companies,  and  items  16, 
17,  18,  19,  and  26  of  the  liability  page  of  the  annual  statement  for  miscel- 
laneous stock  companies,  if  a life  insurance  company  is  also  transacting  other 
kinds  of  insurance  business.  If  other  reserves  are  claimed,  sufficient  informa- 
tion must  be  filed^with  the  return  to  enable  the  Commissioner  to  determine 
the  validity  of  the  claim.  Reference  should  be  made  to  the  item  in  which  the 
reserve  appears  in  the  annual  statement  and  to  the  State  statute  or  insurance 
department  ruling  requiring  that  such  reserves  be  held.  (Art.  681,  Reg.  62, 
1922  Edition.)  ^ -J 

[See  1918  Act  and  prior  law  Cumulative  Index  references  following  1353.] 

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1321  Law  ^[492.  Certain  Dividends  Received  are  Deductible. — “(3) 
(Sec.  245).  The  amount  received  as  dividends  (A)  from  a domestic 

corporation  other  than  a corporation  entitled  to  the 
benefits  of  section  262+  [^[2070],  or  ( B ) from  any  foreign  corporation  when 
it  is  shown  to  the  satisfaction  of  the  Commissioner  that  more  than  50  per 
centum  of  the  gross  income  of  such  foreign  corporation  for  the  three-year 
period  ending  with  the  close  of  its  taxable  year  preceding  the  declaration 
of  such  dividends  (or  for  such  part  of  such  period  as  the  foreign  corporation 
has  been  in  existence ) was  derived  from  sources  within  the  United  States 
as  determined  under  section  217  [^[2102];” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.) 

+ [Amended;  China  Trade  Act  corporations,  3 1 73.] 

1322  (1)  The  deduction  allowed  by  section  245  (a)  (3)  for  dividends  re- 
ceived from  other  corporations  is  identical  with  the  deduction 

allowed  other  corporations  by  section  234  (a)  (6).  See  article  561  [f  1617). 

(Art.  685,  Reg.  62,  1922  Edition.) 

1323  Law  1[493.  2%  of  Amount  of  Reserve  for  Certain  Dividends  is 

(Sec.  245.)  Deductible. — “(4)  An  amount  equal  to  2 per  centum 
of  any  sums  held  at  the  end  of  the  taxable  year  as  a reserve 
for  dividends  ( other  than  dividends  payable  during  the  year  following  the 
taxable  year)  the  payment  of  which  is  deferred  for  a period  of  not  less  than 
five  years  from  the  date  of  the  policy  contract — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.) 

1324  The  deduction  for  deferred  dividends  under  section  245  (a)  (4)  will 
be  based  upon  item  37  of  the  liability  page  of  the  annual  statement 

for  life  companies  but  shall  not  include  any  dividend  payable  during  the 

year  immediately  following  the  taxable  year.  (Art.  682,  Reg.  62,  1922 

Edition.) 


1325  Law  ^[494.  Investment  Expenses  are  Deductible. — “(5)  Invest- 
(Sec.  245.)  ment  expenses  paid  during  the  taxable  year:” 

1326  Law  ^[495.  “ Provided , That  if  any  general  expenses  are  in  part 

(Sec.  245.)  assigned  to  or  included  in  the  investment  expenses , the 

total  deduction  under  this  paragraph  shall  not  exceed 
one-fourth  of  1 per  centum  of  the  book  value  of  the  mean  of  the  invested 
assets  held  at  the  beginning  and  end  of  the  taxable  year-,” — Law. 

[Note:  These  provisions  are  new  to  the 

1921  Act.) 


1327  If  any  general  expenses  are  in  part  assigned  to  or  included  in  the 
investment  expenses,  the  total  investment  expenses  (other  than  taxes 
and  expenses  with  respect  to  real  estate)  allowable  as  a deduction  shall  not 
exceed  one-quarter  of  1 per  cent  of  the  mean  of  the  book  value  of  the  invested 

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assets  held  at  the  beginning  and  end  of  the  taxable  year.  If  there  be  no  allo- 
cation of  general  expenses  to  investment  expenses  the  deduction  may  consist 
of  investment  expenses  actually  paid  during  the  taxable  year,  in  which  case  an 
itemized  schedule  of  such  expenses  must  be  appended  to  the  return  The 
invested  assets  are  items  1-6,  inclusive,  item  9,  and  items  10  and  1 1 (if  interest- 
bearing  assets)  of  the  asset  page  of  the  annual  statement  for  life  companies, 
and  items  1-4,  inclusive,  item  7,  and  items  27-30,  inclusive  (if  interest-bearing 
assets),  of  the  asset  page  of  the  annual  statement  for  miscellaneous  stock 
companies.  If  the  method  used  by  any  company  in  ascertaining  the  invest- 
ment expenses  where  there  is  any  allocation  of  general  expenses  shall  be 
changed  so  that  a greater  deduction  is  claimed,  the  company  shall  file  with  its 
return,  information  sufficient  to  enable  the  Commissioner  to  determine  the 
validity  of  the  claim.  The  maximum  allowance  of  one-quarter  of  1 per  cent 
will  not  be  granted  unless  it  is  shown  to  the  satisfaction  of  the  Commissioner 
that  such  allowance  is  justified.  (Art.  683,  Reg.  62,  1922  Edition.) 


1328  Law  ^496.  Certain  Taxes  are  Deductible. — “(6)  Taxes  and  other 

(Sec.  245.)  expenses  paid  during  the  taxable  year  exclusively  upon 
or  with  respect  to  the  real  estate  owned  by  the  company , 
not  including  taxes  assessed  against  local  benefits  of  a kind  tending  to  increase 
the  value  of  the  property  assessed , and  not  including  any  amount  paid  out 
for  new  buildings , or  for  permanent  improvements  or  betterments  made  to 
increase  the  value  of  any  property .” 

1329  Law  497.  “ The  deduction  allowed  by  this  paragraph  shall  be 

(Sec.  245.)  allowed  in  the  case  of  taxes  imposed  upon  a shareholder 

or  member  of  a company  upon  his  interest  as  shareholder 
or  member , which  are  paid  by  the  company  without  reimbursement  from 
the  shareholder  or  member ,” 

1330  Law  1)498.  “ but  in  such  cases  no  deduction  shall  be  allowed  the 

(Sec.  245.)  shareholder  or  member  for  the  amount  of  such  taxes;” — *' 

Law.  [Note:  These  provisions  are  new  to  the 

1921  Act.]  .4 

1331  This  deduction  comprises  items  31  and  32  of  the  disbursement  page 
of  the  annual  statement  for  life  companies  and  items  34  and  35  of  the 

disbursement  page  of  the  annual  statement  for  miscellaneous  stock  companies, 
except  as  noted  below,  and  any  sum  included  in  any  other  item  representing 
taxes  imposed  upon  the  individual  shareholders’  or  members’  interest  in  the 
real  estate  of  the  corporation  which  is  paid  by  the  corporation  without  reim- 
bursement from  the  individual  shareholder  or  member.  In  the  latter  case  the 
amount  allowable  as  a deduction  (subject  to  the  provisions  of  art.  686)  shall 
be  that  proportion  of  the  total  tax  imposed  upon  the  individual  shareholders' 
or  members’  interest  in  the  corporation  which  the  book  value  of  the  real  estate 
owned  by  the  corporation  at  the  end  of  the  taxable  year  is  of  the  book  value 
of  all  the  corporation’s  ledger  assets,  and  so  much  thereof  as  represents  the 
tax  upon  real  estate  occupied  in  whole  or  in  part  by  the  company  must  be 
included  in  the  calculation  referred  to  in  article  686  [^|  1 343].  The  amount  so 
included  shall  be  that  proportion  of  the  total  amount  allowable  as  a deduction 
which  the  book  value  of  the  real  estate  owned  and  occupied  in  whole  or  in 

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part  is  of  the  book  value  of  all  the  real  estate  owned.  Full  details  must 
accompany  the  return.  Any  other  taxes  and  expenses  (and  depreciation) 
upon  any  real  estate  owned  and  occupied  in  whole  or  in  part  by  the  company 
must  also  be  included  in  the  calculation  referred  to  in  article  686  [U 1343]. 
Taxes  shall  not  include  assessments  against  local  benefits  of  a kind  tending  to 
increase  the  value  of  the  property  assessed  and  expenses  shall  not  include  any 
amount  paid  out  for  buildings  or  for  permanent  improvements  and  better- 
ments made  to  increase  the  value  of  any  property.  (Art.  684,  Reg.  62,  1922 
Edition.) 


Depreciation  is  Deductible. — “(7)  A reasonable  allow- 
ance for  the  exhaustion , wear  and  tear  of  property, 
including  a reasonable  allowance  for  obsolescence .” 
“In  the  case  of  property  acquired  before  March  1,  1913, 
this  deduction  shall  be  computed  upon  the  basis  of  its 
fair  market  price  or  value  as  of  March  1,  1913;” — Law. 

[Note:  These  provisions  are  new  to  the 

1921  Act.] 

Interest  Paid  is  Deductible. — “(8)  All  interest  paid 
or  accrued  within  the  taxable  year  on  its  indebted- 
ness,” 

“except  on  indebtedness  incurred  or  continued  to  pur- 
chase or  carry  obligations  or  securities  ( other  than  obli- 
gations of  the  United  States  issued  after  September  24, 
1917,  and  originally  subscribed  for  by  the  taxpayer)  the  interest  upon 
which  is  wholly  exempt  from  taxation  under  this  title'” — Law. 

[Note:  These  provisions  are  new  to  the 

1921  Act.] 


1332 

Law  1499. 

(Sec.  245.) 

1333 

Law  1500. 

(Sec.  245.) 

1334 

Law  1501. 

(Sec.  245.) 

1335 

Law  1502. 

(Sec.  245.) 

1 336  (2)  The  deduction  allowed  by  section  245  (a)  (7)  for  depreciation  is 

identical  with  that  allowed  other  corporations  by  section  2#4  (a)  (7). 
See  articles  561  [If  1617],  and  161-171  [beginning  at  1 83 1 .] 

1337  (3)  The  deduction  allowed  by  section  245  (a)  (8)  for  interest  on 

indebtedness  is  the  same  as  that  allowed  corporations  by  section 
234  (a)  (2)  (see  arts.  561  [111617],  121  [11688],  and  122  [11695]),  but  this 
deduction  includes  item  18  of  the  disbursement  page  of  the  annual  statement 
of  life  companies  to  the  extent  that  interest  on  dividends  held  on  deposit  and 
surrendered  during  the  taxable  year  is  included  therein.  (Art.  685,  Reg.  62, 
1922  Edition.) 


1338  Law  1503.  Specific  Deduction  of  $2,000. — “(9)  In  the  case  of.  a 
(Sec.  245.)  domestic  life  insurance  company , the  net  income  of  which 

{computed  without  the  benefit  of  this  paragraph ) is 
$25,000  or  less,  the  sum  of  $2,000;” 

1339  Law  1504.  “but  if  the  net  income  is  more  than  f.25,000  the  tax 
(Sec.  245.)  imposed  by  section  243  shall  not  exceed  the  tax  which 

would  be  payable  if  the  $2,000  credit  were  allowed, 
plus  the  amount  of  the  net  income  in  excess  of  $25,000.” — Law. 

[Note:  These  provisions  are  new  to  the 

1921  Act.] 

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1 340  (4)  1 he  deduction  of  $2,000  allowed  domestic  life  insurance  companies 

with  net  income  of  $25,000  or  less  by  section  245  (a)  (9)  is  identical 
with  the  specific  credit  allowed  other  corporations  by  section  236  (b)  and  there 
is  the  same  equalizing  provision  in  the  case  of  incomes  slightly  in  excess  of 
$25,000.  See  article  591  [If  1415],  (Art.  685,  Reg.  62,  1922  Edition.) 

1 34 1 Credit  for  Taxes.— Read  at  If  1 752. 

1342  Law  ^f 505.  Rental  Value  of  Owned  Premises  Occupied  to  be 
(Sec.  245.)  Included  in  Gross  Income  in  Order  that  Taxes  and 

Depreciation  Thereon  be  Deductible. — “(b)  No  de- 
duction shall  be  made  under  paragraphs  (6)  and  (7)  of  subdivision  (a)  on 
account  of  any  real  estate  owned  and  occupied  in  whole  or  in  part  by  a life 
insurance  company  unless  there  is  included  in  the  return  of  gross  income 
the  rental  value  of  the  space  so  occupied.  Such  rental  value  shall  be  not  less 
than  a sum  which  in  addition  to  any  rents  received  from  other  tenants  shall 
provide  a net  income  ( after  deducting  taxes , depreciation , and  all  other 
expenses)  at  the  rate  of  4 per  centum  per  annum  of  the  book  value  at  the 
end  of  the  taxable  year  of  the  real  estate  so  owned  or  occupied .” — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 

1 343  No  deduction  shall  be  made  for  any  taxes,  expenses,  or  depreciation 
on  account  of  any  real  estate  owned  and  occupied  in  whole  or  in  part 
by  a life  insurance  company  unless  there  is  included  in  the  return  of  gross 
income  the  rental  value  of  the  space  so  occupied.  Such  rental  value  shall  not 
be  less  than  a sum  which  in  addition  to  any  rents  received  from  other  tenants 
shall  provide  a net  income  (after  deducting  taxes,  depreciation,  and  other 
expenses)  at  the  rate  of  4 per  cent  per  annum  of  the  book  value  at  the  end 
of  the  taxable  year  of  the  real  estate  so  owned  and  occupied.  For  example, 
if  the  book  value  of  a parcel  of  real  estate  owned  and  occupied  in  whole  or  in 
part  by  the  company  is  $1,000,000,  the  rents  received  from  other  tenants 
$30,000,  taxes  and  expenses  $40,000,  and  depreciation  $20,000,  the  company 
would  have  to  include  in  its  gross  income  a sum  not  less  than  $70,000  ($40,000 
taxes  ana  expenses,  plus  $20,000  depreciation,  minus  $30,000  rents  from 
tenants,  plus  4 per  cent  of  $1,000,000)  as  the  rental  value  of  the  space  occupied 
by  it  in  order  to  avail  itself  of  the  deductions  of  $40,000  and  $20,000.  In 
any  case  the  rents  received  from  other  tenants  must  be  included  in  gross 
income.  (Art.  686,  Reg.  62,  1922  Edition.) 


1344  Law  *1(506 . Apportionment  of  Total  Net  Income  in  the  Case  of 
(Sec.  245.)  Foreign  Insurance  Companies. — “(c)  In  the  case  of  a 
foreign  life  insurance  company  the  amount  of  its  net 
income  for  any  taxable  year  from  sources  within  the  United  States  shall 
be  the  same  proportion  of  its  net  income  for  the  taxable  year  from  sources 
within  and  without  the  United  States , which  the  reserve  funds  required  by 
law  and  held,  by  it  at  the  end  of  the  taxable  year  upon  business  transacted 
within  the  United  States  is  of  the  reserve  funds  held  by  it  at  the  end  of  the 
taxable  year  upon  all  business  transacted .” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

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1345  Foreign  life  insurance  companies  holding  reserve  funds  upon  business 
transacted  within  the  United  States  are  taxed  under  section  243 
upon  their  net  income  from  sources  within  the  United  States.  All  business 
transacted  by  a United  States  branch  or  agency  of  a foreign  insurance  com- 
pany, for  which  a reserve  fund  is  required  by  the  laws  of  any  State  or  Territory 
of  the  United  States  or  of  the  District  of  Columbia,  will  be  regarded  as  bus- 
iness transacted  within  the  United  States.  A foreign  life  insurance  company 
not  doing  an  insurance  business  within  the  United  States  and  holding  no 
reserve  funds  upon  business  transacted  within  the  United  States,  but  which 
derives  income  from  sources  within  the  United  States  as  defined  in  section 
217  (see  arts.  316-329  [beginning  at  1f2094])  is  subject  to  the  tax  imposed  by 
section  230  upon  income  derived  from  sources  within  the  United  States. 
See  articles  501  fl[975]  and  550  [If  1410].  As  to  taxation  of  life  insurance 
companies  between  United  States  and  Porto  Rico  and  Philippine  Islands, 
see  article  1133  [11776].  (Art.  687,  Reg.  62,  1922  Edition.) 


1 346  Net  Losses  Suffered  by  Life  Insurance  Companies.— Read  at  If  1546 

1347  Returns  by  Life  Insurance  Companies. — Read  at  1fl362. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
273 


2-27-22. 

TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE. 

( All  “ other  than  life"  for  1921,  and  other  mutuals  for  1922.) 

Tax  on  Insurance  Companies  other  than  Life  Insurance  Companies 
for  1921,  and  on  Mutual  (other  than  Life)  Insurance 
Companies  for  1922. 

Comment:  Insurance  companies,  other  than  life  insurance  companies, 
are  subject  to  income  tax  for  the  calendar  year  1921  under  the  general 
provisions  of  the  Revenue  Act  of  1921  applicable  to  all  corporations, 
as  such  general  provisions  are  modified  to  apply  to  insurance  companies. 
For  the  calendar  year  1922  and  for  each  taxable  year  thereafter  insurance 
companies  other  than  life  insurance  and  mutual  insurance  companies,  are 
subject  to  a distinctive  tax  as  provided  in  Sections  246  and  247,  for  which 
see  beginning  at  ^[1366.  The  mutuals — other  than  mutual  life — (by  the 
present  law)  will  be  subject  to  income  tax  on  the  same  basis  for  the  taxable 
year  1922  as  for  the  taxable  year  1921,  the  rates  for  the  calendar  years  1921 
and  1922  being  10%  and  12^%  respectively. — The  Corporation  Trust 
Company. 

1348  Insurance  Companies. — Insurance  companies  include  both  stock 
and  mutual  companies,  as  well  as  mutual  benefit  insurance  com- 
panies. A voluntary  unincorporated  association  of  employees  formed  for 
the  purpose  of  relieving  sick  and  aged  members  and  the  dependents  of  de- 
ceased members  is  an  insurance  company,  whether  the  fund  for  such  purpose 
is  created  wholly  by  membership  dues  or  partly  by  contributions  from  the 
employer.  But  a corporation  which  merely  sets  aside  a fund  for  the  insur- 
ance of  its  employees  is  not  required  to  file  a separate  return  for  such  fund 
if  the  income  and  disbursements  therefrom  are  included  in  the  corporation’s 
own  return.  (Art.  1508,  Reg.  62,  1922  Edition.) 

1349  Exempt  Insurance  Companies. — [Read  at  ^[1037.] 

1 350  Gross  Income  of  Mutual  Insurance  Companies. — The  gross  income  of 
mutual  insurance  companies  (other  than  life)  consists  of  their  total 

revenue  from  the  operation  of  the  business  and  of  their  income  from  all  other 
sources  within  the  taxable  year,  except  as  otherwise  provided  by  the  statute. 
Gross  income  includes  net  premiums  (that  is,  gross  premiums  less  returned 
premiums  on  policies  cancelled  and  premiums  on  policies  not  taken),  invest- 
ment income,  profits  from  the  sale  of  assets,  and  all  gains,  profits,  and  income 
reported  to  the  State  insurance  departments,  except  income  specifically 
exempt  from  tax.  Premiums  received  by  mutual  marine  insurance  com- 
panies which  are  paid  out  for  reinsurance  should  be  eliminated  from  gross 
income  and  the  payments  for  reinsurance  from  disbursements.  Deposit  pre- 
miums on  perpetual  risks  received  and  returned  by  mutual  fire  insurance  com- 
panies should  be  treated  in  the  same  manner,  as  no  reserve  will  be  recognized 
covering  liability  for  such  deposits.  The  earnings  on  such  deposits,  including 
such  portion,  if  any,  of  the  deposits  as  are  not  returned  to  the  policy-holders 
upon  cancellation  of  the  policies,  must  be  included  in  the  gross  income.  A 
net  decrease  in  reserve  funds  required  by  law  within  the  taxable  year  must 
be  included  in  the  gross  income  to  the  extent  that  is  released  to  the  general 
uses  of  the  company  and  increases  its  free  assets.  Any  net  decrease  in 
reserves  shall  be  added  to  the  gross  income,  unless  the  company  shall  show 
that  such  decrease  resulted  from  the  application  of  reserves  to  the  purposes 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

274 


2-27-22.  (2)  4-10-22. 

TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE. 

( All  '‘other  than  life"  for  1921,  and  other  mutuals  for  1922.) 

for  which  they  were  established.  See  articles  568-572  [for  deductions  allowed 

insurance  companies,  1 352] . (Art.  549,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  <?/. 

Net  decrease  in  reserve  funds  as  addition  to  gross  income  (1913  Act)  (23-20-991: 
L.  O.  1032).. June  1920  Cum.  Bull.  p.  216. 

Premium  receipts  and  deposits:  interest  on  bank  balances:  Court  decision,  1913  Act 
(44-20-1279:  T.  D.  3078).  .Dec.  1920  Cum.  Bull.  p.  247.  Reversed,  274  Fed.  93. 


1351  Law  1f420.  Special  Deductions  Allowed  to  Insurance  Companies 
(Sec.  234.)  other  than  Life  Insurance  Companies, — “(10)  In  the 

case  of  insurance  companies  ( other  than  life  insurance 
companies ),  in  addition  to  the  above  [i.  e .,  the  general  deductions  allowed,  to 
all  corporations ] ( unless  otherwise  allowed ):  ( A ) The  net  addition  required 
by  law  to  be  made  within  the  taxable  year  to  reserve  funds  ( including  in  the 
case  of  assessment  insurance  companies  the  actual  deposit  of  sums  with 
State  or  Territorial  officers  pursuant  to  law  as  additions  to  guarantee  or 
reserve  funds)-,  and  ( B ) the  sums  other  than  dividends  paid  within  the  taxable 
year  on  policy  and  annuity  contracts.  After  December  31,  1921,  this  sub- 
division shall  apply  only  to  mutual  insurance  companies  other  .than  life 
insurance  companies — Law.  [Note:  “(other  than  life  insurance 

companies)”  and  the  last  sentence 
are  new  to  the  1921  Act.] 

1352  For  the  calendar  year  1921  insurance  companies  (other  than  life 
insurance  companies)  are  entitled  to  the  same  deductions  from  gross 

income  as  other  corporations,  and  also  to  the  deduction  of  the  net  addition 
required  by  law  to  be  made  within  the  taxable  year  to  reserve  funds  and  of 
the  sums  other  than  dividends  paid  within  the  taxable  year  on  policy  and 
annuity  contracts.  After  December  31,  1921,  such  insurance  companies, 
except  mutual  companies,  are  entitled  only  to  the  deductions  allowed  by 
section  247.  See  article  693  fl]1394].  Mutual  insurance  companies  (other 
than  life)  are  not  entitled  to  the  deductions  allowed  by  section  247,  but  are 
entitled  to  the  deductions  allowed  by  section  234.  See  articles  569-572 
[beginning  at  1353].  “Paid”  includes  “accrued”  or  “incurred”  (construed 
according  to  the  method  of  accounting  upon  the  basis  of  which  the  net 
income  is  computed)  during  the  taxable  year,  but  does  not  include  any  esti- 
mate for  losses  incurred  but  not  reported  during  the  taxable  year.  For 
deductions  allowed  life  insurance  companies  see  section  245  and  articles 
681-687  [beginning  at  1320].  (Art.  568,  Reg.  62,  1922  Edition.) 


1353  Required  Addition  to  Reserve  Funds  of  Insurance  Companies.— 
This  article  applies  to  all  insurance  companies  (except  life)  for  the 
calendar  year  1921;  thereafter  it  applies  only  to  mutual  companies. 
Insurance  companies  may  deduct  from  gross  income  the  net  addition 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

275 


2-27-22.  (2)  4-10-22. 

TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE. 

( All  “other  than  life”  for  1921,  and  other  mutuals  for  1922.) 

required  by  law  to  be  made  within  the  taxable  year  to  reserve  funds,  including 
in  the  case  of  assessment  insurance  companies  the  actual  deposit  of  sums 
with  State  or  Territorial  officers  pursuant  to  law  as  additions  to  guaranty  or 
reserve  funds.  Reserve  funds  “required  by  law”  include  not  only  reserves 
required  by  express  statutory  provisions,  but  also  reserves  required  by  the 
rules  and  regulations  of  State  insurance  departments  when  promulgated  in 
the  exercise  of  an  appropriate  power  conferred  by  statute,  but  do  not  include 
assets  required  to  be  held  for  the  ordinary  running  expenses  of  the  business, 
such  as  taxes,  salaries,  reinsurance,  and  unpaid  brokerage.  Only  reserves 
commonly  recognized  as  reserve  funds  in  insurance  accounting  are  to  be  taken 
into  consideration  in  computing  the  net  addition  to  reserve  funds  required 
by  law.  In  the  case  of  a fire  insurance  company  the  only  reserve  fund  com- 
monly recognized  is  the  “unearned-premium”  fund.  Casualty  companies 
may  deduct  losses  incurred  within  the  taxable  year;  but  unless  the  net  ad- 
dition to  the  unpaid  loss  reserve  required  by  law  exceeds  such  losses  incurred, 
no  deduction  for  the  net  addition  to  the  unpaid  loss  reserve  may  be  taken. 
In  any  event  only  the  excess  of  such  net  addition  over  such  losses  may  be 
deducted.  Mutual  hail  and  mutual  cyclone  insurance  companies  are  entitled 
to  deduct  from  gross  income  the  net  addition  which  they  are  required  to  make 
to  the  “guaranty  surplus”  fund  or  similar  fund.  (Art.  569,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

[1918  Act  and  prior  law  references  follow.] 

Casualty  companies;  and  are  certain  companies  casualty  companies  in  all  juris- 
dictions (3-19-202:  O.  815)..  1919  Cum.  Bull.  p.  227. 

Coupons  left  with  company  and  accrued  interest;  reserves  to  liquidate  (1-19-96: 

_ 0.  799) . . 1919  Cum.  Bull.  p.  226. 

Divisible  surplus  annually  ascertained  and  apportioned  to  deferred  dividend  policies 
(1913  and  1916  Acts)  (37-20-1195:  Sol.  Op.  40).. Dec.  1920  Cum.  Bull.  p.  274. 

Nebraska  (1913  and  1916  Acts)  (37-20-1195:  Sol.  Op.  40).. Dec.  1920  Cum.  Bull, 
p.  274. 

“Net  addition  to  reserve  fund”  to  be  computed  by  established  method  the  decision  of 
the  Supreme  Court  in  the  Maryland  Casualty  Company  case  not  authorizing 
any  deviation  (13-20-816:  O.  D.  427).  .June  1920  Cum.  Bull.  p.  216. 

“Required  by  law”  (1913  Act)  as  applied  to  reserve  funds  embraces  reserves  required 
by  rules  of  State  insurance  departments  under  proper  authorization  of  law 
(23-20-991:  L.  O.  1032).. June  1920  Cum.  Bull.  p.  216. 

But  not  a reserve,  though  required,  for  expense  of  investigation  of  loss  claims 
(47-20-1315:  Sol.  Op.  76).  .Dec.  1920  Cum.  Bull.  p.  276. 

But  not  a reserve  set  up  by  a fire  insurance  company  against  unpaid  losses. 

(2-21-1391:  L.  O.  1056).  .June  1921  Cum.  Bull.  p.  297. 

Applies  equally  to  1909  and  1913  Acts  (45-21-1912:  0.  D.  1094).. Dec.  1921 
Cum.  Bull.  p.  229. 


1354  Law  If 421.  Life,  Health  and  Accident  Insurance  Combined  in 
(Sec.  234.)  one  Policy,  by  Companies  other  than  Life  Insurance 
Companies  Subject  to  the  Distinctive  Tax. — “(11)  In 

the  case  of  corporations  ( except  those  taxed  under  section  243)  issuing  policies 
covering  life,  health , and  accident  insurance  combined  in  one  policy  issued 
on  the  weekly  premium  payment  plan  continuing  for  life  and  not  subject 
tofcancellation , in  addition  to  the  above  [i.  e.,  the  general  deductions  allowed 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

276 


.:.27-22. 

TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE. 

{All  “ other  than  life"  for  1921,  and  other  mutuals  for  1922.) 

to  all  corporations  and  the  special  deduction  allowed  to  insurance  companies , 

If  1351],  stick  portion  of  the  net  addition  ( not  required  by  law)  made  within 
the  taxable  year  to  reserve  f unds  as  the  Commissioner  finds  to  be  required 
for  the  protection  of  the  holders  of  such  policies  only.  This  subdivision 
shall  not  be  in  effect  after  December  31,  1921;” — Law.  [Note: 

“(except  those  taxed  under  section  243 
[life  insurance  companies])”  is  new  to  the 
1921  Act,  as  is  the  last  sentence.] 

1355  Corporations  which  issue  combination  policies  of  life,  health,  and 
accident  insurance  on  the  weekly  premium  payment  plan,  continuing 
for  life  and  not  subject  to  cancellation,  may  deduct  from  gross  income  only 
such  portion  of  the  net  addition  not  required  by  law  made  within  the  taxable 
year  to  reserve  funds  as  is  needed  for  the  protection  of  the  holders  of  such 
combination  policies.  In  general  the  net  addition  to  any  fund  especially 
maintained  for  the  protection  of  such  policyholders  may  be  deducted.  The 
determination  by  the  company  of  the  need  for  such  addition  is  subject  to 
review  by  the  Commissioner,  and  the  return  of  income  should  be  accom- 
panied by  a full  explanation  of  the  basis  upon  which  such  fund  and  the 
additions  to  it  are  determined.  This  article  does  not  apply  to  life  insurance 
companies  taxed  under  section  243  nor  to  any  taxable  period  after  December 
31,  1921.  (Art.  570,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

“For  the  protection  of  the  holders  of  such  policies  only”  discussed  (3-21-1402:  Sol. 
Op.  83).  .June  1921  Cum.  Bull.  p.  300. 


1356  Law  H379.  Gross  Income  of  Mutual  Marine  Insurance  Com- 

(Sec.  233.)  panies. — [“Gross  income ” means  the  gross  income  as 
defined  in  sections  213  and  217,]  “ except  that  mutual 
marine  insurance  companies  shall  include  in  gross  income  the  gross  pre- 
miums collected  and  received  by  them  less  amounts  paid  for  reinsurance .” — 

Law.  [Note:  The  1918  Act  so  provided.] 

1357  Law  ]f 42 2.  Special  Deduction  Allowed  to  Mutual  Marine  Insur- 

(Sec.  234.)  ance  Companies. — “(12)  In  the  case  of  mutual  marine 
insurance  companies,  there  shall  be  allowed,  in  addition 
to  the  deductions  allowed  in  paragraphs  (1)*  to  (10)*,  inclusive,  and  para- 
graph (14),*  unless  otherwise  allowed,  amounts  repaid  to  policyholders  on 
account  of  premiums  previously  paid  by  them,  and  interest  paid  upon  such 
amounts  between  the  ascertainment  and  the  payment  thereof Law. 

[Note:  “and  paragraph  (14),  unless 
otherwise  allowed”  is  new  to  the  1921 
Act.] 


*(1)  to  (9) — General  deductions  allowed  to  all  corporations,  beginning 
at  ^[1617.  (10) — Special  deductions  allowed  to  all  insurance  companies, 
If  1351.  (14) — Property  compulsorily  or  involuntarily  converted  into  cash 

or  its  equivalent  [^2028]. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
277 


2-27-22. 

TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE. 

{All  “other  than  life”  for  1921,  and  other  mutuals  for  1922.) 

1358  Mutual  marine  insurance  companies  should  include  in  gross  income 
the  gross  premiums  collected  and  received  by  them  less  amounts 

paid  for  reinsurance.  See  section  233  of  the  statute  and  article  549  [TJ 1350]. 
They  may  deduct  from  gross  income  amounts  repaid  to  policyholders  on 
account  of  premiums  previously  paid  by  them,  together  with  the  interest 
actually  paid  upon  such  amounts  between  the  date  of  ascertainment  and  the 
date  of  payment  thereof.  The  remainder  of  the  premiums  accordingly 
form  part  of  the  net  income  of  the  company,  except  to  the  extent  that  they 
are  subject  to  the  deductions  allowed  such  insurance  companies  and 
other  corporations.  (Art.  571,  Reg.  62,  1922  Edition.) 

1 359  Law  ]f423.  Mutual  Insurance  Companies  Other  than  Mutual 

(Sec.  234.)  Life  and  Mutual  Marine. — “(13)  In  the  case  of  mutual 
insurance  companies  ( including  interinsurers  and 
reciprocal  underwriters,  but  not  including  mutual  life  nr  mutual  marine 
insurance  companies)  requiring  their  members  to  make  premium  deposits 
to  provide  for  losses  and  expenses,  there  shall  be  allowed,  in  addition  to  the 
deductions  allowed,  in  paragraphs  (1)*  to  (10)*,  inclusive,  and  paragraph 
(14),*  unless  otherwise  allowed,  the  amount  of  premium  deposits  returned 
to  their  policy  holders  and  the  amount  oj  premium  deposits  retained  for  the 
payment  of  losses,  expenses,  and  reinsurance  reserves ;” — Law.  [Note: 

“(including  interinsurers  and  reciprocal 
underwriters”  is  new  to  the  1921  Act, 
as  is  “and  paragraph  (14).”] 

*See  footnote,  page  277. 

1360  Special  Deductions  Allowed  Mutual  Insurance  Companies. — Mutual 
insurance  companies  (other  than  mutual  life  and  mutual  marine 

insurance  companies),  which  require  their  members  to  make  premium 
deposits  to  provide  for  losses  and  expenses,  are  allowed  to  deduct  from  gross 
income  the  aggregate  amount  of  premium  deposits  returned  to  their  policy- 
holders or  retained  for  the  payment  of  losses,  expenses,  and  reinsurance 
reserves.  In  determining  the  amount  of  premium  deposits  retained  by  a 
mutual  fire  or  mutual  casualty  insurance  company  for  the  payment  of  losses, 
expenses,  and  reinsurance  reserves,  it  will  be  presumed  that  losses  and 
expenses  have  been  paid  out  of  earnings  and  profits  other  than  premiums 
to  the  extent  of  such  earnings  and  profits.  If,  however,  any  portion  of  such 
amount  is  applied  during  the  taxable  year  to  the  payment  of  losses,  expenses, 
or  reinsurance  reserves,  for  which  a separate  allowance  is  taken,  then  such 
portion  is  not  deductible;  and  if  any  portion  of  such  amount  for  which  an 
allowance  is  taken  is  subsequently  applied  to  the  payment  of  expenses,  losses, 
or  reinsurance  reserves,  then  such  payment  cannot  be  separately  deducted. 
An  amount  of  premium  deposits  retained  for  the  payment  of  expenses,  and 
losses,  and  the  amount  of  such  expenses  and  losses,  may  not  both  be  deducted. 
A company  which  invests  part  of  the  premium  deposits  so  retained  by  it  in 
interest-bearing  securities  may  nevertheless  deduct  such  part,  but  not  the 
interest  received  on  such  securities.  A mutual  fire  insurance  company  which 
has  a guaranty  capital  is  taxed  like  other  mutual  fire  insurance  companies. 
A stock  fire  insurance  company,  operated  on  the  mutual  plan  to  the  extent  of 
paying  dividends  to  certain  classes  of  policyholders,  may  make  a return  on 
the  same  basis  as  a mutual  fire  insurance  company  with  respect  to  its  business 
conducted  on  the  mutual  plan.  (Art.  572,  Reg.  62,  1922  Edition.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
278 


2-27-82.  (2)  4-21-22.  (3)  6-9-22.  (4)  10-11-22.  (6)  11-4-22. 

TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE. 

{All  “other  than  life ” for  1921,  and  other  mutuals  for  1922.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Example  of  what  are  not  “premium  deposits”  (1-16-230:  A.  R.  R.  882).  .June  192  2 
Cum.  Bull.  p.  286. 

Excess  premiums  refunded;  mutual  life  companies:  Supreme  Court  decision, 

1913  Act.  Supplementary  Page  161,  ^fS20l. 

Mutual  fire  and  mutual  casualty  insurance;  presumption  as  to  the  payment  of  losse* 
and  expenses  in  determining  amount  of  premium  deposits  retained  (40-20-1226: 
L.  O.  1050)  Dec.  1920  Cum.  Bull.  p.  279. 

“Premium  deposit”  does  not  necessarily  involve  a return  of  a portion  thereof  to  the 
stockholder;  1916  and  1918  Acts  (1-23-335:  Sol.  Op.  141).  .June  1922  Cum. 
Bull.  p.  287. 


1361  Gross  Income  of  Foreign  Insurance  Companies.— Read  at  ^1410. 

1362  Returns  of  Insurance  Companies. — Insurance  companies  trans- 
acting business  in  the  United  States  or  deriving  an  income  from 

sources  therein  are  required  to  file  returns  of  income.  The  return  shall  be 
on  Form  1120  except  that  life  insurance  companies  shall  make  return  on 
Form  1120L.  As  an  aid  in  auditing  the  returns,  wherever  possible  a copy 
of  the  report  to  the  State  insurance  department  should  be  submitted  with 
the  return.  Otherwise  a copy  of  Schedule  D,  parts  1,  3,  and  4,  of  the  report 
should  be  attached  to  the  return,  showing  the  Federal,  State  and  municipal 
obligations  from  which  the  interest  omitted  from  gross  income  was  derived, 
and  a copy  of  the  complete  report  should  be  furnished  as  soon  as  ready  for 
filing.  (Art.  623,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Extension  of  time  for  domestic  companies  for  filing  returns  for  calendar  year  1921 
and  for  fiscal  years  ending  Jan.  31  or  Feb.  28,  1922.  . 1f3041. 

Insurance  companies:  broker  here,  acting  for  (28-20-1062:  O.  D.  586).  .Dec.  1920, 
Cum.  Bull.  p.  284. 


1363  Returns  by  Foreign  Insurance  Companies. — Read  at  ^[1362. 

1364  Law  and  Regulations  Relating  to  Returns. — Read  at  ^[2487. 

1365  Law,  etc.,  Relating  to  the  Payment  of  the  tax. — Read  at  ^[27 12. 


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TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE  OR:MUTUAL. 

( For  1922  and  thereafter.) 


1 36©  Law  If 507.  Tax  on  Domestic  and  Foreign  Insurance  Companies, 
(Sec.  246.)  other  than  Life  and  Mutual  Insurance  Companies, 
for  the  Calendar  Year  1922. — uSec.  246.  ( a ) That,  in 
lieu  of  the  taxes  imposed  by  sections  230  [ genera I income  tax  on  corporations , 
972]  and  1000  [capital  stock  tax],  there  shall  be  levied,  collected  and  paid 
for  the  calendar  year  1922,  and  for  each  taxable  year  thereafter,  upon  the 
net  income  oj  every  insurance  company  ( other  than  a life  or  mutual  insurance 
company)  a tax  as  follows :” 

1367  Law  ^[508.  “(1)  In  the  case  of  such  a domestic  insurance  company 

(Sec.  246.)  the  same  percentage  of  its  net  income  as  is  imposed  upon 

other  corporations  by  section  230  [12V£%  for  1922];” 

1368  Law  1[509.  “(2)  In  the  case  oj  such  a foreign  insurance  company  the 

(Sec.  246.)  same  percentage  of  its  net  income  from  sources  within 

the  United  States  as  is  imposed  upon  the  net  income  of 
other  corporations  by  section  230  [12 H% /of  1922].” — Law.  [Note; 

Under  the  1918  Act  insurance  companies 
other  than  life  insurance  and  mutual 
insurance  companies  were  taxed,  gen- 
erally, as  were  other  “corporations.” 
So  they  are  for  the  calendar  year  1921 
(and  for  subsequent  years  in  the  case  of 
the  mutuals,  other  than  life)  under  the 
1921  Act.] 


1363  For  the  calendar  year  1921  all  insurance  companies  (other  than  life) 
are  subject  to  taxes  imposed  by  sections  230  (corporation  income  tax) 
and  1000  (capital  stock  tax)  and  Title  III  (war  profits  and  excess  profits  tax). 
For  the  calendar  year  1922  and  thereafter,  however,  in  lieu  of  such  taxes, 
insurance  companies,  except  life  and  mutual  companies,  are  subject  to  the 
tax  imposed  by  section  246.  Mutual  insurance  companies  (other  than  life) 
remain  subject  to  the  taxes  imposed  by  sections  230  and  1000.  In  art  cles 
691-693  the  term  “insurance  companies”  means  only  those  companies  subject 
to  the  tax  imposed  by  section  246.  The  rate  of  the  tax  imposed  by  section 
246  is  the  same  as  the  rate  imposed  by  section  230  (I2}z£  per  cent),  but  the 
net  income  upon  which  the  tax  is  imposed,  as  defined  in  sections  246  and  247, 
differs  from  the  net  income  of  other  corporations.  Insurance  companies  are 
entitled  to  the  benefit  of  section  204  (net  losses  [1(1546])  but  not  of  section  206 
(capital  net  gain).  All  provisions  of  the  statute  and  of  these  regulations  not 
inconsistent  w th  the  specific  provisions  of  sections  246  and  247  are  applicable 
to  the  assessment  and  collection  of  this  tax,  and  insurance  companies  are 
Subject  to  the  same  penalties  as  provided  in  the  case  of  returns  and  payment 
of  income  tax  by  other  corporations.  Since  section  246  provides  that  the 
underwriting  and  investment  exhibit  of  the  annual  statement  approved  by  the 
National  Convention  of  Insurance  Commissioners  shall  be  the  basis  for  com- 
puting gross  income  and  since  the  annual  statement  is  rendered  on  the  cal- 
endar year  basis,  the  first  returns  under  section  246  will  be  for  the  taxable 
year  ending  December  31,  1922,  and  will  be  made  on  or  before  March  15, 
1923.  (Art.  691,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 
¥ Art.  691,  Reg.  62,  amended  (T.  D.  3400) . .H3353. 


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{For  1922  and.  thereafter.) 


13  70  Law  ^[510.  Terms  Defined. — “(b)  In  the  case  of  an  insurance  com- 
(Sec.  246.)  pany  subject  to  the  tax  imposed  by  this  section — ” 

1371  Law  1(511.  Gross  Income. — “(1)  The  term  ‘ gross  income ’ means 
(Sec.  246.)  the  combined  gross  amount , earned  during  the  taxable 

year , from  investment  income  and  from  underwriting 
income  as  provided  in  this  subdivision , computed  on  the  basis  of  the  under- 
writing and  investment  exhibit  oj  the  annual  statement  approved  by  the 
National  Convention  of  Insurance  Commissioners — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

1372  Law  *[512.  Net  Income. — “(2)  The  term  ‘ net  income ’ means  the 
(Sec.  246.)  gross  income  as  defined  in  paragraph  (1)  of  this  sub- 
division less  the  deductions  allowed  by  section  247 

[*[[1379];” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 


1373  Law  ^[513.  Investment  Income. — “(3)  The  term  ‘ investment  in- 
(Sec.  246.)  come ’ means  the  gross  amount  of  income  earned  during 

the  taxable  year  from  interest,  dividends  and  rents , 
computed  as  follows :” 

1374  Law  H514.  “ To  all  interest , dividends  and  rents  received  during  the 

(Sec.  246.)  taxable  year , add  interest , dividends  and  rents  due  and 

accrued  at  the  end  of  the  taxable  year , and  deduct  all 
interest , dividends  and  rents  due  and  accrued  at  the  end  of  the  preceding 
taxable  year-” — Law.  [Note:  This  provision  is  new  to  the  1921 

Act.] 


1375  Law  ^[515.  Underwriting  Income.— “(4)  The  term  ‘ underwriting 
(Sec.  246.)  income ’ means  the  premiums  earned  on  insurance  con- 
tracts during  the  taxable  year  less  losses  incurred  and 
expenses  incurred-” — Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 


1 376  Law  1[516.  Premiums  Earned  on  Insurance  Contracts  During  the 

(Sec.  246.)  Taxable  Year. — “(5)  The  term  ‘ premiums  earned  on 
insurance  contracts  during  the  taxable  year ’ means  an 
amount  computed  as  follow sN 

137  7 Law  ^[517.  “F  rom  the  amount  of  gross  premiums  written  on  in- 
(Sec.  246.)  surance  contracts  during  the  taxable  year , deduct  return 
premiums  and  premiums  paid  for  reinsurance.  To 
the  result  so  obtained  add  unearned  premiums  on  outstanding  business  at  the 
end  of  the  preceding  taxable  year  and  deduct  unearned  premiums  on  out- 
standing business  at  the  end  of  the  taxable  year;” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 


1 378  Gross  Income  of  Insurance  Companies.— Net  income  is  gross  income 
as  defined  in  section  246  less  the  deductions  allowed  in  section  247. 
Gross  income  is  the  combined  gross  amount  earned  during  the  taxable  year 
from  interest,  dividends,  rents,  and  premium  income,  computed  on  the  [basis 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE  OR  MUTUAL. 

( For  1922  and  thereafter.) 


of  the  underwriting  and  investment  exhibit  of  the  annual  statement  approved 
by  the  National  Convention  of  Insurance  Commissioners.  Gross  income  does 
not  include  gain  derived  from  sale  or  disposition  of  capital  assets,  nor  are  losses 
sustained  from  such  sale  or  disposition  allowable  deductions.  It  does  not 
include  increase  in  liabilities  during  the  year  on  account  of  reinsurance 
treaties,  remittances  from  home  office  of  a foreign  insurance  company  to 
United  States  branch;  borrowed  money;  gross  profit  on  maturity  of  capital 
assets,  gross  increase  due  to  adjustments  in  book  value  of  capital  assets  and 
premium  on  capital  stock  sold.  The  underwriting  and  investment  exhibit  is 
presumed  clearly  to  reflect  the  true  net  income  of  the  company,  and  in  so  far 
as  it  is  not  inconsistent  with  the  provisions  of  the  statute  will  be  recognized 
and  used  as  a basis  for  that  purpose.  All  items  of  the  exhibit,  however,  do 
not  reflect  an  insurance  company’s  income  as  defined  in  the  statute.  'By 
reason  of  the  definition  of  investment  income,  profit  or  loss  on  investment 
items  is  ignored,  as  well  as  those  miscellaneous  items  which  are  intended  to 
reflect  surplus  but  do  not  properly  enter  into  the  computation  of  income,  such 
as  dividends  declared,  home  office  remittances  and  receipts,  and  special 
deposits.  Gain  or  loss  from  agency  balances  and  bills  receivable  not  admitted 
as  assets  on  the  underwriting  and  investment  exhibit  will  be  ignored,  excepting 
only  such  agency  balances  and  bills  receivable  as  have  been  charged  off  the 
books  of  the  company  as  bad  debts,  or  having  been  previously  charged  off 
are  recovered  during  the  taxable  year.  (Art.  692,  Reg.  62,  1922  Edition.) 


1379  Law  1(522.  Deductions  Allowed. — “Sec.  247.  {a)  That  in  com- 

(Sec.  247.)  putxn'g  the  net  income  of  an  insurance  company  subject 

to  the  tax  imposed  by  section  246  [^[1366]  there  shall  be 
allowed  as  deductions 

1380  Law  1[523.  Expenses. — “(1)  All  ordinary  and  necessary  expenses 

(Sec.  247.)  incurred,  as  provided  in  paragraph  (1)  fl[384]  of  sub- 
division ( a ) of  section  234;” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 


1381  Law  H520.  Expenses  Incurred. — “(7)  The  term  ‘ expenses  in- 
(Sec.  246.)  curred ’ means  all  expenses  shown  on  the  annual  state- 
ment approved  by  the  National  Convention  of  Insurance 

Commissioners , and  shall  be  computed  as  follows 

1382  Law  521.  “To  all  expenses  paid  during  the  taxable  year  add 
(Sec.  246.)  expenses  unpaid  at  the  end  of  the  taxable  year  and  deduct 

expenses  unpaid  at  the  end  of  the  preceding  taxable  year. 
For  the  purpose  of  computing  the  net  income  subject  to  the  tax  imposed  by 
this  section  there  shall  be  deducted  from  expenses  incurred  as  defined  in 
this  paragraph  all  expenses  incurred  which  are  not  allowed  as  deductions 
by  section  247  [^[1380].” — Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 


1383 


Law  If 524.  Interest. — “(2)  All  interest  as  provided  in  paragraph 
(Sec.  247.)  (2)  [^f  1 686]  of  subdivision  (a)  of  section  234;”: — Law. 

[Note:  This  provision  is  new  to  the 

1921  Art] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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( For  1922  and  thereafter.) 

Taxes. — “(3)  Taxes  as  provided  in  paragraph  (3)  of 
subdivision  (a)  of  section  234  [^f  1 700] — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 

Losses. — “(4)  Losses  incurred ;” — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

Losses  Incurred. — “(6)  The  term  dosses  incurred ’ 
means  losses  incurred  during  the  taxable  year  on  in- 
surance contracts , computed  as  follows :” 

“To  losses  paid  during  the  taxable  year , add  salvage  and 
reinsurance  recoverable  outstanding  at  the  end  of  the 
preceding  taxable  year , and  deduct  salvage  and  rein- 
surance recoverable  outstanding  at  the  end  of  the  taxable  year.  To  the  results 
so  obtained  add  all  unpaid  losses  outstanding  at  the  end  of  the  taxable 
year  and  deduct  unpaid  losses  outstanding  at  the  end  of  the  preceding 
taxable  year ;” — Law.  [Note:  This  provision  is  new  to  the  1921 

Act.] 


1384 

Law  If 525. 

(Sec.  247.) 

1385 

Law  If 526. 

(Sec.  247.) 

1386 

Law  ^[518. 

(Sec.  246.) 

1387 

Law  1f519. 

(Sec.  246.) 

1388  Law  TT527. 

(Sec.  247.) 


Bad  Debts. — “(5)  Bad  debts  in  the  nature  of  agency 
balances  and  bills  receivable  ascertained  to  be  worthless 
and  charged  off  within  the  taxable  year;” — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.l 


13  89  Law  *[[528. 

(Sec.  247.) 


Dividends  Received. — “(6)  The  amount  received  as 
dividends  from  corporations  as  provided  in  paragraph 
(6)  of  subdivision  ( a ) of  section  234  [^[1824];” — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 


1390  Law  ^[529. 

(Sec.  247.) 


Tax-free  Interest  Received. — “(7)  The  amount  of 
interest  earned  during  the  taxable  year  which  under 
paragraph  (4)  [^f  1560]  of  subdivision  (b)  of  section  213 
is  exempt  from  taxation  under  this  title , and  the  amount  of  interest  allowed 
as  a credit  under  subdivision  (a)  [^[2057]  of  section  236;” — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 


1391  Law  If 530.  Depreciation. — “(8)  A reasonable  allowance , for  the 
(Sec.  247.)  exhaustion,  wear  and  tear  of  property,  as  provided  in 

, paragraph  (7)  [*[1829]  of  subdivision  (a)  of  section 

234;” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

1392  Law  ^[531.  Specific  Credit. — “(9)  In  the  case  of  such  a domestic 
(Sec.  247.)  insurance  company,  the  net  income  of  which  ( computed 

without  the  benefit  of  this  paragraph)  is  $ 25,000  or  less, 

the  sum  of  $2,000;” 

1393  Law  ^[532.  “ but  if  the  net  income  is  more  than  $25,000  the  tax  im- 

(Sec.  247.)  posed  by  section  246  shall  not  exceed  the  tax  which  would 

be  payable  if  the  $2,000  credit  were  allowed,  plus  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TAX  ON  INSURANCE  COMPANIES  OTHER  THAN  LIFE  OR  MUTUAL. 

( For  1922  and  thereafter.) 

amount  of  the  net  income  in  excess  of  $ 25,000.” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

1394  Deductions  Allowed  Insurance  Companies. — Insurance  companies 
are  entitled  to  the  deductions  specified  in  section  247.  The  deduction 
of  $2,000  allowed  domestic  companies  with  net  income  not  exceeding  $25,000 
is  identical  with  the  specific  credit  allowed  other  corporations  by  section  236(b) 
and  there  is  the  same  equalizing  provision  in  the  case  of  incomes  slightly  in 
excess  of  $25,000.  See  article  591  [111415].  A domestic  insurance  company 
is  also  entitled  to  the  credit  for  income,  war  profits,  and  excess  profits  taxes 
paid  during  the  taxable  year  to  any  foreign  country  or  to  any  possession  of  the 
United  States  which  is  allowed  other  domestic  corporations  by  section  238. 
See  article  611  [^[  1758].  Among  the  items  which  may  not  be  deducted  are 
income  and  profits  taxes,  paid  or  accrued,  imposed  by  the  United  States,  and 
so  much  of  the  income  and  profits  taxes  imposed  by  any  foreign  country  or 
possession  of  the  United  States  as  is  allowed  as  a credit  under  section  238; 
taxes  assessed  against  local  benefits;  donations;  decrease  during  the  year 
due  to  adjustments  in  book  value  of  capital  assets;  decrease  in  liabilities 
during  the  year  on  account  of  reinsurance  treaties;  dividends  paid  to  stock- 
holders; remittances  to  home  office  of  a foreign  insurance  company  by 
United  States  .branch;  and  borrowed  money  repaid.  (Art.  693,  Reg.  62, 
1922  Edition.) 


Credit  for  Taxes. — Read  at  If  1752. 

Net  Losses  Suffered  by  Insurance  Companies. — Read  at  If  1546. 

1395  Law  If 533.  Extent  to  Which  Deductions  are  Allowed  to  Foreign 

(Sec.  247.)  Insurance  Companies. — “(b)  In  the  case  of  a foreign 
corporation  the  deductions  allowed  in  this  section  shall 
be  allowed  to  the  extent  provided  in  subdivision  ( b ) [^f  1412]  of  section  234.  ’ 
— Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

1 396  Law  ^[534.  No  Item  to  be  Twice  Deducted. — “(c)  Nothing  in  this 
(Sec.  247.)  section  or  in  section  246  shall  be  construed  to  permit 

the  same  item  to  be  twice  deducted.”— Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

Returns  by  Insurance  Companies. — Read  at  If  1362. 


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TAX  ON  FOREIGN  CORPORATIONS. 


1397  Tax  on  Foreign  Corporations. — [The  rate  is  the  same  as  for  domestic 
corporations,  for  which  see  ^[972.] 


What  Constitutes  a Foreign  Corporation. — “ The 

term  ‘ foreign ’ when  applied  to  a corporation  or  partner- 
ship means  created  or  organized  outside  the  United 
[Note:  The  1918  Act  so  provided.] 

“ The  term  ‘ United  States'  when  used  in  a geographical 
sense  includes  only  the  States , the  Territories  op  Alaska 
and  Hawaii , and  the  District  of  Columbia — Law. 

[Note:  The  1918  Act  so  provided.] 

1400  A domestic  corporation  or  partnership  is  one  organized  or  created  in 
the  United  States,  including  only  the  States,  the  territories  of  Alaska 

and  Hawaii,  and  the  District  of  Columbia,  and  a foreign  corporation  or 
partnership  is  one  organized  or  created  outside  the  United  States  as  so  defined. 
* * * The  nationality  or  residence  of  members  of  a partnership  does  not 

affect  its  status.  A partnership  created  by  articles  entered  into  in  San 
Francisco  between  residents  of  the  United  States  and  residents  of  China  is  a 
domestic  partnership.  A foreign  corporation  engaged  in  trade  or  business 
within  the  United  States  or  having  an  office  or  place  of  business  therein 
is  sometimes  referred  to  in  the  regulations  as  a resident  foreign  corporation, 
and  a foreign  corporation  not  engaged  in  trade  or  business  within  the  United 
States  and  not  having  any  office  or  place  of  business  therein  as  a nonresident 
foreign  corporation.  (Art.  1509,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  ^[2060.] 

1401  Foreign  Corporations  Not  Engaged  in  Trade  or  Business  Within 
the  United  States  and  Not  Having  Any  Office  or  Place  of  Business 

therein. — [Against  such,  the  tax  is,  in  large  measure,  withheld  at  the  source, 
112225.] 

1402  “Exempt  Corporations”  Includes  Foreign  as  Well  as  Domestic 
Corporations. — This  office  is  in  receipt  of  your  letter  of  the  30th 

ultimo  in  which  you  ask  whether  or  not  foreign  corporations  of  the  nature 
specified  in  Section  11,  under  the  heading  “Conditional  and  Other  Exemp- 
tions” [TT 1 004]  will  also  come  within  that  heading,  you  are  informed  that  the 
section  referred  to  provides  that  the  income  of  the  corporations  enumerated 
therein  shall  not  be  taxed,  and  therefore  it  follows  that  if  the  corporations 
are  not  subject  to  tax  they  will  not  be  required  to  file  corporate  returns,  and 
it  is  held  by  this  office  that  the  exemption  applies  to  foreign  as  well  as  to 
domestic  corporations. 

1403  Corporations  similar  to  those  enumerated  in  the  several  subsections 
of  Section  11  are  not  necessarily  exempt  from  making  returns  of 

annual  net  income  and  can  not  be  classed  as  exempt  corporations  until 
they  have  set  out,  in  the  form  of  an  affidavit,  either  to  the  Collector  of 
Internal  Revenue  for  their  districts  or  to  this  office  the  purpose  and  nature 
of  the  organization,  the  source  of  its  income,  the  disposition  of  the  same, 
and  whether  or  not  any  of  its  net  income  will  ever  inure  to  the  benefit  of  any 
private  stockholder  or  individual.  Upon  receipt  of  such  affidavit  the  cor- 
poration, either  domestic  or  foreign,  will  be  definitely  advised  as  to  its  status, 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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285 


1398  Law  ^[ 6. 

(Sec.  2.) 

States;” — Law. 

1399  Law  1[7. 

(Sec.  2.) 


-27-22. 


TAX  ON  FOREIGN  CORPORATIONS. 


under  the  requirements  of  the  law  [See  If  1019],  (Letter  to  The  Central  Trust 
Company  of  New  York,  New  York,  signed  by  Commissioner  W.  H.  Osborn, 
and  dated  November  1,  1916.) 


1404  Receipt  is  acknowledged  of  your  letter  of  November  17,  1916,  and 
in  reply  you  are  advised  that  the  Federal  Income  Tax  Law  of  Sep- 
tember 8,  1916,  provides  that  every  organization  enumerated  in  Section  II 
[][  1 004]  of  that  statute  is  exempt  from  Federal  Income  Tax  on  its  net  earnings, 
profits  or  income,  and  the  office  holds  that  the  provisions  apply  whether  the 
organization  be  domestic  of  foreign.  In  a case  where  a foreign  organization 
desires  to  be  held  exempt  from  Federal  income  tax,  and  a doubt  exists  as  to 
whether  or  not  it  comes  within  the  class  of  organizations  enumerated  in 
Section  II,  it  will  be  required  to  file  a copy  of  its  charter  and  by-laws,  and 
an  affidavit  executed  by  its  principal  officer  showing  the  disposition  made 
of  such  income  as  rt  receives,  and  stating  specifically,  whether  or  not  any  of 
the  income  so  received  inures  to  the  benefit  of  any  individual  stockholder. 
The  question  of  whether  or  not  the  office  will  hold  the  organization  to  be 
“exempt”  will  be  determined  by  the  facts  shown  in  its  charter,  by-laws  and 
affidavit.  (Letter  to  The  Corporation  Trust  Company,  signed  by  Com- 
missioner W.  H.  Osborn,  and  dated  December  6,  1916.) 

1405  Law  ][376.  Net  Income  of  a Foreign  Corporation  Defined. — “Sec. 

(Sec.  232.)  232.  That  in  the  case  of  a corporation  subject  to  the 

tax  imposed  by  section  230*  [If 972]  the  term  ‘net  in- 
come' means  the  gross  income  as  defined  in  section  233  [^[1073]  less  the 
deductions  allowed  by  section  234  [If  1616],  and  the  net  income  shall  be 
computed  on  the  same  basis  as  is  provided  in  subdivision  (b)  of  section  212 
[If  1044]  or  in  section  226  [‘Returns  when  accounting  period  is  changed ,’ 
1f2574].” — Law.  [Note:  The  1918  Act  so  provided.] 

1406  Law  Tf377.  “In  the  case  of  a foreign  corporation  or  of  a corporation 
(Sec.  232.)  entitled  to  the  benefits  of  section  262  [If  2070]  the  computa- 
tion shall  also  be  made  in  the  manner  provided  in  section 

217  [^[21 02].” — Law.  [Note:  This  provision  is  new  to  the  1921 

Act,  in  terms,  but  in  effect  is  so  to  the 
extent  only  of  “or  a corporation  en- 
titled to  the  benefits  of  section  262”, 
proper  weight  being  given  to  the  pro- 
visions of  Sec.  217,  to  which  reference 
is  made.] 

*[The  tax  imposed  by  section  230  is  “upon  the  net  income  of  every 
corporation”  simply.] 

[See  Section  217  beginning  at  ^[2 102.] 

1 407  Law  1f380.  Gross  Income  of  a Foreign  Corporation  is  that  from 
(Sec.  233.)  Sources  Within  the  United  States  only. — “(b)  In  the 

case  of  a foreign  corporation , gross  income  means  only 
gross  income  from  sources  within  the  United  States , determined ” 

1408  Law  ^[381.  “(except  in  the  case  of  insurance  companies  subject  to 
(Sec.  233.)  the  lax  imposed  by  section  243  or  246)” 

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(2)  4-10-22.  (3)  8-10-22.  (4)  9-27-22.  (5)  10-11-22. 

TAX  ON  FOREIGN  CORPORATIONS. 

1409  Law  ^ 3 82.  “in  the  manner  -provided  in  section  217  [1]2102).” — Law 
(See.  233.)  [Note:  The  1918  Act  omitted  “determined  (except 

in  the  case  of  insurance  companies 
subject  to  the  tax  imposed  by  section 
243  or  246)  in  the  manner  provided  in 
section  217”,  but  added  “including  the 
interest  on  bonds,  notes,  or  other 
interest-bearing  obligations  of  residents, 
corporate  or  otherwise,  dividends  from 
resident  corporations,  and  including  all 
amounts  received  (although  paid  under 
a contract  for  the  sale  of  goods  or  other- 
wise) representing  profits  on  the  manu- 
facture and  disposition  of  goods  within 
the  United  States,”  the  interest  portion 
of  which,  modified,  appears  [1f2103]  in 
the  1921  Act  in  Sec.  217,  wherein  is 
prescribed,  in  the  case  of  a foreign 
corporation,  what  is  and  what  is  not 
gross  income  from  sources  within  the 
United  States,  and  the  manner  of 
determining  net  income  from  sources 
within  and  without  the  United  States, 
in‘far  greater  detail  than  has  heretofore 
been  attempted.] 

14?0  The  gross  income  of  a foreign  corporation,  including  a mutual  insur- 
ance company,  means  its  gross  income  from  sources  within  the 
United  States,  as  defined  and  described  in  section  217  and  articles  316-328 
[beginning  at  H2094]  relating  to  nonresident  alien  individuals.  As  to  other 
foreign  insurance  companies,  see  article  687  [1(1345].  See  also  article  541 
[1,1074].  (Art.  550,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

■ All  of  the  rulings  following  are  interpretative  of  the  Revenue  Act  of  1918  or  of  prior  Ads. 

Sec  Sec.  217  of  the  Revenue  Act  of  1921,  and  Regulations  thereunder,  beginning  at  ^[2 1 02. 

Assigned  commissions  of  citizen  of  U.  S.,  residing  abroad,  accruing  to  him  as  agent 
for  domestic  corporation  (2-19-163:  O.  D.  109) . . 1919  Cum.  Bull.  p.  213. 

Dividends  of  domestic  corporation  doing  no  business  in  U.  S.,  and  owning  no  property 
here  (1-12-158:  L.  O.  1069).  .June  1922  Cum.  Bull.  p.  204. 

Foreign  bank  credit:  commissions  and  interest  (41-21-1863:  O.  D.  1062).. Dec.  1921 
Cum.  Bull.  p.  229. 

Foreign  securities  purchased  in  U.  S.  at  discount  and  sold  at  profit  or  redeemed,  here 
(23-20-985:  O.  D.  534).. June  1920  Cum.  Bull.  p.  103.  Same  digested  (17-21- 
1593:  O.  D.  890) . .June  1921  Cum.  Bull.  p.  1 14. 

General  discussion:  Attorney-General’s  opinion  (3-21-1401:  T.  D.  3111).  . Tune  1921 
Cum.  Bull.  p.  280. 

Insurance  company  with  resident  U.  S.  broker  (28-20-1062:  O.  D.  586).. Dec.  1920 
Cum.  Bull.  p.  284. 

Insurance  premiums  paid  by  domestic  corporation  under  contract  made  in  foreign 
country  (1-8-101:  A.  R.  R.  723).  .June  1922  Cum.  Bull.  p.  113 

Liquidated  damages  received  by  foreign  steamship  company  for  breach  of  contract 
to  ship  coal  from  U.  S.  on  its  ships  constitutes  taxable  income:  1918  Act  (1-39- 
519:  Op.  A.  G.  5).  .Bull.  I (’22)-39,  p.  2. 

Mail  order  business  or  unsolicited  orders  (23-19-549:  O.  D.  294).  . 1919  Cum  Bull 
p.  213. 

Place  where  payment  is  made  immaterial  (in  explanation  of  Art.  66,  of  Reg.  33 
Rev.  1916-17  Acts)  (35-20-1174:  O.  D.  651).  .Dec.  1920  Cum.  Bull.  p.  265. 

Profit  sharing  on  profits  on  resale  of  goods  sold  to  domestic  corporation  at  a minumim 
price  (4-20-708:  O.  D.  384).  .June  1920  Cum.  Bull.  p.  212. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22.  (3)  8-10-22.  (4)  9-27-22.  (5)  10-11-22. 

TAX  ON  FOREIGN  CORPORATIONS. 

Sale  abroad  to  U.  S.  Government  of  goods  manufactured  there  by  foreign  corporation 
having  no  office  or  place  of  business  here  but  owned  by  domestic  corporation; 
contracts  entered  into  and  deliveries  and  payments  made  abroad  (26-21-1703*. 
A R.  M.  133).  .June  1921  Cum.  Bull.  p.  114. 

Steamship  companies  with  agency  here:  transporting  abroad  goods  brought  to  U.  S. 
port  from  Canada  by  railroad,  the  latter  prepaying  the  freight;  return  voyage 
with  coal  as  ballast  which  is  sold  in  U.  S.  (29-20-1077:  O.  D.  596).. Dec.  1920 
Cum.  Bull.  p.  264. 

Steamship  companies  with  agency  here:  charter  money  exemption  provision  not 
applicable  to  (35-20-1174:  O.  D.  651)..  Dec.  1920  Cum.  Bull.  p.  265. 

Steamship  companies  with  no  agency  here;  foreign  freight  shipped  abroad  through 
an  American  port  (36-21-1806:  O.  D.  1024).. Dec.  1921  Cum.  Bull.  p.  218. 

Stock  of  foreign  corporation  all  owned  by  domestic  corporation:  activities,  however, 
conducted  abroad,  and  all  sales  consummated  and  title  to  property  passing 
abroad  (46-21-1920:  O.  D.  1100).. Dec.  1921  Cum.  Bull.  p.  118. 

1411  Income  derived  from  ships  documented  under  the  laws  of  a 

foreign  country. — Read  at  1[2098. 

1412  Law  1[430.  Deductions  Allowed  Foreign  Corporations  and  the 
(Sec.  234.)  Apportionment  and  Allocation  Thereof. — “(Jb)  In  the 

case  of  a foreign  corporation  or  of  a corporation  entitled 
to  the  benefits  of  section  262  [H2070]  the  deductions  allowed  in  subdivision 
(a)  [i.  e .,  the  deductions  authorized  in  the  case  of  domestic  corporations , for 
which  see  beginning  at  1[1616]  shall  be  allowed  only  if  and  to  the  extent  that 
they  are  connected  with  income  from  sources  within  the  United  States 

1413  Law1[431.  “ and  the  proper  apportionment  and  allocation  of  the 

(Sec.  234.)  deductions  with  respect  to  sources  within  and  without  the 

United  States  shall  be  determined  as  provided  in  section 
217  [1)2102]  under  rides  and  regulations  prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary.” — Law.  [Note:  The  1918  Act  so 

. provided  in  effect,  bearing  injmind  the 

provisions  of  Sec.  217.  The  reference  to 
“a  corporation  entitled  to  the  benefits  of 
section  262”  is  new.] 

1414  Foreign  corporations  are  allowed  the  same  deductions  from  their  gross 
income  arising  from  sources  within  the  United  States  as  are  allowed 

to  domestic  corporations,  to  the  extent  that  such  deductions  are  connected 
with  such  gross  income.  The  proper  apportionment  and  allocation  of  the 
deductions  with  respect  to  sources  within  and  without  the  United  States 
shall  be  determined  as  provided  in  section  217  and  articles  325-328  [beginning 
at  1[2139].  (Art.  573,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Loss  incurred  at  maturity  of  U.  S.  Treasury  certificates  (purchased  above  par)  not 
deductible  by  foreign  corporation  not  engaged  in  business  in  U.  S.,  interest  having 
been  exempt:  1921  Act  (1-32-451:  I.  T.  1415).  .Bull.  I (’22)-32,  p.  7. 

1415  Credits  Against  Income  Allowed  Foreign  Corporations— A for- 
eign corporation  is  allowed  the  credit  provided  in  subdivision  (c)  of 

section  236  [1[2062]  but  not  the  credit  of  $2,000.  (Art.  591,  Reg.  62,  1922 
Edition.) 

1416  Credit  to  Foreign  Corporation  for  Foreign  Taxes  Paid. — For  credit 
where  taxes  are  paid  by  a foreign  corporation  controlled  by  a domestic 

corporation  see  article  612  [IT  1 767].  A claim  for  credit  in  such  a case  is 
also  to  be  made  on  Form  1118.  (Art.  611,  Reg.  62,  1922  Edition.) 

[For  Cumulative  Index  see  following  If  1759.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  6-16-22. 


(8)  8-3-22.  (4)  10-11-22. 

TAX  ON  FOREIGN  CORPORATIONS. 


1417  Domestic  Corporation  Affiliated  With  Foreign  Corporation  — I See 
Art.  635,  1(2559.] 


1418  Law  1f479. 

(Sec.  241.) 


227,” 

1419  Law  1(480. 
(Sec.  241.) 


Returns  of  Foreign  Corporations.—' “Sec.  241.  (a) 
l hat  returns  of  corporations  shall  be  made  at  the  same 
time  as  is  provided  in  subdivision  {a)  [1(2524]  of  section 


except  that  in  the  case  of  foreign  corporations  not  having 

any  office  or  place  of  business  in  the  United  States  re- 
• n,  r«T  i \urnf  shall  be  made  at  the  same  time  as  provided  in  sec- 
tion 227  IH2526]  in  the  case  of  a nonresident  alien  individual ” — Law. 

[Note:  Under  the  1918  Act  all  liable 

foreign  corporations  were  required  to 
file  returns  on  or  before  the  15th  day  of 
the  third  month  following  the  close  of 
the  taxable  year.]];  ~ 


- % 
mgs 


1420  Law  1(463. 

(Sec.  239.) 

— Law. 


1421 

Law  1(481. 

(Sec.  241.) 

1422 

Law  K482. 

(Sec.  241.) 

1423 

Every  foreig; 

“//  any  foreign  corporation  has  no  office  or  place  of  bus- 
iness  in  the  United  States  but  has  an  agent  in  the 
United  States , the  return  shall  be  made  by  the  agent” 
[Note:  The  1918  Act  so  provided.] 

“(b)  Returns  shall  be  made  to  the  collector  of  the  district 
in  which  is  located  the  principal  place  of  business  or 
principal  office  or  agency  of  the  corporation,  or” 
if  it  has  no  principal  place  of  business  or  principal 
office  or  agency  in  the  United  States,  then  to  the  collector 
at  Baltimore,  Maryland.”  [Read  at  K2532.] — Law. 
[Note:  ^The  1918  Act  so  provided.] 


, TT  • J o oceuun  zoz  mzu/uj  naving  income  trom  sources  within 

the  United  States,  must  make  a return  of  income  on  Form  1120.  If  such 
a corporation  has  no  office  or  place  of  business  here,  but  has  a resident  agent, 
he  shall  make  the  return.  It  is  not  necessary,  however,  for  it  to  be  required 
to  make  a return  that  the  foreign  corporation  shall  be  engaged  in  business  in 
this  country  or  that  it  have  any  office,  branch  or  agency  in  the  United  States. 
See  article  404  [for  return  of  income  by  nonresident  alien,  112182],  550  [for 
gross  income  of  foreign  corporations,  1(1410]  and  573  [for  deductions  allowed 
foreign  corporations,  K1414].  (Art.  625,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Brokers  here  placing  insurance  in  foreign  companies  through  brokers  abroad  are 
not  agents  of  the  foreign  companies;  1918  and  1921  Acts  (1-24-348-  I T 1359) 

. . June  1922  Cum.  Bull.  p.  292.  ’ ' 

Extension  of  time  for  filing  returns.  . "J3032. 

Insurance  companies:  See  <[1362. 

Long-term  U.  S.  contract  from  which  no  net  income  derived;  liability  to  make  return 
lor  first  of  two  years  in  which  payments  were  received  (1-3-36-  I T 1170) 

. .June  1922  Cum.  Bull.  p.  291.  ‘ ’ 

Purchasing  agent  here  to  make  return  for  foreign  corporation  whose  sole  activity 
in  U.  b.  is  purchasing  materials  here  for  purposes  of  which  interest  bearing 
checking  accounts  are  carried  in  local  banks,  such  interest  being  only  U S 
income:  1921  Act  (1-31-441:  I.  T.  1406).  .Bull.  I (’22)-31,  p.  10. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  6-16-22.  (3)  8-3-22.  (4)  10-11-22. 

TAX  ON  FOREIGN  CORPORATIONS. 

1424  Foreign  Corporation  Having  Several  Branch  Offices  in  the  United 

States. — A foreign  corporation  having  several  branch  offices  in  the 
United  States  should  designate  one  of  such  branches  as  its  principal  office 
and  should  also  designate  the  proper  officers  to  make  the  required  return. 
(Art.  83,  Reg.  33,  Jan!  5,  I914.) 

1425  Consolidated  Returns.— [Read  at  K2544.] 

1426  Returns  by  Corporations  Generally. — [Read  at  1(2487.] 

1427  Credits  for  Amount  of  Tax  Withheld  at  the  Source. — [Sec.  237,  K2220, 
provides  that  a 12j^%  (10%  for  1921)  or  a 2%  tax  is  to  be  withheld 

at  the  source  in  the  case  of  foreign  corporations  not  engaged  in  trade  or 
business  within  the  United  States  and  not  having  any  office  or  place  of  bus- 
iness therein,  in  the  same  manner  as  is  provided  in  Sec.  221,  K2190,  and 
“subject  the  the  same  conditions  as  provided  in  that  section.”  One  condi- 
tion provided  for  in  Sec.  221  at  1(2327,  is  that  any  amount  of  tax  withheld  is 
to  be  credited  against  the  income  tax  shown  in  the  taxpayer’s  return,  the 
income  on  which  the  tax  has  been  withheld  being  included  in  such  return. 
Read  K2330.] 

1428  Replying  to  your  further  inquiries  you  are  informed:  KThat  it  will 
be  sufficient  for  foreign  corporations  against  whom  income  tax  is 

withheld  at  the  source  to  give  the  name  of  the  withholding,  agent  and  the 
amount  so  withheld.  Kin  the  case  of  bonds  which  contain  the  so-called 
“tax-free”  covenant,  the  bondholders  have  the  right  to  assume  that  the 
fiscal  agent  of  the  corporation  has  withheld  and  paid  over  to  the.  proper 
officers  of  the  United  States  Government  the  tax  due  on  the  bond  interest 
due  the  bondholders,  though  this  assumption  will  not  relieve  the  bondholders 
from  tax  should  it  develop  that  the  debtor  corporation  did  not  so  withhold 
it  or  pay  it  over  to  the  proper  United  States  officer.  KClearly,  when  the 
tax  has  been  withheld  and  remitted  to  the  Government  and  the  bondholder 
is  advised  of  that  fact,  such  bondholder  may  take  credit  in  his  or  its  return 
against  the  full  amount  of  tax  due  as  shown  by  the  return,  for  the  amount 
so  withheld  and  paid  over  to  the  United  States  officer.  In  other  words, 
when  withholding  agents  have  paid  the  tax  on  account  of  nonresident  alien 
corporations  having  income  from  interest  and  * * * from  sources 

within  the  United  States,  they,  are  entitled  to  the  benefit  of  a credit  for  such 
payments  as  against  the  tax  due  and  assessable  on  the  basis  of  the  income 
which  they  received  from  all  sources  within  the  United  States. 

1429  As  to  the  case  you  cite  in  which  a nonresident  alien  corporation, 
through  you  as  its  American  agent,  had  over-paid  its  tax  by. reason 

of  its  not  having  been  able  to  take  credit  for  the  amount  of  tax  withheld 
at  the  source,  you  are  informed  that  a claim  for  refund  [K2835]  of  the 
amount  overpaid  may  be  filed  with  the  Collector  to  whom  such  amount 
was  paid.  With  the  claim  a statement  setting  out  all  the  facts  should  be 
filed  and  the  matter  will  have  proper  consideration  and. as  prompt  attention 
as  possible.  [Read  also  at  K2182.]  (Letter  to  Lee,  Higginson  & Co.,  Boston, 
Mass.,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated  November  10, 
1917.) 

1430  Payment  of  Tax,  if  Any,  Not  Withheld  at  Source— See  K2712. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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2-27-22. 


BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


1431  Law  1|41.  Basis  for  Determining  Gain  or  Loss  in  the  Case  of 
(bee.  202.)  Property  Acquired  after  February  28,  1913. — “Sec. 
i ■ 202.  (a)  That  the  basis  for  ascertaining  the  gain  derived 

or  loss  sustained  from  a sale  or  other  disposition  of  property , real  personal 
or  mixed , acquired  after  February  28,  1913,  shall  be  the  cost  of  such  property: 
except  that Law.  [Note:  The  1918  Act  so  provided.] 


1432  Law  1[42. 

(Sec.  202.) 


Basis  for  Determining  Gain  or  Loss  in  the  Case  of 
Property  Which  Should  be  Included  in  the  Inventory. 

. ijj-  . (1)  In  the  case  of  such  property,  which  should  be 

included  in  the  inventory,  the  basis  shall  be  the  last  inventory  value  there- 
of-, —Law.  [Note:  The  1918  Act  so  provided.] 


1433  Law  *[48.  Basis  for  Determining  Gain  or  Loss  in  the  Case  of 
(bee.  202.)  Property  Acquired  Prior  to  March  1,  1913 .—“(b)  The 

, basis  for  ascertaining  the  gain  derived  or  loss  sustained 

prom  the  sale  or  other  disposition  of  property,  real,  personal,  or  mixed, 
acquired  before  March  1,  1913,  shall  be  the  same  as  that  provided  by  sub- 
division (a);  but — 

1 434  Law  1[49.  “(1)  If  its  fair  market  price  or  value  as  of  March  1,  1913, 

(bee.  202.)  is  in  excess  of  such  basis,  the  gain  to  be  included  in  the 

fioss  income  shall  be  the  excess  of  the  amount  realized 
therefor  over  such  fair  market  price  or  valued' 

1 435  Law  H50.  “(2)  If  its  fair  market  price  or  value  as  of  March  1 , 1913, 

(bee.  202.)  is  lower  than  such  basis,  the  deductible  loss  is  the  excess 

of  the  fair  market  price  or  value  as  of  March  1,  1913 
over  the  amount  realized  therefor;  and" 

1436  PfwIfSl.  the  amount  realized  therefor  is  more  than  such 

(bee.  202.)  basis  but  not  more  than  its  fair  market  price  or  value  as 

, 1.x-  °f  March  1,  1913,  or  less  than  such  basis  but  not  less 

than  such  fair  market  price  or  value , no  gain  shall  be  included  in  and  no 
loss  deducted  from  the  gross  income." — Law.  [Note:  These  provisions 

are  new  to  the  1921  Act,  in  terms,  but  are 
in  accord  with  the  rules  laid  down  by 
regulations  under  the  1918  Act,  follow- 
ing the  U.  S.  Supreme  Court  decisions 
in  Goodrich  vs.  Edwards,  and  Brewster 
vs.  Walsh.] 


1437  Basis  for  Determining  Gain  or  Loss  from  Sale.— For  the  purpose 
of  ascertaining  the  gain  or  loss  from  the  sale  or  exchange  of  property 
the  basis  is  the  cost  of  such  property,  or  in  the  case  of  property  which  should 
be  included  in  the  inventory,  its  latest  inventory  value.  But  in  the  case  of 
property  acquired  before  March  1,  1913,  when  its  fair  market  value  as  of  that 
date  is  in  excess  of  its  cost,  the  gain  to  be  included  in  gross  income  is  the  excess 
ol  the  amount  realized  therefor  over  such  fair  market  value.  Also  in  the 
case  of  property  acquired  before  March  1,  1913,  when  its  fair  market  value 
as  of  that  date  is  lower  than  its  cost,  the  deductible  loss  is  the  excess  of  such 
lair  market  value  over  the  amount  realized  therefor.  No  gain  or  loss  is 
recognized  in  the  case  of  property  sold  or  exchanged  (a)  at  more  than  cost 
but  at  less  than  its  fair  market  value  as  of  March  1,  1913,  or  (b)  at  less  than 
cost  but  at  more  than  its  fair  market  value  as  of  March  1,  1913.  In  any  case 


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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


proper  adjustment  must  be  made  in  computing  gain  or  loss  from  the  exchange 
or  sale  of  property  for  any  depreciation  or  depletion  sustained  and  allowable 
as  a deduction  in  computing  net  income;  the  amount  of  depreciation  pre- 
viously charged  off  by  the  taxpayer  shall  be  deemed  to  be  the  true  deprecia- 
tion sustained  unless  shown  by  clear  and  convincing  evidence  to  be  incorrect. 
What  the  fair  market  value  of  property  was  on  March  1,  1913,  is  a question  of 
fact  to  be  established  by  any  evidence  which  will  reasonably  and  adequately 
make  it  appear.  In  the  case  of  property  traded  in  on  public  exchanges, 
evidence  of  actual  sales  at  or  about  March  1,  1913,  or  other  basic  date, 
affords  evidence  of  value,  but  it  must  not  be  regarded  as  conclusive.  The 
nature  and  extent  of  the  sales  and  the  circumstances  under  which  they  were 
made  should  be  considered.  Prices  received  at  forced  sales  or  for  small  lots 
of  property  may  be  and  often  are  no  real  indication  of  the  value  of  the  amount 
of  property  in  question.  For  instance,  sales  from  time  to  time  of  a small 
number  of  shares  of  stock  is  little  indication  of  the  value  of  a large  or  con- 
trolling interest  in  the  corporation.  As  to  inventories,  see  section  203  of  the 
statute  and  articles  1581-1588  [^[1510].  As  to  sale  of  stock  upon  which 
dividends  have  been  declared,  see  articles  1543  [^[1117],  1544  1 123],  and 

1546  [^j  1 126].  The  fair  market  value  as  of  March  1,  1913,  has  no  bearing  on 
the  determination  of  the  invested  capital  of  a corporation  for  the  purpose  of 
the  war  profits  and  excess  profits  tax.  See  section  326  and  article  831.  As 
to  exchanges,  see  further,  articles  1564-1568  [beginning  at  ][1457].  If  the 
taxpayer  can  not  determine  the  cost  of  securities  purchased  prior  to  March 
1,  1913,  because  of  the  loss,  destruction  or  failure  to  keep  records,  the  value 
of  the  securities  at  the  date  or  approximate  date  of  acquisition  may  be  used 
in  determining  the  cost  basis  for  purposes  of  computing  the  gain  or  loss 
from  the  sale  of  the  securities.  When  the  date  or  approximate  date  of 
acquisition  is  unknown,  no  general  rule  can  be  stated  for  determining  the 
cost  value  of  such  securities.  Each  case  must  be  considered  separately  upon 
its  own  facts. 

1 438  Illustrations  of  the  computation  of  gain  or  loss  from  the  sale  or  exchange 
of  property  acquired  prior  to  March  1,  1913. — To  avoid  complexity 

no  adjustment  has  been  made  in  these  examples  for  depreciation  or  depletion. 

1439  In  the  case  of  property  acquired  before  March  1,  1913,  when  its  fair 
market  value  as  of  that  date  is  in  excess  of  its  cost,  the  taxable  gain  is 

the  excess  of  the  amount  realized  therefor  over  such  fair  market  value. 


Cost. 

Fair  mar- 
ket value 
March  1, 
1913. 

Sale  price. 

Taxable  gain. 

$10,000 

$15,000 

$20,000 

$5,000 

Excess  of  amount  realized  over  fair  market  value  as 
at  March  1,  1913.  Gain  attributable  to  the 
period  prior  to  March  1,  1913,  not  taxable. 

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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

1440  In  the  case  of  property  acquired  before  March  1,  1913,  when  its 
fair  market  value  as  of  that  date  is  lower  than  its  cost,  the  deductible 


loss  is  the 

excess  of  such  fair  market  value  over  the  amount  realized  therefor. 

Cost. 

Fair  mar- 
ket value 
March  1, 
1913. 

Sale  price. 

Deductible  loss. 

$10,000 

$5,000 

$3,000 

$2,000. 

Excess  of  fair  market  value  over  amount  realized. 
Loss  attributable  to  the  period  prior  to  March 
1,  1913,  not  deductible. 

1441  No  gain  or  loss  is  recognized  in  the  case  of  property  acquired  before 
March  1,  1913,  and  sold  or  disposed  of  at  more  than  cost  but  at  less 
than  its  fair  market  value  as  of  that  date. 


Cost. 

Fair  mar- 
ket value 
March  1, 
1913. 

Sale  price. 

$10,000 

$30,000 

$20,000 

No  taxable  gain  or  deductible  loss.  Reason:  A 
gain  on  whole  transaction,  which  gain  is  at- 
tributable to  period  prior  to  March  1,  1913. 

1442  No  gain  or  loss  is  recognized  in  the  case  of  property  acquired  before 
March  1,  1913,  and  sold  or  disposed  of  at  less  than  cost  but  at  more 
than  its  fair  market  value  as  of  that  date. 


Cost. 

Fair  mar- 
ket value 
March  1, 
1913. 

Sale  price. 

$10,000 

$3,000 

$5,000 

No  taxable  gain  or  deductible  loss, 
loss  on  whole  transaction,  which 
tributable  to  period  prior  to  March 

Reason:  A 
loss  is  at- 
1,  1913. 

1443  Where  the  cost  is  equal  to  or  greater  than  the  fair  market  value 
as  at  March  1,  1913,  and  the  selling  price  exceeds  the  cost,  the  gain 
to  be  included  in  gross  income  is  the  excess  of  the  selling  price  over  the  cost. 


Cost. 

Fair  mar- 
ket value 
March  1, 
1913. 

Sale  price. 

Taxable  gain. 

$10,000 

$5,000 

$20,000 

$10,000. 
Reason:  Gain 
attributable 
1913. 

on  whole  transaction,  all  of  which  is 
to  period  subsequent  to  March  1, 

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2-27-22  (2)  4-10-22.  (9)  4-28-22.  (4)  5-8-22  (6)  10-11-22. 

BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

1444  Where  the  fair  market  value  as  at  March  1,  1913,  is  greater  than 


the  cost  and  the  selling  price  is  less  than  the  cost,  the  deductible 
loss  is  the  amount  by  which  the  cost  exceeds  the  selling  price. 


Cost. 

Fair  mar- 
ket value 
March  1, 
1913. 

Sale  price. 

Deductible  loss. 

$ 10,000 

$15,000 

$5,000 

$5,000. 

Reason:  Loss  on  whole  transaction, 
attributable  to  period  subsequen 
1913.  Only  actual  loss  sustained 

all  of  which  is 
to  March  1, 
deductible. 

(Art.  1561,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Appraisals,  retrospective:  method  for  ascertaining  facts  on  which  based  (1-5-60:  A.  R. 
R.  747).  .June  1922  Cum.  Bull.  p.  353. 

Bankrupt  corporation  assets  acquired  by  creditors’  committee,  there  being  non- 
participating creditors;  subsequent  sale  of  assets  by  committee;  1918  Act  (1-18- 
247:  I.  T.  1292).  .June  1922  Cum.  Bull.  p.  28. 

Bankrupt  corporation  assets  acquired  by  new  corporation  organized  for  purpose, 
through  purchase  from  creditors  for  stock  and  bonds;  subsequent  sale  of  assets 
so  acquired  (42-21-1868:  O.  D.  1064) ..  Dec.  1921  Cum.  Bull.  p.  53. 

Bonds  acquired  in  consolidation  should  be  carried  on  books  at  old  figure  irrespective 
of  valuation  placed  thereon  for  purposes  of  consolidation;  subsequent  sale  of  these 
bonds  (13-20-803:  O.  D.  418).  .June  1920  Cum.  Bull.  p.  33. 

Bonds  purchased  at  premium  or  discount;  amortization  not  permitted  to  purchaser 
(17-20-887:  O.  D.  475) . .June  1920  Cum.  Bull.  p.  211. 

Bonds  sold  between  interest  dates  (37-20-1191:  Sol.  Op.  46).  .Dec.  1920  Cum.  Bull, 
p.  90.  Same;  State  obligations:  1921  Act  (1-6-63:  I.  T.  1187).  .June  1922 
Cum.  Bull.  p.  27. 

Books  published  at  expense  of  author;  1^18  and  1921  Acts  (1-17-239:  I.  1.  1287).. 
June  1922  Cum.  Bull.  p.  28. 

Crops  having  been  bought  with  lan.-  -iter  planting  (45-20-1285:  O.  D.  714)..Dec. 

1920  Cum.  Bull.  p.  49. 

Examples  of  computation  of  gain  and  loss  (38-21-1825:  O D.  1035).  Dec.  1921  Cum. 
Bull.  p.  51. 

Specific  example  (45-21-1903:  A.  R.  R.  667).  .Dec.  1921  Cum.  Bull.  p.  54. 

Fair  market  value  on  March  1,  1913  being  less  than  cost;  Supreme  Court  decisions 
on  Government’s  interpretation  of  1916-17  Acts . . Supplementary  Page  189, 
T[S  346,  and  Supplementary  Page  191,  U,  S 364. 

Fair  market  value  on  March  l,  1913;  manner  of  establishing  (1-19-12:  O.  D.  7) . . 1919 
Cum.  Bull.  p.  37. 

Flat  house  partially  occupied  by  vendor  as  residence  before  sale  (37-21-1810:  O.  D. 
1026).. Dec.  1921  Cum.  Bull.  p.  51. 

Manufactured  goods  on  hand  for  period  of  years  prior  to  sale;  great  increase  in  market 
value;  carried  on  books  at  cost  (1-19-10:  S.  927)..  1919  Cum.  Bull.  p.  32:  also, 
in  explanation  of  the  foregoing  (5-19-245 : S.  1003)  ..1919  Cum  Bu.l.  p.  35. 

Sale  of  homestead;  entry  prior  to  March  1,  1913,  patent  acquired  subsequently 
(17-19-470:  O.  8S0).  . 1919  Cum.  Bull.  p.  31.  (See  “homestead”  ^Cumulative 
Index  following  *[  1455.) 

Intangible  assets:  good  will,  etc. : establish'ng  value  on  March  1,  1913,  or  on  any  other 
date  (10-20-777 : A R M.  34)  . June  1920  Cum.  Bull.  p.  31:  also,  in  explanation 
of  the  foregoing  (28-20-1048:  A.' R.  M.  68) . . Dec.  1920  Cum.  Bull,  p 43:  also, 
further  explaining  the  foregoing  (23-21-1669:  O D.  937).  . June  1921  C.  B.  p.  43. 
Income  taxes  not  to  be  deducted  in  determining  average  earnings  (1-1-3: 
A.  R.  M.  145).  .June  1922  Cum.  Bull.  p.  24. 

Partnership  business  incorporated;  corporation  not  in  existence  for  5 years: 
averaging  earnings  (52-21-1990.  O.  D.  1146)..  Dec.  1921  C.  B.  p.  54. 
Interest  on  capital  invested  not  to  be  added  to  “cost”  of  securities  purchased  several 
years  prior  to  delivery,  interest  not  running  until  delivery.  .Sup.  Page  191,  S .3 7 0 . 
Lea'je  assigned  after  making  mprovements  which  by  terms  revert  to  lessor  (50-20- 
1339:  O.  D.  746).  .Dec.  1920  Cum.  Bull,  p 49. 

Liquidation  o'  corporation  :n  kind:  valuation  fixed  by  corporation  docs  not  govern: 
Texas  community  property  involved  here  also  (10-21-1492  A.  R.  R.  403).. June 

1921  Cum.  Bull.  p.  32. 

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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


March  1,  1913:  Attorney-General’s  opinion  on  the  computation  of  profit  or  loss  on 
disposition  of  property  acquired  prior  to  March  1,  1913:  1916,  1917,  and  1918 

Acts  (1-37-495:  Op.  A.  G.  4) . . Bull.  I (’22)-37,  p.  1.  This  opinion  of  the  Attorney- 
General  reproduced  in  T.  D.  3393,  ^3332  herein. 

Mines  and  oil  and  gas  wells;  discovered  on  or  after  March  1,  1913;  valuation  at  date 
of  discovery  may  not  be  set  up  (29-20-1068:  Sol  Op.  26).  .Dec.  1920  Cum.  Bull, 
p.  44. 

Municipal  bonds;  contract  for  sale  of,  prior  to  issuance,  interest  running  from  date  of 
contract:  handling  of  accrued  interest  by  dealer  on  sale  by  him  when  issued 
(1-23-325:  I.  T.  1337).  .June  1922  Cum.  Bull.  p.  29. 

Municipal  bonds  purchased  at  discount  and  (1)  held  til.  maturity,  (2)  sold  for  more  than 
cost  (48-20-1321:  O.  D.  737).. Dec.  1920  Cum.  Bull.  p.  49.  Same,  made  more 
specific  (1-21-1369:  O.  D.  762).  June  1921  Cum.  Bull  p.  31.  Same  (3-21-1396: 

0.  D.  774).  June  1921  Cum.  Bull.  p.  3 1 . (See  at  “Discount;  non-interest  bearing 
securities,”  in  Cumulative  Index  following  ^[1564.) 

Municipal  bonds  purchased  at  premium  and  held  to  maturity  (46-20-1300:  O.  D. 
726) . . Dec.  1920  Cum.  Bull.  p.  49. 

Original  issue  stock  for  invention;  establishing  “market  value”  when  received  as 
compensation  (1-20-656:  0.  962).. June  1920  Cum.  Bull.  p.  74. 

Pecuniary  claim  owned  by  estate  on  March  1, 1913;  profit  or  loss  on  subsequent  settle- 
ment; interest  since  March  1,  1913;  payment  in  securities  of  less  than  par  value 
(1-19-11:  O.  D.  6).  . 1919  Cum.  Bull.  p.  37 

Real  estate  acquired  by  corporation  in  exchange  *or  its  stock  subsequent  to  Feb  28 
1913  (26-21-1699:  O.  D.  955).  .June  1921  C.  B.  p.  44. 

Real  estate;  attorney’s  fees  paid  to  secure  reduction  of  assessment  to  be  added  to 
“cost”  (48-20-1324:  O.  D.  739).. Dec.  1920  Cum.  Bull.  p.  192. 

Real  estate;  benefit  of  deduction  for  taxes  paid,  lost  over  period  of  years  as  insufficient 
income;  not  to  be  added  to  “cost”  (1-6-64:  I.  T.  1188).  . June  1922  Cum.  Bull. 

p.  28. 

Also:  1921  Act  (1-23-326:  I.  T.  1338).  .June  1922  Cum.  Bull.  p.  30. 

Real  estate  in  lots;  future  development  work  included  in  selling  price  to  be  included 
in  “cost”  also  (27-20-1036:  O.  D.  567).  .Dec.  1920  Cum.  Bull.  p.  108. 

Requisition  of  property  and  payment  therefor  by  government  (18-21-1604:  O.  £). 
897).  .June  1921  Cum.  Bull.  p.  43. 

Residence  (taxpayer’s  own  house);  cost  not  reduced  by  depreciation  on  sale  '30-20- 
1085:  O.  D.  600) . . Dec.  1920  Cum.  Bull.  p.  46. 

Short  sales  of  stock  (24-29-558:  S.  1179)..  1919  Cum.  Bull.  p.  60. 

State  obligations  sold  between  interest  dates;  interest:  discount  (1921  Act)  (1-6-63: 

1.  T.  1187).  . June  1922  Cum.  Bull.  p.  27. 

Stock;  market  quotations  (9-20-764:  A.  R.  R.  33).  .June  1920  Cum.  Bull.  p.  30. 
Stock:  where  no  sales  (34-20-1143:  A R.  R.  252).  .Dec.  1920  Cum.  Bull.  p.  46. 

Stock  dividends:  sale  of  stock  received  as  and  in  respect  to  which  paid  (30-19-634: 
A.  R.  R.  6).  . 1919  Cum.  Bull.  p.  30.  See  further  at  “Method  of  determining 
profit,  etc.”  in  Cumulative  Index  following  ^1140. 

Stock  owned  on  March  1,  1913  sold  at  price  greater  than  market  value  then  but  less 
than  cost  (19-19-493:  T.  B.  M.  73)..  1919  Cum.  Bull.  p.  35. 

Supreme  Court  decisions ..  Supplementary  Page  189,  5JS346,  and  Supplementary 
Page  191  US364. 

Support  for  life  and  life  insurance  as  part  consideration  for  property  purchased;  what 
is  “cost”  in  connection  with  subsequent  disposition  (24-21-1682:  0.  D.  945) 

. .June  1921  Cum.  Bull.  p.  44. 

Syndicate  liquidation  (15-21-1560:  A.  R.  R.  375).. June  1921  Cum.  Bull.  d.  102. 

Also  (1-2-15:  I.  T.  1156).  .June  1922  Cum.  Bull.  p.  2. 

Treasury  certificates  of  indebtedness  purchased  or  sold  at  discount  (46-20-1303: 
O.  D 729).  .Dec.  1920  Cum  Bull.  p.  123. 

Two  blocks  of  stock,  one  acquired  prior  to  March  1,  1913,  and  one  thereafter,  sold 
for  cash  and  promise  of  stock  in  contemplated  corporation,  when,  as,  and  if 
issued:  1918  Act  (1-40-531:  I.  T.  1457).  .Bull.  I (’22)-40,  p.  6. 

Used  car  accepted  as  part  payment  for  new:  subsequent  sale  of  used  car  (5-21-1413: 
O.  D.  782) . .June  1921  Cum.  Bull,  p 31. 


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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


1445  The  Determination,  in  the  Case  of  Stock,  of  “Fair  Market  Price  or 
Value”  as  of  March  1,  1913— This  office  is  in  receipt  of  your 

letter  of  November  20,  1916,  in  matter  of  computing  gain  or  loss  on  sale 
of  property  acquired  prior  to  M^arch  1,  1913,  and  asking  whether 

“In  case  of  the  sale  of  stock  traded  in  on  the  exchange,  shall 
the  opening  price  on  March  1st,  or  the  closing  price,  or  the  average 
price  for  the  day,  be  taken  as  the  basis?” 

1446  Under  paragraph  (c)  of  Section  2 and  paragraph  (4)  of  Section  5, 
Act  of  September  8,  1916,  in  case  of  property  acquired  prior  to 

March  1,  1913,  “the  fair  market  price  or  value  of  such  property  as  of  March 
1,  1913,  shall  be  the  basis  for  determining  the  amount  of  gain  or  loss”  upon 
sale  or  other  disposition  of  the  property.  . . 

1447  “The  fair  market  price  or  value  as  of  March  1 is  held  to  be  the  fair 
market  price  or  value  as  of  the  entire  day  of  March  1,  which  in  the 

case  of  variation  between  “opening  and  closing  price”  for  the  day,  would 
mean  the  average  price  for  the  day.  This,  however,  would  be  conditioned 
upon  showing  that  the  exchange  quotation  represented  the  fair, market  price 
or  value  of  the  stock,  as  it  is  this  “fair  market  price  or  value”  which  is  to 
control,  however  that  fact  may  be  ascertained.  (Letter  to  The  Corporation 
Trust  Company,  signed  by  Commissioner  W.  H.  Osborn,  and  dated  November 
21,  1916.) 

1448  In  Determining  Value  of  Stock  as  of  March  1,  1913,  the  Good- 
will of  the  Corporation  is  to  be  Taken  Into  Consideration.— Receipt 

is  acknowledged  of  your  letter  of  July  2,  1919,  in  which  you  refer  to  the 
consideration  to  be  given  to  the  value  of  goodwill  of  a corporation  where  it 
is  desired  to  establish  the  fair  market  value  of  its  outstanding  capital  stock 
on  March  1,  1913.  Ifln  reply,  you  are  advised  that  the  value  of  the  tangible 
and  intangible  assets  of  a corporation,  inclusive  of  the  value  of  goodwill,  as 
of  March  1,  1913,  is  to  be  taken  into  consideration,  together  with  such  other 
facts  as  may  be  necessary,  where  it  is  desired  to  establish  the  market  value  of 

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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

its  outstanding  capital  stock  on  March  I,  1913,  for  income  tax  purposes. 
(Letter  to  The  Corporation  Trust  Company,  signed  by  Commissioner  Daniel 
C.  Roper,  and  dated  July  22,  1919.) 

See  Cumulative  Index  references  following  1236. 

1449  Law  ^ 43.  Basis  for  Determining  Gain  or  Loss  in  the  Case  of 

(Sec.  202.)  Property  Acquired  by  Gift  after  December  31,  1920. — 

“(2)  In  the  case  of  such  property , acquired,  by  gift  after 
December  31,  1920,  the  basis  shall  be  the  same  as  that  which  it  would  have 
in  the  hands  of  the  donor  or  the  last  preceding  owner  by  whom  it  was  not 
acquired  by  gift.” 

1460  Law  ^[44.  “ If  the  facts  necessary  to  determine  such  basis  are  un- 

(Sec.  202.)  known  to  the  donee , the  Commissioner  shall , if  possible , 
obtain  such  facts  from  such  donor  or  last  preceding  owner, 
or  any  other  person  cognizant  thereof.” 

1451  Law  ^]45.  “If  the  Commissioner  finds  it  impossible  to  obtain  such 
(Sec.  202.)  facts , the  basis  shall  be  the  value  of  such  property  as 
found  by  the  Commissioner  as  of  the  date  or  approximate 
date  at  which , according  to  the  best  information  the  Commissioner  is  able 
to  obtain,  such  property  was  acquired  by  such  donor  or  last  preceding 
owner.” — Law.  [Note:  These  provisions  are  new  to  the  1921 

Act.  By  regulations  under  the  1918 
Act  the  basis  was  fair  market  value  at 
date  of  acquirement.] 

1462  In  computing  the  gain  or  loss  from  the  sale  or  other  disposition  of 
property  acquired  by  gift  subsequent  to  December  31,  1920,  the  basis 
shall  be  the  same  as  it  would  have  in  the  hands  of  the  donor  or  the  last  pre- 
ceding owner  by  whom  it  was  not  acquired  by  gift.  This  basis  in  the  hands 
of  the  donor  or  last  preceding  owner  by  whom  it  was  not  acquired  by  gift 
shall  be  determined  under  the  provisions  of  article  1561  ffil437]  and  the  taxable 
gain  or  deductible  loss  from  the  sale  or  exchange  shall  be  computed  in  ac- 
cordance therewith.  If  the  donee  is  unable  to  ascertain  the  facts  necessary 
to  determine  such  basis,  he  shall  so  state  upon  his  return,  and  the  Commis- 
sioner shall  if  possible  obtain  such  facts  from  such  donor  or  last  preceding 
owner  or  any  other  person  cognizant  thereof.  If  the  Commissioner  finds  it 
impossible  to  obtain  such  facts,  the  basis  shall  be  the  value  of  such  property 
as  found  by  the  Commissioner  as  of  the  date  or  approximate  date  such 
property  was  acquired  by  said  donor  or  last  preceding  owner.  In  order  to 
insure  a fair  and  adequate  appraisal  or  determination  of  the  proper  basis, 
donors  making  gifts  of  property  on  or  after  January  1,  1921,  should  leave  an 
accessible  record  of  the  facts  necessary  to  determine  the  cost  of  such  property 
(and  its  fair  market  value  as  of  March  1,  1913,  where  pertinent).  (Art.  1562, 
Reg.  62,  1922  Edition.) 


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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

1463  Law  1[46.  Basis  for  Determining  Gain  or  Loss  in  the  Case  of 
(Sec.  202.)  Property  Acquired  by  Gift  on  or  before  December  31, 

1920. — “ In  the  case  of  such  property  acquired  by  gift 
on  or  before  December  31,  1920,  the  basis  for  ascertaining  gain  or  loss  from 
a sale  or  other  disposition  thereof  shall  be  the  fair  market  price  or  value  of 
such  property  at  the  time  of  such  acquisition — Law.  [Note:  This 

provision  is  new  to  the  1921  Act,  in 
terms,  but  accords  with  the  rule  specified 
by  regulations  under  the  1918  Act.] 

1 464  Law  ^[47.  Basis  for  Determining  Gain  or  Loss  in  the  Case  of 
(Sec.  202.)  Property  Acquired  by  Bequest,  Devise  or  In- 
heritance.-— -“(3)  In  the  case  of  such  property , acquired 

by  bequest , devise , or  inheritance,  the  basis  shall  be  the  fair  market  price  or 
value  of  such  property  at  the  time  of  such  acquisition.  The  provisions  of 
this  paragraph  shall  apply  to  the  acquisition  of  such  property  interests  as 
are  specified  in  subdivision  (c)  or  (e)  of  section  402  [of  the  Federal  estate- 
tax  law : distributions  in  contemplation  of  death , and  property  passing  under 
a general  power  of  appointment  exercised  by  a decedent].” — Law.  [Note : 

These  provisions  are  new  to  the  1921 
Act,  in  terms,  but  accord  with  the  rule 
specified  by  regulations  under  the  1918 
Act,  apparently.] 

1 455  In  computing  the  gain  or  loss  from  the  sale  or  other  disposition  of  prop- 
erty acquired  by  gift  on  or  before  December  31,  1920,  or  by  bequest, 
devise  or  inheritance,  the  basis  shall  be  the  fair  market  price  or  value  of  such 
property  at  the  time  of  acquisition.  The  term  “property  acquired  by  bequest, 
devise,  or  inheritance”  as  used  herein  includes  (a)  such  property  interests  as 
the  taxpayer  has  received  as  the  result  of  a transfer,  or  creation  of  a trust, 
in  contemplation  of  or  intended  to  take  effect  in  possession  or  enjoyment  at  or 
after  death  and,  (b)  such  property  interests  as  the  taxpayer  has  received  as 
the  result  of  the  exercise  by  a person  of  a general  power  of  appointment 
(1)  by  will,  or  (2)  by  deed  executed  in  contemplation  of  or  intended  to  take 
effect  in  possession  or  enjoyment  at  or  after  his  death.  See  further  section 
402  (c)  and  (e)  and  Regulations  63,  articles  17-21,  24  and  25  [Federal  Estate 
Tax. — War  Tax  Service.]  In  the  case  of  property  acquired  by  gift,  bequest, 
devise,  or  inheritance,  prior  to  March  1,  1913,  the  taxable  gain  or  deductible 
loss  from  the  sale  or  other  disposition  thereof  shall  be  computed  in  accordance 
with  article  1561.  In  the  case  of  property  acquired  by  bequest,  devise,  or 
inheritance,  its  value  as  appraised  for  the  purpose  of  the  Federal  estate  tax 
or  in  the  case  of  estates  not  subject  to  that  tax  its  value  as  appraised  in  the 
State  court  for  the  purpose  of  State  inheritance  taxes  shall  be  deemed  to  be 
its  fair  market  value  when  acquired.  (Art.  1563,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Appraised  value  of  stock  at  time  of  creation  of  trust  not  controlling  necessarily  (30- 
19-637:  A.  R.  M.  7) . . 1919  Cum.  Bull.  p.  38. 

Sale  by  devisee  of  property  to  sisters  at  less  than  appraisal  value  for  inheritance  tax 
and  one-third  less  than  estimated  forced  sale  price  (12-21-1516:  O.  D.  847) . .June 
1921  Cum.  Bull.  p.  45. 

Sale  of  farm  rented  on  crop  share  basis  (48-21-1940:  O.  D.  11 12)..  Dec.  1921  Cum. 
Bull.  p.  55. 

Sale  by  heirs  at  law  of  intestate’s  real  property  improved  by  them  (1-5-49:  I.T.  1178).  . 
June  1922  Cum.  Bull.  p.  31. 

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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

Sale  of  homestead  (5-20-712:  0.  D.  386).  .June  1920  Cum.  Bull.  p.  33. 

Same:  limited  to  original  cntryman  (30-20-1086:  O.  D.  601).. Dec.  1920  Cum. 
Bull.  p.  50. 

(See,  also,  at  “homestead”  in  Cumulative  Index  following  1 444.) 

Life  estate  and  vested  remainder:  joint  conveyance  (38-21-1830:  0.  I).  1040).  .Dec. 

1921  Cum.  Bull.  p.  186.  (See  “Life  tenancy”  in  Cumulative  Index  following 
H879.) 

Sale  of  mineral  rights  acquired  through  filing  Government  location, the  rights  having 
no  demonstrable  value  at  date  of  acquirement  (1-8-100:  A.  R.  R.  759).  .June 

1922  Cum.  Bull.  p.  94 

Sale  of  property  vested  on  termination  of  trust;  delayed  delivery  by  trustee  (51-21- 
1976:  O.  D.  1136).  .Dec.  1921  Cum.  Bull.  p.  56. 

Sale  of  realty  on  death  of  life  tenant  (33-20-1126:  Sol.  Op.  35).. Dec.  1920  Cum. 
Bull.  p.  50. 

Same:  but  property  generally  and  under  differing  conditions  (43-20-1225:  0.  D. 
694).  .Dec.  1920  Cum.  Bull.  p.  53. 

Remainderman;  sale  of  property  in  which  contingent  interest  on'y  during  life  tenancy 
(46-20-1301:  0.  D.  727).  .Dec.  1920  Cum.  Bull.  p.  53. 

Sale  of  securities  held  in  trust  (3-19-198:  0.  D.  129).  .1919  Cum.  Bull.  p.  175. 

Sale  of  stock  by  trustees  under  a will  (12-20-792:  O.  1012) . .June  1920  Cum.  Bull.  p.  34. 
Transfer  of  property  to  residuary  legatees  and  subsequent  sale  of  it  by  them  (39-20- 
1209:  0.  D.  667).  .Dec.  1920  Cum.  Bull.  p.  52. 

Same:  of  property  placed  in  trust  originally  and  of  property  subsequently  acquired 
by  trustees  (1-3-28:  I.  T.  1165).  .June  1922  Cum.  Bull.  p.  30. 


1456  Law  ^[52.  On  an  Exchange  of  Property  Neither  Gain  nor  Loss  is 
(Sec.  202.)  Recognized  Unless  the  Property  Received  in  Exchange 

has  a Readily  Realizable  Market  Value. — “(c)  For 
the  purposes  of  this  title , on  an  exchange  of  property,  real,  personal  or  mixed, 
for  any  other  such  property , no  gain  or  loss  shall  be  recognized  unless  the 
property  received  in  exchange  has  a readily  realizable  market  value — Law. 

[Note:  The  1918  Act  read  “fair  market 
value,  if  any.”  ALer  giving  weight  to 
this  difference,  the  effect  is  the  same  in 
all  cases  not  embraced  within  the  special 
exceptions.] 

1457  Gain  or  loss  arising  fronrthe  acquisition  and  subsequent  disposition 
of  property  is  realized  only  when  as  the  result  of  a transaction 

between  the  owner  and  another  person  the  property  is  converted  into  other 
property  (a)  that  is  essentially  different  from  the  property  disposed  of,  and 
(b)  that  has  a readily  realizable  market  value.  Property  has  a readily  realiz- 
able market  value  if  it  can  be  readily  converted  into  an  amount  of  cash 
or  its  equivalent  substantially  equal  to  the  fair  value  of  the  property. 
In  other  words,  the  property  received  in  exchange  must  be  readily  mar- 
ketable at  substantially  its  fair  value  in  order  that  a gain  or  loss  be 
recognized.  Property  which  is  regularly  traded  in  in  a public  market 
has  a readily  realizable  market  value  in  the  quantities  regularly  traded 
in.  Property  may  be  salable,  as  in  the  case  of  a forced  sale  or  in  excep- 
tional quantities,  without  having  a readily  realizable  market  value.  Stock 
in  a close  corporation  may  or  may  not  have  a readily  realizable  market  value, 
depending  upon  all  the  facts  in  each  particular  case.  The  question  whether 
property  has  a readily  realizable  market  value,  and  if  so  the  amount  thereof, 
is  one  of  fact  to  be  determined  in  each  case  in  the  light  of  all  the  surrounding 

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circumstances;  and  attention  should  be  called  ip  the  return  to  each  exchange 
effected  during  the  taxable  year  about  which  there  could  be  any  doubt. 
(Art.  1564,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Bonds  for  stock  on  reorganization  (13-21-1528:  A.  R.  R.  435).  .June  1921  Cum.  Bull, 
p.  27. 

Farmlands  (14-20-821:  O.  D.  429).. June  1920  Cum.  Bull.  p.  38. 

Insurance  policies;  one  kind  relinquished  for  another  kind  (36-20-1181:  So1.  Op  55) 

. .Dec.  1920  Cum.  Bull.  p.  54. 

Par  vs.  par  value  on  reorganization  provisions  of  1918  Act  not  declaratory  of  rule  under 

prior  Acts  (5-21-1414:  O.  D.  783).  .June  1921  Cum.  Bull.  p.  45. 

Stock  for  corporation’s  assets  on  liquidation:  1917  Act  (1-12-148:  Sol.  Op.  131) 

. .June  1922  Cum.  Bull.  p.  18. 

Stock  for  stock:  common  for  preferred  in  same  company  (35-21-1788:  O.  D.  1008) 

. .Dec.  1921  Cum.  Bull.  p.  56. 

Stock  lot  stock;  exchange  or  surrender  of  stock  in  one  corporation  for  that  of  another, 
the  beneficial  interests  remaining  the  same  (28-20-1049:  A.  R.  M.  67).  .Dec.  1920 
Cum.  Bull.  p.  54. 

Stock  for  stock,  including  stock  received  as  stock  dividend  (18-20-892:  O.  D.  480) 
. .June  1920  Cum.  Bull.  p.  39. 

Stockfor  stock  on  reorganization;  3 non-redeemable  7%  for  4 redeemable  6%  preferred 
and  1 for  5 common:  also,  year  exchange  effected  rather  than  year  privilege 
given,  governs  (44-20-1274:  A.  R.  R.  289).  .Dec.  1920  Cum  Bull.  p.  57. 

Stock  for  stock  on  reorganization;  non-par  for  par  (44-2 i - 1 89 1 : O.  D.  1080).. Dec. 
1921  Cum.  Bull.  p.  56. 

Stock  for  stock;  (1914-1915)  preferred  and  common  in  new  corporation  for  each  share 
in  old  (26-20-1024:  A.  R.  R.  156).  .June  1920  Cum.  Bull.  p.  39 


1458  Determination  of  Gain  or  Loss  From  the  Exchange  of  Property.— 

The  amount  of  income  derived  or  loss  sustained  from  an  exchange  of 
property  is  the  difference  between  the  fair  market  value  (if  readily  realizable) 
at  the  time  of  the  exchange  of  the  property  received  in  exchange  and  the 
original  cost,  or  other  basis,  of  the  property  exchanged.  If  the  property 
exchanged  was  acquired  prior  to  March  1,  1913,  see  article  1561  ffll437]. 
(Art.  1565,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Bonds  for  bonds  of  new  issue  with  extended  maturity  and  greater  interest  rate  (25-19. 
580:  O.  D 308) . . 1919  Cum.  Bull.  p.  43 

Bonds  for  stock  of  equal  par  value  on  financial  reorganization  of  corporation  (6-19- 
267:  T.  B.  R.  25). . 1919  Cum.  Bull.  p.  39. 

“Fair  market  value;”  lengthy  discussion  of  meaning  of:  there  may  be  no  fair  market 
value:  profit  or  loss  on  disposition  of  property  having  no  “fair  market  value” 
received  in  exchange  for  other  property:  property  having  no  “fair  market  value” 
for  purposes  of  this  Section,  has  none  for  purposes  of  any  other  Section  (19-19- 
494:  T.  B.  R.  57) . . 1919  Cum.  Bull.  p.  40. 

Syndicate  interest  exchanged  for  stock  which  was  sold  (47-20-1310:  A.  R.  M.  94) 
. . Dec.  1920  Cum.  Bull.  p.  1 14. 


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1459  Law  If 53.  On  an  Exchange  of  Property  Neither  Gain  nor  Loss 

(Sec.  202.)  is  to  be  Recognized  in  Certain  Cases  even  Though 
the  Property  Received  in  Exchange  has  a Readily 
Realizable  Market  Value. — “ but  even  if  the  property  received,  in  exchange, 
has  a readily  realizable  market  value , no  gain  or  loss  shall  be  recognized 
— Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

1460  Law  *[[ 54.  Property  other  than  Stock-in-Trade  Exchanged  for 

(Sec.  202.)  Like  Property. — [No  gain  or  loss  shall  be  recognized] 
“(1)  When  any  such  property  held  for  investment , or 
for  productive  use  in  trade  or  business  {not /including  stock-in-trade  or 
other  property  held  primarily  for  sale),  is  exchanged  for  property  of  a like 
kind  or  use;” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

1461  Law  H55.  Stock  or  Securities  Exchanged  for  Stock  or  Securities 

(Sec.  202.)  in  Connection  with  ttye  Reorganization  of  One  or  More 

Corporations. — [No  gain  or  loss  shall  be  recognized] 
“(2)  When  in  the  reorganization  of  one  or  more  corporations  a person 
receives  in  place  of  any  stock  or  securities  owned  by  him,  stock  or , securities 
in  a corporation  a party  to  or  resulting  from  such  reorganization.  ■ -Law. 

Note:  This  provision  is  new  to  the  1921 
Act.  The  1918  Act  read:  “but  when 

in  connection  with  the  reorganization, 
merger,  or  consolidation  of  a corporation 
a person  receives  in  place  of  stock  or 
securities  owned  by  him  new  stock  or 
securities  of  no  greater  aggregate  par 
or  face  value,  no  gain  or  loss  shall  be 
deemed  to  occur  from  the  exchange,  and 
the  new  stock  or  securities  received  shall 
be  treated  as  taking  the  place  of  the 
stock,  securities,  or  property  exchanged. 

“When  in  the  case  of  any  such  re- 
organization, merger  or  consolidation 
the  aggregate  par  or  face  value  of  the 
new  stock  or  securities  received  is  in 
excess  of  the  aggregate  par  or  face  value 
of  the  stock  or  securities  exchanged,  a 
like  amount  in  par  or  face  value  of  the 
new  stock  or  securities  received  shall  be 
treated  as  taking  the  place  of  the  stock 
or  securities  exchanged,  and  the  amount 
of  the  excess  in  par  or  face  value  shall  be 
treated  as  a gain  to  the  extent  that  the 
fair  market  value  of  the  new  stock  or 
securities  is  greater  than  the  cost  (or  if 
acquired  prior  to  March  1,  1913,  the 
fair  market  value  as  of  that  date)  of  the 
stock  or  securities  exchanged.” 


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1462  Law  1)56.  “ The  word  ‘ reorganization ,’  as  used  in  this  paragraph , 

(Sec.  202.)  includes  a merger  or  consolidation  ( including  the 

acquisition  by  one  corporation  of  at  least  a majority 
of  the  voting  stock  and  at  least  a majority  of  the  total  number  of  shares  of  all 
other  classes  of  stock  of  another  corporation , or  of  substantially  all  the 
properties  of  another  corporation ),  recapitalization , or  mere  change  in 
identity,  form,  or  place  of  organization  of  a corporation,  ( however  effected) 

— Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

1463  Law  If 57.  Transfer  of  Property  to  a Corporation  in  Exchange 

(Sec.  202.)  for  its  Stock  or  Securities. — [No  gain  or  loss  shall  be 
recognized]  “(3)  When  (A)  a person  transfers  any 
property,  real,  personal  or  mixed , to  a corporation,  and  immediately  after 
the  transfer  is  in  control  of  such  corporation , or” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

1464  Law  1[58.  “(B)  two  or  more  persons  transfer  any  such  property  to 

(Sec.  202.)  a corporation,  and  immediately  after  the  transfer  are  in 

control  of  such  corporation,  and  the  amounts  of  stock, 
securities,  or  both,  received  by  such  persons  are  in  substantially  the  same 
proportion  as  their  interests  in  the  property  before  such  transfer.”- — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 

1 465  Law  If 59.  “F or  the  purposes  of  this  paragraph,  a person  is,  or  two 
(Sec.  202.)  or  more  persons  are,  ‘ in  control’  of  a corporation  when 
owning  at  least  80  per  centum  of  the  voting  stock  and 
at  least  80  per  centum  of  the  total  number  of  shares  of  all  other  classes  of 
stock  of  the  corporation.” — Law.  [Note:  This  provision  is  new  to 

the  1921  Act.] 

1466  Exchange  of  Property  Which  Results  in  No  Gain  or  Loss. — Where 
property  is  exchanged  for  other  property,  even  if  the  property  received 

in  exchange  has  a readily  realizable  market  value,  no  gain  or  loss  is  recognized: 

1467  (a)  Where  property  held  for  investment  is  exchanged  for  other 
property  of  a like  kind,  or  where  property  held  for  productive  use 

in. trade  or  business  is  exchanged  for  other  property  of  a like  use.  The  words 
“like  kind”  are  defined  as  having  reference  to  the  nature  or  character  of  the 
property  and  not  its  grade  or  quality.  Therefore  under  this  paragraph  no 
gain  or  loss  is  realized  by  one  other  than  a dealer  from  the  exchange  of  real 
estate  for  real  estate,  or  from  the  exchange  of  evidences  of  indebtedness 
(such  as  bonds  and  notes)  for  evidences  of  indebtedness,  or  from  the  exchange 
of  shares  of  stock  for  other  shares  of  stock;  but  one  kind  or  class  of  property 
may  not,  under  this  paragraph,  be  exchanged  for  property  of  a different  kind 
or  class,  as  shares  of  stock  for  bonds,  or  real  estate  for  personal  property. 
Where  evidences  of  indebtedness  are  exchanged  for  other  evidences  of  in- 
debtedness, the  fact  that  any  of  the  evidences  of  indebtedness  involved  in 
such  exchange  are  secured  by  mortgage  or  other  lien,  or  the  fact  that  any 
real  estate  involved  in  an  exchange  is  improved  or  unimproved  makes  no 
difference,  for  such  facts  relate  only  to  grade  or  quality  of  the  property  and 
not  to  its  kind  or  class.  There  is  excluded  from  the  provisions  of  this  para- 
graph stock-in-trade  or  other  property  held  primarily  for  sale.  Unproductive 

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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

real  estate  held  by  one  other  than  a dealer,  for  future  use  or  future  realization 
of  the  increment  in  value,  is  held  for  investment  and  not  primarilyfcfor  sale. 

1468  (b)  When  in  the  reorganization  of  one  or  more  corporations^  person 
receives  in  place  of  any  stock  or  securities  owned  by  him,  stock  or 

securities  in  a corporation  a party  to  or  resulting  from  such  reorganization. 
The  word  “reorganization”  as  used  in  this  paragraph  includes  a merger  or 
consolidation  (including  the  acquisition  by  one  corporation  of  at  least  a 
majority  of  the  outstanding  voting  stock  and  at  least  a majority  of  the  total 
number  of  outstanding  shares  of  all  other  classes  of  stock  of  another  corpora- 
tion, or  of  substantially  all  the  properties  of  another  corporation),  recapitaliz- 
ation, or  mere  change  in  identity,  form,  or  place  of  organization  of  a corpora- 
tion, however  effected.  Under  this  paragraph  it  makes  no  difference  whether 
the  stock  or  securities  received  are  or  are  not  of  a like  kind  or  class.  So  long 
as  the  property  received  in  the  reorganization  consists  of  stock  or  securities 
within  the  usual  meaning  and  acceptance  of  these  terms,  no  gain  or  loss  is 
recognized.  Where  two  or  more  corporations  unite  their  properties,  by 
either  (I)  the  dissolution  of  corporation  B and  the  sale  of  its  assets  to 
corporation  A,  or  (2)  the  sale  of  its  property  by  B to  A,  or  (3)  the  sale  of 
the  stock  of  B to  A,  or  (4)  the  merger  of  B into  A,  or  (5)  the  consolidation 
of  A and  B,  or  (6)  the  acquisition  by  A of  a majority  of  the  voting 
stock  and  a majority  of  the  total  number  of  shares  of  all  other  classes 
of  stock  of  B or  of  substantially  all  of  the  properties  of  B,  no  taxable 
income  is  received  from  the  transaction  by  A or  B or  by  the  stockholders 
of  either  corporation  A or  corporation  B,  provided  the  sole  consideration 
received  by  the  stockholders  is  stock  or  securities  of  corporations  A 
or  B or  any  corporation  a party  to  or  resulting  from  the  reorganization. 
Where  in  connection  with  an  internal  adjustment  of  the  affairs  of  a corpora- 
tion, either  by  recapitalization  or  a change  in  identity,  form,  or  domicile 
(however  effected),  a person  receives  in  place  of  the  stock  or  securities  owned 
by  him  new  stock  or  securities  of  the  corporation,  no  gain  or  loss  is  realized. 
In  this  connection,  see  article  1568  [If  1482]. 

1469  (c)  When  (A)  a person  transfers  any  property,  real,  personal,  or 
mixed,  to  a corporation,  and  immediately  after  the  transfer  is  in 

control  of  such  corporation,  or  (B)  two  or  more  persons  transfer  any  such 
property  to  a corporation,  and  immediately  after  the  transfer  are  in  control  of 
such  corporation,  and  the  amounts  of  stock,  securities,  or  both,  received  by 
such  persons  are  in  substantially  the  same  proportion  as  their  interests  in  the 
property  before  such  transfer.  For  the  purposes  of  this  paragraph,  a person 
is,  or  two  or  more  persons  are,  “in  control”  of  a corporation  when  owning 
at  least  80  per  cent  of  the  outstanding  voting  stock  and  at  least  80  per  cent 
of  the  total  number  of  outstanding  shares  of  all  other  classes  of  stock  of  the 
corporation. 

1470  Examples. — (1)  A and  B each  own  an  undivided  one-half  interest 
in  certain  property.  Corporation  X is  created,  to  which  A and  B 

transfer  the  property,  each  receiving  in  exchange  therefor  50  per  cent  of  the 
stock  of  the  corporation  X.  No  gain  or  loss  is  realized  from  this  exchange. 

1471  (2)  A,  who  owns  common  stock  in  the  X corporation  of  the  par 
value  of  $70,000,  transfers  certain  property  to  the  corporation,  for 

which  he  received  additional  common  stock  of  the  par  value  of  $15,000. 
The  X corporation  has  outstanding  immediately  after  the  transfer  only 
common  stock  of  the  par  value  of  $100,000.  No  gain  or  loss  is  realized  from 
this  exchange. 


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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


14  72  (3)  A owns  certain  property  which  he  transfers  to  the  corpora- 

tion X,  a going  concern,  in  which  he  owns  common  stock  of  the  par 
value  of  $280,000  and  class  A nonvoting  preferred  stock  of  the  par  value  of 
$190,000.  A receives  in  exchange  for  the  property  common  stock  of  the 
par  value  of  $70,000.  The  X corporation  immediately  after  the  transfer  has 
outstanding  common  stock  of  the  par  value  of  $400,000,  class  A nonvoting 
preferred  stock  of  the  par  value  of  $200,000  and  class  B non  voting  preferred 
stock  of  the  par  value  of  $25,000.  No  gain  or  loss  is  realized  from  this 
exchange. 

1473  (4)  A owns  certain  property  which  he  transfers  to  corporation  X, 

a going  concern,  in  which  A owns  no  stock,  in  exchange  for  common 
stock  of  the  corporation  of  the  par  value  of  $170,000.  The  X corporation 
has  outstanding  immediately  after  the  transfer  common  stock  of  the  par  value 
of  $200,000  and  nonvoting  preferred  stock  of  the  par  value  of  $50,000.  A 
realized  a gain  or  loss  from  this  exchange  measured  by  the  difference  between 
the  basis  of  the  property  exchanged  and  the  fair  market  value,  if  readily 
realizable,  of  the  stock  received  in  the  exchange.  If  the  property  exchanged 
was  acquired  prior  to  March  1,  1913,  see  article  1561  fi|1437].  (Art.  1566, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p/. 

$100  share  for  $50  share;  no  deductible  loss  (45-21-1904:  A.  R.  R.  665).. Dec. 
1921  Cum.  Bull.  p.  59. 

4 $25  shares  for  $100  share,  same  company:  and  1 no-par  for  10  no-par,  same  company: 
no  conversion  of  surplus  to  capital  or  revaluation  of  assets.  No  taxable  income 
(12-19-396:  T.  B.  R.  39)..  1919  Cum.  Bull.  p..45. 

“Aggregate  par  value”  refers  to  amount  given  and  received  by  each  individual  share- 
holder (10-19-353:  O.  D.  204).  .1919  Cum.  Bull.  p.  46. 

Assignment  of  oil  leases  held  prior  to  March  I,  1913  to  corporation  for  its  stock,  no  oil 
discovered  until  subsequent  to  March  1,  1913  (28-20-1050:  A.  R R.  173).. Dec. 

1920  Cum.  Bull.  p.  58. 

Cash  and  stock  of  new  corporation  in  exchange  for  stock  in  liquidating  corporation  on 
reorganization;  loss  allowed,  the  transaction  being  considered  complete  (28-21- 
1722:  O.  D.  970).. Dec.  1921  Cum.  Bull.  p.  61. 

Charter  expired;  renewed  in  another  county:  same  capitalization  (1921  Act)  (1-1-4: 
1152).  .June  1922  Cum.  Bull.  p.  32. 

Dealer  acting  for  taxpayer;  buying  and  selling  vs.  exchanging:  1921  Act  (1-27-384: 
I.  T.  1377).  .Bull.  I (’2_2)-27,  p.  1. 

Exchange  rates  to  be  considered:  here,  purchase  of  property  abroad  then  sa’e  of 
property  for  stock  in  corporation  formed  there  to  take  it  over  (23-21-1670: 
O.  D.  938).  .June  1921  Cum.  Bull.  p.  46. 

Foreign  stock;  rate  of  exchange  (41-21-1 859 : O.  D.  1058).. Dec.  1921  Cum.  Bull, 
p.  58. 

General  discussion  (43-21-1S80:  O.  D.  1071).  .Dec.  1921  Cum.  Bull.  p.  62. 

Joint-stock  company  reorganized  into  a corporation  (40-21-1851:  O.  D.  1051).. Dec. 

1921  Cum.  Bull.  p.  58. 

Market  value  (1)  less,  and  (2)  greater,  than  cost  of  stock  exchanged  (22-21-1660: 
O.  D.  932).  .June  1921  Cum.  Bull.  p.  46.  See  “Cash  and  stock”  above. 

Ohio  non-par  value  stock:  assigning  face  value’to  (45-20-1286:  Sol.  Op.  72).. Dec. 
1920  Cum.  Bull.  p.  59. 

Sale  of  securities  and  immediate  purchase  of  like  securities  does  not  constitute 
exchange;  discussion  of  brokers’ services:  192 1 Act  (1-32-446:  I.  T.  1410) ..  Bull. 
I (’22)-32,  p.  1. 

Subsidiary  liquidating  to  parent  (1917)  (22-19-530:  T.  B R.  71)..  1919  Cum.  Bull, 
p.  44. 


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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


1474  Law  If 60.  Property  Acquired  Considered  as  Taking  the  Place 
(Sec.  202.)  of  the  Property  Disposed  of,  for  the  Purposes  of 
Determining  Gain  or  Loss  on  Future  Disposition. — 

“(d)  (1)  Where  property  is  exchanged  for  other  property  and  no  gain  or 
loss  is  recognized  under  the  provisions  of  subdivision  ( c ) [beginning  at  1 1456], 
the  property  received  shall , for  the  purposes  of  this  section , be  treated  as 
taking  the  place  of  the  property  exchanged  therefor , except  as  provided  in 
subdivision  (e)  [If  1480];”— Law.  [Note:  Within  the  limits  of  its 

application  there,  the  1918  Act  and  the 
regulations  based  thereon  so  provided.] 

14  75  Law  *[[61 . “(2)  Where  property  is  compidsorily  or  involuntarily 

(Sec.  202.)  converted  into  cash  or  its  equivalent  in  the  manner 
described  in  paragraph  (12)  [*[2022]  of  subdivision  (a) 
of  section  214  and  paragraph  (14)  [1f2028]  of  subdivision  ( a ) of  section 
234,  and  the  taxpayer  proceeds  in  good  faith  to  expend  or  set  aside  the 
proceeds  of  such  conversion  in  the  form  and  in  the  manner  therein  provided , 
the  property  acquired  shall,  for  the  purpose  of  this  section,  be  treated  as 
taking  the  place  of  a like  proportion  of  the  property  converted — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act  but  the  regulations  under  the 
1918  Act  were  in  accord  therewith.] 

1476  Lav/  ^[62.  “(3)  Where  no  deduction  is  allowed  for  a loss  or  a part 

(Sec.  202.)  thereof  under  the  provisions  of  paragraph  (5)  [If  1787] 

of  subdivision  ( a ) of  section  214  and  paragraph  (4) 

[If  1789]  of  subdivision  {a)  of  section  234,  that  part  of  the  property  acquired 
with  relation  to  which  such  loss  is  disallowed  shall  for  the  purposes  of  this 
section  be  treated  as  taking  the  place  of  the  property  sold  or  disposed  of.” 

— Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

1477  Gain  or  Loss  from  Subsequent  Sale. — (a)  Where  property  is 
exchanged  for  other  property  and  no  gain  or  loss  is  recognized  under 

articles  1564  or  1566  the  property  received  shall  for  the  purpose  of  deter- 
mining gain  or  loss  from  its  subsequent  sale  be  treated  as  taking  the  place 
of  the  property  exchanged  therefor.  But  see  article  1568  [If  1482].  For 
exchange  of  property  acquired  prior  to  March  1,  1913,  see  article  1561 
[If  1437].  If  property  is  exchanged  for  two  kinds  of  property  and  no  gain 
or  loss  is  recognized  under  articles  1564  [If  1457]  or  1566  [If  1466]  the  cost  of 

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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

the  original  property  should  be  apportioned,  if  possible,  between  the  two 
kinds  of  property  received  in  exchange  for  the  purpose  of  determining  gain 
or  loss  upon  subsequent  sale.  If  no  fair  apportionment  is  practicable,  no 
profit  on  any  subsequent  sale  of  any  part  of  the  property  received  in  exchange 
is  realized  until  out  of  the  proceeds  of  sale  shall  have  been  recovered  the 
entire  cost  of  the  original  property.  When  securities  of  a single  class  are 
exchanged  for  new  securities  of  different  classes  so  that  no  gain  or  loss  is 
realized  under  the  provisions  of  paragraph  (b)  of  article  1566  [If  1468],  for 
the  purpose  of  determining  gain  or  loss  on  the  subsequent  sale  of  any  of  the 
new  securities  the  proportion  of  the  original  cost,  or  other  basis,  to  be  allo- 
cated to  each  class  of  new  securities  is  that  proportion  which  the  market 
value  of  the  particular  class  bears  to  the  market  value  of  all  securities  re- 
ceived on  the  date  of  the  exchange.  For  example,  if  100  shares  of  common 
stock,  par  value  $100,  are  exchanged  for  50  shares  of  preferred  and  50  shares 
of  common  each  of  $100  par  value,  and  the  cost  of  the  old  stock  was  $250 
per  share,  or  $25,000,  but  the  market  value  of  the  preferred  on  the  date  of 
the  exchange  was  $110  per  share,  or  $5,500  for  the  50  shares,  and  the  market 
value  of  the  common  was  $440  per  share  or  $22,000  for  the  50  shares  of  com- 
mon, one-fifth  of  the  original  cost,  or  $5,000,  would  be  regarded  as  the  cost 
of  the  preferred  and  four-fifths,  or  $20,000  as  the  cost  of  common.  The  same 
method  of  computation  should  be  used  in  the  case  of  stock  acquired  prior 
to  March  1,  1913,  in  order  to  ascertain  the  proportion  of  such  value  to  be 
allocated  to  each  class  of  new  securities  on  that  date  and  the  taxable  gain 
or  deductible  loss  should  thereafter  be  computed  in  accordance  with  article 
1561  [If  143  7]. 

1478  (b)  Where  property  is  compulsorily  or  involuntarily  converted  into 
cash  or  its  equivalent  in  the  manner  described  in  sections  214(a)  (12) 

and  234(a)  (14)  and  the  taxpayer  proceeds  in  good  faith  to  expend  or  set 
aside  the  proceeds  of  such  conversion  in  the  form  and  in  the  manner  therein 
provided,  the  property  acquired  shall  for  the  purpose  of  determining  gain  or 
loss  from  its  subsequent  sale  be  treated  as  taking  the  place  of  a like  pro- 
portion of  the  property  converted.  See  articles  261-263  [beginning  at 
If 2034]. 

1479  (c)  Where  no  deduction  is  allowed  by  sections  214(a)  (5)  and  234(a) 
(4)  for  total  or  partial  loss  on  sale  or  exchange  of  securities,  that 

part  of  the  securities  acquired  with  relation  to  which  such  loss  is  disallowed 
shall  for  the  purpose  of  computing  gain  or  loss  from  a subsequent  sale  be 
treated  as  taking  the  place  of  the  securities  sold  or  disposed  of.  See  article 
147  [111792].  (Art.  1567,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Consolidation  of  national  banks;  stock  of  consolidated  unit  and  excess  assets  of  con- 
stituent banks  in  partial  liquidation  (36-21-1797:  Sol.  Op.  115).  .Dec.  1921  Cum. 
Bull.  p.  47. 

-¥■  Liquidating  indebtedness  previously  incurred  in  purchase  of  leasehold,  with  proceeds 
of  involuntary  sale  of  real  estate  is  not  acquiring  “other  property  of  a character 
similar  or  related  in  service  or  use”  (1fl478):  1921  Act  (1-27-385:  I.  T.  1378).  . 

_ Bull.  I (’22)-27,  p.  1. 

Or  in  “stock  or  securities”  means  either  “and”  or  “or”  (29-19-623:  0.  D.  335).  . 1919 
Cum.  Bull.  p.  46. 


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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


1480  Law  63.  Combination  of  property  having  no  readily  realizable 
(Sec.  202.)  market  value  and  money  or  property  having  a readily 

realizable  market  value,  received  in  exchange. — 

“(c)  Where  property  is  exchanged  for  other  property  which  has  no  readily 
realizable  market  value , together  with  money  or  other  property  which  has  a 
readily  realizable  market  value , then  the  money  or  the  fair  market  value  of 
the  property  having  such  readily  realizable  market  value  received  in  exchange 
shall  be  applied  against  and  reduce  the  basis , provided  in  this  section , of 
the  property  exchanged , and  if  in  excess  of  such  basis , shall  be  taxable  to 
the  extent  of  the  excess — Law.  [Note:  While  this  provision  is  new, 

in  terms,  to  the  1921  Act,  it  does  no  more 
apparently  than  to  embody  in  the 
statute  the  rule  established  by  regula- 
tions under  the  1918  Act.] 

1481  Law  If 64.  Combination  of  property  having  a readily  realizable 

(Sec.  202.)  market  value  (but  in  connection  with  the  receipt  of 

which  no  gain  or  loss  is  recognized)  and  money  or  other 
property  having  a readily  realizable  market  value,  received  in  exchange. 

“ but  when  property  is  exchanged  for  property  specified  in  paragraphs 
(1)  [If  1460],  (2)  [^[1461],  and  (3)  [If  1463]  of  subdivision  ( c ) as  received  in 
exchange , together  with  money  or  other  property  of  a readily  realizable 
market  value  other  than  that  specified  in  such  paragraphs , the  money  or 
the  fair  market  value  of  such  other  property  received  in  exchange  shall  be 
applied  against  and  reduce  the  basis , provided  in  this  section , of  the  property 
exchanged , and  if  in  excess  of  such  basis,  shall  be  taxable  to  the  extent  of 
the  excess .” — Law.  [Note:  While  this  provision  is  new,  in  terms, 

to  the  1921  Act,  it  does  no  more  appar- 
ently than  to  embody  in  the  statute  the 
rule  established  by  regulations  under 
the  1918  Act.] 

1482  Exchanges  of  Property  for  Other  Property  and  Money.— Where 
property  is  exchanged  for  other  property  which  has  no  readily  real- 
izable market  value,  together  with  money  or  other  property  which  has  a read- 
ily realizable  market  value,  then  the  money  or  the  fair  market  value  of  the 
property  having  such  readily  realizable  market  value  received  in  exchange 
shall  be  applied  against  and  reduce  the  basis,  described  in  articles  1561,  1562, 
and  1563,  of  the  property  exchanged,  and  if  in  excess  of  such  basis,  shall  be 
taxable  to  the  extent  of  the  excess;  but  when  property  is  exchanged  for 
property  specified  in  paragraphs  (a),  (b),  and  (c)  of  article  1566  as  received 
in  exchange,  together  with  money  or  other  property  of  a readily  realizable 
market  value  other  than  that  specified  in  such  paragraphs,  the  money  or 
the  fair  market  value  of  such  other  property  received  in  exchange  shall  be 
applied  against  and  reduce  the  basis  (described  in  articles  1561,  1562,  and 
1563)  of  the  property  exchanged,  and  if  in  excess  of  such  basis  shall  be  tax- 
able to  the  extent  of  the  excess. 

1483  Examples. — (1)  A exchanged  certain  property  which  he  had  pur- 
chased subsequent  to  March  1,  1913,  for  $5,000  for  real  estate  having 

no  readily  realizable  market  value  and  $2,000  in  cash.  No  gain  or  loss  is 
realized  from  such  exchange.  However,  if  A subsequently  sells  the  real 
estate,  the  difference  between  the  amount  realized  therefor  and  $3,000,  the 

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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 


basis  of  the  property  exchanged  reduced  by  the  amount  of  cash  received  in 
the  exchange,  is  taxable  gain  or  deductible  loss,  as  the  case  may  be.  See 
also  article  1564  [If  1457]. 

1404  (2)  A exchanged  certain  property  which  he  had  purchased  subse- 

quent to  March  1,  1913,  for  $14,000,  for  stock  having  no  readily 
realizable  market  value  and  bonds  having  a readily  realizable  market  value 
of  $16,000.  A realized  a taxable  gain  of  $2,000,  the  amount  by  which  the 
fair  market  value  of  the  bonds  exceeds  the  cost  of  the  property  exchanged. 
The  entire  amount  received  from  the  subsequent  sale  of  the  stock  received 
in  the  exchange  constitutes  taxable  income.  See  also  article  1564  [If  1457]. 

1485  (3)  A,  in  connection  with  a reorganization  of  a corporation,  received 
in  place  of  stock  purchased  by  him  subsequent  to  March  1,  1913,  for 

$9,000,  stock  in  a corporation  a party  to  the  reorganization  together  with 
cash  in  the  amount  of  $4,000.  No  gain  or  loss  is  realized  from  the  exchange. 
However,  if  A subsequently  sells  the  stock,  the  difference  between  the  amount 
received  therefor  and  $5,000,  the  basis  of  the  old  stock  reduced  by  the  amount 
of  cash  received  in  the  exchange,  constitutes  taxable  gain  or  deductible  loss, 
as  the  case  may  be.  See  also  article  1566  [^f  1466]. 

1486  (4)  A transferred  to  a corporation,  all  of  the  outstanding  stock  of 
which  was  owned  by  him,  property  purchased  by  him  subsequent  to 

March  1,  1913,  for  $40,000,  in  exchange  for  stock  and  $50,000  in  cash.  A 
realized  from  the  exchange  a taxable  gain  of  $10,000,  the  amount  by  which 
the  amount  of  the  cash  exceeds  the  cost  of  the  property  transferred.  The 
entire  amount  received  from  the  subsequent  sale  of  the  stock  received  in 
the  exchange  constitutes  taxable  income.  See  also  article  1566  [^[1466]. 

1487  It  is  assumed  in  the  above  examples  that  the  property  exchanged 
was  not  of  a kind  properly  to  be  included  in  inventory.  If  the  prop- 
erty exchanged  was  acquired  prior  to  March  1,  1913,  or  by  gift,  devise,  be- 
quest, or  inheritance,  see  articles  1561  [^f  1437],  1562  [^[1452],  and  1563  [^T 1455] . 
(Art.  1568,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Bonds  for  cash  and  bonds  of  new  issue  of  same  company  (2-19-143:  0.  D.  98) . . 1919 
Cum.  Bull.  p.  43. 

Property  purchased  at  foreclosure  sale  by  bondholders  transferred  to  new  corporation 
for  its  entire  capital  stock  (8-19-334:  T.  B.  R.  32).  .1919  Cum.  Bull.  p.  286. 
Somewhat  similar  (Act  of  1913)  (4-20-698:  S.  1294) . .June  1920  Cum.  Bull.  p.  41. 


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BASIS  FOR  DETERMINING  GAIN  OR  LOSS. 

1438  Law  TJ65.  Bearing  of  “Basis-for-Determining-Gain-or-Loss” 
(Sec.  202.)  provisions  in  connection  with  installment  payments 
on  installment  sales  contracts. — “(/)  Nothing  in  this 
section  shall  be  construed,  to  prevent  (in  the  case  of  property  sold  under 
contract  providing  for  payment  in  installments ) the  taxation  of  that  portion 
of  any  installment  payment  representing  gain  or  profit  in  the  year  in  which, 
such  payment  is  received .” — Law.  [Note:  While  this  provision  is 

new  to  the  1921  Act,  it  is  in  effect  con- 
firmatory merely  of  the  rule  established 
by  regulations  under  the  1918  Act.] 

1489  Nothing  in  the  preceding  articles  shall  be  construed  to  prevent  (in 
the  case  of  property  sold  under  contract  providing  for  payment  in 

installments)  the  taxation  of  that  portion  of  any  installment  payment  rep- 
resenting gain  or  profit  in  the  year  in  which  such  payment  is  received.  See 
articles  42  [If  1237]  and  45  [If  1249].  (Art.  1569,  Reg.  62,  1922  Edition.) 

1490  Readjustment  of  Partnership  Interests. — When  a partner  retires 
from  a partnership,  or  it  is  dissolved,  he  realizes  a gain  or  loss  meas- 
ured by  the  difference  between  the  price  received  for  his  interest  and  the 
cost  to  him  of  his  interest  in  the  partnership,  including  in  such  cost  the 
amount  of  his  share  in  any  undistributed  partnership  net  income  earned 
since  he  became  a partner  on  which  the  income  tax  has  been  paid.  However, 
if  such  interest  in  the  partnership  was  acquired  prior  to  March  1,  1913,  both 
the  cost  as  hereinbefore  provided  and  the  value  of  such  interest  as  of  such 
date,  plus  the  amount  of  the  share  in  any  undistributed  partnership  net 
income  earned  since  February  28,  1913,  on  which  the  income  tax  has  been 
paid,  shall  be  ascertained  and  the  taxable  gain  derived  or  the  deductible 
loss  sustained  shall  be  computed  as  provided  in  article  1561  [If  1437].  If  the 
partnership  distributes  its  assets  in  kind  and  not  in  cash,  the  partner  realizes 
no  gain  or  loss  until  he  disposes  of  the  property  received  in  liquidation.  See 
article  1566  (b)  [If  1468].  Whenever  a new  partner  is  admitted  to  a partnership, 
or  any  existing  partnership  is  reorganized,  the  facts  as  to  such  change  or 
reorganization  should  be  fully  set  forth  in  the  next  return  of  income,  in  order 
that  the  Commissioner  may  determine  whether  any  gain  or  loss  has  been 
realized  by  any  partner.  See  also  article  1565  [If  1458].  (Art.  1570,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page.  gi. 

Satisfaction  of  distributive  shares  of  year’s  profits  by  distribution  of  depreciated 
securities  carried  in  investment  account  (1917  when  partnership  itself  was  subject 
to  tax  particularly)  (10-19-354:  T.  B.  R.  34).  .1919  Cum.  Bull.  p.  46. 

Taking  out  share  in  kind;  selling  share  to  other  members  for  cash;  admission  of 
new  member  (36-20-1182:  Sol.  Op.  42).  .Dec.  1920  Cum.  Bull.  p.  61. 


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CAPITAL  NET  GAIN. 


Special  Tax  Rate  on  the  Capital  Net  Gain  Derived  from 
the  Sale  of  Capital  Assets. 


1491 


1492 


1493 


Law  1[91. 

(Sec.  206.) 

Law  If 92. 

(Sec.  206.) 


Capital  Net  Gain  and  the  Computation  Thereof. — 

“Sec.  206.  (a)  That  for  the  purpose  of  this  title:” — 

“(1)  7 he  term  ‘ capital  gain ’ means  taxable  gain  from  the 
sale  or  exchange  of  capital  assets  consummated  after 
December  31,  1921;” — Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 


Law  If 93.  “(2)  The  term  ‘ capital  loss'  means  deductible  loss  resulting 

(Sec.  206.)  from  the  sale  or  exchange  of  capital  assets  consummated 
after  December  31,  1921;” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

1494  Law  ^f 94.  “(3)  The  term ‘capital  deductions'  means  such  deductions 

(Sec.  206.)  as  are  allowed  under  this  title  for  the  purpose  of  com- 
puting net  income  and  are  properly  allocable  to  or 

chargeable  against  items  of  capital  gain  as  defined  in  this  section ;” — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 

1495  Law  If 95.  “(4)  The  term  ‘ capital  net  gain ' means  the  excess  of  the 

(Sec.  206.)  total  amount  of  capital  gain  over  the  sum  of  the  capital 

deductions  and  capital  losses ;” — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

1496  Law  If 96.  “(5)  The  term  ‘ ordinary  net  income ' means  the  net 

(Sec.  206.)  income , computed  in  accordance  with  the  provisions  of 

this  title , after  excluding  all  items  of  capital  gain,  capital 
loss,  and  capital  deductions’,  and ” — Law.  [Note:  This  provision  is 

new  to  the  1921  Act.] 


1497  Law  ^ 97. 

(Sec.  206.) 


“(6)  The  term  ‘ capital  assets'  as  used  in  this  section 
means  property  acquired  and  held  by  the  taxpayer  for 
profit  or  investment  for  more  than  two  years  ( whether  or 
not  connected  with  his  trade  or  business),'' 

1498  Law  If 98.  “ but  does  not  include  property  held  for  the  personal  use 

(Sec.  206.)  or  consumption  of  the  taxpayer  or  his  family,  or  stock  in 
trade  of  the  taxpayer  or  other  property  of  a kind  which 
would  properly  be  included  in  the  inventory  of  the  taxpayer  if  on  hand  at 
the  close  of  the  taxable  year.” — Law.  [Note:  This  provision  is  new 

to  the  1921  Act.] 


1499  Law  ^[99. 

(Sec.  206.) 


Special  Tax  Rate  on  Capital  Net  Gains  and  the 
Application  Thereof. — “(b)  In  the  case  of  any  taxpayer 
( other  than  a corporation)  who  for  any  taxable  year 
derives  a capital  net  gain,  there  shall  (at  the  election  of  the  taxpayer)  be 
levied,  collected  and  paid,  in  lieu  of  the  taxes  imposed  by  sections  210  [ Normal 
tax,  If 7 10]  and  211  [Surtax,  If 7 13]  of  this  title,  a tax  determined  as 
follows :” 

1500  Law  If  100.  “A  partial  tax  shall  first  be  computed  upon  the  basis  of 
(Sec.  206.)  the  ordinary  net  income  at  the  rates  and  in  the  manner 
provided  in  sections  210  and  211,  and  the  total  tax  shall 
be  this  amount  plus  12}/%  per  centum  of  the  capital  net  gain’” 

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CAPITAL  NET  GAIN. 

“but  if  the  taxpayer  elects  to  be  taxed  under  this  section 
the  total  tax  shall  in  no  such  case  be  less  than  12)/£  per 
centum  of  the  total  net  income.” 

“ The  total  tax  thus  determined  shall  be  computed , col- 
lected and  paid  in  the  same  manner,  at  the  same  time  and 
subject  to  the  same  provisions  of  law , including  penalties, 

ns  other  taxes  under  this  title.”-— Law.  [Note:  This  provision  is  new 

to  the  1921  Act.] 

1603  Definition  and  Illustration  of  Capital  Net  Gain. — (a)  Section  206 
applies  only  to  sales  or  exchanges  of  capital  assets  consummated  after 
December  31,  1921.  It  provides  that  any  taxpayer  other  than  a corporation 
may,  if  he  so  desires,  state  separately  in  his  return  his  net  gain  on  sales 
or  exchanges  of  capital  assets  and  pay  on  such  capital  net  gain  (as  defined 
and  limited  in  the  section)  a flat  tax  of  12^  per  cent  in  lieu  of  the  tax  he 
would  otherwise  pay  on  such  income  under  sections  210  [normal  tax]  and 
211  [surtax].  On  his  net  income  from  other  sources,  termed  “ordinary  net 
income”  in  this  section,  he  would  be  taxed  under  those  sections.  If,  how- 
ever, he  elects  thus  to  segregate  his  capital  net  gain,  his  total  tax  on  the 
aggregate  amount  of  both  kinds  of  income  must  be  at  least  12)/£  per  cent 
thereof.  The  term  “capital  assets”  is  defined  to  mean  property  of  any 
kind  whatever  acquired  and  held  by  the  taxpayer  for  profit  or  investment 
for  more  than  two  years,  whether  or  not  connected  with  his  trade  or  busi- 
ness, not  including  property  (for  example,  a dwelling)  held  for  the  personal 
use  or  consumption  of  the  taxpayer  or  his  family,  or  stock  in  trade  of  the 
taxpayer  or  other  property  of  a kind  properly  included  in  an  inventory. 
The  specific  property  sold  or  exchanged  must  have  been  held  for  more  than 
two  years,  but  in  the  case  of  a stock  dividend  the  prescribed  period  applies 
to  the  original  stock  and  the  stock  received  as  a dividend  considered  as  a 
unit  and  where  property  is  exchanged  for  other  property  and  no  gain  or  loss  is 
recognized  under  the  provisions  of  section  202,  the  prescribed  period  applies 
to  the  property  exchanged  and  the  property  received  in  exchange  considered 
as  a unit.  “Capital  gain”  is  taxable  gain  from  the  sale  or  exchange  of  capital 
assets,  while  “capital  loss”  is  deductible  loss  resulting  from  the  sale  of  capital 
assets.  As  to  the  basis  for  determining  such  gain  or  loss  (including  adjust- 
ment for  depreciation)  see  article  1561  [If  1437];  as  to  betterments  and  repairs, 
see  articles  24  (3)  [^J 1056]  and  103  [If  1642].  Ordinary  repairs  and  taxes 
are  annual  charges  against  income,  and  do  not  enter  into  the  con- 
putation  of  such  gain  or  loss.  “Capital  deductions”  are  deductions 
properly  allocable  to  or  chargeable  against  items  of  capital  gain, 
including  items  of  expense  connected  with  the  sale  or  exchange  of  a capital 
asset  (for  example,  commissions  paid  brokers  or  agents).  While  interest, 
taxes,  and  other  carrying  charges  are  usually  annual  charges  against  income, 
they  may  be  allocated  to  capital  gain  derived  from  the  sale  or  exchange  of 
a capital  asset  for  the  taxable  year  in  which  such  asset  is  sold  or  exchanged 
to  the  extent  that  such  current  charges  exceed  the  income  directly  derived 
from  such  asset.  “Capital  net  gain”  is  the  excess  of  the  total  amount  of 
the  capital  gain  over  the  sum  of  the  capital  deductions  and  capital  losses. 
For  illustration:  A in  1922  sold  (1)  an  office  building  for  $1,000,000  which 
he  had  bought  in  1915  for  $500,000  and  on  which  there  was  depreciation 
aggregating  $100,000;  and  (2)  stock  in  a mining  company  for  $10,000  which 
he  had  purchased  in  1919  for  $20,000.  Taking  no  account  of  capital  deduc- 
tions (for  example,  commissions  paid  on  these  sales),  his  capital  gain  would 

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1601  Law  Tf  101. 

(See.  206.) 

1502  Law  ^ 102. 

(Sec.  206.) 


2-27-22.  (2)  6-26-22.  (3)  7-T-22.  (4)  10-11-22. 

CAPITAL  NET  GAIN. 

be  $600,000,  his  capital  loss  $10,000,  and  his  capital  net  gain  $590,000.  Sup- 
pose that  his  other  net  income  (“ordinary  net  income”)  in  1922  was  $50,000. 
Instead  of  paying  normal  tax  and  surtax  on  his  total  net  income  of  $640,000, 
he  may  segregate  these  capital  transactions  in  his  return  and  pay  a tax  of 
12 J4  per  cent,  on  his  capital  net  gain  of  $590,000,  plus  the  normal  tax  and 
surtax  upon  his  ordinary  net  income  of  $50,000.  Suppose,  on  the  other  hand, 
that  A,  with  capital  net  gain  of  $590,000,  not  only  had  no  “ordinary  net 
income,”  but  actually  sustained  a net  loss  of  $50,000  in  his  business.  He 
may  not  deduct  such  net  loss  in  “ordinary  net  income”  from  his  capital  net 
gain  if  he  elects  to  be  taxed  under  section  206,  but  must  pay  12)4  per  cent 
of  $590,000. 

1604  (b)  The  credit  allowed  by  section  222  (articles  381-386  [1)1747])  is  a 

credit  against  the  total  tax,  however  computed,  but  the  credits 
allowed  by  section  216  are  allowed  “for  the  purpose  of  the  normal  tax  only” 
and  may  not  be  taken  against  capital  net  gain,  although  they  may  be  de- 
ducted from  ordinary  “net  income.”  For  example,  if  B,  a married  person, 
had  capital  net  gain  of  $30,000  and  ordinary  net  income  of  $2,000,  his  $2,500 
personal  exemption  would  more  than  offset  his  ordinary  net  income,  but  he 
may  not  apply  any  part  of  it  to  reduce  his  capital  net  gain.  Section  206(b) 
provides  that  if  the  taxpayer  elects  to  be  taxed  under  that  section  his  total 
tax  shall  in  no  case  be  less  than  12)4  per  cent  of  his  total  net  income.  In 
the  example  just  given,  the  tax  on  B’s  capital  net  gain  of  $30,000  at  12)4 
per  cent  would  be  $3,750,  but  the  corrected  amount  of  his  total  tax  under 
this  limitation  is  12)4  per  cent  of  his  total  net  income  of  $32,000,  or  $4,000. 
It  will  be  found,  however,  that  B,  with  ordinary  net  income  of  $2,000  and 
capital  net  gain  of  $30,000,  would  not  elect  to  be  taxed  under  section  206 
because  under  the  surtax  rates  for  1922  his  total  tax  computed  in  the  usual 
way  would  be  only  $3,940  (normal  tax  $2,240  plus  surtax  $1,700),  or  $60 
less  than  if  computed  under  section  206. 

1 505  ( c ) A nonresident  alien  individual,  or  a citizen  entitled  to  the  benefits 
of  section  262  [^[2070]  may  elect  to  be  taxed  under  section  206  with 

respect  to  sales  or  exchanges  of  property  located  within  the  United  States, 
subject  to  the  limitation  that  his  total  tax  may  not  be  less  than  12)4  per 
cent  of  his  total  net  income  from  sources  within  the  United  States.  (Art. 
1651,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p /. 

Installment  sales  consummated  prior  to  Dec.  31,  1921;  payments  received  in  1922 
and  thereafter  not  within  purview  of  Sec.  206:  1921  Act  (1-25-353:  I.  T.  1362).  . 
June  1922  Cum.  Bull.  p.  77. 

Two-year  period  dates  from  time  taxpayer  purchased  property  or  entered  into  en- 
joyment of  benefits  of  purchase:  1921  Act  (1-27-385:  I.  T.  1378).  . Bull.  I (’22)-27, 

p.  1. 

Two-year  period  in  case  of  a trust  dates  from  time  of  acquirement  of  property  by 
trustee;  1921  Act  (1-27-387:  I.  T.  1379).  .Bull.  I (’22)-27,  p.  5. 

1506  Returns  of  Capital  Net  Gain. — Segregation  of  capital  transactions 

for  the  purposes  of  section  206  is  required  only  where  the  tax- 
payer elects  to  be  taxed  under  that  section.  Where  his  total  income 
tax  for  any  taxable  year  does  not  exceed  12)4  per  cent  of  his  net  income 
he  will  not  elect  to  be  so  taxed  for  that  year.  See  article  1651  1503]. 

When  a taxpayer  elects  to  be  taxed  under  this  section  for  any  taxable  year, 
he  shall  attach  to  his  return  of  income  for  such  year  an  accurate  statement 
under  oath  showing  all  items  of  capital  gain,  capital  loss,  and  capital  deduc- 
tions in  such  manner  as  will  clearly  show  the  exact  amount  of  his  capital 
net  gain  for  the  taxable  year.  Each  capital  transaction  must  be  separately 

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INVENTORIES. 

shown  and  the  capital  items  with  respect  thereto  grouped  together  in  order 
that  the  capital  gain  derived  or  the  capital  loss  sustained  from  each  capital 
transaction  will  readily  appear.  In  the  case  of  sales  or  exchanges  of  real 
estate,  the  statement  must  show  whether  or  not  it  was  held  as  a residence 
by  the  taxpayer  or  his  family.  In  the  case  of  sales  or  exchanges  of  securities 
or  any  other  property,  the  statement  must  show  how  long  the  property 
was  held  by  the  taxpayer  immediately  preceding  the  sale  or  exchange.  (Art 
1652,  Reg.  62,  1922  Edition.) 


1607  Law  If  103.  Partnerships  by  Their  Members,  and  Estates  and 
(Sec. 1 * * * * * * *  906.)  Trusts  and  Their  Beneficiaries  have  the  Benefit  of  the 
Special  Tax  Rate  on  Capital  Net  Gains. — “(c)  In  the 
case  of  a partnership  or  of  an  estate  or  trust , the  proper  part  of  each  share  of 
the  net  income  which  consists , respectively , of  ordinary  net  income  and  capital 
net  gain , shall  be  determined  under  rules  and  regulations  to  be  prescribed  by 
the  Commissioner  with  the  approval  of  the  Secretary , and  shall  be  separately 
shown  in  the  return  of  the  partnership  or  estate  or  trust,  and  shall  be  taxed  to 
the  member  or  beneficiary  or  to  the  estate  or  trust  as  provided  in  sections  218 
[^[778]  and  219  [^[873],  but  at  the  rates  and  in  the  manner  provided  in 
subdivision  ( b ) [^f  1 499]  of  this  section.” — Law.  [Note:  This  provision 

is  new  to  the  1921  Act.] 

1 508  Under  subdivision  (c)  of  section  206  the  members  of  a partner- 
ship shall  be  taxed  as  provided  in  section  218,  but  with  respect 
to  any  capital  net  gain,  may  elect  to  be  taxed  as  provided  in  section 
206.  Similarly  estates  or  trusts  or  the  beneficiaries  thereof  shall  be  taxed 
as  provided  in  section  219,  but  with  respect  to  any  capital  net  gain  may 
elect,  to  be  taxed  as  provided  in  section  206.  In  all  cases,  however,  of 
election  to  be  taxed  under  section  206  the  minimum  tax  on  the  total 
net  income  (ordinary  net  income  plus  capital  net  gain)  is  12}^  per 
cent.  Where  the  net  income  of  a partnership,  estate,  or  trust  consists 
in  whole  or  in  part  of  capital  net  gain,  there  shall  be  attached  to  the  return, 
upon  the  request  of  any  member  or  beneficiary  (or  without  such  request) 
at  the  election  of  a fiduciary  of  an  estate,  a statement  showing  (1)  all  items 
of  capital  gain,  capital  loss,  and  capital  deductions,  as  provided  in  article 
1652  [If  1506],  and  (2)  the  names  of  members  or  beneficiaries  and  the  amounts 
of  their  respective  shares  in  such  capital  net  gain.  (Art.  1653,  Reg.  62,  1922 
Edition.) 


1 508  Law  1f66.  Inventories.—' uSec.  203.  That  whenever  in  the  opinion 

(Sec.  203.)  of  the  Commissioner  the  use  of  inventories  is  necessary 
in  order  clearly  to  determine  the  income  of  any  taxpayer , 

inventories  shall  be  taken  by  such  taxpayer  upon  such  basis  as  the  Com- 
missioner, with  the  approval  of  the  Secretary,  may  prescribe  as  conforming 

as  nearly  as  may  be  to  the  best  accounting  practice  in  the  trade  or  business 

and  as  most  clearly  reflecting  the  income.” — Law.  [Note:  The  1918 

Act  so  provided.] 

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INVENTORIES. 


1510  Need  of  Inventories. — In  order  to  reflect  the  net  income  correctly, 
inventories  at  the  beginning  and  end  of  each  year  are  necessary 
in  every  case  in  which  the  production,  purchase,  or  sale  of  merchandise 
is  an  income-producing  factor. , The  inventory  should  include  raw  materials 
and  supplies  on  hand  that  have  been  acquired  for  sale,  consumption,  or  use 
in  productive  processes,  together  with  all  finished  or  partly  finished  goods. 
Only  merchandise  title  to  which  is  vested  in  the  taxpayer  should  be  included 
in  the  inventory.  Accordingly  the  seller  should  include  in  his  inventory 
goods  under  contract  for  sale  but  not  yet  segregated  and  applied  to  the 
contract  and  goods  out  upon  consignment,  but  should  exclude  from  inven- 
tory goods  sold,  title  to  which  has  passed  to  the  purchaser.  A purchaser 
should  include  in  inventory  merchandise  purchased,  title  to  which  has  passed 
to  him,  although  such  merchandise  is  in  transit  or  for  other  reasons  has  not 
been  reduced  to  physical  possession,  but  should  not  include  goods  ordered 
for  future  delivery  transfer  of  title  to  which  has  not  yet  been  effected.  (Art. 
1581,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  Qi. 

1916  Act  specifically:  copper  ore;  smelting  company;  selling  company  (1-10-123: 
L.  O.  1087).  .June  1922  Cum.  Bull.  p.  32. 

Claims  against  another  which  have  depreciated  may  not  be  inventoried  (advances  for 
purchase  of  raw  materials  for  manufacture  of  goods,  not  yet  delivered,  to  be 
ultimately  sold  by  creditor)  (24-20-994:  0.  D.  541).  .June  1920  Cum.  Bull.  p.  50. 

Copper  ore  delivered  to  smelter  under  contract  contemplating  mixing  with  other  ore, 
and  return  of  equivalent  of  metallic  content  (20-20-930:  S.  1373).. June  1920 
Cum.  Bull.  p.  45.  Also  (1-10-123:  I..  O.  1087).  .June  1922  Cum.  Bull.  p.  32. 

Fruit  growers;  fruit  in  warehouses  and  in  transit  but  not  sold:  in  connection  with 
desire  to  change  method  of  inventorying  (28-21-1730:  A.  R.  R.  538).. Dec. 
1921  Cum.  Bull.  p.  301. 

Goods  (guaranteed)  repurchased  (by  an  agreement)  from  U.  S.  after  proving  defec- 
tive on  final  inspection  (24-21-1683:  A.  R.  M.  129).  .June  1921  Cum.  Bull.  p.  47. 

Insisting  on  inventories  in  mercantile  business;  amended  returns  for  prior  years 
(32-20-1115:  A.  R.  R.  217).  .Dec.  1920  Cum.  Bull.  p.  76. 

Propagation  and  culture  of  oysters:  (42-20-1240:  0.  D.  684).. Dec.  1920  Cum. 

Bull.  p.  80. 

Real  estate  not  to  be  inventoried  (12-21-1517:  O.  D.  848)  . .June  1921  Cum.  Bull.  p.  47. 

Reg.  45,  Art.  1581  amended  (T.  D.  3296) . 43061. 


1511  Valuation  of  Inventories. — The  Act  provides  two  tests  to  which 
each  inventory  must  conform:  (1)  It  must  conform  as  nearly  as 
may  be  to  the  best  accounting  practice  in  the  trade  or  business,  and  (2)  it 
must  clearly  reflect  the  income.  It  follows,  therefore,  that  inventory  rules 
can  not  be  uniform  but  must  give  effect  to  trade  customs  which  come  within 
the  scope  of  the  best  accounting  practice  in  the  particular  trade  or  business. 
In  order  to  clearly  reflect  income,  the  inventory  practice  of  a taxpayer  should 
be  consistent  from  year  to  year,  and  greater  weight  is  to  be  given  to  con- 
sistency than  to  any  particular  method  of  inventorying  or  basis  of  valuation 
so  long  as  the  method  or  basis  used  is  substantially  in  accord  with  these 
regulations.  An  inventory  that  can  be  used  under  the  best  accounting 
practice  in  a balance  sheet  showing  the  financial  position  of  the  taxpayer 
can,  as  a general  rule,  be  regarded  as  clearly  reflecting  his  income. 

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INVENTORIES. 

1512  The  basis  of  valuation  most  commonly  used  by  business  concerns 
and  which  meets  the  requirements  of  the  Revenue  Act  is  (a)  cost 

or  (b)  cost  or  market,  whichever  is  lower.  (For  inventories  by  dealers  in 
securities,  art.  1585  [^[  1 52 1 ] .)  Any  goods  in  an  inventory  which  are  unsalable 
at  normal  prices  or  unusable  in  the  normal  way  because  of  damage,  imper- 
fections, shop  wear,  changes  of  style,  odd  or  broken  lots,  or  other  similar 
causes,  including  second-hand  goods  taken  in  exchange,  should  be  valued 
at  bona  fide  selling  prices  less  cost  of  selling  whether  basis  (a)  or  (b)  is  used, 
or  if  such  goods  consist  of  raw  materials  or  partly  finished  goods  held  for 
use  or  consumption,  they  should  be  valued  upon  a reasonable  basis,  taking 
into  consideration  the  usability  and  the  condition  of  the  goods,  but  in  no 
case  shall  such  value  be  less  than  the  scrap  value.  Bona  fide  selling  price 
means  actual  offerings  of  goods  during  a period  ending  not  later  than  30 
days  after  inventory  date.  The  burden  of  proof  will  rest  upon  the  tax- 
payer to  show  that  such  exceptional  goods  as  are  valued  upon  such  selling 
basis  come  within  the  classifications  indicated  above,  and  he  shall  maintain 
such  records  of  the  disposition  of  the  goods  as  will  enable  a verification  of 
the  inventory  to  be  made. 

1513  In  respect  to  normal  goods  whichever  basis  (a)  or  (b)  is  adopted 
must  be  applied  with  reasonable  consistency  to  the  entire  inventory. 

Taxpayers  were  given  an  option  to  adopt  the  basis  of  either  (a)  cost  or 
(b).cost  or  market,  whichever  is  lower,  for  their  1920  inventories,  and  the 
basis  adopted  for  that  year  is  controlling  and  a change  can  now  be  made 
only  after  permission  is  secured  from  the  Commissioner.  Goods  taken  in 
the  inventor}'-  which  have  been  so  intermingled  that  they  cannot  be  identi- 
fied with  specific  invoices  will  be  deemed  to  be  either  (a)  the  goods  most 
recently  purchased  or  produced,  and  the  cost  thereof  will  be  the  actual  cost 
of  the  goods  purchased  or  produced  during  the  period  in  which  the  quan- 
tity of  goods  in  the  inventory  has  been  acquired,  or  (b)  where  the  taxpayer 
maintains  book  inventories  in  accordance  with  a sound  accounting  system 
in  which  the  respective  inventory  accounts  are  charged  with  the  actual  cost 
of  the  goods  purchased  or  produced  and  credited  with  the  value  of  goods 
used,  transferred,  or  sold,  calculated  upon  the  basis  of  the  actual  cost  of  the 
goods  acquired  during  the  taxable  year  (including  the  inventory  at  the  be- 
ginning of  the  year)  the  net  value  as  shown  by  such  inventory  accounts  will 
be  deemed  to  be  the  cost  of  the  goods  on  hand.  The  balances  shown  by  such 
book  inventories  should  be  verified  by  physical  inventories  at  reasonable 
intervals  and  adjusted  to  conform  therewith. 

1514  Inventories  should  be  recorded  in  a legible  manner,  properly  com- 
puted and  summarized,  and  should  be  preserved  as  a part  of  the 

■accounting  record  of  the  taxpayer.  The  inventories  of  taxpayers  on  what- 
ever basis  taken  will  be  subject  to  investigation  by  the  Commissioner,  and 
the  taxpayer  must  satisfy  the  Commissioner  of  the  correctness  of  the  prices 
adopted. 

1515  Thetfollowing  methods,  among  others,  are  sometimes  used  in  taking 
or  valuing  inventories,  but  are  not  in  accord  with  these  regulations, 

viz: 

(a)  Deducting  from  the  inventory  a reserve  for  price  changes,  or  an  esti- 
mated depreciation  in  the  value  thereof. 

(b)  Taking  work  in  process,  or  other  parts  of  the  inventory,  at  a nominal 
price  or  at  less  than  its  proper  value. 

(c)  Omitting  portions  of  the  stock  on  hand. 


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INVENTORIES. 


(d)  Using  a constant  price  or  nominal  value  for  a so-called  normal  quan- 
tity of  materials  or  goods  in  stock. 

(e)  Including  stock  in  transit,  either  shipped  to  or  from  the  taxpayer,  the 
title  of  which  is  not  vested  in  the  taxpayer.  (Art.  1582,  Reg.  62, 1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  pJ. 

Amended  return  to  “cost  or  market”  for  1919,  where  theretofore  "cost”  but  no 
election  or  option  (20-21-1631:  A.  R.  R.  506).  .June  1921  Cum.  Bull.  p.  49. 
Average  cost  method  not  permissible:  amended  returns  (16-19-457:  T.  B.  R.  48) 
..  1919  Cum.  Bull.  p.  47. 

Average  market  price  over  period  of  5 years  prior  to  organization  (6-19-269:  T.  B.  M. 
31) . . 1919  Cum.  Bull.  p.  55. 

Base  stock  method,  moving  average  method,  or  method  based  on  assumption  that 
goods  in  inventory  are  the  earliest  purchases,  not  warranted  (22-19-531:  T.  B.  R. 
65) ..  1919  Cum.  Bull.  p.  51 . 

Change  in  method  merely  to  reduce  tax:  when  change  authorized  when  prescribed 
method  used,  no  amended  returns,  otherwise  amended  returns  are  required 
(13-20-804:  A.  R.  M.  38).  .June  1920  Cum.  Bull.  p.  54:  modified  by  (43-20-1273: 
A.  R.  M.  85).  .Dec.  1920  Cum.  Bull.  p.  65. 

Change  in  method  on  filing  an  amended  return  is  not  permissible  generally  (50-21- 
1970:  0.  D.  1132).. Dec.  1921  Cum.  Bull.  p.  63. 

Changing  back  to  “cost”  after  electing  “cost  or  market”  for  1920,  not  permitted  here 
(1921  Act)  (1-6-65:  I.  T.  1189).  .June  1922  Cum.  Bull.  p.  44. 

Estimated  cartage  expense  from  temporary  storage  to  regular  stock  not  deductible  in 
arriving  at  “cost;”  1918  Act  (1-27-386:  A.  R.  R.  944).  .Bull.  I (’22)-27,  p.  2. 
Estimating  inventories  every  other  year  (4-19-211:  O.  D.  133) . . 1919  Cum.  Bull.  p.  62. 
Farmers  (6-19-268:  O.  S44).  . 1919  Cum.  Bull.  p.  59.  (See  Art.  1586,  1 192.) 

Foreign  Exchange:  dealers  and  others  (10-21-1491:  0.  D.  834).. June  1921  Cum. 
Bull.  p.  61. 

“Futures”  or  “hedges”:  cotton  and  grain  merchants  and  others  (49-20-1331: 

A.  R.  M.  100).  .Dec.  1920  Cum.  Bull.  p.  66. 

See  however  (31-21-1750:  A.  R.  M.  135).  .Dec.  1921  Cum.  Bull.  p.  67. 

Goods  on  hand  over  period  of  years;  “market”  may  not  be  used  except  when  “cost  or 
market  whichever  is  lower”  is  employed;  “cost”  of  goods  on  hand  March  1,  1913 
is  fair  market  value  then  (1-19-10:  S.  927)  . 1919  Cum.  Bull.  p.  32:  also,  in  ex- 
planation of  foregoing  (5-19-245:  S.  1003).  .1919  Cum.  Bull.  p.  35. 

Goods  purchased  for  Government  contracts;  used  or  useful  for  commercial  purpose*; 
useful  for  Government  contracts  only  (5-20-721:  O.  D.  394).. June  1920  Cum. 
Bull.  p.  12. 

Liquor  dealers  (9-20-765:  A.  R.  M.  33).  .June  1920  Cum.  Bull.  p.  53. 

Same  (23-20-982:  A.  R.  R.  140).  .June  1920  Cum.  Bull,  p 55. 

Excise  taxes  consistently  included  in  cost  in  prior  years  may  not  be  treated 
as  expense  item  for  1918  (16-21-1574:  A.  R.  M.  121).  .June  1921  Cum. 
Bull.  p.  61. 

Mining  companies:  metals  on  hand  (22-21-1667:  A.  R.  R.  517).. June  1921  Cum. 
Bull.  p.  385. 

Reg.  45,  Art.  1582  amended  (T.  D.  3296).  .^[3062. 

Second-hand  automobiles  (17-21-1590:  O.  D.  888).  June  1921  Cum.  Bull.  p.  49. 
Tobacco  companies:  monthly  average  cost  method  (3-20-680:  A.  R.  R.  18).. June 
1920  Cum.  Bull.  p.  50. 


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2-27  22.  (2)  4-10-22.  (3)  5-10-22.  (4)  9-1-22.  (5)  10-11-22. 

INVENTORIES. 

1616  Inventories  at  Cost. — Cost  means: 

(1)  In  the  case  of  merchandise  on  hand  at  the  beginning  of  the 
taxable  year,  the  inventory  price  of  such  goods. 

1517  (2)  In  the  case  of  merchandise  purchased  since  the  beginning  of 
the  taxable  year,  the  invoice  price  less  trade  or  other  discounts, 

except  strictly  cash  discounts,  approximating  a fair  interest  rate,  which 
may  be  deducted  or  not  at  the  option  of  the  taxpayer,  provided  a consistent 
course  is  followed.  To  this  net  invoice  price  should  be  added  transporta- 
tion or  other  necessary  charges  incurred  in  acquiring  possession  of  the  goods. 

1518  (3)  In  the  case  of  merchandise  produced  by  the  taxpayer  since  the 
beginning  of  the  taxable  year  (a)  the  cost  of  raw  materials  and  sup- 
plies entering  into  or  consumed  in  connection  with  the  product,  (b)  expendi- 
tures for  direct  labor,  (c)  indirect  expenses  incident  to  and  necessary  for  the 
production  of  the  particular  article,  including  in  such  indirect  expenses  a 
reasonable  proportion  of  management  expenses,  but  not  including  any  cost 
of  selling  or  return  on  capital,  whether  by  way  of  interest  or  profit. 

1519  (4)  In  any  industry  in  which  the  usual  rules  for  computation  of 
cost  of  production  are  inapplicable,  costs  may  be  approximated  upon 

such  basis  as  may  be  reasonable  and  in  conformity  with  established  trade 
practice  in  the  particular  industry.  Among  such  cases  are  (a)  farmers  and 
raisers  of  live  stock  (see  article  1586  [^f  1 1 92],)  (b)  miners  and  manufacturers 
who  by  a single  process  or  uniform  series  of  processes  derive  a product  of 
two  or  more  kinds,  size  or  grade,  the  unit  cost  of  which  is  substantially  alike 
(see  article  1587  1524],)  and  retail  merchants  who  use  what  is  knowntas 

the  “retail  method”  in  ascertaining  approximate  cost.  See  article  1588 
[f  1525].  (Art.  1583,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  reference s see  page  91. 

Cash  discounts  (28-19-610:  O.  D.  326)..  1919  Cum.  Bull.  p.  56. 

Reg.  45,  Art.  1583  amended  (T.  D.  3296).  .^3067. 

1520  Inventories  at  Market. — Under  ordinary  circumstances,  and  for 
normal  goods  in  an  inventory,  “market”  means  the  current  bid  price 

prevailing  at  the  date  of  the  inventory  for  the  particular  merchandise  in 
the  volume  in  which  usually  purchased  by  the  taxpayer,  and  is  applicable  in 
the  cases  (a)  of  goods  purchased  and  on  hand,  and  (b)  of  basic  elements  of 
cost  (materials,  labor,  and  burden)  in  goods  in  process  of  manufacture  and 
in  finished  goods  on  hand;  exclusive,  however,  of  goods  on  hand  or  in  process 
of  manufacture  for  delivery  upon  firm  sales  contracts  (i.e.,  those  not  legally 
subject  to  cancellation  by  either  party)  at  fixed  prices  entered  into  before 
the  date  of  the  inventory,  which  goods  must  be  inventoried  at  cost.  Where 
no  open  market  exists  or  where  quotations  are  nominal,  due  to  stagnant 
market  conditions,  the  taxpayer  must  use  such  evidence  of  a fair  market 
price  at  the  date  or  dates  nearest  the  inventory  as  may  be  available,  such 
as  specific  purchases  or  sales  by  the  taxpayer  or  others  in  reasonable  volume 
and  made  in  good  faith,  or  compensation  paid  for  cancellation  of  contracts 
for  purchase  commitments.  Where  the  taxpayer  in  the  regular  course  of 
business  has  offered  for  sale  such  merchandise  at  prices  lower  than  the  cur- 
rent price  as  above  defined,  the  inventory  may  be  valued  at  such  prices  less 
proper  allowance  for  selling  expense,  and  the  correctnessj_of  suc^prices^will 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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INVENTORIES. 

be  determined  by  reference  to  the  actual  sales  of  the  taxpayer  for  a reason- 
able period  before  and  after  the  date  of  the  inventory.  Prices  which  vary 
materially  from  the  actual  prices  so  ascertained  will  not  be  accepted  as 
reflecting  the  market.  (Art.  1584,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Claims  for  losses  when  inventory  taken  at  “asking  price”  because  of  abnormal  con- 
ditions (18-21-1609:  A.  R.  R.  487).. June  1921  Cum.  Bull.  p.  205. 

Goods  having  junk  value  only:  1918  Act  (1-19-264:  A.  R.  R.  921).  .June  1922  Cum. 
Bull.  p.  126. 

Reg.  45,  Art.  1584  amended  (T.  D.  3296).  .^3071. 

1521  Inventories  by  Dealers  in  Securities. — A dealer  in  securities,  who 
in  his  books  of  account  regularly  inventories  unsold  securities  on 
hand  either  (a)  at  cost  or  (b)  at  cost  or  market,  whichever  is  lower,  or  (c)  at 
market  value,  may  make  his  return  upon  the  basis  upon  which  his  accounts  are 
kept;  provided  that  a description  of  the  method  employed  shall  be  included 
in  or  attached  to  the  return,  that  all  the  securities  must  be  inventoried  by  the 
same  method,  and  that  such  method  must  be  adhered  to  in  subsequent  years, 
unless  another  be  authorized  by  the  Commissioner.  For  the  purpose  of  this 
rule  a dealer  in  securities  is  a merchant  of  securities,  whether  an  individual, 
partnership,  or  corporation,  with  an  established  place  of  business,  regularly 
engaged  in  the  purchase  of  securities  and  their  resale  to  customers;  that  is, 
one  who  as  a merchant  buys  securities  and  sells  them  to  customers  with  a 
view  to  the  gains  and  profits  that  may  be  derived  therefrom.  If  such  busi- 
ness is  simply  a branch  of  the  activities  carried  on  by  such  person,  the 
securities  inventoried  as  here  provided  may  include  only  those  held  for  pur- 
poses of  resale  and  not  for  investment.  Taxpayers  who  buy  and  sell  or 
hold  securities  for  investment  or  speculation,  and  not  in  the  course  of  an 
established  business,  and  officers  of  corporations  and  members  of  partner- 
ships, who  in  their  individual  capacities  buy  and  sell  securities,  are  not 
dealers  in  securities  within  the  meaning  of  this  rule.  A dealer  in  securities  is 
not  entitled  to  the  benefits  of  section  206  with  reference  to  the  gain  from  the 
sale  of  securities.  (Art.  1585,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1920  specifically;  relief  provisions  of  amended  Art.  1584  of  Reg.  45  apply  (7-21-1442: 
M.  2703).  . June  1921  Cum.  Bull.p.  52. 

Investor  on  extensive  scale  (35-20-1168:  A.  R.  R.  249).  .Dec.  1920  Cum.  Bull.  p.  145. 

May  employ  generally  prescribed  method:  others  may  not  take  loss  due  to  reduced 
market  value  of  Liberty  bonds  (1-19-14:  O.  D.  8) . . 1919  Cum.  Bull.  p.  56. 

Member  of  stock  brokerage  firm  dealing  extensively  on  own  account  considered  as  a 
dealer  (1-7-93:  A.  R.  R.  755).  .June  1922  Cum.  Bull.  p.  225. 

National  Bank’s  bond  department  may  inventory  bonds  held  for  purposes  of  resale: 
1918  Act  (1-35-479:  I.  T.  1429)..  Bull.  I (’22)-35,  p.  1. 

Reg.  45,  Art.  1585  amended  (T.  D.  3296).  . 1[3075. 

Short  sales  of  stock:  inventories  apply  to  stock  owned  only  (24-19-558:  S.  1179) 
. . 1919  Cum.  Bull.  p.  60. 

J 522  Inventories  of  Securities  by  a Bank  Maintaining  a Department  for 
the  Merchandising  Thereof. — Reference  is  made  to  your  letter  of 
May  26,  1919,  wherein  you  ask  whether  a bank  that  maintains  a branch 
for  the  purpose  of  buying  and  selling  securities  has  the  full  status  of  a recog- 
nized dealer  in  securities.  ^[In  reply,  you  are  advised  that  a bank  or  other 
institution  having  a regularly  established  department  for  the  merchandising 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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INVENTORIES. 


of  securities,  even  though  that  department  is  subordinate  in  importance  to 
other  departments,  is  entitled  to  the  same  benefit  of  using  the  basis  provided 
for  in  Article  1585  [ T}  1521]  of  inventorying  securities  acquired  and  held  for 
resale,  as  one  who  is  solely  a dealer  in  securities.  Ifln  so  far  as  the  bank  or 
other  institution  carry  on,  with  an  established  place  of  business  a department 
for  the  merchandising  of  securities,  it  is  in  respect  of  such  department  treated 
in  the  same  way  as  any  other  security  merchant.  It  should  be  noted,  how- 
ever, that  the  method  of  inventorying  provided  for  in  Article  1585  has  no 
application  and  can  not  be  extended  to  taxpayers  simply  buying  and  selling 
securities  for  investment  or  speculation.  (Letter  to  The  Corporation  Trust 
Company,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated  June  28, 
1919.) 

1 523  Inventories  of  Live  Stock  Raisers  and  Other  Farmers. — Read  at 
Hi  192. 

1 524  Inventories  of  Miners  and  Manufacturers. — A taxpayer  engaged  in 
mining  or  manufacturing  who  by  a single  process  or  uniform  series  of 

processes  derives  a product  of  two  or  more  kinds,  sizes,  or  grades,  the  unit 
cost  of  which  is  substantially  alike,  and  who  in  conformity  to  a recognized 
trade  practice  allocates  an  amount  of  cost  to  each  kind,  size,  or  grade  of 
product  which  in  the  aggregate  will  absorb  the  total  cost  of  production,  may 
use  such  allocated  cost  as  a basis  for  pricing  inventories,  provided  such  allo- 
cation bears  a reasonable  relation  to  the  respective  selling  values  of  the 
different  kinds  of  product.  (Art.  1587,  Reg.  62,  1922  Edition.)  £ • 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Reg.  45,  Art.  1587  amended  (T.  D.  3296) . 43076. 

1525  Inventories  of  Retail  Merchants. — Retail  merchants  who  employ 
1 what  is  known  as  the  “retail  method”  of  pricing  inventories  may 

make  their  returns  upon  that  basis,  provided  that  the  use  of  such  method 
is  designated  upon  the  return,  that  accurate  accounts  are  kept,  and  that  such 
method  ;s  consistently  adhered  to  unless  a change  is  authorized  by  the  Com- 
missioner. Under  this  method  the  goods  in  the  inventory  are  ordinarily 
priced  at  the  selling  prices,  and  the  total  retail  value  of  the  goods  in  each 
department  or  of  each  class  of  goods  is  reduced  to  approximate  cost  by  de- 
ducting the  percentage  which  represents  the  difference  between  the  retail 
selling  value  and  the  purchase  price.  This  percentage  is  determined  by 
departments  of  a store  or  by  classes  of  goods,  and  should  represent  as  accu- 
rately as  may  be  the  amounts  added  to  the  cost  prices  of  the  goods  to  cover 
selling  and  other  expenses  of  doing  business  and  for  the  margin  of  profit. 
In  computing  the  percentage  above  mentioned,  proper  adjustment  should  be 
made  for  all  mark-ups  and  mark-downs. 

1526  A taxpayer  maintaining  more  than  one  department  in  his  store  or 
dealing  in  classes  of  goods  carrying  different  percentages  of  gross 

profit  should  not  use  a percentage  of  profit  based  upon  an  average'of  his 
entire  business,  but  should  compute  and  use  in  valuing  his  inventory  the 
proper  percentages  for  the  respective  departments  or  classes  of  goods.  (Art. 
1588,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

“Cost  or  market”  whichever  is  lower  may  be  used  (1-9-112:  I.  T.  1219).  . June  1922 
Cum.  Bull.  p.  44. 

Reg.  45,  Art.  1588  amended  (T.  D.  3296).  .^3077. 

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NET  LOSSES. 


A Net  Loss  of  One  Year  May  be  Offset  Against  the  Net 
Income  of  Succeeding  Years. 


1 627  Law  1f67.  Method  of  Computing  Net  Loss. — “Sec.  204.  (a)  That 
(See.  204.)  as  used  in  this  section  the  term  ‘ net  loss'  means  only 
net  losses  resulting  from  the  operation  of  any  trade  or 
business  regularly  carried  on  by  the  taxpayer ” 

Law  1[68.  “ {including  losses  sustained  from  the  sale  or  other  dis- 

(Sec.  204.)  position  of  real  estate , machinery , and  other  capital 
assets , used  in  the  conduct  of  such  trade  or  business) 
Lav/  1]69.  “and  when  so  resulting  means  the  excess  of  the  deductions 
(Sec.  204.)  allowed  by  section  214  or  234,  as  the  case  may  be , over 
the  sum  of  the  fcllowing‘T 

“(1)  The  gross  income  of  the  taxpayer  for  the  taxable 
year,'' 


1528 


1529 


1 630 


1 531 


Law  1]70. 

(Sec.  204.) 
Law  1[71. 
(Sec.  204.) 


“(2)  the  amount  by  which  the  interest  received  free  from 
taxation  under  this  title  exceeds  so  much  of  the  interest 
paid  or  accrued  within  the  taxable  year  on  indebtedness 
as  is  not  permitted,  to  be  deducted  by  paragraph  (2)  [®>  1685]  of  subdivision 
(a)  of  section  214  or  by  paragraph  (2)  ]1fl687]  of  subdivision  {a)  of  section 
234,” 

1532  Law  If 72.  “(3)  the  amount  by  which  the  deductible  losses  not 

(Sec.  204.)  sustained  in  such  trade  or  business  exceed  the  taxable 
gains  or  profits  not  derived  from  such  trade  or  busi- 


ness,” 

1 533  Law  H73.  “(4)  amounts  received  as  dividends  and  allowed  as  a 

(Sec.  204.)  deduction  under  paragraph  (6)  [1[1824]  of  subdivision 

(a)  of  section  234,  and  ” 

1534  Law  If 74.  “(5)  so  much  of  the  depletion  deduction  allowed,  with 

(Sec.  204.)  respect  to  any  mine , oil  or  gas  well  as  is  based  upon 

discovery  value  in  lieu  of  cost .” — Law.  [Note: 

The  1918  Act  restricts  the  net  loss  offset 
(in  connection  with  the  disposition  of 
capital  assets)  to  losses  resulting  from 
the  sale  of  plant,  machinery,  etc.,  con- 
structed, installed,  or  acquired  on  or 
after  April  6,  1917  for  the  production  of 
articles  contributing  to  the  prosecution 
of  the  war.  Such,  and  one  resulting 
from  “the  operation  of  any  business 
regularly  carried  on  by  the  taxpayer” 
were  the  only  “net  losses”  recognized 
by  the  1918  Act,  where,  so  limited,  a net 
loss  was  defined  as  “the  excess  of  the 
deductions  allowed  by  law  (excluding  in 
the  case  of  corporations  amounts  allowed 
as  a deduction  under  paragraph  (6)  of 
subdivision  (a)  of  section  234)  over  the 
sum  of  the  gross  income  plus  any  interest 
received  free  from  taxation  both  under 
this  title  and  under  Title  III.”] 


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MT-tl.  (I)  4-10-7  S.  (8)  7-12-22.  (4)  8-8-22.  (6)  8-24-22.  (6)  10-4-22.  (7)  10-11-22. 

NET  LOSSES. 

1636  Net  Losses,  Definition  and  Computation. — The  term  “net  loss”  as 
used  in  the  statute  means  only  a net  loss  resulting  from  the  operation 
during  the  taxable  year  of  any  trade  or  business  regularly  carried  on  by  the 
taxpayer.  Included  therein  are  losses  from  the  sale  or  other  disposition  of 
real  estate,  machinery,  and  other  capital  assets  used  in  the  conduct  of  such 
trade  or  business.  In  order  to  be  entitled  to  claim  an  allowance  for  a “net 
loss”  the  taxpayer  must  have  suffered  an  actual  net  loss  in  a trade  or  business 
during  the  taxable  year.  The  amount  properly  allowable  may  be  neither 
the  loss  reflected  upon  the  return  filed  for  the  purpose  of  the  income  tax  nor 
the  net  loss  shown  by  the  taxpayer’s  profit  and  loss  account,  but  is  to  be 
computed  according  to  the  statute,  as  follows: 

1536  (1)  In  the  case  of  an  individual,  it  is  the  amount  by  which  the 
deductions  allowed  under  section  214,  excluding: 

(a)  the  amount  by  which  the  deductible  losses  not  sustained  in  such 
trade  or  business  exceed  the  taxable  gain  or  profits  not  derived  from 
such  trade  or  business; 

(b)  so  much  of  the  depletion  deduction  with  respect  to  any  mine, 
oil  or  gas  well  as  represents  the  excess  of  value  based  upon  discovery 
subsequent  to  February  28,  1913,  over  cost  or  value  as  of  March  1, 
1913;  and 

(c)  the  amount  of  deductions  allowed  under  section  214  not  con- 
nected with  the  trade  or  business, 

exceeds  the  sum  of  the  following: 

(a)  the  gross  income  of  the  taxpayer  for  the  taxable  year  as  com- 
puted under  section  213;  and 

(b)  the  amount  by  which  the  interest  received  free  from  taxation 
under  the  provisions  of  the  Act  exceeds  so  much  of  the  interest  paid  or 
accrued  within  the  taxable  year  on  indebtedness  as  is  not  allowed  as  a 
deduction  under  section  214  (a)  (2). 

1537  (2)  In  the  case  of  a corporation,  it  is  the  amount  by  which  the 
deductions  allowed  under  section  234,  excluding: 

(a)  the  amount  received  as  dividends  and  allowed  as  a deduction 
under  section  234  (a)  (6);  and 

(b)  so  much  of  the  depletion  deduction  with  respect  to  any  mine, 
oil  or  gas  well  as  represents  the  excess  of  value  based  upon  discovery 
subsequent  to  February  28,  1913,  over  cost  or  value  as  of  March  1,  1913, 

exceeds  the  sum  of  the  following: 

(a)  the  gross  income  of  the  taxpayer  for  the  taxable  year  as  com- 
puted under  section  233;  and 

(b)  the  amount  by  which  the  interest  received  free  from  taxation 
under  the  provisions  of  the  Act  exceeds  so  much  of  the  interest  paid  or 
accrued  within  the  taxable  year  on  indebtedness  as  is  not  allowed  as  a 
deduction  under  section  234  (a)  (2). 

1538  In  computing  statutory  “net  loss”  the  following  restrictions  are  to 
be  noted : 

1 539  (1)  Interest  received  by  the  taxpayer  on  obligations  or  securities, 

the  interest  from  which  is  exempted  from  taxation  must  be  included 
in  income,  but  this  amount  may  first  be  reduced  by  the  amount  of  any 
interest  paid  by  the  taxpayer  on  money  used  to  purchase  or  carry  such 
obligations  or  securities. 

1540  (2)  Where  depletion  is  computed  upon  the  basis  of  discovery  value 

in  lieu  of  cost  or  value  as  of  March  1,  1913,  in  making  the  computa- 
tion, the  deductions  are  reduced  by  that  portion  of  the  depletion  repre- 
senting the  excess  of  the  discovery  value  over  actual  cost  or  value  as  of 
Copyright  1922,  by  The  Corporation  Trust  Company. 

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M7-«.  (2)  4-10-22.  (8)  7-12-22.  (4)  8-8-22.  (6)  8-24-22.  (6)  10-4-22.  (7)  10-11-22. 

WET  LOSSES. 

March  1,  1913.  See  section  214  (a)  (10)  and  articles  201-237  [beginning  at 
1J1893].  (Art.  1601,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Affiliated  parent  and  subsidiaiy  corporations;  1921  net  loss  largely  attributable  to 
subsidiary  which  becomes  inactive  in  1922:  loss  may  be  claimed  on  consolidated 
r return  which  will  be  made  for  1922:  1921  Act  (1-28-399:  I.  T.  1386).  Bull.  I 

_(’22)-28,  p.  1. 

Capital  assets:  losses  resulting  from  sale  of,  are  within  law  provision:  1918  Act 
(1-5-50:  I.  T.  1179).  .June  1922  Cum.  Bull.  p.  45.  Overruled:  1918  Act  (1-31- 
434:  I.  T.  1401).  . Bull.  I (’22)-31,  p.  1. 

Request  to  change  accounting  period  denied;  consideration  of  bearing  on  net  loss 
provisions  (11-19-370:  T.  B.  R.  37)..  1919  Cum.  Bull.  p.  63. 

Change  of  accounting  period;  net  loss  being  sustained  in  fractional  part  of  taxable 

year  thus  created  (15-20-841:  O.  D.  445).. June  1920  Cum.  Bull.  p.  58:  also 
(30-20-1087:  T.  D.  3044)  Dec.  1920  Cum.  Bull.  p.  83:  See  (13-21-1529:  0.  D. 
855).  .June  1921  Cum.  Bull.  p.  54.  Also  (1-6-66:  A.  R.  R.  743).  .June  1922 
Cum.  Bull.  p.  45. 

Also,  net  loss  sustained  during  initial  part-of-year  accounting  period  after  change, 
and  first  half  of  succeeding  full  fiscal  year  (together  constituting  1919  calendar 
year)  disallowed:  1918  Act  (1-40-532:  A.  R.  R.  1128).. Bull.  I (’22)-40,  p.  6. 
Change  of  accounting  period:  net  loss  sustained  in  lull  year  before  change  not  an 
offset  aeainst  net  income  of  succeeding  Iess-than-12-months  period  but  of  that  of 
succeeding  full  taxable  year  (1-8-98:  I.  T.  1211).  .June  1922  Cum.  Bull.  p.  47. 
Corporations  are  within  the  net  loss  provisions  of  the  1921  Act  (1-13-177:  I.  T.  1252) 

. .June  1922  Cum.  Bull.  p.  45. 

Excess-profits  tax:  how  affected  (21-21-1655:  0.  D.  928).. June  ’21  C.  B.  p.  357. 
Farmers:  provision  applies  to  (26-20-1025:  0.  D.  558).  .June  1920  Cum.  Bull.  p.  59. 
Fiscal  year  corporation  whose  taxable  year  does  not  fall  within  statutory  period  may 
not  allocate  its  net  loss  (21-20-947:  0.  D.  511).  .June  1920  Cum.  Bull.  p.  58. 
Floods  accountable  for  losses  (3-20-681:  O.  D.  367).  .June  1920  Cum.  Bull.  p.  58. 
Foreign  corporation  (31-20-1099:  O.  D.  611).. Dec.  1920  Cum.  Bull.  p.  72. 

Member  of  partnership  (14-20-822:  O.  D.  430).  .June  1920  Cum.  Bull.  p.  58.  1921 

Act,  see  (1-13-177:  I.  T.  1252).  .June  1922  Cum.  Bull.  p.  45. 

Payment  of  liquidated  damages  (3-19-188:  S.  983).  . 1919  Cum.  Bull.  p.  217. 
Partnerships  and  the  members  thereof:  1921  Act  (1-13-177:  f.  T.  1252).  . Tune  1922 
Cum.  Bull.  p.  45. 

Preceding  taxable  period  (1918)  being  less  than  full  taxable  year,  income  thereof 
not  subject  to  1919  net  loss  deduction;  but  latter  deductible  from  1920  income: 
★ 1918  Act  (1-34-464:  I.  T.  1423).  .Bull.  I (’22)-34,  p.  1.  Modified:  net  loss  is 

first  offset  against  net  income  of  last  prior  full  fiscal  year  (1-41-542:  I.  T.  1465).  . 
Bull.  I (’22)-41,  p.  2. 

Stockholder  of  failed  corporation  (4-20-703:  O.  D.  380) . .June  1920  Cum.  Butt.  p.  128 

1541  Illustration  of  Computation  of  Net  Loss. — The  method  of  computa-. 

tion  of  net  losses  as  outlined  in  article  1601  may  be  illustrated  as 
follows:  A,  an  individual  conducting  a trade  or  business,  finds  the  following 
facts  relative  to  a taxable  year: 

(a)  His  deductions  as  computed  under  section  214  amount  to  $100,000. 

(b)  Included  in  the  deductions  is  an  item  of  $10,000  for  loss  by  fire  of 
property  occupied  by  him  as  a residence  and  not  used  in  connection  with 
his  trade  or  business. 

(c)  Deductible  losses  on  account  of  transactions  entered  into  for  profit 
outside  of  the  trade  or  business  are  $3,000. 

(d)  Taxable  gains  from  transactions  entered  into  for  profit  and  not  con- 
nected with  the  trade  or  business  are  $5,000. 

(e)  Donations  to  the  Red  Cross  are  included  in  the  deductions  in  the 
amount  of  $1,000. 

(f)  Depletion  is  claimed  in  the  amount  of  $2,000,  of  which  $500  is  based 
upon  the  value  of  the  mineral  in  the  mine  as  of  March  1,  1913,  and  $1,500  is 
attributable  to  increase  in  valuation  on  account  of  discovery  subsequent  to 
February  28,  1913. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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NET  LOSSES. 


(g)  His  entire  gross  income  as  computed  under  section  213  is  $50,000.' 

(h)  Interest  received  from  municipal  bonds  exempted  from  taxatiomby 
section  213  (b)  (4)  amounted  to  $10,000. 

(5)  Interest  was  paid  upon  money  borrowed  to  carry  municipal  bonds  in 
the  amount  of  $8,000,  which  amount  is  not  deductible  in  accordance^with 


section  214(a)  (2): 

Total  deductions  (a) $100,000 

Deduct: 

Loss  by  fire  (b) $10,000 

Other  losses  (c) 3,000 


Total  loss  outside  business $13,000 

Less:  Gain  outside  business  (d) 5,000 


Excess  of  deductible  losses  not  sus- 
tained in  trade  or  business  over  tax- 
able gains  or  profits  not  derived  from 


such  trade  or  business $8,000 

Donations  (e) 1,000 

Depletion  on  basis  of  value  after 

discovery  (f) $2,000 

Less:  Portion  based  on  value  as  of 
Mar.  1,  1913 500 


Portion  of  depletion  representing 
discovery  value  in  excess  of  cost 
or  value  as  of  Mar.  1,  1913 1,500 


Total  exclusion  from  deductions $10,500 


Total  expenses  directly  attributable  to 

the  conduct  of  the  trade  or  business $89,500 

Gross  income  (g) $50,000 

Add:  Non  taxable  interest  received  (h) $10,000 

Less:  Interest  paid  on  money  borrowed  to 

carry  municipal  bonds  (i) 8,000  2,000  52,000 


Statutory  net  loss 

(Art.  1605,  Reg.  62,  1922  Edition.) 


$37,00 


1542  Law  1f75.  A Net  Loss  of  One  Year  May  be  Offset  Against  the 
(Sec.  204.)  Net  Income  of  Succeeding  Years. — “(b)  If  for  any 

taxable  year  beginning  after  December  31,  1920,  it  appears 
upon  the  production  of  evidence  satisfactory  to  the  Commissioner  that  any 
taxpayer  has  sustained  a net  loss , the  amount  thereof  shall  be  deducted  from 
the  net  income  of  the  taxpayer  for  the  succeeding  taxable  yearf’ 

1 543  Law  U 76.  “and  if  such  net  loss  is  in  excess  of  the  net  income  for  such 
(Sec.  204.)  succeeding  taxable  year , the  amount  of  such  excess  shall 

be  allowed  as  a deduction  in  computing  the  net  income  for 
the  next  succeeding  taxable  year 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
323 


2-27-22.  (2)  10-11-22. 


NET  LOSSES. 


1544  Law  If 77.  “the  deduction  in  all  cases  to  be  made  under  regulations 

(Sec.  204.)  prescribed  by  the  Commissioner  with  the  approval  of 

the ^Secretary.” — Law.  [Note:  Under  the  1918 

Act  those  net  losses  only  suffered  during 
taxable  years  beginning  after  Oct.  31, 
1918  and  ending  prior  to  Jan.  1,  1920, 
were  permitted  as  offsets  against  net 
income  of  other  years,  and  then  (1st) 
against  net  income  of  the  preceding 
year,  and  (2nd)  any  excess  of  net  loss 
so  applied,  against  net  income  of  the 
succeeding  year  (not  years).] 

1545  Claim  for  Allowance  of  Net  Loss. — A taxpayer  sustaining  a net 

fo.  loss”  such  as  set  forth  in  section  204,  for  any  taxable  year  ending 
after  December  31,  1920,  may  file  a claim  therefor  with  his  return  for  the 
subsequent  taxable  year.  Such  claim  should  contain  a concise  statement 
setting  forth  the  amount  of  the  net  loss  and  all  pertinent  facts  relative  there- 
to, including  a schedule  showing  computation  of  the  net  loss  in  accordance 
with  section  204  and  articles  1601  [If  1 535]  and  1605  [If  1541].  If  the 

evidence  furnished  satisfies  the  Commissioner  that  the  taxpayer  has  sus- 
tained a “net  loss”  the  amount  of  such  net  loss  may  be  deducted  from  t^ie 
net  income  of  the  taxpayer  for  the  succeeding  taxable  year  and  if  such  net 
loss  is  in  excess  of  the  net  income  for  such  succeeding  taxable  year  the  amount 
of  such  excess  shall  be  carried  over  and  credited  against  the  net.  income 
for  the  next  succeeding  taxable  year.  (Art.  1602,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Limited  strictly  to  1918  and  1920  (14-21-1539:  0.  D.  860) . .June  1921  Cum.  Bull.  p.  55 

No  net  income  for  preceding  taxable  year;  entire  net  loss  deductible  in  succeeding 
taxable  year  (14-20-823:  0.  D.  431).. June  1920  Cum.  Bull.  p.  59. 

“Taxable  year”  defined;  year  in  which  loss  sustained  must  be  full  taxable  year  ot  iz 
months  (13-21-1529:  O.  D.  855).. June  1921  Cum.  Bull.  p.  54.  See'  change  in 
accounting  period”  in  Cumulative  Index  following  ^[1540. 


1546  Law  If 78.  Benefit  of  Net  Loss  Provision  Accrues  to  Partnership 
(Sec.  204.)  Members  and  to  Trust-Estate  Beneficiaries.— “(r) 

The  benefit  of  this  section  shall  be  allowed  to  the  members 
of  a partnership  and  the  beneficiaries  of  an  estate  or  trust , and  to  insurance 
companies  subject  to  the  tax  imposed  by  section  243  f^f  1310]  or  246  [if  1366], 
under  regulations  prescribed  by  the  Commissioner  with  the  approval  of  the 
Secretary” — Law.  [Note:  The  1918  Act  so  provided  to  the  extent 

of  its  limited  application,  except  that 
there  no  reference  was  made,  specifically, 
to  insurance  companies.] 

1 547  Net  Losses  of  Partnerships,  Trusts,  Estates,  and  Insurance  Com- 
panies.— The  provisions  of  section  204  shall  be  applied  to  members 

of  a partnership  and  the  beneficiaries  of  an  estate  or  trust,  provided  such 
partnership,  estate,  or  trust  is  carrying  on  a trade  or  business,  bee 

Copyright  772?.  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
321 


*-27-22.  (2)  4-10-22.  (8)  4-28-22.  (4)  8-3-22.  (5)  10-11-22. 

NET  LOSSES. 


sections  218  and  219.  Insurance  companies  carrying  on  business  and  sub- 
ject to  the  tax  imposed  by  section  243  or  section  246  likewise  are  allowed  the 
benefits  of  section  204.  (Art.  1603,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Partnerships  and  the  members  thereof:  1921  Act  (1-13-177:  I.  T.  1252).  .June  1922 
Cum.  Bull.  p.  45. 


1548  Law  ^[79.  Apportionment  of  Net  Loss,  for  Purposes  of  the 
(Sec.  204.)  Deduction,  Sustained  by  Taxpayer  During  Fiscal 
Year  Ending  in  1921. — “(d)  If  it  appears , upon  the 
production  of  evidence  satisfactory  to  the  Commissioner , that  a taxpayer 
having  a fiscal  year  beginning  in  1920  and  ending  in  1921  has  sustained  a 
net  loss  during  such  fiscal  year , such  taxpayer  shall  be  entitled  to  the  benefits 
of  this  section  in  respect  to  the  same  proportion  of  such  net  loss  which  the 
portion  of  such  fiscal  year  falling  within  the  calendar  year  1921  is  of  the  en- 
tire fiscal  year.” — Law.  [Note:  This  provision  is  new  to  the  1921 

Act.] 

1 549  Net  Losses,  for  What  Periods  Allowed. — The  provisions  of  section 
204  relative  to  net  losses  are  not  retroactive  and  apply  only  to  tax- 
able years,  beginning  after  December  31,  1920,  with  the  following  exception: 
Where  a taxpayer  has  a fiscal  year  beginning  in  1920  and  ending  in  1921,  if 
the  taxpayer  produces  evidence  showing  to  the  satisfaction  of  the  Commis- 
sioner that  a “net  loss”  has  been  sustained  during  such  fiscal  year,  the  bene- 
fits of  section  204  shall  apply  to  the  same  proportion  of  such  net  loss  as 
the  portion  of  such  fiscal  year  falling  within  the  calendar  year  1921  is  of 
the  entire  fiscal  year.  The  net  loss  shall  be  first  computed  as  prescribed 
in  articles  1601  and  1605  for  the  entire  fiscal  year  ending  in  1921  in  accord- 
ance with  this  Act  as  in  effect  on  January  1,  1921.  The  net  loss  allowable 
shall  be  the  same  proportion  of  the  net  loss  for  the  entire  fiscal  year  as  the 
portion  of  the  fiscal  year  falling  within  the  calendar  year  1921  is  of  the  entire 
fiscal  year.  (Art.  1604,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Change  of  accounting  period:  net  loss  sustained  in  full  year  before  change  not  an 
offset  against  net  income  of  succeeding  less-than-12  months’  period  but  of  that 
of  succeeding  full  taxable  year  (1-8-98:  I.  T.  1211).  -June  1922  Cum.  Bull.  p.  47. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

325 


2-27-22.  (2)  4-10-22.  (2)  4-28-22.  (4)  8-8-22.  (6)  10-11-22. 

EXEMPT  INCOME. 

1 650  Law  1 121.  Certain  Items  are  Excluded  from  Gross  Income. — “(b) 

(Sec.  213.)  [ Gross  income ] does  not  include  the  following  items , 

which  shall  be  exempt  from  taxation  under  this  title:” — 
Law.  [Note:  The  1918  Act  so  provided.] 

1651  What  Excluded  from  Gross  Income. — Gross  income  excludes  the 
items  of  income  specifically  exempted  by  the  statute  and  also  cer- 
tain other  kinds  of  income  by  statute  or  fundamental  law  free  from  tax. 
Such  tax-free  income  should  not  be  included  in  the  return  of  income,  and 
need  not  be  mentioned  in  the  return.  The  exclusion  of  such  income  should 
not  be  confused  with  the  reduction  of  taxable  income  by  the  application 
of  allowable  deductions.  See  section  212  of  the  statute  and  article  21 
[for  statement  as  to  statutory  deductions,  '[[1042],  As  to  exclusions  from 
gross  income  by  corporations,  see  section  233  and  article  541  [^[  10741. 
(Art.  71,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  tee  page  gi. 

Alimony ..  U.  S.  Supreme  Court  decision,  Supplementary  Page  136,  ^S47. 

Assignment  of  lease;  funds  coming  into  hands  of  assignor  (38-20-1201:  Sol.  Op.  59) 
. . Dec.  1920  Cum.  Bull.  p.  118. 

Bonds  purchased  between  interest  dates;  interest  on  (37-20-1191:  Sol.  Op.  46) . . Dec. 
1920  Cum.  Bull.  p.  90. 

Coast  and  Geodetic  Survey  commissioned,  noncommissioned  and  enlisted  personnel; 
compensation  as  such  (in  part):  1918  Act  (1-31-435:  I.  T.  1402).. Bull.  I (’22) 
— 31,  p.  2. 

Damages  for  alienation  of  affection  or  for  slander  or  libel;  money  received  for  surren- 
der of  right  to  custody  of  minor  child;  all  acts  (1-17-240:  Sol.  Op.  132).  .June 
1922  Cum.  Bull.  p.  92. 

Gift  to  minor  child:  income  from,  not  income  to  father  (State  of  Maine)  (31-20-1100: 
Op.  14)  . . Dec.  1920  Cum.  Bull.  p.  1 16. 

Group  insurance  for  beneficiaries  named  by  employees,  employer  paying  premiums 
(12-20-793:  O.  1014) . .June  1920  Cum.  Bull.  p.  88. 

Naval  attaches;  entertainment  (1-19-48:  O.  D.  36).  .1919  Cum.  Bull.  p.  81. 

Religious  workers;  amounts  received  but  turned  over  to  religious  orders  (3-19-180: 
O.  D.  119).  .1919  Cum.  Bull.  p.  82. 

Supper  money  (21-20-950:  0.  D.  514).  .June  1920  Cum.  Bull.  p.  90. 


1562  Law  1131.  Accident  and  Health  Insurance  and  “Damages”  Re- 

(Sec.  213.)  ceived. — “(6)  [Gross  income  does  not  include ] Amounts 
received,  through  accident  or  health  insurance  or  under 
workmen' s compensation  acts,  as  compensation  for  personal  injuries  or 
sickness , plus  the  amount  of  any  damages  received  whether  by  suit  or  agree- 
ment on  account  of  such  injuries  or  sickness-” — Law.  [Note:  The 

1918  Act  so  provided.] 

1553  Law  *|122.  Proceeds  of  Life  Insurance  Policies  on  Death  of 
(Sec.  213.)  Insured  are  Exempt. — “(1)  [Gross  income  does  not 
include ] The  proceeds  of  life  insurance  policies  paid 
upon  the  death  of  the  insured ;” — Law.  [Note:  The  1918  Act  limited 

the  exemption  to  proceeds  payable  to 
individual  beneficiaries  (which  included 
partnerships),  or  to  the  estate  of  the 
insured.] 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
326 


2-tT-tt.  (I)  4-10-11.  (8)«-#-J2.  (4)  8-14-22.  (I)  10-11-M.  (6)11-4-22. 

EXEMPT  INCOME. 

1 554  Law  If  123.  Returns  to  Insured  of  Permiums  Paid  Under  Life 
(Sec.  213.)  Insurance,  Endowment  or  Annuity  Contracts  Are 

Exempt. — “(2)  | Gross  income  does  not  include ] The 
amount  received  by  the  insured  as  a return  of  premium  or  premiums  paid 
by  him  under  life  insurance,  endowment,  or  annuity  contracts,  either  dur- 
ing the  term  or  at  the  maturity  of  the  term  mentioned  in  the  contract  or 
upon  surrender  of  the  contract — Law.  [Note:  The  1918  Act  so 

provided.] 

1555  Law^[135.  War  Risk  Insurance  and  Vocational  Rehabilitation 
(Sec.  213.)  Allowances,  etc.,  and  Certain  United  States  Pensions. 

— “(9)  {Gross  income  does  not  include ] Amounts  re- 
ceived as  compensation , family  allotments  and  allowances  under  the  pro- 
visions of  the  IVar  Risk  Insurance  and  the  Vocational  Rehabilitation  Acts, 
or  as  pensions  from  the  United  States  for  service  of  the  beneficiary  or  another 
in  the  military  or  naval  forces  of  the  United  States  in  time  of  war;" — Law. 

[Note:  This  provision  is  new  to  the  1921  Act.} 

1656  Law1fl2.  “(10)  The  term  ‘‘military  or  naval  forces  of  the  United 

(Sec.  2.)  States'  includes  the  Marine  Corps,  the  Coast  Guard, 

the  Army  Nurse  Corps,  Female,  and  the  Navy  Nurse 
Corps , Female,  but  this  shall  not  be  deemed  to  exclude  other  units  otherwise 
included  within  such  term-" — Law.  [Note:  The  1918  Act  so 

provided.] 

1 657  Proceeds  of  Insurance — Compensation — War  Pensions. — (a)  Upon 

the  death  of  an  insured  the  proceeds  of  his  life  insurance  policies, 
whether  paid  to  his  estate  or  to  any  beneficiary  (individual,  partnership,  or 
corporation),  directly  or  in  trust,  are  excluded  from  the  gross  income  of  tho 
beneficiary.  See  article  541  [1|  1074].  (b)  During  his  life  only  so  much  of  th« 

amount  received  by  an  insured  under  life,  endowment,  or  annuity  contracts  aa 
represents  a return,  without  interest,  of  premiums  paid  by  him  therefor  is  ex- 
cluded from  his  gross  income.  See  article  47  [for  annuities  and  insurance  pol- 
icies, H 1251].  (c)  Whether  he  be  alive  or  dead,  the  amounts  received  by  an 
insured  or  his  estate  or  other  beneficiaries  through  accident  or  health  insurance 
or  under  workmen’s  compensation  acts  as  compensation  for  personal  injuriea 
or  si'ckness  are  excluded  from  the  gross  income  of  the  insured,  his  estate 
and  other  beneficiaries.  Any  damages  recovered  by  suit  or  agreement  on 
account  of  such  injuries  or  sickness  are  similarly  excluded  from  the  gros* 
income  of  the  individual  injured  or  sick,  if  living,  or  of  his  estate  or  other 
beneficiaries  entitled  to  receive  such  damages,  if  dead.  See  further  article 
294  [for  premiums  on  business  insurance,  ^[1639].  Since  June  25,  1918,  no 
assessment  of  any  federal  tax  may  be  made  on  any  allotments,  family  allow- 
ances, compensation,  or  death  or  disability  insurance  payable  under  the 
War  Risk  Insurance  Act  of  September  2,  1914,  as  amended,  even  though  the 
benefit  accrued  before  that  date.  In  addition  to  this  exemption  from  all 
Federal  taxes,  the  Revenue  Act  of  1921  exempts  from  income  tax  amount! 
received  as  compensation,  family  allotments,  and  allowances  under  the  pro- 
visions of  the  War  Risk  Insurance  and  the  Vocational  Rehabilitation  Acts, 
or  as  pensions  from  the  United  States  for  service  of  the  beneficiary  or  another 
in  the  military  or  naval  forces  of  the  United  States  in  'time  of  war.  As  to 
meaning  of  “military  and  naval  forces  of  the  United  States,”  see  section  7 
of  the  statute  fl|1556].  (Art.  72,  Reg.  62,  1922  Edition.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


l-2f'B2.  (2)4-10-2*.  (2)6-9-22.  (4)  8-24-22.  (6)  10-11-22.  (6)11-4-22. 

EXEMPT  INCOME. 


For  explanation  of  Cumulative  Index  references  see  Page  91. 

6%  per  annum  of  face  value  of  policy  to  first  beneficiary;  f*ce  value  of  policy  to 
second  beneficiary  on  death  of  first  (10-20-778:  O.  995).. June  1920  Cum. 
Bull.  p.  90. 

Same:  3%  (31-20-1 101:  O.  D.  612).  Dec.  1920  Cum.  Bull.  p.  120. 

Corporate  beneficiary,  the  insured  being  sole  owner  of  the  corporation’s  stock  (50-20- 
1345:  A.  R.  R.  335).  .Dec.  1920  Cum.  Bull.  p.  244. 

Damages  for  alienation  of  affection  (24-20-997:  S.  1384)..  June  1920  Cum.  Bull.  p.  71, 
Estate  as  beneficiary  of  insured  decedent  (29-21-1732:  T.  D.  3190).  .Dec.  1921  Cum. 
Bull.  p.  100. 

Installment  interest  payments  when  no  election  to  take,  in  lieu  thereof,  the  principal 
which  is  to  go  to  another:  here,  a nonresident  alien  (1-21-1374:  O.  D.  767) . .June 

1921  Cun>.  Bull,  p 231. 

Interest  on  principal  held  contingently  by  company  as  trustee  for  benefit  of  life  tenant 
beneficiary  and  nominee  remainderman  (35-21-1790:  O.  D.  1010).. Dec.  1921 

Cum  Bull.  p.  100. 

Marine’s  retirement  pay  after  20  years’  service  covering  period  of  recent  war — 1921 
Act  (1-11-139:  I.  T.  1237).  .June  1922  Cum.  Bull.  p.  70. 

Ordinary  life,  continuous  installment  bond  contract  (14-20-825:  O.  D.  433).. June 
1920  Cum.  Bull  p.  91 

Partnership  is  “individual  beneficiary”  (6-19-270:  T.  B.  R.  22) . . 1919  Cum.  Bull.  p.  82. 
Vocational  Rehabilitation  Act;  payments  made  under  are  not  insurance  and  are  taxable 
(14-21-1543:  Sol  Op.  97).  June  1921  Cum.  Bull.  p.  79. 

War  Risk  Insurance  dividends  (38-21-1827:  O.  D.  1037).. Dec.  1921  Cum.  Bull.  p. 

101. 

1568  Law  ^[124.  Value  of  Property  Acquired  by  Gift,  Bequest,  etc.,  is 

(Sec.  213.)  Exempt. — “(3)  [Gross  income  does  not  include ] The 
value  of  property  acquired  by  gift , bequest , devise , or 
descent  ( but  the  income  from  such  property  shall  be  included  in  gross  in- 
come)-”— Law.  [Note:  The  1918  Act  so  provided.] 

1559  Gifts  and  Bequests. — Money  and  real  or  personal  property  received 
as  gifts,  or  received  under  a will  or  under  statutes  of  descent  and 
distribution,  are  exempt  from  tax,  although  the  income  therefrom  derived 
from  investment,  sale,  or  otherwise  is  not.  See  section  202  of  the  statute 
and  articles  32  [for  pensions,  retiring  allowances,  etc.,  ^Tl  1561,  50  [for  for- 
giveness of  a debt  as  a gift,  ^[  1258],  1562  and  1563  [for  sale  of  property  acquired 
by  gift  or  bequest,  Hl452  and  1 455].  An  amount  of  principal  paid  under  a 
marriage  settlement  is  a gift.  Neither  alimony  nor  an  allowance  based  on 
a separation  agreement  is  taxable  income.  See  article  291  [for  non-deducti- 
bility of  such  items  as  expense,  ^|1623].  (Art.  73,  Reg.  62,  1922  Edition.) 
For  explanation  of  Cumulative  Index  references  see  page  91. 

Additional  compensation  repaid  to  employer  voluntarily  (percentage  of  net  income  of 
business,  received  under  contract)  (43-21-1882:  O.  D.  1073).. Dec.  1921  Cum. 
Bull.  p.  101. 

Alimony  U.  S.  Supreme  Court  Decision,  Supplementary  Pace  156.  1[S47. 

Bequest  received  by  executor  conditioned  on  continuous  performance  of  duties  here 
deemed  compensation:  1916  Act  (4-20-700:  O.  D.  980)  June  1920  Cum.  Bull,  p.  73. 
* Bequest  received  by  executor  in  lieu  of  commisions  .^3361. 

Carnegie  Foundation  for  Advancement  of  Teaching;  payments  by  (28-20-1051: 
L.  O.  1040).  Dec.  1920  Cum.  Bull.  p.  120. 

Colorable  gifts  (7-19-290:  S.  1022).  1919  Cum.  Bull.  p.  83.  Read  same  ruling  much 
changed  in  Digest  No  11,  Aug.  1920,  p 80. 

Commissions  on  renewal  premiums  assigned  to  wife  by  husband  in  consideration  of 
love  and  aficction  are  gift  to  wife:  1921  Act  (1-23-327:  I.  T.  1339).  .Juao 

1922  Cum.  Bull.  p.  97. 

Deceased  employee’s  salary  continued  to  widow  without  consideration  on  her  part 
(36-21-1798:  O D.  1017)  Dec.  1921  Cum.  Bull.  p.  101. 

Decedent  converts  all  property  into  cash  shortly  before  death,  giving  away  proceeds 
r_  (28-20-1058:  O.  D.  582).  Dec.  1920  Cum.  Bull.  p.  211. 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22.  (2)  4-10-22.  (8)  4-14-22.  (4)  4-18-22.  (8)  6-9-22  (G>  1,-16-22  i7)  6-30-22  (8)10-11-22. 

EXEMPT  INCOME. 


Facts  to  show  intent  and  bona  tides  (4-21-1405:  A.  R.  R.  367).  . June  1921  C.  B.  p.  107. 

Indians:  royalties  received  under  mining  lease  of  restricted  allotment  are  taxable 
(1-26-367:  L.  O.  1098).  .June  1922  Cum.  Bull.  p.  64- 

Irrevocable  trust  created  orally,  the  trustor  being  the  trustee  (Ky.)  with  sister  ai 
beneficiary:  allowed  (20-21-1635:  A.  R.  R.  492)  June  1921  Cum.  Bull.  p.  '08. 

Mineral  rights  acquired  through  Government  location, (1-8-100:  A.  R.  R.  759).  .June 
1922  Cum.  Bull.  p.  94. 

Passes;  by  railroad  to  its  employees  and  their  families  (24-21-1685:  O.  D.  946)  .June 
1921  Cum.  Bull.  p.  110 

Pensions  vs.  gifts:  a payment  may  be  both:  when  pensions  arc  taxable  and  when  not 
(28-20-1051:  L.  O 1040).  .Dec.  1920  Cum.  Bull.  p.  120 

Proceeds  of  endowment  policy  paid  in  installments  in  life  time  of  insured  ro  benefic- 
iaries named  by  him  (47-21-1931:  O.  D.  1108).. Dec.  1921  Cum.  Bull.  p.  92. 

Property  received  by  officer  of  corporation  for  gratuitous  acts  of  material  benefit  to 
it  (1-14-192:  I.  T.  1262).  .June  1922  Cum.  Bull.  p.  71. 

Sabbatical  grant  to  teacher  from  income  from  trust  fund  created  for  purpose  is  gift  to 
teacher:  1921  Act  (1-23-331:  I.  T.  1343).  .June  1922  Cum.  Bull.  p.  213. 

Soldiers’  bonus;  State  (22-19-533:  O.  D.  286).  1919  Cum.  Bull.  p.  Hi 

State’s  compensation  for  services  in  Spanish-American  War  and  Philippine  Insur- 
rection: 1918  and  1921  Acts  (1-13-179:  I.  T.  1253).  .June  1922  Cum.  Bull.  p.  97. 

Vested  estate;  appreciation  in  value  evidenced  bv  sale  on  death  of  life  tenant  (33-20- 
1126:  Sol.  Op.  35).  .Dec.  1920  Cum,  Bull,  p.'  50. 

Wife;  gift  of  land  to:  sale  of  part,  default,  repossession  on  foreclosure  by  original  donor 
gift  again  to  wife,  unrecorded  gift  back  to  husband,  then  sale  at  loss:  income  ovet 
entire  period  and  loss  is  wife’s  (24-20-999:  O.  D.543).  .June  1 920  Cu  m.  Bull.  p.  91. 

Wife;  gift  of  securities  to:  no  transfer  on  corporation's  books  and  income  therefrom 
deposited  to  joint  checking  account  in  bank:  facts  to  show  intent — here  income 
considered  wife’s  (4-21-1405:  A.  R.  R.  367).  .June  1921  Cum.  Bull.  p.  107. 


1660  Law  1J125.  Interest  on  United  States  Bonds,  etc.,  Except  as 
(Sec.  213.)  Otherwise  Provided  in  the  Act  of  Authorization,  and 
on  Bonds  of  State  or  Political  Subdivision  Thereof  is 


Exempt. — “(4)  [Gross  income  does  not  include ] Interest  upon  (a)  the  obliga- 
tions of  a State , Territory , or  any  political  subdivision  thereof , or  the 
District  of  Columbia  ; or ” 

1661  Law  If  126.  “(b)  securities  issued  under  the  provisions  of  the  Federal 

(Sec.  213.)  Farm  Loan  Act  of  July  17,  1916;  or  ’ 

1662  Lav/ *|  127.  “(c)  the  obligations  of  the  United  States  or  its  posses- 

(Sec.  213.)  sions  [ Read  If  1567  below]-,  or” 

1663  Law  If  128.  “(d)  bonds  issued  by  the  War  Finance  Corporation 

(Sec.  213.)  [Read  ^f  1 567  below].” — Law.  [Note:  The  1918 

Act  so  provided.] 


1664  Interest  Upon  State  Obligations. — Among  income  exempt  from 
tax  is  interest  upon  the  obligations  of  a State,  Territory,  or  any 
political  subdivision  thereof,  or  the  District  of  Columbia.  Obligations 
issued  for  a public  purpose  by  or  on  behalf  of  the  State  or  Territory  or 
a duly  organized  political  subdivision  acting  by  constituted  authorities 
duly  empowered  to  issue  such  obligations,  are  the  obligations  of  a State  or 
Territory  or  a political  subdivision  thereof.  T he  term  “political  subdivision’ 
denotes  any  division  of  the  State  or  Territory  made  by  the  proper  authorities 
thereof  acting  within  their  constitutional  powers  for  the  purpose  of  carry- 
ing out  a portion  of  those  functions  of  the  State  or  Territory  which  by  long 
usage  and  the  inherent  necessities  of  government  have  always  been  regarded 
as  public.  Political  subdivisions  of  a State  or  Territory,  within  the  meaning 
of  the  exemption,  include  special  assessment  districts  so  created,  such  as 
road,  water,  sewer,  gas,  light,  reclamation,  drainage,  irrigation,  levee, 
school,  harbor,  port  improvement,  and  similar  districts  and  divisions  of  a 
State  or  Territory.  The  purchase  by  a State  of  property  subject  to  a mort- 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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329 


8-27-22.  (2)  4-10-22.  (8)  4-14-22.  (4)  4-18-22.  (6)  6-9-22.  (6)  6-16-22.  (7)  6-80-22.  (8)  10-11-22. 

EXEMPT  INCOME. 

gage  executed  to  secure  an  issue  of  bonds  does  not  render  the  bonds  obliga- 
tions of  the  State,  and  the  interest  upon  them  does  not  become  exempt 
from  taxation,  whether  or  not  the  State  assumes  the  payment  of  the  bonds. 
(Art.  74,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Claim  against  municipality;  interest,  on  settlement  (29-20-1071:  O.  D.  591).. Dec. 
1920  Cum.  Bull.  p.  113. 

Discount;  interest  or  noninterest  bearing  securities  issued  at  (48-20-1321:  O.  D.  737) 
. .Dec.  1920  Cum.  Bull.  p.  49. 

Same,  made  more  specific  (1-21-1369:  O.  D.  762).. June  1921  Cum.  Bull.  p.  31. 

Securities  sold:  accounting  for  accrued  discount  1921  Act  (1-6-63:  I.  T.  1187).  . 
June  1922  Cum.  Bull.  p.  27. 

Discount;  noninterest  bearing  securities  issued  a'c  (35-20-1166:  O.  D.  647).. Dec. 

1920  Cum.  Bull.  p.  123.  Compare  (13-19-416:  O.  D.  238)..  1919  Cum.  Bull, 
p.  68:  see  “Municipality’s”  below. 

Indiana:  bonds  for  State  Fair  Grounds:  1921  Act  (1-15-208:  I.  T.  1270).  .June  1922 
Cum.  Bull.  p.  98. 

Irrigation  district  bonds  (24-20-1000:  O.  D.  544).  .June  1920  Cum.  Bull.  p.  93. 
Michigan;  agricultural  or  horticultural  society  bonds  (31-21-1751:  O.  D.  983).  .Dec. 

1921  Cum.  Bull.  p.  102. 

Minnesota;  fire  relief  certificates  (1-19-42:  O.  D.  30).  .1919  Cum.  Bull.  p.  83. 

Montana;  cooperative  agricultural  district  obligations,  1921  Act  (1-6-72:  I.  T.  1194).  . 
June  1922  Cum.  Bull.  p.  98. 

Municipal  bonds;  contract  for  sale  of,  prior  to  issuance,  interest  running  from  date 
of  contract:  handling  of  accrued  interest  by  dealer  on  sale  by  him  when  issued 
(1-23-325:  I.  T.  1337).  .June  1922  Cum.  Bull.  p.  29. 

Municipality’s  “assessments”  in  payment  for  contract  paving  and  other  impiovements 
(34-21-1778:  O.  D.  999) .. Dec.  1921  Cum.  Bull.  p.  102. 

Municipality’s  promissory  notes  (8-21-1462:  O.  D.  817).  .June  1921  Cum.  Bull.  p.  110. 
Same:  issued  at  discount  and  to  bear  interest  after  maturity  if  not  then  paid 
(13-21-1530:  O.  D.  856).  .June  1921  Cum.  Bull.  p.  110. 

Park  fund  certificates;  to  raise  money  to  pay  for  property  acquired  by  condemnation 
for  park  (19-20-911:  O.  D.  491).  .June  1920  Cum.  Bull.  p.  93. 

Philippine  1914-34  4’s  (21-21-1648:  O.  D.  922).  .June  1921  Cum.  Bull.  p.  111. 

Sales  between  interest  dates;  interest;  discount  (1921  Act)  (1-6-63:  1.  T.  1187).  . 
June  1922  Cum.  Bull.  p.  27. 

Tax  sale  certificates  (28-19-61 1 : O.  D.  327) . .1919  Cum.  Bull.  p.  83. 

Warrant  for  interest  on  noninterest  bearing  warrant  (15-21-1561:  O.  D.  870).. June 
1921  Cum.  Bull.  p.  111. 

Wisconsin:  county  tax  sale  certificates  (48-21-1944:  0.  D.  1114).. Dec.  1921  Cum. 
Bull.  p.  103. 

Wisconsin;  deferred  improvement  assessment  bonds  (15-20-843:  O.  D.  447).. June 
1920  Cum.  Bull.  p.  93. 

1666  Dividends  and  Interest  from  Federal  Land  Bank  and  National 
Farm  Loan  Association. — As  section  26  of  the  Federal  Farm 
Loan  Act  of  July  17.  1916,  prov’des  that  every  federal  land  bank  and  every 
national  farm  loan  association,  including  the  capital  and  reserve  or  sur- 
plus therein  and  the  income  derived  therefrom,  shall  be  exempt  from  tax- 
ation, except  taxes  upon  real  estate,  and  that  farm  loan  bonds,  with  the  in- 
come therefrom,  shall  be  exempt  from  taxation,  the  income  derived  from 
dividends  on  stock  of  federal  land  banks  and  national  farm  loan  associa- 
tions and  from  interest  on  such  farm  loan  bonds  is  not  subject  to  the  income 
tax.  See  also  section  231  (13)  of  the  statute  [for  exemption  of  the  Farm 
Land  Banks  and  the  Farm-Loan  Associations,  *[10171.  (Art.  75,  Reg.  29, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  9/. 

Joint-stock  land  banks;  interest  on  bonds  exempt,  cash  dividends  on  stock  taxable; 
1916,  1917,  1918,  and  1921  Acts  (1-24-338:  I.  T.  1349).  .June  1922  Cum. 
Bull.-'p.  99. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22.  (3)  10-11-22. 

EXEMPT  INCOME. 

1666  Dividends  from  Federal  Reserve  Bank.— As  section  7 of  the  Fed- 
eral Reserve  Act  of  December  23,  1913,  provides  that  Federal  reserve 

banks,  including  the  capital  stock  and  surplus  therein  and  the  income  de- 
rived therefrom,  shall  be  exempt  from  taxation,  except  taxes  upon  real 
estate,  such  exemption  attaches  to  and  follows  the  income  derived  from 
dividends  on  stock  of  federal  reserve  banks  in  the  hands  of  the  stockholders, 
so  that,  the  dividends  received  on  the  stock  of  Federal  reserve  banks  are 
not  subject  to  the  income  tax.  Dividends  paid  by  member  banks,  however, 
are  treated  like  dividends  of  ordinary  corporations.  (Art.  76,  Reg.  62, 
1922  Edition.) 

1667  Law  ^[129.  Taxable  Status  of  Interest  on  Obligations  of  the 
(Sec.  213.)  United  States  Issued  after  September  1,  1917. — 

“In  the  case  of  obligations  of  the  United  States  issued 
after  September  1,  1917  ( other  than  postal  savings  certificates  of  deposit ), 
and  in  the  case  of  bonds  issued  by  the  IV ar  Finance  Corporation,  the  interest 
shall  be  exempt  only  if  and  to  the  extent  provided  in  the  respective  Acts 
authorizing  the  issue  thereof  as  amended  and  supplemented , and  shall  be 
excluded  from  gross  income  only  if  and  to  the  extent  it  is  wholly  exempt  to 
the  taxpayer  from  income , war-profits  and  excess-profits  taxes — Law. 

[Note:  The  1918  Act  did  not  carry 

“(other  than  postal  savings  certificates 
of  deposit)”.] 

1668  Taxable  and  Exempt  Status  of  War  Finance  Corporation  Bond 
. Interest. — War  Finance  Corporation  bonds  are  issued  under  the 

authority  of  the  Act  of  April  5,  1918,  which  provides  that  the  interest  on 
the  amount  of  such  bonds,  the  principal  of  which  does  not  exceed  $5,000, 
shall  be  exempt  from  normal  taxes,  surtaxes,  excess  profits  and  war  profits 
taxes,  and  that  the  interest  received  by  a taxpayer,  independent  of  the  amount 
of  his  holdings,  is  exempt  from  normal  Federal  tax  [which  includes  the 
income  tax  on  corporations].  (Official  announcement  by  the  Bureau  of 
Internal  Revenue,  April  5,  1919.) 

1 669  [Comment:  Section  16  of  the  Act  of  April  5,  1918  (The  War  Finance 
Corporation  Act)  reads  in  part  as  follows:] 

Sec.  16.  That  any  and  all  bonds  issued  by  the  Corporation  shall 
be  exempt,  both  as  to  principal  and  interest,  from  all  taxation  now  or 
hereafter  imposed  by  the  United  States,  any  State,  or  any  of  the  pos- 
sessions of  the  United  States,  or  by  any  local  taxing  authority,  except 
(a)  estate  or  inheritance  taxes,  and  (b)  graduated  additional  income 
taxes,  commonly  known  as  surtaxes,  and  excess-profits  and  war-profits 
taxes,  now  or  hereafter  imposed  by  the  United  States,  upon  the  income 
or  profits  of  individuals,  partnerships,  corporations,  or  associations. 
The  interest  on  an  amount  of.  such  bonds  the  principal  of  which  does 
not  exceed  in  the  aggregate  $5,000,  owned  by  any  individual,  partner- 
ship, corporation,  or  association,  shall  be  exempt  from  the  taxes  referred 
to  in  clause  (b).”  [Comment:  Any  exemption  provided  by  the  above 
is  distinct  from  and  in  addition  to  any  exemption  applicable  to  interest 
on  Liberty  Bonds,  Victory  Notes,  Treasury  Certificates  of  Indebtedness, 
War  Savings  Certificates,  and  other  United  States  Government 
obligations.]* 

Copyright  1922.  by  The  Corporation  Trust  Company. 

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331 


2-27-22. 


(2)  4-10-22.  (3)  10-11-22J 


EXEMPT  INCOME. 


1570  Interest  Upon  United  States  Obligations.— Although  interest 
upon  the  obligations  of  the  United  States  and  its.  possessions  is 
generally  exempt  from  tax,  in  the  case  of  obligations  issued  by  the 
United  States  after  September  1,  1917,  which  include  Treasury  certi- 
ficates of  indebtedness,  Treasury  notes,  Treasury  (war)  saving  certificates, 
the  Liberty  bond  issues  (except  the  first  Liberty  loan  3)4  per  cent  bonds 
and  Victory  Liberty  loan  3)4  per  cent  convertible  notes),  and  Victory  Liberty 
loan  4%  per  cent  convertible  notes,  the  interest  is  exempt  from  tax  only  if 
and  to  the  extent  provided  in  the  acts  authorizing  the  issue  thereof,  .as 
amended  and  supplemented.  Treasury  notes,  Treasury  certificates  of.  in- 
debtedness, and  Treasury  (war)  savings,  certificates  have  the  exemptions 
described  in  paragraph  (2)  [^{1585]  of  article  83  and  all  of  these  certificates 
(but  not  the  notes)  also  have  the  exemptions  from  surtaxes  and  profits  taxes 
described  in  paragraph  (3)  [If  1586]  of  article  83.  Interest  credited. to  postal 
savings  accounts  upon  moneys  deposited  in  postal  savings  banks  is  exempt 
from  income  tax.  Interest  on  the  first  Liberty  loan  3)4  per  cent  bonds  and 
on  the  Victory  Liberty  loan  3%  per  cent  convertible  notes,  is  entirely  exempt 
from  Federal,  State,  and  local  taxation,  except  estate  or  inheritance  taxes, 
but  this  absolute  exemption  does  not  extend  to  the  bonds  of  the  first  Liberty 
loan  converted.  (Art.  77,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  91. 

Banks  carrying  Liberty  Bonds  for  customers;  interest  from  customers  (8-19-331 
O.  D.  192).  .1919  Cum.  Bull.  p.  211.  , , . 

Corporations  not  liable  to  tax  on  U.  S.  bond  interest  for  1922  and  thereafter;  1921 
\ct  (1-12-151:  I.  T.  1244). June  1922  Cum.  Bull.  p.  99.  See  TJ2067. 

“Date  of  tax  return”  (11-19-375:  O.  D.  213)..  1919  Cum.  Bull.  p.  85. 

Director  General  of  Railroads;  certificates  of  indebtedness  (10-19-356.  <J.  V.  20t>; 

Gift  of  coupons  from  nontax-free  Liberty  bonds  (3-19-181:  O.  D.  120)..  1919  Cum 

Partnership  reorganizing  as  corporation;  “original  subscriber”  (11-19-373:  O.  D. 

Philippines;  certificates  of  indebtedness  (1-19-46:  O.  D.  34).  .1919  Cum.  Bull.  p.  82. 
Porto  Rican  bonds  (3-20-684:  O.  D.  368).  .June  1920  Cum.  Bull.  p.  94. 

Same:  (34-20-1145:  O.  D.  637).  .Dec.  1920  Cum.  Bull.  p.  123.  . . 

Possession  of  U.  S.  guaranteeing  interest  on  bonds  of  corporation  operating  therein 
exclusively  (1921  Act)  (1-10-125:  I.  T.  1228).  .June  1922  Cum  Bull.  p.  9% 
Santo  Domingan  bonds;  while  under  our  military  occupation  (13-20-807.  U.  u. 
420) . -June  1920  Cum.  Bull.  p.  94. 

Treasury  certificates  of  indebtedness  issued  at  par  and  accrued  interest,  coupon 
interest  only  exempt:  subsequent  purchase  and  sale  at  discount  (46-20  1303. 
O.  D.  729).  .Dec.  1920  Cum.  Bull.  p.  123. 

War  Finance  Corporation  bonds  (1-19-116:  O.  781)  . .1919  Cum.  Bull.  p.  276. 

Same:  (11-19-374:  O.  D.  212)..  1919  Cum.  Bull.  p.  84. 


1671  Law  1f682.  Consolidation  of  Liberty  Bond  Tax  Exemptions.— 

(Sec.  1328.)  1 “Sec.  1328.  ( Revenue  Act  of  1921.)  That  the  various 

Acts  authorizing  the  issues  of  Liberty  bonds  are  amended 

and  supplemented  as  follows , 

1672  Law  1(683.  “( a ) On  and  after  January  1,  1921,  4 per  centum  and 

(Sec  1328  ) 4)4  Per  centum  Liberty  bonds  shall  be  exempt  from 

graduated  additional  income  taxes , commonly  known 
as  surtaxes , and  excess-profits  and  war-profits  taxes,  now  or  hereafter 
Copyright  1922,  by  The  Corporation  Trust  Company. 

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EXEMPT  INCOME. 


imposed  by  the  United  States  upon  the  income  or  profits  of  individuals, 
partnerships , corporations , or  associations , in  respect  to  the  interest  on 
aggregate  principal  amounts  thereof  as  follows 

1573  Law  684.  “ Until  the  expiration  of  two  years  after  the  date  of  the 

(See.  1328.)  termination  of  the  war  between  the  United  States  and 

the  German  Government , as  fixed  by  proclamation  of  the 
President , on  $125,000  aggregate  principal  amount;  and  for  three  years 
more  on  $50,000  aggregate  principal  amount 

1574  Law  ^[685.  “ (b)  The  exemptions  provided  in  subdivision  (a.)  shall 

(Sec.  1328.)  be  in  addition  to  the  exemptions  provided  in  section  7 of 

the  Second  Liberty  Bond  Act , and  in  addition  to  the 
exemption  provided  in  subdivision  (3)  of  section  1 of  the  Supplement  to  the 
Second  Liberty  Bond  Act  in  respect  to  bonds  issued  upon  conversion  of 
o]A,  per  centum  bonds , but  shall  be  in  lieu  of  the  exemptions  provided  and 
free  from  the  conditions  and  limitations  imposed  in  subdivisions  (1)  and  (2) 
of  section  1 of  the  Supplement  to  Second  Liberty  Bond  Act  and  in  section 
2 of  the  Victory  Liberty  Loan  Act.'’’ — Law.  [Note:  These  provisions 

are  new  to  the  1921  Act.] 

1575  Liberty  Bond  Exemptions,  as  Amended  and  Supplemented  by  the 
Revenue  Act  of  1921. — The  Liberty  bond  exemptions  from  sur- 
taxes, war-profits  and  excess-profits  taxes  under  the  Second  Liberty  Bond 
Act  of  September  24,  1917  (as  amended  by  the  Third  Liberty  Bond  Act  of 
April  4,  1918,  by  the  supplement  to  the  Second  Liberty  Bond  Act  approved 
September  24,  1918,  the  Fourth  Liberty  Bond  Act  of  July  9,  1918),  and  the 
Victory  Liberty  Loan  Act  of  March  3,  1919,  have  been  amended  and  supple- 
mented by  section  1328  of  the  Revenue  Act  of  1921.  It  provides  that  on 
and  after  January  1,  1921,  in  addition  to  the  exemptions  provided  in  section 
7 of  the  Second  Liberty  Bond  Act  and  in  subdivision  (3)  of  section  1 of  the 
supplement  to  the  Second  Liberty  Bond  Act,  but  in  lieu  of  the  exemptions 
provided  and  free  from  the  conditions  and  limitations  imposed  in  subdivi- 
sions (1)  and  (2)  of  section  1 of  the  supplement  to  the  Second  Liberty  Bond 
Act  and  in  section  2 of  the  Victory  Liberty  Loan  Act,  the  interest  on  the 
4 per  cent  and  4j£  per  cent  Liberty  bonds  shall  be  exempt  on  an  aggregate 
principal  amount  of  $125,000  of  such  bonds  until  the  expiration  of  two  years 
after  July  2,  1921,  the  date  of  the  termination  of  the  war  between  the  United 
States  and  the  German  Government  as  fixed  by  proclamation  of  the  Presi- 
dent, and  for  three  years  more  (from  July  3,  1923,  to  July  2,  1926)  on  an 
aggregate  principal  amount  of  $50,000  of  such  bonds.  Since  none  of  the 
Liberty  or  Victory  issues  is  subject  to  normal  income  tax,  and  since  the 
Revenue  Act  of  1921  repeals  the  excess-profits  and  war-profits  taxes  as  of 
January  1,  1922,  from  that  date  the  question  of  exemption  from  such  taxes 
is  immaterial  and  the  only  important  question  is  the  surtax  exemption. 
(Art.  78,  Reg.  62,  1922  Edition.) 

1576  Liberty  Bond  Exemption  Under  Second,  Third,  and  Fourth  Liberty 
Bond  Acts — Treasury  (War)  Savings  Certificates. — Under  the  Rev- 
enue Act  of  1921  the  exemption  provided  by  section  7 of  the  Second  Liberty 
Bond  Act  of  September  24,  1917,  has  not  been  changed.  Section  7 of  the 
Second  Liberty  Bond  Act  of  September  24,  1917,  as  amended  by  the  Third 
Liberty  Bond  Act  of  April  4,  1918,  and  by  the  Fourth  Liberty  Bond  Act  of 
July  9,  1918,  provides  that  in  addition  to  the  entire  exemption  of  interest 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

333 


2-27-22.  (2)  3-15-22. 


EXEMPT  INCOME. 


on  first  Liberty  loan  3j^  per  cent  bonds,  there  shall  be  exempt  from  normal 
income  tax  all  interest  on  first  Liberty  loan  converted  4 per  cent  bonds 
first  Liberty  loan  converted  4 ]4  per  cent  bonds,  first  Liberty  loan  second 
converted  4^  per  cent  bonds,  second  Liberty  loan  4 per  cent  bonds,  second 
Liberty  loan  converted  4JJ  per  cent  bonds,  third  Liberty  loan  4 per  cent 
bonds,  and  fourth  Liberty  loan  4j£  per  cent  bonds,  Treasury  certificates  of 
indebtedness,  and  Treasury  (war)  savings  certificates.  Interest  on  an  aggre- 
gate of  not  exceeding  $ 5,000  principal  amount  of  bonds  included  in  such 
later  issues,  bonds  of  the  first  Liberty  loan  converted,  Treasury  certificates 
of  indebtedness,  and  Treasury  (war)  savings  certificates  shall  be  exempt  from 
surtaxes  and  war-profits  and  excess-profits  taxes,  as  well  as  normal  tax. 
Interest  in  excess  of  the  interest  on  not  exceeding  $5,000  principal  amount 
° such  bonds  and  certificates  may,  however,  be  subject  to  surtaxes  and  to 
the  war-profits  and  excess-profits  tax  and  may  accordingly  be  required  to  be 
included  in  gross  income. 

1577  T^aSUry  (War)  savin£s  certificates  are  issued  under  the  Second 
Liberty  Bond  Act  and  include  war  savings  certificates  and  Treasurv 
savings  certificates.  The  principal  amount  of  such  certificates  for  the  pur- 
pose of  computing  the  exemption  is  their  issue  price.  The  difference  between 
. e.  amount  paid  and  the  amount  received  is  income  to  the  holder  to  be 
assigned  cntiiely  to  the  year  of  its  receipt  if  the  holder  reports  on  a cash 
basis,  or  to  be  apportioned  (on  the  basis  of  published  redemption  prices)  to 
the  years  of  its  accrual,  if  he  reports  on  an  accrual  basis.  (Art.  79,  Reg  62 
1922  Edition.)  v ’ 5 ’ 

*Savings  Certificates. — T.  D.  3301,  Supplementing  Art.  79  above.  .^[3087. 

15  78  Liberty  Bond  Exemption  Under  Supplement  to  Second  Liberty  Bond 
Act,  as  Amended  by  the  Revenue  Act  of  1921.— The  Revenue  Act 

19^1  ln.  effect  repeals  subdivisions  (1)  and  (2),  but  retains  subdivision 
(3),  ot  Section  1 of  the  Supplement  to  the  Second  Liberty  Bond  Act,  approved 
September  24,  1918.  Subdivision  (3)  provides: 

The  interest  on  an  amount  of  bonds,  the  principal  of  which  does  not 
exceed  $30,000,  owned  by  any  individual,  partnership,  association,  or 
corporation,  issued  upon  conversion  of  3j/£  per  centum  bonds  of  the  first 
Liberty  loan  in  the  excercise  of  any  privilege  arising  as  a consequence 
of  the  issue  of  bonds  of  the  Fourth  Liberty  loan,  shall  be  exempt  from 
such  taxes. 

1579  This  exemption  from  surtaxes  and  profits  taxes  expires  July  2,  1923, 
and  is  in  addition  to  the  exemption  provided  in  section  7 of  the 
Second  Liberty  Bond  Act  (see  art.  79)  in  respect  to  the  interest  on  an  amount 
o bonds  and  certificates,  authorized  by  such  Act  and  amendments  thereto, 
the  principal  of  which  does  not  exceed  in  the  aggregate  $5,000.  Accord- 
in8*7>  the  exemption  from  surtaxes  and  war-profits  and  excess-profits  taxes 
covers,  and  there  may  be  excluded  from  gross  income,  the  interest  received 
on  not  exceeding  $5,000  principal  amount  in  the  aggregate  of  4 and  4J4  per 
cent  bonds,  Treasury  certificates  of  indebtedness,  and  Treasury  (war)  sav- 
ings certificates  apportioned  as  the  taxpayer  may  choose;  and  also,  until 
the  expiration  of  two  years  after  July  2,  1921  (the  date  of  the  termination 
of  the  war  between  the  United  States  and  the  German  Government,  as 
hxed  by  proclamation  of  the  President),  the  interest  received  on  not  exceed- 
ing $30,000  principal  amount  of  first  Liberty  loan  second  converted  4V4 
per  cent  bonds  (dated  Oct.  24,  1918).  (Art.  80,  Reg.  62,  1922  Edition.) 

Savings  Certificates. — T.  D.  3301,  Supplementing  Art.  80  above.  .Tf3087. 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
334 


2-27-22.  (2)  3-14-22.  (3)  10-11-22. 

EXEMPT  INCOME. 

1580  Exemptions  on  Victory  Notes. — The  specific  exemptions  on  notes 
of  the  Victory  Liberty  loan  are  those  prescribed  by  the  Secretary  of 

the  Treasury  pursuant  to  the  Victory  Liberty  Bond  Act.  The  Victory 
Liberty  loan  3%"  per  cent  convertible  gold  notes  are  exempt,  both  as  to  prin- 
cipal and  interest,  from  all  taxation  now  or  hereafter  imposed  by  the  United 
States,  any  State,  or  any  of  the  possessions  of  the  United  States,  or  any 
local  taxing  authority,  except  estate  or  inheritance  taxes.  The  Victory 
Liberty  loan  4J4  per  cent  convertible  gold  notes  arc  exempt,  both 
as  to  principal  and  interest,  from  all  taxation  now  or  hereafter  imposed  by 
the  United  States,  any  State,  or  any  of  the  possessions  of  the  United  States, 
or  any  local  taxing  authority,  except  (a)  estate  or  inheritance  taxes,  and 
(b)  surtaxes,  excess-profits  and  war-profits  taxes,  now  or  hereafter  imposed 
by  the  United  States,  upon  the  income  or  profits  of  individuals,  partnerships, 
associations,  or  corporations.  (Art.  81,  Reg.  62,  1922  Edition.) 

1581  Interest  Accrued  Upon  Conversion  of  Victory  Notes. — All  interest 
accrued  on  424  per  cent  Victory  notes  at  the  date  of  any  conversion 

by  the  taxpayer  into  324  per  cent  Victory  notes  shall,  for  the  purpose  of 
computing  net  income,  be  deemed  to  be  interest  upon  424  Per  cent  Victory 
notes,  and  subject  to  surtaxes  and  excess-profits  and  war-profits  taxes,  now 
or  hereafter  imposed  by  the  United  States  upon  the  income  or  profits  of 
individuals,  partnerships,  associations,  or  corporations.  Any  and  all  amounts 
received  by  any  taxpayer  from  the  United  States  by  way  of  adjustment  of 
accrued  interest  upon  the  conversion  of  4%  per  cent  Victory  notes  into  3% 
per  cent  Victory  Notes  shall  be  deemed  to  be  interest  upon  424  Per  cent  Victory 
notes. 

1582  All  interest  accrued  on  324  per  cent  Victory  notes  at  date  of  any 
conversion  by  the  taxpayer  into  424  per  cent  Victory  notes  shall, 

for  the  purpose  of  computing  net  income,  be  deemed  to  be  interest  upon 
324  per  cent  Victory  notes  and  shall  be  entitled  to  the  exemptions  from 
taxation  to  which  interest  on  324  per  cent  Victory  notes  is  entitled.  (Art. 
82,  Reg.  62,  1922  Edition.) 


1 583  Summaiy  of  Tax  Exemptions  of  Liberty  Bonds  and  Victory  Notes, 
as  Amended  and  Supplemented  by  the  Revenue  Act  of  1921. — Lib- 
erty bonds  and  Victory  notes  issued  under  the  authority  of  the  Acts  of 
Congress  approved  April  24,  1917,  September  24,  1917,  April  4,  1918,  July 
9,  1918,  September  24,  1918,  and  March  3,  1919,  are  entitled  to  the  follow- 
ing exemptions  on  and  after  January  1,  1921 : 

1584  (1)  3J4  Per  cent  bonds  and  324  Per  cent  notes  are  exempt  from  all 
Federal,  State,  and  local  taxation,  except  estate  or  inheritance  taxes, 

as  follows: 


1.  First  Liberty  loan  3J4  per  cent 
bonds  of  1932-1947 — 

2.  Victory  Liberty  loan  324  per 
cent  convertible  gold  notes  of 
1922-1923— 


are  exempt,  both  as  to  principal  and 
interest,  from  all  taxation  (except 
estate  or  inheritance  taxes)  now  or 
hereafter  imposed  by  the  United 
States,  any  State,  or  any  of  the  pos- 
sessions of  the  United  States,  or  by 
any  local  taxing  authority. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


335 


£ 2-27-22.  (2)  8-14-22.  (3)  10-11-22. 

EXEMPT  INCOME. 

1 585  (2)  4 per  cent  and  4 per  cent  Liberty  bonds  and  4%  per  cent  Vic- 
tory notes  are  exempt,  both  as  to  principal  and  interest,  from  all 

taxation  now  or  hereafter  imposed  by  the  United  States,  any  State,  or  any 
of  the  possessions  of  the  United  States,  or  by  any  local  taxing  authority, 
except  (a)  estate  or  inheritance  taxes,  and  (b)  surtaxes  and  excess-profits 
and  war-profits  taxes,  now  or  hereafter  imposed  by  the  United  States,  upon 
the  income  or  profits  of  individuals,  partnerships,  associations  or  corporations. 

1586  f (3)  4 per  cent  and  4J£  per  cent  Liberty  bonds  (but  not  4%  per  cent 
( Victory  notes),  Treasury  certificates  of  indebtedness,  and  Treasury 

(war)  savings  certificates  are  entitled  to  certain  limited  exemptions 
from  surtaxes  and  excess-profits  taxes  now  or  hereafter  imposed  by  the 
United  States.  As  to  4%  per  cent  Victory  notes,  see  article  81.  For  the 
period  from  January  1,  1921,  to  July  2,  1923,  the  total  possible  exemption 
from  surtaxes  and  profits  taxes  amounts  to  $160,000,  while  for  the  period 
from  July  3,  1923,  to  July  2,  1926,  the  total  possible  exemption  amounts  at 
$55,000,  as  follows: 

Period  Jan.  1,  1921,  to  July  2,  1923: 

$5,000  in  the  aggregate  of  first  4s,  first  4)4s,  first  second  4j4s,  second  4s 
and  4J4s,  third  4j£s,  fourth  4j|s,  Treasury  certificates  of  in- 
debtedness, and  Treasury  (war)  savings  certificates. 

30,000  of  first  second  4j£s. 

125,000  in  the  aggregate  of  first  4s,  first  4J4s,  first  second  4j^s,  second  4s 
and  4j4s,  third  4%s,  and  fourth  4%s. 


$160,000  total  possible  exemptions  for  this  period. 

Period  July  3,  1923,  to  July  2,  1926: 

$5,000  in  the  aggregate  of  first  4s,  first  4j£s,  first  second  4j^s,  second  4s 
and  4j£s,  third  4j£s,  fourth  4J4S>  Treasury  certificates  of  in- 
debtedness, and  Treasury  (war)  savings  certificates. 

50,000  in  the  aggregate  of  first  4s,  first  4J4S>  first  second  4j£s,  second  4s 
and  4)4s,  third  4J4s,  and  fourth  4%s. 

$55,000  total  possible  exemptions  for  this  period. 

(Art.  83,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

On  the  computation  of  taxable  interest  on  U.  S.  obligations.  .^3037.  Same  (1921 
Act)  (1-10-126:  I.  T.  1229).  .June  1922  Cum.  Bull.  p.  102. 

Savings  Certificates. — T.  D.  3301,  Supplementing^Art.  83'above.  . 1(3087. 


1587  Liberty  Bond  Exemption  in  the  Case  of  Trusts  or  Partnerships.— 

(a)  When  income  is  taxable  to  beneficiaries,  as  in  the  case  of  a trust 
the  income  of  which  is  to  be  distributed  to  the  beneficiaries  periodically, 
each  beneficiary  is  regarded  as  the  owner  of  a proportionate  part  of  the 
bonds  held  in  trust  and  is  entitled  to  exemption  on  account  of  such  owner- 
ship as  if  he  owned  such  proportionate  part  of  the  bonds  directly.  When, 
on  the  other  hand,  income  is  taxable  to  the  trustee,  as  in  the  case  of  a trust 
the  income  of  which  is  accumulated  for  the  benefit  of  unborn  or  unascer- 
tained persons,  the  trustee  is  regarded  as  the  owner  of  all  the  bonds  held 
in  trust  and  the  trust  is  entitled  to^exemption  on  account  of  such  ownership. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
336 


2-27-22.  (2)  4-10-22. 


EXEMPT  INCOME. 


As  to  exemptions  in  the  case  of  bonds  beneficially  owned  by  nonresident 

aliens,  see  article  94  [^[2 100].  . . . ,.  , 

1588  (b)  As  the  income  of  a partnership  is  taxable  to  the  individual 

partners,  each  partner  is  treated  as  the  owner  of  a proportionate  part 
of  the  bonds  held  by  the  partnership  and  is  entitled  to  exemption  on  account 
of  such  ownership  as  if  he  owned  such  proportionate  part  of  the  bonds  direct  y. 
This  principle  also  applies  to  stockholders  in  personal  service  corporations 
during  the  calendar  year  1921.  (Art.  84,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Nonresident  alien  life  beneficiary  (16-20-861:  0.  D.  464).. June  1920  Cum.  Lull. 

Partner  buying  from  partnership;  “original  subscriber”  (2-20-672:  O.  D.  362) . .June 
1920  Cum.  Bull.  p.  95. 


1589  Return  for  Fiscal  Year  Ending  in  1921. — In  the  case  of  a return 
rendered  for  a fiscal  year  beginning  in  1920  and  ending  in  1921,  the 
interest  received  from  obligations  of  the  United  States  issued  after  September 
1,  1917,  is,  in  respect  to  the  amount  received  prior  to  January  1,  1921,  exempt 
only  if  and  to  the  extent  provided  in  the  acts  authorizing  the  issue  thereof. 
See  article  80,  Regulations  45  [If  1230,  1921  Income  Tax.  Service].  The  in- 
terest received  on  and  after  January  1,  1921,  is  exempt  in  accordance  with 
the  acts  authorizing  the  issue  thereof  as  amended  and  supplemented  by 
section  1328  of  the  Revenue  Act  of  1921.  See  article  83  [If  1583].  Since  the 
basis  of  the  exemptions  is  the  principal  amount  of  bonds  held  rather  than 
the  amount  of  interest  received,  where  the  holdings  are  not  constant  during 
the  taxable  period,  if  at  any  time  the  holdings  of  any  issue  or  issues  are  less 
than  the  maximum  exempted  principal,  then  the  exempted  interest  for  such 
time  shall  be  only  the  amount  of  interest  received  or  accrued  upon  the  prin- 
cipal actually  held.  (Art.  85,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  91. 

$5,000  aggregate  held  any  time  during  year  (12-19-401:  O.  D.  227)..  1919  Cum. 

Bull.  p.  90.  _ . / 1,,. 

Affiliated  corporation;  each  a separate  entity  for  exemption  purposes  (2-19-171: 
T.  B.  R.  7).  .1919  Cum.  Bull.  p.  87. 

Banks  as  “original  subscribers”  in  event  of  default  by  customers  (6-19-271:  I . K. 

28).  .1919  Cum.  Bull.  p.  88.  . _ 

Banks;  great  many  changes  in  holdings  during  year  (1-19-43:  O.  D.  31).  .1919  Cum. 

Computation  based  on  full  amount  subscribed  for  and  still  carried  (1-19-40:  O.  D. 
28)..  1919  Cum.  Bull.  p.  89;  modified  by  (19-20-913:  O.  D.  493).. June  1920 
Cum.  Bull.  p.  94.  . ~ 

Consolidation  of  corporations;  “original  subscriber”  (28-20-1052:  O.  D.  577)..  Dec. 
1920  Cum.  Bull.  p.  124. 

“Date  of  tax  return”  (11-19-375:  O.  D.  213) ..  1919  Cum.  Bull.  p.  85. 

Same:  executor  for  decedent  to  time  of  death  (49-20-13o3:  O.  D.  742).. Lee. 
1920  Cum.  Bull.  p.  124. 

Decedent’s  estate  and  the  residuary  legatee;  “original  subscriber  (49-20-1333: 
O.  D.  742).  .Dec.  1920  Cum.  Bull.  p.  124.  „ „ 

Form  1125  not  applicable  for  1918  (19-20-912:  O.  D.  492) . .June  1920  Cum.  Bull.  p.  94. 
Inheriting;  “original  subscriber”  (8-20-752:  O.  D.  405).  . June  1920  Cum.  Bull.  p.  94. 
Same  (49-20-1333:  O.  D.  742).  .Dec.  1920  Cum.  Bull.  p.  124. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

337 


2-27-22.  (2)  4-10-22. 


EXEMPT  INCOME. 


“original  subscriber” 


Partner  buying  from  corporation  organized  by  partnership- 
(20-20-932:  O.  D.  502).  .June  1920  Cum.  Bull.  p.  95. 

Partnership  reorganized  as  corporation;  “original  subscriber”  (11-19-373-  O D 
Bull  p 95  CUm'  BU  ' P'  84:  alS°  (2°-2°-932:  °-  D-  502).. June  1920  Cum! 
‘Pennsylvania;  Masters:  1918  and  1921  Acts  (1-12-153:  I.  T.  1245).  .Bull.  I (’22)- 

Registered  for  coupon,  same  issue,  or  large  for  small  denomination,  or  vice  versa; 

original  subscriber”  (45-20-1290:  O.  D.  718).  .Dec.  1920  Cum.  Bull.  p.  124. 
Remaindermen  taking  on  death  of  life  tenant:  “original  subscriber”  (34-21-1779- 
O.  D.  1000).  .Dec.  1921  Cum.  Bull.  p.  104.  ' 

Summary  of  exemptions  prior  to  Jan.  1,  1921  (2-19-148:  T.  D.  2836)  1919  Cum 

Bull.  p.  85.  ' ’ 

Victory  notes:  one  issue  converted  into  the  other  (6-19-272-  T.  D.  2865)  1919 

Cum.  Bull.  p.  87.  J * ' 


1590  Liberty  Bonds  and  Victory  Notes,  etc.,  Beneficially  Owned  by  Non- 
resident Aliens,  Foreign  Corporations,  etc. — Read  at  lf2100. 

1591  Application  of  Exemption  When  Several  Members  of  Family  In- 
vest in  Liberty  Bonds. — (Question.)  Please  answer  by  wire  at 

once  if  possible  our  telegram,  October  second,  as  follows:  “If  husband, 

wife  and  minor  children  each  hold  new  Liberty  fours  and  make  joint  in- 
come tax  return  will  each  member  of  such  family  be  tax  exempt  as  to  $5,000 
bonds  each.  Wire  answer  to-day  if  possible.”  Information  very  important 
in  campaign  selling  Liberty  Bonds.  (Answer.)  Husband  and  wife  each 
owning  in  own  right  Liberty  Loan  Bonds  and  certificates  not  exceeding 
hve  thousand  dollars  each  entitled  to  exemption  provided  by  Section  Seven 
B,  Loan  Act.  Minor  children  having  separate  estates  each  entitled  to  same 
exemption.  (Telegram  to  Commissioner  of  Internal  Revenue  from  Lee, 
Higginson  & Co.,  Boston,  Mass.,  and  the  reply  thereto,  signed  by  Acting 
Secretary  of  the  Treasury  O.  T.  Crosby,  and  dated  October  8,  1917.) 

1592  Liberty  Bond  Exemption  in  the  Case  of  Corporations  and  Their 
Shareholders. — Income  of  a corporation  as  such  is  taxable  to  the 

corporation  and  is  not  taxable  to  the  stockholders.  The  corporation,  and 
not  the  stockholders,  is  regarded  as  the  owner  of  the  bonds  held  by  the  cor- 
poration and  entitled  to  exemption  on  account  of  such  ownership.  * * * 

[See  If  1588.]  (T.  D.  2762,  Oct.  21,  1918.) 

1593  No  Ownership  Certificates  Required  in  Connection  With  United 
States  Bond  Interest.— Read  at  ^[2265. 

1594  Law  If  130.  Income  of  Foreign  Governments  from  United  States 

(Sec.  213.)  Sources. — “(5)  [Gross  income  does  not  include ] The 
income  of  foreign  governments  received  from  invest- 
ments in  the  U nited  States  in  stocks , bonds , or  other  domestic  securities , 
owned  by  such  foreign  governments , or  from  interest  on  deposits  in  banks 
in  the  United  States  of  moneys  belonging  to  such  foreign  governments , or 
from  any  other  source  within  the  United  States-,” — Law.  [Note:  The 

1918  Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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338 


8-27-22.  (2)  4-10-22.  (3)  0-27-22.  (4)  10-11-22.  (5)  11-4-22. 

EXEMPT  INCOME. 


1695  The  exemption  of  income  of  foreign  governments  applies  also  to 
their  political  subdivisions.  Any  income  collected  by  foreign  gov- 
ernments from  investments  in  the  United  States  in  stocks,  bonds  or  other 
domestic  securities,  which  are  not  actually  owned  by  but  are  loaned  to 
luch  foreign  governments,  is  subject  to  tax.  The  income  from  investments 
in  the  United  States  in  bonds  and  stocks  and  from  interest  on  bank  balances 
received  by  ambassadors  and  ministers  accredited  to  the  United  States  and 
the  fees  of  foreign  consuls,  are  exempt  from  tax,  but  income  of  such  foreign 
officials  from  any  business  carried  on  by  them  in  the  United  States  would  be 
taxable.  As  under  international  law  the  benefits  and  immunities  of  am- 
ba  ssadors  and  ministers  of  foreign  countries  extend  to  the  members  of  their 
households,  including  attaches,  secretaries,  and  servants,  the  foregoing  pro- 
vision is  likewise  applicable  to  the  wives  and  minor  children  of  foreign  am- 
ba  ssadors  and  ministers  and  the  members  of  their  households.  The  com- 
pensation of  citizens  of  the  United  States  who  are  officers  or  employees  of  a 
foreign  government  is.  however,  not  exempt  from  tax.  (Art.  86,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ambassador’s  wives  (5-19-248:  O.  D.  153).  1919  Cum.  Bull.  p.  90:  Overruled  (48- 
21-1945:  O.  D.  1115).  .Dec.  1921  Cum.  Bull.  p.  104.  Art.  83,  Reg.  45  (1920  Ed.) 
amended  accordingly  by  T.  D.  3266.  .June  1922  Cum.  Bull.  p.  102.  Taxable 
on  income  from  rents  but  not  on  that  from  stocks,  bonds  or  bank  deposits;  1921 
1921  Act  (1-39-515:  I.  T.  1451).  .Bull.  I (’22)-39,  p.  1. 

Commonwealth  Bark  of  Australia  (33-20-1 129:  O.  D.  628).  .Dec.  1920  C.  B.  p.  124. 

Consul  acting  as  administrator  of  estate  of  fellow  countryman;  fees  taxable:  1921  Act 
(1-13-180:  1.  T.  1254).  .June  1922  Cum.  Bull  p.  103. 

* Consul:  term  includes  consular  officers  but  not  consulate  employees:  1921  Act 
(1-42-550:  I.  T.  1472).. Bull.  I (’22)-42,  p.  2. 

Consuls;  interest  on  investments  and  bank  balances;  exemption  is  not  extended  to 
(29-19-624:  0.  D.  336) . . 1919  Cum.  Bull.  p.  91. 

Delegates  representing  foreign  government;  (8-19-315:  O.  D.  182).. 1919  Cum. 
Bull.  p.  90. 

Foreign  ruler;  personal  and  Crown  property  income  (18-20-895:  O.  D.  483)..Jun« 
1920  Cum.  Bull,  p 96. 

Legation  bank  funds;  interest  (44-20-1275:  O.  D.  710).  .Dec.  1920  Cum.  Bull.  p.  125. 

Residents  and  citizens  of  U S.,  employed  by  foreign  government  (9-19-339:  0.  D. 
196) . .1919  Cum.  Bull.  p.  90. 

Stock  of  foreign  bank  owned  in  part  by  foreign  government  (15-20-844:  O.  D.  448) 
. .June  1920  Cum.  Bull.  p.  96. 

Stock  of  foreign  corporation  owned  by  foreign  government  to  extent  of  51%  (26-21- 
1702:  O.  D.  958).  June  1921  Cutn.  Bull.  p.  111. 

Vessels  owned  or  chartered  (21-20-951:  O.  D.  515).  .June  1920  Cum.  Bull.  p.  96. 

1696  Law  132.  Income  Arising  Through  the  Exercise  of  an  Essential 
(Sec.  213.)  Governmental  Function  and  Accruing  to  Any  State, 

etc. — “(7)  [ Gross  income  does  not  include \ Income 
derived  from  any  public  utility  or  the  exercise  of  any  essential  govern- 
mental function  and  accruing  to  any  State , Territory , or  the  District  of 
Columbia , or  any  political  subdivision  of  a State  or  Territory , or  income 
accruing  to  the  government  of  any  possession  of  the  United  States , or  any 
political  subdivision  thereof.” — Law.  [Note:  The  1918  Act  so 

provided.] 

1697  Law  133.  “ Whenever  any  State,  Territory,  or  the  District  of 

t , (Sec.  213.)  Columbia,  or  any  political  subdivision  of  a State  or  Ter- 

ritory,  prior  to  September  8,  1916,  entered  in  good  faith 
into  a contract  with  any  person,  the  object  and  purpose  of  which  is  to  ac- 

Copyrigltt  1922,  by  Tht  Corporation  Trurt  Company. 

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1-27-22.  (2)  4-10-22.  (3)  8-27-22.  (4)  10-11-22.  (6)  11-4-22. 

EXEMPT  INCOME. 

quire,  construct,  operate,  or  maintain  a public  utility,  no  tax  shall  be  levied 
under  the  provisions  of  this  title  upon  the  income  derived  from  the  opera- 
tion of  such  public  utility , so  far  as  the  payment  thereof  will  impose  a loss 
or  burden  upon  such  State , Territory , District  of  Columbia , or  political 
Subdivision-,  but  this  provision  is  not  intended  and  shall  not  be  construed 
to  confer  upon  such  person  any  financial  gain  or  exemption  or  to  relieve 
Such  person  from  the  payment  of  a tax  as  provided  for  in  this  title  upon 
the  part  or  portion  of  such  income  to  which  such  person  is  entitled  under 
such  contract;” — Law.  [Note:  The  1918  Act  so  provided,  in  effect.1 

1698  Income  of  States. — Income  derived  from  any  public  utility  or  the 
exercise  of  any  essential  governmental  function  and  accruing  to 
any  State  or  Territory  of  the  United  States,  or  to  any  political  subdivi- 
»ion  thereof,  or  to  the  District  of  Columbia,  or  income  accruing  to  the  gov- 
ernment of  any  possession  of  the  United  States,  or  any  political  subdivision 
thereof,  is  exempt  from  tax.  See  article  74  [for  political  subdivisions  ^1564). 
The  income  of  State  workmen’s  compensation  insurance  funds  established 
by  State  statutes  is  not  taxable.  In  the  case  of  a public  utility  acquired, 
constructed,  operated,  or  maintained  by  a taxpayer  under  contract  with  any 
State,  Territory,  or  political  subdivision  thereof,  or  with  the  District  of 
Columbia,  containing  an  agreement  that  a portion  of  the  net  earnings  of 
luch  public  utility  shall  be  paid  to  the  State,  Territory,  or  political  subdivision 
thereof,  or  the  District  of  Columbia,  the  amount  so  paid  may  be  deducted  by 
the  taxpayer  as  a necessary  expense  in  transacting  business.  See  section  214 
(a)  (1)  of  the  statute.  (Art.  87,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Employers’  mutual  liability  insurance  company  created  by  Act  of  State  Legislature  la 
not  exempt  (43-21-1883:  O.  D.  1074).. Dec.  1921  Cum.  Bull.  p.  105. 

Property  willed  to  municipality  in  trust  ( 14-19-433:  O.  895) . . 1919  Cum.  Bull.  p.  91. 

Property  willed  to  State;  income  received  during  administration  of  estate,  other  asset* 
being  ample  to  satisfy  creditors  (18-20-896:  S.  1374)  . June  1920  Cum.  Bull.  p.  96. 

Public  utility;  common  stock  all  owned  by  town;  preferred  stock  to  be  redeemed  a* 
soon  as  possible,  after  which  plant  becomes  property  of  town  (28-19-612:  O.  D. 
328).  . 1919  Cum.  Bull.  p.  93. 

•k  Public  utility:  stock  all  owned  by  private  interests;  plant  leased  to  and  operated  by  a 
city  which  assumes  any  income  tax  burden;  rental  is  taxable  income  to  utility: 
1918  Act  (T-42-551:  A.  R.  R.  1169).  .Bull.  I f22)-42,  p.  2. 

Railroad  constructed  by  certain  townships  and  a county;  rental*  from  lease  thereof 
(14.10-434:  O.  D 250).  . 1919  Cum.  Bull.  p.  92. 

Remainderman-beneficiary  of  trust-estate  income  (28-21-1724:  O.  D.  972).. Dec. 
1921  Cum.  Bull.  p.  104. 


1699  Compensation  of  State  Officers. — Compensation  paid  its  officer* 
and  employees  by  a State  or  political  subdivision  thereof,  including 
fees  received  by  notaries  public  commissioned  by  States  and  the  commis- 
sions of  receivers  appointed  by  State  courts,  is  not  taxable.  Compensat  on 
received  for  services  rendered  to  a State  or  a political  subdivision  thereof  is 
included  in  gross  income  unless  the  person  receives  such  compensation  a* 
•n  officer  or  employee  of  a State  or  political  subdivision.  An  officer  is  a 
person  who  occupies  a position  in  the  service  of  the  State  or  political  sub- 
division, the  tenure  of  which  is  continuous  and  not  temporary  and  the  dutie* 
of  which  are  established  by  law  or  regulations  and  not  by  agreement.  An 
employee  is  one  whose  duties  consist  in  the  rendition  of  prescribed  service* 

Copyright  1922.  by  The  Corporation  Trust  Company. 

the.  federal  income  tax  service 
340 


*-27-22.  (2)  4-10-22.  (2)  6-10-22.  (4)  6-26-22.  (6)  6-2-22. 

EXEMPT  INCOME. 


(6)  10-4-22  (7)  10-11-22. 


and  not  the  accomplishment  of  specific  objects,  and  whose  services  are  con- 
tinuous, not  occasional  or  temporary.  ^Employees  of  universities  receiving 
salaries  paid  in  part  or  in  whole  from  funds  available_under  the  Smith-Lever 
Act  of  May  8,  1914,  who  are  officers  or  employees  of  a State,  are  not  required 
to  return  as  taxable  income  the  salaries  so  received.  This  is  also  true  with 
respect  to  the  Act  of  August  30,  1890,  relating  to  colleges  for  the  benefit  of 
agriculture  and  the  mechanic  arts,  and  to  the  Act  of  March  2,  1887,  relating 
to  agricultural  experiment  stations  in  such  colleges.  As  to  State  contracts, 
*ee  article  37  [*ff  1 184].  (Art.  88,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

A general  discussion  by  solicitor  (45-21-1906:  A.  R.  R.  664:  Sol.  Op.  122).. Dec. 
1921  Cum.  Bull.  p.  107.  Further  discussion  applicable  particularly  to  real  estate 
and  building  experts  engaged  in  local  improvement  work  (1)  subject,  and  (2)  not 
subject,  to  direction  and  control  of  State  or  municipal  agency:  1918  Act  (1-40- 
535:  Sol.  Op.  145).  .Bull.  I (’22)-40,  p.  9. 

Appraisals  of  property  made  by  outside  experts  for  city  on  percentage  basis  (43-21- 
1884:  O.  D.  1075).. Dec.  1921  Cum.  Bull.  p.  107.  See  “A  general  discussion” 
above. 

Appraiser  appointed  by  State  court  for  corporation  in  receiver’s  hands;  fee  fixed  by 
court  is  not  compensation  paid  to  a “State  officer  or  employee”:  1918  Act  (1-20- 
270:  I.  T.  1305).  .June  1922  Cum.  Bull.  p.  104. 

Attorney  to  collector  of  revenue  of  a county  under  a state  statute  (46-21-1919:  O.  D. 
1099).. Dec.  1921  Cum.  Bull  p.  113. 

Bank  as  depositary  for  State  funds;  commissions  are  not  exempt  (45-21-1907:  O.  D 
1090).  .Dec.  1921  Cum.  Bull.  p.  113. 

Causeway  owned  by  railroads  and  county  jointly;  railroads  employ  and  pay  help 
although  county  contributes  its  share  (25-20-1013:  O.  D,  553).  .June  1920’  Cum. 
Bull.  p.  101. 

Chief  engineer;  sewer  commission  (25-19-582:  O.  D.  309) . . 1919  Cum.  Bull.  p.  96. 
Confederate  Civil  War  Veterans:  here,  pensions  paid  by  Kentucky  (19-21-1617:  O D 
903) . .June  1921  Cum.  Bull.  p.  112. 

Connecticut;  trustees  of  a corporation  in  dissolution  (3-20-685:  O.  D.  369).  .June  1920 
Cum.  Bull.  p.  98. 

Consulting  and  supervising  engineers  on  contract  with  State  but  accepting  general 
public  business  (24-20-1001:  O.  D.  545).  .June  1920  Cum.  Bull.  p.  100. 

County  surveyor  (1-19-45:  O.  D.  33).  .1919  Cum.  Bull.  p.  96. 

Court  clerks  employing  assistants  paying  them  out  of  fees  (18-20-897:  O.  D.  484) 
June  1920  Cum.  Bull.  p.  99. 

Deputy  sheriffs:  New  Hampshire  (1853:  O.  D.  1053).. Dec.  1921  Cum.  Bull.  p.  106 
Executors  and  administrators  (16-19-459:  O.  D.  256) . . 1919  Cum.  Bull,  p 96 
Jury  fees  (14-20-826:  O.  D.  434) . .June  1920  Cum.  Bull.  p.  98. 

National  Guardsmen  (23-21-1675:  O.  D.  942).  .June  1921  Cum.  Bull.  p.  112. 

New  York;  attorney  representing  State  Comptroller  in  his  official  capacity  (19-20-914- 
O.  D.  494).  .June  1920  Cum.  Bull.  p.  99. 

Nonresident  alien  employees  (19-19-497:  O.  D.  274) . . 1919  Cum.  Bull.  p.  96. 

Officials  exercising  duties  without  statutory  authority:  paid  from  endowment  fund 
(15-20-845:  O.  D.  449).. June  1920  Cum.  Bull.  p.  98. 

Partner;  notary’s  fees  received  and  turned  over  to  partnership  (35-20-1167:  0.  D.  6481 
..Dec.  1920  Cum.  Bull.  p.  125. 

Partner;  salary  paid  by  city  turned  over  to  partnership  (4-20-702:  A.  R.  M.  25) . . Tune 

1920  Cum.  Bull.  p.  104. 

Pennsylvania;  Masters:  1918  and  1921  Acts  (1-12-153:1.  T.  1245).  .June  1922 
Cum.  Bull.  p.  103. 

Pensions  from  State,  etc.  (14-20-826:  O.  D.  434) . June  1920  Cum.  Bull.  p.  98. 
Physician’s  fees  paid  by  State  industrial  commission  from  funds  contributed  by  em- 
ployers of  labor  (38-21-1828:  O.  D.  1038).. Dec.  1921  Cum.  Bull.  p.  106. 

Pilot  (Florida)  (20-21-1636:  O.  D.  916)..  June  1921  Cum.  Bull.  p.  112.  Affirmed 
(1-22-313:  A.  R.  R.  933).  .June  1922  Cum.  Bull.  p.  108. 

Public  library  employees  (under  certain  conditions)  (28-21-1725:  O.  D.  973)  Dec 

1921  Cum.  Bull.  p.  106. 

Receiver  for  assets  of  corporation  in  two  states;  appointed  by  State  court  in  one  and 
Federal  Court  in  another  (20-20-933:  O.  D.  503).  .June  1920  Cum.  Bull  p 99 
Referee  in  drainage  appointed  by  District  Judge  (22-20-968:  O.  D.  525).  .June  1920 
Cum  Bull.  p.  100. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

the  federal  income  tax  service 

341 


2-27-22.  (2)  4-10-22.  (8)  6-19-22.  (4)  6-26-22.  (5)  6-2-22.  (6)  10-4-22.  (7)  10-11-22. 

EXEMPT  INCOME. 

Teachers,  when  employed  by  institution  not  wholly  supported  by  State;  general  dis- 
cussion (4-19-214:  O.  826) . . 1919  Cum.  Bull.  p.  93. 

Teachers,  when  employed  and  paid  by  private  corporation  (though  under  supervision 
of  city  school  authorities)  to  meet  requirements  of  State  compulsory  education 
laws  (27-21-1711:  O.  D.  963).. Dec.  1921  Cum.  Bull.  p.  105. 

Va.  debt  commissioners  (16-19-460:  O.  D.  257) . . 1919  Cum.  Bull.  p.  96 
Washington;  special  deputy  bank  examiners,  attorneys  and  clerks  appointed  by 
State  bank  examiner:  1921  Act  (1-21-297:  I.  T.  1316).  .June  1922  Cum. 
Bull.  p.  105. 

Witnesses  for  State;  fees  (9-19-338:  O.  D.  195) . . 1919  Cum.  Bull.  p.  67. 


1600  Section  213  (a)  of  the  Revenue  Act  of  1918  provides  that  gross 
income  shall  include  “gains,  profits,  and  income  derived  from  salaries, 

wages,  or  compensation  for  personal  service  * * * of  whatever  kind  and  in 
whatever  form  paid.” 

1601  J In  accordance  with  an  opinion  of  the  Attorney-General, ^dated  May 

6,  1919,  and  based  on  the  well-settled  rule  that  governmental  agencies 
of  the  States  are  not  subject  to  taxation  by  the  Federal  Government,  it  is 
held  that  salaries  of  State  officials  and  salaries  and  wages  of  employees  of 
a State  are  not  subject  to  the  income  tax  imposed  by  the  said  Revenue  Act 
of  1918.  (T.  D.  2843,  May  17,  1919.) 

1 602  Compensation  as  Special  Counsel,  Received  from  a Municipality, 
is  Not  Exempt  Income. — A counsellor  at  law  is  engaged  by  a munici- 
pality as  special  counsel,  to  act  in  connection  with  the  regular  City  Attorney 
in  handling  a certain  piece  of  litigation.  Is  he  regarded  as  an  officer  or 
employee  of  a political  subdivision  of  a state,  so  that  his  compensation  for 
his  services  are  not  taxable  under  Article  71  of  Regulations  45,  sentence  2 
[now  Art.  88] f (Answer.)  In  reply  to  the  first  question,  you  are  advised 
that  under  the  ruling  of  this  office,  the  compensation  paid  by  a State  to  “spec- 
ial counsel,”  such  as  described  above,  is  taxable  income,  and  not  exempt  from 
income  tax.  (Part  of  letter  from  Collins  & Corbin,  Jersey  City,  N.  J.,  and 
the  answer  thereto,  signed  by  J.  H.  Callan,  Assistant  to  the  Commissioner, 
and  dated  April  15,  1919.) 

1603  Law^[136.  Amounts  Received  after  December  '3 1,^192  l"f  and 

(Sec.  213.)  Before  January  1,  1927,  as  Dividends  or  Interest 
from  Domestic  Building  and  Loan  Associations.— 

[Gross  income  does  not  include ] “(10)  So  much  of  the  amount  received  by  an 
individual  after  December  31,  1921,  and  before  January  1,  1927 , as  dividends 
or  interest  from  domestic  building  and  loan  associations,  operated  exclusively 
for  the  purpose  of  making  loans  to  members,  as  does  not  exceed  $300;” — 
Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

[See  Art.  89,  1606.) 


1604  Law  If  137.  Rental  Value  |fof jPar  sonage  Furnished  as  Part  of 
(Sec.  213.)  Minister’s  Compensation. — [Gross  income  does  not 
include ] “(II)  The  rental  value  of  a dwelling  house  and 
appurtenances  thereof  furnished  to  a minister  of  the  gospel  as  part  of  his 
compensation .” — Law.  [Note:  This  provision^is^new  to^the  1921 

Act.] 


(See  Art.  89,  Tfl606.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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2-27-2-.  (2)  4-10-22.  (8)  6-8-22.  (4)  6-19-22.  (6)  7-20-22.  (6)  10-11-22. 

EXEMPT  INCOME. 

1605  Law  If  138.  Certain' Receipts  of  Shipowners’  Mutual  Protection 
(Sec.  213.)  and  Indemnity  Associations. — [Gross  income  does  not 

% include]  “(12)  The  receipts  of  shipowners'  mutual  pro- 
tection and  indemnity  associations , not  organized  for-profit,  and  no  part  of 
the  net  earnings  of  which  inures  to  the  benefit  of  any,  private  stockholder  or 
member , but  such  corporations  shall  be  subject  as  other  persons  to  the  tax 
upon  their  net  income  from  interest,  dividends,  and  rents." — Law. 

[Note:  This  provision  is  new  to  the  1921  Act.] 

1 606  Additional  Exclusions  from  Gross  Income  Under  the  Revenue  Act 
of  1921. — The  following  additional  exclusions  from  gross  income  not 

provided  by  the  Revenue  Act  of  1918  are  allowed  by  the  Revenue  Act  of  1921 : 

1607  (2)  So  much  of  the  amount  received  by  an  individual  after  Decem- 
ber 31,  1921,  and  before  January  1,  1927,  as  dividends  or  interest 

from  domestic  building  and  loan  associations  operated  exclusively  for  the 
purpose  of  making  loans  to  members  as  does  not  exceed  $300  per  year; 

1 608  (3)  Rental  value  of  a dwelling  house  and  appurtenances  thereof 
furnished  to  a minister  of  the  gospel  as  part  of  his  compensation; 

1 609  (4)  Receipts  of  shipowners’  mutual  protection  and  indemnity  asso- 

ciations not  organized  for  profit  and  no  part  of  the  net  earnings  of 
which  inures  to  the  benefit  of  any  private  stockholder  or  member.  Such 
associations,  however,  shall  be  subject  as  other  taxpayers  to  the  tax  upon 
their  net  income  from  interest,  dividends,  and  rents.  In  other  words,  they 
are  subject  to  the  taxes  imposed  by  section  230,  but  only  upon  net  income 
from  interest,  dividends,  and  rents.  (Art.  89,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Building  and  loan  association  dividends;  $300  per  year:  1921  Act  (1-6-71 : I.  T.  1193) 

. .June  1922  Cum.  Bull.  p.  110. 

Building  and  loan  association  dividends;  “individual”  does  not  embrace  “corpora- 
tion”; effect  of  exemption  on  credit  for  dividends  provision:  1921  Act  (1-29-413: 
I.  T.  1394).  .Bull.  I (’22)-29,  p.  7. 

“Minister  of  the  Gospel”;  Army  and  Navy  chaplains:  1921  Act  (1-20-272: 1.  T.  1307).  . 
June  1922  Cum.  Bull.  p.  110. 

“Minister  of  the  Gospel”;  missionaries:  1921  Act  (1-20-271:  I.  T.  1306).  .June  192  2 
Cum.  Bull.  p.  1 10. 

1610  Amount  of  Tax  Paid  by  Debtor  on  Tax-Free  Covenant  Bond  In- 
terest not  Additional  Income  to  Creditors. — Read  at  ^[1724, 

1611  Income  Accrued  Prior  to  March  1,  1913. — Any  claim  existing 
unconditionally  on  March  1,  1913,  whether  presently  payable 

or  not  and  held  by  a taxpayer  prior  to  March  1,  1913,  whether  evidenced 
byftwriting  or  not,  and  all  interest  which  had  accrued  thereon  before  that 
date,  do  not  constitute  taxable  income  although  actually  recovered  or 
received  subsequent  to  such  date.  Interest  accruing  on  or  after  that  date 
is  taxable  income.  Where  an  interest-bearing  claim  held  on  February 
28,  1913,  is  paid  in  whole  or  in  part  after  that  date,  any  gain  derived  from 
the  payment  of  the  claim  is  taxable.  The  amount  of  such  gain  is  the  excess 
of  the  proceeds  of  the  claim  (both  principal  and  interest)  exclusive  of  any 
interest  accrued  since  February  28,  1913,  already  returned  as  income,  over 
the  cost  thereof  (both  principal  and  interest  then  accrued).  However,  the 
gain  to  be  included  in  gross  income  where  the  fair  market  value  of  the  claim 
as  of  March  1,  1913,  is  greater  than  the  cost  thereof,  is  the  excess  of  the  amount 
received  over  such  value.  No  gain  results  where  the  amount  received  from 
the  claim  is  more  than  the  cost  thereof  but  less  than  its  fair  market  value  as 
of  March  1,  1913.  In  the  case  of  an  insurance  policy  its  surrender  value  a* 
of  March  1,  1913,  may  be  used  as  a basis  for  the  purpose  of  ascertaining  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2 27-22.  (2)4-10-22.  (8)  6-8-22.  (4)  6-19-22.  (6)  7-20-22.  (6)  10-11-22. 

EXEMPT  INCOME. 


gain  derived  from  the  sale  or  other  disposition  of  such  property.  Wher- 
services  were  rendered  prior  to  March  1,  1913.  but  paid  for  thereafter,  the 
amount  received  is  taxable  income  to  the  extent  of  the  excess  of  such  ainouni 
over  the  fair  market  value  on  March  l,  1913,  of  the  principal  of  the,  claim  and 
any  interest  which  had  then  accrued.  See  section  201  of  the  Statute,  and 
articles  1541-1549  [for  dividends,  beginning  at  ^1077],  (Art.  90,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Attorney’s  fees  over  period  of  yean  before  and  after  1913  but  amount  not  determined 
until  1917  (Acts  of  1916-1917)  (26-21-1700:  O.  D.  956).. June  1921  Cum.  Hull 
p.  83. 

Same  (1918  Act)  (48-21-1946:  O.  D.  1116).  .Dec.  1921  Cum.  Bull.  p.  117. 

Condemnation  proceeding  begun  prior  to  March  1,  1913,  settled  subsequent  thereto 
with  interest  (29-20-1071:  O.  D.  591)..  Dec.  1920  Cum.  Bull.  p.  113. 

Dividends  declared  before,  but  paid  after,  March  1,  1913  (1-7-86:  Ct.  D.  23).  .June 
1922  Cum.  Bull.  p.  15. 

Executors’  fees;  New  Tork  State  (47-20-1311:  A.  R.  R.  321).  .Dec.  1920  Cum.  Bull 

P.  126.  fefe, 

Indefinite  and  intangible  agreement  for  lump  sum  compensation  for  services  over  a 
period  of  years  (52-21-1996:  A.  R.  R.  706).  .Dec.  1921  Cum.  Bull.  p.  265. 

Interest  (15-21-1560:  A.  R.  R.  375).  .June  1921  Cum.  Bull.  p.  102. 

Judgments  and  settlements  on  account  patent  infringement  over  period  of  years 
prior  and  subsequent  to  March  1,  1913:  1918  and  1921  Acts  (1-18-249:  I.  T. 
1294).  .June  1922  Cum.  Bull.  p.  111. 

1612  Subtraction  for  Redemption  of  Trading  Stamps. — Where  a tax- 
payer, for  the  purpose  of  promoting  his  business,  issues  with  sales 

trading  stamps  or  premium  coupons  redeemable  in  merchandise  or  cash,  he 
should  in  computing  the  income  from  such  sales  subtract  only  the  amount 
received  or  receivable  which  will  be  required  for  the  redemption  of  such 
part  of  the  total  issue  of  trading  stamps  or  premium  coupons  issued  during 
the  taxable  year  as  will  eventually  be  presented  for  redemption.  This  amount 
will  be  determined  in  the  light  of  the  experience  of  the  taxpayer  in  his  particu- 
lar business  and  of  other  users  engaged  in  similar  businesses.  The  taxpayer 
shall  file  for  each  of  the  five  preceding  years,  or  such  number  of  these  years 
as  stamps  or  coupons  have  been  issued  by  him,  a statement  showing  (a)  the 
total  issue  of  stamps  during  each  year,  (b)  the  total  stamps  redeemed  in  each 
year,  and  (c)  the  percentage  for  each  year  of  the  stamps  redeemed  to  the 
stamps  issued  in  such  year.  A similar  statement  shall  also  be  presented 
showing  the  experience  of  other  users  of  stamps  or  coupons  whose  experience 
is  relied  upon  by  the  taxpayer  to  determine  the  amount  to  be  subtracted 
from  the  proceeds  of  sales.  The  Commissioner  will  examine  the  basis  used 
in  each  return,  and  in  any  case  in  which  the  amount  subtracted  in  respect  of 
such  stamps  or  coupons  is  found  to  be  excessive  an  amended  return  or 
amended  returns  will  be  required.  (Art.  91,  Reg.  62,  1922  Edition.) 

1613  Special  Exemption  Granted  to  Owners  of  Vessels,  Documented 
Under  the  Laws  of  the  United  States  and  Built  Prior  to  January  1, 

1914,  on  the  Proceeds  of  the  Sale  Thereof. — That  during  the  period  of  ten 
years  from  the  enactment  of  this  Act  any  person  a citizen  of  the  United 
States  who  may  sell  a vessel  documented  under  the  laws  of  the  United 
States  and  built  prior  to  January  1,  1914,  shall  be  exempt  from  all  income 
taxes  that  would  be  payable  upon  any  of  the  proceeds  of  such  sale  under 
Title  /,  Title  II  and  Title  III  of  the  Revenue  Act  of  1918  if  the  entire  proceeds 
thereof  shall  be  invested  in  the  building  of  new  ships  in  American  shipyards, 
such  ships  to  be  documented  under  the  laws  of  the  United  States  and  to  be 

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2-27-22.  (2)  6-19-22.  (8)  6-16-22.  (4)6-26-22.  (6)  10-11-22  (6)  11-4-22. 

EXEMPT  INCOME. 

of  a type  approved  by  the  board  [i.  e.,  the  United  States  Shipping  Board 
provided  for  by  Section  3 of  the  Article).  (“Merchant  Marine  Act,  1920,”  of 
which  the  above  is  the  second  paragraph  of  Section  23,  approved  by  the 
President,  June  5,  1920.) 

Important  Note:  To  the  extent  only  that  this  special  legislation  is  in- 
terpreted and  administered  by  the  Bureau  of  Internal  Revenue  in  official 
rules  and  regulations  will  it  be  covered  in  the  Service.  Note  the  matter  in 
italics.  Title  I of  the  Revenue  Act  of  1918  has  not  been  repealed. — The 
Corporation  Trust  Company. 

1 614  Ships  documented  under  the  laws  of  a foreign  country  operated  by 
non  resident  alien  individuals  or  foreign  corporations.— See  If 2098 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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2-27-22. 


(2)  6-19-22.  (3)  6-16-22.  (4)  6-26-22.  (6)  10-11-22.  (6)  11-4-22. 

DED  UCTIONS— EXPENSES. 


1615  Law  If  140. 

(Sec.  214.) 


Deductions  Allowed— 214.  (a)  That  m com- 

puting net  income  there  shall  be  allowed  as  deductions 
Law.  [Note:  The  1918  Act  so  provided.] 


1 61  6 Law  1[383.  Items  Deducted  in  Computing  Net  Income  of  a Cor- 
(Sec.  234.)  poration.  uSec.  234.  (a)  That  in  computing  the  net 

income  of  a corporation  subject  to  the  tax  imposed  by 
section  230  [^[972]  there  shall  be  allowed  as  deductions: ” — Law.  [Note: 

The  1918  Act  so  provided.] 


1617  In  general  the  deductions  from  gross  income  allowed  corporations 
are  the  same  as  allowed  individuals,  except  that  corporations  may 
deduct  dividends  as  provided  in  paragraph  (6),  of  section  234  (a)  [^T 1824] 
and  may  not  deduct  charitable  contributions  [If  1675  and  1[2015].  (Art. 
561,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  91. 

Ad  valorem  penalties  (Federal  taxes)  (23-19-551:  O.  926).  .1919  Cum.  Bull.  p.  241. 
Additional  1909  Excise  Taxes  (13-19-418:  0.  D.  240).  .1919  Cum.  Bull.  p.  111. 

* Additional  N.  Y.  Franchise  Taxes:  1917  and  1918  Acts  (1-43-558:  A.  R.  R 1153) 
Bull.  I (’22)-43,  p.  3. 

Advances  made  by  parent  to  subsidiary  to  cover  latter’s  deficit,  1909  Act  (13-21-1533: 
T.  D.  3133).  .June  1921  Cum.  Bull.  p.  286. 

Amortization;  equipment,  etc.,  for  production  or  manufacture  of  sugar  (16-19-464: 
O.  D.  259).  . 1919  Cum.  Bull.  p.  221. 

Amortization:  parent  corporation,  through  stock  control,  not  entitled  to  deduction  on 
account  amortization  of  subsidiaries’  assets:  1918  and  1921  Acts  (1-25-359:  I.  T. 
1367).  .June  1922  Cum.  Bull.  p.  274. 

Amortization;  part  of  income  being  from  Government  contract;  selling  and  adminis- 
tration expenses  (26-19-597:  A.  R.  M.  1)..1919  Cum.  Bull.  p.  269. 

Cash  discounts  anticipated  (4-19-228:  O.  D.  146)..  1919  Cum.  Bull.  p.  221.  Over- 
ruled; 1918  and  1921  Acts  (1-24-337:  I.  T.  1348).  .June  1922  Cum.  Bull.  p.  51. 
Cemetery  companies;  annual  additions  to  maintenance  fund  in  hands  of  trustees 
(1913  Act)  (20-19-515:  S.  1145).  .1919  Cum.  Bull.  p.  219. 

Same:  even  though  required  by  State  law  (22-20-975:  O.  D.  529).. June  1920 
Cum.  Bull.  p.  216. 

Commissions  paid  by  subsidiaries  to  parent  corporation  allowed;  special:  1916  and 
1917  Acts  (1-20-282:  A.  R.  R.  907).  .June  1922  Cum.  Bull.  p.  331. 

Contributions  to  Red  Cross  and  other  recognized  war  organizations;  statements  in 
lieu  of  amended  returns  on  account  of  disallowance  (14-19-438:  M.  2207).. 
1919  Cum.  Bull.  p.  221.  (See  “Red  Cross”  in  Index  following  ^[1675. ) 

Crop  insurance  premiums  (11-19-377:  O.  D.  215).  .1919  Cum.  Bull.  p.  104. 
Depletion;  lease  being  acquired  for  entire  capital  stock  (Act  of  1916)  (20-20-938: 
_ L.  O.  1033) . .June  1920  Cum.  Bull.  p.  145. 

Dividends  from  taxable  foreign  corporation  deductible  no  matter  how  large  the 
dividends  or  how  small  the  taxable  income  (5-19-252:  T.  B.  M.  21).  .1919  Cum. 
Bull.  p.  160.  (See  Sec.  216,  Art.  301  ^2043.) 

Dividends  from  taxable  foreign  corporation,  the  stock  being  deposited  with  American 
agent  who  issues  certificates  of  participation  in  the  stock  and  the  dividends  thereon 
(1-2-2 1 : I.  T.  1160).  .June  1922  Cum.  Bull.  p.  269. 

Dividends  received  from  foreign  holding  company  whose  sole  income  was  dividends 
from  domestic  company  (2-19-201:  O.  D.  130).  .1919  Cum.  Bull.  p.  221. 

(See  “Dividends  from  taxable  foreign  corporation”  in  Cum.  Index  following  1J2043.) 
Fine  for  violating  Anti-Trust  Act  (1921  Act)  (1-4-45:  I.  T.  1174).  .June  1922  Cum. 
Bull.  p.  269. 

Good  will,  loss  of;  liquor  business,  sales  continuing  to  be  made  (29-20-1076:  A.  R.  R. 
185). . Dec.  1920  Cum.  Bull.  p.  156. 

Illinois  drainage  district  assessments  (24-19-561:  O.  928). . 1919  Cum.  Bull.  p.  112. 
Interest  on  income  tax,  for  delinquency,  etc.  (26-19-595:  O.  D.  319) ..  1919  Cum.  Bull. 

p.  247;  also  (7-20-745:  O.  922).  .June  1920  Cum.  Bull.  p.  227. 

Inventory  losses;  goods  ordered  in  1918  and  delivered  in  1919  when  title  passed  (5-19- 
251:  T.  B.  R.  15). . 1919  Cum.  Bull.  p.  154. 

Inventory  loss  in  1919  by  partnership  which  prior  to  Nov.  4,  1918,  was  corporation 
(17-19-471:  O.  D.  263)..  1919  Cum  Bull.  p.  155. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
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(9)  8-17-22.  (10)  8-24-22.  (11)  10-11-22. 

DEDUCTIONS— EXPENSES. 

Lease  purchased  to  secure  immediate  possession  of  purchased  property  (28-20-1061: 
O.  D.  585).  .Dec.  1920  Cum.  Bull.  p.  265. 

Liberty  bond  depreciation  in  connection  with  dividend  payment  (17-19-469:  O.  D 
262)..  1919  Cum.  Bull.  p.  28:  See,  however  (13-21-1528:  A.  R.  R.  435).. June 
1921  Cum.  Bull.  p.  27. 

l iquidated  damages  paid  to  be  relieved  from  terms  of  contract  for  delivery  of  goods; 
“net  loss”  provision  discussed  in  connection  (3-19-188:  S.  983)..  1919  Cum. 
Bull.  p.  217. 

Patent  litigation  defending  right,  title  and  interest  (20-20-934:  A.  R.  R.  98).. June 
1920  Cum.  Bull.  p.  105. 

Preferred  stock  redemption  fund  (22-19-537:  O.  D.  288).  .1919  Cum.  Bull.  p.  221. 

Profits  diverted  under  guise  of  salary  (1909  Excise  Tax  Act  ) (33-21-1771 : T.  D.  3203) 
. .Dec.  1921  Cum.  Bull.  p.  219. 

Railroads:  amounts  paid  to  I.  C.  C.  under  Act  of  Feb.  29,  1920  (32-21-1762:  O.  D. 
989).  .Dec.  1921  Cum.  Bull.  p.  219. 

“Reasonable  compensation”;  factors  involved  (10-19-362:  T.  B.  M.  44)..  1919 
Cum.  Bull.  p.  220. 

Royalty  to  officer,  who  is  also  majority  stockholder  (14-20-835:  O.  D.  440) . .June  1920 
Cum.  Bull.  p.  212. 

Salaries  increased  just  prior  to  end  of  year  (20-20-935:  O.  D.  504).  .June  1920  Cum. 
Bull.  p.  111. 

Salaries  voted  subsequent  to  close  of  year  and  closing  of  books  for  1918  (22-19-534: 
T.  B.  M.  86)..  1919  Cum.  Bull.  p.  106:  Same  for  1917  (20-21-1637:  A.  R.  R. 
493).  .June  1921  Cum.  Bull.  p.  131. 

Stock  issued  to  officer  in  consideration  for  services  and  for  bis  personal  indorsement 
of  company  notes  (1-6-76:  I.  T.  1197).  .June  1922  Cum.  Bull.  p.  269. 

Stock  purchased  by  issuing  corporation  for  retirement  or  for  treasury:  expense  in 
connection  with  (12-21-1522:  O.  D.  852).  .June  1921  Cum.  Bull.  p.  286. 

Stock  purchased  on  margin;  loss  resulting  from  (1-20-660:  O.  968).  .June  1920  Cum 
Bull.  p.  212. 

Taxes  due  foreign  country  not  definitely  ascertainable  at  time  of  accrual:  amount 
accrued  deductible:  1917  Act  (1-34-469:  A.  R.  M.  173).. Bull.  I (’22)-34,  p.  5. 

Ultra  vires  acts;  losses  resulting  from  (1-20-660:  O.  968)..  June  1920  Cum  Bull 
p.  212.  Modified  by  (1-17-244:  L.  O.  1092).  .June  1922  Cum.  Bull.  p.  270. 


1618  Law  ^141.  All  Ordinary  and  Necessary  Business  Expenses  Are 
(Sec.  214.)  Deductible. — “(I)  All  the  ordinary  and  necessary 
expenses  paid  or  incurred  during  the  taxable  year  in 
carrying  on  any  trade  or  business  ” — Law.  (Note:  The  1918  Act  so 

provided.] 

[Corporations.]  “(1)  All  the  ordinary  and  necessary 
expenses  paid  or  incurred  during  the  taxable  year  in 
carrying  on  an-^rade  or  business — Law.  [Note: 

The  1918  Act  so  provided.] 

Certain  Items  of  “Expense”  Not  Deductible. — 
“Sec.  215.  That  in  computing  net  income  no  deduction 
shall  in  any  case  be  allowed  in  respect  of — ” — Law. 

[Note:  The  1918  Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
347 


1619  Law  ^[384. 

(Sec.  234.) 


1620  Law  If  188. 

(Sec.  215.) 


(9)  8-17-22  (10)  8-24-22. 


(11)  10-11-22. 

DEDUCTION  S~  EXPENSES. 


1621  Law  1[432. 

(Sec.  235.) 

et  seq.\” — Law. 


[Corporations.]  “Sec  235  That  in  computing  net 
income  no  deduction  shall  in  any  co.se  be  allowed  in 
respect  of  any  of  the  items  specified  in  section  215  [1j  1631 
[Note:  The  1918  Act  so  provided.] 


1622 


Law  1[189. 
(Sec.  215.) 


Personal  Expenses  Are  Not  Deductible.— “(1)  Per- 
sonal, living , or  family  expenses', ” — Law.  [Note: 

The  1918  Act  so  provided.] 

1 623  Personal  and  Family  Expenses.  -Insurance  paid  on  a dwelling 
owned  and  occupied  by  a taxpayer  is  a personal  expense  and  not 
deductible.  Premiums  paid  for  life  insurance  by  the  insured  are  not 
deductible.  In  the  case  of  a professional  man  who  rents  a property  for 
residential  purposes,  but  incidentally  receives  there  clients,  patients,  or 
callers  in  connection  with  his  professional  work  (his  place  of  business 
being  elsewhere),  no  part  of  the  rent  is  deductible  as  a business  expense. 
If,  however,  he  uses  part  of  the  house  for  his  office,  such  portion  of  the 
rent  as  is  properly  attributable  to  such  office  is  deductible.  Where  the  father  is 
legally  entitled  to  the  services  of  his  minor  c:  ildren.  any  allowances  which 
he  gives  them,  whether  said  to  be  in  consideration  of  services  or  otherwise, 
are  not  allowable  deductions  in  his  return  of  income.  Alimony  and  an 
allowance  paid  under  a separation  agreement  arc  not  deductible  from  gross 
income.  See  article  73  [for  alimony  as  exempt  income,  1fl559j.  The  cost 
of  the  equipment  of  an  army  officer  to  the  extent  only  that  it  is  specially 
required  by  his  profession  and  does  not  merely  take  the  place  of  articles 
required  in  civilian  life  is  deductible.  Accordingly,  the  cost  of  a sword  is  an 
ailowabie  deduction,  but  the  cost  of  a uniform  is  not.  (Art.  291,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  ys. 

Alimonv:  stated  amount  in  lieu  of;  trust,  fund  in  connection  therewith  (6-20-730: 
O.'D.  399). .June  1920  Cum.  Bull.  p.  156:  Reversed  by  (45-21-1910:  O.  D. 
1092).  .Dec.  1921  Cum.  Bull.  p.  190. 

See  U.  S.  Supreme  Court  decision  on  alimony,  Supplementary  Page  136,  1TS47. 

Attorney’s  fees  paid  for  defense  in  criminal  prosecution  for  violation  of  lav  governing 
conduct  of  taxpayer’s  business  (25-21-1693:  O.  D.  952).  .June  1921  C.  B.,  p.  209. 

Automobile  accidents  (See  “Other  casualties,’  in  Cumulative  index  following  H1783 

Breach  of  promise  damages  (24-20-1003:  O.  D June  1920  Cum.  Bull.  p.  157. 

Bureau  of  Internal  Revenue  field  officers:  1921  Act  (1-27-388:  I.  T.  1380).  .Bull.  I 
(’22)-27,  p.  6. 

Consular  fee  stamp  on  invoice  of  merchandise  imported  for  persona!  use  is  not  a 
deductible  item;  1921  Act  (1-19-265:  I.  T.  1301).  .June  1922.  Cum.  Bull.  p.  133. 

Dues  on  account  of  compulsory  membership  in  corporation’s  relief  department  (in- 
surance) not  deductible  by  employee:  1921  Act  (1-14-195:  I.  T.  1265).  .June 
1922  Cum.  Bull.  p.  193. 

Embassies;  furnishing  residential  portion;  entertainment  (36-21-1802:  U.  D 
1020).. Dec.  1921  Cum.  Bull.  p.  172. 

Home  abroad  as  well  as  here  by  citizen  Red  Cross  worker  abroad;  1918  and  1921 
Acts  (1-24-344:  I.  T.  1355).  .June  1922  Cum.  Bull.  p.  194. 

Marriage  agreement;  sums  paid  in  accordance  with  (20-19-507:  O.  D.  275). 

Cum.  Bull.  p.  159.  . 

Masseuse:  cost  of  uniforms  and  laundering:  1921  Act  (1-33-457:  I.  1.  1419). 

I (’22)-33,  p.  4.  a 

Members  of  Congress  (14-21-1549:  O.  D.  864).. June  1921  Cum.  Bull.  p.  211. 

Mortgage-in-trust;  payments  made  to  wife  and  children  by  mortgagor  under  terms 
of  trust  are  not  deductible  by  him:  1913,  1916  and  1918  Acts  (1-3 1 -436 : A.  R.  R. 
999) . . Bull.  I (’22)-31,  p.  4. 

National  Guard  officer  equips  men  at  own  expense:  1921  Act  (1-5-54-  1.  1 . 1 182) 
June  1922  Cum.  Bull.  p.  142. 

Naval  officer  stationed  in  one  locality  for  lengthy  period;  expenditures  ior  meals  and 
lodging  not  deductible:  1921  Act  (-1-31-439:  I.  T.  1404).  .Bull.  I (’22)  31,  p.  8. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
348 


. 1910 
.Bull. 


(8)  7-27-22.  (9)  10-11-22.  (10)  11-4-22. 

DEDUCTIONS — EXPENSES. 

Naval  officer’s  uniforms  (32-21-1761:  A.  R.  R.  594).  .Dec.  1921  Cum.  Bull.  p.  154. 
Position;  expenses  incident  to  securing  are  personal  expenses:  1921  Act  (1-30-428: 
I.  T.  1397).  .Bull.  1 (’22)-30,  p.  15. 

Post-graauate  courses;  doctors  (31-21-1755:  O.  D.  984).  .Dec.  1921  Cum.  Bull.  p.  171. 
Professional  singer’s  payments  to  throat  specialist  (37-21-1819:  0.  D.  1032).. Dec. 
1921  Cum.  Bull.  p.  172. 

Proprietary  shareholder  lessees;  payments  made  by,  to  lessor  corporation  (apart- 
ment house);  1921  Act  (1-19-266:  I.  T.  1302).  .June  1922  Cum.  Bull.  p.  193. 
Provisions  withdrawn  for  family  use  by  sole  proprietor  who  keeps  no  books  (34-21- 
1777:  0.  D.  998).. Dec.  1921  Cum.  Bull.  p.  86. 

Teachers  attending  summer  school  (17-21-1595:  O.  D.  892).. June  1921  Cum- 
Bull.  209. 

Railroad  employees’  uniforms  (25-21-1692:  O.  D. 971).  .June  1921  Cum.  Bull. p.  209. 
★Uniforms  generally:  1921  Act  (1-44-572:  I.  T.  1485).  .Bull.  I (’22)-44,  p.  4. 

War  Risk  Insurance  premiums  (9-21-1481:  0.  D.  828) . .June  1921  Cum.  Bull.  p.  208. 

1 624  Traveling  Expenses. — Traveling  expenses  (including  amount*  ex- 
pended for  meals  and  lodging)  while  away  from  home  in  the  pur- 
*uit  of  a trade  or  business  are  deductible  under  the  Revenue  Act  of  1921. 
See  further  article  101  (a)  Hfl625  and  1fl678].  (Art.  292,  Reg.  62,  1922 
Edition.)  [See  Cumulative  Index  following  1680.] 

1 626  Commuters’  Fares. — Commuters’  fares  are  not  considered  as  travel- 
ing expenses  and  are  not  deductible.  (Art.  101  (a),  Reg.  62,  1922 
Edition.)  [See  Cumulative  Index  following  1680.1 

pt^-TrlHSI  m:  ■ 

1 626  Amounts  withheld  from  the  salaries  of  Federal  employees  and 
applied  toward  the  purchase  of  annuities. — See  ^[1783. 

1627  Safe-deposit  box  rental. — Expenses  for  safekeeping  of  securities  and 
rental  of  safe  deposit  boxes  deductible  only  when  incurred  in  con- 
nection with  trade  or  business.  Ordinarily  not  deductible  by  individual 
as  held  to  be  personal  expense.  (Telegram  to  Morris  F.  Frey,  The  Guaranty 
Trust  Company,  New  York,  N.  Y.,  signed  by  Commissioner  Wm.  M.  Wil- 
liams, and  dated  March  8,  1921.) 

1628  Law  If  190.  Amounts  Paid  Out  for  New  Buildings  or  for  Per- 
(Sec.  215.)  manent  Improvements  Are  Not  Deductible. — “(2) 

Any  amount  paid  out  for  new  buildings  or  for  permanent 
improvements  or  betterments  made  to  increase  the  value  of  any  property  or 
estate — Law.  [Note:  The  1918  Act  so  provided.] 

1629  Law1[191.  Expenditures  Covered  by  Depreciation  Allowance 
(Sec.  215.)  Are  Not  Deductible. — “(3)  Any  amount  expended  in 

restoring  property  or  in  making  good  the  exhaustion 
thereof  for  which  an  allowance  is  or  has  been  made’” — Law.  [Note: 

The  1918  Act  so  provided.] 

1 630  Amounts  paid  for  increasing  the  capital  value  or  for  making  good 
the  depreciation  (for  which  a deduction  has  been  made)  of  prop- 
erty are  not  deductible  from  gross  income.  See  section  214  (a)  (8)  of  the 
•tatute  and  article  161  [for  depreciation  ^[1831]  Amounts  expended  for 
securing  a copyright  and  plates,  which  remain  the  property  of  the  person 
making  the  payments,  are  investments  of  capital.  The  cost  of  defending  or 
perfecting  title  to  property  constitutes  a part  of  the  cost  of  the  property  and 
i*  not  a deductible  expense.  The  amount  expended  for  architect’*  service* 
is  part  of  the  cost  of  the  building.  Commissions  paid  in  purchasing  securi- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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349 


(8)  7-27-22.  (9)  10-11-22.  (10)  11-4-22 

DEDUCTIONS— EXPENSES. 

ties  are  a part  of  the  cost  price  of  such  securities.  Commissions  paid  in  sell- 
ing securities  are  an  offset  against  the  selling  price.  Expenses  of  the  admin- 
istration of  an  estate,  such  as  court  costs,  attorney’s  fees,  and  executor’s 
commissions,  are  chargeable  against  the  corpus  of  the  estate  and  are  not 
allowable  deduct  ons.  Amounts  to  be  assessed  and  paid  under  an  agreement 
between  bondholders  or  stockholders  of  a corporation,  to  be  used  in  a reor- 
ganization of  the  corporation,  are  investments  of  capital  and  not  deductible 
for  any  purpose  in  returns  of  income.  See  article  544  [for  assessments  re- 
ceived not  income  to  corporation,  1278].  An  assessment  paid  by  a stock- 
holder of  a national  bank  on  account  of  his  statutory  liability  i»  ordinarily 
not  deductible  but,  subject  to  the  provisions  of  the  statute,  may  in  certain 
cases  represent  a loss.  As  to  items  not  deductible  by  corporations  see  sec- 
tion 235  and  articles  581  [If  1631]  and  582  [If  1634].  (Art.  293,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  referencet  tee  page,  oi. 

Absconding  contractor  leaving  unpaid  bills  which  house-builder  must  pay  (21-21-1651 : 
0 D.  925).  June  1921  Cum.  Bull.  p.  213. 

Administration  of  estates  (23-20-988:  0.  D.  537).  .June  1920  Cum.  Bull.  p.  175. 

Same:  assessment  on  bank  stock  (20-21-1640:  O.  D.  918) . .June  1921  C.  B.  p.  213. 
Same:  defending  title  to  land  (42-20-1248:  A.  R.  R.  284).  .Dec.  1920  C.  B.  p.  208. 
Assessment  against  bank  stock  under  State  law  (30-21-1744:  A.  R.  R.  588).. Dec. 

1921  Cum.  Bull.  p.  135. 

Attorney’s  fees  paid  by  alien  on  account  oi  property  taken  over  by  Alien  Property 
Custodian  (39-21-1842:  O.  D.  1048)..  Dec.  1921  Cum.  Bull.  p.  127. 

Attorney’s  fees  paid  to  contest  establishment  of  building  line  across  taxpayer’s  property 
are  to  be  capitalized:  1918  Act  (1-27-390:  I.  T.  1382).  .Bull.  I (’22)-27,  p.  7. 
Attorney’s  fees  paid  to  secure  reduction  of  atsesament  on  property  (48-20-1324: 
O.  D.  739).  .Dec.  1920  Cum.  Bull.  p.  192. 

Attorney’s  fees,  etc.,  paid  in  prosecution  of  claim  for  refund  of  Federal  tax  dissociated 
with  one’s  business  (here.  Federal  estate  tax):  1921  Act  (1-21-302:  I.  T.  1319).. 
June  1922  Cum.  Bull.  p.  196. 

Bor  examination  fees  and  incidental  expenses  (15-20-849:  O.  D.  452).. June  1920 
Cum.  Bull.  p.  157. 

Brewery  abandoned  and  remodeled  before  turning  over  to  vendee  corporation  (34- 
21-1780:  0.  D.  1001).. Dec.  1921  Cum.  Bull.  p.  150. 

Compromise  payment  to  establish  title  to  property  and  property  rights  (51-21-1982: 
A.  R.  R.  701).  .Dec.  1921  Cum.  Bull.  p.  176. 

Dividend  refunded  voluntarily  by  stockholders  (25-21-1691:  Sol.  Op.  110).  .June  1921 
Cum.  Bull.  p.  73. 

Executors  continuing  business  of  decedent  (8-21-1463:  Sol.  Op.  88).  .June  1921  Cum. 
Rull  p.  119. 

Installation  and  freight  expense  to  be  added  to  cost  of  new  machinery:  1921  Act 
(1-20-275:  I.  T.  1309).  .June  1922  Cum.  Bull.  p.  196. 

Installation  expenses  on  leased  apparatus  which  is  junked  at  expiration  of  lease 
(44-21-1894:  O.  D.  1082).  .Dec.  1921  Cum.  Bull.  p.  175. 

Land  title  abstract  books  (39-21-1843-  O.  D.  1049).  .Dec.  1921  Cum.  Bull.  p.  175. 
Loan  by  stockholder  to  corporation  forgiven;  1921  Act  (1-17-241:  I.  T.  1288).  .June 

1922  Cum.  Bull.  p.  195. 

Magazine  writers;  reference  books  from  which  to  crib  (7-21-1446:  O.  D.  805).. June 
1921  Cum.  Bull.  p.  1 19 

Partnership  half-interest  purchased  by  other  member,  firm  dissolving,  putchare  price 
including  an  amount  equal  to  estimated  profits  had  firm  continued  for  two  years, 
which  amount  was  payable  in  installments  (37-21-1820:  O.  D.  1033).. Dec.  1921 
Cum.  Bull.  p.  175. 

Replacement  in  subsequent  year,  to  that  of  loss  in  which  no  income  (19-20-920: 
A.  R.  R.  97).  .June  1920  Cum.  Bull.  p.  158. 

Seats  on  exchanges:  firm  (or  members  (17-20-885:  O.  D.  473)..  [une  1920  Cum. 
Bull  p.  157. 

Stockholders  donate  its  preferred  stock  to  corporation  with  which  latter  partially 
satisfies  liabilities  (1921  Act)  (1-3-33:  1.  T.  1168).  .June  1922  Cum.  Bull.  p.  194. 
See  (1-17-241:  I.  T.  1288).  .June  1922  Cum.  Bull.  p.  195. 

Taxes  on  real  estate  are  not  to  be  capitalized  (1-8-108:  I.  T.  1218).  .June  1922 
Cum.  Bull.  p.  346. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  5-8-22.  (3)  7-12-22.  (4)  10-11-22. 

DEDUCTIONS— EXPENSES. 


1631  No  deduction  from  gross  income  may  be  made  for  any  amounts 
paid  out  for  new  buildings  or  for  permanent  improvements  or  better- 
ments made  to  increase  the  value  of  any  property,  or  for  any  amounts  ex- 
pended in  restoring  property  or  in  making  good  the  exhaustion  thereof  for 
which  an  allowance  for  depreciation  or  depletion  or  other  allowance  is  or  has 
been  made,  or  for  any  amounts  paid  for  premiums  on  any  life  insurance 
policy  covering  the  life  of  an  officer  or  employee  or  of  any  person  financially 
interested  in  the  business  of  the  corporation  when  the  corporation  is  directly 
or  indirectly  a beneficiary  under  such  policy.  (Art.  581,  Reg.  62,  1922  Edi- 
tion.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Commissions  on  sale  of  stock  (11-19-391:  T.  B.  R.  40).  .1919  Cum.  Bull.  p.  281. 

Life  insurance  in  favor  of  lender  as  security  for  loan;  premiums  not  deductible  in  any 
event  if  proceeds  are  applicable  to  satisfaction  of  the  obligation;  1918  and  1921 
Acts  (1-18-253:  Sol.  Op.  136).  .June  1922  Cum.  Bull.  p.  197. 


1 632  Service  Connections  and  Pipe  Extensions  by  Public  Utility. — 

Moneys  so  received  for  service  connections  and  pipe  extensions  are 
not  permitted  to  be  deducted  from  the  gross  amount  of  the  income,  for 
they  do  not  come  within  any  of  the  permitted  classes  of  deduct'ons  men- 
tioned in  the  statute.  Moneys  so  expended  are  invested  in  permanent  im- 
provements, which  tend  to  enhance  the  rental  and  the  market  value  of  the 
water  system.  (Caption:  Union  Hollywood  Water  Co.  vs.  John  P.  Carter, 
collector,  case,  Act  of  Aug.  5,  1909  (238  Fed.  329)).  (T.  D.  2475,  April  4, 

1917.) 

1633  Certain  Deductible  and  Non-Deductible  Expenses  of  Railroads. — 

The  appended  decision  [summary]  of  the  United  States  District 
Court  for  the  Western  District  of  Michigan,  Southern  Division,  in  the 
case  of  the  Grand  Rapids  & Indiana  Railway  Company  v.  Doyle  Collector. 
(245  Fed.  792.) 

1.  Deductions  from  Gross  Income. 

Deductions  for  expenditures  for  addition  and  betterments  to  the 
property,  such  as  expenditures  for  sidings  or  spur  tracks,  are  not  author- 
ized. 

2.  Operating  Expenses  Deductible. 

The  payment  for  labor  and  materials  which  go  into  the  actual  oper- 
ating of  the  road  and  the  property  are  deductible. 

3.  Expenses  of  Maintenance  Deductible. 

Maintenance  means  the  upkeep  or  preserving  of  the  condition  of  the 
property  to  be  operated  and  does  not  mean  additions  to  the  equipment 
additions  to  the  property,  or  improvements*of£former  condition  of  the 
road. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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Z-S !7--Z.  (2)  6-S-22.  (3)  7-12-22.  (5)  10-11-22. 

DEDUCTIONS— EXPENSES. 

4.  Cost  of  Improvements. 

Where  old  rails  are  replaced  with  new  and  heavier  rails,  wooden 
bridges  and  culverts  with  concrete  and  steel  bridges  and  culverts,  the 
rule  is  that  the  cost  of  renewals  with  like  kind  and  quality  is  allowable, 
but  excess  cost  is  not  allowable  as  deduction. 

5.  Expenditures  Included  in  Income. 

Amounts  expended  for  improving  and  adding  to  the  property,  such 
as  building  new  stations  and  new  shops,  installing  new  machinery,  and 
making  additions  to  equipment,  are  included  in  income, 
is  published  for  the  information  of  internal  revenue  officers  and  others  con- 
cerned. (T.  D.  2210,  June  1,  1915.) 

1 634  Capital  Expenditures. — Expenses  of  the  organization  of  a corporation, 
such  as  incorporation  fees,  attorneys’  and  accountants  charges, 
are  ordinarily  capital  expenditures,  but  where  such  expenditures  are  limited 
to  purely  incidental  expenses,  a taxpayer  may  charge  such  iten  s against 
income  in  the  year  in  which  they  are  incurred.  See  article  818  [for  invested 
capital — War  Tax  Service].  A holding  company  which  guarantees  dividends 
at  a specified  rate  on  the  stock  of  a subsidiary  corporation  for  the  purpose  of 
securing  new  capital  for  the  subsidiary  and  increasing  the  value  of  its  stock 
holdings  in  the  subsidiary  may  not  deduct  amounts  paid  in  carrying  out. this 
guaranty  in  computing  its  net  income,  but  such  payments  may  be  added  to 
the  cost  of  its  stock  in  the  subsidiary.  But  see  article  868  [for  stock  of  sub- 
sidiary acquired  for  stock:  Consolidated  invested  capital — War  Tax  Service] 
(Art.  582,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Accounting  system  installed  by  corporation  some  time  after  organization  in  place  of 
old  system  taken  over  with  business  incorporated;  cost  is  current  expense  not 
capital  expenditure:  1918  Act  (1-28-404:  A.  R.  R.  992).  .Bull.  I (’22)-28,  p.  4. 

1 635  Expenses  Incurred  in  Sale  of  Capital  Stock. — Any  and  all  expenses 
incidental  to  or  connected  with  the  selling  of  the  capital  stock 
(common  or  preferred)  of  a corporation  for  the  purpose  of  raising  capital  to 
be  by  it  invested  in  property  or  employed  in  the  business  for  which  the  cor- 
poration is  organized  are  not  an  “expense  of  operation  and  maintenance” 
within  the  meaning  of  this  title  and  such  expense  is  not  an  allowable  deduc- 
tion from  the  gross  income  for  the  reason  that  such  an  expense  is  incurred 
in  a capital  transaction;  that  is,  the  raising  of  capital  to  be  invested  or 
employed  in  the  business. 

1 63  6 Such  expense,  like  the  discount  at  which  the  shares  of  stock  may  be 
sold  [1[  1275],  has  the  effect  only  to  reduce  the  available  capital  of  the 
corporation  and  can  not  be  used  to  reduce  the  income  from  operations:  that 
is  to  say,  any  expense  incident  to  the  bringing  of  capital  into  the  company, 
whether  it  be  a new  or  going  concern,  can  not  be  recouped  out  of  or  charged 
against  the  operating  income.  It  is  a capital  loss  or  expense  properly  charge- 
able against  the  proceeds  of  the  sale  of  the  stock  and  reduces  the  capital 
rather  than  the  earnings  of  the  company.  (Art.  145  ^[453-454/  Reg.  33, 
Rev.,  Jan.  2,  1918.) 

1 637  Retirement  of  Bonds  at  a Discount. — Read  at  If  1279. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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352 


2 27-2*.  (2)  4-10-2K.  (3)  f>-8-22.  (4)  6-9-22.  (5)  7-12-22.  (6)  8-17-22.  (7)  10-1 1-22. 

DEDUCTIONS— EXPENSES. 


1638  Law  192.  Premiums  Paid  on  Business  Life  Insurance  Are  Not 
(See.  215.)  Deductible. — “(4)  Premiums  paid  on  any  life  insur- 
ance policy  covering  the  life  of  any  officer  or  employee , 

or  of  any  person  financially  interested  in  any  trade  or  business  carried  on 
by  the  taxpayer , token  the  taxpayer  is  directly  or  indirectly  a beneficiary 
under  such  policy .” — Law.  [Note:  The  1918  Act  so  provided.] 

1639  Premiums  on  Business  Insurance. — Premiums  paid  by  a taxpayer 
on  an  insurance  policy  on  the  life  of  an  officer,  employee,  or  ether 

individual  financially  interested  in  the  taxpayer’s  business,  for  the  purpose 
of  protecting  die  taxpayer  fiom  loss  in  the  event  of  the  death  of  the  officer 
or  employee  insured  are  not  deductible  from  the  taxpayer’s  gross  income. 
If,  however,  the  taxpayer  is  in  no  sense  a beneficiary  under  such  a policy, 
except  as  he  may  derive  benefit  from  the  increased  efficiency  of  the  officer 
or  employee,  premiums  so  paid  are  allowable  deductions.  See  Articles  33 
[If  1168]  and  .105  to  108  [beginning  at  $1650].  In  either  case  the  proceeds 
of  such  policies  paid  upon  the  death  of  the  insured  may  be  excluded  from 
gross  income  whether  the  beneficiary  is  an  individual  or  a corporation  See 
section  213  (b)  (1)  and  articles  72  [If  1555]  and  541  [*11074].  ( Art.  294,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  reference s see  page  gi. 

Group  insurance:  deductible  as  ordinary  expense  (12-20-793:  O.  1014)..  June  1920 
Cum.  Bull.  p.  88. 

Life  in  favor  of  lender  as  security  for  loan;  premiums  not  deductible  in  any  event  if 
proceeds  are  applicable  to  satisfaction  of  the  obligation:  1918  and  1921  Acts  (I- 
18-253:  Sol.  Op.  136).  .June  1922  Cum.  Bull.  p.  197. 

Life  of  guarantor  of  accounts  and  bills  receivable  (47-21-1938:  O.  D.  1109).. Dec. 
1921  Cum.  Bull.  p.  177. 

Life  of  officer  or  employee;  terms  of  policy  immaterial  (43-20-1261:  O.  D.  699).. 
Dec.  1920  Cum.  Bull.  p.  192. 

Life  of  officer  or  employee,  then  using  policy  as  collateral  for  loan  (44-20-1276:  O.  D. 
711).  .Dec.  1920  Cum.  Bull.  p.  139. 

Life  of  officer,  premiums  paid  by  him,  policy  being  used  as  collateral  for  loan  to  cor- 
poration (1-8-104:  I.  T.  1214).  .June  1922  Cum.  Bull.  p.  196. 

Life  of  president  by  corporation,  stockholders  being  proportionate  beneficiaries  and 
wife  of  president  a beneficiary  in  proportion  to  his  holdings,  she  not  being  a 
stockholder  (37-20-1193:  O.  D.  659).  .Dec.  1920  Cum.  Bull.  p.  192. 

Life  of  salesman,  corporation  being  beneficiary,  he  to  pay  premiums,  salary  being 
increased  to  cover  (42-20-1247:  O.  D.  688).  .Dec.  1920  Cum.  Bull.  p.  192. 

Partner  on  own  life  with  partners  as  beneficiaries  may  deduct  premiums;  1921  Act 
(1-23-328:  I.  T.  1340).  .June  1922  Cum.  Bull.  p.  119. 

Partnership  on  members  (13-19-422;  O.  D.  243)..  1919  Cum.  Bull.  p.  160. 

Wife  on  husband’s  life  she  being  beneficiary  and  paying  premiums  (1-19-65:  O.  D.  48) 
..1919  Cum.  Bull.  p.  160. 


1640  Business  Expenses. — Business  expenses,  whether  subtracted  from 
total  receipts  in  computing  gross  income  or  deducted  from  gross 
income  in  computing  net  income,  include  all  items  entering  into  what 
is  ordinarily  known  as  the  cost  cf  goods  sold,  together  with  selling  and 
management  expenses,  except  such  classes  of  items  as  are  treated  in  articles 
121  to.  263  [interest,  taxes,  losses,  etc.].  Among  the  items  to  be  treated 
as  business  expenses  arc  material,  labor,  supplies,  and  repairs  in  the  case 
of  a manufacturer,  while  a merchant  would  include  his  purchases  of  goods 
Dougin  lor  resaie.  in  either  case  the  amount  to  be.  taken  as  a deduction 
in  any  year  should  be  determined  by  taking  into  consideration  the  inventory 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
353 


2-27-22.  (2)£4-10-22.  (8)  6-8-22.  (4)  6-9-22.  (5)  7-12-22.  (6)  8-17-22.  (7)  10-11-22. 

DEDUCTIONS— EXJPEN  bKb. 

at  the  beginning  and  end  of  the  year.  Other  items  that  may  be  included 
as  business  expenses  are  reasonable  compensation  for  the  services  of  officers 

and  employees,  traveling  expenses  while  away  from  home  solely  in  the  pur- 
suit of  a trade  or  business  (see  article  101  (a)  [Tj  1678]),  advertising  and  other 
selling  expenses,  together  with  insurance  premiums  against  fire,  storm,  theft, 
accident  or  other  similar  losses  in  the  case  of  a business,  and  rental  for  the 
use  of  business  property.  But  see  article  294  [H1639.  above].  A taxpayer 
is  entitled  to  deduct  the  necessary  expenses  paid  in  carrying  on  his  business 
from  his  gross  income  from  whatever  source.  See  section  215  of  the  statute 
and  articles  291-295  (for  items  not  deductible,  beginning  at  If  1623].  As  to 
deductions  by  corporations  see  section  234  (If  1616  and  all  of  the  discussion 
immediately  following  under  the  head  of  deductions].  (Art.  101,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  reference s see  page  gr. 

Accounting  system  installed  by  corporation  some  time  after  organization  in  place  of 
old  system  taken  over  with  business  incorporated;  cost  is  current  expense  not 
capital  expenditure:  1918  Act  (1-28-404:  A.  R.  R.  992).  .Bull.  1 (’22)-28,  p.  4. 
Administration  expenses  are  deductible  if  incident  to  collection  of  income  (23-20-988: 
O.  D.  537).  .June  1920  Cum.  Bull.  p.  175. 

Advances  under  contract  in  excess  of  commissions  earned  (6-21-1429:  A.  R.  R.  374) 
. . June  1921  Cum.  Bull.  p.  117. 

Advertising  expenses  of  one  year  not  to  be  apportioned  over  period  of  years  (38-21- 
1829:  O.  D.  1039).. Dec.  1921  Cum.  Bull.  p.  130. 

Agreement  to  pay  stated  amount  monthly  during  life  for  lump  sum  consideration: 

payment  in  excess  of  such  consideration;  1921  Act  (1-12-149:  I.  T.  1242).  .June 
1922  Cum.  Bull.  p.  61. 

Association  organized  to  promote  business  interests  of  members;  dues  to  (19-20-916: 
O.  D.  496).  .June  1920  Cum.  Bull.  p.  105. 

Attorney’s  fees  paid  for  defense  in  criminal  prosecution  for  violation  of  law  regulating 
taxpayer’s  business  (25-21-1693:  0.  D.  952).  .June  1921  Cum.  Bull.  p.  209. 
Attorney’s  fees  paid  to  secure  deduction  of  assessment  on  property  (48-20-1324:  O.  D. 
739).  Dec.  1920  Cum.  Bull.  p.  192. 

Automobile;  business  trips:  oil,  gasoline,  repairs,  etc.  (41-20-1230:  A.  R.  R.  266).. 
Dec.  1920  Cum.  Bull.  p.  131. 

Automobile  repairs  and  depreciation  by  member  of  partnership;  own  car  but  used  to 
further  business  interests  of  firm  (26-21-1707:  A.  R.  R.  551).. June  1921  Cum. 
Bull.  p.  215. 

Same:  here,  by  partnership  agreement  (49-21-1958:  0.  D.  1122).. Dec.  1921 
Cum.  Bull.  p.  121. 

Automobile  used  by  member  of  draft  board;  oil,  gasoline,  repairs,  etc.  (2-20-673: 
O.  D.  363).  June  1920  Cum.  Bull.  p.  104. 

Baseball  club  of  employees  outfitted  by  employer  (37-21-1815:  0.  D.  1030).. Dec. 
1921  Cum.  Bull.  p.  120. 

Bonus  for  anticipating  contract  delivery  date  (38-20-1203:  0.  D.  664).. Dec.  1920 
Cum.  Bull.  p.  131. 

Bonus  for  immediate  possession  of  theater  and  incidental  attorney’s  fees  (28-20-1054: 
A.  R.  R.  1 78) . . Dec.  1920  Cum.  Bull.  p.  129. 

Bridges  built  by  taxpayers;  as  contribution  to  municipality  (30-20-1094:  0.  D.  607). . 
Dec.  1920  Cum.  Bull.  p.  265. 

Cattle  tick  eradication;  dipping  vats  constructed  by  virtue  of  State  law  (48-20-1322: 
O.  D.  738).  . Dec.  1920  Cum.  Bull.  p.  168. 

Chambers  of  commerce  or  boards  of  trade;  membership  fees  or  dues  (13-20-808: 

0.  D.  421).  .June  1920  Cum.  Bull.  p.  105  Payments  for  protection  of  property 
during  labor  unrest  deductible:  1918  Act  (1-33-456:  A.  R.  R.  1052) . . Bull.  I (’22)- 
33,  p.  3. 

Clearing  bouse  assessments  paid  by  member  banks  (50-20-1342:  O.  D.  747).  .Dec. 
1920  Cum.  Bull.  p.  140. 

Commissions  paid  by  executor  on  sale  of  property  of  estate  (33-20-1135:  O.  D.  632) . . 
Dec.  1920  Cum.  Bull.  p.  204. 

Commission  paid  by  lessor  tn  broker  on  account  long-term  lease  (1921  Act)  (1-4,40: 

1.  T.  1171).  .June  1922  Cum.  Bull.  p.  117. 

Committee  for  incompetent;  expenses  in  resisting  proceedings  to  declare  the  incom- 
petent such  (30-20-1089:  O.  D.  603)  . Dec.  1920  Cum.  Bull.  p.  130. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

354 


(8)  0-9-22.  (9)  7-12-22.(10)  7-20-22.  (11)  7-27-22.  (12)  8-3-22.  (13)  10-11-22.  (14)  11-1-22. 

DEDUCTIONS— EXPENSES. 


Community  property;  expenses  to  be  equally  divided  (19-21-1623:  O.  D.  909)..  [une 
1921  Cum.  Bull.  p.  254. 

Crop  insurance  (11-19-377:  0.  D.  215).  . 1919  Cum.  Bull.  p.  104. 

Decedent’s  business  continued  by  executor  (8-2 1-1463:  Sol.  Op.  88)..  Tune  1921 
Cum.  Bull.  p.  119. 

Discount  on  municipal  certificates  of  indebtedness  (34-21-1778:  O.  D.  999).  Dec. 

1921  Cum.  Bull.  p.  102. 

District  of  Columbia  water  tax  (45-20-1291:  O.  D.  719).  .Dec.  1920  Cum.  Bull.  p.  139. 
★Drilling  unproductive  wells  for  water  on  desert  land:  1921  Act  (1-44-570-  I T 1486) 
Bull.  I (’22)-44,  p.  3. 

Employment  agency  fees  by  individual  seeking  employment  (28-20-1055:  O.  D.  579) 

. .Dec.  1920  Cum.  Bull.  p.  130. 

Farm  tenant  injured;  landlord’s  attorney’s  fees  in  action  for  damages  (48-21-1947: 
O.  D.  1117).  .Dec.  1921  Cum.  Bull.  p.  121. 

Gasoline  tax  imposed  on  distributors;  added  to  price  of  oil  (1-6-73:  I.  T.  1195).  . Tune 

1922  Cum.  Bull.  133. 

Government  Contract;  advertising  and  sales  promotion  expenditures  (5-20-721:  O.  D. 
394) . .June  1920  Cum.  Bull.  p.  12. 

Guaranty  of  interest;  payment  under  (8-20-753:  S.  1298).  .June  1920  Cum.  Bull, 
p.  113. 


Installment  sales:  allocation  of  expenses  not  authorized  (11-21-1508:  O.  D.  844).. 
June  1921  Cum.  Bull.  p.  123. 

Insurance  on  life  of  debtor;  premiums  paid  by  creditor  (1-19-55:  O.  D.  38).. 1919 
Cum.  Bull.  p.  104.  See  (1-18-253:  Sol.  Op.  136).  .June  1922  Cum.  Bull.  p.  197. 
Insurance  on  life  of  debtor  in  favor  of  creditor,  premiums  paid  by  debtor  (6-20-726: 
O.  D.  396) . June  1920  Cum.  Bull.  p.  104.  In  effect  reversed  (1918  and  1921  Acts) 
by  (1-18-253:  Sol.  Op.  136).  .June  1922  Cum.  Bull.  p.  197. 

Original  ruling  above  to  be  strictly  construed;  also,  does  not  apply  to  policy  on 
officer’s  life  taken  out  by  corporation  (44-20-1276:  O.  D.  711)..  Dec.  1920 
Cum.  Bull.  p.  139. 

Renewal  of  loan  in  full  or  in  part  (applies  to  original  ruling  above.)  (11-21-1507: 
O.  D.  843) . .June  1921  Cum.  Bull.  p.  123. 

Insurance  on  life  of  officer,  policy  being  used  as  collateral  for  loan  to  corporation 
(1-8-104:  I.  T.  1214).  .June  1922  Cum.  Bull.  p.  196.  See  (1-18-253:  Sol.  Op. 
136).  .June  1922  Cum.  Bull.  p.  197. 

Insurance  on  life  of  officer,  policy  being  used  as  collateral  for  loan  to  aelf  (35-21-1791: 

0.  D.  1011).. Dec.  1921  Cum.  Bull.  p.  119. 

Interest  on  tax  deductible  as  expense  (26-19-595:  O.  D.  319) . . 1919  Cum.  Bull.  p.  247. 
Investments  provide  principal  income;  incidental  expenses  (16-21-1576:  O.  D.  877).. 
June  1921  Cum.  Bull.  p.  123. 

Joint  venture;  part  of  profits  of  contract  entered  into  by  corporation  member,  dis- 
tributed by  it,  under  side-contract,  to  other  members,  not  a deductible  expense 
(19-21-1619:  Ct.  D.  13).. June  1921  Cum.  Bull.  p.  124. 

Labor  unions;  dues  to  (15-20-846:  O.  D.  450) . .June  1920  Cum.  Bull.  p.  105. 

Legal  and  other  expenses  incident  to  prosecution  of  claim  for  refund  of  Federal  tax 
dissociated  with  one’s  business  (here,  estate  tax);  1921  Act  (1-21-302:  I.  T.  1319) 

. .June  1922  Cum.  Bull.  p.  196. 

Life  estate,  in  this  case  an  orchard  damaged  by  frost;  expense  of  ministering  to  damaged 
trees  deductible;  loss  of  killed  trees  not  deductible  (25-20-1014:  O.  D.  554).. 

_ June  1920  Cum.  Bull.  p.  108. 

Maintenance  trust  fund  for  corporation’s  own  benefit:  annual  payments  into  fund 
(39-21-1840:  O.  D.  1047) ...Dec.  1921  Cum.  Bull.  p.  120. 

Member  of  Congress;  clerk  hire  (25-19-583:  O.  D.  310).  .1919  Cum.  Bull.  p.  104. 
Membership  fees  in  part  refunded  to  designated  beneficiary  of  deceased  member  of 
an  exchange:  1921  Act  (1-16-223:  I.  T.  1280).  .June  1922  Cum.  Bull.  p.  62. 
Modified  (1-28-400:  I.  T.  1387).  .Bull.  I (’22)-28,  p.  1. 

Mortgage  bonds  issued  by  sole  proprietor  in  exchange  for  depreciated  Liberty  bonds 
at  par;  discount,  trustee’s  expenses  and  agent’s  commissions  (26-21-1704:  O.  D. 
959).  . June  1921  Cum.  Bull.  p.  129. 

Mortgage-in-trust;  payments  made  to  wife  and  children  by  mortgagor  under  terms 
of  trust  are  not  deductible  by  him:  1913,  1916  and  1918  Acts  (1-31-436:  A.  R.  R. 

. 999).. Bull.  I (’22) — 31,  p.  4. 

Ohio  Workmen’s  Compensation  Law:  reserves  and  payments  (33-21-1768:  O.  D.  992) 

. . Dec.  1921  Cum.  Bull.  p.  118.  Revoked  (1918  and  1921  Acts)  by  (1-14-193: 

1.  T.  1263).  .June  1922  Cum.  Bull.  p.  123. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
355 


(8)  8-9-22.  (9)  7-12-22  (10)  7-20-22.  (11)  7-27-22.  (12)  8-3-22.  (13)  10-11-22.  (14)  11-4-22. 

DEDUCTIONS— EXPENSES. 


‘Ordinary  and  necessary”  expenses  only  are  deductible  although  there  ii  legal 
obligation  to  pay:  (here,  salaries  and  commissions  to  officer  stockholders  in  con- 
sideration for  acting  as  selling  agents  and  for  agreeing  not  to  engage  in  any 
like  business  during  life  of  contract — 1917  Act)  (41-20-1231:  L.  O.  1045).. Dec. 
1920  Cum.  Bull,  p 133. 

Patent  infringement  litigation;  any  amount  of  income  taxes  paid  on  profits  from 
patent  does  not  bear  on  amount  of  any  expense  deductible  in  event  of  award  for 
damages  (1-19-38:  O.  D.  26)..  1919  Cum.  Bull.  p.  67. 

Patent  litigation  defending  right,  title,  and  interest  (20-20-934:  A.  R.  R.  98).. June 

1920  Cum.  Bull.  p.  105. 

Partner  expert  insures  life  for  benefit  of  other  partners  whose  contribution  to  firm  i* 
financial  support;  premiums  paid  by  partner  are  deductible  as  business  expense: 

1921  Act  (1-23-328:  I.  T.  1340).  .June  1922  Cum.  Bull.  p.  119. 

Partner’s  individual  expenditures  to  further  firm’s  interests  (29-20-1073:  O.  D.  593) 

. .Dec.  1920  Cum.  Bull.  p.  130. 

Partner  serving  city  or  state  on  salary,  turning  salary  over  to  firm  (4-20-702:  A.  R.  M. 
25).  .June  1920  Cum.  Bull.  p.  104. 

Penalties  added  to  tax;  when  deductible  (23-19-551:  0.  926) . . 1919  Cum.  Bull.  p.  241. 
Pennsylvania;  “Workmen’s  Compensation”  (49-21-1959:  0.  D.  1123).. Dec.  1921 

Cum.  Bull.  p.  133.  Revoked  (1918  and  1921  Acts)  by  (1-14-193:  I.  T.  1263).  . 
June  1922  Cum.  Bull.  p.  123. 

Picnics  and  dances  for  employees  (37-21-1815:  O.  D.  1030).. Dec.  1921  Cum.  Bull. 

p.  120. 

Premium  on  fidelity  bond:  government  employees  (16-21-1577:  0.  D.  878) . .June  1921 
Cum.  Bull.  p.  124. 

Railroad  fare3 — commutation — paid  by  salaried  employee;  to  and  from  business  and 

home  (8-19-317:  S.  1038).  . 1919  Cum.  Bull.  p.  101.  Same,  1921  Act  (1-5-57: 
I.  T.  1184).  .June  1922  Cum.  Bull.  p.  121. 

Railroad  siding  to  property  of  taxpayer  (36-21-1800:  0.  D.  1019).. Dec.  1921  Cura. 

Bull.  p.  151.  Same  (1-30-427:  A.  R.  R.  1008).  .Bull.  I (’22)-30,  p.  14. 
Receiver’s  fees  turned  over  to  third  party;  bank  president  receiver  to  his  bank: 
(35-21-1789:  0.  D.  1009).  .Dec.  1921  Cum.  Bull.  p.  81. 

Rent  paid  for  house  or  apartment  which  in  turn  is  sublet  (50-21-1972:  0.  D.  1134).. 
Dec.  1921  Cum.  Bull.  p.  122. 

Repairs  to  house  after  completion  but  before  sale  by  dealer,  are  deductible:  1921 
Act  (1-23-330:  I.  T.  1342).  .June  1922  Cum.  Bull.  p.  169. 

Reserve  against  loss  because  of  poor  crop;  canning  industry  (3-19-187:  T.  B.  R.  13) . . 
1919  Cum.  Bull.  p.  103. 

Seats  on  exchanges  bought  by  partnership  (17-20-885:  0.  D.  473).  .June  1920  Cum. 
Bull.  p.  157. 

Selling  agent’s  expenses  reimbursed  by  corporation:  here  insurance  of  accounts 

receivable  (1-8-101:  A.  R.  R.  723).  .June  1922  Cum.  Bull.  p.  113. 

Stock  exchange  initiation  fee  is  deductible:  1921  Act  (1-15-209:  I.  T.  1271).  .June 

1922  Cum.  Bull.  p.  118. 

Taxes  paid  by  vendee  on  vendor’s  profits  from  sales  made  to  vendee  in  accordance  with 
contract  (2-20-669:  A.  R.  M.  16) . .June  1920  Cum.  Bull.  p.  62. 

Title  abstract  companies;  keeping  records  up-to-date  (36-21-1799:  0.  D.  1018).. 
Dec.  1921  Cum.  Bull.  p.  119. 

Trustees’  commissions  are  deductible  in  computing  net  income  of  trust-estate: 
1921  Act  (1-29-411:  I.  T.  1393).  .Bull.  I (’22)-29,  p.  5. 

tJ.  S.  Public  Health  Service,  improvements  made  by  order  of:  here,  against  rati  on 
account  buboes  (46-20-1304:  0.  D.  730).  .Dec.  1920  Cum.  Bull.  p.  140. 

Use  and  occupancy  insurance  (35-20-1164:  0.  D.  645).  .Dec.  1920  Cum.  Bull.  p.  89. 
Voluntary  contributions  to  a civic  federation  which  disseminates  fiscal  information: 
1921  Act  (1-16-224:  I.  T.  1281).. June  1922  Cum.  Bull.  p.  118. 

Washington:  expenses  incident  to  trip  in  connection  with  additional  tax  assessment 
(12-21-1518:  O.  D.  849).  .June  1921  Cum.  Bull.  p.  123. 

Workmen’s  Compensation  fund  payments  (1)  to  State;  (2)  to  reserve  fund  held  by 
trust  company  (27-21-1712:  O.  D.  964) . . Dec.  1921  Cum.  Bull.  p.  118. 

Writer  of  articles  (7-21-1 446 : O.  D.  805) . . June  1921  Cum.  Bull.  119. 


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DEDUCTIONS— EXPENSES. 


1641  Cost  of  Materials. — Taxpayers  carrying  materials  and  supplies 
on  hand  should  include  in  expenses  the  charges  for  materials  and 
supplies  only  to  the  amount  that  they  are  actually  consumed  and  used  in 
operation  during  the  year  for  which  the  return  is  made,  provided  that  the 
cost  of  such  material  and  supplies  has  not  been  deducted  in  determining  the 
net  income  for  any  previous  year.  If  a taxpayer  carries  incidental  materials 
or  supplies  on  hand  for  which  no  record  of  consumption  is  kept  or  of  which 
physical  inventories  at  the  beginning  and  end  of  the  year  are  not  taken,  it  will 
be  permissible  for  the  taxpayer  to  include  in  his  expenses  and  deduct  from 
gross  income  the  total  cost  of  such  supplies  and  materials  as  were  purchased 
during  the  year  for  which  the  return  is  made,  provided  the  net  income  is 
clearly  reflected  by  this  method.  (Art.  102,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Executory  contract  for  purchase  of  lumber;  the  interest  accruing  on  execution  not  an 
operating  expense  but  enters  into  cost  of  lumber  produced  (29-20-1075:  0.  D.  595) 
..Dec.  1920  Cum.  Bull.  p.  149. 


I 642  Repairs. — The  cost  of  incidental  repairs  which  neither  materially 
add  to  the  value  of  the  property  nor  appreciably  prolong  its  life, 
but  keep  it  in  an  ordinarily  efficient  operating  condition,  may  be  deducted  as 
expense,  provided  the  plant  or  property  account  is  not  increased  by  the 
amount  of  such  expenditures.  Repairs  in  the  nature  of  replacements,  to  the 
extent  that  they  arrest  deterioration  and  appreciably  prolong  the  life  of  the 
property  should  be  charged  against  the  depreciation  reserve  if  such  account 
is  kept.  See  articles  161-171  [for  depreciation,  beginning  at  1 83 1 ].  (Art. 
103,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Estates  (31-20-1102:  O.  D.  613).  .Dec.  1920  Cum.  Bull.  p.  149. 

Leased  properties  the  lessee  being  required  to  turn  back  properties  in  same  condition 
as  when  leased  (35-21-1794:  0.  D.  1014).. Dec.  1921  Cum.  Bull.  p.  151. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

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DEDUCTIONS— EXPENSES. 


1 643  Professional  Expenses— A professional  man  may  claim  as  deduc- 
tions the  cost  of  supplies  used  by  him  in  the  practice  of  his  profes- 
sion, expenses  paid  in  the  operation  and  repair  of  an  automobile  used  in 
making  professional  calls,  dues  to  professional  societies  and  subscriptions 
to  professional  journals,  the  rent  paid  for  office  rooms,  the  expense  of  the 
fuel,  light,  water,  telephone,  etc.,  used  in  such  offices,  and  the  hire  of  office 
assistants.  Amounts  currently  expended  for  books,  furniture  and  profes- 
sional instruments  and  equipment,  the  useful  life  of  which  is  short,  may  be 
deducted.  See  section  215  and  articles  291-295  [for  items  not  deductible 
beginning  at  1623].  (Art.  104,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Admission  to  bar;  fees  and  traveling  expenses  (15-20-849:  0.  D.  452) . . Tune  1920  Cum. 
Bull.  p.  157. 

Subscription  to  technical  magazine  or  trade  journal  (5-21-1417:  0.  D.  785). . Tune  1921 
Cum.  Bull.  p.  130. 

Throat  specialist’s  services  to  singer  (37-21-1819:  0.  D.  1032).  .Dec.  1921  Cum.  Bull, 
p.  172. 


1 644  Premium  on  Fidelity  Bond.— Where  an  employee  is  required  to 
furnish  bond  and  pay  the  premium  on  such  bond,  as  a necessary 
incident  of  his  employment,  the  premium  on  the  bond  will  constitute  an 
allowable  deduction  in  computing  net  income.  (T.  D.  2090,  Dec.  14,  1914.) 

1 645  Business  Insurance. — Premiums  paid  in  advance,  covering  a period 
of  several  years,  are  to  be  taken  as  a deduction  on  the  basis  of  one 
of  two  methods;  when  the  books  are  kept  on  a cash  basis,  the  entire  amount 
is  deductible  in  the  year  in  which  the  premium  is  paid.  Where  the  books 
are  kept  on  an  accrual  basis  the  premium  is  to  be  prorated  over  the  period 
covered  by  the  insurance.  (Art.  8,  ^[110,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

1646  Reserves  for  Insurance. — Funds  set  aside  by  a corporation  for  in- 
suring its  own  property  are  not  a proper  deduction,  but  if  such  funds 

are  set  aside,  or  a reserve  therefor  is  set  up,  any  loss  actually  sustained  and 
charged  to  such  funds  or  reserves  may  be  deducted.  (Art.  144,  11452,  Reg. 
33,  Rev.,  Jan.  2,  1918.) 

1 647  Depositors’  Guaranty  Fund.- — Banking  corporations,  which  pur- 
suant to  the  laws  of  the  States  in  which  they  are  doing  business 

are.  required  to  set  apart,  keep,  and  maintain  in  their  banks  the  amount 
levied  and  assessed  against  them  by  the  State  authorities  as  a “Depositors’ 
guaranty  fund,”  may_  deduct  from  their  gross  income  the  amount  so  set 
apart  each  year  to  this  fund,  provided  that  such  fund,  when  set  aside  and 
carried  to  the  credit  of  the  State  banking  board  or  duly  authorized  State 
officer,  ceases  to  be  an  asset  of  the  bank  and  may  be  withdrawn  in  whole 
or  in  part  upon  demand  by  such  board  or  State  officer  to  meet  the  needs 
ox  these  officers  in  reimbursing  depositors  in  insolvent  banks,  and  provided 
further  that  no  portion  of  the  amount  thus  set  aside  and  credited  is  return- 
able under  the  laws  of  the  State  to  the  assets  of  the  banking  corporation. 
If,  however,  such  amount  is  simply  set  up  on  the  booksjof  the  bank  as  a 

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DEDUCTIONS— EXPENSES. 

reserve  to  meet  a contingent  liability  and  remains  an  asset  of  the  bank, 
it  will  not  be  deductible  except  as  it  is  actually  paid  out  as  required  by  law 

and  upon  demand  of  the  proper  State  officers.  (Art.  567,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  pi. 

North  Dakota:  assessments  are  deductible;  1918  Act  (1-22-319:  I.  T.  1332).  .June 
1922  Cum.  Bull.  p.  283. 

* South  Dakota:  1921  Act  Act  (1-43-564:  I.  T.  1481).. Bull.  I (’22)-43,  p.  12. 

Texas;  assessments  are  deductible;  dividends  received  are  income:  1918  and  1921 
Acts  (1-13-187:  I.  T.  1258).  .June  1922  Cum.  Bull.  p.  281. 

1 648  Law  If  142.  A Reasonable  Allowance  for  Salaries  is  Deductible. — 
(Sec.  214.)  “ including  a reasonable  allowance  for  salaries  or  other 

compensation  for  personal  services  actually  rendered.-” 

— Law.  [Note:  The  1918  Act  so  provided.] 

1 649  Law  1f385.  [Corporations.] — “including  a reasonable  allowance 
(Sec.  234.)  for  salaries  or  other  compensation  for  personal  services 

actually  rendered ,” — Law.  [Note:  The  1918  Act 

so  provided.] 

1650  Compensation  for  Personal  Services. — Among  the  ordinary  and 
necessary  expenses  paid  or  incurred  in  carrying  on  any  trade  or 

business  may  be  included  a reasonable  allowance  for  salaries  or  other  com* 
nensation  for  personal  services  actually  rendered.  The  test  of  deductibility 
in  the  case  of  compensation  payments  is  whether  they  are  reasonable  and  are 
in  fact  payments  purely  for  services.  This  test  and  its  practical  application 
may  be  further  stated  and  illustrated  as  follows: 

1651  (1)  Any  amount  paid  in  the  form  of  compensation,  but  not  in  fact 

1 ' as  the  purchase  price  of  services,  is  not  deductible,  (a)  An  osten- 

sible salary  paid  by  a corporation  may  be  a distribution  of  a dividend  on 
stock.  This  is  likely  to  occur  in  the  case  of  a corporation  having  few  stock- 
holders, practically  all  of  whom  draw  salaries.  If  in  such  a case  the  salaries 
are  based  upon  or  bear  a close  relationship  to  the  stockholdings  of  the 
officers  or  employees,  it  would  seem  likely  that  the  salaries,  if  in  excess  of 
those  ordinarily  paid  for  similar  services,  are  not  paid  wholly  for  services 
rendered,  but  in  part  as  a distribution  of  earnings  upon  the  stock,  (b)  An 
ostensible  salary  may  be  in  part  payment  for  property.  This  may  occur, 
for  example,  where  a partnership  sells  out  to  a corporation,  the  former  part- 
ners agreeing  to  continue  in  the  service  of  the  corporation.  In  such  a case  it 
may  be  found  that  the  salaries  of  the  former  partners  are  not  merely  for 
services,  but  in  part  constitute  payment  for  the  transfer  of  their  business. 

1 652  (2)  The  form  or  method  of  fixing  compensation  is  not  decisive  as 

to  deductibility.  While  any  form  of  contingent  compensation  in- 
vites scrutiny  as  a possible  distribution  of  earnings  of  the  enterprise,  it  doe3 
not  follow  that  payments  on  a contingent  basis  are  to  be  treated  fundamentally 
on  any  basis  different  from  that  applying  to  compensation  at  a flat  rate. 
Generally  speaking,  if  contingent  compensation  is  paid  pursuant  to  a free 
bargain  between  the  employer  and  the  individual  made  before  the  services 
are  rendered,  not  influenced  by  any  consideration  on  the  part  of  the  em- 
ployer other  than  that  of  securing  on  fair  and  advantageous  terms  the  services 
of  the  individual,  it  should  be  allowed  as  a deduction  even  though  in  the 
actual  working  out  of  the  contract  it  may  prove  to  be  greater  than  the  amount 
which  would  ordinarily  be  paid. 

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DEDUCTIONS— EXPENSES. 


1 653  (3)  In  any  event  the  allowance  for  the  compensation  paid  may  not 

exceed  what  is  reasonable  in  all  the  circumstances.  It  is  in  general 
ju6t  to  assume  that  reasonable  and  true  compensation  is  only  such  amount 
as  would  ordinarily  be  paid  for  like  services  by  like  enterprises  in  like  cir- 
cumstances. But  if  the  salaries  paid  bear  a close  relationship  to  stock 
ownership,  see  paragraph  (1)  of  this  article.  The  circumstances  to 
be  taken  into  consideration  are  those  existing  at  the  date  when  the  con- 
tract for  services  was  made,  not  those  existing  at  the  date  when  the  contract 
is  questioned.  See  article  32  [for  compensation  for  personal  services,  as 
income,  *[[1156].  (Art.  105,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

( See  particularly  A.  R.  M.  138,  Dec.  1921  Cum.  Bull.  p.  122.) 

50%  of  gross  margin  on  business  developed  by  each  officer  stockholder  not  excessive 
in  particular  case  (23-19-554:  T.  B.  M.  81). . 1919  Cum.  Bull.  p.  297. 

Absorbing  all  profits  except  moderate  dividend  is  not  “reasonable”  (32-20-1119: 
A.  R.  R.  223).  .Dec.  1920  Cum.  Bull.  p.  140. 

Additional  compensation  agreed  to  be  paid  at  future  date  on  happening  of  con- 
tingencies expected  to  result  from  service;  when  paid  is  not  back  salary  (33-20- 
1130:  A.  R.  R.  232).  .Dec.  1920  Cum.  Bull.  p.  142. 

Alien  Property  Custodian:  counsel  fees  paid  by  alien  in  connection  with  property  taken 
over  by  (39-21-1842:  O.  D.  1048).. Dec.  1921  Cum.  Bull.  p.  127. 

Bad  years  followed  by  exceptionally  good  year;  nominal  salaries  previously  then  high 
for  good  year,  equalling  12%  of  net  income  in  proportion  to  stockholdings;  40% 
. of  this  was  disallowed  (18-19-481 : T.  B.  M.  70) . . 1919  Cum.  Bull.  p.  105. 

Fixed  after  service,  reasonableness  is  ordinarily  the  test  (15-20-847:  A.  R.  R.  61) . .June 
1920  Cum.  Bull.  p.  111. 

Fixed  prior  to  Excess  Profits  Tax  and  fixed  thereafter  where  no  evidence  of  intent  to 
reduce  tax  and  there  be  normal  return  on  investment  after  deducting:  Unit  not 
authorized  to  fix  less  or  look  back  of  corporate  action  is  conclusion  of  Committee 
(14-20-830:  A.  R.  R.  53) . . June  1920  Cum.  Bull.  p.  1 10:  also  (13-21-1528:  A.  R.  R. 
435).. June  1921  Cum.  Bull.  p.  27;  extensive  discussion  (39-2 1-1841 : A.  R.  M. 
138).  .Dec.  1921  Cum.  Bull.  p.  122. 

Fixing  few  days  before  close  of  year;  reasonableness  is  the  test  (20-20-935:  O.  D.  504) . . 
June  1920  Cum.  Bull.  p.  111. 

Fixing  maximum  limit  by  Bureau  is  not  warranted  (15-19-444:  T.  B.  R.  46)..  1919 
Cum.  Bull.  p.  105. 

High  salaries  and  contingent  compensation  by  contracts  prior  to  1917  with  old  em- 
ployees: allowed  (9-20-768:  A.  R.  R.  31).  .June  1920  Cum.  Bull.  p.  109. 

Increases  voted  in  1918  for  1917,  to  reduce  tax  liability;  close  corporation:  disallowed 
(20-21-1637:  A.  R.  R.  493) . .June  1921  Cum.  Bull.  p.  131. 

Increase  voted  in  1919  for  1917  under  very  special  circumstances;  disallowed  for  1917 
but  allowed  for  1919  (22-21-1662:  A.  R.  R.  519).  .June  1921  Cum.  Bull.  p.  134. 

Increases  voted  in  1919  for  1918  covering  “salaries,  bonuses  and  fees”  there  being 
no  contract  agreement;  disallowed  and  Advisory  Tax  Board  recommended 
disallowance  for  any  year  (22-19-534:  T.  B.  M.  86).  .1919  Cum.  Bull.  p.  106. 

Large,  by  previous  agreement  and  not  based  on  stockholdings:  allowed  (14-20-829: 
A.  R.  M.  39) . .June  1920  Cum.  Bull.  p.  1 10. 

Nominal  salaries  over  period  of  years  then  great  increase  voted  early  in  1917;  4 stock- 
holder officers  devoting  all  time  and  attention  to  business:  allowed  (9-20-767: 
A.  R.  M.  30) . .June  1920  Cum.  Bull.  p.  109. 

Partner  pays  compensation  of  partnership  employee  under  terms  of  partnership 
agreement  (24-21-1686:  O.  D.  947).  .June  1921  Cum.  Bull.  p.  137. 

Part-time  schools:  compensation  of  employees  encouraged  or  required  to  attend 
(12-21-1519:  O.  D.  850).. June  1921  Cum.  Bull.  p.  130. 

Percentage  of  profits  added  to  small  salaries:  percentage  unchanged  since  1909; 
equal  percentage  of  net  losses  paid  to  corporation  by  officers:  allowance  recom- 
mended by  Committee  (51-20-1352:  A.  R.  R.  346).  .Dec.  1920  Cum.  Bull.  p.  143. 

Principal  stockholder  active  officer  who  by  his  own  efforts  has  developed  the  business: 
large  salary  allowed  (9-20-769:  A.  R.  R.  32).  .June  1920  Cum.  Bull.  p.  109. 


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DEDUCTIONS — EXPENSES. 


Profits  diverted  under  guise  of  salary  (1909  Excise  Act):  Government  may  show  such 
to  be  fact  by  evidence:  on  the  sufficiency  of  evidence  to  require  submission  to 
jury  in  particular  case.  (39-21-1841 : A.  R.  M.  138) . . Dec.  1921  Cum.  Bull.  p.  122. 

“Reasonable”  compensation;  factors  involved  in  determining:  “in  the  light  of  the 
circumstances  in  each  particular  case”  (10-19-362:  T.  B.  M.  44)..  1919  Cum. 
Bull.  p.  220. 

Sole  owners  of  stock  were  two  officers;  increase  from  $x  to  $2)4*  reduced  by  unit  to 
$2*,  per  annum  (1917  and  1918):  sales  increased  from  $45x  to  $82*  (9-21-1487: 
A.  R.  R.  390) . . June  1921  Cum.  Bull.  p.  371. 


1 654  A Discussion  of  “Reasonable  Allowance  for  Salaries.” — Receipt  is 
acknowledged  of  your  letter  of  November  29,  1919,  inquiring  whether 
or  not  the  Department  has  arrived  at  any  general  conclusion  with  respect 
to  salaries  of  executives  which  may  be  properly  deducted  in  determining 
tax  liability. 

1 655  In  reply  you  are  advised  that  the  problem  of  determining  reasonable 
compensation  for  personal  services  is  one  of  difficulty,  in  that  there 
are  few  general  rules  which  can  be  laid  down  as  guides  to  a decision.  Many 
factors  are  involved,  among  them  being  the  character  and  amount  of  respon- 
sibility, ease  or  difficulty  of  the  work  itself,  time  required,  working  con- 
ditions, future  prospects,  living  conditions  of  the  locality,  individual  ability, 
technical  training,  profitableness  to  the  employer  of  the  services  rendered, 
and  the  number  of  available  persons  capable  of  performing  the  duties  of  the 
position. 

1 656  A very  comprehensive  study  of  the  returns  of  various  classes  of 
corporations  has  been  made  by  the  Department  and  has  been  re- 
duced to  a chart  of  statistical  curves  showing  the  average  relationship  of 
deductions  for  officers’  compensation  to  gross  income,  to  total  deductions, 
and  to  net  income  plus  compensation  to  officers.  In  cases  where  the  sal- 
aries may  be  properly  questioned,  the  chart  is  used  as  a guide,  but  the  precise 
results  of  the  study  are  not  applied  in  such  cases  because  of  the  varying 
circumstances  surrounding  the  determination  of  the  salaries.  These  cir- 
cumstances are  given  full  weight  in  the  consideration  of  each  particular  case. 
1 657  The  test  of  deductibility  in  the  case  of  compensation  payments  is 
whether  they  are  reasonable  and  are  in  fact  payments  purely  for 

services. 

1658  Cases  in  which  the  compensation  paid  is  not  in  fact  the  purchase 
price  of  the  services  rendered  are  likely  to  occur  (1)  where  a cor- 
poration has  few  stockholders,  practically  all  of  whom  draw  salaries,  (2)  where 
salaried  employees  are  in  control  of  the  corporation  through  holding  directly 
or  indirectly  a majority  of  its  stock,  and  (3)  in  the  case  of  a large  corporation 
with  many  stockholders  where  the  salaried  employees  hold  a substantial 
minority  of  its  stock.  In  such  cases  there  is  an  opportunity  for  the  officers 
unduly  to  inflate  their  salaries  or  to  pool  their  interests  in  such  a way  that 
a part  of  the  compensation  is  not  in  fact  payment  for  services  rendered. 

1 659  The  Department  will  question  such  salaries  when  they  are  excessive 
and  appear  to  have  relation  to  stockholdings,  or  to  have  been  made 
as  a result  of  the  pooling  of  the  interests  of  those  in  control  of  the  corporation. 

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1 660  But  the  Department  does  not  question  compensation  which  is  paid 
as  the  result  of  open  bargaining,  or  as  the  result  of  bona  fide  con- 
tracts and  arrangements  entered  into  and  followed  prior  to  the  years  in  which 
the  tax  rates  have  been  exceedingly  high,  provided  such  payments  are  in  fact 
purely  for  services.  For  example— compensation  paid  in  1918,  which  is 
apparently  excessive,  but  which  was  paid  as  the  result  of  open  bargaining 
entered  into  and  followed  prior  to  1917,  will  not  be  questioned  by  the  Depart- 
ment. 

1 661  When  on  the  audit  of  a return,  it  appears  that  salaries  are  excessive, 
and  the  conditions  stated  in  the  previous  paragraph  do  not  exist,  the 
taxpayer  is  given  an  opportunity  of  presenting  facts  which  will  show  that 
the  amount  deducted  on  this  account  is  reasonable,  and  is  in  fact  the  pur- 
chase price  of  the  services.  Before  a decision  is  made,  the  facts  presented 
are  given  careful  consideration.  There  is  enclosed  a copy  of  Regulations 
No.  45,  Articles  105  [^1650]  and  106  [*\\1662]  of  which  bear  on  the  subject. 
(Letter  to  Thomas  A.  Fernlcy,  Secretary-Treasurer,  The  National  Whole- 
sale Dry  Goods  Association,  Philadelphia,  Pa.,  signed  by  G.  V.  Newton, 
Acting  Assistant  to  the  Commissioner,  by  N.  T.  Johnson,  Head  of  Division, 
and  dated  December  13,  1919.) 

1 662  Treatment  of  Excessive  Compensation. — As  to  the  treatment  of 
amounts  ostensibly  paid  as  compensation,  but  not  allowed  to  be 

deducted  as  such,  the  following  rules  apply: 

1663  (1)  In  the  case  of  excessive  payments  by  corporations,  if  such  pay- 
ments correspond  or  bear  a close  relationship  to  stockholdings, 

the  amount  of  the  excess  should  be  treated  as  dividends  and  would  thus 
be  exempt  from  the  normal  tax  in  the  hands  of  the  recipients.  If  such  pay- 
ments constitute  in  part  payment  for  property,  the  amount  of  the  excess 
should  be  treated  by  the  corporation  as  a capital  expenditure  and  by  the 
recipient  as  part  of  the  purchase  price. 

1664  (2)  In  the  case  of  excessive  payments  by  individuals  or  partner- 
ships, the  amounts  disallowed  should  ordinarily  be  treated  as  shares 

of  the  profits  of  a partnership,  except  that  a payment  for  property  should  be 
treated  by  the  individual  or  partnership  as  a capital  expenditure  and  by  the 
recipient  as  part  of  the  purchase  price.  (Art.  106,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Adjustment  in  1918-19  for  prewar  period  for  purpose  of  increasing  war-profits  credit 
merely  (8-19-319:  O.  D.  184) . . 1919  Cum.  Bull.  p.  273. 

Refunds  by  officers  of  amounts  disallowed  to  corporation  as  a deduction  (35-21-1792: 
O.  D.  1012).. Dec.  1921  Cum.  Bull.  p.  127. 


1665  Salaries  of  officers  or  employees  who  are  stockholders  will  be  sub- 
ject to  careful  analysis,  and  if  they  are  found  to  be  out  of  proportion 
to^the  volume  of  business  transacted,  or  excessive  when  compared  with  the 
salaries  of  like  officers  or  employees  of  other  corporations  doing  a similar 
kind  or  volume  of  business,  the  amount  so  paid  in  excess  of  reasonable 
compensation  for  the  services  will  not  be  deductible  from  eross  income, 
but  will  be  treated  as  a distribution  of  profits.  [Read  at  *;  1 663 .]  (Art. 
138,  i^[443,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

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DEDUCTIONS— EXPENSES. 


1666  The  appended  decision  of  the  United  States  Circuit  Court  of  Ap- 
peals for  the  Second  Circuit  in  the  case  of  Jacobs  & Davies  (Inc.) 

v.  Anderson,  collector  of  internal  revenue,  is  published  for  the  information 
of  internal-revenue  officers  and  others  concerned. 

Jacobs  and  Davies  (Inc.)  v.  Anderson.  (228  l'ed.  505.) 

1.  Deductions  from  Gross  Income. 

When  a company  composed  of  two  stockholders  divided  the  profits 
between  them,  calling  it  compensation,  the  same  can  not  be  deducted  as  an 
expense  of  business. 

2.  Income. 

Money  paid  out  under  these  circumstances  is  equivalent  to  dividend  and 
must  be  treated  as  income  of  the  corporation. 

•3.  Judgment  of  the  United  States  District  Court  Affirmed. 

The  decision  of  the  lower  court  is  affirmed  by  the  Circuit  Court  of 
Appeals.  (T.  D.  2262,  Nov.  15,  1919.) 

1667  Bonuses  to  Employees. — Bonuses  to  employees  will  constitute 
allowable  deductions  from  gross  income  when  such  payments  are 

made  in  good  faith  and  as  additional  compensation  for  the  services  actually 
rendered  by  the  employees,  provided  such  payments,  when  added  to  the 
stipulated  salaries,  do  not  exceed  a reasonable  compensation  for  the  services 
rendered.  It  is  immaterial  whether  such  bonuses  are  paid  in  cash  or  in  kind 
or  partly  in  cash  and  partly  in  kind.  Donations  made  to  employees  and 
others,  which  do  not  have  in  them  the  element  of  compensation  or  are  in 
excess  of  reasonable  compensation  for  services,  are  considered  gratuities 
and  are  not  deductible  from  gross  income.  (Art.  107,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Cash  and  treasury  stock  (27-20-1039:  O.  D.  570).. Dec.  1920  Cum.  Bull.  p.  144. 
See  “Treasury  stock”  below. 

Deductible  for  year  services  rendered  only,  if  on  accrual  basis  (1-19-54:  O.  D.  37) 
. 1919  Cum.  Bull.  p.  107. 

Paid  in  1919  for  1916  services:  not  deductible  (19-20-917:  O.  D.  497).. June  1920 
Cum.  Bull.  p.  1 1 1 

Stock  in  escrow  for  benefit  of  employees  for  delivery  later  contingent  on  faithful 
service,  etc.  Forfeiture  of  his  right,  by  employee  (3-19-186:  O.  D.  124)..  1919 
Cum.  Bull.  p.  107. 

Treasury  stock  cost  of  which  is  greater  or  less  than  value  when  paid  out  as  bonus 
(11-21-1509:  A.  R.  M.  114).. June  1921  Cum.  Bull.  p.  137.  “Cash  and  treasury 
stock”  above. 


1 668  Bonuses  Which  May  Be  Otherwise  Deductible  Are  Not  So  When 
Left  With  the  Company  to  Secure  it  Against  Loss. — This  office  is 
in  receipt  of  your  letter  of  the  19th  instant,  in  reply  to  office  letter  dated 
July  11,  1917,  in  which  you  make  a further  inquiry  which  is  substantially 
as  follows: 

If  a corporation  pays  its  employees  a salary  in  the  form  of  weekly 
stated  amounts,  together  with  a certain  percentage  of  the  profits,  and 
if  such  percentage  of  the  profits  is  in  no  way  based  upon  interest  in 
the  business  and  makes  a total  which  is  no  more  than  a fair  compensa- 
tion, is  such  payment  or  percentage  of  the  profits  allowably  deducted 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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DEDUCTIONS  EXPENSES. 


from  gross  income  of  the  corporation  in  the  event  that  there  is  an 
agreement  to  the  effect  that  the  so-called  bonuses  are  to  be  left  on 
deposit  with  the  company  to  secure  the  company  against  such  losses 
as  may  be  by  contract  charged  to  the  employees  at  a percentage  of 
the  profits  received  under  the  contract. 

1 669  In  reply,  you  are  informed  that  under  the  conditions  set  out  in 
the  foregoing  paragraph,  the  bonuses  or  percentages  of  profits 

“left  on  deposit  with  the  company  to  secure  it  against  loss,”  are  not  de- 
ductible. (Letter  to  Greenbaum,  Wolff  & Ernst,  New  York,  N.  Y.,  signed 
by  Acting  Deputy  Commissioner  S.  H.  Boyd,  and  dated  November  30,  1917.) 

1670  Compensation  Paid  in  Stock.— -Compensation  paid  an  employee  in 
capital  stock  of  the  corporation  may.  be  deducted  as  an  expense  if 

so  charged  on  books  at  the  actual  value  of  such  stock,  and  the  recipient 
of  such  stock,  if  he  be  a taxable  person,  will  return  such  stock  at  the  same 
value  as  income.  (Art.  139,  1(444,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

1671  Commissions  Paid  to  Salesmen. — Commissions  paid  to  salesmen 
as  a part  of  the  expense  of  conducting  business  are  allowable' de- 
ductions to  the  payer  of  the  commission.  (T.  D.  2090,  Dec.  14,  1914.) 

1672  Commissions  Paid  Real  Estate  Agents. — A commission  paid  to  a 
real  estate  agent  for  collecting  rents  and  management  of  property 

is  a legitimate  business  expense  and  constitutes  an  allowable  deduction 
in  computing  net  income.  (T.  D.  2090,  Dec.  14,  1914.) 

1673  Commissions  to  Salesmen  Paid  in  Stock. — Commissions  allowed 
salesmen,  paid  in  stock,  may  be  deducted  as  expense  if  so  charged 

on  books  at  the  actual  value  of  such  stock.  (Art.  117,  Reg.  33,  Jan.  5,  1914.) 

1674  Pensions. — Amounts  paid  for  pensions  to  retired  employees  or  to 
their  families  or  others  dependent  upon  them,  or  on  account  of  injuries 

received  by  employees,  and  lump  sum  amounts  paid  or  accrued  as  compen- 
sation for  injuries,  are  proper  deductions  as  ordinary  and  necessary  ex- 
penses. Such  deductions  are  limited  to  the  amount  not  compensated  for 
by  insurance  or  otherwise.  No  deduction  shall  be  made  for  contribu- 
tions to  a pension  fund  held  by  the  corporation,  the  amount  deductible 
in  such  case  being  the  amount  actually  paid  to  the  employee.  When  the 
amount  of  the  salary  of  an  officer  or  employee  is  paid  for  a limited  period 
after  his  death  to  his  widow  or  heirs,  in  recognition  of  the  services  rend- 
ered by  the  individual,  such  payments  may  be  deducted.  Salaries  paid 
by  employers  to  employees  who  are  absent  in  the  military,  naval,  or  other 
service  of  the  Government,  but  who  intend  to  return  at  the  conclusion  of 
such  service,  are  allowable  deductions.  (Art.  108,  Reg.  62,  1922  Edition.) 

1675  Donations  by  Corporations.— Corporations  are  not  entitled  to  deduct 
from  gross  income  charitable  or  other  contributions  which  individ- 
uals may  deduct  under  paragraph  (11)  [1(2001]  of  section  214  (a).  Donations 
made  by  a corporation  for  purposes  connected  with  the  operation  of  its  busi- 
ness, however,  when  limited  to  charitable  institutions,  hospitals,  or  educa- 
tional institutions  conducted  for  the  benefit  of  its  employees  or  their  depend- 
ents, are  a proper  deduction  as  ordinary  and  necessary  expenses.  iDona- 

Copyright  1922,  by  The  Corporation  Trust  Company, 

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DEDUCTIONS— EXPENSES. 

tions  which  legitimately  represent  a consideration  for  a benefit  flowing  di- 
rectly to  the  corporation  as  an  incident  of  its  business  are  allowable  deduc- 
tions from  gross  income.  For  example,  a street  railway  corporation  may 
donate  a sum  of  money  to  an  organization  intending  to  hold  a convention 
in  the  city  in  which  it  operates,  with  the  reasonable  expectation  that  the 
holding  of  such  convention  will  augment  its  income  through  a greater  num- 
ber of  people  using  the  cars.  Sums  of  money  expended  for  lobbying  purposes, 
the  promotion  or  defeat  of  legislation,  the  exploitation  of  propaganda,  includ- 
ing advertising  other  than  trade  advertising,  and  contributions  for  campaign 
expenses,  are  not  deductible  from  gross  income.  [For  donations  to  the  Red 
Cross,  war-chests,  etc.,  etc.,  read  at  1(2015].  (Art.  562,  Reg.  62, 1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Chambers  of  Commerce  budget  funds;  voluntary  contributions  to  (1-1-11:  I.  T. 
1153).  .June  1922  Cum.  Bull.  p.  274. 

Same:  for  special  purpose  of  inducing  railraod  to  extend  road  to  town  (1921 
Act)  (1-3-35:  I.  T.  1169).  .June  1922  Cum.  Bull.  p.  275. 

Civic  federation  which  disseminates  fiscal  information:  1921  Act  (1-16-224:  I.  T. 
1281).  .June  1922  Cum.  Bull.  p.  118. 

New  bridges;  amounts  donated  to  a municipality  for  the  building  of  (30-20-1094. 
O.  D.  607).  .Dec.  1920  Cum.  Bull.  p.  265. 

Pension  fund  for  benefit  of  employees;  amounts  paid  not  deductible  (2-19-164: 
S.  965) . . 1919  Cum.  Bull.  p.  224. 

Same:  amounts  paid  deductible  (2-19-165:  O.  D.  110).  .1919  Cum.  Bull.  p.  224. 

Red  Cross;  amended  returns  (1-21-1385:  T.  D.  3105).  .June  1921  Cum.  Bull.  p.  291 
Modified  (36-21-1807:  T.  D.  3215).. Dec.  1921  Cum.  Bull.  P.  222. 

Red  Cross,  Salvation  Army,  Liberty  Loan  Drives;  by  a close  corporation  (4-21-1411: 

A.  R.  R.  373).  .June  1921  Cum.  Bull.  p.  291.  (See  “Contributions”  in  Cum- 
ulative Index  following  1(1617.) 

Thrift  stamp  donated  for  each  savings  stamp  purchased  by  employee  (41-20-1236 
O.  D.  682).  .Dec.  1920  Cum.  Bull.  p.  266. 

Welfare  league  for  hospital  for  benefit  of  employees  (1-8-107:  I.  T.  1217).  . Tune 
1922  Cum.  Bull.  p.  275. 

Y.  M.  C.  A.  on  property  of  contributing  corporation,  and  operated  for  its  benefit 
(31-21-1757:  0.  D.  986).  .Dec.  1921  Cum.  Bull.  p.  222. 


1676  Donations  by  Agricultural  Corporations  to  Fairs. — A corporation 
engaged  in  agricultural  business  cannot  be  allowed  to  make  a deduc- 
tion from  gross  income  on  account  of  donations  to  fairs,  churches,  and 
associations,  such  donations  being  made  for  the  purpose  of  obtaining  and 
preserving  the  good  will  of  the  farmers  who  raise  crops  for  it,  since  the  amounts 
so  expended  are  clearly  in  the  nature  of  gratuities  and  are  not  necessary 
expenses  of  operation  and  maintenance  as  there  is  no  such  consideration  in 
this  case  as  is  contemplated  in  [K1675J.  (Extract  from  letter  to  Carey, 
Piper  and  Hall,  Attorneys  at  Law,  Baltimore,  Maryland,  signed  by  Acting 
Commissioner  G.  E.  Fletcher,  and  dated  March  25,  1915.) 

1677  Law  1(143.  Traveling  Expenses. — “traveling  expenses  ( including 
(Sec.  214.)  the  entire  amount  expended  for  meals  and  lodging ) 

while  away  from  home  in  the  pursuit  of  a trade  or 
business ; and ” — Law.  [Note:  This  provision  is  new,  in  terms,  to 

the  1921  Act.  However,  a like  allow- 
ance, restricted  and  apportioned,  was 
granted  by  regulations  under  the  19181 
Act.] 

1678  Traveling  expenses,  as  ordinarily  understood,  include  railroad 
fares  and  meals  and  lodging.  If  the  trip  is  undertaken  for  other 

than  business  purposes,  such  railroad  fares  are  personal  expenses  and  such 

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DEDDCTIONS— EXPENSES. 

meals  and  lodging  are  living  expenses.  If  the  trip  is  solely  on  business,  the 
reasonable  and  necessary  traveling  expenses,  including  railroad  fares,  meals, 
and  lodging,  become  business  instead  of  personal  expenses,  (a)  If,  then,  an 
individual,  whose  business  requires  him  to  travel,  receives  a salary  as  full 
compensation  for  his  services,  without  reimbursement  for  ’raveling  expenses, 
or  is  employed  on  a commission  basis  with  no  expense  allowance,  his  travel- 
ing expenses,  including  the  entire  amount  expended  for  meals  and  lodging, 
are  deductible  from  gross  income,  (b)  If  an  individual  receives  a salary 
and  is^also  repaid  his  actual  traveling  expenses,  he  shall  include  in  gross 
income  the  amount  so  repaid  and  may  deduct  such  expenses,  (c)  If  an 
individual  receives  a salary  and  also  an  allowance  for  meals  and  lodging, 
as,  for  example,  a per  diem  allowance  in  lieu  of  subsistence,  the  amount  of 
the  allowance  should  be  included  in  gross  income  and  the  cost  of  such  meals 
and  lodging  may  be  deducted  therefrom.  A payment  for  the  use  of  a sample 
room  at  a hotel  for  the  display  of  goods  is  a business  expense.  Only  such 
expenses  as  are  reasonable  and  necessary  in  the  conduct  of  the  business  and 
directly  attributable  to  it  may  be  deducted.  A taxpayer  claiming  the  benefit 
of  the  deductions  referred  to  herein  must  attach  to  his  return  a statement 
showing  (1)  the  nature  of  the  business  in  which  engaged;  (2)  number  of 
days  away  from  home  during  the  taxable  year  on  account  of  business; 
(3)  total  amount  of  expenses  incident  to  meals  and  lodging  while  absent 
from  home  on  business  during  the  taxable  year;  (4)  total  amount  rf  other 
expenses  incident  to  travel  and  claimed  as  a deduction. 

1679^ Claim  for  the  deductions  referred  to  herein  must  be  substantiated, 
when  required  by  the  Commissioner,  by  records  showing  in  detail 
the  amount  and  nature  of  the  expenses  incurred. 

1680  Commuters’  fares  are  not  considered  as  traveling  expenses  and  are 
not  deductible.  (Art.  101  (a),  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Amendment  to  Art.  292,  Reg.  45  of  Dec.  16,  1920,  applicable  to  1920  and  -ubs-quent 
years  (8-21-1466:  O.  D.  819).  .June  1921  Cum.  Bull.  p.  211. 

Also  applicable  to  1919  (29-2 1-1 735 : A.  R.  R.  572).  .Dec.  1921  Cum.  Bull,  p 172. 
Also  applicable  to  1916,  1917,  and  1918  (35-21-1795:  O.  D.  1015).  Dec. 
1921  Cum.  Bull.  p.  173. 

Applies  to  Government  emplovces  (17-21-1596:  O.  D.  893)..  June  1921  Cum. 
Bull.  p.  212. 

Army  officer’s  family  transported  at  Government  expense  from  one  post  to  another 
(50-21-1975:  O.  D.  1135).. Dec.  1921  Cum.  Bull.  p.  174. 

Automobile;  oil,  gas,  repairs  (41-20-1230:  A.  R.  R.  266')..  Dec.  1920  Cum.  Bull, 
p.  131. 

Bureau  of  Internal  Revenue  field  officers:  1921  Act  (1-27-388:  I.  T.  1380).  .Bull.  I 
(’22)-27,  p.  6. 

Convention;  expenses  incident  to  attending  by  physician  are  not  deductible:  1921 
Act  (1-26-369:  I.  T.  1369).  .June  1922  Cum.  Bull.  p.  123. 

Estimate  in  absence  of  detailed  statement  insufficient  (29-21-1735:  A.  R.  R.  572) 
. .Dec.  1921  Cum.  Bull.  p.  172.  Estimate  by  Bureau  unwarranted  (1-2-19: A.  R.  R. 

. . Dec.  1921  Cum.  Bull.  p.  172.  Estimate  by  Bureau  unwarranted  (1-2-19:  A.  R.  R. 
719).  .June  1922  Cum.  Bull.  p.  119. 

Examples  illustrating  application  of  Art.  292  as  amended  Dec.  16,  1920  and  as  later 
issued  in  Reg.  45,  Rev.,  Jan.  28,  1921  (2-21-1389:  M.  2688) . .June  1921  Cum. 
Bull.  p.  209. 

Of  what  do  “household”  expenses  consist:  rental  value  of  owned  place  of  residence 
not  to  be  included  (21-21-1650):  O.  D.  924).  .June  1921  Cum.  Bull.  p.  212. 

Home  maintained  abroad  as  well  as  here  by  citizen  Red  Cross  worker  abroad;  1918 
and  1921  Acts  (1-24-344:  I.  T.  1355).  .June  1922  Cum.  Bull.  p.  194. 

“Home”;  which  home,  when  more  than  one  (36-21-1803:  O.  D.  1021).. Dec.  1921 
Cum.  Bull.  p.  174. 

Members  of  Congress  (14-21-1549:  O.  D.  864).. June  1921  Cum.  Bull.  p.  211. 
Secretaries  to  members  of  Congress  (14-21-1550:  O.  D.  865).  . June  1921  Cum. 
Bull.  p.  212. 

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DEDUCTIONS— EXPENSES. 

No  allowance  made  for  reimbursement;  also  travel  incident  to  acceptance  of  employ- 
ment (15-20-848:  0.  D.  451).  June  1920  Cum.  Bull.  p.  157. 

Position;  traveling  expense  incident  to  securing,  is  personal:  1921  Act  (1-30-428:  I.  T. 
1397).  . Bull.  I (’22)-30,  p.  15. 

Railroad  fares  to  and  from  business  by  salaried  employee  (8-19-317:  S.  1048).  1919 
Cum.  Bull.  p.  101.  Same,  1921  Act  (1-5-57:  I.  T.  1184).  .June  1922  Cum. 
Bull.  p.  121. 

Secretary  to  member  of  Congress;  board  and  lodging  while  in  Washington  a perma- 
nent home  being  maintained  elsewhere:  1921  Act  (1-14-194:  I.  T.  1264).  .June 
1922  Cum.  Bull.  p.  122. 

Single  person  without  home  (19-21-1621:  O.  D.  905).  .June  1921  Cum.  Bull.  p.  212. 
Substantiation  of  claim  by  taxpayer  (1-2-19:  A.  R.  R.  719).  .June  1922  Cum.  Bull, 
p.  119. 

Summer  school:  travel  to  and  from  by  university  professor  (1-11-140:  I.  T.  1238) 
. .June  1922  Cum.  Bull.  p.  122. 


1681  LawUl44.  Certain  Rentals  Are  Deductible.— “rentals  or  other 
(Sec.  214.)  payments  required  to  be  made  as  a condition  to  the  con- 
tinued use  or  possession,  for  purposes  of  the  trade  or 
business,  of  property  to  which  the  taxpayer  has  not  taken  or  is  not  taking 
title  or  in  which,  he  has  no  equity” — Law  [Note:  The  1918  Act 

so  provided.] 

1632  Law  If 386.  [Corporations.] — “ including  rentals  or  other  payments 
(Sec.  234.)  required  to  be  made  as  a condition  to  the  continued  use  or 
possession  of  property  to  which  the  corporation  has  not 
taken  or  is  not  taking  title,  or  in  which  it  has  no  equity” — Law.  [Note: 

The  1918  Act  so  provided.] 

1683  Rentals. — Where  a leasehold  is  acquired  for  business  purposes  for 
a specified  sum,  the  purchaser  may  take  as  a deduction  in  his  return 
an  aliquot^part  of  such  sum  each  year,  based  on  the  number  of  years  the 
lease  has  to  run.  Taxes  paid  by  a tenant  to  or  for  a landlord  for  business 
property  are  additional  rent  and  constitute  a deductible  item  to  the  tenant 
and  taxable  income  to  the  landlord,  the  amount  of  the  tax  being  deductible 
by  the  latter.  The  cost  borne  by  a lessee  in  erecting  buildings  or  making 
permanent  improvements  on  ground  of  which  he  is  lessee  is  held  to  be  a 
capital  investment  and  not  deductible  as  a business  expense.  In  order  to 
return  to  such  taxpayer  his  investment  of  capital,  an  annual  deduction  may 
be  made  from  gross  income  of  an  amount  equal  to  the  total  cost  of  such 
improvements  divided  by  the  number  of  years  remaining  of  the  term  of 
lease,  and  such  deduction  shall  be  in  lieu  of  a deduction  for  depreciation. 
If  the  remainder  of  the  term  of  lease  is  greater  than  the  probable  life  of  the 
buildings  erected,  or  of  the  improvement  made,  this  deduction  shall  take 
the  form  of  an  allowance  for  depreciation.  (See  Article  48  Hi  1252].)  (Art. 
109,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Annual  rentals  only  deductible  on  leasehold  acquired  prior  to  March  1,  1913,  annua 
rental  being  only  consideration  (40-20-1220:  O.  D.  675).. Dec.  1920  Cum. 
Bull.  p.  144. 

Basis  for  determination  of  March  1,  1913  value  for  deoreciation  purposes  (45- 
20-1292:  O.  D.  720).. Dec.  1920  Cum.  Bull.  p.  145.' 

Assessments  for  local  benefits  paid  by  tenant,  as  additional  rent  (3-20-689:  O.  D. 
373).. June  1920  Cum.  Bull.  p.  123. 

Betterments  by  lessee  reverting  to  lessor:  determination  of  profit  or  loss  on  assign- 
ment of  lease  (50-20-1339:  O.  D.  746).  .Dec.  1920  Curn.  Bull.  p.  49. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
367 


2-27-22.  (2)  4-10-22.  (3)  4-14-22.  (4)  7-27-22.  (6)  10-11-22. 

DEDUCTIONS— INTEREST. 


Betterments  by  lessee  reverting  to  lessor  on  expiration  of  lease:  lease  renewed  (7-2 1- 
1456:  A.  R.  R.  384) . .June  1921  Cum.  Bull.  p.  366. 

Betterments  by  lessee;  to  pass  to  lessor  at  termination  of  lease  or  at  his  option  are 
to  be  removed  and  property  restored  to  original  condition  (21-20-952:  0.  D. 
516).  .June  1920  Cum.  Bull.  p.  112. 

Betterments  by  lessees;  explanation  and  illustration  of  the  new  (Sept.  1920)  rule 
(8-21-1474:  M.  2174) . .June  1921  Cum.  Bull.  p.  90. 

Bonus  paid  for  privilege  of  acquiring  a leasehold  (50-21-1973:  A.  R.  R.  676).  .Dec. 
1921  Cum.  Bull.  p.  128. 

Cancellation  of  lease  for  fixed  sum  (6-20-727:  0.  D.  397) . .June  1920  Cum.  Bull.  p.  112. 

Same:  (28-20-1061:  O.  D.  585) . .Dec.  1920  Cum.  Bull,  p.265. 

Royalties  (mine)  under  option  to  purchase  (“bond  and  lease”  agreement)  (4-21-1406 
Sol.  Op.  86) . .June  1921  Cum.  Bull.  p.  138. 


1684  Law  If  145.  All  Interest  Paid  or  Accrued  on  Indebetdness  With 
(Sec.  214.)  One  Exception  Is  Deductible. — “(2)  All  interest  paid 
or  accrued  within  the  taxable  year  on  indebtedness  ,” — 
Law.  [Note:  The  1918  Act  so  provided.] 


I 6S5  Law  TJ146.  Interest  Paid  in  Connection  With  Holdings  in  Certain 
(Sec.  214.)  Tax-Free  Obligations  and  Securities  is  Not  Deducti- 
ble.— “except  on  indebtedness  incurred  or  continued  to 
purchase  or  carry  obligations  or  securities  ( other  than  obligations  of  the 
United  States  issued  after  September  24,  1917,  and  originally  subscribed 
for  by  the  taxpayer ) the  interest  upon  which  is  wholly  exempt  from  taxation 
under  this  title;” — Law.  [Note:  The  1918  Act  omitted  “and 

originally  subscribed  for  by  the  tax- 
payer,” and  in  lieu  of  “is  wholly  exempt 
from  taxation  under  this  title”r  had  “is 
wholly  exempt  from  taxation  under  this 
title  as  income  to  the  taxpayer”.; 


5 686  Law  ^1387.  [Corporations.] — “(2)  All  interest  paid  or  accrued 
(Sec.  234.)  within  the  taxable  year  on  its  indebtedness  ,” — Law. 

[Note:  The  1918  Act  so  provided.] 


1687  Law  1|388.  [Corporations.] — “except  on  indebtedness  incurred  or 
(Sec.  234.)  continued  to  purchase  or  carry  obligations  or  securities 
{other  than  obligations  of  the  United  States  issued  after 
September  24,  1917,  and  originally  subscribed  for  by  the  iaxpayer ) the 
interest  upon  which  is  wholly  exempt  from  taxation  under  this  title ;” — 
Law.  [Note:  The  1918  Act  omitted  “and  originally  subscribed 

for  by  the  taxpayer”,  and  in  lieu  of  “is 
wholly  exempt  from  taxation  under  this 
title”,  had  “is  wholly  exempt  from  taxa- 
tion under  this  title  as  income  to  the 
taxpayer”.] 


1688  Interest  paid  or  accrued  within  the  year  on  indebtedness  may  be 
deducted  from  gross  income,  except  that  interest  on  indebtedness 
incurred  or  continued  to  purchase  oi  carry  securities,  such  as  municipal 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

368 


2-27-22.  (2)  4-10-22.  (3)  6-10-22.  (4)  6-26-22.  (6)  10-11-22. 

DEDUCTIONS— INTEREST. 

bonds  and  first  Liberty  loan  3J4  Per  cent  bonds,  the  interest  upon  which  is 
wholly  exempt  from  tax,  is  not  deductible.  This  exception,  however,  does 
not  apply  in  the  case  of  3%  per  cent  Victory  notes  originally  subscribed  for 
by  the  taxpayer,  and  interest  on  indebtedness  incurred  to  purchase  or  carry 
such  notes  is  deductible.  Since  other  obligations  of  the  United  States  issued 
after  September  24,  1917,  are  not  wholly  exempt  from  taxation  under  this 
title,  interest  paid  on  indebtedness  incurred  or  continued  to  purchase  such 
obligations  (whether  or  not  originally  subscribed  for  by  the  taxpayer)  is 
deductible  in  accordance  with  the  general  rule.  Interest  paid  by  the  taxpayer 
on  a mortgage  upon  real  estate  of  which  he  is  the  legal  or  equitable  owner, 
even  though  the  taxpayer  is  not  directly  liable  upon  the  bond  or  note  secured 
by  such  mortgage,  may  be  deducted  as  interest  on  his  indebtedness.  Pay- 
ments made  for  Maryland  or  Pennsylvania  ground  rents  are  not  deductible 
as  interest  but  may,  under  proper  circumstances,  be  deducted  as  rent.  (Art. 
121,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Capital  account;  interest  properly  chargeable  to  capital  account  and  so  charged  may 
nevertheless  be  deducted;  adjustment  of  capital  account  and  amended  returns 
(1913  Act  specifically)  (1-19-50:  S.  935) . . 1919  Cum.  Bull.  p.  109. 

Capitalizing  accrued  interest  by  giving  new  note  (21-20-953:  A.  R.  R.  113) . . June  1920 
Cum.  Bull.  p.  1 14. 

Decedent’s  estate;  interest  accrued  on  outstanding  indebtedness  to  time  of  death 
(21-20-953:  A.  R.  R.  113).. June  1920  Cum.  Bull.  p.  114. 

Estate  tax;  interest  on  unpaid  (29-20-1074:  O.  D.  594) . .Dec.  1920  Cum.  Bull.  p.  143. 
Overruled:  1921  Act  (1-21-298:  I.  T.  1317).  .June  1922  Cum.  Bull.  p.  132. 

Executory  contract;  interest  paid  on  execution  (29-20-1075:  O.  D.  595).  .Dec.  1920 
Cum.  Bull.  p.  149. 

Guaranty  of  interest;  - payments  made  under  are  deductible  (8-20-753:  S.  1298) 
. .June  1920  Cum.  Bull.  p.  113. 

Liberty  loan  bonds  issued  after  Sept.  24,  1919;  interest  on  indebtedness  incurred  to 
purchase  or  carry  is  deductible  (1-19-40:  O.  D.  28).  .1919  Cum.  Bull.  p.  89. 

Liberty  bonds;  loans  continued  to  cover  losses  on  sale  of.  Also,  loans  to  pay  taxes, 
bonds  being  deposited  as  security  (1921  Act)  (1-8-102:  I.  T.  1213).  . June  1922 
Cum.  Bull.  p.  132. 

Penalty  interest  (Sec.  250)  is  deductible  (7-20-745:  O.  922).. June  1920  Cum.  Bull, 
p.  227. 

Victory  loan  notes;  interest  on  indebtedness  incurred  to  purchase  or  carry  is  de- 
ductible (1-19-57:  0.  D.  40).  .1919  Cum.  Bull,  p.  111. 

1 689  Interest  in  Indebtedness  Incurred  for  the  Payment  of  Dividend 
Paying  Stock  Is  Deductible  for  Both  Normal  Tax  and  Supertax 

Purposes. — Would  you  be  good  enough  to  advise  us  by  telegram  at  our 
expense,  whether  interest  upon  a note  the  proceeds  of  which  were  used  for 
the  purchase  of  dividend-paying  stock  would  be  allowed  as  a full  deduction 
or  only  as  a deduction  in  arriving  at  the  amount  of  income  subject  to  the 
surtax?  (Answer  ) Interest  upon  a note  the  proceeds  of  which  are  used  to 
purchase  dividend-paying  stock  allowable  as  a deduction  for  normal  and 
additional  tax  purposes.  (Letter  of  inquiry  from  Harris,  Forbes  & Company 
New  York,  N.  Y.,  and  telegram  of  reply  thereto  signed  by  Commissioner 
Daniel  C.  Roper,  and  dated  Nov.  19,  1917.) 

1690  Interest  paid  by  a corporation  on  scrip  dividends  is  an  allowable 
deduction  So-called  interest  on  preferred  stock,  which  is  in  reality 

a dividend  thereon,  can  not  be  deducted  in  arriving  at  net  income.  In  the 
case  of  banks  and  loan  or  trust  companies  interest  paid  within  the  year  on 
deposits  or  on  moneys  received  for  investment  and  secured  by  interest- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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369 


2-27-22.  <2)  4-10-22.  (3)  6-10-22.  (4)  5-26-22.  (5)  10-11-22. 

DED  U CTiONS — IN  TER  EST. 


bearing  certificates  of  indebtedness  issued  by  such  bank  or  loan  or  trust 
company  may  be  deducted  from  gross  income.  (Art.  564,  Reg.  62,  1922 
Edition.) 

Tor  explanation  of  Cumulative  Index  references  see  page,  gi. 

c-'.ee  citations  in  Cumulative  Index  following  ‘f  1 688.) 

Debenture  stock,  so-called  (33-20-1142:  A.  R.  R.  237).  .Dec.  1920  Cum.  Bull.  p.  327 

Debentures  generally;  debenture  defined  (41-21-1861:  O.  D.  1060).. Dec.  1921  Cum. 
Bull.  p.  193. 

Discounting  customers’  paper  to  secure  working  capital  involves  “expense”  rat’uer 
than  “interest”  and  so  the  limitation  of  the  1916-1917  Acts  does  not  apply  (I- 
19-267:  A.  R.  R.  880).  .June  1922  Cum.  Bull.  p.  276. 

Dividend  decree  by  court  in  one  year  affirmed  by  appellate  court  in  later  year  “with 
inte  est”  (4-21-1407:  O.  D.  778).  .June  1921  Cum.  Bull.  p.  141. 

Installment  subscription  payments  for  stock  (32-21-1765:  O.  D.  991).. Dec.  1921 
Cum.  Bull.  p.  284. 

Property  collateral  subject  to  sale  in  ordinary  business  (1916-1917  Acts)  (47-2 1 - 
1934:  Sol.  Op.  127).  .Dec.  1921  Cum.  Bull.  p.  226. 


1691  Car-Trust  Certificates. — Equipment  or  car-trust  certificates  issued 
by  or  for  railroad  companies  are  a means  by  which  such  com- 
panies secure  cars  or  other  equipment,  or  the  money  with  which  such  equip- 
ment is  purchased. 

1 692  The  equipment  becomes  at  once  an  asset  of  the  company  and  the 
trust  certificates  secured  by  such  assets  are  obligations  of  the  railroad 
companies,  similar  to  corporate  bonds,  mortgages,  and  like  obligations. 
The  trustees  in  whose  names  legal  title  to  the  equipment  stands,  are  not 
an  association  within  the  meaning  of  this  title,  and  are  therefore  not  a tax- 
able entity,  but  they  are,  for  the  purpose  of  this  title,  a fiscal  agent  paying 
off  the  obligations,  both  principal  and  interest,  of  the  railroad  companies 
with  the  funds  appropriated  by  such  companies. 

1693  The  railroad  companies  * * * include  these  trust  certificates 

in  the  amount  of  their  bonded  or  other  indebtedness  * * * 

and  the  interest  paid  thereon,  * * * , will  be  deductible,  * * * 

1694  If  the  certificates  contain  a contract  or  provision  by  which  the 
obligor  agrees  to  pay  any  portion  of  the  tax  imposed  by  this  title 

upon  the  obligee  or  reimburse  the  obligee  for  any  portion  of  the  tax,  or  to 
pay  the  interest  without  deduction  for  any  tax  which  the  obligor  may  be 
required  to  pay,  the  trustees  in  such  cases,  in  making  interest  payments 
on  these  certificates,  will,  in  the  absence  of  claims  for  exemption  when  interest 
payments  are  made  to  individuals,  withhold  the  normal  income  tax  [of  2%] 
on  such  payments  regardless  of  the  amount  thereof.  (Art.  188,  ^[573-576, 
Reg.  33,  Rev.,  Jan.  28,  1921.) 

1 S95  Interest  on  Capital. — Interest  calculated  for  cost-keeping  or  other 
purposes  on  account  of  capital  or  surplus  invested  in  the  business 
but  which  does  not  represent  a charge  arising  under  an  interest-bearing 
obligation,  is  not  an  allowable  deduction  from  gross  income.  (Art.  122,  Reg. 
62,  1922  Edition.) 

1636  Sale  of  Capital  Stock,  Bonds,  and  Capital  Assets. — A corporation 
sustains  no  deductible  loss  from  the  sale  of  its  capital  stock.  Sea 
article  543  [for  sale  of  capital  stock  generally,  ^[1275].  If  it  sells  its  bonds 
at  a discount,  the  amount  of  such  discount  is  treated  in  the  same  way  as 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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370 


(8)9-1-22  (9)9-13-22.  (10)  10-11-22. 

DEDUCTIONS  TAXES. 


interest  paid,  and  if  it  retires  its  bonds  at  a price  in  excess  of  the  issuing  price 
such  excess  may  usually  be  deducted  as  expense.  Sec  articles  545  [for  sale 
and  retirement  of  corporate  bonds,  1279]  and  848  [for  discount  on 
bonds  in  relation  to  invested  capital — War  Tax  Service],  if  (1)  a corpora- 
tion sells  its  capital  assets  for  less  than  their  cost,  and  such  assets  were 
acquired  before  March  1,  1913,  then  if  the  fair  market  value  on  March  1, 
1913,  less  depreciation  subsequently  sustained  and  allowable  as  a deduction 
is  less  than  the  amount  realized,  no  loss  is  deductible;  if  (2)  such  fair  market 
.value  less  depreciation  subsequently  sustained  and  allowable  as  a deduction 
is  greater  than  the  amount  realized,  but  the  amount  realized  exceeds  original 
cost,  no  loss  is  deductible;  if  (3)  the  amount  realized  is  less  than  both  original 
cost  and  the  value  of  March  1,  1913,  less  depreciation  subsequently  sustained 
and  allowable  as  a deduction,  the  deductible  loss  is  the  difference  between 
such  amount  realized  and  such  cost  or  March  1,  1913,  value,  whichever  is 
lower.  See  article  546  [^[1292].  (Art.  563,  Reg.  62,  1922  Edition.) 

hor  explanation  of  Cumulative  Index  references  see  pape  91. 

Commissions  on  sales  of  preferred  stock.  Redemption  of  the  stock  ( T-6-77:  I.  T, 
1198).  .June  1922  Cum.  Bull.  p.  275. 

Discount  on  issued  bonds  improperly  charged  to  profit  and  loss;  amended  returns  to 
show  as  advance  interest  to  be  amortized  (2-19-166:  O.  D.  ill)..  1919  Cum 
Bull  p.  224. 

Serial  maturities  of  bonds:  allocation  of  discount  (22-21-1665:  O.  D.  936)..fune 
1921  Cum.  Bull.  p.  276.  Also;  1918  and  1921  Acts:  (1-32-448:  I.  T.  1412)..  Bull. 
I (’22)-32,  p.  3. 


1637  Law^[147. 

(Sec.  214.) 


1698  Law^[148. 

(Sec.  214.) 

States,” — Law. 

1 6S9  Law  ^[149. 

(Sec.  214.) 


Taxes  Paid  or  Accrued  are  Deductible,  with  Certain 
Exceptions. — “(3)  Taxes  paid  or  accrued  within  the 
taxable  year  except” — Law.  [Note:  The  1918 

Act  so  provided,  in  effect.] 

United  States  Income  and  Excess-Profits  Taxes  are 
not  Deductible. — “(a)  income,  war-profits , and  excess- 
profits  taxes  imposed  by  the  authority  of  the  United 
[Note:  The  1918  Act  so  provided,  in  effect.] 

Foreign  Income  and  Excess-Profits  Taxes  to  Amount 
Credited,  are  not  Deductible. — “(b)  so  much  of  the 
income,  war-profits  and  excess -profits  taxes , imposed 
by  the  authority  of  any  foreign  country  or  possession  of  the  United  States,  as 
is  allowed  as  a credit  under  section  222  [^]1733],” — Law.  [Note:  The 

1918  Act  so  provided,  in  effect.] 

[Corporations] — “(3)  Taxes  paid  or  accrued  within  the 
taxable  year  except” — Law.  [Note:  The  1918  Act 

so  provided,  in  effect.] 

[Corporations] — “(a)  income,  war-profits,  and  excess- 
profits  taxes  imposed  by  the  authority  of  the  United 
States,” — Law.  [Note:  The  1918  Act  so  provided, 

in  effect  ] 

1702  Law^]391.  [Corporations] — “(b)  so  much  of  the  income,  war-profits 

(Sec.  234.)  and  excess-profits  taxes  imposed  by  the  authority  of  any 
foreign  country  or  possession  of  the  United  States  as  is 
allowed  as  a credit  under  section  238  H[1752],” — Law.  [Note:  The 

1918  Act  so  provided,  in  effect.] 


1700 


I 701 


Law  ^1389. 
(Sec.  234.) 

Law  ^[390. 

(Sec.  234.) 


&-9B 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
371 


?.  (8)  9-1-22.  (9)  9-13-22.  (10)  10-11-22. 

DEDUCTIONS— TAXES. 


I 703  Federal  taxes  (except  income,  war  profits,  and  excess  profits  taxes), 
State  and  local  taxes  (except  taxes  assessed  against  local  benefits 
of  a kind  tending  to  increase  the  value  of  the  property  assessed),  and  taxes 
imposed  by  possessions  of  the  United  States  or  by  foreign  countries  (except 
the  amount  of  income,  war  profits,  and  excess  profits  taxes  allowed  as  a 
credit  against  the  tax),  are  deductible  from  gross  income.  See  section  222  of 
the  statute  and  articles  381-386  as  to  tax  credits  [^f  1 733] . Postage  is  not  a 
tax.  Amounts  paid  to  States  under  secured  debts  laws  in  order  to  render 
securities  rax  exempt  are  deductible.  Automobile  license  fees  are  ordinarily  . 
taxes.  (Art.  131,  Reg.  62,  1922  Edition.) 

tor  explanation  of  Cumulative  Index  references  see  page  gi. 

Acts  of  1909,  1913  and  1916:  taxes  and  additional  taxes  assessed  under  (13-19-418: 
O.  D.  240)  . . 1919  Cum.  Bull.  p.  111.  But  see  A.  R.  R.  1082  . . Bull.  I (’22)-35,  p.  2. 
1916  Income  taxes  deductible  in  1916  return  where  books  kept  on  accrual 
basis:  1916  Act  (1-35-481 : A.  R.  R.  1082).. Bull.  I (’22)-35,  p.  2. 

British  Columbia  mineral  and  income  taxes  (39-21-1844:  O.  D.  1050).. Dec.  1921 
Cum.  Bull.  p.  194. 

Consular  fee  stamp  on  invoice  of  merchandise  imported  for  personal  use  is  not  a 
deductible  item;  1921  Act  (1-19-265:  I.  T.  1301).  .June  1922  Cum.  Bull.  p.  133. 

Cuba;  sugar  plantations  (3-20-688:  O.  D.  372) . . J une  1920  Cum.  Bull.  p.  1 15. 

Foreign  country  income  and  profits  taxes  paid  by  cituen  of  U.  S.  residing  abroad  on 
income  from  IJ.  S.  (26-19-593:  O.  D.  317) . . 1919  Cum.  Bull.  p.  188 

Gasoline  tax  imposed  on  distributors  (1-6-73:  I.  T.  1195).  .June  1922  Cum.  Bull, 
p.  133. 

Iowa  automobile  taxes  (5-20-715:  O.  D.  388).  .June  1920  Cum.  Bull.  p.  116. 

Latvia:  tax  measured  by  amount  of  living  expenses  is  deductible:  1921  Act  (1-37- 
501:  I.  T.  1444).  .Bull.  I (’22)-37,  p.  11. 

Munition  manufacturer’s  tax  (5-20-713:  A.  R.  M.  26) . . June  1920  Cum.  Bull.  p.  115. 
Same:  (9-20-770:  A.  R M.  29).  .June  1920  Cum.  Bull.  p.  119. 

Same:  (24-20-1002:  A.  R.  M.  57).  .June  1920  Cum.  Bull.  p.  121. 

Same  (4-21-1408:  L.  O.  1057).  .June  1921  Cum.  Bull,  p.  145. 

Same  (10-21-1503:  L.  O.  1059).  .June  1921  Cum.  Bull  p.  147. 

New'  York  franchise  tax  (3-20-687:  O.  D.  371) . .June  1920  Cum.  Bull.  p.  1 12. 

New  York  Personal  Income  Tax  (20-20-936:  O.  D.  505) . .June  1920  Cum.  Bull.  p.  121. 
Amounts  withheld  at  source  against  nonresidents  may  be  deducted  as  of  year 
withheld:  1921  Act  (1-15-211:  I.  T.  1273).  .June  1922  Cum.  Bull.  p.  125. 

Rhode  Island;  tax  on  depositor  on  savings  deposits  in  national  bank  but  paid  by 
bank  may  be  deducted  by  it  as  business  expense  and  by  depositor  as  tax,  the 
latter  including  amount  in  gross  income:  1921  Act  (1-28-401:  I.  T.  1388).  .Bull. 

I (’22)-28,  p.  3. 

Trust  fund  principal;  deductibility  of  State  taxes  on:  1921  Act  (1-29-411:  I.  T.  1393) 

. .Bull.  I (’22J-29,  p.  5. 

Undistributed  profits  tax  (1917  Act)  (1-19-58:  O.  D.  41) . . 1919  Cum.  Bull.  p.  111. 

War  special  taxes:  admissions  and  dues,  transportation,  semi-luxury  taxes,  sales  taxes 
(22-19-535:  O.  D.  287).  1919  Cum.  Bull.  p.  112. 

Wisconsin  bonus  law:  1918;  1919  (5-20-714:  O.  D.  387) . .June  1920  Cum.  Bull.  p.  116. 
Decision  of  U.  S.  Circuit  Court  of  Appeals.  .^3213.  Same  printed  as  Ct.  D.  28 
. .June  1922  Cum.  Bull.  p.  133. 

Wisconsin:  retroactive  supertax  imposed  (48-21-1949:  O.  D.  1118).. Dec.  1921  Cum. 
Bull.  p.  133. 

? 704  Federal  Duties  and  Excise  Taxes. — Import  or  tariff  duties  paid 
to  the  proper  customs  officers,  and  business,  license,  privilege, 
excise,  and  stamp  taxes  paid  to  internal  revenue  collectors,  are  deductible 
as  taxes  imposed  by  the  authority  of  the  United  States,  provided  they  are 
not  added  to  and  made  a part  of  the  expenses  of  the  business  or  the  cost  of 
articles  of  merchandise  with  respect  to  which  they  are  paid,  in  which  case 
they  can  not  be  separately  deducted.  (Art.  132,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi 

Estate:  stamp  tax  on  deed  (33-20-1135:  O.  D.  632).  .Dec.  1920  Cum.  Bull.  p.  204. 

Wholesale  liquor  dealers  (4-19-216:  O.  D.  137) . .1919  Cum.  Bull.  p.  1 12. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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DEDUCTIONS  TAXES. 


17  05  Adjustment  of  Accounts  and  Amended  Returns  on  Account  of  Re- 
fund by  Government  in  One  Year  of  Excess  Taxes  (Duties)  Paid 
in  Prior  Years  and  Reflected  in  Cost  of  Goods  Sold;  Attorney’s  Fees  in 
Connection  With  Refund. — Reference  is  made  to  your  letter  of  June  2, 

1920,  in  which  you  state  that  during  the  years  1915,  1916  and  1917 j 

Company  paid  customs  duties  on  imported  merchandise  on  the  basis  of 
an  exchange  rate  of  a franc  at  19.3  cents  instead  pf  the  lower  rate  prevailing 
at  the  time  of'  importation.  It  appears  that  the  amount  so  paid  as  duties 
were  included  in  the  income  and  profits  tax  returns  as  part  of  the  cost  of 
goods  sold  during  the  years  1915,  1916  and  1917  and  the  surplus  reduced 
each  year  to  the  extent  of  the  duties  paid.  During  the  year  1919  the  company 
received  a refund  of  the  amount  so  paid  as  customs  duties  which  was  in 
excess  of  the  amount  due  on  the  basis  of  the  exchange  rate  prevailing  at  the 
time  of  importation  of  the  French  merqhandise. 

1706  You  submit  for  consideration  the  following  inquiries  relative  to  the 
treatment  of  the  transaction  for  income  tax  purposes: 

(a)  How  should  the  transaction  be  treated  in  computing  the  annual 
net  income  for  the  years  involved? 

(b)  Is  not  the  amount  allowed  as  a refund  for  duties  overpaid  in  each 
year  a credit  to  surplus  for  that  year? 

(c)  Is  not  the  attorney’s  fee  and  expense  of  collection  an  item  of 
necessary  business  expense  incurred  in  1919  when  the  liability  ac- 
crued and  was  paid? 

1707  In  reply  you  are  advised  that  the  law  contemplates  that  each  year’s 
return  both  as  to  gross  income  and  deductions  therefrom  shall  be 

complete  in  itself.  The  effect  of  the  Treasury  Decisions  under  which  the 
claim  for  refund  of  excess  duties  paid  was  allowed  is  to  indicate  that  the 
excess  revenue,  which  was  paid  during  the  years  1915,  1916  and  1917  and 
for  which  the  company  received  a refund  during  the  year  1919,  is  an  amount 
which  has  been  erroneously  deducted  in  computing  net  income  for  the  years 
1915,  1916  and  1917  respectively  rather  than  an  amount  which  represents 
income  for  the  year  1919. 

1 708  Accordingly  the  company  should  amend  its  returns  for  the  years 
1915,  1916  and  1917,  respectively,  excluding  from  the  cost  of  goods 
sold  during  each  year  the  excess  duties  paid  during  such  year.  The  surplus 
account  for  those  years  should  also  be  adjusted  by  restoring  to  such  ac- 
count the  amount  paid  as  revenue  in  excess  of  the  true  liability  for  those 
years.  [Read  111 7 13  also.] 

1 709  The  attorney’s  fees  and  cost  of  collection  of  the  refund  are  a neces- 
4 sary  business  expense  for  the  year  in  which  the  liability  accrued  and 
was  paid,  which  appears  to  be  the  year  1919.  (Letter  to  S.  D.  Leidesdorf  &. 
Company,  New  York,  N.  Y.,  signed  by  Raul  F.  Myers,  Acting  Commissioner, 
and  dated  June  26  _ 1920.) 

1710  Excise  Taxes  on  Sales  Imposed  on  the  Manufacturer,  Producer  or 
Importer,  Not  Deductible  by  Consumers. — May  war  excise  taxes 
imposed  by  section  900  be  deducted  by  individual  purchaser  in  computing 
net  income  for  taxable  year.  Automobile  companies  are  notifying  indi- 
vidual purchasers  that  they  may  deduct  amount  of  tax  which  is  levied  on 
account  of  sale  of  automobile.  Wire  reply  collect.  (Answer.)  Excise 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

373 


2-27-22. 


DEDUCTIONS— TAXES. 


taxes  imposed  under  section  900  upon  manufacturer,  producers  or  importers 
not  deductible  by  individual  purchaser  in  computing  net  income.  (Tele- 
gram of  inquiry  from  The  Cleveland  Trust  Company,  Cleveland,  Ohio,  and 
the  reply  thereto  signed  by  George  V.  Newton,  Acting  Assistant  to  the 
Commissioner,  and  dated  January  7,  1920.) 

1711  Excise  and  Stamp  Taxes  Are  Deductible  by  the  One  Only  Against 
Whom  Such  Taxes  Are  Levied. — Receipt  acknowledged  of  your 

letter  of  February  28,  1920,  in  which  you  inquire  as  to  the  taxpayer  who 
is  entitled  to  the  benefit  of  a deduction  from  gross  income  in  respect  of 
excise  and  stamp  taxes  levied  by  the  Federal  Government.  ^[In  reply 
you  are  advised  that  the  general  rule  which  applies  in  respect  of  a deduc- 
tion for  all  taxes  is  that  the  deduction  may  be  taken  only  by  the  person 
against  whom  such  taxes  are  levied.  The  fact  that  one  person  ultimately 
pays  a tax  levied  upon  another  does  not  give  such  person  right  to  the  benefit 
of  the  deduction.  %As  to  the  person  against  whom  excise  and  stamp  taxes 
are  levied,  your  attention  is  directed  to  Sections  900  to  907,  and  1006,  1100 
to  1107,  inclusive,  of  the  Revenue  Act  of  1918  [or  1921].  (Letter  to  Leslie, 
Banks  & Company,  New  York,  N.  Y.,  signed  by  G.  V.  Newton,  Acting 
Assistant  to  the  Commissioner,  and  dated  March  6,  1920.) 

1712  Capital  Stock  Tax  as  a Deduction. — In  reply  to  your  letter  of  May  21, 
1919,  you  are  advised  that  the  capital  stock  tax  imposed  by  Section  1000 

(a)  of  the  Revenue  Act  of  1918  [or  1921]  may,  for  the  purpose  of  computing 
other  income  subject  to  income,  excess  profits  and  war  profits  taxes,  be 
deducted  from  the  gross  income  for  the  year  for  which  such  taxes  accrue,  if 
accounts  of  the  corporate  taxpayers  are  kept  on  the  accrual  basis,  or  may 
be  deducted  from  gross  income  for  the  year  in  which  paid,  if  accounts  are 
kept  on  the  disbursements  basis.  (Letter  to  The  Corporation  Trust  Com- 
pany, signed  by  Commissioner  Daniel  C.  Roper,  and  dated  June  7,  1919.) 

1713  Taxable  Status  of  Amount  Refunded  by  Government  in  One  Year, 
Representing  Tax  Paid  for  Which  Credit  Has  Been  Taken  as  a 

Deduction  in  a Previous  Year. — Receipt  is  acknowledged  of  your  letter  of 
December  16,  1918,  in  which  you  ask  whether  an  individual  who  has  claimed 
a deduction  for  taxes  [such  as  Federal  Excise  Taxes]  paid  during  the  year  in 
his  income  tax  return  for  1917  and  in  the  following  year  it  develops  that  these 
taxes  were  improperly  assessed  and  collected,  and  a refund  is  made  to  the 
taxpayer  in  1918,  should  consider  “the  amount  of  such  refund  gross  income 
for  the  year  1918,  or  is  it  in  the  nature  of  additional  income  for  1917  and 
should  the  additional  tax  liability  on  the  amount  of  the  refund  be  taken 
care  of  as  1917  income  by  means  of  an  amended  return  for  1917  and  by  an 
additional  tax  payment  as  of  that  year?”  Uln  reply  you  are  advised  that 
this  taxpayer  will  not  be  required  to  include  in  his  return  for  1918  the  amount 
received  as  refund  of  taxes  erroneously  paid  in  the  pteceding  year.  He 
should,  however,  file  an  amended  return  for  1917  and  claim  a deduction 
therein  for  the  correct  amount  of  taxes  due  for  that  year.  The  further 
amount  of  income  tax  due  for  1917  as  a result  of  the  reduction  in  the  item  of 
taxes  paid  during  the  year,  and  a letter  of  explanation,  should  accompany 
the  amended  return  when  it  is  forwarded  the  Collector  of  Internal  Revenue. 
[Read  1[1705,  also.]  (Letter  to  The  Corporation  Trust  Company  signed  by 
Commissioner  Daniel  C.  Roper,  and  dated  January  8,  1919.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

374 


(8)  8-8-22  (9)  9-13-22.  (10)  10-11-22. 

DEDUCTIONS — TAXES. 

1714  Law  ^[150.  Certain  Assessments  Against  Local  Benefits  are  Not 

(Sec.  214.)  Deductible. — [ Taxes  are  deductible  except ] “(c)  taxes 
assessed  against  local  benefits  of  a kind  tending  to  in- 
crease the  value  of  the  property  assessed ,” — Law.  [Note:  The  1918 

Act  so  provided,  in  effect.] 
1716  Law  ^[392.  [Corporations.] — [Taxes  are  deductible  except ] “(c) 
(Sec.  234.)  taxes  assessed  against  local  benefits  of  a kind  tending 
to  increase  the  value  of  the  property  assessed .” — Law. 

[Note:  The  1918  Act  so  provided,  in  effect.] 

1716  So-called  taxes,  more  properly  assessments,  paid  for  local  bene- 
fits, such  as  street,  sidewalk,  and  other  like  improvements,  im- 
posed because  of  and  measured  by  some  benefit  inuring  directly  to  the  property 
against  which  the  assessment  is  levied,  do  not  constitute  an  allowable  de- 
duction from  gross  income.  A tax  is  considered  assessed  against  local  benefits 
when  the  property  subject  to  the  tax  is  limited  to  property  benefited.  Special 
assessments  are  not  deductible,  even  though  an  incidental  benefit  may  inure 
to  the  public  welfare.  The  taxes  deductible  are  those  levied  for  the  general 
public  welfare  by  the  proper  taxing  authorities  at  a like  rate  against  all 
property  in  the  territory  over  which  such  authorities  have  jurisdiction. 
Assessments  under  the  statutes  of  California  relating  to  irrigation  and  of  Iowa 
relating  to  drainage,  and  under  certain  statutes  of  Tennessee  relating  to 
levees,  are  limited  to  property  benefited,  and  when  it  is  clear  that  the  assess- 
ments are  so  limited,  the  amounts  paid  thereunder  are  not  deductible  as 
taxes.  When  assessments  are  made  for  the  purpose  of  maintenance  or  repair 
of  local  benefits,  the  taxpayer  may  deduct  the  assessments  paid  as  an  expense 
incurred  in  business,  if  the  payment  of  such  assessments  is  necessary  to  the 
conduct  of  his  business.  Wrhen  the  assessments  are  made  for  the  purpose  of 
constructing  local  benefits,  the  payments  by  the  taxpayer  are  in  the  nature 
of  capital  expenditures  and  are  not  deductible.  Where  assessments  are  made 
for  the  purpose  of  both  construction  and  maintenance  or  repairs,  the  burden 
is  on  the  taxpayer  to  show  the  allocation  of  the  amounts  assessed  to  the  dif- 
ferent purposes.  If  the  allocation  can  not  be  made,  none  of  the  amounts 
so  paid  is  deductible.  (Art.  133,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gt. 

District  of  Columbia;  resetting  curb  and  repaving  street;  1918  Act  (1-18-250:  A.  R.  R. 
909).  .June  1922  Cum.  Bull.  p.  135. 

District  of  Columbia  “water  taxes”  as  personal  or  business  expen  e (45-  0-1291 
0.  D.  719).  .Dec.  1920  Cum.  Bull.  p.  139. 

Estates  (3 1-20- i 102:  0.  D.  613)..  Dec.  1920  Cum.  Bull.  p.  149. 

Illinois  drainage  districts  (24-19-561:0.  928)..  1919  Cum.  Bull.  p.  112. 

Street  resurfacing;  old  blocks  used  on  new  foundation:  1921  Act  (1-12-154:  1.  T. 

1246).  .June  1922  Cum.  Bull.  p.  135. 

Tenant  for  landlord  (3-20-689:  O.  D.  373) . .June  1920  Cum.  Bull.  p.  123 

1717  Law  TflSl.  Taxes  on  Bank  Stock  Paid  by  Bank  for  Shareholder 
(Sec.  214.)  Not  Deductible  by  Shareholder  when  no  Reimburse- 
ment by  Him  to  Bank  for  Tax. — [ Taxes  are  deductible 

except ] “(d)  taxes  imposed  upon  the  taxpayer  upon  his  interest  as  shareholder 
or  member  of  a corporation , which  are  paid  by  the  corporation  wilhoui  reim- 
bursement from  the  taxpayer — Law.  [Note:  This  provision  is  new 

to  the  1921  Act.] 

1718  In  computing  the  net  income  of  an  individual  no  deduction  is  allowed 
for  the  taxes  imposed  upon  his  interest  as  shareholder  or  member  of 

a bank  or  other  corporation,  which  are  paid  by  the  corporation  without 
reimbursement  from  the  taxpayer.  The  amount  so  paid  should  not  be 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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(8)  8-3-22  (0)  9-13-22.  (10)  10-11-22. 

DEDUCTION  S—TAXES. 

included  in  the  income  of  the  stockholder  or  member.  (Art.  135,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Reduced  dividends  (as  a consequence  of  payment  of  taxes  by  bank)  not  “reimburse- 
ment” by  shareholder:  1921  Act  (1-13-181:  I.  T.  1255).  .June  1922  Cum. 
Bull.  p.  141. 

Reimbursement;  what  constitutes:  1921  Act  (1-23-334:  I.  T.  1346).  .June  1922 
Cum.  Bull.  p.  280. 

1719  Law  11395.  Taxes  on  Bank  Stock  Paid  by  Bank  for  Shareholder 
(Sec.  234.)  are  Deductible  by  Bank  When  no  Reimbursement 
by  Shareholder  to  Bank. — “'The  deduction  allowed  by 
this  paragraph  shall  be  allowed  in  the  case  of  taxes  imposed  upon  a share- 
holder or  member  of  a corporation  upon  his  interest  as  shareholder  or  member , 
which  are  paid  by  the  corporation  without  reimbursement  from  the  share- 
holder or  member — Law.  [Note:  Provision  new  to  1921  Act.] 

1 720  Law  *(1396.  “but  in  such  cases  no  deduction  shall  be  allowed  the 
(Sec.  234.)  shareholder  or  member  for  the  amount  of  such  taxes 
[see  ^[1717].” — Law.  [Note:  N^w  provision.] 

1 721  Under  the  Revenue  Act  of  1921  banks  or  other  corporations  paying 
taxes  assessed  against  their  stockholders  on  account  of  their  owner- 
ship of  the  shares  of  stock  issued  by  such  corporations,  without  reimburse- 
ment from  such  shareholder  or  member,  may  deduct  the  amount  of  taxes  so 
paid.  The  statute  specifically  provides,  however,  that  in  such  cases  the 
stockholders  may  not  deduct  the  amount  of  the  taxes.  (Art.  566,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi 

Advances  by  bank  to  stockholders  to  pay  taxes  on  stock  are  not  deductible  by  bank 
and  are  dividends  to  stockholders:  1921  Act  (1-31-442:  I.  T.  1407).. Bull.  I 
(’22)— 31,  p.  11. 

California  (28-21-1729:  O.  D.  976) .. Dec.  1921  Cum.  Bull.  p.  228. 

Corporation  stockholders  in  bank  are  within  the  scope  of  Art.  566  (7-19-302:  0. 

858)..  1919  Cum.  Bull.  p.  225;  also  (9-19-344:  O.  D.  199)..  1919  C.  B.  p.  226. 
Kentucky  (1-15-215:  I.  T.  1276).  .June  1922  Cum.  Bull.  p.  278. 

Louisiana  (31-21-1758:  O.  D.  987).  .Dec.  1921  Cum.  Bull.  p.  228. 

Maryland  (1-21-306:  I.  T.  1322).  .June  1922  Cum.  Bull.  p.  280. 

Massachusetts  (25-21-1696:  O.  D.  954).  .June  1921  Cum.  Bull.  p.  294. 

Trust  companies  (38-21-1833:  O.  D.  1043).. Dec.  1921  Cum.  Bull.  p.  22 9. 
Mississippi  (1918  and  1921  Acts)  (1-7-95:  I.  T.  1208).  .June  1922  Cum.  Bull.  p.  277. 
Montana:  “Classified  Tax  Law”  (5-21-1420:  O.  D.  787) . .June  1921  Cum.  Bull.  p.  293. 
New  York  (10-21-1500:  O.  D.  839).  .June  1921  Cum.  Bull.  p.  293. 

Ohio:  1917-1918  Acts  (1-37-503 : A.  R.  R.  1098).  .Bull.  I (’22)-37,  p.  12. 

Oregon:  trust  companies,  building  and  loan  associations,  and  State  savings  banks 
(1-1 9-99 : O.  D.  70) . . 1919  Cum.  Bull.  p.  226. 

South  Dakota:  State  banks,  savings  banks,  and  trust  companies  (44-20-1281 : A.  R.  M. 
88).  .Dec.  1920  Cum.  Bull.  p.  271.  > 

Statements  correcting  1919  returns  in  lieu  of  amended  returns  (23-21-1677:  O.  D. 
944) . . June  1921  Cum.  Bull.  p.  294. 

Washington:  1921  Act  (1-23-334:'  I.  T.  1346).  .June  1922  Cum.  Bull.  p.  280. 

West  Virginia;  amount  paid  by  bank  to  stockholder  in  lieu  of  tax  bank  was  relieved 
from  paying  because  stockholder  claimed  exemption  is  not  deductible  by  bank; 
1921  Act  (1-19-262;  I.  T.  1300).  .June  1922  Cum.  Bull.  p.  11. 

1722  Law  11393.  Taxes  Paid  by  Obligors  at  the  Source  on  Account 
(Sec.  234.)  of  Interest  on  Tax-Free  Obligations  are  Not  Deduct- 
ible.— “In  the  case  of  obligors  specified  in  subdivision 
(b)  [If 2240]  of  section  221  no  deduction  for  the  payment  of  the  tax  imposed 
by  this  title , or  any  other  tax  paid  pursuant  to  the  contract,  or  provision 
referred  to  in  that  subdivision , shall  be  allowed’ — Law.  [Note:  . 1 he 

1918  Act  so  provided. | 

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2-27-82  (2)  4-1^22.  (8)  4-14-22.  (4)  6-8-22.  (5)  6-26-22.  (6)  8-24-22.  (7)  10-11-22.  (8)  11-4-22. 

DEDUCTIONS— TAXES. 

I 723  Corporations  may  deduct  taxes  from  gross  income  to  the  same  extent 
as  individuals,  except  that  in  the  case  of  corporate  bonds  or  obliga- 
tions containing  a tax-free  covenant  clause,  the  corporation  paying  a Federal 
tax,  or  any  part  of  it,  for  some  one  else  pursuant  to  its  agreement  is  not  en- 
titled to  deduct  such  payment  from  gross  income  on  any  ground.  In  the  case, 
however,  of  corporate  bonds  or  obligations  containing  an  appropriate  tax- 
free  covenant  clause,  the  corporation  paying  a State  tax  or  any  other  than  a 
Federal  tax  for  someone  else  pursuant  to  its  agreement  may  deduct  such 
payment  as  interest  paid  on  indebtedness.  Under  the  Revenue  Act  of  1921 
any  tax  paid  by  a corporation  pursuant  to  a tax-free  covenant  clause  need  not 
be  included  in  the  gross  income  of  the  obligee.  (Art.  565,  Reg.  62,  1922 

Edition.)  _ 

1 724  Law  1f394.  Amount  of  Tax  Paid  at  Source  by  Obligor  on  Tax- 
(Sec.  234.)  Free  Covenant  Bond  Interest  is  Not  to  be  Included 
in  the  Gross  Income  of  the  Obligee.— “nor  shall  such 
tax  he  included  in  the  gross  income  of  the  obligee  ”— Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

1 726  Under  section  234  (a)  (3)  any  tax  paid  by  a corporation  pursuant  to  a 
tax-free  covenant  clause  need  not  be  included  in  the  gross  income  of 
the  bondholder.  See  article  565  [Hi 723].  (Art.  89,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91- 
Court  decision  under  1917  Act  upholding  Government’s  ruling  that  amount  of  such 
tax  is  to  be  included  in  obligee’s  gross  income  (277  Fed.  123)  (1-5-51:  Ct.  D.  20) 

. .June  1922  Cum.  Bull.  p.  58.  Syllabus  at  113113  herein. 

1726  Law  Hi 52.  When  Estate  and  Inheritance  Taxes  Accrue  for  the 
(Sec.  214.)  Purpose  of  the  Deduction. — “ For  the  purpose  of  this 

paragraph  estate , inheritance,  legacy,  and  succession 
taxes  accrue  on  the  due  date  thereof  except  as  otherwise  provided  by  the  law 
of  the  jurisdiction  imposing  such  taxes-” — Law. 

1727  Law  H397.  [Corporations.]  “For  the  purpose  of  this  paragraph, 
(Sec.  234.)  estate,  inheritance,  legacy,  and  succession  taxes  accrue 

on  the  due  date  thereof  excetl  as  otherwise  provided  by 
the  law  of  the  jurisdiction  imposing  such  taxes-” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

1 728  Federal  estate  taxes,  paid  or  accrued  during  the  taxable  year,  are 
an  allowable  deduction  from  the  gross  income  of  the  estate  in  com- 
puting the  net  income  thereof  subject  to  tax.  Such  taxes  are  deemed  to 
have  accrued  on  the  due  date  thereof,  namely,  one  year  after  the  decedent  s 
death,  except  in  any  case  where  the  Commissioner  has  granted  an  extension 
or  extensions  of  time  for  payment,  such  taxes  are  then  deemed  to  have 
accrued  on  the  due  date  or  dates  of  such  extension  or  extensions. 

1 729  Estate,  succession,  legacy,  or  inheritance  taxes,  imposed  by  any 
State,  Territory  or  possession  of  the  United  States,  or  foreign  coun- 
try, are  deductible  by  the  estate,  subject  to  the  provisions  of  section  214, 
where,  by  the  laws  of  the  jurisdiction  exacting  them,  they  are  imposed  upon 
the  right  or  privilege  to  transmit  rather  than  upon  the  right  or  privilege  of 
the  heir,  devisee,  legatee,  or  distributee,  to  receive  or  to  succeed  to  the 
property  of  the  decedent  passing  to  him.  Where  such  taxes  are  imposed 
upon  the  right  or  privilege  of  the  heir,  devisee,  legatee,  or  distributee,  so  to 
receive  or  to  succeed  to  the  property,  they  constitute,  subject  to  the  pro- 
visions of  section  214,  an  allowable  deduction  from  his  gross  income. 

1730  Where,  in  accordance  with  a direction  contained  in  the  testators 
will,  the  taxes  upon  the  right  to  receive  any*  particular  devise  or 

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DEDUCTIONS— TAXES. 


devises,  legacy  or  legacies  are  so  payable  as  to  relieve  the  particular  devisee 
or  devisees,  legatee  or  legatees  from  the  burden  thereof,  then  the  person  or 
persons  entitled  to  the  fund  or  other  property  out  of  which  payment  is  made 
may  not  take  deduction  of  the  taxes  so  paid,  but  deduction  thereof  is  avail- 
able only  by  such  devisee  or  devisees,  legatee  or  legatees;  each,  if  there  be 
more  than  one,  being  authorized  to  deduct  such  part  of  the  taxes  so  paid 
as  he  would  otherwise  have  been  entitled  to  do  had  there  been  no  so  such  tes- 
tamentary direction. 

1731  Where  there  is  a life  estate  and  a remainder,  and,  by  the  laws  of 
the  jurisdiction  imposing  them,  the  taxes  in  respect  to  both  interests 
are  payable  out  of  the  remainder  interest,  with  no  legal  obligation  imposed 
whereby  the  remainderman  is  entitled  to  reimbursement,  then  deduction 
of  the  taxes  so  paid  may  be  taken  only  by  the  remainderman.  Where,  in 
the  case  of  an  annuity,  the  taxes  in  respect  thereto  are,  by  the  laws  of  the 
jurisdiction  imposing  them,  payable  in  the  first  instance  out  of  the  fund  set 
aside  for  creating  the  annuity,  but  are  to  be  repaid  or  restored  to  such  fund 
from  the  annuity,  then  deduction  thereof  may  be  taken  only  by  the  annuitant. 
^ The  accrual  dates  of  such  taxes  shall  be  the  due  date  thereof  except 

wl  fs  otherwise  provided  by  the  law  of  the  jurisdiction  imposing  them. 

Where  deduction  is  claimed  of  any  such  taxes,  the  amount  thereof  and  the 
name  of  the  State,  lerritory,  or  possession  of  the  United  States,  or  foreign 
country,  by  which  they  have  been  imposed  shall  be  stated  in  the  return. 
(Art.  134,  Reg.  62,  1922  Edition.) 


Pot  explanation  of  Cumulative  Index  references  see  page  Qi. 

★ Arizona  tax  deductible  by  beneficiary  only:  1921  Act  (1-44-571:  51.  T.  1487).  .Bull.  I 

(’22)-44,  p.  3. 

.★  Colorado,  Delaware,  Idaho,  Iowa,  Kentucky,  Montana,  New  York,  North  Carolina, 
Wyoming  inheritance  taxes  are  deductible  by  beneficiary  only:  1921  Act  (1-42- 
553.  I.  T.  1474).  .Bull.  I (’22)-42,  p.  4.  (See  other  States  listed  above  and  below). 
Executrix  who  paid  personally  the  Federal  Estate  Tax  not  permitted  deduction  thereof 
in  her  individual  return:  1921  Act  (1-34-465:  I.  T.  1424).. Bull.  I (’22)-34  p.  1. 
Federal  estate  tax  deductible;  C.  S.  Supreme  Court.  .Supplementary  Page  201. 

Estate  on  cash  basis:  death  in  Dec.  1918;  tax  paid  March,  1921:  deductible  on 
1921  return;  no  amended  return  for  1919  (1918  and  1921  Acts)  (1-25-355: 
I.  T.  1364).  .June  1922  Cum.  Bull.  p.  140. 

Federal  estate  tax;  interest  on  fund  set  aside  to  pay  (36-20-1183:  O.  D.  656)  Dec 
1920  Cum.  Bull.  p.  90. 

Federal  estate  tax;  interest  on  overdue  (O.  D.  594).. Dec.  1920  Cum.  Bull.  p.  148. 
Federal  estate  tax  not  deductible  in  ascertaining  net  income  of  estate  in  process  of 
settlement  (13-19-419:  O.  812).  .1919  Cum.  Bull.  p.  115. 


)ame:  opinion  of  Atty.  Gen.  (16-20-875:  Op.  A.  G.  1)  June  1920  C.  B.  p. 


123. 


P . S.  Supreme  Court  decides  otherwise,  June  6,  1921  . .Supp.  Page  201. 

Kansas  tax  held  to  be  a charge  on  the  right  to  receive  (202  Pac.  853). 

Mmyland  collateral  inheritance  tax  attaches  before  distribution  (276  Fed.  845). 
Minnesota  inheritance  tax  is  on  the  right  to  receive;  1918  and  1921  Acts  (1-18-252 
I.  T.  1296).  .June  1922  Cum.  Bull.  p.  139. 

★ New  Jersey  tax  deductible  by  beneficiary  only:  1921  Act  (1-43-559:  I.  T 1477) 

Bull.  I (’22)-43,  p.  6. 

New  York  transfer  tax:  Court  decision,  1913  Act  (34-20-1 147 : T.  D.  3050)  Dec  192( 
Cum.  Bull.  p.  150:  1921  Act  (1-42-553:  I.  T.  1474)..  Bull.  I (’22)-42,  p.  4. 
Pennsylvania  tax  attaches  before  distribution  (262  Fed.  52)  (253  U.  S.  487.) 

★ Oregon  tax  deductible  by  beneficiary  only:  1921  Act  (1-44-571:  I.  T.  1487).  .Bull.  ] 

(’22)-44,  p.  3. 

Reg.  45,  Art.  134  amended  (1918  Act).  . U31 16. 

Rhode  Island  imposes  death  duties  of  two  kinds;  (1)  on  the  right  to  transfer,  and  (2) 
on  the  right  to  receive:  1918  and  1921  Acts  (1-18-251:  I.  T.  1295).  .June  192; 
Cum.  Bull.  p.  139. 

★ Utah  tax  deductible  by  estate  only:  1921  Act  (1-42-553:  I.  T.  1474)  Bull  I (’22)- 

42,  p.  4.  v ' 


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DEDUCTIONS— TAXES. 

1733  Law  11301.  Credit  for  Taxes  in  the  Case  of  Individuals.— “Sire. 
(Sec.  222.)  222.  (a)  That  the  tax  computed  under  Part  1 1 [individ- 

ual normal  and  surtax}  of  this  title  shall  be  credited 
with:” — Law.  [Note:  The  1918  Act  so  provided.] 


1 734  Law  1[302.  Income  and  Excess-Profits  Taxes  Paid  to  Foreign 
(Sec.  222.)  Countries  and  All  Such  Taxes  Paid  to  Possessions 
of  the  United  States  by  Citizens  to  be  Credited. — 
“(1)  I.i  the  case  of  a citizen  of  the  United  States,  the  amount  of  any  income, 
war-profits  and  excess-profits  taxes  paid  during  the  taxable  year  to  any 
foreign  country  or  to  any  possession  of  the  United  States’,  and ” — Law. 

[Note:  The  1918  Act,  in  the  case  of 
taxes  paid  to  a foreign  country,  carried 
the  qualification  “upon  income  derived 
from  sources  therein”.] 


1 736  Law  1[303.  Income  and  Excess-Profits  Taxes  Paid  to  Possessions 
(Sec.  222.)  of  the  United  States  by  Residents  Are  to  be  Credited. 

— “(2)  In  the  case  of  a resident  of  the  United  States, 
the  amount  of  any  such  taxes  paid  during  the  taxable  year  to  any  possession 
of  the  United  States;  and” — Law.  [Note:  The  1918  Act  so  provided.] 


1 736  Law  U304.  Certain  Income  and  Excess-Profits  Taxes  Paid  to  For- 
(Sec.  222.)  eign  Countries  by  Alien  Residents  Are  to  be  Credited. 

— “(3)  In  the  case  of  an  alien  resident  of  the  United 
Stales,  the  amount  of  any  such  taxes  paid  during  the  taxable  year  to  any 
foreign  country,  if  the  foreign  country  of  which  such  alien  resident  is  a citizen 
or  subject,  in  imposing  such  taxes,  allows  a similar  credit  to  citizens  of  the 
United  States  residing  in  such  country;” — Law.  [Note:  The  1918 

Act,  here,  limited  the  credit  to  such 
taxes  imposed  by  foreign  countries 
“upon  income  derived  from  sources 
therein,”  under  like  reciprocal  con- 
ditions.] 

1 73  7 Countries  Which  Do  or  Do  Not  Satisfy  the  Similar  Credit  Require- 
ment.— (a)  The  following  is  an  incomplete  list  of  the  countries 
which  satisfy  the  similar  credit  requirement  of  Section  222  (a)  (3)  of  the 
Revenue  Act  of  1921,  either  by  allowing  to  citizens  of  the  United  States 
residing  in  such  countries  a credit  for  the  amount  of  income,  war  profits, 
or  excess  profits  taxes  paid  to  the  United  States,  or  in  imposing  such  taxes, 
by  exempting  from  taxation  the  incomes  received  from  sources  witfijn  the 
United  States  by  citizens  of  the  United  States  residing  in  such  countries: 
Bulgaria,  Canada,  Italy,  Newfoundland,  Salvador,  (b)  The  following  is  an 
incomplete  list  of  the  countries  which  do  not  satisfy  the  similar  credit  require- 
ment of  Section  222  (a)  (3)  of  the  Revenue  Act  of  1921,  either  by  allowing 
no  credit  to  citizens  of  the  United  States  residing  in  such  countries,  for  the 
amount  of  income,  war  profits,  or  excess  profits  taxes  paid  to  the  United 
States,  or  because  such  countries  do  not  impose  any  income,  war-profits,  or 
excess-profits  taxes:  Argentina,  Bahama,  Belgium,  Bermuda,  Bolivia,  Bosnia  , 
Brazil,  Chile,  China,  Costa  Rica,  Dutch  Guiana,  Ecuador,  Egypt,  Finland, 
France,  Great  Britain  and  Ireland,  Guatemala,  Herzegovina,  India,  Jamaica, 

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DEDUCTIONS— TAXES. 

Japan,  Montenegro,  Morocco,  New  Zealand,  Nicaragua,  Panama,  Paraguay, 
Persia,  Peru,  Portugal,  Roumania,  Santo  Domingo,  Serbia,  Siam,  Straits 
Settlements,  Sweden,  Switzerland,  Venezuela.  The  former  names  of  certain 
of  these  territories  are  here  used  for  convenience  in  spite  of  the  actual  or 
possible  change  in  the  name  or  sovereignty.  A resident  of  the  United  States 
who  is  a citizen  or  subject  of  any  country  in  the  first  list  is  entitled,  for  the 
purpose  of  the  total  tax  due  the  United  States  for  1921  (as  to  fiscal  years 
beginning  in  1920,  see  article  386  [^1746])  and  subsequent  years,  to  a credit 
for  the  amount  of  any  income,  war  profits,  and  excess  profits  taxes  paid  or 
accrued  during  the  taxable  year  to  any  foreign  country.  If  he  is  a citizen 
or  subject  of  any  country  in  the  second  list,  he  is  not  entitled  to  such  credit. 
If  he  is  a citizen  or  subject  of  a country  which  is  in  neither  list,  then  to  secure 
the  desired  credit,  he  must  prove  to  the  satisfaction  of  the  Commissioner 
that  his  country  satisfies  the  .:imilar  credit  requirement  of  the  statute.  (Art. 
385,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

■¥■  Austria  (also  those  portions  of  Lower  Austria,  Tyrol,  Carinthia,  and  Styria  which 
are  now  parts  of  Czechoslovakia,  Italy,  or  Jugoslavia  for  1918  and  subsequent 
years  prior  to  cession):  1918  and  1921  Acts  (1-40-539:  I.  T.  1463).  .Bull.  I (’22)- 
40,  p.  16. 

Germany  does  not  satisfy  the  similar  credit  requirements:  1918  and  1921  Acts  (I- 
37-502:  I.  T.  1445).  .Bull.  I (’22)-37,  p.  11. 

1738  Law  ^305.  Proportionate  Parts  of  Certain  Income  and  Excess- 
(Sec.  222.)  Profits  Taxes  Paid  to  Foreign  Countries  and  of  All 

Such  Taxes  Paid  to  Possessions  of  the  United  States 
to  be  Credited  to  Members  of  Partnerships  and  to  Beneficiaries  of  Es- 
tates or  Trusts. — “(4)  In  the  case  of  any  such  individual  who  is  a mem- 
ber of  a partnership  or  a beneficiary  of  an  estate  or  trust , his  proportionate 
share  of  such  taxes  of  the  partnership  or  the  estate  or  trust  paid  during  the 
taxable  year  to  a foreign  country  or  to  any  possession  of  the  United  States, 
as  the  case  may  be.” — Law.  [Note:  The  1918  Act  so  provided.] 

1739  Law  j[306.  Credit  for  Taxes  Not  Allowed  to  Citizens  Entitled 
(Sec.  222.)  to  Benefits  of  Sec.  262. — “(5)  The  above  credits  [for 

taxes]  shall  not  be  allowed  in  the  case  of  a citizen  entitled 
to  the  benefits  of  section  262  [^[2070];”— Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 

1740  Law  ^[307.  Limitation  on  Amount  of  Credit  Allowed  for  Taxes 

(Sec.  222.)  Paid. — “ and  in  no  other  case  shall  the  amount  of  credit 
taken  under  this  subdivision  exceed  the  sa?ne  proportion 
of  the  tax,  against  which  such  credit  is  taken , which  the  taxpayer's  net  income 
(i computed  without  deduction  for  any  income,  war-profits  and  excess-profits 
taxes  imposed  by  any  foreign  country  or  possession  of  the  United  States ) 
from  sources  without  the  United  States  bears  to  his  entire  net  income  ( com- 
puted without  such  deduction)  for  the  same  taxable  year.” — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

1 74 1 Law  T[308.  Adjustment  of  Any  Difference  Between  Amount  of 
(Sec.  222.)  Tax  Paid  and  Amount  Accrued. — “(b)  If  accrued 
taxes  when  paid  differ  from  the  amounts  claimed  as 
credits  by  the  taxpayer,  or  if  any  tax  paid  is  refunded  in  whole  or  in  part, 

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DEDUCTIONS— TAXES. 

the  taxpayer  shall  notify  the  Commissioner,  who  shall  redetermine  the  amount 
of  the  tax  due  under  Part  II  of  this  title  for  the  year  or  years  affected , and 
the  amount  of  tax  due  upon  such  redetermination , if  any,  shall  be  paid  by 
the  taxpayer  upon  notice  and  demand  by  the  collector,  or  the  amount  of  tax 
overpaid,  if  any,  shall  be  credited  or  refunded  to  the  taxpayer  in  accordance 
with  the  provisions  of  section  252  [1f2825].”— Law.  [Note:  The  1918 

Act  so  provided.] 

1 742  Law  1(309.  “In  the  case  of  such  a tax  accrued  but  not  paid,  the  Com- 
(Sec.  222.)  missioner  as  a condition  precedent  to  the  allowance  of 
this  credit  may  require  the  taxpayer  to  give  a bond  with 
sureties  satisfactory  to  and  to  be  approved  by  the  Commissioner  in  such 
penal  sum  as  the  Commissioner  may  require,  conditioned  for  the  payment 
by  the  taxpayer  of  any  amount  of  tax  found  due  upon  any  such  redetermina- 
tion; and  the _ bond  herein  prescribed  shall  contain  such  further  conditions 
as  the  Commissioner  may  require.” — Law.  [Note:  The  1918  Act  so 

provided.] 

1 743  Law  1(310.  Credits  for  Income  and  Excess-Profits  Taxes  Paid  to 
(Sec.  222.)  Foreign  Countries  and  to  Possessions  of  the  United 
States  to  be  Allowed  Only  if  Satisfactory  Evidence  be 
Furnished.  (c)  These  credits  shall  be  allowed  only  if  the  taxpayer  fur- 
nishes evidence  satisfactory  to  the  Commissioner  showing  the  amount  of 
income  derived  from  sources  without  the  United  States,  and  all  other  in- 
formation necessary  for  the  verification  and  computation  of  suck  credits.” — 
Law.  [Note:  The  1918  Act  provided  for  the  furnishing  of  evidence 

showing  the  amount  of  income  derived 
from  sources  within  such  foreign  country 
or  such  possession  of  the  United  States; 
the  1918  Act  did  not  specifically  provide 
for  “the  verification.”] 

1 744  Law  1(311.  Credit  for  Taxes  in  the  Case  of  a Taxpayer  Making 
(Sec.  222.)  Return  for  a Fiscal  Year  Ending  in  1921.— “(i)  If 
. taxpayer  makes  a return  for  a fiscal  year  beginning 

in  1920  and  ending  in  1921,  the  credit  for  the  entire  fiscal  year  shall,  not- 
withstanding any  provision  of  this  Act,  be  determined  under  the  provisions 
of  this  section ; Law.  [Note:  This  provision  is  new  to  the  1921 

Act.] 

1 745  Law  1(312.  “ and  the  Commissioner  is  authorized  to  disallow,  in  whole 

(Sec.  222.)  or  part,  any  such  credit  which  he  finds  has  already  been 
taken  by  the  taxpayer.” — Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 

1 746  In  the  case  of  a fiscal  year  beginning  in  1920  and  ending  in  1921  there 
shall  be  no  prorating  of  the  tax  credits  allowed  by  the  Revenue  Act 
of  1918  and  by  section  222,  but  the  tax  credits  for  such  fiscal  year  shall  be 
determined  entirely  under  the  provisions  of  this  section.  The  Commissioner 
is  authorized  to  disallow  any  such  credit  which  he  finds  has  already  been 
taken  by  the  taxpayer.  (Art.  386,  Reg.  62,  1922  Edition.) 

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DEDUCTIONS— TAXES. 


1747  Analysis  of  Credit  for  Taxes. — (1)  In  the  case  of  a citizen  of  the 
United  States,  whether  resident  or  nonresident,  the  basis  of  the  credit 
for  taxes  is  as  follows:  (a)  “the  amount  of  any  income,  war-profits  and 
excess-profits  taxes  paid”  or  accrued  “during  the  taxable  year  to  any  foreign 
country  or  to  any  possession  of  the  United  States  ; and  (b)  his  proportion- 
ate share  of”  any  “such  taxes  of”  a partnership  of  which  he  is  a partner  or 
of  an  estate  or  trust  of  which  he  is  a beneficiary  paid  or  accrued  during 
the  taxable  year  to  a foreign  country  or  to  any  possession  of  the  United 

States,  as  the  case  may  be.”  _ , , . 

1 748  (2)  In  the  case  of  an  alien  resident  of  the  United  States  the  basis 

of  the  credit  for  taxes  is  as  follows:  (a)  “The  amount  of  any  such 
taxes  paid”  or  accrued  “during  the  taxable  year  to  any  possession  of  the 
United  States”;  (b)  “the  amount  of  any  such  taxes  paid  or  accrued  dur- 
ing the  taxable  year  to  any  foreign  country,  if  the  foreign  country  of  which 
such  alien  resident  is  a citizen  or  subject,  in  imposing  such  taxes,  allows  a 
similar  credit  to  citizens  of  the  United  States  residing  in  such  country;  and 
(c)  his  “proportionate  share  of”  any  “such  taxes  of  a partnership  of  which 
he  is  a partner  or  of  an  estate  or  trust  of  which  he  is  a beneficiary  paid  or 
accrued  “during  the  taxable  year  to  any  foreign  country,  if  the  foreign  coun- 
try of  which  such  alien  resident  is  a citizen  or  subject,  in  imposing  such 
taxes,  allows  a similar  credit  to  citizens  of  the  United  States  residing  in 
such  country,”  “or  to  any  possession  of  the  United  States,  as  the  case  may 
be  ” As  to  credits  for  taxes  in  the  case  of  corporations  see  section  238  of  the 
statute  and  articles  611  [If  1758]  and  612  ffll767].  (Art.  381,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 


1918:  taxes  paid  in  (7-20-743:  O.  987).  .June  1920  Cum.  Bull.  p.  196. 

Canada  (1921  Act)  (1-10-132:  I.  T.  1234).  .June  1922  Cum.  Bull.  p.  22a. 

Citizen  of  U.  S.  residing  abroad  and  paying  foreign  income  and  profits  taxes  on  income 
from  U.  S.  (26-19-593:  0.  D.  317).  . 1919  Cum.  Bull.  p.  188. 

Cuba:  tax  on  corporations  operating  sugar  plantations  (3-20-688:  O.  u.  372).. June 

1920  Cum.  Bull.  p.  115.  . „ , • , 

France:  the  minimum  tax  based  on  seven  times  rental  value  of  trench  residence  (45- 

21-1911:  O.  D.  1093).. Dec.  1921  Cum.  Bull.  p.  194.  . . , . ...  . 

Latvia;  tax  based  on  amount  of  living  expenses  is  not  creditable  but  it  is  deductible. 

1921  Act  (1-37-501:  I.  T.  1444).  .Bull.  I (’22)-37,  p.  11. 


1 749  Meaning  of  Terms— “Amount  of  * * * taxes  paid  during  the 
taxable  year”  means  taxes  proper  (no  credit  being  given  for  amounts 
representing  interest  or  penalties)  paid  or  accrued  during  the  taxable  year 
on  behalf  of  the  individual  claiming  credit.  “Foreign  country  includes 
within  its  meaning  any  foreign  sovereign  state  or  self-governing  colony 
(for  example,  the  Dominion  of  Canada),  but  does  not  include  a foreign 
municipality  (for  example,  Montreal)  unless  itself  a sovereign.  State  (for 
example,  Hamburg).  “Any  possession  of  the  United  States  includes, 
among  others,  Porto  Rico,  the  Philippines,  and. the  Virgin  Islands.  As  to 
the  meaning  of  “sources,”  see  section  217  [beginning  . at  1f2102j.  See  also 
section  2 of  the  statute.  (Art.  382,  Reg.  62,  1922  Edition.) 


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DEDUCTIONS— TAXES. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

British  Columbia  not  a “foreign  country”  (39-21-1844:  O.  D.  1050).  .Dec.  1921  Cum 
Bull.  p.  194. 


1 7SO  Conditions  of  Allowance  of  Credit. — (a)  When  credit  is  sought 
for  income,  war-profits  or  excess-profits  taxes  paid  other  than  to 
the  United  States,  the  income  tax  return  of  the  individual  must  be  accom 
^ F°r_m  1116,  carefully  filled  in  with  all  the  information  there 
called  for  and  with  the  calculations  of  credits  there  indicated,  and  duly  signed 
and  sworn  to  or  affirmed.  When  credit  is  sought  for  taxes  already  paid  the 
form  must  have  attached  to  it  the  receipt  for  each  such  tax  payment.  When 
credit  is  sought  for  taxes  accrued  the  form  must  have  attached  to  it  the 
return  on  which  each  such  accrued  tax  was  based.  This  receipt  or  return  so 
attached  must  be  either  the  original,  a duplicate  original,  a duly  certified  or 
authenticated  copy,  or  a sworn  copy.  In  case  only  a sworn  copy  of  a receipt 
cr  return  is  attached,  there  must  be  kept  readily  available  for  comparison 
on  request  the  original,  a duplicate  original  or  a duly  certified  or  authenti- 
cated copy.  (b)  In  the  case  of  a credit  sought  for  a tax  accrued  but  not  paid, 
the  Commissioner  may  require  as  a condition  precedent  to  the  allowance  of 
credit  a bond  from  the  taxpayer  in  addition  to  Form  1116.  If  such  a bond  is 
required,  Form  1117  shall  be  used  for  it.  It  shall  be  in  such  penal  sum  as  the 
Commissioner  may  prescribe,  and  shall  be  conditioned  for  the  payment  by 
the  taxpayer  of  any  amount  of  tax  found  due  upon  any  redetermination  of  the 
tax  made  necessary  by  such  credit  proving  incorrect,  with  such  further  con- 
di  Lions  as  the  Commissioner  may  require.  This  bond  shall  be  executed  by 
the  taxpayer,  his  agent  or  representative,  as  principal,  and  by  sureties  satis- 
factory to  and  approved  by  the  Commissioner.  See  also  section  1329  of  the 
statute  [for  acceptance  of  United  States  bonds  in  lieu  of  suieties,  If  17701 
(Art.  383,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

German  securities  purchased  in  Germany;  tax  withheld  against  citizen  owner:  securi- 
ties bought  and  sold  in  Germany  at  gain  in  marks  but  loss  in  dollars:  handling  tax, 
“ *n7»  a“y  Profit  in  U.  S.  money  values  from  sale  of  securities  in  Germany 
(7-21-1450:  O.  D.  809).  .June  1921  Cum.  Bull.  p.  234. 

Lump  sum  withholding  on  foreign  dividends  to  all  stockholders  here  at  fixed  rate 
(12-19-407:  O.  D.  232)..  1919  Cum.  Bull.  p.  188. 

Partnership  licensor  of  patent  to  British  licensee,  tax  being  withheld  on  royalty 
payments  made  by  licensee  (28-20-1059:  O.  D.  583)  . . Dec.  1920  Cum.  Bull.  p.  220 

Partnership’s  composite  unitemized  receipt  for  all  taxes  paid;  how  rendered  acceptable 
for  credit  purposes;  1921  Act  (1-23-333:  I.  T.  1345).  . June  1922  Cum.  Bull.  p.  225. 

Returns  accompanied  by  claims  are  to  be  forwarded  to  Washington  by  Collectors  in  ali 
cases  (26-20-1033:  O.  D.  564).  .June  1920  Cum.  Bull.  p.  197. 


1751  Redetermination  of  Tax  When  Credit  Proves  Incorrect.— In  case 
credit  has  been  given  for  taxes  accrued,  or  a proportionate  share, 
thereof,  and  the  amount  that  is  actually  paid  on  account  of  such  taxes,  or 
a proportionate  share  thereof,  is  not  the  same  as  the  amount  of  such  credit, 
or  in  case  any  tax  payment  credited  is  refunded  in  whole  or  in  part,  the  tax- 
payer shall  immediately  notify  the  Commissioner.  The  Commissioner  will 

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DEDUCTIONS -TAXES. 

thereupon  redetermine  the  amount  of  the  income  tax  of  such  taxpayer  for 
the  year  or  years  for  which  such  incorrect  credit  was  granted.  The  amount 
of  tax,  if  any,  due  upon  such  redetermination  shall  be  paid  by. the  taxpayer 
upon  notice  and  demand  by  the  collector.  The  amount  of  tax,  if  any,*shown 
by  such  redetermination  to  have  been  overpaid  shall  be  credited  against  any 
income,  war-profits  or  excess-profits  taxes,  or  installment  thereof,  then  due 
from  such  taxpayer  under  any  other  return,  and  any  balance  of  such  amount 
shall  be  immediately  refunded  to  him.  See  section  252  of  the  statute  and 
articles  1031-1038  [fpr  abatement,  credit  and  refund  of  taxes,  1[2813].  (Art. 
384,  Reg.  62,  1922  Edition.) 

1 752  Law  1f447.  Credit  to  a Domestic  Corporation  Against  Federal  In- 
(Sec.  238.)  come  and  War  and  Excess-Profits  Taxes  for  Income 
and  Excess-Profits  Taxes  Paid  to  Foreign  Countries 
and  to  United  States  Possessions  During  the  Taxable  Year.—' “Sec.  238 
(a)  That  in  the  case  of  a domestic  corporation  the  tax  imposed  by  this  title , 
plus  the  war-profits  and  excess-profits  taxes , if  any , shall  be  credited  with 
the  amount  of  any  income , war-profits , and  excess-profits  taxes  paid  during 
the  same  taxable  year  to  any  foreign  country , or  to  any  possession  of  the 
United  States;” — Law.  [Note:  The  1918  Act  allowed  the  credit 

in  the  case  of  income  and  excess-profits 
taxes  paid  to  foreign  countries  to  the 
extent  only  that  such  taxes  were  ‘‘upon 
income  derived  from  sources  therein.”] 

17  53  Law  ^[448.  “ Provided , That  the  amount  of  credit  taken  under  this 
(Sec.  238.)  subdivision  shall  in  no  case  exceed  the  same  proportion 
of  the  taxes , against  which  such  credit  is  taken , which  the 
taxpayer’s  net  income  ( computed  without  deduction  for  any  income , war- 
profits , and  excess-profits  taxes  imposed,  by  any  foreign  countrv  or  possession 
of  the  United  States ) from  sources  without  the  United  States  bears  to  its 
entire  net  income  ( computed  without  such  deduction ) for  the  same  taxable 
year” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

1754  Law  f 449.  “In  the  case  of  domestic  insurance  companies  subject 
(Sec.  238.)  to  the  tax  imposed  by  section  243  Hf  13 10]  or  246  1[1366], 
the  term.  ‘ net  income ’,  as  used  in  this  subdivision  means 
net  income  as  defined  in  sections  245  and  246,.  respectively . Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 

1 755  Law  ^[450.  “(b)  If  accrued  taxes  when  paid  differ  from  the  amounts 

(Sec.  238.)  claimed  as  credits  by  the  corporation , or  if  any  tax  paid 
is  refunded  in  whole  or  in  part,  the  corporation  shall  at 
once  notify  the  Commissioner,  who  shall  redetermine  the  amount  of  the  in 
come,  wai-profits  and  excess-profits  taxes  for  the  year  or  years  affected, 
and  the  amount  of  taxes  due  upon  such  redetermination , if  any,  shall  be 
paid  by  the  corporation  upon  notice  and  demand  by  the  collector,  or  the 
amount  of  taxes  overpaid , if  any,  shall  be  credited  or  refunded  to  the  cor- 
poration in  accordance  with  the  provisions  of  section  252  [“|  2825] . ;Law. 

[Note:  The  1918  Act  so]provided.] 


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DEDUCTIONS— TAXES 

1766  Law  1(451.  “/«  the  case  of  such  a tax  accrued  but  not  paid , the 
(Sec.  238.)  Commissioner  as  a condition  precedent  to  the  allowance 
of  this  credit  may  require  the  corporation  to  give  a bond 
with  sureties  satisfactory  to  and  to  be  approved  by  him  in  such  penal  sum 
as  he  may  require , conditioned  for  the  payment  by  the  taxpayer  of  any  amount 
of  taxes  found  due  upon  any  such  redetermination;  and  the  bond  herein 
prescribe  d shall  contain  such  further  conditions  as  the  Commissioner  may 
require.  —Law.  [Note:  The  1918  Act  so  provided.] 

I 757  Law  1(452.  “(c)  . These  credits  shall  be  allowed  only  if  the  taxpayer 

(Sec.  238.)  furnishes  evidence  satisfactory  to  the  Commissioner 
showing  the  amount  of  income  derived  from  sources 
without  the  United  States , and  all  other  information  necessary  for  the 
verification  and  computation  of  such  credit.” — Law.  [Note:  The  1918 

Act  provided  for  the  furnishing  of  evi- 
dence showing  the  amount  of  income  de- 
rived from  sources  within  such  foreign 
country  or  such  possession  of  the  United 
States;  the  1918  Act  did  not  specifically 
provide  for  “the  verification”.] 

1758  This  credit  includes  income,  war  profits,  and  excess  profits  taxes 
paid  or  accrued  during  the  taxable  year  to  any  foreign  country 
or  to  any  possession  of  the  United  States  but  shall  not  exceed  the 
same  proportion  of  the  taxes  against  which  the  credit  is  taken  which  the 
taxpayer  s net  income  (computed  without  deduction  for  any  income,  war 
P-fi^/nd  excess  profits  taxes  imposed  by  any  foreign  country  or  possesssion 
of  the  United  States)  from  sources  without  the  United  States  bears  to  its 
entire  net  income  (computed  without  such  deduction).  If  the  return  is  for 
a fiscal  year  beginning  in  1920  and  ending  in  1921  the  credit  shall  be  deter- 
mined entirely  under  the  Revenue  Act  of  1921  instead  of  partly  under  the 
Revenue  Act  of  1918  and  partly  under  the  later  statute.  To  secure  such  a 
credit  a domestic  corporation  must  pursue  the  same  course  as  that  pre- 
scribed for  an  individual  by  article  383  [1(1750],  except  that  Form  1118  is 
to  be  used  for  claiming  credit  and  Form  1119  for  the  bond,  if  a bond  is  re- 
quired. For  the  redetermination  of  the  tax,  when  a credit  for  such  taxes 
has-been  rendered  incorrect  by  later  developments,  see  article  384  [1(1751] 
all  of  the  provisions  of  which  apply  with  equal  force  to  a corporation  tax- 
payer. For  credit  where  taxes  are  paid  by  a foreign  corporation  controlled 
by  a domestic  corporation,  see  article  612  [1(1767].  A claim  for  credit  in 
such  a case  is  also  to  be  made  on  Form  1118.  For  the  meaning  of  the  terms 
used  in  section  238  of  the  statute  see  section  2 and  article  382  [1(1749]. 

1759  As  to  the  meaning  of  net  income  in  the  case  of  domestic  life  insur- 
ance  companies,  see  articles  671-686  [beginning  at  1(1315],  and  in 
the  case  of  other  domestic  insurance  companies  (except  mutual)  after  Decem- 

artldes  691-693  [beginning  at  1(1369].  (Art.  611,  Reg.  62, 
1922  Edition.)  & ’ 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Credit  to  stockholders  of  taxed  foreign  corporations  when  tax  based  on  dividends 

declared  but  not  when  based  on  corporation’s  income  (4-19-230:  O D 1471  1QIO 

C.tim.  mill.  n.  * '/••**** 


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DEDUCTIONS— TAXES. 

Cuba;  domestic  corporation  deriving  entire  income  from  operations  there,  on  accrua. 
basis,  with  fiscal  year  ending  June  30  (8-20-757:  O.  D.  406).. June  1920  Cuml 
Bull.  p.  221. 

¥ Domestic  corporation’s  foreign  taxes  not  definitely  ascertainable:  taxes  as  accrued 
allowed  as  credit:  1918  Act  (1-34-469:  A.  R.  M.  173).. Bull.  I (’22)-34,  p.  5. 
Foreign  corporation  controlled  by  domestic  must  have  actually  paid  during  the  year 
the  taxes  for  which  any  credit  is  to  be  taken  (11-19-388:  T.  B.  R.  36).  . 1919  Cum. 
Bull.  p.  237. 

Massachusetts  trust:  individual  shareholders,  not  the  trust,  pay  foreign  taxes;  trust 
may  not  take  credit  for  such  taxes  (42-21-1872:  A.  R.  R.  643).  .Dec.  1921  Cum. 
Bull.  p.  230. 

Withholding  foreign  government  tax  on  interest  by  foreign  bank  (39-20-1213:  O.  D. 
671).  .Dec.  1920  Cum.  Bull.  p.  283. 

Withholding  lump  sum  for  foreign  government  tax  on  dividends  by  foreign  corporation 
(12-19-407:  O.  D.  232)..  1919  Cum.  Bull.  p.  188. 


1760  Law  ^[453.  Credit  for  Taxes  to  a Domestic  Corporation  Making 
(Sec.  238.)  Return  for  Fiscal  Year  Ending  in  1921. — “(d)  If  a 
domestic  corporation  makes  a return  for  a fiscal  year 
beginning  in  1920  and  ending  in  1921,  the  'redil  for  the  entire  fiscal  year 
shall j notwithstanding  any  provision  of  this  Act , be  determined  under  the 
provisions  of  this  section , — Law.  [Note:  This  provision  is  new  to 

the  1921  Act.] 

“and  the  Commissioner  is  authorized  to  disallow , in 
whole  or  in  part,  any  such  credit  which  he  finds  has 
already  been  taken  by  the  taxpayer — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 
[See  If  1758,  above.] 

Credit  to  Domestic  Corporation  for  a Proportionate 
Part  of  Foreign  Income  or  Profits  Taxes  Paid  by 
Foreign  Corporation  Controlled  by  It. — “(e)  For  the 
purposes  of  this  section  a domestic  corporation  which  owns  a majority  of 
the  voting  stock  of  a foreign  corporation  from  which  it  receives  dividends 
(not  deductible  under  section  234)  in  any  taxable  year  shall  be  deemed  to 
have  paid  the  same  proportion  of  any  income , war-profits , or  excess-profits 
taxes  paid  by  such  foreign  corporation  to  any  foreign  country  or  to  any 
possession  of  the  United  States , upon  or  with  respect  to  the  accumulated 
profits  of  such  foreign  corporation  from  which  such  dividends  were  paid , 
which  the  amount  of  such  dividends  bears  to  the  amount  of  such  accumu- 
lated profits'.” 

1763  Law  "[[456.  “ Provided , That  the  credit  allowed  to  any  domestic  cor- 

(Sec.  238.)  poration  under  this  subdivision  shall  in  no  case  exceed 

the  same  proportion  of  the  taxes  against  which  it  is 
credited , which  the  amount  of  such  dividends  bears  to  the  amount  of  the 
entire  net  income  of  the  domestic  corporation  in  which  such  dividends  are 
included.” 

1764  Law  Tf457.  “The  term 'accumulated  profits'  when  used  in  this  sub- 
(Sec.  238.)  division  in  reference  to  a foreign  corporation,  means 

the  amount  of  its  gains,  profits,  or  income  in  excess  of 
the  income,  war-profits,  and  excess-profits  taxes  imposed  upon  or  with 
respect  to  such  profits  or  income-” 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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1761  Law  1[454. 

(Sec.  238.) 


1762  Law  1f455. 

(Sec.  238.) 


1-27-22.  (2)  fi-1-22. 


DEDUCTIONS— TAXES. 


I 765  Law  11458.  “av d the  Commissioner  with  the  approval  of  the  Secretary 
(See.  238.)  shall  have  full  power  to  determine  from  theaccumulatei 
{ ’ profits  of  what  yea,  or  years  such  dividends  were  fad 

treat, nr  dividends  paid  in  the  first  sixty  days  of  any  year  as  having  been 
paid  from  the  accumulated  profits  of  the  preceding  year  or  years  henless  t 
ITs  satisfaction  shown  otherwise ),  and  in  other  " 

as  having  been  paid  from  the  most  recently  accumulated  gains,  profits, 

I 766 ‘Taw  H4S9.  -In  the  case  of  a foreign  corporation,  the  income,  war- 
(sl.2380  profits,  and  excess-profits  taxes  of  which  are  determined 
In  the  basis  of  an  accounting  period  of  less  than  one  year 
the  word  - year ’ as  used  in  this  subdivision  shall  be  construed  to  mean  such 
“accounting  period.”  Law.  JNo.e  • ™ h” ^of 

the  1918  Act,  relating  to  consolidated 
returns  of  affiliated  corporations,  pro- 
vided in  subsection  (c)  thereof  as 
follows:  “(c)  For  the  purposes  of  section 
238  a domestic  corporation  which  owns 
a majority  of  the  voting  stock  of  a foreign 
corporation  shall  be  deemed  to  have  paid 
the  same  proportion  of  any  income, 
war-profits  and  excess-profits  taxes  paid 
(but  not  including  taxes  accrued)  b> 
such  foreign  corporation  during  the 
taxable  year  to  any  foreign  country  or 
to  any  possession  of  the  United  States 
upon  income  derived  from  sources  with- 
out the  United  States,  which  the  amount 
of  any  dividends  (not  deductible  under 
section  234)  received  by  such  domestic 
corporation  from  such  foreign  corpora- 
tion during  the  taxable  year  bears  to 
the  total  taxable  income  of  such  foreign 
corporation  upon  or  with  respect 
which  such  taxes  were  paid:  Provided , 

That  in  no  such  case  shall  the  amount 
of  the  credit  for  such  taxes  exceed  the 
amount  of  such  dividends  (not  deductible 
under  section  234)  received  by  such 
domestic  corporation  during  the  tax- 
able year.”].! 

w67  A domestic  corporation  which  owns  a majority  of  the  voting  stock 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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DEDUCTIONS— TAXES. 


lated  profits.  But  in  no  case  shall  such  credit  exceed  the  same  proportion 
of  the  taxes  against  which  it  is  credited,  which  the  amount  of  such  dividends 
bears  to  the  amount  of  the  entire  net  income  of  the  domestic  corporation  in 
which  such  dividends  are  included.  A domestic  corporation  seeking  such 
credit  must  comply  with  those  provisions  of  subdivision  (a)  of  article  383 
1750)  which  are  applicable  to  credits  for  taxes  already  paid,  except  that 
in  accordance  with  article  611  [^|  1 7.58]  the  form  to  be  used  is  Form  1118 
instead  of  Form  1116.  (Art.  612,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Credit  for  foreign  taxes;  taxes  must  actually  have  been  paid  during  year  for  which 
credit  is  to  be  taken  (11-19-388:  T.  B.  R.  36).  . 1919  Cum.  Bull.  p.  237. 

Intercommny  interest  debits  and  credits;  also  withholding  (28-19-616:  O.  D.  330).  . 
1919  Cum.  Bull.  p.  239. 


1 76 S Law  ^[460.  A Domestic  Corporation  Entitled  to  the  Benefits  of 
(Sec.  238.)  Sec.  262,  Treated  as  a Foreign  Corporation  for  the 
Purposes  of  the  Credit  for  Taxes  Provisions. — “(f) 
For  the  purposes  of  this  section  a corporation  entitled  to  the  benefits  of  section 
262#  [1(2070]  shall  be  treated  as  a foreign  corporation .” — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

# [Amended;  China  Trade  Act  corporations,  3 1 69.] 

1769  For  the  purposes  of  section  238  a corporation  entitled  to  the  bene- 
fits of  section  262  is  treated  as  a foreign  corporation.  (Art.  612,  Reg. 

62,  1922  Edition.) 

177  0 Law  11686.  United  States  Bonds  and  Notes  as  Security  in  Con- 
(Sec.  1329.)  nection  with  “Penal  Bonds.”— “Sec.  1329.  That 
wherever  by  the  laws  of  the  United  States  or  regulations 
made  pursuant  thereto , any  person  is  required  to  furnish  any  recogni- 
zance, stipulation,  bond,  guaranty , or  undertaking,  hereinafter  called  ‘ penal 
bond,'  with  surety  or  sureties,  such  person  may.  in  lieu  of  such  surety  or 
sureties,  deposit  as  security  with  the  official  having  authority  to  approve  such 
penal  bond.  United  States  Liberty  bonds  or  other  bonds  or  notes  o f the 
United  States  in  a sum  equal  at  their  par  value  to  the  amount  ol  such  penal 
bond  required  to  be  furnished,  together  with  an  agreement  authorizing  such 
official  to  collect  or  sell  such  bonds  or  notes  so  deposited  in  case  of  any  default 
in  the  performance  of  any  of  the  conditions  or  stipulations  of  such  penal 
bond.  The  acceptance  of  such  United  States  bonds  or  notes  in  lieu  of 
surety  or  sureties  required  by  law  shall  have  the  same  force  and  effect  as  indi- 
vidual or  corporate  sureties,  or  certified  checks,  bank  drafts,  post-office 
money  orders,  or  cash,  for  the  penalty  or  amount  of  such  penal  bond.  The 
bonds  or  notes  deposited  hereunder  and  such  other  United  States  bonds  or 
notes  as  may  be  substituted  therefor  from  time  to  time  as  such  security,  may 
be  deposited  with  the  Treasurer  of  the  United  States,  a Federal  Reserve 
bank , or  other  depository  dulv  designated  for  that  purpose  by  the  Secretary, 
which  shall  issue  receipt  therefor,  describing  such  bonds  or  notes  so  de- 
posited. As  soon  as  security  for  the  performance  of  such  penal  bond 
is  no  longer  necessary,  such  bonds  or  notes  so  deposited,  shall  be  returned 
to  the  depositor : Provided.  * — Law.  [Note:  The  1918 

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THE  FEDERAL  INCOME  TAX  SERVICE 

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DEDUCTIONS— LOSSES. 


Act  did  not  authorize  the  deposit  of 
“Notes”;  it  provided  for  the  deposit 
of  the  securities  “with  the  Treasurer,  or 
an  Assistant  Treasurer  of  the  United 
States,  a Government  depository,  Fed- 
eral Reserve  Bank  or  member  bank”.] 

For  explanation  of  Cumulative  Index  references  see  page  9/. 

Liberty  bonds;  coupons  representing  one  year’s  interest  may  be  detached  (8-19-336: 
O.  D.  193). . 1919  Cum.  Bull.  p.  310. 

Procedure  (21-19-525:  T.  D.  2925)..  1919  Cum.  Bull.  p.  157. 


1771  Law  If 687.  “ Provided  further,  That  nothing  herein  contained  shall 

(Sec.  1329.)  affect  or  impair  the  priority  of  the  claim  of  the  United 

States  against  the  bonds  or  notes  deposited  or  any  right 
or  remedy  granted  by  said  Acts  or  by  this  section  to  the  United  States  for 
default  upon  any  obligation  of  said  penal  bond:” — Law.  [Note:  The 

“or  notes”  is  new  to  the  1921  Act.] 

1772  Law  If 688.  “Provided  further,  That  all  laws  inconsistent  with  this 

(Sec.  1329.)  section  are  hereby  so  modified  as  to  conform  to  the  pro- 
visions hereof :” — Law.  [Note:  The  1918  Act  so 

provided.] 

1773  Law  1]689.  “ And  provided  further,  That  nothing  contained  herein 

(Sec.  1329.)  shall  affect  the  authority  of  courts  over  the  security, 

where  such  bonds  are  taken  as  security  in  judicial  pro- 
ceedings, or  the  authority  of  any  administrative  officer  of  the ■ U nited  States 
to  receive  United  States  bonds  for  security  in  cases  authorized  by  existing 
laws.” — Law.  [Note:  The  1918  Act  so  provided.] 

1774  Law  If 690.  “ The  Secretary  may  prescribe  rules  and  regulations 

(Sec.  1329.)  necessary  and  proper  for  carrying  this  section  into 

effect.” — Law.  [Note:  The  1918  Act  so  provided.] 

1 775  Credit  for  Taxes  Paid  at  the  Source. — Read  If 232 7. 

1776  Law  If  153.  All  Business  Losses  Not  Compensated  for  are  De- 

(Sec.  214.)  ductible  by  Individuals. — “(4)  Losses  sustained  dur- 
ing the  taxable  year  and  not  compensated  for  by  insur- 
ance or  otherwise,  if  incurred  in  trade  or  business-,” — Law.  [Note: 

The  1918  Act  so  provided.] 

177  7 Law  1f398.  Losses  Sustained  by  Corporations  are  Deductible. — 

(Sec.  234.)  “(4)  Losses  sustained  during  the  taxable  year  and  not 

compensated  for  by  insurance  or  otherwise-,” — Law. 

[Note:  The  1918  Act  so  provided.] 

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DEDUCTIONS— LOSSES 


177  8 Law  HT54.  Losses  by  Individuals  in  Transactions  Entered  into 
(Sec.  214.)  for  Profit  Outside  of  Business,  if  Not  Compensated 
for,  are  Deductible. — “(5)  Losses  sustained  during  the 
taxable  year  and  not  compensated  for  by  insurance  or  otherwise,  if  incurred 
in  any  transaction  entered  into  for  profit,  though  not  connected  with  the  trade 
or  business — [For  general  provision  applicable  to  corporations,  see 
H1777.] — Law.  [Note:  The  1918  Act  so  provided.] 

17  79  Law  1fl58.  Property  Losses  by  Individuals  Outside  of  Business, 
(Sec.  214.)  if  not  Compensated  for,  are  Deductible. — “(6)  Losses 
sustained  during  the  taxable  year  of  property  not  connected 
with  the  trade  or  business ” 

1 780  Law  TI 160.  “ if  arising  from  fires,  storms,  shipwreck,  or  other  c as u- 

(Sec.  214.)  ally,  or  from  theft,  and  if  not  compensated _ for  by  insur- 
ance or  otherwise” — [For  general  provision  applicable 
to  corporations,  see  T[l 777 .] — Law.  [Note:  Ihe  1918  Act  so  pro- 

vided.] 

17  81  Law  If  162.  Computation  of  Property  Loss  by  Destruction  or 
(Sec.  214.)  Damage  in  the  Case  of  Property  Acquired  Prior  to 
March  1,  1913. — “In  case  of  losses  arising  from  destruc- 
tion of  or  damage  to  property,  where  the  property  so  destroyed  or  damaged  was 
acquired  before  March  1,1913,  the  deduction  shall  be  computed  upon  the  basis 
of  its  fair  market  price  or  value  as  of  March  1,  1913; 

1782  Law  ^403.  [Corporations.]  “In  case  of  losses  arising  from  destruc- 
(Sec.  234.)  tion  of  or  damage  to  property,  where  the  property  so  de- 
stroyed or  damaged  was  acquired  before  March  1,  1913, 
the  deduction  shall  be  computed  upon  the  basis  of  its  fair  market  price  or 
value  as  of  March  1,  1913;”— Law.  [Note:  These  provisions  are 

new,  here.  However,  the  general  pro- 
vision of  the  1918  Act  relative  to  the 
basis  for  the  ascertaining  of  gain  or  loss 
on  the  sale  or  other  disposition  of 
property  were  extended  to  so  apply  to 
such  cases,  by  regulations,  prior  to  the 
change  in  the  regulations  following  the 
U.  S.  Supreme  Court  decisions  in 
Goodrich  vs.  Edwards  and  Walsh  vs. 
Brewster.] 

1 783  Losses. — Losses  sustained  during  the  taxable  year  and  not  com- 
pensated for  by  insurance  or  otherwise  are  fully  deductible  (except 
by  nonresident  aliens)  if  (a)  incurred  in  a taxpayer  s trade  or  business,  or 
(b)  incurred  in  any  transaction  entered  into  for  profit,  or  (c)  arising  from 
fires,  storms,  shipwreck,  or  other  casualty,  or  theft.  They  must  usually  be 
evidenced  by  closed  and  completed  transactions.  In  the  case  of  the  sale 
of  assets  the  loss  will  be  the  difference  between  the  cost  thereof,  less 
depreciation  sustained  and  allowable  as  a deduction  in  computing  net 
income,  and  the  price  at  which  sold  or  disposed  of.  However,  the 
loss  which  is  deductible  in  the  case  where  such  property  was  acquired 
before  March  1,  1913,  and  where  its  fair  market  value  on  that  date  was  less 
than  the  cost  thereof,  is  the  difference  between  such  value  (less  depieciation) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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E-27-22.  (2)  4-10-22.  (3)  6-2H-22.  (4)  6-16-22.  (5)10-11-22. 

DEDUCTiONa-  LOb-SES. 

and  the  price  at  which  sold  or  disposed  of.  No  loss  is  recognized  in  the  case 
of  property  sold  at  less  than  cost  minus  depreciation  hut  for  more  than  its 
fair  market  as  of  March  1,  1913,  or  for  more  than  cost  hut  less  than  the  fair 
market  value  as  of  March  1,  1913.  See  section  202  of  the  statute  and  arti- 
cles 39M6  [beginning  at  ^[  1219]  and  1561  [If  1437].  When  loss  is  claimed 
through  the  destruction  of  property  by  fire,  flood,  or  other  casualty,  the 
amount  deductible  will  be  the  difference  between  the  cost  of  the  property, 
less  proper  adjustment  for  depreciation,  and  the  salvage  value  thereof.  In 
the  case  of  property  acquired  before  March  1,  1913,  however,  the  deduct- 
ible loss  is  the  difference  between  the  fair  market  value  of  the  property  as 
of  that  date,  less  proper  adjustment  for  depreciation,  and  the  salvage  value 
thereof.  In  any  event  the  loss  should  be  reduced  by  the  amount  of  any 
insurance  or  other  compensation  received.  See  articles  49  [If  1257]  and  261- 
263  [TJ2034] . A loss  on  the  sale  of  residential  property  is  not  deductible 
unless  the  property  was  purchased  or  constructed  by  the  taxpayer  with  a 
view  to  its  subsequent  sale  for  pecuniary  profit.  Where  a person  gives  away 
property,  or  is  divested  thereof  by  death,  no  realization  of  loss  results  there- 
from. (Art.  141,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Absconding  contractor  leaving  bills  unpaid  which  housebuilder  is  forced  to  pay 
(21-21-1651:  O.  D.  925).  .June  1921  Cum.  Bull.  p.  213. 

Absconding  with  entrusted  borrowed  money;  principal,  interest,  and  expense  in 
apprehending  thief  (27-20-1040:  0.  D.  571) . . Dec.  1920  Cum.  Bull.  p.  156. 

Agreement  to  pay  stated  amount  monthly  during  life  for  lump  sum  consideration; 
amounts  paid  in  excess  of  consideration:  1921  Act  (1-12-149:  I.  T.  1242).  .June 
1922  Cum.  Bull.  p.  61. 

Assessment  against  bank  stock  under  State  law  to  make  good  a loss  suffered  by  bank 
(30-21-1744:  A.  R.  R.  588).. Dec.  1921  Cum.  Bull.  p.  135. 

Assessment  on  bank  stock;  stockholder  here  an  estate  in  process  of  administration 
(20-21-1640:  O.  D.  918) . .June  1921  Cum.  Bull.  p.  213. 

Assets  acquired  for  excessive  nurchase  price;  no  immediate  deductible  loss:  1909 
Act  (1-21-301:  A.  R.  R.  906).  .June  1922  Cum.  Bull.  p.  143. 

Attorney’s  stock  investment  to  protect  clients’  interests:  loss  not  deductible  in  Block  A 
of  the  1917  return  (8-21-1464:  A.  R.  R.  398) . .June  1921  Cum.  Bull.  p.  156. 

Automobile;  business  (13-21-1531:  O.  D.  857) . .June  1921  Cum.  Bull.  p.  160. 

(See  “Other  casualty”  below  for  pleasure  car.) 

Sale  of  though  occasionally  used  for  pleasure  (23-21-1676:  O.  D.  943)  . .June  1921 
Cum.  Bull.  p.  163. 

Bank  director;  damages  paid  by  him  on  account  losses  suffered  by  bank  because  of  his 
direlection  (45-21-1908:  O.  D.  1091).. Dec.  1921  Cum.  Bull.  p.  139.  3 

Bank  purchases  from  State  its  bonds  at  par  immediately  selling  at  4 point  loss  expecting 
to  recoup  by  investing  proceeds  of  original  transaction  deposited  with  it  by  State: 
1921  Act  (1-12-155:  I.  T.  1247).  .June  1922  Cum.  Bull.  p.  142. 

Burglary;  litigation  over  insurance  decided  in  subsequent  years  (26-21-1705:  A.  R.  R. 
542).. June  1921  Cum.  Bull.  p.  143. 

Compromise  payment  to  establish  title  to  property  and  property  rights  (51-21-1982: 
A.  R.  R.  701).  .Dec.  1921  Cum.  Bull.  p.  176. 

Copyright  royalty  rights  of  doubtful  value  but  not  ascertained  to  be  worthless;  1917, 
1918,  and  1921  Acts  (1-24-341:  I.  T.  1352).  .June.1922  Cum.  Bull.  p.  146. 

Damages  paid  on  judgment  on  claim  for  misrepresentation  of  property  sold  in  business 
(29-21-1734:  O.  D.  978).  .Dec.  1921  Cum.  Bull.  p.  135. 

Debt;  satisfying  in  full  by  transferring  securities  having  then  market  value  of  less  than 
cost  (25-20-1015:  0.  D.  555) . .June  1920  Cum.  Bull.  p.  130. 

Decedent’s  estate;  losses  determined  after  death  (here:  difference  between  amount 
paid  in  taking  up  paper  to  which  decedent  was  coindorser  and  appraised  value 
of  claim  subrogated  to  administrator)  (25-20-1017:  0.  D.  556).  .June  1920  Cum. 
Bull.  p.  137. 

Embezzlement;  recoveries  and  partial  recoveries  (6-19-279:  0.  845)..  1919  Cum. 
Bull.  p.  118. 

Same:  (6-19-273:  0.  D.  165) . . 1919  Cum.  Bull.  p.  125. 

Embezzlement  of  securities  held  in  bailment  (40-20-1221:  A.  R.  R.  269).  .Dec.  1920 
Cum.  Bull.  p.  158. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  <2)4-10-22.  (3)5-20-22.  (4)6-16-22.  (5)  10-11-22. 

DEDUCTIONS— LOSSES 

“Entered  into  for  profit”;  acquiring  property  for  turnover  prolit  as  well  as  for  recurring 

return  on  capital  invested:  Act  contemplates  no  distinction  (4-19-218:  O.  D. 
1.38) . . 1 9 1 9 Curn.  Hull.  p.  124. 

1916-1917  Acts:  turnover  losses  may  be  oifset  against  recurring  profits:  here, 
dividends  (14-21-1547:  L.  O.  1061).  June  1921  Cum.  Bull.  p.  160. 

Sales  of  securities  by  an  estate  (32-21-1760:  A.  R.  R.  604).. Dec.  1921  Cum 
Bull.  p.  136. 

“Entered  into  for  profit;”  many  transactions  in  “on  margin”  transactions,  “on  margin” 

transactions  not  ordinarily  those  of  an  investor,  hence  “business”  (1916  Act  as 
amended)  ( 10-21-1495:  A.  R.  R.  404) . .June  1921  Cum.  Bull.  p.  157 
Exchange  rates  adversely  affecting  investments  in  foreign  money  (1-21-1371:  O.  D. 
764).  June  1921  Cum.  Bull.  p.  155. 

Same:  here  foreign  money  acquired  abroad  and  held  there  at  close  of  taxable  year 
(23-21-1672:  O.  D.  940) . June  1921  Cum.  Bull.  p.  64. 

Germany;  debts  due  from  not  extinguishable  by  war  (9-20-771:  A.  R.  M.  31).. June 
1920  Cum.  Bull.  p.  128 

Gifts,  bequests,  etc  , subsequently  sold:  Is  this  a transaction  entered  into  for  profit? 

(10-19-357:  T.  B.  R.  35)  .1919  Cum.  Bull.  p.  122. 

Gift,  loss  on  sale  of  (here:  real  estate  given  to  wife,  sold  by  wife,  repossessed  by  husband 
on  foreclosure,  again  given  to  wife  (deed  unrecorded),  and  finally  sale  by  wife  at 
loss)  (24-20-999:  O.  D.  543).. June  1920  Cum.  Bull.  p.  91. 

Guaranteeing  bonds  purchased  for  another:  default  on  die  bonds  (13-19-420:  O.  D. 
241)  1919  Cum.  Bull.  p.  125. 

Guardian  misappropriates  funds;  deductible  loss  to  minor  (50-21-1974:  A.  R.  M. 
144).  .Dec.  1921  Cum.  Bull.  p.  139. 

“Incurred  in  trade”;  isolated  sales  of  securities:  court  decision  1913  Act  (25-20-1016: 
T.  D.  3029).  .Julie  1920  Cum.  Bull.  p.  131. 

Indorser  of  notes  prior  to  March  1,  1913,  pays  thereafter  in  installments,  extending 
original  notes  from  time  to  time,  the  drawer  defaulting  and  having  no  assets  on 
March  1,  1913  (38-21-1837:  A.  R.  R.  479)..  Dec.  1921  Cum.  Bull.  p.  146. 
Insurance  less  than  replaceme  nt  cost  (43-20-1258:  O.  D.  697) . . Dec.  1920  C.  B.  p.  1 10. 
But  more  than  cost  of  original  asset  (18-21- 1607 : A.  R.  M.  122) . .June  1921  Cum. 
Bull.  p.  92. 

Insurance  paid  in  following  year:  estimating  deductible  loss  (18-19-482;  T.  B.  R.  55) . . 
1919  Cum.  Bull.  p.  123. 

Liquor  business  wholesale;  good  will  loss  in  1917,  sales  being  made  in  1918  (29-20- 
1076:  A.  R.  R.  185).  .Dec.  1920  Cum.  Bull.  p.  156. 

National  Guard  officer  making  good  property  account  losses:  1921  Act  (1-5-54: 

I.  T.  1182).  .June  1922  Cum.  Bull.  p.  142. 

Note  in  payment  of  worthless  stock:  fraudulent  transaction  (1-3-32:  I.  T.  1167) 
. .June  1922  Cum.  Bull.  p.  149. 

Option  to  purchase  not  exercised  (1-10-127:  I.  T.  1230).  .June  1922  Cum.  Bull.  p.  142. 
Orchard’s  productivity  reduced  by  diversion  of  part  of  normal  water  supply  not 
deductible  loss:  1921  Act  (1-21-300:  I.  T.  1318).  .June  1922  Cum.  Bull.  p.  143. 
Orchards  and  vineyards  (3-20-690:  O.  D.  374).  .June  1920  Cum.  Bull.  p.  127. 

“Other  casualty”  embraces  losses  occasioned  by  action  of  natural  physical  forces  only 
(here:  loss  of  ring  which  may  have  been  actually  lost  instead  of  stolen)  (22- 
20-969:  O.  D.  526).  .June  1920  Cum.  Bull.  p.  130. 

Same:  amounts  paid  defending  suit  for  damages  in  private  auto  accident  (12-21- 
1527:  A.  R.  R.  444) . .June  1921  Cum.  Bull.  p.  159. 

Same:  damage  to  pleasure  automobile  due  to  icy  condition  of  street  (33-20-1132: 
O.  D.  629)..  Dec.  1920  Cum.  Bull.  p.  158:  also  by  collision  (13-21-1531: 
O.  D.  857).  .June  1921  Cum.  Bull.  p.  160. 

Same:  damages  paid  on  account  injuries  due  to  tripping  over  a “Keep  off  the 
grass”  wire  (4-21-1409:  O.  D.  779) . .June  1921  Cum.  Bull.  p.  155. 

Same:  water  pipes  frozen  and  bur  t in  private  residence  (43-21-1885:  O.  D.  1076) 
..Dec.  1921  Cum.  Bull.  p.  138. 

Partnership  owns  unsuccessful  corporation:  losses  of  latter  not  to  be  offset  against 
gains  of  former  (6-21-143 1:  O.  D.  7 95).. June  1921  Cum.  Bull.  p.  155. 

Residence  damaged  both  by  high  water  and  subsequent  removal  to  safer  location 
(43-20-1259:  O.  L>.  698)..  Dec.  1920  Cum.  Bull.  p.  159. 

Residential  property,  sale  of  (1-19-5 1 : O.  780) . . 1919  Cum.  Bull.  p.  1 17. 

Same:  (1917  Act  specifically)  (19-20-918:  A.  R.  R.  96).  .June  1920  C.  B.  p.  129. 
Same:  owner  moved  away  and  rented  house  for  several  years  before  selling 

(52-21-1992:  O.  D.  1148)..  Dec.  1921  Cum.  Bull.  p.  141. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
392 


1-27-22.  (2)  4-10-22.  (3)  9-20-22.  (4)  10-11-22. 

DEDUCTIONS— LOSSES. 

Restriction  by  statute  or  regulation  on  taxpayer’s  activities  not  in  itself  a loss  to  be 
measured  and  deducted  (here:  safe  deposit  vaults  in  New  York;  nonpayment  of 
rent)  (18-20-899:  0.  D.  486).  .June  1920  Cum.  Bull.  p.  129. 

Royalty  interests  purchased  in  tracts  of  oil  land  which  prove  worthless  (3-20-691: 
O.  D.  375) . .June  1920  Cum.  Bull.  p.  128. 

Scrapping  and  salvaging  equipment  (1913  Act  specifically)  (30-19-639:  S.  1217).  .1919 
Cum.  Bull.  p.  120. 

Securities;  bona  fide  sale;  repurchasing  at  same  price  (2-19-149:  O.  D.  103)..  1919 
Cum.  Bull.  p.  124. 

Securities;  brokers  offer  at  public  auction  and  under  instructions  buy  in,  there  being 
no  other  bidders  (1-5-53:  I.  T.  1181).  .June  1922  Cum.  Bull.  p.  141. 

Stock  of  corporation  purchased  by  it  paying  therefor  with  assets  of  less  book  value 
(51-21-1984:  A.  R.  R.  693).  . Dec.  1921  Cum.  Bull.  p.  207. 

Stockholder  in  bankrupt  corporations  (in  relation  to  “net  loss”  provisions)  (4-20-703: 
O.  D.  380).  .June  1920  Cum.  Bull.  p.  128. 

Subletting  apartment  at  a decreased  rental  (1-19-59:  O.  D.  42).. 1919  Cum.  Bull.  p. 
124. 

Useless  duplicate  property  purchased  (39-21-1843:  O.  D.  1049).. Dec.  1921  Cum. 
Bull.  p.  175. 

Usurious  interest;  losses  in  connection  with  (51-21-1979:  O.  D.  1139).. Dec.  1921 
Cum.  Bull.  p.  84. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
393 


2-27-22.  (2)  4-10-22.  (3)  9-20-22.  (4)  10-11-22. 

DEDUCTIONS— LOSSES. 

l 7 84  Lav/  11 161.  Losses  Not  Necessarily  Deducted  in  Year  Sustained.  - 

(Sec.  214.)  “ Losses  allowed  under  paragraphs  (4),  (5),  and  (6) 

[all  losses  by  individuals ] of  this  sub-division  shall  be 
deducted  as  of  the  taxable  year  in  which  sustained  unless , in  order  to  clearly 
reflect  the  income , the  loss  should , in  the  opinion  of  the  Commissioner , be  ac- 
counted for  as  of  a different  period.” — Law.  [Note:  This  provision  is 

new  to  the  1921  Act.] 

1785  Law  1)399.  “unless  [in  the  case  of  corporations ],  in  order  to  clearly 
(Sec.  234.)  reflect  the  income,  the  loss  should  in  the  opimon  of  the 

Commissioner  be  accounted  for  as  of  a different  period — 
Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

1786  As  a general  rule  losses  allowed  under  paragraphs  (4),  (5),  and  (6) 
of  this  subdivision  shall  be  deducted  as  of  the  taxable  year  in  which 

sustained.  In  exceptional  circumstances,  however,  in  order  to  avoid  injus- 
tice to  the  taxpayer  and  to  more  clearly  reflect  his  income,  the  Commissioner 
may  permit  a loss  to  be  accounted  for  as  of  a year  other  than  the  one  in 
which  sustained.  For  example,  an  embezzlement  or  a shipwreck  may  occur 
in  1921  but  not  become  known  until  1922  and  in  such  a case  income  may  be 
more  clearly  reflected  by  accounting  for  the  loss  as  of  1922  rather  than  of 
1921.  If  a taxpayer  desires  to  account  for  a loss  as  of  a period  other  than 
the  one  in  which  actually  sustained,  he  shall  attach  to  his  return  a state- 
ment setting  forth  his  request  for  consideration  of  the  case  by  the  Commis- 
sioner, together  with  a complete  statement  of  the  facts  upon  which  he  relies. 
However,  in  his  income  tax  return  he  shall  deduct  the  loss  only  for  the  tax- 
able year  in  which  actually  sustained.  Upon  the  audit  of  the  return  the 
Commissioner  will  decide  whether  the  case  is  within  the  exception  provided 
by  the  statute;  if  not  within  the  exception  the  loss  will  be  allowed  only  as 
of  the  taxable  year  in  which  sustained.  The  allowance  of  a deduction  for  a 
loss  in  a year  other  than  the  one  in  which  sustained  is  entirely  within  the 
discretion  of  the  Commissioner  and  he  will  consider  exercising  this  discre- 
tion only  in  exceptional  cases.  A shrinkage  in  the  value  of  the  taxpayer  s 
stock  in  trade,  as  reflected  in  his  inventory,  is  not  such  a loss  as  is  contem- 
plated by  the  provision  of  the  statute  authorizing  the  Commissioner  to 
allow  the  deduction  of  a loss  for  a taxable  year  other  than  the  one  in  which 
sustained.  (Art.  146,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Note  in  payment  of  worthless  stock:  fraudulent  transaction  (1-3-32:  I.  T.  1167) 
. .June  1922  Cum.  Bull.  p.  149.  _ 

Retroactive  aoplication  of  above  neither  permitted  nor  compelled:  1921  Act  (1-38- 
511:  L.  O.  1 105) . . Bull.  I (’22)-38,  p.  4. 

17  87  Law  11156.  Losses  Resulting  from  Sale  of  Stock  or  Securities 
(Sec.  214.)  After  Nov.  23,  1921,  When  Substantially  Identical 
Items  are  Acquired  Within  30  Days  Before  or  After 
Such  Sale. — [Individuals.]  “No  deduction  shall  be  allowed  under  this 
paragraph  for  any  loss  claimed  to  have  been  sustained  in  any  sale  or  other 
disposition  of  shares  of  stock  or  securities  made  after  the  passage  of  this  Act 
where  it  appears  that  within  thirty  days  before  or  after  the  date  of  such  sale 
or  other  disposition  the  taxpayer  has  acquired  ( otherwise  than  by  bequest  or 
inheritance ) substantially  identical  property , and  the  property  so  acquired 
is  held  by  the  taxpayer  for  any  period  after  such  sale  or  other  disposition .” 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

394 


2-27-22. 


(2)  4-10-22. 


(3)6-16-22  (4)  6-26-22.  (5)  10-11-22. 

DEDUCTIONS— LOSSES. 

1 788  Law  1J157.  “//  such  acquisition  is  to  the  extent  of  part  only  oj 

(Sec.  214.)  substantially  identical  property , then  only  a propor- 
tionate part  of  the  loss  shall  be  disallowed ;” — Law. 
[Note:  These  provisions  are  new  to  the  1921  Act.) 

17  89  Law  ^400.  [Corporations.)  “A 'o  deduction  shall  be  allowed  for 
(Sec.  234.)  any  loss  claimed  to  have  been  sustained  in  any  sale  or 
other  disposition  of  shares  of  stock  or  securities  made  after 
the  passage  of  this  Jet  where  it  appears  that  within  30  days  before  or  after 
the  date  of  such  sale  or  other  disposition  the  taxpayer  has  acquired  ( otherwise 
than  by  bequest  or  inheritance)  substantially  identical  property , and  the 
property  so  acquired  is  held  by  the  taxpayer  for  any  period  after  such  sale 
or  other  disposition ,” 

1 790  Law  ^[401.  “ unless  such  claim  is  made  by  a dealer  in  stock  or  securi- 

(Sec.  234.)  ties  and  with  respect  to  a transaction  made  in  the  ordi- 
nary course  of  its  business. ” 

1791  Law  ^|402.  “//  such  acquisition  is- to  the  extent  of  part  only  of  sub- 

(Sec.  234.)  stantially  identical  property , then  only  a proportionate 

part  of  the  loss  shall  be  disallowed .” — Law.  [Note: 

These  provisions  are  new  to  the  1921  Act.) 

1792  An  individual,  other  than  one  in  the  trade  or  business  of  buying  and 
selling  securities,  or  a corporation,  other  than  a dealer  in  stocks  or 

securities,  can  not  deduct  any  loss  claimed  to  have  been  sustained  from 
the  sale  or  other  disposition  of  stock  or  securities  made  after  November 
23,  1921,  if  within  30  days  before  or  after  the  date  of  such  sale  or  other 
disposition  the  taxpayer  has  acquired  (otherwise  than  by  bequest  or  inheri- 
tance) substantially  identical  property,  and  the  property  so  acquired  is 
held  by  the  taxpayer  for  any  period  after  such  sale  or  other  disposition.  If 
such  acquisition  is  to  the  extent  of  part  only  of  substantially  identical  prop- 
erty, then  only  a proportionate  part  of  the  loss  shall  be  disallowed.  See 
article  1567  [If  1477).  This  provision  is  designed  to  prevent  a taxpayer  who 
owns  securities,  other  than  one  in  the  trade  or  business  of  buying  and  sell- 
ing securities,  from  selling  and  immediately  repurchasing  them  or  from 
purchasing  substantially  identical  property  and  immediately  selling  the 
original  securities  and  claiming  as  a deduction  in  computing  net  income  the 
so-called  “loss”  sustained  therefrom.  Gain  or  loss,  however,  is  realized  in  the 
case  of  the  “short  sale.”  Under  this  section  a taxpayer  owning  a hundred 
shares  of  stock  in  the  X company,  who  purchases  another  hundred  shares  of 
stock  in  the  X company  and  within  30  days  thereafter  sells  the  first  purchased 
stock  of  the  X company,  can  not  deduct  in  computing  net  income  any  loss 
claimed  to  have  been  sustained  from  the  transaction;  if  he  sells  the  entire  200 
shares  of  stock,  a gain  or  loss  from  both  transactions  is  realized  at  that  time; 
and  if  he  sells  the  stock  of  the  X company  included  within  the  second  purchase 
a gain  or  loss  is  realized  thereby.  (Art.  147,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p I. 

Effective  3:55  P.  M.,  Nov.  23,  1921— 192 1 Act  (1-11-142:  I.  T.  1240).  .June  1922 
Cum.  Bull.  p.  150.  T) 

Liberty  bonds  of  different  issues  are  not  “substantially  identical  property:”  1921 
Act  (1-25-356:  I.  T.  1365).  .June  1922  Cum.  Bull.  p.  151. 

Profit,  not  net  profit  on  transaction  as  whole,  is  taxable  in  event  lots  purchased  at 
varying  prices  sold  at  profit  on  some  with  loss  on  others;  1921  Act  (1-24-342: 
I.  T.  1353).  .June  1922  Cum.  Bull.  p.  150. 

Profit  resulting,  is  taxable— 1921  Act  (1-11-141:  I.  T.  1239).  .June  1922  Cum.  Bull, 
p.  149. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
395 


2-27-22.  (2)  4-10-22.  (3)  6-1G-22.  (4)  6-26-22.  (6)  10-11-22. 

DEDUCTIONS— LOSSES. 

1793  [For  basis  for  determining  gain  or  loss  on  subsequent  disposition 
of  any  property  acquired  in  relation  to  which  all  or  a part  of  any 

loss  sustained  is  disallowed  as  provided  above,  see  1476. ] 

1794  Deductibility  of  Losses  Sustained  in  Connection  With  Wagering 
on  Horse  Races:  Winnings  to  Be  Included  in  Gross  Income. — 

Reference  is  made  to  your  letter  dated  March  1,  1920,  with  which  was  en- 
closed a copy  of  a letter  dated  March  1,  1920,  from  the  Collector  of  Internal 
Revenue  at  New  York,  N.  Y.,  addressed  to  the  Maryland  State  Fair,  50 
Fairview  Avenue,  Orange,  N.  J.  In  the  Collector’s  letter  it  is  stated  that  the 
following  is  a recent  decision  of  this  office: 

“Total  losses  from  race  track  gambling  may  be  credited  against 
the  total  winnings,  and  the  net  gain  should  be  reported  as  income. 

If,  however,  the  losses  exceed  the  winnings,  the  net  losses  cannot  be 
deducted  from  the  gross  income  from  other  sources  in  computing  the 
net  income  subject  to  tax.” 

1795  You  are  advised  that  Section  213  (a)  of  the  Revenue  Act  of  1918 

provides  that  gross  income  includes  “*  * * gains  or  profits 

and  income  derived  from  any  source  whatever.” 

1796  Under  the  provisions  of  Section  214  (a)  5 of  the  act,  losses  incurred 
in  any  transaction  entered  into  for  profit,  though  not  connected 

with  the  trade  or  business  of  the  taxpayer,  constitute  allowable  deductions, 
but  losses  in  illegal  transactions  are  not  deductible  (Regulations  45,  Article 
141).  Whether  betting  or  gambling  is  an  illegal  transaction  depends  upon  the 
law  of  the  state  in  which  the  wagering  contract  is  made.  If  the  laws  of  the 
state  in  which  the  wagering  contract  is  made  prohibit  betting  or  gambling, 
such  transactions  are  illegal,  but  if,  under  the  laws  of  the  state,  betting  or 
gambling  is  not  prohibited,  such  transactions  are  legal. 

1797  It  is  accordingly  held  that:  (1)  The  entire  amount  of  winnings 

from  all  wagering  contracts  should  be  returned  in  gross  income 

under  Section  213  (a)  of  the  Revenue  Act  of  1918,  irrespective  of  the  nature 
of  the  transaction,  whether  legal  or  illegal  and  notwithstanding  the  laws 
of  the  state  in  which  such  contracts  are  made.  [Read  at  ^[1663  for  personal 
service  compensation  illegally  paid.] 

1798  (2)  If,  under  the  laws  of  the  state  in  which  the  wagering  contract 
is  made  betting  or  gambling  is  prohibited,  such  transactions  are 

illegal  and  no  deduction  may  be  claimed  under  Section  214  (a)  5 of  the 
statute  for  losses  sustained  in  such  illegal  transactions,  but  if  the  laws  of 
the  state  in  which  the  wagering  contract  is  made  do  not  prohibit  betting 
or  gambling,  such  transactions  are  lawful  and  the  entire  amount  of  the 
losses  sustained  in  the  transactions  may  be  deducted  from  gross  income 
under  Section  214  (a)  5. 

1799  Copies  of  this  letter  are  being  furnished  the  Maryland  State  Fair 
and  the  Collector  of  Internal  Revenue  for  the  Second  District  of 

New  York  for  their  information.  (Letter  to  The  Corporation  Trust  Co. 
signed  by  Acting  Commissioner  Paul  F.  Myers,  and  dated  July  12,  1920.) 

1 800  Voluntary  Removal  of  Buildings. — Loss  due  to  the  voluntary  re- 
moval or  demolition  of  old  buildings,  the  scrapping  of  old  machinery, 
equipment,  etc.,  incident  to  renewals  and  replacements  will  be  deductible 
from  gross  income  in  a sum  representing  the  difference  between  the  cost  of 
such  property  demolished  or  scrapped  and  the  amount  of  depreciation 
sustained  with  respect  to  the  property  prior  to  its  demolition  or  scrapping, 
and  allowable  as  a deduction  in  computing  net  income.  When  a taxpayer 
buys  real  estate  upon  which  is  located  u building  which  he  proceeds  to  raze 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
396 


1-27-22.  (2)  4-10-22.  (8)  4-21-22.  (4)  7-7-22.  (5)  10-11-22. 

DEDUCTIONS— LOSSES. 

with  a view  to  erecting  thereon  another  building,  it  will  be  considered 
that  the  taxpayer  has  sustained  no  deductible  loss  by  reason  of  the  demolition 
of  the  old  building,  and  no  deductible  expense  on  account  of  the  cost  of 
such  removal,  the  value  of  the  real  estate,  exclusive  of  old  improvements, 
being  presumably  equal  to  the  purchase  price  of  the  land  and  building  plus 
the  cost  of  removing  the  useless  building.  (Art.  142,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Dwelling  houses  on  land  acquired  for  plant  enlargement  purposes;  unusual  state  of 
facts  here  (37-21-1816:  O.  I).  1031).. Dec.  1921  Cum.  Bull.  p.  141. 

Partial  demolition;  expenditure  is  part  of  cost  of  reconstruction  (2-21-1387:  O.  D. 
773).. June  1921  Cum.  Bull.  p.  164. 


1801  Loss  of  Useful  Value. — When,  through  some  change  in  business 
conditions,  the  usefulness  in  the  business  of  some  or  all  of  the  capital 
assets  is  suddenly  terminated,  so  that  the  taxpayer  discontinues  the  business 
or  discards  such  assets  permanently  from  use  in  such  business,  he  may  claim 
as  a loss  for  the  year  in  which  he  takes  such  action,  the  difference  between 
the  cost,  or  if  acquired  prior  to  March  1,  1913.  fair  market  price  or  value  as  of 
that  date  of  any  assets  so  discarded  (less  any  depreciation  sustained  and 
allowable  as  a deduction  in  computing  net  income)  and  its  salvage  value 
remaining.  This  exception  to  the  rule  requiring  a sale  or  other  disposition  of 
property  in  order  to  establish  a loss  requires  proof  of  some  unforeseen  cause  by 
reason  of  which  the  property  has  been  prematurely  discarded,  as,  for  example, 
where  an  increase  in  the  cost  of  or  other  change  in  the  manufacture  of  any 
product  makes  it  necessary  to  abandon  such  manufacture,  to  which  special 
machinery  is  exclusively  devoted,  or  where  new  legislation  directlv  or  in- 
directly makes  the  continued  profitable  use  of  the  property  impossible.  This 
exception  does  not  extend  to  a case  where  the  useful  life  of  property  terminates 
solely  as  a result  of  those  gradual  processes  for  which  depreciation  allowances 
are  authorized.  It  does  not  apply  to  inventories  or  to  other  than  capital 
assets.  The  exception  applies  to  buildings  only  when  they  a're  permanently 
abandoned  or  permanently  devoted  to  a radically  different  use,  and  to 
machinery  only  when  its  use  as  such  is  permanently  abandoned.  Any  loss 
to  be  deductible  under  this  exception  must  be  charged  off  on  the  books  and 
fully  explained  in  returns  of  income.  But  see  articles  181-189  [for  special 
amortization  provisions,  If  1864].  (Art.  143,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Beer  bottle  factory  equipment;  prohibition  (3-19-190:  O.  D.  125).. 1919  Cum.  Bull, 
p.  133. 

Boilers  installed  replacing  old  on  orders  of  insurance  company  ( 15-21-1562:  O.  D. 
871).  June  1921  Cum.  Bull.  p.  179. 

Concrete  dam  to  make  an  ice  lake;  abandoned  on  going  out  of  ice  business  (20-21- 
1639:  A.  R.  R.  498).  June  1921  Cum.  Bull.  p.  165. 

Distillery  plant;  sale  of  at  loss  after  disputed  establishment  of  residuai  value  on  account 
of  allowance  for  prohibition  obsolescence  (19-20-919:  A.  R.  R.  93). .June  1920 
Cum.  Bull.  p.  142. 

Furniture  and  fixtures  replaced  by  new  (16-21-1579:  A.  R.  R.  469)  June  192!  Cum. 
Hull  p.  1 6-f 

Liquor  licenses;  prohibition  (37-21-1817:  A.  R.  R.  556).  .Dec.  1921  Cum.  Bull.  p.  142. 

Vineyards;  prohibition  (2-19-150:  O.  D.  102)..  1919  Cum.  Bull.  p.  125. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
397 


2-27-22.  (2)  4-10-22.  (3)  4-21-22.  (4)  7-7-22.  (5)  10-11-22. 

DEDUCTIONS— LOSSES 


1 802  Shrinkage  in  Value  of  Stocks.— A person  possessing  stock  of  a cor- 
poration can  not  deduct  from  gross  income  any  amount  claimed  a6 
a loss  merely  on  account  of  shrinkage  in  value  of  such  stock  through  fluctua- 
tion of  the  market  or  otherwise.  The  loss  allowable  in  such  cases  is  that 
actually  suffered  when  the  stock  is  disposed  of.  See,  however,  article  154 
[for  worthless  securities  as  bad  debts,  1818].  However,  if  stock  of  a cor- 
poration becomes  worthless,  its  cost  or  other  basis  determined  under  section 
202  may  be  deducted  by  the  owner  in  the  taxable  year  in  which  the  stock 
became  worthless,  provided  a satisfactory  showing  of  its  worthlessness  be 
made,  as  in  the  case  of  bad  debts.  Where  banks  or  other  corporations  which 
are  subject  to  supervision  by  Federal  authorities  (or  by  State  authorities 
maintaining  substantially  equivalent  standards)  in  obedience  to  the  specific 
orders  or  general  policy  of  such  supervisory  officers  charge  off  stock  as  worth- 
less or  write  it  down  to  a nominal  value,  such  stock  shall,  in  the  absence  of 
affirmative  evidence  clearly  establishing  the  contrary,  be  presumed  for 
income  tax  purposes  to  be  worthless.  See  article  151  [for  bad  debts,  1810]. 
For  dealers  in  securities,  see  article  1585  [^[1521].  (Art.  144,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Bonds  purchased  at  premium  prior  to  March  1,  1913,  redeemed  at  par  (20-20-937: 
0.  D.  506).  .June  1920  Cum.  Bull.  p.  132. 

Decedent  to  time  of  death;  on  transfer  to  legatee,  to  trustee,  or  from  trustee  to  sub- 
stituted trustee  ( 1 1-19-383:  O.  D.  219).  . 1919  Cum.  Bull.  p.  180. 

Same:  in  part  (35-20-1 168:  A.  R.  R.  249) . . Dec.  1920  Cum.  Bull.  p.  145. 

Same  in  part  (property  in  general)  (46-20-1306:  O.  D.  731)..  Dec.  1920  Cum. 
Bull.  p.  210. 

Same;  total  loss,  worthlessness  determined  by  appraisal  at  time  of  death:  1921 
Act  (1-27-389:  I.  T.  1381).  .Bull.  I (’22)-27,  p.  6. 

Sale  by  corporation  to  corporation  organized  by  former’s  stockholders  (40-20-1222: 
L.  0.  1035  (Rev.)  ) . . Dec.  1920  Cum.  Bull.  p.  160:  Further  findings  cause 

reversal  in  this  particular  case;  general  law  conclusions  affirmed  (14-21-1548: 
L.  0.  1062).  .June  1921  Cum.  Bull.  p.  168. 

“Short  sales”;  transaction  not  completed  until  stock  has  been  purchased  to  replace 
that  borrowed  (24-19-558:  S.  1 179) . . 1919  Curn.  Bull.  p.  60. 

Surrender  of  stock  to  wipe  out  operating  deficit  (11-19-378:  O.  D.  216).  .1919  Cum. 
Bull.  p.  126 

“Written  down  to  a nominal  value”  (banks);  does  not  preclude  taking  full  loss  if 
securities  are  in  fact  worthless:  1921  Act  (1-16-226:  I.  T.  1282).  .June  1922  Cum. 
Bull.  p.  147. 

1 803  Irrigation  Bonds. — District  irrigation  bonds  generally  are  a lien 
upon  the  real  estate  affected  by  the  irrigation  project,  and  until  a 
corporation  holding  such  bonds  has  taken  the  necessary  action  to  protect 
its  interest  and  enforce  the  collection  of  the  bonds  the  corporation  will  not 
be  allowed  to  deduct  from  gross  income,  as  a loss,  the  face  value  or  any 
estimated  amount  supposed  to  represent  a loss  or  shrinkage  in  the  value  of 
such  bonds.  Any  estimated  shrinkage  in  the  value  of  bonds  or  other  securities 
does  not  constitute  a loss  within  the  meaning  of  this  title.  So  long  as  the 
value  of  a security  is  uncertain  or  unknown  a loss  can  not  be  definitely  ascer- 
tained and  is  therefore  not  deductible.  (Art.  153,  ^471,  Reg.  33,  Jan.  2,  1918.) 

1 804  Basis  of  Determining  Gain  or  Loss. — Read  at  U 1431. 

1805  Net  Losses. — Read  at  ^1527. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
398 


2-27-22 


(2)  4-10-22.  (8)  4-18-22.  (4)  7-20-22.  (5)  10-11-22. 

DEDUCTIONS— BAD  DEBTS. 

Worthless  Debts  Are  Deductible. — “(7)  Debts  ascer- 
tained to  be  worthless  and  charged  off  within  the  taxable 
year;" 

[Corporations.] — “(5)  Debts  ascertained  to  be  worth- 
less and  charged  off  within  the  taxable  year” — Law. 

[Note:  The  1918  Act  so  provided.] 

Bad  Debts  May  be  Charged  Off  in  Part. — “and  when 
satisfied  that  a debt  is  recoverable  only  in  part,  the  Com- 
missioner may  allow  such  debt  to  be  charged  off  in  part: 
[Corporations.]  “and  when  satisfied  that  a debt  is  re- 
coverable only  in  part,  the  Commissioner  may  allow 
such  debt  to  be  charged  off  in  part;” — Law.  [Note: 

These  provisions  are  new  to  the  1921 
Act.] 

—Bad  debts  may  be  treated  in  either  of  two  ways — (1) 

tion  from  income  in  respect  of  debts  ascertained  to  be 

worthless  in  whole  or  in  part,  or  (2)  by  a deduction  from  income  of  an  addi- 
tion to  a reserve  for  bad  debts.  For  the  year  1921  taxpayers  may,  regard- 
less of  their  previous  practice,  elect  either  of  these  two  methods  and  will 
be  required  to  continue  the  use  in  later  years  of  the  method  so  elected  unless 
permission  to  change  to  the  other  method  is  granted  by  the  Commissioner. 

1811  Where  all  the  surrounding  and  attending  circumstances  indicate 

that  a debt  is  worthless,  either  wholly  or  in  part,  the  amount  which 

is  worthless  and  charged  off  or  written  down  to  a nominal  amount  on  the 

books  of  the  taxpayer  shall  be  allowed  as  a deduction  in  computing  net 
income.  There  should  accompany  the  return  a statement  showing  the 
propriety  of  any  deduction  claimed  for  bad  debts.  No  deduction  shall  be 
allowed  for  the  part  of  a debt  ascertained  to  be  worthless  and  charged  off 
prior  to  January  1,  1921,  unless  and  until  the  debt  is  ascertained  to  be  totally 
worthless  and  is  finally  charged  off  or  is  charged  down  to  a nominal  amount, 
or  the  loss  is  determined  in  some  other  manner  by  a closed  and  completed 
transaction.  Before  a taxpayer  may  charge  off  and  deduct  a debt  in  part, 
he  must  ascertain  and  be  able  to  demonstrate,  with  a reasonable  degree  of 
certainty,  the  amount  thereof  which  is  uncollectible.  Any  amount  subse- 
quently received  on  account  of  a bad  debt  or  on  account  of  a part  of  such  debt 
previously  charged  off  and  allowed  as  a deduction  for  income  tax  purposes, 
must  be  included  in  gross  income  for  the  taxable  year  in  which  received..  In 
determining  whether  a debt  is  worthless  in  whole  or  in  part  the  Commissioner 
will  consider  all  pertinent  evidence,  including  the  value  of  the  collateral,,  if 
any,  securing  the  debt  and  the  financial  condition  of  the  debtor.  Partial 
deductions  will  be  allowed  with  respect  to  specific  debts  only. 

1812  Where  the  surrounding  circumstances  indicate  that  a debt  is  worth- 
less and  uncollectible  and  that  legal  action  to  enforce  payment  would 

in  all  probability  not  result  in  the  satisfaction  of  execution  on  a judgment, 
a showing  of  these  facts  will  be  sufficient  evidence  of  the  worthlessness  of 
the  debt  for  the  purpose  of  deduction.  Bankruptcy  is  generally  an  indica- 
tion of  the  worthlessness  of  at  least  a part  of  an  unsecured  and  unpreferred 
debt.  Actual  determination  of  worthlessness  in  bankruptcy  cases  is  some- 
times possible  before  and  at  other  times  only  when  a settlement  in  bank- 
ruptcy shall  have  been  had.  Where  a taxpayer  ascertained  a debt  to  be 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
iUt) 


1806  Law  1[163. 

(Sec.  214.) 

1 807  Law  U404. 

(Sec.  234.) 


1808  Law\1I165. 

(Sec.  214.) 

i 809  Law  H406. 
(Sec.  234.) 


1810  Bad  Debts.- 

bv  a deducl 


2-27-22.  (2)  4-10-22.  (3)  4-18-22.  (4)  7-20-22.  (5)  10-11-22. 

DEDUCTIONS— BAD  DEBTS. 

worthless  and  charged  it  off  in  one  year,  the  mere  fact  that  bankruptcy  pro- 
ceedings instituted  against  the  debtor  are  terminated  in  a later  year,  con- 
firming the  conclusion  that  the  debt  is  worthless,  will  not  authorize  shifting 
the  deduction  to  such  later  year.  In  the  case  of  debts  existing  prior  to  March 
1,  1913,  only  their  value  on  that  date  may  be  deducted  upon  subsequently 
ascertaining  them  to  be  worthless.  See  article  51  [for  recovery  of  bad  debts 
Tf  1 260].  If  a taxpayer  computes  his  income  upon  the  basis  of  valuing  his 
notes  or  accounts  receivable  at  their  fair  market  value  when  received,  which 
may  be  less  than  their  face  value,  the  amount  deductible  for  bad  debts  in 
any  case  is  limited  to  such  original  valuation. 

1813  Where  banks  or  other  corporations  which  are  subject  to  supervision 
by  Federal  authorities  (or  by  State  authorities  maintaining  substan- 
tially equivalent  standards)  in  obedience  to  the  specific  orders,  or  in  accord- 
ance with  the  general  policy  of  such  supervisory  officers,  charge  off  debts 
in  whole  or  in  part  such  debts  shall,  in  the  absence  of  affirmative  evidence 
clearly  establishing  the  contrary,  be  presumed,  for  income-tax  purposes  to, 
be  worthless  or  recoverable  only  in  part,  as  the  case  may  be.  (Art.  151,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ar.couflcs  receivable,  creditor  being  unaware  of  creditor’s  financial  status  (1-4-41: 
I.  T.  1172).  .June  1922  Cum.  Bull.  p.  154. 

Bank  failure;  establishing  deductible  loss  tentatively  on  receiver’s  estim  ;te  of  probable 
recovery  in  liquidation  (52-20-1562:  A.  R.  R.  352) . . Dec.  1920  Cum.  Bull.  p.  167. 

Banks;  when  shrinkage  in  value  of  securities  may  be  charged  off  in  part  (1921  Act) 
(1-9-114:  I.  T.  1221).  .June  1922  Cum.  Bull.  p.  155. 

Bills  receivable  extended  and  discountable  at  a loss  only  (30-21-1742:  0.  D.  979).  . 
Dec.  1921  Cum.  Bull.  p.  85. 

Book  value  vs.  actual  value  on  March  1,1913:  court  decision  under  1913  Act  .^3127. 

Collateral  security  depreciated  at  end  of  taxable  year  below  face  value  of  unmatured 
obligation  secured  thereby  (1-5-55:  I.  T.  1183).  .June  1922  Cum.  Bull.  p.  155. 

Compromises  (24-19-564:  O.  D.  297) ..  1919  Cum.  Bull.  p.  126. 

Cuban  moratorium  (17-21-1594:  O.  D.  891 ) . .June  1921  Cum.  Bull.  p.  173. 

Decedent  coindorser  to  note;  payment  by  administrator  (25-20-1017:  0.  D.  556).. 
June  1920  Cum.  Bull.  p.  137. 

Deposits  in  failed  banks  as  worthless  or  partially  worthless  debts:  1921  Act  (1-15- 
212:  I.  T.  1274).  .June  1922  Cum.  Bull.  p.  159. 

Foreclosure  failing  to  satisfy  mortgage  debt;  (42-20-1244:  O.  D.  687).. Dec.  1920 
Cum.  Bull.  p.  166 

Forged  indorsement  on  protested  note,  new  note  given  with  bona  fide  indorsement 
amount  of  which  forger  to  pay  in  installments;  default  (22-21-1663:  O.  D.  934).. 
June  1921  Cum.  Bull.  p.  173. 

Forged  notes  and  fraudulent  bills  of  sale  (30-20-1090:  O.  D.  6041  Dec.  1920  Cum. 
Bull.  p.  166.  Same  (1-29-412:  A.  R.  R.  965)..  Bull.  1 (’22)-29,  p.  6. 

Germany;  debts  due  from  not  extinguishable  by  war  (9-20-77  1:  \.  R.  M 31)  June 
1920  Cum.  Bull.  p.  128. 

Guaranty  of  interest;  payment  on  default  (8-20  753:  S.  1298)  June  1920  Cum.  Bull, 
p.  113. 

Indorser  of  notes  prior  to  March  1,  1913  pays  thereafter  in  installments,  extending 
notes  from  time  to  time,  the  drawer  defaulting  and  having  no  assets  on  March  1, 
1913  (38-2 1-1837 : A.  R.  R.  479).. Dec.  1921  Cum.  Bull.  p.  146. 

Notes  given  by  a brother  declared,  merely,  by  holder  to  be  worthless  (1-7-91:  1.  T. 
1205).  .June  1922  Cum.  Bull.  p.  155. 

Restoring  amount  charged  ofi  one  year  so  as  to  charge  off  for  succeeding  year:  dis- 
allowed (1-12-156:  A.  R.  R.  806).  .June  1922  Cum.  Bull.  p.  156. 

Russian  bank  credits  (23-20-986:  0.  D.  535).  .June  1920  Cum.  Bull.  p.  137. 

Same:  (27-20-1041 : A.  R.  M.  61)..  Dec.  1920  Cum.  Bull.  p.  165. 

Same:  here  inability  to  sell  but  no  other  evidence  (21-21-1649:  O.  D.  923)  June 
1921  Cum.  Bull.  p.  173. 

Russian  Imperial  Interna!  bonds  (50-20-1343:  O D.  748)  Dec.  1 920  Cum.  Bull  p.  167. 

Third  mortgage  loan,  appraisals  showing  assets  exceed  mortgage  liabilities  of  debtor: 
deduction  not  allowed  (6-21-1432:  A.  R.  R.  365)  June  1921  Cum.  Bull.  p.  172. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

400 


2-27-22.  (2)  4-10-22. 


DEDUCTIONS— BAD  DEBTS. 


1814  Examples  of  Bad  Debts —Worthless  debts  arising  from  unpaid 
wages,  salaries,  rents,  and  similar  items  of  taxable  income  will  not 
be  allowed  as  a deduction  unless  the  income  such  items  represent  has  been 
included  in  the  return  of  income  for  the  year  in  which  the  deduction  as  a 
bad  debt  is  sought  to  be  made  or  in  a previous  year.  Only  the  difference 
between  the  amount  received  in  distribution  of  the  assets  of  a bankrupt 
and  the  amount  of  the  claim  may  be  deducted  as  a bad  debt.  1 he  differ- 
ence between  the  amount  received  by  a creditor  of  a decedent  in  distribution 
of  the  assets  of  the  decedent’s  estate  and  the  amount  of  his  claim  may  be 
considered  a worthless  debt.  A purchaser  of  accounts  receivable  which 
can  not  be  collected  and  are  consequently  charged  off  the  books  as  bad 
debts  is  entitled  to  deduct  them,  the  amount  of  deduction  to  be  based  upon 
the  price  he  paid  for  them  and  not  upon  their  face  value.  (Art.  152,*Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Accepting  free  assets  and  assuming  all  liabilities  as  settlement  of  debt  of  insolvent 
corporation  to  principal  stockholder  (9-20-772:  A.  R.  R.  30).. June  1920  Cum. 
Bull.  p.  138.  ^ . . . 

Bank;  misappropriation  of  public  funds  by  officials  of  political  subdivision,  the  bank 
accepting  illegally  issued  warrants  in  settlement  of  notes;  bank  reimburses  political 
subdivision  and  then  denied  right  of  recovery  from  officials  on  notes  (27-21-171- : 
O.  D.  965).  .Dec.  1921  Cum.  Bull.  p.  147. 


1815  Uncollectible  Deficiency  Upon  Sale  of  Mortgaged  or  Pledged  Prop- 
erty.— Where  mortgaged  or  pledged  property  is  lawfully  sold  (whether 

to  the  creditor  or  other  purchaser)  for  less  than  the  amount  of  the  debt,  and 
the  mortgagee  or  pledgee  ascertains  that  the  portion  of  the  indebtedness 
remaining  unsatisfied  after  such  sale  is  wholly  or  partially  uncollectible,  and 
charges  it  off,  he  may  deduct  such  amount  as  a bad  debt  for  the  taxable 
year  in  which  it  igjiscertained  to  be  wholly  or  partially  worthless  and  chargee 
off.  Where  a taxpayer  buys  in  mortgaged  or  pledged  property  for  the  amount 
of  the  debt,  no  deduction  shall  be  allowed  for  any  part  of  the  debt.  Gain 
or  loss  is  realized  when  the  property  bought  in  is  sold  or  disposed  of. 

1816  Accrued  interest  may  be  included  as  part  of  the  deduction  only 
when  it  has  previously  been  returned  as  income.  (Art.  153,  Reg.  62, 

1922  Edition.) 

1817  Compromise. — Where  an  indebtedness  is  claimed  and  contested 
and  a settlement  is  had  by  way  of  compromise  whereby  an  amount. 

less  than  the  debt  claimed,  is  accepted  in  full  payment  and  satisfaction  of 
the  debt,  the  difference  between  the  amount  paid  and  that  claimed  is  not 
allowable  as  a deduction  for  bad  debts.  Where  the  settlement  in  com- 
promise consists  of  a promise  to  pay  an  amount  less  than  the  debt  claimed, 
the  amount  promised  to  be  paid  forms  the  basis  of  a new  transaction,  and 
upon  failure  to  make  good  this  promise  the  question  will  arise  as  to  the 
deductibility  of  the  new  amount  only.  (Art.  8,  ^[93,  Reg.  33,  Rev.,  Jan.  2, 
1918.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

401 


2-27-22.  (2)  4-10-22. 


DEDUCTIONS— BAD  DEBTS. 


1818  Worthless  Securities. — Where  bonds  purchased  before  March  1, 
1913,  depreciated  in  value  between  the  date  of  purchase  and  that 

date,  and  were  in  a later  year  ascertained  to  be  worthless  and  charged  off, 
the  owner  is  entitled  to  a deduction  in  that  year  equal  to  the  value  of  the 
bonds  on  March  1,  1913.  Bonds  purchased  since  February  28,  1913,  when 
ascertained  to  be  worthless,  may  be  treated  as  bad  debts  to  the  amount 
actually  paid  for  them.  Bonds  of  an  insolvent  corporation  secured  only 
by  a mortgage  from  which  on  foreclosure  nothing  is  realized  for  the  bond- 
holders are  regarded  as  ascertained  to  be  worthless  not  later  than  the  year 
of  the  foreclosure  sale,  and  no  deduction  for  a bad  debt  is  allowable  in  com- 
puting a bondholder’s  income  for  a subsequent  year.  To  authorize  a deduc- 
tion for  a bad  debt  on  account  of  notes  held  prior  to  March  1,  1913,  their 
value  on  that  date  must  be  established.  See  article  144  [shrinkage  in  securities 
and  stocks,  ^[1802]. 

1819  A taxpayer  (other  than  a dealer  in  securities)  possessing  debts  evi- 
denced by  bonds  or  other  similar  obligations  can  not  deduct  from 

gross  income  any  amount  merely  on  account  of  market  fluctuation.  Where 
a taxpayer  ascertains,  however,  that  due,  for  instance,  to  the  financial  con- 
dition of  the  debtor,  or  conditions  other  than  market  fluctuation,  he  will 
recover  upon  maturity  none  or  only  a part  of  the  debt  evidenced  by  the 
bonds  or  other  similar  obligations  and  is  able  to  so  demonstrate  to  the  satis- 
faction of  the  Commissioner,  he  may  deduct  in  computing  net  income  the 
uncollectible  part  of  the  debt  evidenced  by  the  bonds  or  other  similar  obli- 
gations. (Art.  154,  Reg.  62,  1922  Edition.) 


1820  Law  *11164. 

(Sec.  214.) 

bad  debts);" 

1821  Law  ^[405. 

(Sec.  234.) 


Reasonable  Additions  to  a Reserve  for  Bad  Debts 
May  be  Deductible. — “(or,  in  the  discretion  of  the 
Commissioner , a reasonable  addition  to  a reserve  for 

[Corporations.]  “(or  in  the  discretion  of  the  Commis- 
sioner; a reasonable  addition  to  a reserve  for  bad  debts) 

- — Law.  [Note:  These  provisions  are  new  to  the 

1921  Act.] 


1822  Reserve  for  Bad  Debts. — Taxpayers  who  have,  prior  to  1921,  main- 
tained reserve  accounts  for  bad  debts  may  deduct  a reasonable 
addition  to  such  reserves  in  lieu  of  a deduction  for  specific  bad-debt  items. 
Taxpayers  who  have  not  heretofore  maintained  such  reserve  accounts  may 
now  elect  to  do  so,  and  in  such  case  shall  proceed  to  determine  the  amount 
of  the  reserve  that  should  reasonably  have  been  set  up  as  at  December  31, 
1920  (which  shall  not  be  deducted  in  computing  net  income),  and  in  respect 
of  1921  and  subsequent  years  may  add  a reasonable  addition  to  such  resevre 
and  deduct  the  amount  in  computing  taxable  net  income.  Where  a reserve 
account  is  maintained,  debts  ascertained  after  December  31,  1920,  to  be 
worthless,  in  whole  or  in  part,  (a)  if  such  debts  were  outstanding  at  Decem- 
ber 31,  1920,  should  be  charged  against  the  reserve  and  may  be  deducted 
from  income,  in  accordance  with  article  151  [^[1810];  (b)  if  such  debts  arose 
after  December  31,  1920,  should  be  charged  against  the  reserve,  and  not 
deducted  from  income.  What  constitutes  a reasonable  addition  to  a reserve 
for  bad  debts  must  be  determined  in  the  light  of  the  facts,  and  will  vary  as 
between  classes  of  business  and  with  conditions  of  business  prosperity.  A 


Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22.  (8)  6-9-22.(4)  6-20-22.  (6)  7-27-22.  (6)  9-13-22.  (7)  9-16-22.  (8)  10-11-22. 

DEDUCTIONS— DEPRECIATION. 

taxpayer  using  the  reserve  method  should  make  a statement  in  his  return 
showing  the  volume  of  his  charge  sales  (or  other  business  transactions)  for 
the  year  and  the  percentage  of  the  reserve  to  such  amount,  the  total  amount 
of  notes  and  accounts  receivable  at  the  beginning  and  close  of  the  taxable 
year,  and  the  amount  of  the  debts  which  have  been  ascertained  to  be  wholly 
or  partially  worthless  and  charged  against  the  reserve  account  during  the 
taxable  year.  (Art.  155,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Example  of  nondeductibility  of  debts  created  after  close  of  1920  fiscal  year  and  ascer- 
tained to  be  bad  after  setting  up  in  1921  of  initial  reserve  as  of  1920  by  fiscal 
year  corporation:  1921  Act  (1-37-497:  I.  T.  1442).. Bull.  I (’22)-37,  p.  5. 

Insufficiency  of  net  addition  to  reserve  fund  during  a taxable  year  to  be  considered 
in  determining  amount  of  net  addition  to  such  fund  in  subsequent  year;  1921 
Act  (1-23-329:  I.  T.  1341).  .June  1922  Cum.  Bull.  p.  160. 


1 823  Amounts  Received  as  Dividends  by  Individuals  as  a Credit  for 
Normal  Tax  Purposes. — See  ^[204 3. 

1 824  Law  ^[407.  Amounts  Received  as  Dividends  by  Corporations 
(Sec.  234.]  Are  Deductible  Generally. — “(6)  The  amount  received. 

as  dividends ” 

1825  Law  ^408.  “( A ) from  a domestic  corporation  other  than  a corpora- 

(Sec.  234.)  lion  entitled  to  the  benefits  of  section  262  [^[2070],  or” 

[Amended:  China  Trade  Act  corporations,  1(3173.] 

1826  Law  ^[409.  “( B ) from  any  foreign  corporation  tuhen  it  is  shown 

(Sec.  234.)  to  the  satisfaction  of  the  Commissioner  that  more  than 

50  per  centum  of  the  gross  income  of  such  foreign  cor- 
poration for  the  three-year  period  ending  with  the  close  of  its  taxable  year 
preceding  the  declaration  of  such  dividends  {or  for  such  part  of  such  period 
as  the  foreign  corporation  has  been  in  existence)  was  derived  from  sources 
within  the  United  States  as  determined  under  section  217  [*|2102]/” — Law. 

[Note:  The  1918  Act  provided  here,  as 
follows:  “(6)  Amounts  received  as  divi- 
dends from  a corporation  which  is  tax- 
able under  this  title  upon  its  net  in- 
come, and  amounts  received  as  divi- 
dends from  a personal  service  corpora- 
tion out  of  earnings  or  profits  upon 
which  income  tax  has  been  imposed  by 
Act  of  Congress.”] 

[Read  statement  relative  to  deductibility  of  dividends  at  H1617.] 


1827  Law  166.  Reasonable  Allowance  for  Depreciation  of  Business 
(Sec.  214.)  Property  is  Deductible. — “(8)  A reasonable  allowance 

for  the  exhaustion , wear  and  tear  of  property  used  in 
the  trade  or  business , including  a reasonable  allowance  for  obsolescence .” 

1828  Law  167.  “In  the  case  of  such  property  acquired  before  March 

(Sec.  214.)  1,  1913,  this  deduction  shall  be  computed  upon  the  basis 

of  its  fair  market  price  or  value  as  of  March  1,  1913;” 

1829  Law  1[410.  [Corporations.] — “(7)  A reasonable  allowance  for  the 
(Sec.  234.)  exhaustion , wear  and  tear  of  property  used  in  the  trade 

or  business , including  a reasonable  allowance  for  obso- 
lescence.” 

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t-27-22.  (2)  4-10-22.  (8)  6-9-22.  (1)  6-26-22.  (6)  7-27-22.  (6)  9-13-22.  (7)  9-16-22.  (8)  10-11-22. 

DEDUCTIONS— DEPRECIATION. 


1830  Law  1(411.  “/n  the  case  of  such  property  acquired  before  March 

(Sec.  234.)  I,  1913,  this  deduction  shall  be  computed  upon  the  basis 
of  its  fair  market  price  or  value  as  of  March  1,  1913;” 
—Law.  [Note:  The  1918  Act  (and  to  the  extent  of  the  provision 

relative  to  property  acquired  prior  to 
March  1,  1913,  the  regulations  under  the 
1918  Act)  so  provided.] 


1831  Depreciation. — A reasonable  allowance  for  the  exhaustion,  wear 

and  tear  and  obsolescence  of  property  used  in  the  trade  or  business 
may  be  deducted  from  gross  income.  For  convenience  such  an  allowance 
will  usually  be  referred  to  as  depreciation,  excluding  from  the  term  any  idea 
of  a mere  reduction  in  market  value  not  resulting  from  exhaustion,  wear 
and  tear  or  obsolescence.  The  proper  allowance  for  such  depreciation  of  any 
property  used  in  the  trade  or  business  is  that  amount  which  should  be  set 
aside  for  the  taxable  year  in  accordance  with  a reasonably  consistent  plan  (not 
necessarily  at  a uniform  rate)  by  which  the  aggregate  of  such  amounts  for  the 
useful  life  of  the  property  in  the  business  will  suffice,  with  the  salvage  value, 
and  having  due  regard  for  expenditures  made  for  current  upkeep,  at  the  end 
of  such  useful  life  to  provide  in  place  of  the  property  its  original  cost  (not 
replacement  cost)  or  its  value  as  of  March  1,  1913,  if  acquired  by  the  tax- 
payer before  that  date.  See  further  articles  839  and  844  [for  depreciation 
in  connection  with  invested  capital. — War  Tax  Service].  (Art.  161,  Reg.  62, 
1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Accrued  obsolescence  prior  to  Jan.  1,  1918  (31-21-1752:  Sol.  Op.  114).. Dec.  1921 
Cum.  Bull.  p.  148.  . 

Brewery  turned  to  cereal  beverages,  then  abandoned  (34-21-1780:  O.  D.  1001;.. 

Dec.  1921  Cum.  Bull.  p.  150.  _ 

Coast-wise  lumber  trade  steam  schooners  (42-20-1245:  A.  R.  R.  279)..  Dec.  1920 
Cum.  Bull.  p.  168. 

Dipping  vats  for  cattle  tick  eradication  constructed  by  virtue  of  State  law  (48-20-1322: 
O.  D.  738)  .Dec.  1920  Cum.  Bull.  p.  168. 

Great  Lakes  bulk  freight  steamships  (9-20-773:  A.  R.  R.  27).  June  1920  Cum.  Bull, 
p.  139.  Obsolescence  accrued  prior  to  Jan.  1,  1918  (31-21-1752:  Sol.  Op.  114).. 
Dec.  1921  Cum.  Bull.  p.  148.  A.  R.  R.  27  reconsidered  and  Sol.  Op.  114  adhered 
to;  lengthy  discussion:  1918  and  1921  Acts  (1-25-357:  A.  R.  R.  963).  .June  1922 
Cum.  Bull.  p.  161. 

Leased  apparatus  tunked  at  expiration  of  lease  (44-21-1894:  O.  D.  1082)..  Dec. 

1921  Cum.  Bull.  p.  175.  . ... 

Leased  nroperties  the  terms  requiring  that  lessee  turn  back  properties  at  expiration  ot 
period  in  same  condition  as  when  leased  (35-21-1794:  0.  D.  1014).. Dec.  1921 

Oil  well  equipment  acquired  on  purchase  of  leases  (37-21-1818:  A.  R.  R.  570).  .Dec. 

1921  Cum.  Bull.  p.  152.  ^ ^ _ „ 

Railroad  siding  to  taxpayer’s  property  (36-21-1800:  0.  D.  1019).. Dec.  1921  Bull. 

p.  151.  Same  (1-30-427:  A.  R.  R.  1008).  .Bull.  I ( 22)-30,  p.  14. 

Railroads  (See  “Railroads”  under  Art.  162  below). 

Reorganization  of  corporation;  capital  sum  to  be  recovered  in  case  ot  assets  thus 
acquired  (15-20-855:  O.  D.  458).  .June  1920  Cum.  Bull  p.  313 
Uncertain  obsolescence;  that  is,  a building  may  become  obsolete  (4-20-704:  U.  U. 

.June  1920  Cum.  Bull.  p.  138.  . n n 

“Useful  life”  interpreted:  new  buildings  in  course  of  construction  (11-21-1510.  U.  U. 

845).  .June  1921  Cum.  Bull.  p.  178. 

Vineyards;  prohibition  (8-19-320:  O.  862)..  1919  Cum.  Bull.  p.  127 


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2-27-22.  (2)  4-10-22.  (3)  6-9-22  (4)  6-16-22.  (6)  10-11-22. 

DEDUCTIONS— DEPRECIATION. 

1832  Depreciable  Property. — The  necessity  for  a depreciation  allow- 
ance arises  from  the  fact  that  certain  property  used  in  the  business 

gradually  approaches  a point  where  its  usefulness  is  exhausted.  The  al- 
lowance should  be  confined  to  property  of  this  nature.  In  the  case  of  tangi- 
ble property,  it  applies  to  that  which  is  subject  to  wrear  and  tear,  to  decay 
or  decline  from  natural  causes,  to  exhaustion,  and  to  obsolescence  due  to 
the  normal  progress  of  the  art,  as  where  machinery  or  other  property  must 
be  replaced  by  a new  invention,  or  due  to  the  property  becoming  inade- 
quate to  the  growing  needs  of  the  business.  It  does  not  apply  to  inventories 
or  to  stock  in  trade;  nor  to  land  apart  from  the  improvements  or  physical 
development  added  to  it.  It  does  not  apply  to  bodies  of  minerals  which 
through  the  process  of  removal  suffer  depletion,  other  provisions  for  this 
being  made  in  the  statute.  See  articles  201-237  [for  depletion  ^1893]. 
Property  kept  in  repair  may,  nevertheless,  be  the  subject  of  a depreciation 
allowance.  See  article  103  [for  repairs,  1642].  The  deduction  of  an  allow- 
ance for  depreciation  is  limited  to  property  used  in  the  taxpayer’s  trade  or 
business.  No  such  allowance  may  be  made  in  respect  of  automobiles  or  other 
vehicles  used  chiefly  for  pleasure,  a building  used  by  the  taxpayer  solely  as 
his  residence,  nor  in  respect  of  furniture  or  furnishings  therein,  personal 
effects,  or  clothing;  but  properties  and  costumes  used  exclusively  in  a busi- 
ness, such  as  a theatrical  business,  may  be  the  subject  of  a depreciation  allow- 
ance. (Art.  162,  Reg.  62,  1922  Edition.)  44 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Advertising  space  over  period  of  years  donated  by  stockholder  to  corporation  (1921 
Act)  (1-9-115:  I.  T.  1222).  .June  1922  Cum.  Bull.  p.  168. 

Beer  bottle  manufacturing  equipment  (3-19-190:  O.  D.  125).  . 1919  Cum.  Bull.  p.  133. 
Estates;  replacements  (31-20-1102:  O.  D.  613).. Dec.  1920  Cum.  Bull.  p.  149. 
Formulas  are  not  depreciable  property;  cost  deductible  on  becoming  worthless  (50- 
20-1349:  A.  R.  R.  339).. Dec.  1920  Cum.  Bull.  p.  169. 

Houses  built  for  sale,  during  period  prior  to  sale;  1921  Act  (1-23-330:  I.  T.  1342).. 
June  1922  Cum.  Bull.  p.  169. 

Naval  officer’s  uniforms;  not  depreciable  (32-21-1761:  A.  R.  R.  594).. Dec.  1921 
Cum.  Bull.  p.  154.  t 

Nondepreciable  property,  sale  of;  computation  of  profit  (35-20-1168:  A.  R.’  R.  249). . 

Dec.  1920  Cum.  Bull.  p.  145. 

Orchard  trees  (1-19-52:  0.  797).  . 1919  Cum.  Bull.  p.  130. 

Partner’s  automobile  used  for  firm’s  business  under  articles  of  agreement  (49-21-1958: 
0.  D.  1122).. Dec.  1921  Cum.  Bull.  p.  121. 

Radium  (10-21-1496:  O.  D.  837).. June  1921  Cum.  Bull.  p.  178. 

Railroads  particularly  their  roadways  (1909  Act)  (6-21-1433:  Ct.  D.  4)  June  1921.. 
Cum.  Bull.  p.  174. 

Residential  property;  considering  depreciation  when  sold  (30-20-1085:  0.  D.  600).. 
Dec.  1920  Cum.  Bull.  p.  46. 

Same:  (35-20-1 1 68:  A.  R.  R.  249).  .Dec.  1920  Cum.  Bull.  p.  145. 

Same  but  partially  business  property  (37-21-1810:  O.  D.  1026).  .Dec.  1921  Cum. 
Bull.  p.  5 1 . 

Right  to  receive  royalties  on  copyrighted  book  is  not  subject  to  depreciation;  1917, 
1918,  and  1921  Acts  (1-24-341:  I.  T.  1352).  - June  1922  Cum.  Bull.  p.  146. 

Title  abstract  companies’  records  (36-21-1799:  O.  D.  1018).  .Dec.  1921  Cum.  Bull.  p. 
119. 

War  device  of  great  value  Jan.  1,  1918  but  of  little  value  Dec.  31,  1918  due  to  ending 
of  war;  measure  of  depreciation  and  obsolescence  (7-19-291:  T.  B.  M.  39)..  1919 
Cum.  Bull.  p.  131. 

1833  Depreciation  of  Orchards. — Read  ^1209. 

1834  Depreciation  of  Intangible  Property. — Intangibles,  the  use  of  which 
in  the  trade  or  business  is  definitely  limited  in  duration,  may  be  the 

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2-27-22  (2)  4-10-22.  (8)  6-9-22.  (4)  6-16-22.  (6)  10-11-22. 

DEDUCTIONS— DEPRECIATION. 

6ubiect  of  a depreciation  allowance.  Examples  are  patents  and  copyrights, 
licenses,  and  franchises.  Intangibles,  the  use  of  which  in  the  business  or 
trade  is  not  so  limited,  will  not  usually  be  a proper  subject  of  such  an  allow- 
ance. If  however,  an  intangible  asset  acquired  through  capital  outlay  is 
known  from  experience  to  be  of  value  in  the  business  for  only  a limited  period, 
the  length  of  which  can  be  estimated  from  experience  with  reasonable  cer- 
tainty, such  intangible  asset  may  be  the  subject  of  a depreciation  allowance, 
provided  the  facts  are  fully  shown  in  the  return  or  prior  thereto  to  the  satis- 
faction of  the  Commissioner.  (Art.  163,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

“Capital  outlay”  includes  corporate  stock  (30-19-640:  O.  D.  344)..  1919  Cum.  Bull. 

Good  win8,' obsolescence  allowed  in  exceptional  cases  such  as  exhaustion  of  source  of 
supply:  ore  sampling  specifically  (17-20-884:  O.  D.  472).  .June  1920  Cum.  Bull. 

Good  wm,  trade  marks,  trade  brands;  obsolescence  of,  by  distillers  and  dealers  in 
liquor  due  to  prohibition  (15-19-445:  T.  B.  R.  44)..  1919  Cum.  Bull.  p.  133: 
brewers  (24-19-565:  O.  D.  298) . . 1919  Cum.  Bull.  p.  138:  continuing  in  a similar 
business  (8-21-1465:  O.  D.  818).. June  1921  Cum.  Bull.  p.  178:  wholesale  liquor 
(29-20-1076:  A.  R.  R.  185).  .Dec.  1920  Cum.  Bull,  p .156:  broker  ac^in8  as  nt 
for  wine  growers  and  selling  to  largest  wholesalers  only  (1-4-42:  A.  K.  K.  722J.  . 

March  T ml  v^ation^'how  determined  (10-20-777:  A.  R.  M.  34).  .June  1920  Cum. 
Bull’  p 31.  See  (28-20-1048:  A.  R.  M.  68).  .Dec.  1920  Cum.  Bull.  p.  43;  see 
further  (23-21-1669:  O.  D.  937).  .June  1921  Cum.  Bull.  p.  43. 

Patents  and  copyrights:  schedule  of  terms  to  run  in  various  countries  (45-20-1293. 
O.  D.  721)..  Dec.  1920  Cum.  Bull.  p.  169. 


1835  Depreciation  in  the  Value  of  Stocks,  Bonds  etc.  [Read  111802 
and  1[1818.]  [For  inventories  of  securities  by  dealers  therein,  read 
at  If  1 52 1 .1 — The  depreciation  referred  to  in  the  income  tax  law  does  not 
relate  to  evidence  of  a right  or  interest  in  property  and  hence,  any  shrink- 
age in  the  value  of  bonds,  stocks,  and  like  securities,,  due  to  fluctuations  in 
their  market  value,  is  not  deductible  in  a return  of  income  as  depreciation 
or  loss.  (T.  D.  2005,  July  8,  1914.) 

1 836  * * * depreciation,  applies  only  to  such  tangible  property  as  is 

subject  to  wear  and  tear,  exhaustion  and  obsolescence,. and  is  not  to 
be  construed  as  recognizing  any  gain  or  loss  due  to  fluctuations  in  the : mar  e 
value  or  arbitrary  changes  in  the  book  value  of  securities  and  like  assets 
the  gain  or  loss  with  respect  to  which  will  be  determined  only  when  such 
assets  mature  or  are  sold  or  disposed  of— that  is,  when  there  is  a completed, 
a closed  transaction.  (T.  D.  20/7,  Nov.  21,  1914.) 

1837  Bonds  and  securities  are  not  subject  to  wear  and  tear  within  the 
meaning  of  the  Federal  income  tax  law,  and  therefore  depreciation 
does  not  apply  to  any  shrinkage  in  'heir  value,  Shrinkage  in  the  value  o 
securities,  as  such,  does  not  constitute  a loss  actually  sustained  within  the 

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2-27-22.  (2)  6-19-22.  (3)  6-30-22.  (4)  8-10-22.  (6)  10-11-22. 

DEDUCTIONS— DEPRECIATION. 

year,  the  amount  of  which  is  definitely  ascertained.  Therefore,  under  the 
rules  of  this  office  and  consistent  with  the  provisions  of  the  law,  a shrinkage 
in  the  value  of  bonds  or  like  securities  does  not  constitute  an  allowable  de- 
duction from  gross  income  either  as  loss  or  depreciation. 

1838  Losses  of  this  character  are  only  ascertainable  when  the  securities 

1839  mature,  are  disposed  of,  or  cancelled.  (T.  D.  2152,  Feb.  12,  1915.) 

1 840  Capital  Sum  Recoverable  Through  Depreciation  Allowances. — The 
capital  sum  to  be  replaced  by  depreciation  allowances  is  the  original 
cost  of  the  property  in  respect  of  which  the  allowance  is  made,  except  that  in 
the  case  of  property  acquired  by  the  taxpayer  prior  to  March  1,  1913,  the 
capital  sum  to  be  replaced  is  the  fair  market  value  of  the  property  as  of  that 
date.  In  the  absence  of  proof  to  the  contrary,  it  will  be  assumed  that  such 
value  as  of  March  1,  1913,  is  the  cost  of  the  property  less  depreciation  up  to 
that  date.  To  this  sum  should  be  added  from  time  to  time  the  cost  of  im- 
provements, additions,  and  betterments,  the  cost  of  which  is  not  deducted 
as  an  expense  in  the  taxpayer’s  return,  and  from  it  should  be  deducted  from 
time  to  time  the  amount  of  any  definite  loss  or  damage  sustained  by  the  prop- 
erty through  casualty,  as  distinguished  from  the  gradual  exhaustion  of  its 
utility  which  is  the  basis  of  the  depreciation  allowance.  In  the  case  of  the 
acquisition  on  or  after  March  1,  1913,  of  a combination  of  depreciable  and 
non-depreciable  property  for  a lump  price,  as,  for  example,  land  and  buildings, 
the  capital  sum  to  be  replaced  is  limited  to  that  part  of  the  lump  price  which 
represents  the  value  of  the  depreciable  property  at  the  time  of  such  acquisition. 
Where  the  lessee  of  real  property  erects  buildings,  or  makes  permanent  im- 
provements which  become  part  of  the  realty  and  income  or  loss  has  been 
returned  by  the  lessor  as  a result  thereof,  as  provided  in  Article  48  1252], 

the  capital  sum  to  be  replaced  by  depreciation  allowances  is  held  to  be  the 
same  as  though  no  such  buildings  had  been  erected  or  such  improvements 
made.  (Art.  164,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Appraisals,  retrospective:  method  for  ascertaining  facts  on  which  based  (1-5-60: 
A.  R.  R.  747).  .June  1922  Cum.  Bull.  p.  353. 

Bequest,  capital  sum  recoverable  on  property  received  by;  also  question  of  life 
tenants  and  remaindermen:  1921  Act  (1-26-370:  I.  T.  1370).  .June  1922  Cum. 
Bull.  p.  172. 

Installation  and  freight  being  added  to  cost  of  machinery  are  to  be  depreciated  as 
part  of  such:  1921  Act  (1-20-275:  I.  T.  1309).  .June  1922  Cum.  Bull.  p.  196. 
Involuntary  conversion  of  property;  entire  proceeds  invested  in  new  building  depreci- 
* ation  of  which  should  be  on  basis  of  cost  of  old:  1921  Act  (1-32-449:  I.  T.  1413) 
. .Bull.  I (’22)-32,  p.  4. 

Leasehold  acquired  prior  to  March  1,  1913  annual  rental  being  only  consideration 
(45-20-1292:  O.  D.  720).. Dec.  1920  Cum.  Bull.  p.  145. 

Lessee’s  improvements  on  leased  property  (8-21-1474:  M.  2714).. June  1921  Cum. 
Bull.  p.  90. 

Reorganization:  corporation  liquidates,  4 principal  stockholders  form  partnership, 
refining  gasoline:  incidentally  automobiles  and  office  furniture  (34-20-1148:  0.  D. 
639).  .Dec.  1920  Cum.  Bull.  p.  170. 

Replacement  values  not  to  be  considered  (21-19-524:  O.  D.  283).. 1919  Cum.  Bui. 
p.  138. 

Ships  in  process  of  construction  under  contract  requisitioned,  completed,  then  re- 
purchased at  excess  over  contract  price  (12-21-1520:  0.  D.  851).. June  1921 
Cum.  Bull.  p.  179. 

1841  Method  of  Computing  Depreciation  Allowance. — The  capital  sum 
to  be  replaced  should  be  charged  off  over  the  useful  life  of  the  prop- 
erty either  in  equal  annual  installments  or  in  accordance  with  any  other 
recognized  trade  practice,  such  as  an  apportionment  of  the  capital  sum  over 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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2 -€7-22.  (2)  5-19-22.  (8)  6-30-22.  (4)  8-10-22.  (6)  10-11-22. 

DEDUCTIONS— DEPRECIATION. 

units  of  production.  Whatever  plan  or  method  of  apportionment  is  adopted 
must  be  reasonable  and  must  have  due  regard  to  operating  conditions  dur- 
ing the  taxable  period.  While  the  burden  of  proof  must  rest  upon  the  tax- 
payer to  sustain  the  deduction  taken  by  him,  such  deductions  must  not  be 
disallowed  unless  shown  by  clear  and  convincing  evidence  to  be  unreasonable. 
The  reasonableness  of  any  claim  for  depreciation  shall  be  determined  upon 
the  conditions  known  to  exist  at  the  end  of  the  period  for  which  the  return 
is  made.  (Art.  165,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Boilers  in  saw  mill;  available  timber  limited  (15-21-1562:  O.  D.  871).. June  1921 
Cum.  Bull.  p.  179. 

Delicate  machinery  used  for  purpose  other  than  that  intended  and  at  overload  (16-20- 
862:  A.  R.  R.  45).  .June  1920  Cum.  Bull.  p.  141. 

Improvements  made  or  depreciable  assets  abandoned  during  taxable  year  (1-2-18: 
I.  T.  1158).  .June  1922  Cum.  Bull.  p.  173. 

Ownership  of  profits  of  cash-receipts  basis  corporation  in  dispute:  lump  sum  payment 
(by  Government)  in  one  year  of  profits  of  several  years  (24-21-1687:  O.  D.  948). . 
June  1921  Cum.  Bull.  p.  180.  ... 

Property  revalued  in  1917  on  acquirement  by  corporation  through  reorganization  from 
principal  stockholders  such  property  having  been  formerly  used  by  corporation 
(9-21-1487:  A.  R.  R .390) . .June  1921  Cum.  Bull.  p.  371. 


1842  Rate  for  Computing. — No  definite  rate  has  been  fixed  by  which  an 
allowable  deduction  on  account  of  depreciation  in  the  value  of 

any  class  of  property  subject  to  wear  and  tear  is  to  be  computed,  but  it  is 
contemplated  that  this  allowance  shall  be  computed  upon  the  basis  of  the 
cost  of  the  property  and  the  probable  number  of  years  constituting  its  life. 
(Art.  162,  H485,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

1843  At  what  rates  may  depreciation  be  claimed  and  under  what  condi- 
tions? (Ans.)  As  the  rate  at  which  depreciation  may  be  claimed 

is  dependent,  in  a greater  or  less  extent,  upon  local  conditions,  the  use  to 
which  the  property  is  put,  and  its  probable  lifetime  under  normal  business 
conditions,  no  specific  rates  at  which  it  may  be  claimed  have  ever  been  estab- 
lished. The  Law  states  that  a “reasonable  allowance”  may  be  claimed  and  it 
is  for  the  taxpayer  to  determine  what  constitutes  a “reasonable  allowance. 
To  compute  the  amount  which  may  be  claimed,  a taxpayer  should  determine 
the  probable  lifetime  of  the  property,  then  divide  its  cost  to  him  by  the  number 
of  years  it  will  be  usable  in  a business  in  which  employed,  and  the  result  thus 
obtained  will  represent  the  amount  which  may  be  claimed  each  year  as  a 
deduction,  e.  g.,  a frame  building,  the  probable  lifetime  of  which,  without 
repair  or  replacement,  is  25  years,  cost  $5,000.  Divide  $5,000  by  25,  and 
claim  $200  each  year  as  depreciation.  > . 

1844  While  each  taxpayer  must  determine  the  probable  lifetime  of  his 
property  without  regard  to  the  following  figures,  it  has  been  esti- 
mated that  the  average  usable  lifetime  of  a frame  building  is  25  years,  a brick 
building  35  years,  a stone  building  or  steel  and  concrete  building,  50  to  100 
years.  The  estimated  lifcti  e of  ordinary  machinery  is  ten  years,  that  of 
automobiles  used  for  business  or  farm  purposes  and  farm  tractors,  four  to 
five  years.  (Question  80,  1918  Income  Tax  Primer.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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DEDUCTIONS— DEPRECIATION. 


1 845  The  appended  charge  of  the  court  to  the  jury  in  the  District  Court 
of  the  United  States  for  the  Southern  District  of  New  York,  in  the 
case  of  Hyman  Cohen  v.  John  Z.  Lowe,  collector,  is  published  for  the  infor- 
mation of  internal-revenue  officers  and  others  concerned.  (T.  D.  2343, 
June  14,  1916.) 

1 846  The  plaintiff  was  allowed  3 per  cent  for  depreciation  on  an  apartment 
house  owned  by  him.  The  burden  is  on  him  to  show  that  the  depre- 
ciation so  allowed  was  too  small.  This  allowance  is  for  the  wear  and  tear 
suffered  by  the  building  during  the  tax  year,  which  means  the  physical  de- 
terioration that  the  building  suffered  during  that  period.  It  does  not  take 
into  account  depreciation  in  value  due  to  a loss  in  rental  value,  because  of 
the  construction  of  more  modern  buildings  with  improved  facilities  or  due 
to  a change  in  the  neighborhood.  It  is  to  be  based  upon  the  life  of  the 
building  in  the  sense  of  the  number  of  years  the  building  would  remain  in 
a condition  to  be  habitable  for  the  use  for  which  it  was  constructed  and  used; 
and  which  was  in  the  instant  case  for  an  apartment  house,  and  not  merely 
the  number  of  years  it  would  stand  without  being  condemned  and  torn  down. 
The  annual  depreciation  would  be  an  amount  represented  by  a fraction 
having  one  (tax  year)  for  the  numerator  and  the  number  of  years,  representing 
the  ascertained  life  of  the  building,  as  the  denominator.  This  assumes  that 
there  would  be  an  average  deterioration  suffered  each  year  during  the  life 
of  the  building,  and  that  the  plaintiff  would  keep  the  building  in  good  repair 
during  the  life  of  it.  This  the  law  exacts  of  him.  Upon  these  assumptions, 
and  giving  this  meaning  to  the  words  of  the  statute,  “a  reasonable  allowance 
for  the  exhaustion,  wear  and  tear  of  the  property,  arising  out  of  its  use  or 
employment  in  the  business,”  the  amount  of  the  deduction  allowed  by  the 
Government  to  the  plaintiff  on  this  account  is  deemed  to  be  reasonable. 
(234  Fed.  474.)  (Summary  of  charge  to  jury  appended  to  and  made  a part 
of  T.  D.  2343,  June  14,  1916.) 

1847  Depreciation  Allowance  When  Plant  is  Regularly  Operated  in  Two 
Shifts  or  Continuously. — Reference  is  made  to  your  letter  of  the  first 
instant  in  which  you  state  that  the  shipbuilding  corporation  and  other  indus- 
trial concerns  have  been  engaged  in  a discussion  as  to  whether  or  not  this 
Department  will,  in  connection  with  the  income  and  excess-profits  taxes, 
allow  as  a deduction  depreciation  at  higher  than  normal  rates  in  cases  where 
two  shifts  are  being  worked,  and  the  plant,  machinery  and  equipment  are 
operated  sixteen  or  twenty-four  hours  a day  in  place  of  the  usual  eight  or  nine 
hours.  Tfln  reply  you  are  informed  that  it  is  obvious  that  in  a case  where 
machinery  and  equipment  are  operated  more  than  the  usual  number  of  work- 
ing hours,  a greater  rate  of  depreciation  would  be  applicable  in  determining 
the  actual  loss  sustained  by  a corporation  due  to  depreciation  than  would.be 
the  case  in  the  event  that  the  machinery  was  only  operated  eight  or  nine 
hours  as  the  normal  time.  ^Therefore  you  are  informed  that  a greater  rate 
of  depreciation  will  be  allowed  in  the  case  you  mentioned  but  no  definite 
rulings  relative  thereto  can  be  given  except  in  record  cases  which  are  presented 
to  this  office  for  consideration  in  connection  with  a full  statement  of  facts 
and  figures  relative  thereto.  (Letter  to  E.  G.  Shorrock  & Co.,  Seattle,  Wash., 
signed  by  Deputy  Commissioner  L.  F.  Speer,  and  dated  July  12,  1918.) 

184  8 Modification  of  Method  of  Computing  Depreciation. — If  it  develops 
that  an  error  was  made  in  estimating  the  useful  life  of  the  property,  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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2-27-22. 


DEDUCTIONS— DEPRECIATION. 


plan  of  computing  depreciation  should  be  modified  and  the  balance  of  the 
cost  of  the  property,  or  its  fair  market  value  as  of  March  1,  1913,  not  already 
provided  for  through  a depreciation  reserve  or  deducted  from  book  value, 
should  be  spread  over  the  estimated  remaining  life  of  the  property.  Inasmuch 
as  under  the  provisions  of  the  income  tax  Acts  in  effect  prior  to  the  Revenue 
Act  of  1918  deductions  for  obsolescence  of  property  were  not  allowed  except 
as  a loss  for  the  year  in  which  the  property  was  sold  or  permanently  abandoned, 
a taxpayer  may  for  1918  and  subsequent  years  revise  the  estimate  of  the 
useful  life  of  any  property  so  as  to  allow  for  such  future  (not  past)  obsolescence 
as  may  be  expected  from  experience  to  result  from  the  normal  progress  of  the 
art.  No  modification  of  the  method  should  be  made  on  account  of  changes 
in  the  market  value  of  the  property  from  time  to  time,  such  as,  on  the  one 
hand,  loss  in  rental  value  of  the  buildings  due  to  deterioration  of  the  neighbor- 
hood, or,  on  the  other,  appreciation  due  to  increased  demand.  The  conditions 
affecting  such  market  values  should  be  taken  into  consideration  only  so  far 
as  they  affect  the  estimated  useful  life  of  the  property.  (Art.  166,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Ship  building  plant  greatly  enlarged  or  war  recently  sold  at  loss;  proper  amortization 
of  war  facilities  duly  taken:  obsolescence  (i.  e.,  for  prior  tax  year)  not  substan- 
tiated and  not  allowed  (51-20-1353:  O.  D.  753).. Dec.  1920  Cum.  Bull.  p.  171. 


1849  Depreciation  of  Patent  or  Copyright. — In  computing  a depreciation 
allowance  in  the  case  of  a patent  or  copyright,  the  capital  sum  to 
be  replaced  is  the  cost  (not  already  deducted  as  current  expense)  of  the  patent 
or  copyright  or  its  fair  market  vaiie  as  of  March  1,  1913,  if  acquired  prior 
thereto.  The  allowance  should  be  computed  by  an  apportionment  of  the 
cost  of  the  patent  or  copyright  or  of  its  fair  market  value  as  of  March  1, 
1913,  over  the  life  of  the  patent  or  copyright  since  its  grant,  or  since  its 
acquisition  by  the  taxpayer,  or  since  March  1,  1913,  as  the  case  may  be. 
If  the  patent  or  copyright  was  acquired  from  the  Government,  its  cost 
consists  of  the  various  Government  fees,  cost  of  drawings,  experimental 
models,  attorney’s  fees,  etc.,  actually  paid.  If  a corporation  purchased 
a patent  and  paid  for  it  in  stock  or  securities,  its  cost  is  the  fair  market 
value  of  the  stock  or  securities  at  the  time  of  the  purchase.  Depreciation 
of  a patent  can  be  taken  on  the  basis  of  the  fair  market  value  as  of  March 
1,  1913,  only  when  affirmative  and  satisfactory  evidence  of  such  value  is 
offered.  Such  evidence  should  whenever  practicable  be  submitted  with 
the  return.  If  the  patent  becomes  obsolete  prior  to  its  expiration  such 
proportion  of  the  amount  on  which  its  depreciation  may  be  based  as  the 
number  of  years  of  its  remaining  life  bears  to  the  whole  number  of  years 
intervening  between  the  date  when  it  was  acquired  and  the  date  when  it 
legally  expires  may  be  deducted,  if  permission  so  to  do  is  specifically  se- 
cured from  the  Commissioner.  Owing  to  the  difficulty  of  allocating  to  a 
particular  year  the  obsolescence  of  a patent,  such  permission  will  be  granted 
only  if  affirmative  and  satisfactory  evidence  that  the  obsolescence  occurred 
in  the  year  for  which  the  return  is  made  is  submitted  to  the  Commissioner. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
410 


2-27-22.  (2)  4-10-22.  (3)  7-27-22  £(4);9-l-22. 

DEDUCTIONS— DEPRECIATION. 

The  fact  that  depreciation  has  not  been  taken  in  prior  years  does  not  entitle 
the  taxpayer  to  deduct  in  any  taxable  year  a greater  amount  for  depreciation 
than  would  otherwise  be  allowable.  See  articles  40  [for  sale  of  patents  and 
copyrights,  1 235]  and  843  [for  valuing  patents  for  purposes  of  invested 
capital. — War  Tax  Service].  (Art.  167,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Acquired  prior  to  March  1,  1913  (1917  Act)  (20-19-506:  T.  B.  R.  59)..  1919  Cum. 
Bull.  p.  138. 

Same:  effort  to  take  depreciation  in  1917,  none  having  previously  been  taken  and 
life  of  patent  having  expired  (47-20-13 12:  A.  R.  M.  95).. Dec.  1920  Cum. 
Bull.  p.  172. 

Same:  owner’s  method  to  establish  value  of  copyright  on  March  1,  1913  disallowed: 
general  discussion  on  copyright  depreciation,  cost,  etc.  (27-21-1721:  O.  D.  966) 
. .Dec.  1921  Cum.  Bull.  p.  155. 

* Same:  Valuation  of  patents  as  of  March  1,  1913,  based  on  gross  earnings  of 

subsequent  years,  disallowed:  1916  and  1918  Acts  (1-35-482:  A.  R.  R.  1086) 
. .Bull.  I (’22)-35,  p.  5. 

Assigned  for  40%  of  future  profits;  allowance  to  assignor  (10-20-779:  A.  R.  M.  35).  . 
June  1920  Cum.  Bull.  p.  142. 

Litigation  expenses  defending  right,  title  and  interest:  no  effect  on  capital  sum  recover- 
able through  depreciation  (20-20-934:  A.  R.  R.  98).  .June  1920  Cum.  Bull.  p.  105. 

* Property  right  not  created  and  non-existant  until  letters  patent  issue  (1916  and  1918 

Acts  (1-35-482:  A.  R.  R.  1086).  .Bull.  I (’22):35,  p.  5. 

Rights:  extension  acquired  gratis  (44-21-1893:  A.  R.  R.  520).. Dec.  1921  Cum.  Bull, 
p.  156. 

Term  to  run:  patents  and  copyrights  in  various  countries  (45-20-1293:  0.  D.  721).  . 
Dec.  1920  Cum.  Bull.  p.  169. 


1 850  Depreciation  of  Drawings  and  Models. — A taxpayer  who  has  in- 
curred expenses  in  his  business  for  designs,  drawings,  patterns, 
models,  or  work  of  an  experimental  nature  calculated  to  result  in  improve- 
ment of  his  facilities  or  his  product,  may  at  his  option  deduct  such  expenses 
from  gross  income  for  the  taxable  year  in  which  they  are  incurred  or  treat 
such  articles  as  a capital  asset  to  the  extent  of  the  amount  so  expended.  In 
the  latter  case,  if  the  period  of  usefulness  of  any  such  asset  may  be  esti- 
mated from  experience  with  reasonable  accuracy,  it  may  be  the  subject  of 
depreciation  allowances  spread  over  such  estimated  period  of  usefulness. 
The  facts  must  be  fully  shown  in  the  return  or  prior  thereto  to  the  satis- 
faction of  the  Commissioner.  Except  for  such  depreciation  allowances  no 
deduction  shall  be  made  by  the  taxpayer  against  any  sum  so  set  up  as  an 
asset  except  on  the  sale  or  other  disposition  of  such  assets  at  a loss  or  on 
proof  of  a total  loss  thereof.  (Art.  168,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Appraisal  in  1920  as  of  1913  of  tracings,  etc.,  use  being  resumed  after  several  years 
idleness  (40-20-1223 : A.  R.  R.  272).  .Dec.  1920  Cum.  Bull.  p.  173. 


1851  Charging  off  Depreciation. — A depreciation  allowance,  in  order  to 
constitute  an  allowable  deduction  from  gross  income,  must  be 
charged  off.  The  particular  manner  in  which  it  shall  be  charged  off  is  not 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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3-27-22.  (2)  4-10-22.  (3)  7-27-22.  (4)  9-1-22. 

DEDUCTIONS— DEPRECIATION. 

material,  except  that  the  amount  measuring  a reasonable  allowance  for  de- 
preciation must  be  either  deducted  directly  from  the  book  value  of  the  as- 
sets or  preferably  credited  to  a depreciation  reserve  account,  which  must  be 
reflected  in  the  annual  balance  sheet.  The  allowances  should  be  computed 
and  charged  off  with  express  reference  to  specific  items,  units  or  groups  of 
property,  each  item  or  unit  being  considered  separately  or  specifically  in- 
cluded in  a group  with  others  to  which  the  same  factors  apply.  The  tax- 
payer should  keep  such  records  as  to  each  item  or  unit  of  depreciable  property 
as  will  permit  the  ready  verification  of  the  factors  used  in  computing  the 
allowance  for  each  year  for  each  item,  unit,  or  group.  (Art.  169,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Banks;  supplemental  books  for  charging  off  depreciation:  1917,  1918,  and  1921  Acts 
(1-30-424:  A.  R.  M.  172).  .Bull.  I (’22)-30,  p.  4.  See  A.  R.  R.  377,  June  1921, 
Cum.  Bull.  p.  64. 

Dividends  leave  insufficient  current  earnings  and  surplus  against  which  to  charge 
depreciation;  depreciation  deductible  nevertheless  (10-2 1-1497 : A.  R.  M.  112).. 
June  1921  Cum.  Bull.  p.  180. 


1 852  In  view  of  the  fact  that  it  has  been  the  practice  of  examining  offi- 
cers to  disallow  a deduction  for  depreciation  or  depletion  if  not 
charged  off  on  the  books  of  the  corporation  at  the  time  of  the  investigation, 
it  is  deemed  necessary  to  clarify  the  interpretation  of  this  provision  of  the  law. 
1 853  A corporation  is  not  entitled  to  a deduction  from  the  amount  of  its 
gross  income  of  any  amount  for  depreciation,  depletion,  or  other  loss 
sustained  within  the  taxable  year  unless  the  amount  of  such  depreciation, 
depletion,  or  other  loss  is  charged  off  on  the  books  of  the  corporation  before 
such  deduction  is  allowed.  The  purpose  of  this  requirement  that  deprecia- 
tion, depletion,  and  other  losses  be  charged  off  on  the  books  of  the  corpora- 
tion before  allowance  is  to  insure  that  the  returns  of  such  corporation  are 
in  accord  with  its  books  of  account,  and  that  thereby  error  and  fraud  with 
respect  to  the  facts  are  prevented.  The  statute  is  not,  however,  to  be  con- 
strued as  requiring  that  depreciation,  depletion,  and  other  losses  be  charged 
off  within  the  taxable  year.  It  is  sufficient  that  they  are  charged  off  before 
they  are  allowed  as  deductions.  Consequently  at  the  time  of  an  examina- 
tion of  a corporation  it  should  be  given  an  opportunity  to  reopen  its  books 
and  charge  off  depreciation,  depletion  and  other  losses  which  it  actually 
sustained  during  the  taxable  year. 

1 854  The  depreciation,  depletion,  and  other  losses  must  be  charged  off  in 
the  manner  prescribed  by  the  regulations.  If  the  books  of  the  cor- 
poration are  reopened  for  the  purpose  of  charging  off  depreciation,  deple- 
tion, or  other  losses,  corresponding  corrections  must  be  made  in  the  other 
book  entries;  and  if  for  any  reason  the  facts  do  not  warrant  such  other 
changes,  depreciation,  depletion,  and  other  losses  can  not  be  charged  off, 
and,  therefore,  can  not  be  allowed  as  deductions.  Thus,  for  example,  if  by 
reason  of  a distribution  of  earnings  there  is  nothing  from  which  to  credit  a 
reserve  for  depreciation  no  allowance  for  depreciation  can  be  credited  to  a 
depreciation  reserve  account.  [See  1 126.] 

1855  Whenever,  therefore,  a corporation  has  clearly  suffered  allowable 
depreciation,  depletion,  or  other  loss  which  has  not  been  charged  off 

on  its  books,  and  on  reopening  its  books  at  the  time  of  an  examination  charges 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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DEDUCTIONS— AMORTIZATION. 


off  such  depreciation,  depletion,  or  other  loss  by  proper  entries,  it  is  entitled 
to  the  benefit  of  the  deduction  of  such  depreciation,  depletion  or  other  loss 
subject  to  the  general  provisions  of  law. 

1856  The  instructions  contained  herein  revoke  the  last  paragraph  of  C.  T. 

R.  A.  Mim.  48,  dated  March  27,  1917. 

1 857  You  will  please  acknowledge  the  receipt  of  this  letter.  (Letter  to 
Internal  Revenue  Agents,  signed  by  Commissioner  Daniel  C.  Roper, 
and  dated  June  25,  1918.) 

1858  Dividend  Distributions  from  Depreciation  Reserves. — Read  at 

IF  1 126. 

1 859  Closing  Depreciation  Account. — If  the  use  of  any  property  in  the 
business  is  permanently  discontinued,  although  no  sale  or  other  dis- 
position of  the  property  has  taken  place,  a determination  of  any  gain  or  loss 
may  be  made;  but  any  deduction  in  respect  of  any  loss  thereon  must  be 
disclosed  in  the  taxpayer’s  return  for  the  year  in  which  the  determination 
is  made  and  a full  statement  of  the  facts  and  the  basis  upon  which  the  com- 
putation is  calculated  must  be  attached  to  the  return.  Upon  a sale  or  other 
disposition  of  the  property  the  consideration  received  shall  be  compared 
with  the  amount  of  the  estimated  salvage  value  used  in  computing  the  gain 
or  loss  as  above  provided,  and  the  amount  of  the  difference  shall  be  treated 
as  a gain  or  loss,  as  the  case  may  be,  of  the  year  in  which  the  sale  or  other 
disposition  was  made.  See  articles  141-146  [for  deductions  for  losses,  begin- 
ing  at  1[1783].  (Art.  170,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Equipment  retired  from  use  (Act  of  1913)  (30-19-639:  S.  1217).. 1919  Cum.  Bull. 

p.  120. 

Insufficient  obsolescence  claimed  as  proved  by  subsequent  sale  at  loss  which  loss  was 
thus  correspondingly  reduced;  liquor  business  (19-20-919:  A.  R.  R.  93).. June 
1920  Cum.  Bull.  p.  142. 


1860  Law  If  168.  A Reasonable  Amount  for  the  Amortization  of  Cer- 
(Sec.  214.)  tain  Assets  (Special — Due  to  the  War)  is  Deduct- 
ible.— “(9)  In  the  case  of  buildings,  machinery, 
equipment , or  other  facilities,  constructed,  erected,  installed,  or  acquired , on 
or  after  April  6,  1917,  for  the  production  of  articles  contributing  to  the 
prosecution  of  the  war  against  the  German  Government,  and  in  the  case  of 
vessels  constructed  or  acquired  on  or  after  such  date  for  the  transportation 
of  articles  or  men  contributing  to  the  prosecution  of  such  war,  there  shall 
be  allowed,  for  any  taxable  year  ending  before  March  3,  1924  (if  claim  there- 
for was  made  at  the  time  of  filing  return  for  the  taxable  year  1918,  1919, 
1920,  or  1921)  a reasonable  deduction  for  the  amortization  of  such  part 
of  the  cost  of  such  facilities  or  vessels  as  has  been  borne  by  the  taxpayer, 
but  not  again  including  any  amount  otherwise  allowed  under  this  title  or 
previous  Acts  of  Congress  as  a deduction  in  computing  net  income .” 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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2-27-22. 


DEDUCTIONS— AMORTIZATION. 


1 861  Law  H412.  [Corporations.]  “(8)  In  the  case  of  buildings , machin- 
(Sec.  234.)  ery,  equipment , or  other  facilities , constructed , erected, 
installed,  or  acquired,  on  or  after  April  6,  1917,  /or  fA* 
production  of  articles  contributing  to  the  prosecution  of  the  war  against  the 
German  Government,  and  in  the  case  of  vessels  constructed  or  acquired  on  or 
after  such  date  for  the  transportation  of  articles  or  men  contributing  to  the 
prosecution  of  such  war,  there  shall  be  allowed,  for  any  taxable  year  ending 
before  March  3,  1924  (if  claim  therefor  was  made  at  the  time  of  filing  return 
for  the  taxable  year  1918,  1919,  1920,  or  1921)  a reasonable  deduction  for 
the  amortization  of  such  part  of  the  cost  of  such  facilities  or  vessels  as  has 
been  borne  by  the  taxpayer,  but  not  again  including  any  amount  otherwise 
allowed  under  this  title  or  previous  Acts  of  Congress  as  a deduction  in  com- 
puting net  income .” — Law.  [Note:  The  1918  Act  did  not  carry 

“(if  claim  therefor  was  made  at  the 
time  of  filing  return  for  the  taxable 
year  1918,  1919,  1920,  or  1921)”.] 

1862  Law  ][  169.  A Redetermination  of  the  Amortization  Deduction 

(Sec.  214.)  May  be  Effected. — “At  any  time  before  March  3,  1924, 
the  Commissioner  may,  and  at  the  request  of  the  tax- 
payer shall,  reexamine  the  return,  and  if  he  then  finds  as  a result  of  an 
appraisal  or  from  other  evidence  that  the  deduction  originally  allowed  was 
incorrect,  the  income , war-profits,  and  excess-profits  taxes  for  the  year 
or  years  affected  shall  be  redetermined;  and  the  amount  of  tax  due  upon 
such  redetermination , if  any,  shall  be  paid  upon  notice  and  demand  by  the 
collector,  or  the  amount  of  tax  overpaid,  if  any,  shall  be  credited  or  refunded 
to  the  taxpayer  in  accordance  with  the  provisions  of  section  252  [^[2825];” 

1863  Law  ^413.  [Corporations.]  “At  any  time  before  March  3,  1924, 
(Sec.  234.)  the  Commissioner  may,  and  at  the  request  of  the  taxpayer 

shall,  re-examine  the  return,  and  if  he  then  finds  as  a result 
of  an  appraisal  or  from  other  evidence  that  the  deduction  originally  allowed 
was  incorrect,  the  income,  war-profits,  and  excess-profits  taxes  for  the  year 
or  years  affected  shall  be  redetermined  and  the  amount  of  tax  due  upon  such  re- 
determination, if  any,  shall  be  paid  upon  notice  and  demand  by  the  collector, 
or  the  amount  of  tax  overpaid,  if  any,  shall  be  credited  or  refunded  to  the 
taxpayer  in  accordance  with  the  provisions  of  section  252  H[2825];” — Law. 

[Note:  The  1918  Act  so  provided,  March 
3,  1924  being  “three  years  after  the 
termination  of  the  present  war,”  i.  e., 
three  years  after  March  3,  1921. 

1 864  Scope  of  Provision  for  Amortization. — An  allowance  for  amortization 
may  be  deducted  only  in  returns  filed  for  taxable  years  ending  on  or 
before  February  29,  1924.  Such  allowance  with  respect  to  any  period  of 
time  subsequent  to  December  31,  1920,  may  be  deducted  only  if  a claim  for 
amortization  (unmistakably  diffentiated  from  all  other  claims  for  wear,  tear, 
obsolescence,  and  loss)  was  made  at  the  time  of  filing  the  return  for  the 
taxable  year  1918,  1919,  1920  or  1921. 

1 865  All  allowances  made  to  a taxpayer  by  a contracting  department  of 
the  Government,  or  by  any  other  contractor,  for  amortization 
specifically  as  such,  shall  be  treated  as  a reduction  of  the  cost  of  the  tax- 
payer’s plant  investment.  Further  amortization  is  allowable  only  in  respect 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

414 


(8)  8-8-22.  (9)  10-4-22.  (10)  10-11-22. 

D ED  UCTIONS — AMORTIZATION. 


of  such  reduced  cost.  Where  no  such  allowance  has  been  made  the  amount 
of  amortization  to  be  allowed  as  a deduction  from  gross  income,  for  the 
purpose  of  the  tax,  shall  be  computed  in  accordance  with  the  provisions  of 
articles  181  to  189,  pursuant  to  which  the  deduction  must  be  made,  and  not 
upon  the  basis  of  any  amount  contractually  or  otherwise  determined.  (Art. 
181,  Reg.  62,  1922  Edition.) 

hor  explanation  of  Cumulative  Index  references  see  page  gi. 

Government  contract:  income  being  partially  from  (26-19-597:  A.  R.  M.  1) . . 19 19 
Cum.  Bull.  p.  269. 

“If  claim  therefor  was  made  at  the  time  of  filing  return  for  the  taxable  year  1918, 
1919,  1920,  or  1921”  is  condition  precedent  to  claiming  deduction  in  a return 
under  the  1921  Act  only;  amended  and  supplemental  returns;  refund  claims 
under  1918  Act;  general  discussion:  1918  and  1921  Acts  f T -20-27 3 : Sol.  Op.  138) 
. .June  1922  Cum.  Bull.  p.  174.  Same  (refund  now  under  1918  Act  though  on 
claim  heretofore  filed)  (1-28-402:  I.  T.  1389).  .Bull.  I (’22)-28,  p.  3. 

Munition  manufacturers’  tax:  effect  of  amortization  for  that  tax  on  invested  capital 
(15-19-452:  T.  B.  M.  56).  . 1919  Cum.  Bull.  p.  291. 

Supplemental  return  of  May  15,  1922;  1921  Act  (1-22-316:  I.  T.  1329).  .June  1922 
Cum.  Bull.  p.  178. 


1 866  Depreciation  of  Amortized  Property. — The  allowance  for  amorti- 
zation shall  be  inclusive  of  all  depieciation  during  the  amortization 
period  on  property  subject  to  amortization.  See  Article  186  [^[  1 876].  Depre- 
ciation will  be  allowed,  beginning  at  the  close  of  the  amortization  period, 
upon  property  the  cost  of  which  has  been  partly  amortized  but  shall  be 
limited  to  the  value  of  such  property  after  the  amortization  allowance  has 
been  deducted.  Property  which  has  been  amortized  to  its  scrap  value  shall 
not  further  be  subject  to  depreciation.  (Art.  182,  Reg.  62,  1922  Edition.) 

1 867  Property  Cost  of  Which  May  be  Amortized. — The  taxpayer  may 
deduct  from  gr^os  income  a reasonable  allowance  for  amortization 
of  the  cost  of  buildings,  machinery,  equipment  or  other  facilities,  constructed 
erected,  installed,  or  acquired  on  or  after  April  6,  1917,  for  the  production 
of  articles  contributing  to  the  prosecution  of  the  war  against  the  German 
Government  and  of  vessels  constructed  or  acquired  on  or  after  such  date  for 
the  transportation  of  articles  or  men  contributing  to  the  prosecution  of  such 
war. 

1 868  The  allowance  may  be  deducted  only  by  taxpayers  who  after  April 
6,  1917,  have  constructed  or  otherwise  acquired  plant  or  other  facil- 
ities for  the  actual  production  of  articles  contributing  to  the  prosecution  of 
the  war.  It  is  not  sufficient,  to  entitle  the  taxpayer  to  the  allowance,  that 
the  nature  of  his  business  is  such  as  to  contribute  to  the  production  of  arti- 
cles. For  example,  a taxpayer,  such  as  a railroad,  whose  business  activities 
are  confined  to  transportation  (other  than  water  transportation)  is  not 
entitled  to  the  allowance.  A taxpayer,  the  nature  of  whose  business  is  the 
actual  production  of  articles,  however,  may  claim  the  allowance  with  respect 
to  the  cost  of  all  buildings,  machinery,  equipment  or  other  facilities^which 
were  constructed  for  use  or  which  were  used  in  connection  with  the  produc- 
tion of  such  articles,  both  in  the  acquisition  and  transportation  of  raw  mate- 
rial, the  actual  process  of  manufacture  or  other  conversion,  and  the  trans- 
portation and  marketing  of  the  finished  product. 

1 869  In  the  case  of  facilities  the  construction,  erection,  installation,  or 
acquisition  of  which  was  commenced  before  April  6,  1917,  and  com- 
pleted subsequent  to  that  date,  amortization  will  be  allowed  with  respect 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
415' 


(8)  8-3-22.  (9)  10-4-22.  (10)  10-11-22. 

DEDUCTIONS— AMORTIZATION. 

only  to  that  part  of  the  cost  incurred  on  or  after  April  6,  1917,  and  which 
was  (or  should  have  been)  properly  entered  on  the  books  of  the  taxpayer  on 
or  after  that  date.  (Art.  183,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Coal  vein  acquired  by  taxpayer  in  order  to  furnish  fuel  to  its  customers  who  were 
producing  war  articles;  amortization  not  permitted:  1918  and  1921  Act6  (1-40- 
536:  1.  T.  1460).  .Bull.  I (’22)-40,  p.  15. 

Facilities  constructed  on  leased  ground  which  revert  to  lessor;  amortization  per- 
mitted to  lessee:  1918  Act  (1-31-437:  A.  R.  R.  1009).  .Bull.  1 (’22) — 31,  p.  5. 
Parent  corporation,  through  stock  control,  not  entitled  to  deduction  on  account  of 
subsidiaries’  assets:  1918  and  1921  Acts  (1-25-359:  I.  T.  1367).  .June  1922  Cum. 
Bull.  p.  274. 

Railroads:  additional  facilities  constructed  or  purchased  do  not  fall  within  the  statutory 
provision  (45-21-1909:  L.  O.  i074)..Dec.  1921  Cum.  Bull.  p.  159. 

Sugar  production  and  manufacture  contributed  to  prosecution  of  the  war  (16-19-464: 
0 D 259).  .1919  Cum.  Bull.  p.  221. 

1 870  Computation  of  Amortization  Allowance. — The  total  amount  of  the 
amortization  allowance  is  the  difference  between  the  original  cost  of  the 
property  if  constructed,  erected,  installed,  or  acquired  on  or  alter  April  6, 
1917;  or  if  acquired  partly  before  and  partly  after  Aprl  6,  1917,  then  that  part 
of  the  cost  incurred  on  or  after  April  6,  1917,  and  properly  entered  on  the  books 
of  the  taxpayer  on  or  after  that  date,  less  any  amounts  deducted  lor  depre- 
ciation, losses,  etc.,  prior  to  January  1,  1918,  and  the  value  of  the  property 
on  either  of  the  bases  indicated  below: 

1871  (1.)  In  the  case  of  property  which  has  been  sold  or  permanently  dis- 
carded, or  which  will  be  sold  or  permanently  discarded  before 

March  3, 1924,  the  value  shall  be  the  actual  sale  price  or  estimated  fair  market 
value  as  of  the  date  when  the  property  was  or  will  be  permanently  discarded 
plus  a reasonable  allowance  for  depreciation  in  case  the  property  is  used  in 
the  taxpayer’s  business  after  the  close  of  the  amortization  period.  Such  fair 
market  value  shall  be  established  by  investigation  of  engineers  of  the  Bureau 
of  Internal  Revenue,  if  such  investigation  is  deemed  advisable. 

1872  (2.)  In  the  case  of  oroperty  not  included  in  (I)  above,  the  value 
shall  be  the  estimated  value  to  the  taxpayer  in  terms  of  its  actual 

use  or  employment  in  his  going  business,  such  value  to  be  not  less  than  the 
sale  or  salvage  value  of  the  property  and  not  greater  than  the  estimated 
cost  of  replacement  under  normal  postwar  conditions  less  depreciation  and 
depletion.  Upon  the  basis  of  the  costs  prevailing  at  the  latest  prewar  date 
at  which  a reasonably  normal  market  existed,  the  commissioner  shall  in 
respect  of  basic  material  and  labor  costs  determine  and  publish  ratios  of 
estimated  postwar  costs  of  replacement,  and  a taxpayer  shall  use  such  ratios 
in  computing  a claim  for  a tentative  allowance  for  amortization.  Such  ten- 
tative allowance  may  be  redetermined  on  or  before  March  3,  1924,  at  the 
request  of  the  taxpayer  or  by  the  Commissioner. 

1873  Special  record  of  all  property  falling  in  (1)  above,  must  be  preserved 
by  the  taxpayer,  and  the  Commissioner  must  be  notified  with  the 

next  tax  return  (a)  if,  after  having  been  in  good  faith  permanently  discarded 
or  dismantled,  property  shall  in  any  case  be  restored  to  use  because  of  con- 
ditions not  foreseen  or  anticipated  at  the  time  it  was  discarded;  or  (b)  of  the 
selling  price,  if  sold.  (Art.  184,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Penalty  and  interest:  excessive  claim  (3-20-692:  A R.  M.  24).  .June  1920  Cum.  Bull, 
p.  231. 

Ratios  of  estimated  post-war  cost  of  replacement.  . 113144.  Same  reproduced  as 
(1-20-274:  I.  T.  1308).  .June  1922  Cum.  Bull.  p.  178. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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DEDUCTIONS— AMORTIZATION. 


1874  Amortization  Period. — The  amortization  allqwance  shall  be  appor- 
tioned (a)  in  cases  where  the  property  was  employed  in  the  production 
of  articles  contributing  to  the  prosecution  of  the  war,  over  the  respective 
accounting  periods  of  the  taxpayer,  having  reasonable  regard  to  his  gross  and 
net  income,  and  where  separately  ascertainable  the  income  from  the  facilities 
upon  which  amortization  is  claimed,  between  January  1,  1918  (or  if  the  prop- 
erty was  acquired  subsequent  to  that  date,  January  1 of  the  year  in  which 
acquired),  and  the  actual  or  estimated  date  of  cessation  of  operations  as  a 
war  facility,  and  (b)  in  cases  where  the  property  was  not  completed  in  time 
for  use  in  the  production  of  articles  contributing  to  the  prosecution  of  the 
war,  on  the  basis  of  the  expenditures  made  on  account  of  which  amortization 
is  allowed. 

1 87S  All  taxpayers  claiming  an  allowance  for  amortization  shall  compute 
the  amount  of  their  claims  applicable  to  each  accounting  period 
between  January  1,  1918,  to  the  date  specified  above.  Taxpayers  reporting 
on  the  fiscal  year  basis  shall  (a)  in  all  computations  based  upon  1918  rates 
for  years  ending  in  1918  and  1919,  use  the  amount  of  such  allowance  appor- 
tioned to  the  calendar  year  1918;  (b)  in  all  computations  based  upon  1919 
rates  for  a year  beginning  in  1918  and  ending  in  1919,  use  the  amount  of  such 
allowance  apportioned  to  the  calendar  year  1919;  (c)  in  all  computations  for  a 
year  beginning  in  1919  and  ending  in  1920,  use  the  number  of  twelfths  of  the 
allowance  apportioned  to  each  calendar  year  falling  within  such  fiscal  year 
that  there  are  months  of  such  calendar  year  falling  within  such  fiscal  year; 
(d)  in  all  computations  based  upon  1920  rates  for  a year  beginning  in  1920  and 
ending  in  1921,  use  the  amount  of  such  allowance  apportioned  to  the  calendar 
year  1920;  (e)  in  all  computations  based  upon  1921  rates  for  years  ending  in 
1921  or  1922,  use  the  amount  of  such  allowance  apportioned  to  the  calendar 
year  1921;  (f)  in  all  computations  based  upon  1922  rates  for  a year  beginning 
in  1921  and  ending  in  1922,  use  the  amount  of  such  allowance  apportioned  to 
the  calendar  year  1922;  (g)  and  in  all  computations  for  subsequent  fiscal  years, 
use  the  number  of  twelfths  of  the  allowance  apportioned  to  each  calendar 
year  falling  within  such  fiscal  year  that  there  are  months  in  such  calendar 
year  falling  within  such  fiscal  year.  (Art.  185,  Reg.  62,  1922  Edition.) 


187  6 Additional  Requirements  for  Amortization. — Claims  for  amortiza- 
tion must  be  unmistakably  differentiated  in  the  return  irom  all 
other  claims  for  wear,  tear,  obsolescence,  and  loss.  If  Government  or  other 
contracts  taken  by  the  taxpayer  contained  recognition  of  amortization  as  an 
element  in  the  cost  of  production,  copies  of  such  contracts  shall  be  filed 
with  the  taxpayer’s  return,  together  with  a statement  and  description  of  any 
sums  received  on  account  of  amortization  and  the  basis  upon  which  they 
were  determined.  In  any  case  in  which  an  allowance  has  been  made  for 
amortization  of  cost  the  taxpayer  will  not  be  allowed  to  restore  to  his  invested 
capital  for  the  purpose  of  the  war-profits  and  excess-profits  tax  any  portion 
offcthe  amount  covered  by  such  allowance.  (Art.  186,  Reg.  62,  1922  Edition.) 


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1877  Redetermination  of  Amortization  Allowance.— A redetermination 

of  the  deduction  allowed  on  account  of  amortization  may,  or  at  the 
request  of  the  taxpayer  shall,  be  made  by  the  Commissioner  at  any  time 
before  March  3,  1924,  and  if  as  a result  of  an  appraisal  or  from  other  evi- 
dence it  is  found  that  the  deduction  originally  allowed  was  incorrect,  the 
amount  of  tax  due  for  each  taxable  year  during  the  amortization  period 
will  be  adjusted  by  additional  assessment  or  by  refund.  (Art.  187,  Reg.  62 
1922  Edition.) 

I'or  explanation  of  Cumulative  Index  references  see  page  gi. 

“At  any  time  within  3 years”  discussed  and  interpreted  (31-19-646:  A.  R.  M.  10) 
1919  Cum.  Bull.  p.  140. 


187  8 Sale  of  Amortized  Property.— In  the  case  of  the  bona  fide  sale  of 
amortized  property  before  March  3,  1924,  the  sale  price  thereof  will 
be  considered  as  reflecting  the  correctness  or. incorrectness  of  the  amortiza- 
tion allowance  made,  due  allowance  being  made  for  depreciation  sustained 
since  the  close  of  the  amortization  period.  (Art.  188,  Reg.  62,  1922  Edition.) 

1879  Information  to  be  Furnished  by  the  Taxpayer.— The  taxpayer’s 

claim  for  amortization  must  be  complete  and  comprehensive  in  all 
respects.  The  Commissioner  will  not  entertain  claims  which  do  not  clearly 
set  forth  full  data  with  respect  to  the  property  which  it  is  desired  to  amortize. 
1 380  1 o assist  the  taxpayer  in  compiling  this  information  the  Com- 
missioner has  prepared  Guide  Form  1007-M,  which  explains  in  detail 
the  manner  in  which  claims  for  amortization  should  be  presented.  A copy 
of  this  guide  form  will  be  furnished  to  the  taxpayer  upon  application  to  the 
Commissioner.  (Art.  189,  Reg.  62,  1922  Edition.) 


1 881  Law  If  170.  A Reasonable  Allowance  for  Depletion  of  Mines,  Oil 
(Sec.  214.)  and  Gas  Wells,  Other  Natural  Deposits,  and  Timber, 
and  for  Depreciation  of  Improvements  is  Deductible. — 

(10)  In  the  case  of  mines , oil  and  gas  wells , other  natural  deposits , and 
Umber , a reasonable  allowance  for  depletion  and  for  depreciation  of  im- 
provements^  according  to  the  peculiar  conditions  in  each  case , based  upon 
cost  including  cost  of  development  not  otherwise  deducted 
1 882  Law  ^[414.  [Corporations.] — “(9)  In  the  case  of  mines , oil  and 
(Sec.  234.)  gas  wells , other  natural  deposits , and  timber , a reason- 
able allowance  for  depletion  and  for  depreciation  of 
improvements , according  to  the  peculiar  conditions  in  each  case , based  upon 
cost  including  cost  of  development  not  otherwise  deducted — Law. 

[Note:  The  1918  Act  so  provided.] 

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1883  Law  171-  Basis  in  the  Case  of  Properties  Acquired  Prior  to 

(Sec.  214.)  March  1,  1913. — “ Provided , That  in  the  case  of  such 

properties  acquired  prior  to  March  1,  1913,  the  fair 
market  value  of  the  property  {or  the  taxpayer's  interest  therein ) on  that  date 
shall  be  taken  in  lieu  of  cost  up  to  that  date:” 

1884  Law^[415.  [Corporations.] — “ Provided , That  in  the  case  of  such 

(Sec.  234.)  properties  acquired  prior  to  March  1,  1913,  the  fair 

market  value  of  the  property  {or  the  taxpayer's  interest 
therein)  on  that  date  shall  be  taken  in  lieu  of  cost  up  to  that  date — Law. 

[Note:  The  1918  Act  so  provided.] 

1885  Law  If  172.  Basis  in  the  Case  of  Mines  or  Wells  Discovered  by 
(Sec.  214.)  the  Taxpayer  on  or  after  March  1,  1913. — “ Provided 

further , That  in  the  case  of  mines , oil  and  gas  -wells , 
discovered  by  the  taxpayer , on  or  after  March  1,  1913,  and  not  acquired 
as  the  result  of  purchase  of  a proven  tract  or  lease,  where  the  fair  market 
value  of  the  property  is  materially  disproportionate  to  the  cost,  the  depletion 
allowance  shall  be  based  upon  the  fair  market  value  of  the  property  at  the 
date  of  the  discovery,  or  within  thirty  days  thereafter:” 

1886  Law  ^[4 16.  [Corporations.] — ■“ Provided  further,  That  in  the  case  of 
(Sec.  234.)  mines,  oil  and  gas  wells,  discovered  by  the  taxpayer,  on 

or  after  March  1,  1913,  and  not  acquired  as  the  result  of 
• purchase  of  a proven  tract  or  lease,  where  the  fair  market  value  of  the  property 
is  materially  disproportionate  to  the  cost,  the  depletion  allowance  shall  be 
based  upon  the  fair  market  value  of  the  property  at  the  date  of  the  discovery , 
or  within  thirty  days  thereafter-,”— Law.  [Note:  The  1918  Act  so 

provided.] 

1887  Law  1fl73.  “ And  provided  further,  That  such  depletion  allowance 

(Sec.  214.)  based  on  discovery  value  shall  not  exceed  the  net  income , 

computed  without  allowance  for  depletion,  from  the 
property  upon  which  the  discovery  is  made,  except  where  such  net  income 
so  computed  is  less  than  the  depletion  allowance  based  on  cost  or  fair  market 
value  as  of  March  1,  1913;” 

1 888  Law  1[417.  [Corporations.] — “ And  provided  further,  That  such 
(Sec.  234.)  depletion  allowance  based  on  discovery  value  shall  not 

exceed  the  net  income,  computed  without  allowance  for 
depletion,  from  the  property  upon  which  the  discovery  is  made,  except  where 
such  net  income  so  computed  is  less  than  the  depletion  allowance  based  on 
cost  or  fair  market  value  as  of  March  1,  1913;” — Law.  [Note:  These 

provisions  are  new  to  the  1921  Act.] 

1 889  Law  1[174.  Depletion  and  Depreciation  Allowance  to  be  Made  in 
(Sec.  214)  Accordance  With  Regulations. — “ such  reasonable  al- 
lowance in  all  the  above  cases  to  be  made  under  rules  . 
and  regulations  to  be  prescribed  by  the  Commissioner,  with  the  approval 
of  the  Secretary.” 

1890  Law  ^[418.  [Corporations.] — “such  reasonable  allowance  in  all  the 
(Sec.  234.)  above  cases  to  be  made  under  rules  and  regulations  to  be 
prescribed  by  the  Commissioner  with  the  approval  of 
the  Secretary.” — Law.  [Note:  The  1918  Act  so  provided.] 

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1891  Law  ^ 175.  Depletion  and  Depreciation  of  Improvements  Allow- 
(Sec.  214.)  ance  to  be  Apportioned  Between  the  Lessor  and  the 
Lessee. — “In  the  case  of  leases  the  deductions  allowed 
by  this  paragraph  shall  be  equitably  apportioned  between  the  lessor  and 
lessee ;” 

1 892  Law  1[419.  [Corporations.] — “In  the  case  of  leases  the  deductions 
(Sec.  234.)  allowed  by  this  paragraph  shall  be  equitably  apportioned 
between  the  lessor  and  lessee-” — Law.  [Note:  The 

1918  Act  so  provided.] 

1893  Depletion  of  Mines,  Oil  and  Gas  Wells;  Depreciation  of  Improve- 
ments.— Sections  214  (a)  (10)  and  234  (a)  (9)  provide  that  tax- 
payers shall  be  allowed  as  a deduction  in  computing  net  income  in  the  case 
of  natural  deposits  a reasonable  allowance  for  depletion  of  mineral  and  for 
depreciation  of  improvements.  These  paragraphs  of  the  statute  are  not 
materially  different  from  the  corresponding  paragraphs  of  the  Revenue  Act 
of  1918.  These  provisions  of  the  statute  and  articles  201-237  do  not  apply  to 
or  affect  the  regulations  covering  invested  capital,  losses,  accounting  methods, 
etc. 

1 894  The  essence  of  these  provisions  of  the  statute  is  that  the  owner 
of  mineral  deposits,  whether  freehold  or  leasehold,  shall,  within  the 

limitations  prescribed,  secure  through  an  aggregate  of  annual  depletion 
and  depreciation  deductions  the  return  of  either  (a)  the  cost  of  his  property 
if  acquired  subsequent  to  March  1,  1913,  or  (b)  the  value  of  his  property  on 
the  basic  date,  plus  subsequent  allowable  capital  additions  (see  Art.  222 
[^T 1 970]),  but  not  including  land  values  for  purposes  other  than  the  extraction 
of  minerals. 

1 895  Operating  owners,  lessors,  and  lessees,  whether  corporations  or 
individuals,  are  entitled  to  deduct  an  allowance  for  depletion  and 

depreciation,  but  a stockholder  in  a mining  or  oil  or  gas  corporation  is  not 
allowed  such  deductions.  (See  further,  Articles  839  and  844  [as  to  invested 
capital. — War  Tax  Service].) 

1896  When  used  in  these  articles  (201-237)  covering  depletion  and  de- 
preciation— 

189  7 (a)  The  term  “basic  date”  indicates  the  date  of  valuation,  i.  e., 

March  1,  1913,  in  the  case  of  property  acquired  prior  thereto,  the 
date  of  acquisition  in  the  case  of  property  acquired  on  or  after  March  1, 
1913,  or  the  date  of  discovery,  or  within  thirty  days  thereafter,  in  the  case 
of  discovery. 

1898  (b)  The  “fair  market  value”  of  a property  is  that  amount  which 
would  induce  a willing  seller  to  sell  and  willing  buyer  to  purchase. 

1899  (c)  A “mineral  property”  or  “property”  is  the  mineral  deposit,  the 
development  and  plant  necessary  for  its  extraction,  and  so  much 

of  the  surface  as  is  reasonably  expected  to  be  underlaid  with  the  mineral. 
The  value  of  a mineral  property  is  the  combined  value  of  its  component 
parts. 

1900  (d)  A “mineral  deposit”  refers  to  “minerals  only,”  such  as  the 
“ores  only”  in  the  case  of  a mine,  to  the  “oil  only”  in  the  case  of  an 

oil  well,  and  to  the  “gas  only”  in  the  case  of  a gas  well,  and  to  the  “oil  and 
gas”  in  the  case  of  a well  producing  both  oil  and  gas.  The  value  of  a 
mineral  deposit  is  its  cost,  or  it  is  the  value  of  the  mineral  property,  less  the 
value  of  the  plant,  equipment,  and  surface  of  the  land  for*purposes  other  than 
mineral  production. 

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DEDUCTIONS— DEPLETION. 

1901  (e)  “Minerals”  include  ores  of  the  metals,  coal,  oil,  gas,  and  such 
non-metalic  substances  as  abrasives,  asbestos,  asphaltum,  barytes, 

borax,  building  stone,  cement  rock,  clay,  crushed  stone,  feldspar,  fluorspar, 
fuller’s  earth,  graphite,  gypsum,  limestone,  magnesite,  marl,  mica,  mineral 
pigments,  peat,  potash,  precious  stones,  refractories,  rock  phosphate,  salt, 
sand  and  gravel,  silica,  slate,  soapstone,  soda,  sulphur,  and  talc. 

1902  (f)  “Operating  profit”  is  the  net  income  from  mineral  production 
before  depletion  and  depreciation  are  deducted.  It  is  distinct  from 

net  income. 

1903  (g)  “Depletion  or  depreciation  sustained”:  (l)  In  arriving  at  the 
amount  returnable  through  depletion  or  depreciation,  means  (except 

in  cases  where  a discovery  has  been  established,  as  to  which,  see  (h)  below) 
depletion  or  depreciation  actually  sustained  based  on  the  value  as  at  thebasic 
date;  (2)  in  arriving  at  profit  or  loss  from  sale,  means  depletion  or  deprecia- 
allowed  based  on  value  as  at  basic  date  except  where  value  as  at  basic  date 
is  a discovery  value,  in  which  case  the  depletion  sustained  is  that  based  on 
value  as  of  March  1,  1913,  or  cost  if  acquired  after  that  date;  (3)  in  arriving 
at  invested  capital,  means  depletion  and  depreciation  actually  sustained 
based  on  cost. 

1904  (h)  Depletion  allowance  in  case  of  discovery:  The  deduction  for 
depletion  in  case  of  a discovery  can  not  exceed  the  net  income  com- 
puted without  allowance  for  depletion,  from  the  property  upon  which  the 
discovery  is  made,  except  where  and  to  the  extent  that  such  net  income  so 
computed  is  less  than  the  depletion  allowance  based  on  cost  or  fair  market 
value  as  of  March  1,  1913.  Net  income  is  the  gross  income  from  the  sale  of  all 
mineral  products  and  any  other  income  incidental  to  the  operation  of  the 
property  for  the  production  of  the  mineral  products,  less  operating  expenses, 
including  depreciation  on  equipment,  and  taxes,  but  excluding  any  allowance 
for  depletion.  If  the  mineral  products  are  not  sold  as  raw  material  but  are 
manufactured  or  converted  into  a refined  product,  then  the  gross  income  shall 
be  assumed  to  be  equivalent  to  the  market  or  field  price  of  the  raw  material 
before  conversion.  Operating  expenses,  depreciation,  and  taxes  on  the 
property  upon  which  the  discovery  is  made  should  be  applied  against  the 
gross  income  from  the  same  property  on  the  basis  of  actual  expenditures, 
but  if  the  records  for  the  year  1921  are  in  any  case  inadequate,  allocation 
of  such  expenditures  for  that  year  may  be  made  on  the  basis  of  the  ratio  of 
(1)  the  number  of  wells  operated  on  the  property  on  which  the  discovery  is 
made  to  (2)  the  total  number  of  wells  operated  in  the  operating  division  in 
which  the  discovery  is  included.  (Art.  201,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1916  Act  Regulations  amended;  Art.  107,  Reg.  33,  revised  (T.  D.  3386):  full  depletion 
allowance  granted  to  oil  and  gas  lessees.  . 13306.  Solicitor’s  opinion  which 
caused  this  change  in  interpretation  (1-36-487:  L.  O.  1103).  . Bull.  I (’22)-36,  p.  1. 
Discovery  valuation  provision  does  not  apply  to  sale  (29-20-1068:  Sol.  Op.  26).  .Dec. 
1920  Cum.  Bull.  p.  44. 

Foreign  corporation  deriving  no  income  from  U.  S.  sources  permitted  no  depletion; 
nor  are  American  stockholders  in  connection  with  their  dividends  (1-8-103:  A.  R. 

M.  153).  .June  1922  Cum.  Bull.  p.  179. 

* Osage  Indian  lessors:  1918  Act  (1-43-560:  I.  T.  1478).  .Bull.  I ('22)-43,  p.  6. 

Pennsylvania  leasehold:  period  of  lease  being  ample  to  allow  removal  of  all  coal  (1913 
and  1916  Acts)  (18-20-900:  S.  1365).. June  1920  Cum.  Bull.  p.  143:  explained 
(5-21-1418:  Sol.  Op.  80).  .June  1921  Cum.  Bull.  p.  195. 

Reorganizations:  capital  sum  recoverable  on  assets  acquired  in  (15-20-855:  0.  D.  458) 
..June  1920  Cum.  Bull.  p.  313. 

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DEDUCTIONS— DEPLETION. 

1906  Amount  Returnable  Through  Depletion  and  Depreciation  Deduc- 
tions in  the  Case  of  an  Operating  Owner. — In  the  case  of  an  operat- 
ing owner  in  fee,  the  amount  remaining  in  any  year  returnable  through 
depletion  and  depreciation  deductions  is  (a)  the  cost  or  value  of  the  property 
at  the  basic  date  plus  (b)  subsequent  allowable  capital  additions  and  minus 
(c)  depletion  and  depreciation  sustained,  whether  legally  allowable  or  not, 
from  the  basic  date  to  the  taxable  year,  and  minus  (d)  the  value  of  the  land 
at  the  basic  date  for  other  purposes  than  mineral  production  and  the  residual 
value  of  other  property  at  the  end  of  operations.  The  amount  returnable 
through  depletion  is  the  total  capital  remaining  less  the  sum  recoverable 
through  depreciation.  (Art.  202,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

“Depletion  which  has  or  should  have  been  taken,”  discussed  and  exp!ained_'(l-19-53: 
T.  B.  R.  4) . . 1919  Cum.  Bull.  p.  141.  * ; 

Waiving  royalty  rights  for  period  of  years  (2-20-674:  A.  R.  M.  17).  .June  1920  Cum. 
Bull.  p.  144. 


1906  Amount  Returnable  Through  Depletion  and  Depreciation  Deduc- 
tions in  the  Case  of  Lessee. — (a)  In  the  case  of  a lessee,  the  amount 

remaining  in  any  year  returnable  through  depletion  and  depreciation  deduc- 
tions is  (1)  the  value  as  of  the  basic  date  of  the  lessee’s  equity  in  the  prop- 
erty plus  (2)  subsequent  allowable  capital  additions  but  minus  (3)  depletion 
and  depreciation  sustained,  whether  legally  allowable  or  not,  from  the  basic 
date  to  the  taxable  year  and  the  residual  value  of  other  property  at  the  end 
of  operations.  The  amount  returnable  through  depletion  is  the  total  capital 
remaining  less  the  sum  recoverable  through  depreciation. 

1907  (b)  The  value  of  the  equities  of  lessor  and  lessee  shall  be  computed 
separately,  but,  when  determined  as  of  the  same  basic  date,  shall 

together  never  exceed  the  value  at  that  date  of  the  property  in  fee  simple. 

1908  (c)  The  value  of  a lessee’s  equity,  if  acquired  prior  to  March  1, 
1913,  is  the  value  of  his  interest  in  the  mineral  as  of  that  date. 

1 909  (d)  The  value  of  a lessee’s  equity  in  a proven  mineral  property 
acquired  on  or  after  March  1,  1913,  is  its  cost. 

1910  (e)  The  value  of  a lessee’s  equity  in  a discovery  on  or  after  March 
1,  1913,  is  the  fair  market  value  at  date  of  discovery  or  within  thirty 

days  thereafter,  of  his  equity  in  the  mineral  discovered.  (Art.  203,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Capital  stock  issued  by  lessee  in  payment  for  lease  is  “capital  actually  invested  in  the 
lease”  at  fair  market  value  of  stock  (Act  of  1916)  (20-20-938:  L.  O.  1033).  .June 

1920  Cum.  Bull.  p.  145. 

Corporation  organized  to  take  over  partnership  leases;  value  discovered  prior  to 
organization  but  subsequent  to  acquirement  of  leases  by  partnership  (1-1-10: 
A.  R.  R.  712).  .June  1922  Cum.  Bull.  p.  183. 

Payments  in  excess  of  royalties  to  effect  payment  of  stipulated  amount  under  option 
to  purchase  mine  (“bond  and  lease”  agreement):  forfeiture  of  option  (4-21-1406: 
Sol.  Op.  86) . .June  1921  Cum.  Bull.  p.  138. 

Physical  equipment  acquired  exceeds  in  value  purchase  price  of  oil  well  leases  (37-21- 
1818:  A.  R.  R.  570).. Dec.  1921  Cum.  Bull.  p.  152. 

Public  lands:  withdrawn  before  completion  of  valid  location  prior  to  March  1,  1913; 
subsequently  leased  by  original  claimant  (36-21-1801:  Sol.  Op.  118).. Dec.. 

1921  Cum.  Bull.  p.  160. 

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1 si  1 Amount  Returnable  Through  Depletion  and  Depreciation  in  Case  of 
Lessor. — (a)  In  the  case  of  a lessor,  the  amount  remaining  in  any 
year  returnable  through  depletion  and  depreciation  deductions  is  (1)  the 
value  of  his  equity  in  the  property  at  the  basic  date  minus  (2)  depletion  and 
depreciation  sustained,  whether  legally  allowable  or  not,  from  the  basic 
date  to  the  taxable  year,  plus  (3)  subsequent  allowable  capital  additions, 
and  minus  (4)  the  value  of  the  land  at  the  basic  date  for  other  purposes 
than  mineral  production  and  the  residual  value  of  other  property  at  the 
end  of  operations.  The  amount  returnable  through  depletion  is  the  total 
capital  remaining  less  the  sum  recoverable  through  depreciation. 

1912  (b)  The  value  of  the  equities  of  lessor  and  lessee  shall  be  computed 
separately,  but,  when  determined  as  of  the  same  basic  date,  shall 

together  never  exceed  the  value  at  that  date  of  the  property  in  fee  simple. 

1913  (c)  The  value  of  the  lessor’s  equity  in  the  case  of  a mineral  property 
not  under  lease  on  March  1,  1913,  but  subsequently  leased,  is  the 

en  bloc  value  of  the  mineral  in  the  ground  on  March  1,  1913,  and  will,  in  the 
absence  of  satisfactory  evidence  to  the  contrary,  be  presumed  not  to  exceed 
the  value  as  of  March  1,  1913,  of  the  royalties  to  be  expected  under  the  lease. 

1914  (d)  The  value  of  a lessor’s  equity  in  a mineral  property  under 
lease  March  1,  1913,  for  the  entire  operating  life  of  the  mineral 

deposits  is  the  value  as  of  March  1,  1913,  of  the  royalties  and  other  pay- 
ments to  be  expected  under  the  terms  of  the  lease  in  effect  on  that  date. 

1915  (e)  The  value  of  a lessor’s  equity  in  a mineral  property  under 
lease  for  a portion  of  its  operating  life  is  the  value  as  of  March  1, 

1913,  of  the  royalties  expected  from  the  mineral  to  be  extracted  during 
the  life  of  the  existing  lease  plus  the  estimated  en  bloc  value  of  the  mineral 
remaining  at  its  expiration,  which,  in  the  absence  of  satisfactory  evidence 
to  the  contrary,  will  be  presumed  not  to  exceed  the  value  as  of  March  1, 
1913,  of  royalties  which  could  have  been  expected  as  at  that  date  from  the 
remaining  mineral. 

1916  (f)  The  value  of  a lessor’s  equity  in  a mineral  property  when  ac- 
quired on  or  after  March  1,  1913,  is  its  cost. 

1917  (g)  The  value  of  a lessor’s  equity  in  a discovery  on  or  after  March  1, 
1913,  is  the  fair  market  value  at  the  date  of  discovery,  or  within 

thirty  days  thereafter,  of  his  equity  in  the  mineral  discovered.  (Art.  204, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Indian  lessor  of  mineral  restricted  allotted  land  may  take  depletion;  1916  and  1918 
Acts  (1-26-367:  L.  0.  1098).  .June  1922  Cum.  Bull.  p.  64. 

1918  Alio  wane  eT  for  Depletion  in  Case  of  Discovery  by  the  Taxpayer 
Subsequent  to  March  1,  1913 — Apportionment  Between  Lessor 

and  Lessee. — The  following  opinion  [111921]  rendered  by  the  Acting  At- 
torney General  under  date  of  October  29,  1920,  relative  to  the  right  of  a 
lessor  to  share  in  the  depletion  allowed  in  the  case  of  mines,  oil  and  gas 
wells  as  the  result  of  discovery  on  or  after  March  1,  1913,  is  published  in  full 
for  your  information  and  guidance.  (T.  D.  3089,  November  6,  1920.) 


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1919  (1)  The  deduction  for  depletion  in  the  case  of  mines,  oil  and  gas 
wells,  as  the  result  of  discovery  on  or  after  March  1,  1913,  is  al- 
lowed only  to  the  party  or  parties  in  possession  at  the  time  of  the  discovery, 
and  not  to  subsequent  purchasers. 

1920  (2)  The  value  which  may  be  set  up  in  the  case  of  the  discovery  of 
mines,  oil  and  gas  wells,  pursuant  to  the  second  proviso  of  Section 

234  (a)  (9),  Revenue  Act  of  1918,  to  be  depleted  in  accordance  with  such 
reasonable  rules  and  regulations  as  the  Commissioner  of  Internal  Revenue 
and  the  Secretary  of  the  Treasury  may  prescribe  according  to  the  peculiar 
conditions  in  each  case,  is,  in  the  case  of  a lease,  to  be  equitably  apportioned 
between  the  lessor  and  the  lessee. 


1921  Dear  Mr.  Secretary:  This  will  acknowledge  receipt  of  your  letter 
of  October  9,  1920,  submitting  for  my  opinion,  the  question  “whether 

the  value  which  may  be  set  up  in  the  case  of  the  discovery  of  mines,  oil  or 
gas  wells,  pursuant  to  the  second  proviso  of  Section  234  (a)  (9),  to  be  depleted 
in  accordance  with  such  reasonable  rules  and  regulations  as  the  Commissioner 
and  the  Secretary  may  make  according  to  the  peculiar  conditions  in  each  case, 
requires  that  the  lessor  be  permitted  a portion  of  such  discovery  value.” 

1922  Section  234  (a)  (9)  of  the  Act  of  February  24,  1919,  provides: 
“(a)  That  in  computing  the  net  income  of  a corporation  subject 

to  the  tax  imposed  by  section  230  there  shall  be  allowed  as  deductions: 
(9)  In  the  case  of  mines,  oil  and  gas  wells,  other  natural  deposits,  and 
timber,  a reasonable  allowance  for  depletion  and  for  depreciation  of  im- 
provements, according  to  the  peculiar  conditions  in  each  case,  based  upon 
cost  including  cost  of  development  not  otherwise  deducted:  Provided, 
That  in  the  case  of  such  properties  acquired  prior  to  March  1,  1913,  the  fair 
market  value  of  the  property  (or  the  taxpayer’s  interest  therein)  on  that 
date  shall  be  taken  in  lieu  of  cost  up  to  that  date:  Provided  further,  That  in 
the  case  of  mines,  oil  and  gas  wells,  discovered  by  the  taxpayer,  on  or  after 
March  1,  1913,  and  not  acquired  as  the  result  of  purchase  of  a proven  tract 
or  lease,  where  the  fair  market  value  of  the  property  is  materially  dispropor- 
tionate to  the  cost,  the  depletion  allowance  shall  be  based  upon  the  fair  mar- 
ket value  of  the  property  at  the  date  of  the  discovery,  or  within  thirty  days 
thereafter;  such  reasonable  allowance  in  all  the  above  cases  to  be  made 
under  rules  and  regulations  to  be  prescribed  by  the  Commissioner  with  the 
approval  of  the  Secretary.  In  the  case  of  leases  the  deduction  allowed  by 
this  paragraph  shall  be  equitably  apportioned  between  the  lessor  and  lessee.” 

1923  This  section  is  properly  divisible  into  two  parts:  the  first  part  com- 
prising all  but  the  last  sentence  thereof,  deals  exclusively  with  the 

establishment  of  a basis  for  the  determination  of  allowance  for  depletion; 
and  the  second,  contained  in  the  last  sentence  alone,  apportions  the  allow- 
ance, when  same  shall  have  been  determined,  between  the  lessor  and  the 
lessee  in  case  of  leases. 

1924  The  bases  for  allowance  provided  for  in  part  one  are: 

(1)  Where  the  property  was  acquired  after  March  1,  1913,  as  the 
result  of  purchase  of  a proven  tract,  or  lease,  the  cost,  including  cost  of 
development  not  otherwise  deducted,  is  determinative  of  the  amount  of 
the  allowance. 

(2)  Where  the  property  was  acquired  prior  to  March  1,  1913,  as  the 
result  of  the  purchase  of  a proven  tract  or  lease,  the  fair  market  value  on 

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March  1,  1913,  is  to  be  taken  as  the  basis  of  the  allowance  for  depletion, 
in  lieu  of  cost  up  to  that  date. 

(3)  Where  the  property  was  at  the  time  of  its  acquisition  unproven, 
and  discovery  was  made  thereon  after  March  1,  1913,  the  allowance  is  to 
be  determined  by  the  fair  market  value  at  the  date  of  discovery  or  within 
thirty  days  thereafter,  provided  that  the  discovery  was  made  by  the  party, 
or  part  es,  in  possession  (the  taxpayer). 

1 025  I take  it  that  the  phrase  “discovered  by  the  taxpayer”  must  be 
read  with  the  phrase  “and  not  acquired  as  the  result  of  purchase 
of  a proven  tract  or  lease,”  and  taken  together  they  mean  that  if  a dis- 
covery is  made  after  March  1,  1913,  upon  an  unproven  tract,  acquired 
either  before  or  after  that  date,  the  allowance  is  to  be  determined  by  the 
discovery  value  only  where  the  discovery  was  made  by  the  party  or  parties 
in  possession;  that  is,  only  when  no  transfers  of  the  tract  or  lease  have 
intervened  between  the  date  of  the  discovery  and  the  incidence  of  the  tax. 
In  other  words,  if  A,  either  owning  or  leasing  a property  makes  discovery 
thereon  after  March  1,  1913,  and  continues  in  possession,  then  the  allowance 
for  depletion  is  to  be  based  upon  the  discovery  value;  but  if  after  discovery 
made  the  property  is  transferred  to  B,  then  the  cost  is  determinative  of  the 
allowance  to  B,  since  there  is  “acquisition  after  March  1,  1913,  as.  the  result 
of  purchase  of  a proven  tract  or  lease.” 

1926  By  “discovered  by  the  taxpayer  on  or  after  March  1,  1913,  and 
not  acquired  as  the  result  of  purchase  of  a proven  tract  or  lease,” 

Congress  intended  to  provide  a basis  for  determination  of  what  should 
be  the  depletion  allowance,  and  did  not  attempt  to  determine,  as  between 
a lessee  and  a lessor,  which  of  them  should  be  entitled  to  the  allowance 
for  discovery  value.  That  is  provided  for  in  the  last  sentence  of  the  section 
which  says  "that  “In  the  case  of  leases  the  deductions  allowed  by  this  para- 
graph shall  be  equitably  apportioned  between  the  lessor  and  lessee.”  Such 
interpretation  gives  effect  to  all  the  language  of  the  section,  and  brings  all 
parts  of  it  into  accord;  and  under  the  general  rules  of  construction  such 
interpretation  should  be  adopted  in  preference  to  an  interpretation  which 
results  in  repugnance.  To  hold  that  by  the  language  “discovered  by  the 
taxpayer”  Congress  ntended  to  give  the  discovery  allowance  to  the  actual 
discoverer,  and  to  deny  the  lessor  any  part  of  such  allowance  on  the  theory 
that  the  lessee  is  usually  the  discoverer,  would  be  repugnant  to  language 
of  the  latter  portion  of  the  section  which  in  the  case  of  leases  equitably 
apportions  the  allowance  between  lessor  and  lessee. 

1927  My  conclusion,  therefore,  is  that  “the  value  which  may  be  set  up 
in  the  case  of  the  discovery  of  mines,  oil  or  gas  wells,  pursuant  to 

the  second  proviso  of  Section  234  (a)  (9),  to  be  depleted  in  accordance  with 
such  reasonable  rules  and  regulations  as  the  Commissioner  and  the  Secretary 
may  make  according  to  the  peculiar  conditions  in  each  case,”  requires  that  the 
lessor  be  permitted  a portion  of  such  discovery  value.  (Opinion  of  Wrn.  L. 
Frierson,  Acting  Attorney  General,  October  29,  1920,  appended  to  and 
made  a part  of  T.  D.  3089,  1918.) 

1928  Determination  of  Cost  of  Deposits. — In  any  case  in  which  a de- 
pletion or  depreciation  deduction  is  computed  on  the  basis  of  the 

cost  or  price  at  which  any  mine  mineral  deposit,  mineral  right  or  leasehold 
was  acquired,  the  owner  or  lessee  will  be  required  to  show  that  the  cost  or 
price  at  which  the  property  was  bought  was  fixed  for  the  purpose  of  a bona 
fide  purchase  and  sale,  by  which  the  property  passed  to  an  owner  in  fact  as 

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well  as  in  form  other  than  the  vendor.  No  fictitious  or  inflated  cost  or 
price  will  be  permitted  to  form  the  basis  of  any  calculation  of  a depletion 
or  depreciation  deduction,  and  in  determining  whether  or  not  the  price  or 
cost  at  which  any  purchase  or  sale  was  made  represented  the  actual  market 
value  of  the  property  sold,  due  weight  will  be  given  to  the  relationship 
or  connection  existing  between  the  person  selling  the  property  and  the 
buyer  thereof.  (Art.  205,  Reg.  62,  1922  Edition.) 


1 929  Determination  of  Fair  Market  Value  of  Mineral  Property  Other  than 
Oil  and  Gas. — (a)  Where  the  fair  market  value  of  the  property  at  a 

specified  date  in  lieu  of  the  cost  thereof  is  the  basis  for  depletion  and  depre- 
ciation deductions,  such  value  must  be  determined,  subject  to  approval  or 
revision  by  the  Commissioner,  by  the  owner  of  the  property  in  the  light  of 
the  conditions  and  circumstances  known  at  that  date,  regardless  of  later 
discoveries  or  developments  in  the  property  or  subsequent  improvements 
in  methods  of  extraction  and  treatment  of  the  mineral  product.  The  value 
sought  should  be  that  established  assuming  a transfer  between  a willing 
seller  and  a willing  buyer  as  of  that  particular  date.  The  Commissioner 
will  lend  due  weight  and  consideration  to  any  and  all  factors  and  evidence 
having  a bearing  on  the  market  value,  such  as  cost,  actual  sales  and  trans- 
fers of  similar  properties,  market  value  of  stock  or  shares,  royalties,  and 
rentals,  value  fixed  by  the  owner  for  purpose  of  the  capital-stock  tax,  valua- 
tion for  local  or  State  taxation,  partnership  accountings,  records  of  litigation 
in  which  the  value  of  the  property  was  in  question,  the  amount  at  which 
the  property  may  have  been  inventoried  in  probate  court  and,  in  the  absence 
of  better  evidence,  disinterested  appraisals  by  approved  methods.  Valua- 
tions by  analytic  appraisal  methods,  such  as  the  present  value  method,  are 
not  entitled  to  great  weight;  (1)  If  the  value  of  a mineral  deposit  can  be 
determined  upon  the  basis  of  cost  or  replacement  value,  (2)  if  the  knowledge 
of  the  presence  of  the  mineral  has  not  greatly  enhanced  the  value  of  the 
mineral  property,  (3)  if  the  removal  of  the  mineral  does  not  materially  reduce 
the  value  of  the  property  from  which  it  is  taken,  or  (4)  if  the  profits  arising 
from  the  exploitation  of  the  mineral  deposit  are  wholly  or  in  great  part  due 
to  the  manufacturing  or  marketing  ability  of  the  taxpayer,  or  to  extrinsic 
causes  other  than  the  possession  of  the  mineral  itself.  Where  the  fair  market 
value  must  be  ascertained  as  of  a certain  date,  analytic  appraisal  methods 
will  not  be  used  if  the  fair  market  value  can  reasonably  be  determined  by  any 
other  method. 

1930  (b)  To  determine  the  fair  market  value  of  a mineral  property 
by  the  present  value  method,  the  essential  factors  must  be  deter- 
mined for  each  deposit  included  in  the  property.  The  factors  are  (1)  the  total 
quantity  of  mineral  in  terms  of  the  principal  or  customary  unit  (or  units) 

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paid  for  in  the  mineral  product  marketed,  (2)  the  average  quality  or  grade  of 
the  mineral  reserves,  (3)  the  expected  percentage  of  extraction  or  recovery  in 
each  process  or  operation  necessary  for  the  preparation  of  the  crude  mineral 
for  market,  (4)  the  probable  operating  life  of  the  deposit  in  years,  (5)  the  unit 
operating  cost,  i.e.,  cost  of  production  exclusive  of  depreciation  and  depletion, 
and  (6)  the  rate  of  interest  commensurate  with  the  risk  for  the  particular 
deposit.  When  the  deposit  has  been  sufficiently  developed  these  factors  may 
be  determined  from  past  operating  experience.  In  the  application  of  factors 
derived  from  past  experience  full  allowance  should  be  made  for  probable 
future  variations  in  the  rate  of  exhaustion,  quality  or  grade  of  the  mineral, 
percentage  of  recovery,  costs  of  production,  and  selling  price  of  the  product 
marketed  during  the  expected  operating  life  of  the  mineral  deposit. 

1931  (c)  Mineral  deposits  for  which  these  factors  may  not  be  deter- 
mined with  reasonable  accuracy  from  past  operating  experience 

may,  with  the  approval  of  the  Commissioner,  be  valued  in  a similar  man- 
ner; but  the  factors  must  be  deduced  from  concurrent  evidence  such  as  the 
general  type  of  the  deposit,  the  characteristics  of  the  district  in  which  it  occurs, 
the  habit  of  the  mineral  deposits  in  the  property  itself,  the  intensity  of  mineral- 
ization, the  rate  at  which  additional  mineral  has  been  disclosed  by  exploita- 
tion, the  stage  of  the  operating  life  of  the  property,  and  other  evidence  tending 
to  establish  a reasonable  estimate  of  the  required  factors. 

1932  (d)  Mineral  deposits  of  different  grades,  locations,  and  probable 
dates  of  extraction  in  a mineral  property  shall  be  valued  separately. 

The  mineral  content  of  a deposit  shall  be  determined  in  accordance  with 
Article  208  [^[1940].  In  estimating  the  average  grade  of  the  developed  and 
prospective  mineral,  account  should  be  taken  of  probable  increases  or  de- 
creases as  indicated  by  the  operating  history.  The  rate  of  exhaustion  of  a 
mineral  deposit  should  be  determined  with  due  regard  to  the  limitations  im- 
posed by  plant  capacity,  by  the  character  of  the  deposit,  by  the  ability  to 
market  the  mineral  product,  by  labor  conditions,  and  by  the  operating 
program  in  force  or  definitely  adopted  at  the  basic  date  for  future  operations. 
The  operating  life  of  a mineral  deposit  is  that  number  of  years  necessary 
for  the  exhaustion  of  both  the  developed  and  prospective  mineral  content 
at  the  rate  determined  as  above.  The  operating  cost  includes  all  current 
expense  of  producing,  preparing,  and  marketing  the  mineral  product  sold 
(due  consideration  being  given  to  taxes)  exclusive  of  allowable  capital  addi- 
tions as  defined  in  Article  222  [^1970],  and  deductions  for  depreciation  and 
depletion,  but  including  cost  of  repairs  and  replacements  necessary  to  maintain 
the  plant  and  equipment  at  its  rated  capacity  and  efficiency.  This  cost  of 
repairs  and  replacements  is  not  to  be  confused  with  the  depreciation  deduction 
by  which  the  cost  or  value  of  plant  and  equipment  is  returned  to  the  taxpayer 
free  from  tax.  In  general  no  estimates  of  these  factors  will  be  approved  by 
the  Commissioner  which  are  not  supported  by  the  operating  experience  of  the 
property  or  which  are  derived  from  different  and  arbitrarily  selected  periods. 
1 933  (e)  The  number  of  units  of  mineral  recoverable  in  marketable  form 

multiplied  by  the  difference  between  the  selling  price  and  the  oper- 
ating cost  per  unit  gives  the  total  expected  operating  profit.  The  value  of 
each  mineral  deposit  is  then  the  total  expected  operating  profit  from  that 
deposit  reduced  to  a present  value  as  of  the  basic  date  at  the  rate  of  interest 
commensurate  with  the  risk  for  the  operating  life,  and  further  reduced  by  the 
value  at  the  basic  date  of  the  depreciable  assets  and  of  the  capital  additions, 
if  any,  necessary  to  realize  the  profits.  The  degree  of  risk  is  generally  lowest 

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in  cases  where  the  factors  of  valuation  are  fully  supported  by  the  operating 
record  of  the  mineral  property  prior  to  the  basic  date;  relatively  higher 
risks  attach  to  appraisals  upon  any  other  basis.  (Art.  206,  Reg.  62,  1922 
Edition.) 


1934  Determination  of  Fair  Market  Value  of  Oil  and  Gas  Properties. — (a) 

Where  the  fair  market  value  of  the  property  at  a specified  date  in 
lieu  of  the  cost  thereof  is  the  basis  for  depletion  and  depreciation  deductions, 
such  value  must  be  determined,  subject  to  approval  or  revision  by  the  Com- 
missioner, by  the  owner  of  the  property  in  the  light  of  the  conditions  and 
circumstances  known  at  that  date,  regardless  of  later  discoveries  or  develop- 
ments in  the  property  or  subsequent  improvements  in  methods  of  extraction 
and  treatment  of  the  oil  and  gas  product.  The  value  sought  should  be  that 
established,  assuming  a transfer  between  a willing  seller  and  a willing  buyer 
as  of  that  particular  date.  The  Commissioner  will  lend  due  weight  and 
consideration  to  any  and  all  factors  and  evidence  having  a bearing  on  the 
market  value,  such  as  cost,  actual  sales  and  transfers  of  similar  properties, 
market  value  of  stock  or  shares,  royalties  and  rentals,  value  fixed  by  the  owner 
for  purpose  of  the  capital  stock  tax,  valuation  for  local  or  State  taxation 
partnership  accountings,  records  of  litigation  in  which  the  value  of  the 
property  was  in  question,  the  amount  at  which  the  property  may  have  been 
inventoried  in  probate  court,  and,  in  the  absence  of  better  evidence,  dis- 
interested appraisals  by  approved  methods.  Where  the  fair  market  value 
must  be  ascertained  as  of  a certain  date,  analytic  appraisal  methods,  such  as 
the  present  value  method,  will  not  be  used  if  the  fair  market  value  can  reas- 
onably be  determined  by  any  other  method. 

1 935  (b)  To  determine  the  fair  market  value  of  an  oil  and/or  gas  property 

by  the  present  value  method,  the  essential  factors  must  be  determined 
for  each  deposit  included  in  the  property.  The  factors  are  (1)  the  total 
quantity  of  oil  and  gas  in  terms  of  the  principal  or  customary  unit  (or  units) 
paid  for  in  the  product  marketed;  (2)  the  average  quality  or  grade  of  the 
oil  and  gas  reserves;  (3)  the  expected  percentage  of  extraction  or  recovery 
in  each  process  or  operation  necessary  for  the  preparation  of  the  oil  and  gas 
for  market;  (4)  the  probable  operating  life  of  the  deposit  in  years;  (5)  the  unit 
operating  cost,  i.  e.,  cost  of  production  exclusive  of  depreciation  and  depletion; 
and  (6)  the  rate  of  interest  commensurate  with  the  risk  for  the  particular 
deposit.  When  the  deposit  has  been  sufficiently  developed  these  factors  may 
be  determined  from  past  operating  experience.  In  the  application  of  factors 
derived  from  past  experience  full  allowance  should  be  made  for  probable 
future  variations  in  the  rate  of  exhaustion,  quality  or  grade  of  the  oil  and  gas, 
percentage  of  recovery,  costs  of  production,  interest  rate,  and  selling  price  of 
the  product  marketed  during  the  expected  operating  life  of  the  oil  and  gas 
deposit. 

1936  (c)  Oil  and  gas  deposits  for  which  these  factors  may  not  be  de- 

termined with  reasonable  accuracy  from  past  operating  experience 
may,  with  the  approval  of  the  Commissioner,  be  valued  in  a similar  manner; 
but  the  factors  must  be  deduced  from  concurrent  evidence,  such  as  the  gen- 
eral type  of  the  deposit,  the  characteristics  of  the  district  in  which  it  occurs , 

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the  habit  of  the  oil  and  gas  deposits  in  the  property  itself,  the  rate  at  which 
additional  oil  and  gas  has  been  disclosed  by  exploitation,  the  stage  of  oper- 
ating life  of  the  property,  and  any  other  evidence  tending  to  establish  a 
reasonable  estimate  of  the  required  factors. 

1937  (d)  The  oil  (content  in  the  case  of  oil  wells  shall  be  determined  in 

accordance  with  article  209,  and  the.  gas  content  in  the  case  of  gas 
wells  in  accordance  with  articles  211  and  212.  The  rate  of  exhaustion  of  a 
mineral  deposit  should  be  determined  by  the  character  of  the  deposit,  by  the 
ability  to  market  the  oil  and/or  gas  deposit,  by  labor  conditions,  and  by  the 
operating  program  in  force  or  definitely  adopted  at  the  basic  date  for  future 
operations.  The  operating  life  of  an  oil  and/or  gas  property  is  that  number 
of  years  necessary  for  the  expansion  of  the  property  at  the  rate  determined  by 
the  actual  or  estimated  rate  of  decline.  The  operating  cost  includes  all 
current  expense  of  producing,  preparing,  and  marketing  the  oil  and/or  gas 
produced  (due  consideration  being  given  to  taxes),  exclusive  of  allowable 
capital  additions  as  defined  in  article  222  and  deductions  for  depreciation  and 
depletion,  but  including  cost  of  repairs  and  replacement  necessary  to  maintain 
the  plant  and  equipment.  This  cost  of  repairs  and  replacement  is  not  to  be 
confused  with  the  depreciation  deduction  by  which  the  cost  or  value  of 
plant  and  equipment  is  returnable  to  the  taxpayer  free  from  tax.  In  general 
no  estimates  of  these  factors  will  be  approved  by  the  Commissioner  which  are 
not  supported  by  the  operating  experience  of  the  property  or  which  are  de- 
rived from  different  and  arbitrarily  selected  periods. 

1 938  (e)  The  number  of  units  of  mineral  recoverable  in  marketable  form 

multiplied  by  the  difference  between  the  selling  price  and  the  oper- 
ating cost  per  unit  gives  the  total  expected  operating  profit.  The  value  of 
each  mineral  deposit  is  then  the  total  expected  operating  profit  from  that 
deposit  reduced  to  a present  value  as  of  the  basic  date  at  the  rate  of  interest 
commensurate  with  the  risk  for  the  operating  life,  and  further  reduced  by 
the  value  at  the  basic  date  of  the  depreciable  assets  and  of  the  capital  addi- 
tions, if  any,  necessary  to  realize  the  profits.  The  degree  of  risk  is  generally 
lowest  in  cases  where  the  factors  of  valuation  are  fully  supported  by  the  oper- 
ating record  of  the  oil  and/or  gas  property  prior  to  the  basic  date;  relatively 
higher  risks  attach  to  appraisals  upon  any  other  basis. — (Art.  206  (A),  Reg. 
62,  1922  Edition.) 


1939  Revaluation  of  Mineral  Deposits  Not  Allowed. — No  revaluation 
of  a property  whose  value  as  of  the  basic  date  has  been  determined 
and  approved  will  be  allowed  during  the  continuance  of  the  ownership  under 
which  the  value  was  so  determined  and  approved  except  in  the  case  of  dis- 
covery as  defined  in  Articles  219  1957]  and  220  [^[1963]  or  of  misrepre- 

sentation or  fraud  or  gross  error  as  to  any  facts  determinable  on  the  basic 
date.  Revaluation  on  account  of  misrepresentation  or  fraud  or  such  gross 
error  will  only  be  made  upon  written  application  to  the  Commissioner  and 
approval  thereof  by  him.  The  value  as  of  the  basic  date  may,  however,  be 
corrected  when  a virtual  change  of  ownership  of  part  of  the  property  results 
as  the  outcome  of  litigation,  and  may  be  redistributed  (a)  when  a revision  of 
the  number  of  units  of  mineral  in  the  property  has  been  made  in  accordance 

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with  Articles  208  Hf  1940],  209  [If  1941],  or  211  [If  1944],  and  (b)  in  case  of  the 
sale  of  a part  of  the  property,  between  the  part  sold  and  part  retained.  (Art. 
207,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ore  discovered  as  result  of  exploration  stimulated  by  progress  in  metallurgy  making 
low  grade  ore  commercially  valuable  (19-21-1620:  A.  R.  M.  124).. June  1921 
Cum.  Bull.  p.  190. 


1 940  Determination  of  Contents  of  Mine. — Every  taxpayer  claiming  a 
deduction  for  depletion  for  a given  year  will  be  required  to  estimate 
or  determine  with  respect  to  each  separate  property  the  total  units  (acres,  tons, 
pounds,  ounces,  or  other  measure)  of  mineral  products  reasonably  known  or  on 
good  evidence  believed  to  have  existed  in  the  ground  on  the  basic  date,  accord- 
ing to  the  method  current  in  the  industry  and  in  the  light  of  the  most  accurate 
and  reliable  information  obtainable.  Preference  shall  be  given  in  the  selec- 
tion of  a unit  of  estimate  to  the  principal  unit  (or  units)  paid  for  in  the  product 
marketed.  The  estimate  of  the  recoverable  units  of  the  mineral  products 
in  the  property  for  the  purposes  of  valuation  and  depletion  shall  include 
as  to  both  quantity  and  grade  (a)  the  ores  and  minerals  “in  sight,”  “blocked 
out,”  “developed,”  or  “assured,”  in  the  usual  or  conventional  meaning  of 
these  terms  in  respect  to  the  type  of  the  deposit,  and  (b)  “probable”  or 
“prospective”  ores  and  minerals  (in  the  corresponding  sense);  that  is,  ores 
and  minerals  that  are  believed  to  exist  on  the  basis  of  good  evidence  although 
not  actually  known  to  occur  on  the  basis  of  existing  development;  but 
“probable”  or  “prospective”  ores  and  minerals  may  be  computed,  for  pur- 
poses of  this  valuation,  (c)  as  to  quantity,  only  in  case  they  are  extensions  of 
known  deposits  or  are  new  bodies  or  masses  whose  existence  is  indicated  by 
geological  or  other  evidence  to  a high  degree  of  probability,  and  (d)  as  to 
grade,  of  such  richness  only  as  accords  with  the  best  indications  available. 
If  information  subsequently  obtained  clearly  shows  the  estimate  to  have  been 
materially  erroneous,  it  may  be  revised  with  the  approval  of  the  Commissioner. 
(Art.  208,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Very  excessive  original  determination,  due  to  subsequent  discovery  of  hard  black 
rock  fault  (12-21-1521 : A.  R.  R.  431) . .June  1921  Cum.  Bull.  p.  193. 


1941  Determination  of  Quantity  of  Oil  in  Ground. — In  the  case  of  either 
an  owner  or  lessee  itwdl  be  required  that  an  estimate,  subject  to  the 
approval  of  the  Commissioner,  shall  be  made  of  the  probable  recoverable  oil 
contained  in  the  territory  with  respect  to  which  the  investment  is  made  as 
of  the  time  of  purchase,  or  as  of  March  1,  1913,  if  acquired  prior  to  that 
date,  or  within  30  days  after  the  date  of  discovery,  as  the  case  may  be.  The 
oil  reserves  must  be  estimated  for  all  undeveloped  proven  land  as  well  as 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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producing  land.  If  information  subsequently  obtained  clearly  shows  the 
estimate  to  have  been  materially  erroneous,  it  may  be  revised  with  the 

approval  of  the  Commissioner.  (Art.  209,  Reg.  62,  1922  Edition.) 


1942  Computation  of  Deduction  for  Depletion  of  Mineral  Deposits. — 

(a)  Depletion  attaches  to  the  annual  production  “according  to  the 
peculiar  conditions  of  each  case”  and  when  the  depletion  actually  sustained, 
whether  legally  allowable  or  not,  from  the  basic  date,  equals  the  cost  or 
value  on  the  basic  date  plus  subsequent  allowable  Capital  additions,  no  fur- 
ther deduction  for  depletion  will  be  allowed  except  in  consequence  of  added 
value  arising  through  discovery  or  purchase.  (See  Articles  202  [If  1905], 
203  111906],  204  [lfl911],  and  222  [If  1970].) 

1943  (b)  When  the  value  of  the  property  at  the.  basic  date  has  been  de- 
termined, depletion  sustained  for  the  taxable  year  shall  be  computed 

by  dividing  the  value  remaining  for  depletion  by  the  number  of  units  of  min- 
eral to  which  this  value  is  applicable,  and  by  multiplying  the  unit  value  for 
depletion,  so  determined,  by  the  number  of  units  sold  or  produced  within  the 
taxable  year.  The  depletion  deduction  for  the  taxable  year  is  subject,  how- 
ever, to  the  limitation  contained  in  article  201  (h).  In  the  selection  of  A 
unit  for  depletion  preference  shall  be  given  to  the  principal  or  customary 
unit  or  units  paid  for  in  the  product  sold.  (Art.  210,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Lessor  under  1916  Act  (5-21-1418:  Sol.  Op.  80).  .June  1921  Cum.  Bull.  p.  195. 


1 944  Computation  of  Deduction  for  Depletion  of  Gas  Wells. — On  ac- 
count of  the  peculiar  conditions  surrounding  the  production  of 
natural  gas  it  will  be  necessary  to  compute  the  depletion  allowance  for 
gas  properties  by  methods  suitable  to  the  particular  cases  in  question  and 
acceptable  to  the  Commissioner.  Usually  the  depletion  of  natural  gas 
properties  should  be  computed  on  the  basis  of  decline  in  closed  or  rock  pres- 
sure, taking  into  account  the  effects  of  water  encroachment  and  any  other 
modifying  factors.  The  gas  producer  will  be  expected  to  compute  the 
depletion  as  accurately  as  possible  and  submit  with  his  return  a descrip- 
tion of  the  method  by  which  the  computation  was  made.  The  following 
formula,  in  which  the  units  of  gas  are  pounds  per  square  inch  of  closed  pres- 
sure, is  recommended:  The  quotient  of  the  capital  account  recoverable 
through  depletion  allowances  to  the  end  of  the  taxable  year  divided  by  the 
sum  of  the  pressures  at  the  beginning  of  the  year  plus  the  sum  of  initial  pres- 
sures of  new  wells  and  less  the  sum  of  the  pressures  at  the  time  of  expected 
abandonment  (which  quotient  is  the  unit  cost)  multiplied  by  the  sum  of  the 
pressures  at  the  beginning  of  the  taxable  year  plus  the  sum  of  the  initial 
pressures  of  new  wells  and  less  the  sum  of  the  pressures  at  the  end  of  the 
tax  year  equals  the  depletion  sustained  for  the  taxable  year.  The  depletion 
deduction  for  the  taxable  year  is  subject,  however,  to  the  limitation  contained 
in  Article  201  (h).  (Art.  211,  Reg.  62,  1922  Edition.) 

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1945  Gas  Well  Pressure  Records  to  be  Kept.— Beginning  with  1919 
closed  pressure  readings  of  representative  wells,  if  not  of  all  wells, 
must  be  carefully  made  and  kept.  In  order  to  standardize  pressure  readings 
the  well  should  remain  closed  until  the  pressure  does  not  build  up  more 
than  1 per  cent  of  the  total  pressure  in  10  minutes.  Ordinarily  24  hours 
will  suffice  for  this  purpose,  but  some  wells  will  need  to  remain  closed  for 
a longer  period.  If  there  is  any  water  in  the  well  it  should  be  blown  or 
pumped  off  before  the  well  is  closed.  A closed  pressure  reading  of  a gas 
well  which  has  been  producing,  or  is  near  gas  wells  that  have  been  produc- 
ing, is  lower  than  the  actual  pressure  of  the  gas  in  the  reservoir  by  an  amount 
depending  on  the  well’s  location  with  reference  to  other  producing  wells 
and  the  length  of  time  it  has  been  closed  in.  It  is  necessary  to  record  the 
length  of  time  the  well  has  been  closed  and  to  show  how  the  pressure  built 
up  during  this  period.  Successive  readings  will  indicate  the  point  at  which 
the  pressure  becomes  approximately  stationary,  that  is,  the  point  at  which 
the  closed  pressure  approaches  as  nearly  as  possible  the  maximum  pressure 
which  would  be  shown  if  all  wells  in  the  pool  were  closed  for  several  months. 
The  length  of  time  required  varies  with  the  character  of  the  sand,  position 
of  the  packer,  the  location  of  the  well  with  reference  to  other  wells,  the 
limits  of  the  pool,  and  other  factors.  The  depth  of  the  well,  diameter  of 
tubing,  and  line  pressure  when  the  well  was  shut  off,  should  be  noted.  Since 
readings  at  the  exact  end  of  the  taxable  year  will  ordinarily  not  be  available, 
the  pressure  of  that  date  may  be  obtained  by  interpolation  or  extrapolation. 
In  certain  cases  readings  taken  regularly  in  September  or  some  other  month 
may  be  applicable  to  the  end  of  the  taxable  year.  As  a general  rule  Septem- 
ber closed  pressure  readings  furnish  the  best  indication  of  depletion  and 
it  is  lecommended  that  such  readings  be  made  with  regularity  and  care. 
Where  interpolated  or  extrapolated  readings  are  used,  the  data  from  which 
they  are  obtained  should  be  given.  Gauges  should  be  of  appropriate  capac- 
ity and  should  be  frequently  tested.  A record  should  be  kept  of  the  number 
of  gauges,  date  each  was  tested,  names  of  men  testing,  and  other  significant 
details.  (Art.  212,  Reg.  62,  1922  Edition.) 


194  6 Computation  of  Allowance  Where  Quantity  of  Oil  or  Gas  Uncer- 
tain.— If  by  reason  of  the  youth  of  the  field,  the  restricted  produc- 
tion, or  for  any  other  cause,  it  is  not  possible  to  determine  with  any  degree 
of  certainty  the  quantity  of  oil  or  gas  in  a property,  it  will  be  necessary  to 
make  a tentative  estimate,  which  will  apply  until  production  figures  are 
available  from  which  an  accurate  determination  may  be  made.  (Art.  213, 
Reg.  62,  1922  Edition.) 

1947  Computation  of  Depletion  Allowance  for  Combined  Holdings  of  Oil 
and  Gas  Wells. — The  recoverable  oil  belonging  to  the  taxpayer 
shall  be  estimated  for  each  property  separately.  The  capital  account  for 
each  property  shall  include  the  cost  or  value,  as  the  case  may  be,  oi  the  01 
or  gas  lease  or  rights  plus  all  incidental  costs  of  development  not  charged 
as  expense  nor  returnable  through  depreciation.  The  unit  value  of  the  re- 
coverable oil  and/or  gas  for  each  property  is  the  quotient  obtained  by  dividing 
the  amount  returnable  through  depletion  for  each  property  by  the  estimated 

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DEDUCTIONS— DEPLETION. 

number  of  units  of  recoverable  oil  and/or  gas  on  that  property.  This  unit 
for  each  separate  property  multiplied  by  the  number  of  units  of  oil  and/or 
gas  produced  within  the  year  by  the  taxpayer  upon  such  property  will  de- 
termine the  amount  which  may  be  deducted  for  depletion  from  the  gross 
income  of  that  year  for  that  property,  subject,  however,  to  the  limitation 
contained  in  Article  201  (h).  The  total  allowance  for  depletion  of  all  the  oil 
and/or  gas  properties  of  the  taxpayer  will  be  the  sum  of  the  amounts  computed 
for  each  property  separately:  Provided,  that  in  the  case  of  gas  properties 
the  depletion  sustained  for  each  pool  may  be  computed  by  using  the  total 
amount  returnable  through  depletion  of  all  the  tracts  of  gas  land  owned  by  the 
taxpayer  in  the  pool  and  the  average  decline  in  rock  pressures  of  all  the  tax- 
payer’s wells  in  such  pool  in  the  formula  given  in  Article  211  [If  1944].  The 
total  allowance  for  depletion  in  the  gas  properties  of  the  taxpayer  will  be 
the  sum  of  the  amounts  computed  for  each  pool.  (Art.  214,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Annua!  rental  paid  under  mineral  lease.  Bonuses  where  land  had  no  value  for  min- 
eral purposes  on  March  1,  1913  (1-5-56:  A.  R.  M.  148).  .June  1922  Cum.  Bull. 

p.  186. 


. 1948  Depletion:  Adjustments  of  Accounts  Based  on  Bonus  or  Advanced 
Royalty. — (a)  Where  a lessor  receives  a bonus  or  other  sum  in 
addition  to  royalties,  such  bonus  or  other  sum  shall  be  regarded  as  a return 
of  capital  to  the  lessor,  but  only  to  the  extent  of  the  amount  remaining  to 
be  recovered  through  depletion  by  the  lessor  at  the  date  of  lease.  If  the 
bonus  exceeds  the  amount  remaining  to  be  recovered,  the  excess  and  all 
the  royalties  thereafter  received  will  be  income  and  not  depletable.  If  the 
bonus  is  less  than  the  amount  remaining  to  be  recovered  by  the  lessor  through 
depletion,  the  difference  may  be  recovered  through  depletion  deductions 
based  on  the  royalties  thereafter  received  to  the  extent  that  such  deductions 
are  legally  allowable.  The  bonus  or  other  sum  paid  by  the  lessee  for  a lease 
made  on  or  after  March  1,  1913,  will  be  his  value  for  depletion  as  of  date  of 
acquisition. 

1949  (b)  Where  the  owner  has  leased  a mineral  property  for  a term  of 
years  with  a requirement  in  the  lease  that  the  lessee  shall  extract 
and  pay  for,  annually,  a specified  number  of  tons,  or  other  agreed  units  of 
measurement,  of  such  mineral,  or  shall  pay,  annually,  a specified  sum  of 
money  which  shall  be  applied  in  payment  of  the  purchase  price  or  royalty 
per  unit  of  such  mineral  whenever  the  same  shall  thereafter  be  extracted  and 
removed  from  the  leased  premises,  the  value  in  the  ground  to  the  lessor,  for 
purposes  of  deoletion,  of  the  number  of  units  so  paid  for  in  advance  of  ex- 
traction will  constitute  an  allowable  deduction  from  the  gross  income  of 
the  year  in  which  such  payment  or  payments  shall  be  made;  but  no  deduc- 
tion for  depletion  by  the  lessor  shall  be  claimed  or  allowed  in  any  subsequent 
year  on  account  of  the  extraction  or  removal  in  such  year  of  any  mineral  so 
paid  for  in  advance  and  for  which  deduction  has  once  been  made. 

1 950  (c)  If,  for  any  reason,  any  such  mineral  lease  shall  be  terminated 

or  abandoned  before  the  mineral  which  has  been  paid  for  in  ad- 
vance has  been  extracted. and  removed,  and  the  lessor  repossesses  the  leased 

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property,  the  lessor  shall  adjust  his  capital  accounts  by  lestoring  to  the  capital 
sum  of  the  property  the  depletion  deductions  made  in  prior  years  on  account 
of  royalties  on  mineral  paid  for  but  not  removed,  and  his  income  account 
shall  be  adjusted  so  as  to  include  the  amount  so  restored  to  capital  sum  as 
income  of  the  year  such  lease  is  terminated  or  the  property  repossessed,  and 
the  tax  thereon  paid. 

1951  (d)  Upon  the  expiration,  termination,  or  abandonment  of  a lease, 
without  the  removal  of  any  or  all  of  the  mineral  contemplated  by 

the  lease,  the  lessor  shall  be  required  to  restore  to  capital  account  so  much 
of  the  bonus  received  and  deducted  from  the  amount  returnable  through  de- 
pletion as  is  in  excess  of  the  actual  depletion  or  loss  in  value  sustained  as  a 
result  of  the  operations  under  the  lease  and  the  corresponding  amount  will, 
be  income  for  the  year  in  which  the  lease  expires,  terminates,  or  is  abandonedr 
(Art.  215,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

* Minimvrn  royalties  received:  no  ore  extracted  and  lease  canceled:  1916  Act  (1-43- 
561:  A.  R.  R.  1147).. Bull.  I (’22)-43,  p.  7. 

1952  Depletion  and  Depreciation  Accounts  on  Books. — Every  taxpayer 
claiming  and  making  a deduction  for  depletion  and  depreciation 

of  mineral  property  shall  keep  accurate  ledger  accounts  in  which  shall  be 
charged  the  fair  market  value  as  of  March  1,  1913,  or  within  thirty,  days 
after  the  date  of  discovery,  or  the  cost,  as  the  case  may  be,  (a)  of  the  mineral 
deposit,  and  (b)  of  the  plant  and  equipment,  together  with  subsequent 
allowable  capital  additions  to  each  account.  These  accounts  shall  there- 
after be  credited  annually  with  the  amounts,  whether  legally  allowable  or 
not,  of  the  depletion  and  depreciation  sustained;  or  the  amounts  of  the 
depletion  and  depreciation  sustained  shall  be  ci edited  to  depletion  and  de- 
preciation reserve  accounts,  to  the  end  that  when  the  sum  of  the  credits 
for  depletion  and  depreciation  equals  the  value  or  cost  of  the  property,  plus 
subsequent  allowable  capital  additions,  no  further  deduction  for  depletion 
and  depreciation  with  respect  to  the  property  shall  be  allowed.  (Art-  216, 
Reg.  62,  1922  Edition.) 

1 953  Statement  to  be  Attached  to  Return  When  Depletion  or  Depre- 
ciation of  Mineral  Property  is  Claimed. — (a)  To  the  return  of  every 

taxpayer  claiming  a deduction  for  depletion  or  depreciation  there  shall  be 
attached  a statement  setting  forth  with  respect  to  each  mineral  property; 
(1)  whether  taxpayer  is  a fee  owner,  lessor,  or  lessee;  (2)  the  date  of  acquisi- 
tion and  if  under  lease,  its  exact  terms  and  date  of  expiration;  (3)  the 
cost  of  the  property,  stating  the  amount  paid  to  each  vendor,  with  his 
name  and  address;  (4)  the  basic  date  at  which  the  property  is  valued; 
(5)  the  value  of  the  property  on  the  basic  date  with  a statement  of  the  precise 
method  by  which  it  was  determined;  (6)  the  value  of  the  surface  of  the  land 
for  purposes  other  than  mineral  production;  (7)  the  estimated  number  of 
units  of  mineral  at  the  basic  date  with  an  explanation  of  the  method  used  in 
the  estimation,  and  an  average  analysis  which  will  indicate  the  quality 
of  the  mineral  valued;  (8)  the  number  of  units  sold  during  the  year  for  which 
the  return  is  made;  (9)  the  gross  and  net  income  derived  from  the  sale  of 
mineral  and  in  case  of  discovery  the  net  income  from  the  property  upon  which 
the  discovery  was  made;  (10)  the  amounts  deducted  for  depletion;  (11)  the 
amounts  sustained  on  account  of  depletion  or  on  account  of  depreciation 

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stated  separately  from  the  basic  date  to  the  taxable  year;  and  (12)  any  other 
data  which  will  be  helpful  in  determining  the  reasonableness  of  the  deductions 
claimed  in  the  return. 

1 954  (b)  To  the  return  of  every  taxpayer  claiming  a deduction  for  de- 
pletion in  respect  of  (1)  property  in  which  he  owns  a fractional  inter- 
est only,  or  (2)  a leasehold,  or  (3)  property  subject  to  lease,  there  shall  also 
be  attached  a statement  setting  forth  the  name  and  address  and  the  precise 
nature  of  the  holding  of  each  person  interested  in  the  property,  and  every 
lessor  shall  attach  to  his  return  an  affidavit  stating,  as  of  the  date  of  filing 
the  return,  whether  the  lease  involved  is  still  in  effect  during  the  year  covered 
by  the  return,  and  if  not  still  in  effect,  when  it  was  terminated  and  for  what 
reason,  and  whether  the  lessor  has  repossessed  the  property. 

1 955  (c)  All  statements  required  to  be  furnished  in  connection  with  the  re- 
turns of  taxpayers  claiming  depletion  or  depreciation  must  be  under  oath  and 
may  be  included  in  a single  affidavit.  (Art.  217,  Reg.  62,  1922  Edition.) 

1956  Additional  Statement  to  be  Attached  to  Return  Where  Depletion  of 

Oil  or  Gas  is  Claimed.— To  each  return  made  by  a person  owning  or 
operating  oil  or  gas  properties  there  should  be  attached  a statement  showing 
for  each  property  the  following  information,  which  may  be  given  in  the 
form  of  a table,  if  desired,  by  taxpayers  owning  more  than  one  property: 
(a)  the  fair  market  value  of  the  property  (exclusive  of  machinery,  equip- 
ment, etc.,  and  the  value  of  the  surface  rights)  as  of  March  1,  1913,  if  ac- 
quired prior  to  that  date;  or  the  fair  market  value  of  the  property  within 
30  days  after  the  date  of  discovery;  or  the  actual  cost  of  the  property,  if 
acquired  subsequent  to  February  28,  1913,  and  not  covered  by  the  fore- 
going clause;  (b)  how  the  fair  market  value  was  ascertained,  if  the  property 
came  under  the  first  or  second  head  under  (a);  (c)  the  estimated  quantity 
of  oil  and/or  gas  in  the  property  at  the  time  that  the  value  or  cost  was  deter- 
mined; (d)  the  name  and  address  of  the  person  making  the  estimate  and  the 
manner  in  which  this  estimate  was  made,  including  a summary  of  the  cal- 
culations; (e)  the  amount  of  capital  applicable  to  each  unit  (this  being 
found  by  dividing  the  value  or  cost,  as  the  case  may  be,  by  the  estimated 
number  of  units  of  oil  and/or  gas  in  the  property  at  the  time  the  value  or  cost 
was  determined) ; (f)  the  quantity  of  oil  and/or  gas  produced  during  the  year 
for  which  the  return  is  made  (in  the  case  of  new  properties  it  is  desirable 
that  this  information  be  furnished  by  months)  and  in  case  of  discovery 
the  net  income  from  the  property  upon  which  the  discovery  was  made;  (g) 
the  number  of  acres  of  producing  and  proven  oil  and/or  gas  land;  (h)  the 
number  of  wells  producing  at  the  beginning  and  end  of  the  taxable  year;  (i) 
the  date  of  completion  of  wells  finished  during  the  taxable  year;  (j)  the  date 
of  abandonment  of  all  wells  abandoned  during  the  taxable  year;  (k)  a prop- 
erty map  showing  the  location  of  the  property  and  of  the  producing  and 
abandoned  wells,  dry  holes,  and  proven  oil  and  gas  land;  (1)  the  average 
gravity  of  the  oil  produced  on  the  tract;  (m)  the  number  of  pay  sands  and 
average  thickness  of  each  pay  sand  or  zone  on  the  property;  (n)  the  average 
depthjto  the  top  of  each  of  the  different  pay  sands;  (o)  any  data  regarding 
change  in  operating  conditions,  such  as  flooding,  use  of  compressed  air, 
vacuum,  shooting,  etc.,  which  have  a direct  effect  on  the  production  of  the 
property;  (p)  the  monthly  or  annual  production  of  individual  wells  and  the 
initial  daily  production  of  new  wells  (this  is  highly  desirable  information  and 
should  be  furnished  wherever  possible);  (q)  (for  the  first,  year  in  which  the 

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above  information  is  filed  for  a property  which  was  producing  prior  to  the 
taxable  year  covered  by  the  above  statement  the  following  information  must 
be  furnished)  annual  production  of  the  tract  or  of  the  individual  wells,  if  the 
latter  information  is  available,  from  the  beginning  of  its  productivity  to  the 
beginning  of  the  taxable  year  for  which  the  return  was  filed;  the  average 
number  of  wells  producing  during  each  year;  and  the  initial  daily  production 
of  each  well;  and  (r)  any  other  data  which  will  be  helpful  in  determining  the 
reasonableness  of  the  depletion  deduction.  When  a taxpayer  has  filed  ade- 
quate maps  with  the  Commissioner  he  may  be  relieved  of  filing  further  maps 
of  the  same  properties,  provided  all  additional  information  necessary  for 
keeping  the  maps  up  to  date  is  filed  each  year.  This  includes  records  of  dry 
holes,  as  well  as  producing  wells,  together  with  logs,  depth  and  thickness  of 
sands,  location  of  new  wells,  etc.  By  “production”  is  meant  the  net  pro- 
duction of  oil  or  gas  belonging  to  the  taxpayer.  In  those  leases  where  no 
account  is  kept  of  the  oil  or  gas  used  for  fuel,  the  production  will  necessarily 
be  that  remaining  after  the  fuel  used  in  the  property  has  been  taken  out. 
In  cases  of  this  kind  an  estimate  of  the  fuel  used  from  each  tract  should  be 
given  for  each  year.  (Art.  218,  Reg.  62,  1922  Edition.) 


1957  Discovery  of  Mines. — fa)  The  discovery  must  add  a new  mine  to 
those  previously  known  to  exist  and  can  not  be  made  within  a proven 

tract  or  lease  as  defined  in  paragraph  (g)  infra,  (b)  To  entitle  a taxpayer  to  a 
valuation  of  his  property,  for  the  purpose  of  depletion  allowances,  by  reason  of 
the  discovery  of  a mine  on  or  after  March  1,  1913,  the  discovery  must  be 
made  by  the  taxpayer  after  that  date,  and  must  result  in  the  fair  market 
value  of  the  property  becoming  disproportionate  to  the  cost.  The  fair 
market  value  of  the  property  will  be  deemed  to  have  become  disproportionate 
to  the  cost  when  the  newly  discovered  mine  contains  mineral  in  such  quan- 
tity and  of  such  quality  as  to  afford  a reasonable  expectation  of  return  to 
the  taxpayer  of  an  amount  materially  in  excess  of  the  capital  expended  in 
making  such  discovery  plus  the  cost  of  future  development,  equipment,  and 
exploitation. 

1958  (c)  For  the  purpose  of  these  sections  of  the  Act  a mine  may  be 
said  to  be  discovered  when  (1)  there  is  found  a natural  deposit  of 

mineral,  or  (2)  there  is  disclosed  by  drilling  or  exploration,  conducted  above 
or  below  ground,  a mineral  deposit  not  previously  known  to  exist  and  so 
improbable  that  it  had  not  been,  and  could  not  have  been,  included  in  any 
previous  valuation  for  the  purpose  of  depletion,  and  which  in  either  case 
exists  in  quantity  and  grade  sufficient  to  justify  commercial  exploitation. 

1959  (d)  In  determining  whether  a discovery  entitling  the  taxpayer  to  a 
valuation  has  been  made,  the  Commissioner  will  take  into  account 

the  peculiar  conditions  of  each  case;  but  no  discovery,  for  the  purposes  of 
valuation,  can  be  allowed,  as  to  ores  or  minerals,  such  as  extensions  of  known 
ore  bodies,  that  have  been  or  should  have  been  included  in  “probable’ 
or  “prospective”  ore  or  mineral,  or  in  any  other  way  comprehended  in  a 
prior  valuation,  nor  as  of  a date  subsequent  to  that  when,  in  fact,  discovery 
was  evident,  when  delay  by  the  taxpayer  in  making  claim  therefor  has 
resulted  or  will  result  in  excessive  allowances  for  depletion. 

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1960  (e)  The  value  of  the  property  claimed  as  a result  of  a discovery 
must  be  the  fair  market  value,  as  defined  in  Article  206  [If  1929], 

based  on  what  is  evident  within  thirty  days  after  the  commercially  valuable 
character  and  extent  of  the  discovered  deposits  of  ore  or  mineral  have  with 
reasonable  certainty  been  established,  determined,  or  proved. 

1961  (f)  After  a bona  fide  discovery  the  taxpayer  shall  adjust  his  capital 
and  depletion  accounts  in  accordance  with  Articles  206  [^T 1929], 

208  [If  1 940],  and  210  [Tf  1942],  and  shall  submit  such  evidence  as  to  establish 
his  right  to  a revaluation,  covering  the  conditions  and  circumstances  of 
the  discovery  and  the  size,  character,  and  location  of  the  discovered  deposit 
of  mineral,  the  value  of  the  property  at  the  prior  basic  date,  the  cost  of 
discovery,  and  its  development,  equipment,  and  exploitation,  its  value  and 
the  particular  method  used  in  the  determination. 

1962  (g)  In  the  case  of  amine,  a “proven  tract  or  lease”  includes,  but  is 
not  necessarily  limited  to,  the  mineral  deposits  known  to  exist  in 

any  known  mine  at  the  date  as  of  which  such  mine  was  valued  for  purposes 
of  depletion,  and  all  extensions  thereof,  including  “probable”  and  “prospec- 
tive” ores  considered  as  a factor  in  the  determination  of  the  value  or  cost. 
(Art.  219,  Reg.  62,  1922  Edition.) 


1963  Oil  and  Gas  Wells. — Section  214  (a)  (10)  and  Section  234  (a)  (9) 
provide  that  taxpayers  who  discover  oil  and  gas  wells  on  or  after 

March  1,  1913,  may,  under  the  circumstances  therein  prescribed,  determine 
the  fair  market  value  of  such  property  at  the  date  of  discovery  or  within 
30  days  thereafter  for  the  purpose  of  ascertaining  allowable  deductions  for 
depletion.  Before  such  valuation  may  be  made  the  statute  requires  that 
two  conditions  precedent  be  satisfied,  (1)  that  the  fair  market  value  of  such 
property  (oil  and/or  gas  wells)  on  the  date  of  discovery  or  within  30  days 
thereafter  became  materially  disproportionate  to  the  cost,  by  virtue  of  the 
discovery,  and  (2)  that  such  oil  and  gas  wells  were  not  acquired  as  the  result 
of  purchase  of  a proven  tract  or  lease.  (Art.  220,  Reg.  62,  1922  Edition.) 

1964  Discovery  Allowance  Privilege  Accorded  to  Those  Only  in  Pos- 
session at  Time  of  Discovery  and  Not  to  Subsequent  Purchasers. — 

Read  at  ^[1919. 

19  65  Discovery — Proven  Tract  or  Lease — Property  Disproportionate  Value. 

— (1)  For  the  purpose  of  sections  214  (a)  (10)  and  234  (a)  (9)  of  the 
Revenue  Act  of  1921,  an  oil  or  gas  well  may  be  said  to  be  discovered  when 
there  is  either  a natural  exposure  of  oil  or  gas,  or  a drilling  that  discloses  the 
actual  and  physical  presence  of  oil  or  gas  in  quantities  sufficient  to  justify 
commercial  exploitation.  Quantities  sufficient  to  justify  commercial  ex- 
ploitation are  deemed  to  exist  when  the  quantity  and  quality  of  the  oil  or 
gas  so  recovered  from  the  well  are  such  as  to  afford  a reasonable  expectation 
of  at  least  returning  the  capital  invested  in  such  well  through  the  sale  of  the 
oil  or  gas,  or  both  to  be  derived  therefrom. 

19  66  (2)  A proven  tract  or  lease  may  be  a part  or  the  whole  of  a proven 

area.  A proven  area  for  the  purposes  of  this  statute  shall  be  pre- 

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sumed  to  be  that  portion  of  the  productive  sand  or  zone  or  reservoir  in- 
cluded in  a square  surface  area  of  160  acres  having  as  its  center  the  mouth 
of  a well  producing  oil  and/or  gas  in  commercial  quantities.  In  other  words, 
a producing  well  shall  be  presumed  to  prove  that  portion  of  a given  sand, 
zone,  or  reservoir  which  is  included  in  an  area  of  160  acres  of  land,  regardless 
of  private  boundaries.  The  center  of  such  square  area  shall  be  the  mouth 
of  the  well,  and  its  sides  shall  be  parallel  to  the  section  lines  established 
by  the  United  States  system  of  public-land  surveys  in  the  district  in  which 
it  is  located.  Where  a district  is  not  covered  by  the  United  States  land  sur- 
veys the  sides  of  said  area  shall  run  north  and  south,  east  and  west..  So 
much  of  a taxpayer’s  tract  or  lease  which  lies  within  an  area  proven  either 
by  himself  or  by  another  is  “a  proven  tract  or  lease”  as  contemplated  by  the 
statute,  and  the  discovery  of  a well  thereon  will  not  entitle  such  taxpayer 
to  revalue  such  well  for  the  purpose  of  depletion  allowances,  unless  the 
tract  or  lease  had  been  acquired  before  it  became  proven.  And  even  though 
a well  is  brought  in  on  a tract  or  lease  not  included  in  a proven  area  as  here- 
tofore defined,  nevertheless  it  may  not  entitle  the  owner  of  the  tract  or  lease 
in  which  such  well  is  located  to  revaluation  for  depletion  purposes,  if  such 
tract  or  lease  lies  within  a compact  area  which  is  immediately  surrounded 
by  proven  land,  and  the  geologic  structural  conditions  on  or  under  the  land 
so  inclosed  may  reasonably  warrant  the  belief  that  the  oil  or  gas  of  the  proven 
areas  extends  thereunder  unless  the  tract  or  lease  had  been  acquired  before 
it  became  so  proven.  Under  such  circumstances  the  entire  area  is  to  be 
regarded  as  proven  land. 

1967  (3)  The  “property”  which  may  be  valued  after  discovery  is  the 
“well.”  For  the  purposes  of  these  sections  the  “well”  is  the  drill 

hole,  the  surface  necessary  for  the  drilling  and  operation  of  the  well,  the 
oil  or  gas  content  of  the  particular  sand,  zone,  or  reservoir  (limestone,  breccia, 
crevice,  etc.)  in  which  the  discovery  was  made  by  the  drilling,  and  from  which 
the  production  is  drawn,  to  the  limit  of  the  taxpayer’s  private  bounding  lines, 
but  not  beyond  the  limits  of  the  proven  area  as  heretofore  provided. 

1968  (4)  A taxpayer  to  be  entitled  to  revalue  his  property  after  March  1, 
1913,  for  the  purpose  of  depletion  allowances  must  make  a discovery 

after  said  date,  and  such  discovery  must  result  in  the  fair  market  value  of  the 
property  becoming  disproportionate  to  the  cost.  The  fair  market  value  of 
the  property  will  be  deemed  to  have  become  disproportionate  to  the  cost 
when  the  output  of  such  well  of  oil  or  gas  affords  a reasonable  expectation 
of  returning  to  the  taxpayer  an  amount  materially  in  excess  of  the  cost  of 
the  land  or  lease  if  acquired  since  March  1,  1913,  or  its  fair  market  value 
on  March  1,  1913,  if  acquired  prior  thereto,  plus  the  cost  of  exploration  and 
development  work  to  the  time  the  well  was  brought  in.  (Art.  220  (a), 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Explanation  of  Art.  220(a)  of  Reg.  45  (22-20-970:  O.  D.  527).  .June  1920  Cum.  Bull 
p.  147. 


1 969  Proof  of  Discovery  of  Oil  and  Gas  Wells. — In  order  to  meet  the 
requirements  of  the  preceding  article  to  the  satisfaction  of  the  Com- 
missioner, the  taxpayer  will  be  required,  among  other  things,  to  submit 

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the  following  with  his  return:  (a)  A map  of  convenient  scale,  showing  the 
location  of  the  tract  and  discovery  well  in  question  and  of  the  nearest  pro- 
ducing well,  and  the  development  for  a radius  of  at  least  three  miles  from 
the  tract  in  question,  both  on  the  date  of  discovery  and  on  the  date  when 
the  fair  market  value  was  set:  (b)  a certified  copy  of  the  log  of  the  discovery 
well  showing  the  location,  the  date  of  drilling  begun,  the  date  of  completion 
and  beginning  of  production,  the  formations  penetrated,  the  oil,  gas,  and 
water  sands  penetrated,  the  casing  record,  including  the  record  of  perfora- 
tions, and  any  other  information  tending  to  show  the  condition  of  the  well 
and  the  location  of  the  sand  or  zone  from  which  the  oil  or  gas  is  produced 
on  the  date  the  discovery  was  claimed;  (c)  a sworn  record  of  production, 
clearly  proving  the  commercial  productivity  of  the  discovery  well;  (d)  a 
sworn  copy  of  the  records,  showing  the  cost  of  the  property;  and  (e)  a full 
explanation  of  the  method  of  determining  the  value  on  the  date  of  discovery 
or  within  30  days  thereafter,  supported  by  satisfactory  evidence  of  the  fair- 
ness of  this  value.  (Art.  221,  Reg.  62,  1922  Edition.) 

1970  Allowable  Capital  Additions  in  Case  of  Mines. — (a)  All  expendi- 
tures for  development,  rent,  and  royalty  in  excess  of  net  receipts  from 

minerals  sold  shall  be  charged  to  capital  account  recoverable  through  de- 
pletion, while  the  mine  is  in  the  development  stage.  Expenditures  made  in 
order  to  maintain  the  mine  at  its  normal  output  shall  be  deducted  as  an 
expense  in  the  year  in  which  the  expenditure  is  made  or  accrues.  Any  ex- 
penditure for  extraordinary  development  and  equipment,  such  as  stripping, 
shaft  sinking,  tunneling,  and  other  work  beyond  that  necessary  to  maintain 
the  mine  at  its  normal  production  or  output  should  be  carried  forward  and 
apportioned  and  deducted  as  an  operating  expense  in  the  years  to  which  it  is 
applicable. 

1971  (b)  All  expenditures  for  plant  and  equipment  shall  be  charged  to 
capital  account  recoverable  through  depreciation,  while  the  mine  is 

in  the  development  stage.  Thereafter  the  cost  of  major  items  of  plant 
and  equipment  shall  be  capitalized,  but  the  cost  of  minor  items  of  equipment 
and  plant,  necessary  to  maintain  the  normal  output,  and  the  cost  of  re- 
placement may  be  charged  to  current  expense  of  operation.  See  Articles 
103  [If  1642],  293  tf[1630],  and  582  [1fl634].  (Art.  222,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Prospecting  and  development  for  purpose  of  enlarging  the  business  or  continuing  it 
(26-19-589:  0.  D.  314)..  1919  Cum.  Bull.  p.  143. 


197  2 Charges  to  Capital  and  to  Expense  in  the  Case  of  Oil  and  Gas  Wells. 

— Such  incidental  expenses  as  are  paid  for  wages,  fuel,  repairs, 
hauling,  etc.,  in  connection  with  the  exploration  of  the  property,  drilling  of 
wells,  building  of  pipe  lines,  and  development  of  the  property  may  at  the 
option  of  the  taxpayer  be  deducted  as  a development  expense  or  charged 
to  the  capital  account  returnable  through  depletion.  If  in  exercising  this 
option  the  taxpayer  charges  these  incidental  expenses  to  capital  account,  in 
so  far  as  such  expense  is  represented  by  physical  property  it  may  be  taken 
into  account  in  determining  a reasonable  allowance  for  depreciation.  The 

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cost  of  drilling  nonproductive  wells  may  at  the  option  of  the  operator  be 
deducted  from  gross  income  as  a development  expense  or  charged  to  capital 
account  returnable  through  depletion  and  depreciation  as  in  the  case  of 
productive  wells.  An  election  once  made  under  this  option  will  control  the 
taxpayer’s  returns  for  all  subsequent  years.  Casing-head  gas  contracts  have 
been  construed  to  be  tangible  assets  and  their  cost  may  be  added  to  the  capital 
account  returnable  through  depletion,  following  the  rate  set  by  the  oil  wells 
from  which  the  gas  is  derived,  or,  if  the  life  of  the  contract  is  shorter  than 
the  reasonable  expectation  of  the  life  of  the  wells  furnishing  the  gas,  the 
capital  invested  in  the  contract  may  be  written  off  through  yearly  allowances 
equitably  distributed  over  the  life  of  the  contract.  All  oil  produced  during 
the  taxable  year  must  be  considered  in  the  computation  of  the  depletion 
allowance  for  that  year.  In  computing  net  income  all  oil  in  storage  at  the 
beginning  and  at  the  end  of  the  taxable  year  must  be  inventoried  in  accordance 
with  Article  1582  [^[1511],  Where  deductions  for  depreciation  or  depletion 
have  either  on  the  books  of  the  taxpayer  or  in  his  returns  of  net  income  been 
included  in  the  past  in  expense  or  other  accounts,  rather  than  specifically  as 
depreciation  or  depletion,  or  where  capital  expenditures  have  been  charged 
to  expense  in  lieu  of  depreciation  or  depletion,  a statement  indicating  the 
extent  to  wTich  this  practice  has  been  carried  should  accompany  the  return 
(Art.  223,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Election  to  charge  drilling  to  expense  having  been  made  in  prior  years  amounts  ex- 
pended may  not  now  be  treated  as  capital  items  (10-21-1498:  A.  R.  M.  110).. 
June  1921  Cum.  Bull.  p.  200:  See  also  (6-21-1434:  O.  D.  796).  .June  1921  Cum. 
Bull.  p.  199. 

Subsidiary  organized  to  take  over  properties  bound  by  election  of  formerly  operating 
parent  corporation  (34-21-1781:  O.  D.  1002).. Dec.  1921  Cum.  Bull.  p.  161. 


1973  Depreciation  in  the  Case  of  Mines— (a)  The  Act  provides  that 
deductions  for  depreciation  of  improvements  “according  to  the  pecul- 
iar conditions  in  each  case”  may  be  taken  by  a taxpayei  owning  or  leasing 
mining  property.  This  is  deemed  to  include  exhaustion  and  wear  and  tear 
of  the  property  used  in  mining  of  deposits,  including  a reasonable  allow- 
ance for  obsolescence.  See  Articles  161-171  [^[  1 83 1 et  seq]. 

19  74  (b)  It  shall  be  optional  with  the  taxpayer,  subject  to  the  approval 

of  the  Commissioner,  (1)  whether  the  value  of  the  mining  property 
plus  allowable  capital  additions  but  minus  estimated  salvage  value  shall  be 
recovered  at  a rate  established  by  current  exhaustion  of  mineral,  or  (2) 
whether  the  value  of  the  mineral  deposit  on  the  basic  date  plus  allowable 
capita!  additions  shall  be  recovered  through  depletion  and  the  cost  of  plant 
and  equipment  less  the  estimated  salvage  value  shall  be  recovered  by  reason- 
able charges  for  depreciation  (See  Article  161  [^[1831])  at  the  rate  deter- 
mined by  its  physical  life  or  its  economic  life  or,  according  to  the  peculiar 
conditions  of  the  case,  by  a method  satisfactory  to  the  Commissioner. 

1975  (c)  The  estimated  physical  life  of  a plant  or  unit  thereof  (including 

buildings,  machinery,  apparatus,  roads,  railroads,  and  other  equip- 
ment and  improvements  whose  principal  use  is  in  connection  with^the  mining 

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or  treatment  or  other  necessary  handling  of  mineral  products)  may  be  de- 
fined as  the  estimated  time  such  plant,  or  unit,  when  given  proper  care  and 
repair,  can  be  continued  in  use  despite  physical  deterioration,  decay,  wear 
and  tear. 

19  76  (d)  The  estimated  economic  life  of  a plant  or  unit  thereof  is  the 

estimated  time  during  which  the  plant  or  unit  may  be  utilized  effect- 
ively and  economically  for  its  intended  purposes  and  may  be  limited  by  the 
life  of  the  property  or  of  that  portion  of  the  mineral  deposits  which  it  serves 
but  can  never  exceed  the  physical  life. 

1977  (e)  Any  difference  between  the  salvage  value  of  plant  and  equip- 
ment and  the  depreciated  value  remaining  at  the  termination  of 

mining  operations  shall  be  returned  as  profit  or  loss  in  the  year  in  which  it 
is  realized. 

1978  (f)  Nothing  in  these  regulations  shall  be  interpreted  as  meaning 
that  the  value  of  a mining  plant  and  equipment  may  be  reduced  by 

depreciation  deductions  to  a sum  below  the  value  of  the  salvage  when  the 
property  shall  have  become  obsolete  or  shall  have  been  abandoned  for  the 
purpose  of  mining.  In  estimating  the  salvage  value  of  the  equipment  at  the 
end  of  its  estimated  economic  life  due  consideration  may  be  given  to  it* 
specialized  character  and  the  cost  of  dismounting  and  dismantling  and 
transporting  it  to  market. 

19  79  (g)  Nothing  in  these  regulations  shall  be  interpreted  to  permit 

expendituies  charged  to  expense  in  any  taxable  year  or  any  part  of 
the  value  of  land  for  purposes  other  than  mining  to  be  recovered  through 
depletion  or  depreciation.  (Art.  224,  Reg.  62,  1922  Edition.) 


1980  Depreciation  of  Improvements  in  the  Case  of  Oil  and  Gas  Wells. — 

Both  owners  and  lessees  operating  oil  and/or  gas  properties  will,  in 
addition  to  and  apart  from  the  deduction  allowable  for  depletion  as  here- 
inbefore provided,  be  permitted  to  deduct  a reasonable  allowance  for  de- 
preciation of  physical  property,  such  as  machinery,  tools,  equipment,  pipes, 
etc.,  so  far  as  not  in  conflict  with  the  option  exercised  by  the  taxpayer  under 
article  223.  The  amount  deductible  on  this  account  shall  be  such  an  amount 
based  upon  its  cost  (or  fair  market  value  as  of  March  1,  1913,  if  acquired 
prior  to  that  date),  equitably  distributed  over  its  useful  life  as  will  bring  such 
property  to  its  true  salvage  value  when  no  longer  useful  for  the  purpose  for 
which  such  property  was  acquired.  Accordingly,  where  it  can  be  shown  to 
the  satisfaction  of  the  Commissioner  that  the  reasonable  expectation  of  the 
economic  life  of  the  oil  or  gas  deposit  with  which  the  property  is  connected  is 
shorter  than  the  normal  useful  life  of  the  physical  property,  the  amount 
annually  deductible  for  depreciation  may  for  such  property  be  based  upon 
the  length  of  life  of  the  deposit.  See  articles  161-170  [for  the  subject  of 
depreciation  generally,  beginning  at  [If  1831],  (Art.  225,  Reg.  62,  192 2 
Edition.) 

1981  Depletion  and  Depreciation  of  Oil  and  Gas  Wells  in  Years  Before 
1916. — If  upon  examination  it  is  found  that  in  respect  of  the  entire 

drilling  cost  of  wells,  including  physical  property  and  incidental  expenses, 
between  March  1,  1913,  and  December  31,  1915,  a taxpayer  has  been  allowed 

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a reasonable  deduction  sufficient  to  provide  for  the  elements  of  exhaustion, 
wear  and  tear,  and  depletion,  it  will  not  be  necessary  to  reopen  the  returns 
for  years  prior  to  1916  in  order  to  show  separately  in  these  years  the  portions 
of  such  deduction  representing  depletion  and  depreciation,  respectively. 
Such  separation  will  be  required  to  be  made  of  the  reserves  for  depreciation 
at  January  1,  1916,  and  proper  allocation  between  depreciation  and  deple- 
tion must  be  maintained  after  that  date.  In  any  case  in  which  it  is  found 
that  the  deductions  taken  between  March  1,  1913,  and  December  31,  1915, 
are  not  reasonable,  amended  returns  may  be  required  for  these  years.  See 
article  839  [for  invested  capital. — War  Tax  Service].  (Art.  226,  Reg.  62, 
1922  Edition.) 


1982  Forms  D,  E,  F and  O. — [Form  D (minerals),  Form  E (coal),  Form 
F (miscellaneous  non-metals),  and  Form  O (oil  and  gas) — (Item 

19,  Schedule  A,  Form  1120,  for  return  for  1919  [and  1921])]  have  been  pre- 
pared for  the  use  of  taxpayers  engaged  in  mining  or  in  the  production  of  oil 
and  gas.  A sufficient  supply  will  be  sent  to  Collectors  of  Internal  Revenue 
for  distribution.  [For  Form  T (timber)  see  ^[1992.] 

1983  These  forms  are  prescribed  to  facilitate  the  compilation  and  presen- 
tation of  certain  information  required  for  the  audit  and  examination 

of  the  returns  of  these  classes  of  taxpayers.  If,  however,  it  is  more  convenient 
to  use  other  methods  of  tabulation,  the  information  so  furnished,  if  com- 
plete, will  be  accepted  in  lieu  of  those  forms. 

1984  The  information  called  for  by  these  forms  should  be  filed  with  the 
returns  in  complete  detail,  either  on  the  forms  prescribed  or  in  other 

suitable  manner.  This  requirement  is  necessary  for  the  reason  that  deple- 
tion sustained  must  be  taken  into  consideration  in  the  computation  of  in- 
vested capital,  regardless  of  whether  or  not  a deduction  for  it  is  claimed  or 
has  been  claimed  for  it  in  the  past  by  the  taxpayer.  This  requirement  applies 
to  individual  as  well  as  corporate  taxpayers.  (T.  D.  2849,  May  27,  1919.) 

'3  985  Depletion  of  Timber. — A reasonable  deduction  from  gross  income 
for  the  depletion  of  timber  and  for  the  depreciation  of  improvements 
is  permitted,  based  (a)  upon  cost  if  acquired  after  February  28,  1913,  or 
(b)  upon  the  fair  market  value  as  of  March  1,  1913,  if  acquired  p:ior  thereto. 
The  essence  of  this  provision  is  that  the  owner  of  timber  property,  whether 
it  be  a leasehold  or  a freehold,  shall  secure  through  an  aggregate  of  annual 
depletion  and  depreciation  deductions  a return  of  the  amount  of  capital 
invested  by  him  in  the  property,  or  in  lieu  thereof  an  amount  equal  to  its 
fair  market  value  as  of  March  1,  1913,  plus  in  any  case  the  subsequent  cost 
of  plant,  equipment,  and  development  which  is  not  chargeable  to  current 
operating  expenses,  but  not  including  cut-over  land  values.  (Art.  227, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Lands  purchased  from  railroad  in  violation  of  Government  land  grant:  compromise 
with  U.  S.  March  1,  1913  value  (46-21-1921:  Sol.  Op.  124).  .Dec.  1921  Cum.  Bull. 

p.  161 . 

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1986  Capital  Recoverable  Through  Depletion  Allowance  in  the  Case  of 
Timber. — In  general,  the  capital  remaining  in  any  year  recoverable 
through  depletion  allowances  may  be  determined  as  indicated  in  Articles 
202  [^f  1905],  203  [1[1906[  and  204  fl[1911].  In  the  case  of  leases  the  appor- 
tionment of  deductions  between  the  lessor  and  lessee  will  be  made  as  speci- 
fied in  Articles  203  and  204.  The  cost  of  timber  properties  shall  be  de- 
termined in  accordance  with  the  principles  indicated  in  Article  205  [^[  1928]. 
For  method  of  determining  fair  market  value  and  quantity  of  timber,  see 
Articles  234,  235,  and  236  [beginning  at  1993].  For  depletion  purposes 
the  cost  of  the  timber  shall  not  include  any  part  of  the  cost  of  the  land. 
(Art.  228,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Contracts  granting  license  to  enter  and  remove  only  (West  Virginia  specifically) 
(9-21-1480:  A.  R.  M.  111).. June  1921  Cum.  Bull.  p.  201. 

Crown  Land  Limits  in  Quebec;  licensee  regarded  as  lessee  (49-20-1334:  L.  O.  1055) . . 
Dec.  1920  Cum.  Bull.  p.  178. 

Separate  operating  units  (1-19-60:  O.  D.  43)..  1919  Cum.  Bull.  p.  144. 


1987  Computation  of  Allowance  for  Depletion  of  Timber  for  Given  Year. 

— The  allowance  for  depletion  of  timber  in  any  taxable  year  shall 
be  based  upon  the  number  of  units  of  timber  felled  during  the  year  and  the 
unit  value  of  the  timber  in  the  timber  account  or  accounts  pertaining  to 
the  timber  cut.  The  unit  value  of  the  timber  for  a given  timber  account 
in  a given  year  shall  be  the  quotient  obtained  by  dividing  (a)  the  total  num- 
ber of  units  of  timber  on  hand  in  the  given  account  at  the  beginning  of  the 
yeai  plus  the  number  of  units  acquired  during  the  year  plus  (or  minus) 
the  number  of  units  required  to  be  added  (or  deducted)  by  way  of  correcting 
the  estimate  of  the  number  of  units  remaining  available  in  the  account 
into  (b)  the  total  fair  market  value  as  of  March  1,  1913,  and  (or)  cost  of 
the  timber  on  hand  at  the  beginning  of  the  year,  plus  the  cost  of  the  number 
of  units  acquired  during  the  year,  plus  proper  additions  to  capital  (See 
Art.  231  [^[1990]).  The  amount  of  the  deduction  for  depletion  in  any  tax- 
able year  with  respect  to  a given  timber  account  shall  be  the  product  of 
(a)  the  number  of  units  of  timber  cut  from  the  given  account  during  the  year 
multiplied  by  (b)  the  unit  value  of  the  timber  for  the  given  account  for  the 
year.  Those  taxpayers  who  keep  their  accounts  on  a monthly  basis  may, 
at  their  option,  keep  their  depletion  accounts  on  a monthly  basis,  in  which 
case  the  amount  deductible  on  account  of  depletion  for  a given  month  will 
be  determined  in  the  manner  outlined  above  for  a given  year.  The  total 
amount  of  the  deduction  for  depletion  in  any  taxable  year  shall  be  the  sum 
of  the  amounts  deductible  for  the  several  timber  accounts.  For  descrip- 
tion of  timber  accounts,  see  Articles  235  [^[1994]  and  236  [If  1995]. 

1 988  The  depletion  of  timber  takes  place  at  the  time  the  timber  is  felled. 

Since,  however,  it  is  not  ordinarily  practicable  to  determine  the 
quantity  of  timber  immediately  after  felling,  depletion  for  purposes  of 
accounting  will  be  treated  as  taking  place  at  the  time  when,  in  the  process 
of  exploitation,  the  quantity  of  timber  is  first  definitely  determined.  (Art. 
229,  Reg.  62,  1922  Edition.) 

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1989  Revaluation  of  Timber  Not  Allowed. — In  the  case  of  timber  ac- 
quired prior  to  March  1,  1913,  the  fair  market  value  as  of  that  date 

shall,  when  determined  and  approved  by  the  Commissioner,  be  the  basis 
for  determining  the  depletion  deduction  for  each  year  during  the  continu- 
ance of  the  ownership  under  which  the  fair  market  value  of  the  timber  was 
fixed,  and  during  such  ownership  there  shall  be  no  redetermination  of  the 
fair  market  value  of  the  timber  for  such  purpose.  However,  the  unit  market 
(or  cost)  value  of  the  timber  will  subsequently  be  changed  if  from  any  cause 
such  unit  market  (or  cost)  value,  if  continued  as  a basis  of  depletion,  shall 
upon  evidence  satisfactory  to  the  Commissioner  be  found  inadequate  or 
excessive  for  the  extinguishment  of  the  cost,  or  fair  market  value  as  of  March 
1,  1913,  of  the  timber.  (Art.  230,  Reg.  62,  1922  Edition.) 

1990  Charges  to  Capital  and  to  Expenses  in  the  Case  of  Timber. — In  the 

case  of  a timber  property  held  for  future  operation  by  an  owner 
having  no  substantial  income  from  the  property  or  from  other  sources, 
all  expenditures  for  administration,  protection,  and  other  carrying  charges 
prior  to  production  on  a normal  basis  shall  be  charged  to  capital  account; 
after  such  a property  is  on  a normal  production  basis  such  expenditures 
shall  be  treated  as  current  operating  expenses.  In  case  a taxpayer,  who 
has  a substantial  income  from  other  sources,  owns  a timber  property  which 
is  not  yet  on  a normal  production  basis,  he  may,  at  his  option,  charge  such 
expenditures  with  respect  to  such  timber  property  to  capital,  or  treat  them 
as  current  operating  expenses,  but  whichever  system  is  adopted  must  be 
followed  until  permission  to  change  to  the  other  system  is  secured  from  the 
Commissioner.  In  the  case  of  timber  operations  all  expenditures  prior  to 
production  for  plants,  improvements,  and  equipment,  and  thereafter  all 
major  items  of  plant  and  equipment,  shall  be  charged  to  capital  account 
for  purposes  of  depreciation.  After  a timber  operation  has  been  developed 
and  equipped  and  has  reached  its  normal  output  capacity,  the  cost  of  addi- 
tional minor  items  of  equipment  and  the  cost  of  replacement  of  minor  items 
of  worn-out  and  discarded  plant  and  equipment  may  be  charged  to  current 
operating  expenses  (see  arts.  103  [^[  1642],  293  [^[1630],  and  582  [^T 1634]), 
unless  the  taxpayer  elects  to  write  off  such  expenditures  through  charges  for 
depreciation;  however,  the  method  adopted  must  be  followed  consistently 
from  year  to  year.  (Art.  231,  Reg.  62,  1922  Edition.) 


1991  Depreciation  of  Improvements  in  the  Case  of  Timber. — The  cost 
or  value  as  of  March  1,  1913,  as  the  case  may  be,  of  development 
not  represented  by  physical  property  having  an  inventory  value,  and  such 
cost  or  value  of  all  physical  property  which  has  not  been  deducted  and 
allowed  as  expense  in  the  returns  of  the  taxpayer,  shall  be  recoverable  through 
depreciation.  It  shall  be  optional  with  the  taxpayer,  subject  to  the  approval 
of  the  Commissioner,  (a)  whether  the  cost  or  value,  as  the  case  may  be, 
of  the  property  subject  to  depreciation  shall  be  recovered  at  a rate  estab- 

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lished  by  current  exhaustion  of  stumpage,  or  (b)  whether  the  cost  or  value 
shall  be  recovered  by  appropriate  charges  for  depreciation  calculated  by 
the  usual  rules  for  depreciation  or  according  to  the  peculiar  conditions  of 
the  taxpayer’s  case  by  a method  satisfactory  to  the  Commissioner.  In 
no  case  may  charges  for  depreciation  be  based  on  a rate  which  will  extinguisn 
the  cost  or  value  of  the  property  prior  to  the  termination  of  its  useful  life. 
Nothing  in  these  regulations  shall  be  interpreted  to  mean  that  the  value  of 
a timber  plant  and  equipment,  so  far  as  it  is  represented  by  physical  prop- 
erty having  an  inventory  value,  may  be  reduced  by  depreciation  deductions 
to  a sum  below  the  value  of  the  salvage  when  the  plant  and  equipment  shall 
have  become  obsolete  or  worn  out  or  shall  have  been  abandoned,  or  that 
any  part  of  the  value  of  cut-over  land  may  be  recoverable  through  deprecia- 
tion. (Art.  232,  Reg.  62,  1922  Edition.) 

1992  Information  to  be  Furnished  by  Taxpayer  Claiming  Depletion  of 
Timber. — To  the  income  tax  return  of  the  taxpayer  claiming  a 
deduction  for  depletion  or  depreciation  or  both  there  shall  be  attached  a 
map  and  statement  (Form  T — Timber)  for  the  taxable  year  covered  by 
the  income  tax  return.  Form  T — Timber  requires  the  following:  (a)  Map 
showing  timber  and  land  acquired,  timber  cut,  and  timber  and  land  sold; 
(b)  description  of,  cost  of,  and  terms  of  purchase  or  lease  of,  timber  and 
land  acquired;  (c)  proof  of  profit  or  loss  from  sale  of  capital  assets;  (d) 
description  of  timber  with  respect  to  which  claim  for  loss,  if  any,  is  made; 
(e)  record  of  timber  cut;  (f)  changes  in  each  timber  account  as  the  result 
of  purchase,  sale,  cutting,  re-estimate,  or  loss;  (g)  changes  in  physical  prop- 
erty accounts  as  the  result  of  additions  to  or  deductions  from  capital  and 
depreciation;  (h)  operation  data  with  respect  to  raw  and  finished  material 
handled  and  inventoried;  (i)  unit  production  costs;  and  (j)  any  other  data 
which  will  be  helpful  in  determining  the  reasonableness  of  the  depletion 
and  (or)  depreciation  deductions  claimed  in  the  return.  Similar  information 
is  required  for  certain  years  prior  to  the  1919  taxable  year  from  those  tax- 
payers who  have  not  already  furnished  it.  The  specific  nature  of  the  in- 
formation required  for  the  earlier  years  is  given  in  detail  in  Form  T — 
General  Forest  Industries  Questionnaire  for  the  years  prior  to  1919.  (Art 
233,  Reg.  62,  1922  Edition.) 


1993  Determination  of  Fair  Market  Value  of  Timber. — Where  the  fair 
market  value  of  the  property  at  a specified  date,  in  lieu  of  the  cost 
thereof,  is  the  basis  for  depletion  and  depreciation  deductions,  such  value 
shall  be  determined,  subject  to  approval  or  revision  by  the  Commissioner 
upon  audit,  by  the  owner  of  the  property  in  the  light  of  the  most  reliable 
and  accurate  information  available  with  reference  to  the  condition  of  the 
property  as  it  existed  at  that  date,  regardless  of  all  subsequent  changes, 
such  as  changes  in  surrounding  circumstances,  in  methods  of  exploitation,  in 
degree  of  utilization,  etc.  The  value  sought  will  be  the  selling  price,  assuming 
a transfer  between  a willing  seller  and  a willing  buyer  as  of  the  particular 
date.  Such  factors  as  the  following  will  be  given  due  consideration:  (a) 
Character  and  quality  of  the  timber  as  determined  by  species,  age,  size, 

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condition,  etc.;  (b)  the  quantity  of  timber  per  acre,  the  total  quantity 
under  consideration,  and  the  location  of  the  timber  in  question  with  reference 
to  other  timber;  (c)  accessibility  of  the  timber;  (location  with  reference  to 
distance  from  a common  carrier,  the  topography  and  other  features  of  the 
ground  upon  which  the  timber  stands  and  over  which  it  must  be  transported 
in  process  of  exploitation,  the  probable  cost  of  exploitation,  and  the  climate 
and  the  state  of  industrial  development  of  the  locality);  and  (d).  the  freight 
rates  by  common  carrier  to  important  markets.  The  timber  m question 
will  be  valued  on  its  own  merits  and  not  on  the  basis  of  general  averages 
for  regions;  however,  the  value  placed  upon  it,  taking  into  consideration 
such  factors  as  those  mentioned  above,  will  be  consistent  with  that  of  the 
other  timber  in  the  region.  The  Commissioner  will  give  due  weight  and  con- 
sideration to  any  and  all  facts  and  evidences  having  a bearing  on  the  market 
value,  such  as  cost,  actual  sales  and  transfers  of  similar  properties,  the  margin 
between  the  cost  of  production  and  the  price  realized  for  timber  products, 
market  value  of  stock  or  shares,  royalties  and  rentals,  value  fixed  by  the 
owner  for  the  purpose  of  the  capital  stock  tax,  valuation  for  local  or  State 
taxation,  partnership  accountings,  records  of  litigation  in  which  the  value 
of  the  property  has  been  involved,  the  amount  at  which,  the  property  .may 
have  been  inventoried  and/or  appraised  in  probate  or  similar  proceedings, 
disinterested  appraisals  by  approved  methods,  and  other  factors.  For 
depletion  purposes  the  fair  market  value  at  a specified  date  shall  not  include 
any  part  of  the  value  of  the  land.  (Art.  234,  Reg*  62,  1922  Edition.) 


1934  Determination  of  Quantity  of  Timber.  Each  taxpayer,  claiming  or 
expecting  to  claim  a deduction  for  depletion  is  required  to  esti- 
mate with  respect  to  each  separate  timber  account  the  total  units  (feet 
board-measure  log  scale,  cords,  or  other  units)  of  timber  reasonably  known 
or  on  good  evidence  believed  to  have  existed  on  the  ground  on  ivlarch  1, 
1913,  or  on  the  date  of  acquisition  of  the  property,  as  the  case  may  be.  This 
estimate  shall  state  as  nearly  as  possible  the  number  of  units  which  would 
have  been  found  present  by  a careful  estimate  made  on  the  specified  date 
with  the  object  of  determining  100  per  cent  of  the  quantity  of  timber  which 
the  area  would  have  produced  on  that  date  if  all  of  the  merchantable  timber 
had  been  cut  and  utilized  in  accordance  with  the  standards  of  utilization 
prevailing  in  that  region  at  that  time.  If  subsequently  during  the  owner- 
ship of  the  taxpayer  making  the  return,  as  the.net  result  of  the  growth  o 
the  timber,  of  changes  in  standards  of  utilization,  of  losses,  not  otherwise 
accounted  for,  of  abandonment  of  timber,  and/or  of  errors  in  the  original 
estimates,  there  are  found  to  remain  on  the  ground,  available  for  utiliza- 
tion, more  or  less  units  of  timber  than  remain  in  the  timber  account  or 
accounts,  a new  estimate  of  the  recoverable  units  of  timber  (but  not  of  the 
cost  or  the  fair  market  value  at  a specified  date)  shall  be  made,  and,  when 
made,  shall  thereafter  constitute  a basis  for  depletion.  (Art.  235,  Reg.  02, 
1922  Edition.) 

1935  Aggregating  Timber  and  Land  for  Purposes  of  Valuation  and  Ac- 
counting.— With  a view  to  logical  and  reasonable  valuation  of  timber, 

the  taxpayer  shall  include  his  timber  in  one  or  more  accounts.  In  general, 

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each  such  account  shall  include  all  of  the  taxpayer’s  timber  which  is  located 
in  one  “block,”  a block  being  an  operation  unit  which  includes  all  of  the 
taxpayer’s  timber  which  would  logically  go  to  a single  given  point  of  a manu- 
facture. In  those  cases  in  which  the  point  of  manufacture  is  at  a consid- 
erable distance,  or  in  which  the  logs  or  other  products  will  probably  be  sold 
in  a log  or  other  market,  the  block  may  be  a logging  unit  which  includes  all 
of  the  taxpayer’s  timber  which  would  logically  be  removed  by  a single  logging 
development.  In  exceptional  cases,  provided  there  are  good  and  substantial 
reasons,  and  subject  to  approval  or  revision  by  the  Commissioner  on  audit, 
the  taxpayer  may  divide  the  timber  in  a given  block  into  two  or  more  ac- 
counts, e.  g.,  timber  owned  on  February  28,  1913,  and  that  purchased  sub- 
sequently may  be  kept  in  separate  accounts,  or  timber  owned  on  February 
28,  1913,  and  the  timber  purchased  since  that  date  in  several  distinct  trans- 
actions may  be  kept  in  several  distinct  accounts,  or  individual  tree  species 
or  groups  of  tree  species  may  be  carried  in  distinct  accounts,  or  special  timber 
products  may  be  carried  in  distinct  accounts,  or  blocks  may  be  divided  into 
two  or  more  accounts  based  on  the  character  of  the  timber  and/or  its  acces- 
sibility, or  scattered  tracts  may  be  included  in  separate  accounts.  When 
such  a division  is  made,  a proper  portion  of  the  total  value  or  cost,  as  the 
case  may  be,  shall  be  allocated  to  each  account. 

1996  The  timber  accounts  mentioned  in  the  preceding  paragraph  shall 
not  include  any  part  of  the  value  or  cost,  as  the  case  may  be,  of 
the  land.  In  a manner  similar  to  that  prescribed  in  the  foregoing  part 
of  this  article  the  land  in  a given  “block”  may  be  carried  in  a single  land 
account  or  may  be  divided  into  two  or  more  accounts  on  the  basis  of  its 
character  and/or  accessibility.  When  such  a division  is  made,  a proper 
portion  of  the  total  value  or  cost,  as  the  case  may  be,  will  be  allocated  to 
each  account. 

199  7 The  total  value  or  total  cost,  as  the  case  may  be,  of  land  and  timber 
shall  be  equitably  allocated  to  the  timber  and  land  accounts,  re- 
spectively. 

1998  Each  of  the  several  land  and  timber  accounts  carried  on  the  books 
of  the  taxpayer  shall  be  definitely  described  as  to  their  location  on 

the  ground  either  by  maps  or  by  legal  descriptions 

1 999  For  good  and  substantial  reasons,  to  be  approved  by  the  Com- 
missioner, or  as  required  by  the  Commissioner,  the  timber  or  the 

land  accounts  may  be  readjusted  by  dividing  individual  accounts,  by  com- 
bining two  or  more  accounts,  or  by  dividing  and  recombining  accounts. 
(Art.  236,  Reg.  62,  1922  Edition.) 


2000  Timber  Depletion  and  Depreciation  Accounts  on  Books. — livery 
taxpayer  claiming  or  expecting  to  claim  a deduction  for  depletion 
and  (or)  depreciation  of  timber  property  (including  plants,  improvements 
and  equipment  used  in  connection  therewith)  shall  keep  accurate  ledger 
accounts  in  which  shall  be  charged  the  fair  market  value  as  of  March  1, 
1913,  or  the  cost,  as  the  case  may  be,  of  (a)  the  property,  and  (b)  the  plants, 
improvements,  and  equipment,  together  with  such  amounts  subsequently 
expended  for  the  administration,  protection,  and  other  carrying  charges, 
or  development  of  the  property  or  additions  to  plant  and  equipment  as  are 

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not  chargeable  to  current  operating  expenses.  See  Articles  231  ['[[1990] 
and  236  ft[1995].  In  such  accounts  there  shall  be  set  up  separately  the 
quantity  of  timber,  the  quantity  of  land,  and  the  quantity  of  other  resouices, 
if  any,  and  a proper  part  of  the  total  value  or  cost  shall  be  allocated  to  each. 
See  Article  236  [If  1995].  These  accounts  shall  be  credited  with  the  amount 
of  the  depreciation  and  depletion  deductions  claimed  and  allowed  each 
year,  or  the  amount  of  the  depreciation  and  depletion  shall  be  credited  to 
depreciation  and  depletion  reserve  accounts,  to  the  end  that  when  the  sum 
of  the  credits  for  depletion  and  depreciation  equals  the  value  or  cost  of  the 
property,  plus  the  amount  added  thereto  for  administration,  protection,  and 
other  carrying  charges,  or  development  or  for  additional  plant  and  equip- 
ment, less  salvage  value  of  the  physical  property,  no  further  deduction  for 
depletion  and  depreciation  will  be  allowed.  (Art.  237,  Reg.  62,  1922  Edition.) 


2001  Law  ^ 176.  Certain  Contributions  or  Gifts  Made  by  Individuals 
(Sec.  214.)  are  Deductible  to  a Limited  Amount. — “(11)  Contri- 
butions or  gifts  made  within  the  taxable  year  to  or  for 

the  use  of:  ( A ) The  United  States,  any  State,  Territory,  or  any  political 
subdivision  thereof,  or  the  District  of  Columbia,  for  exclusively  public 
purposes;  ( B ) any  corporation,  or  community  chest,  fund,  or  foundation , 
organized  and  operated  exclusively  for  religious,  charitable,  scientific, 
literary , or  educational  purposes,  including  posts  of  the  American  Legion 
or  the  Women's  Auxiliary  units  thereof,  or  for  the  prevention  of  cruelty  to 
children  or  animals,  no  part  of  the  net  earnings  of  which  inures  to  the 
benefit  of  any  private  stockholder  or  individual ; or  (C)  the  special  fund 
for  vocational  rehabilitation  authorized  by  section  7 of  the  Vocational 
Rehabilitation  Act;  to  an  amount  which  m all  the  above  cases  combined 
does  not  exceed  15  per  centum  of  the  taxpayer's  net  income  as  computed 
without  the  benefit  of  this  paragraph." 

2002  Law  ^f  178.  “ Such  contributions  or  gifts  shall  be  allowable  as  de- 

(Sec.  214.)  ductions  only  if  verified  under  rules  and  regulations 

prescribed  by  the  Commissioner,  with  the  approval  of 
the  Secretary," — Law.  [Note:  (A)  is  new  to  the  1921  Act.  In  (B) 

“or  community  chest,  fund,  or  founda- 
tion” is  new  to  the  1921  Act,  as  is 
“literary”  and  “including  posts  of  the 
American  Legion  or  the  Women’s  Aux- 
iliary units  thereof.”] 


2003  Contributions  or  gifts  within  the  taxable  year  are  deductible  to  an 
aggregate  amount  not  in  excess  of  15  per  cent  of  the  taxpayer’s  net 
income,  including  such  payments,  if  made  to  or  for  the  use  of:  (a)  1 he 
United  States,  the  District  of  Columbia,  or  any  State  or  Territory  or  political 
subdivision  thereof,  for  exclusively  public  purposes;  (b)  any  corporation  or 
community  chest,  fund,  or  foundation,  organized  and  operated  exclusively 
for  religious,  charitable,  scientific,  literary,  or  educational  purposes  or  for 
the  prevention  of  cruelty  to  children  or  animals,  no  part  of  the  net  earn- 
ings of  which  inures  to  the  benefit  of  any  private  stockholder  or  individual; 
or  (c)  the  special  fund  for  vocational  rehabilitation  under  the  Vocational 
Rehabilitation  Act  of  June  27,  1918.  For  a discussion  of  what  corporations 

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*-27-22.  (2)  4-10-22.  (3)  » 18-22.  (4)  9-27-22.  (6)  10-11-22.  (6)  11-4-22. 

DEDUCTIONS— CONTRIBUTIONS. 

and  organizations  are  included  within  (b)  see  article  517  Hfl030].  Deduc* 
tion  of  contributions  to  posts  of  the  American  Legion  or  the  women’s  auxi- 
liary units  thereof  is  expressly  allowed  by  the  statute. 

2004  In  connection  with  claims  for  this  deduction  there  shall  be  stated 
on  returns  of  income  the  name  and  address  of  each  organization  to 
which  a gift  was  made  and  the  approximate  date  and  the  amount  of  the 
gift  in  each  case.  Where  the  gift  is  other  than  money  the  basis  for  calcula- 
tion of  the  amount  of  the  gift  shall  be  the  cost  of  the  property,  if  acquired 
after  February  28,  1913,  or  its  fair  market  value  as  of  March  1,  1913,  if 
acquired  prior  thereto,  after  deducting  from  such  cost  or  value  the  amount, 
of  depreciation  sustained  and  allowable  as  a deduction  in  computing  net 
income.  A gift  of  real  estate  to  a city  to  be  maintained  perpetually  as  a 
public  park  is  an  allowable  deduction  under  the  present  statute,  but  was 
not  an  allowable  deduction  under  the  Revenue  Act  of  1918.  The  propor- 
tionate share  of  contributions  made  by  a partnership  may  be  claimed  as 
deductions  in  the  personal  returns  of  the  partners  to  an  amount  which, 
added  to  the  amount  of  such  contributions  made  by  the  partner  individually, 
is  not  in  excess  of  15  per  cent  of  the  partner’s  net  income  computed  without 
the  benefit  of  the  deduction  for  such  contributions;  but  the  contributions 
made  by.  the  partnership  shall  not  be  deducted  from  its  gross  income  in 
ascertaining  the  amount  of  its  net  income  to  be  reported  on  Form  1065. 
See  article  331  787].  This  article  does  not  apply  to  gifts  by  estates  and 

trusts  or  corporations.  See  section  219  of  the  statute  and  articles  561 
[IT  1617]  and  562  [1[1675].  (Art.  251,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

American  Legion  (14-20-834:  O.  D.  439).  .June  1920  Cum.  Bull.  p.  210. 

Athletic  purposes:  public  high  school  (3-19-192:  O.  D.  126) ..  1919  Cum.  Bull,  p 151 

Board  of  education  of  a school  district  (8-19-321:  S.  1052).  . 1919  Cum.  Bull.  p.  146. 

Cemetery  association  operating  on  behalf  of  municipality  cemetery  leased  from  the 
latter.-  cost  of  building  donated  to  association  is  deductible:  1921  Act  (1-13-182: 
I.  T.  1256).  .June  1922  Cum.  Bull.  p.  189. 

Cemetery  company  of  charitable  nature;  contributions  to,  not  deductible:  1918  Act 
(1-37-498:  A.  R.  R.  1122).  .Bull.  I (’22)-37,  p.  7. 

Citizens’  Club;  of  undoubted  benefit  to  community  but  does  not  meet  statutory  test 
(6-21-1435:  A.  R.  R.  379).. June  1921  Cum.  Bull.  p.  203. 

Community  Service,  Inc.  (5-20-716:  O.  D.  389).  .June  1920  Cum.  Bull.  p.  148. 

Corporation  trustee  for  memorial  fund;  income  distributed  to  charitable  institutions 
and  worthy  individuals  (15-21-1563:  O.  D.  872).  .June  1921  Cum.  Bull.  p.  264 

Council  of  National  Defence  (3-19-191:  S.  992)..  1919  Cum.  Bull.  p.  145. 

Coupons  from  nontax-free  Liberty  bonds  (3-19-181:  O.  D.  120) ..  1919  Cum.  Bull.  p.  84. 

Educational  associations:  test  (8-20-755:  S.  1246).. June  1920  Cum.  Bull.  p.  149. 

Estate  or  trust,  the  beneficiary  organization  not  yet  operating  (20-19-511:  O D 
278).  .1919  Cum.  Bull.  p.  175.  6 

Family  cemetery  corporation:  New  York  (11-19-379:  O.  D.  217)..  1919  Cum.  Bull, 
p.  151. 

Inducing  industrial  plant  to  locate  in  city  (1-19-56:  O.  D.  39).  . 1919  Cum.  Bull.  p.  150. 

Legislation:  association  to  further  passage  of  (22-20-971:  S.  1362).  .June  1920 
Cum.  Bull.  p.  152. 

Same:  and  election  of  favorable  officials,  etc.  (43-20-1266:  O.  D.  704).. Dec 
1920  Cum.  Bull.  p.  240. 

Life  insurance  premiums:  beneficiary  being  charitable  corporation  (24-19-566 

O.  D.  299).  .1919  Cum.  Bull.  p.  151. 

Life  insurance  premiums:  on  policy  assigned  to  charitable  organization  as  security 
for  note  payable  to  organization  on  death  of  insured  or  on  maturity  of  policy, 
are  not  deductible:  1921  Act  (1-39-517:  I.  T.  1453).  .Bull.  I (’22)-39,?p.  2. 


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2-27-22.  (2)  4-10-22.  (3)  9-13-22.  (4)  9-27-22.  (5)  10-11-22.  (6)  11-4-22. 

DEDUCTIONS— CONTRIBUTIONS. 

Monuments  and  memorials:  organizations  to  erect  (8-20-755:  S.  1246).. June  1920 
Cum.  Bull.  p.  149. 

Same:  including  trophy  museum  and  memorial  assembly  hall,  etc.,  the  use  of 
which  are  restricted  to  educational  purposes  (45-20-1294:  A.  R.  R.  301) 

. .Dec.  1920  Cum.  Bull.  p.  188. 

National  Dry  Federation  (1-19-61:  0.  D.  44).  . 1919  Cum.  Bull.  p.  150. 

★ Orchestral  concert  association  (23-19-546:  S.  1176)..  1919  Cum.  Bull.  p.  147:  1921 
Act  (1-42-554:  J.  T.  1475).  .Bull.  I (’22)-42,  p.  4. 

Partnership;  members  (8-19-322:  O.  D.  185).  .1919  Cum.  Bull.  p.  151. 

Personal  service  corporations  and  their  stockholders  (1-6-74:  I.  T.  1196).  .June  1922 
Cum.  Bull.  p.  189. 

Pew  rent,  assessments,  dues,  and  basket  collections  (26-19-590:  A.  R.  M.  2). . 1919 
Cum.  Bull.  p.  150. 

Police  pension  fund  (27-19-602:  S.  1202) . . 1919  Cum.  Bull.  p.  148. 

Porto  Rico:  earthquake  and  tidal  wave  (30-19-641:  0.  D.  345)..  1919  Cum.  Bull, 
p.  151. 

Presentation  gift  to  contributors  to  educational  organizations;  cost  of  (16-20-863: 
O.  D.  465) . . June  1920  Cum.  Bull.  p.  152. 

Public  park  for  A.  E.  F.  men  (2-19-152:  O.  D.  104) . . 1919  Cum.  Bull.  p.  150. 
Services  rendered  rather  than  cash  or  property  (44-20-1277:  0.  D.  712).  .Dec.  1920 
Cum.  Bull.  p.  188. 

Trust  company  trust  fund  for  charitable  purposes;  contributions  to  (39-20-1211: 
O.  D.  669).  .Dec.  1920  Cum.  Bull.  p.  187. 

Valuing  gift  when  made  in  property  other  than  money  (7-20-740:  O.  979).  .June  1920 
Cum.  Bull.  p.  148. 


2005  Receipt  is  acknowledged  of  your  letter  dated  December  5,  1917, 
referring  to  contributions  or  gifts  made  by  citizen  and  resident 

individuals  of  the  United  Stated  to  corporations  or  associations  organized 
and  operated  exclusively  for  religious,  charitable  or  scientific  purposes  which 
may  be  considered  as  a deduction  for  tax  purposes,  in  accordance  with  the 
provisions  of  the  ninth  paragraph  added  to  Section  5 (a),  Act  of  September 
8,  1916,  by  Section  1201,  Act  of  October  3,  1917. 

2006  You  present  several  inquiries  which  are  repeated  and  answered  in 
the  order  stated  by  you. 

2007  “Are  gifts  to  foreign  organizations  of  a character  specified  in  the 
Law  to  be  also  deducted?”  Such  contributions  or  gifts  may  be 

considered  in  computing  the  amount  allowable  as  a deducton  under  the 
provisions  of  paragraph  nine. 

2008  “Is  the  Red  Cross  to  be  included  as  a charitable  organization?” 
It  is  held  that  the  American  National  Red  Cross  falls  within  the  class 

of  associations  enumerated  in  paragraph  nine. 

2009  “Is  a church  to  be  considered  a religious  organization?  Of  course, 
we  know  that  ‘the  Church’  is  a religious  institution,  but  is  any  par- 
ticular church  so  considered?”  It  is  held  that  every  church  constitutes  a 
religious  corporation  or  association  for  the  purposes  of  the  deduction  provided 
by  the  ninth  paragraph. 

2010  “In  this  connection,  are  donations  made  to  missionary  funds,  to 
the  church  building  funds  and  for  the  benefit  of  other  activities  of 

the  church  to  be  deductible?”  It  is  held  that  all  such  donations,  being  for 
the  benefit  or  furtherance  of  religious  activities,  constitute  items  which  may 
be  considered  in  computing  the  deductions  provided  by  the  ninth  paragraph. 
(Letter  to  The  Corporation  Trust  Company,  signed  by  Commissioner  Daniel 
C.  Roper,  and  dated  Dec.  24,  1917.) 

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2011  With  reference  to  the  ninth  paragraph  of  Section  5 of  the  Act  of 
September  8,  1916,  as  amended,  how  am  I to  determine  to  what 

extent  contributions  or  gifts  made  to  corporations  or  associations,  organized 
exclusively  for  religious,  charitable,  scientific  or  educational  purposes,  socie- 
ties for  the  Prevention  of  Cruelty  to  Children  or  Animals,  may  be  claimed  as 
a deduction? 

2012  You  should  first  ascertain  what  your  taxable  net  income  would  be 
were  you  not  entitled  to  a deduction  on  account  of  contributions 

or  gifts  made  to  such  corporations,  associations  or  societies,  and  then  if  the 
aggregate  of  your  contributions  and  gifts  made  during  the  year  to  such 
organizations  does  not  exceed  15  per  cent  of  your  taxable  net  income  so  com- 
puted, their  aggregate  amount  may  be  entered  in  the  space  provided  therefor 
under  General  Deductions  on  a personal  return  form.  If  such  aggregate 
amount  exceeds  15  per  cent  of  your  taxable  net  income  so  computed,  the  excess 
cannot  be  claimed. 

2013  For  example:  Your  total  taxable  net  income  amounts  to  $20,- 

000.  During  the  year  you  have  contributed  to  the  National  Red 

Cross  $1,000,  to  the  Young  Men’s  Christian  Association  $1,000,  toward  the 
construction  of  a new  church  $1,000,  and  to  the  Associated  Charities  of  your 
home  city  $500,  a total  of  $3,500.  Fifteen  per  cent  of  your  total  net  income 
amounts  to  $3,000,  therefore,  this  latter  amount  may  be  claimed  as  a deduc- 
tion, and  the  balance  of  your  contributions  and  gifts  may  not  be  claimed. 

2014  During  1917  I contributed  $100  toward  the  support  of  a needy 
family.  May  this  contribution  be  claimed  as  a deduction?  (Answer.) 

Contributions  or  gifts  made  to  individuals  do  not  constitute  allowable  deduc- 
tions. (Questions  86  and  87,  1918  Income  Tax  Primer.) 

2015  Corporations  Are  Not  Entitled  to  Deduct  from  Gross  Income  the 
Amount  of  Contributions  to  Religious,  Charitable,  Scientific  or 

Educational  Corporations  or  Associations,  Even  Though  Such  Contributions 
Are  Made  to  Red  Cross  or  Other  Like  Activities. — [Applies  equally  to  the 
Revenue  Act  of  1921.]  The  Revenue  Act  of  1918  contains  two  sections 
relating  to  deductions  which  may  be  made  in  ascertaining  net  income  subject 
to  tax.  Section  214  relates  to  individuals  and  allows  as  deductions: 

(1)  All  ordinary  and  necessary  expenses  paid  or  incurred  during  the 
taxable  year  in  carrying  on  any  trade  or  business,  etc. 

(2)  All  interest  paid  or  accrued  within  the  taxable  year  on  indebtedness, 
etc.  (with  certain  exceptions). 

(3)  Taxes  paid  or  accrued  within  the  taxable  year,  etc.  (with  certain 
exceptions). 

(4-10)  Certain  allowance  for  losses,  bad  debts,  exhaustion,  wear  and  tear 
of  property  of  various  sorts. 

(11)  Contributions  or  gifts  made  within  the  taxable  year  to  corporations 
organized  and  operated  exclusively  for  religious,  charitable,  scientific,  or 
educational  purposes,  or  for  the  prevention  of  cruelty  to  children  or  animals, 
no  part  of  the  net  earnings  of  which  inures  to  the  benefit  of  any  private  stock- 
holder or  individual,  etc. 

2016  Section  234  relates  to  corporations,  and  allows  as  deductions: 

(1)  All  ordinary  and  necessary  expenses  paid  or  incurred  during  the 
taxable  year  in  carrying  on  any  trade  or  business,  including  a reasonable 
allowance  for  salaries  or  other  compensation  for  personal  services  actually 
rendered,  and  including  rentals  or  other  payments  required  to  be  made  as 
a condition  to  the  continued  use  or  possession  of  property  to  which  the 

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DEDUCTIONS  CONTRIBUTIONS. 


■corporation  has  not  taken  or  is  not  taking  title,  or  in  which  it  has  no  equity. 

(2)  All  interest  paid  or  accrued  within  the  taxable  year  on  its  indebted- 
ness (with  certain  exceptions). 

(3)  Taxes  paid  or  accrued  within  the  taxable  year,  etc.  (with  certain 
exceptions). 

(4  et  seq.)  Losses  sustained  of  a certain  character,  bad  debts,  allow- 
ances for  exhaustion,  wear  and  tear,  etc. 

2017  The  question  is  presented  whether  corporations  are  entitled  to 
deduct  from  their  gross  income  for  the  purpose  of  the  income,  tax, 

the  amount  of  contributions  to  religious,  charitable,  scientific  or  educational 
corporations  or  associations,  this  question  arising  most  frequently  with  refer- 
ence to  contributions  made  to  the  Red  Cross  and  other  war  activities. 

2018  It  will  be  observed  that  there  is  no  express  deduction  permitted 
corporations  of  such  contributions,  as  in  the  case  of  individuals,  and 

unless,  therefore,  they  fall  within  the  definition  of  some  items  of  deduction 
allowed  to  corporations,  they  cannot  be  allowed.  1 he  only  head  within 
which  it  might  be  suggested  that  such  contributions  could  be  included  is  that 
of  ordinary  and  necessary  expenses  paid  or  incurred  in  carrying  on  any  trade 
or  business,  including  reasonable  salaries  or  other  compensation,  rentals, 
and  payments  for  use  of  property,  provided  for  in  paragraph  11..  [Sic.  . Should 
be  “1.”]  Practically  these  same  deductions  are.  permitted  in  section  .214 
in  the  case  of  individuals,  and  had  such  words  included  the  contributions 
or  gifts  mentioned  in  paragraph  11  of  Section  214,  it  would  have  been  unnec- 
essary to  put  in  such  paragraph,  as  they  would  have  been  covered  by  para- 
graph 1 of  such  section. 

2019  The  Attorney  General,  in  an  Opinion  dated  May  19,  1919,  states 
the  view  that  ordinary  and  necessary  expenses  contemplated  by 

paragraph  1 of  sections  214  and  234  were  not  intended  to  include  all  neces- 
sary expenses  because  the  two  immediately  succeeding  paragraphs  provide 
for  deducting  interest  and  taxes,  both  of  which  are  necessary  expenses;  also 
the  provision  in  regard  to  allowance  for  salaries,  compensation,  rentals,  etc., 
indicates  that  all  of  the  expenses,  which  are  contemplated  under  the  terms 
used  in  paragraph  1 of  these  sections,  are  expenses  incurred  directly  in  the 
maintenance  and  operation  of  the  business,  and  not  all  those  which  may  be 
beneficial  and  even  necessary  in  the  broader  sense. 

2020  In  addition  to  the  above  considerations  and  to  the  fact. that  there 
is  express  provision  for  deducting  contributions  or  gifts  in  the  case 

of  individuals,  which  is  wanting  in  the  section  providing  for  deductions  to 
be  made  by  corporations,  reference  to  the  legislative  history  of  the  Revenue 
Act  of  1918  (Congressional  Record  for  September  17,  1918),  shows  that  an 
amendment  providing  that  corporations  might  make  deductions  of  contri- 
butions or  gifts,  as  in  the  case  of  individuals,  came  to  a vote  and  was  defeated, 
the  principal  reason  assigned  in  the  debate  being  that  it  would  be  dangerous 
to  authorize  directors  to  be  generous  with  the  money  of  their  stockholders 
even  for  such  laudable  purposes. 

2021  It  is  concluded,  therefore,  that  corporations  are  not  entitled  to 
deduct  from  their  gross  income  for  the  purpose  of  the  income  tax 

the  amount  of  contributions  made  to  religious,  charitable,  scientific  oi  edu- 
cational corporations  or  associations,  even  though  such  contributions  are 
made  to  the  Red  Cross  or  other  war  activities.  (T.  D.  2847,  as  amended. 
May  24,  1919.) 


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DEDUCTIONS— INVOLUNTARY  CONVERSION  OF  PROPERTY. 


2022  Law  1179.  Proportionate  Part  of  Profit  from  Compensation  for 
(Sec.  214.)  Loss  of  Property  May  be  Deductible. — “(12)  If 

property  is  compulsorily  or  involuntarily  converted  into 
cash  or  its  equivalent  as  a result  of 


2023 


2 024 


2025 


Law  180. 
(Sec.  214.) 
Law  If  181. 
(Sec.  214.) 
Law  1182. 
(Sec.  214.) 
Law  1183. 
(Sec.  214.) 


‘(A)  its  destruction  in  whole  or  in  part,” 
‘(B)  theft  or  seizure,  or” 


“(C)  an  exercise  of  the  power  of  requisition  or  conaemna- 
tion,  or  the  threat  or  imminence  thereof ;” 

202  6 Law  1183.  and  if  the  taxpayer  proceeds  forthwith  in  good  faith, 
under  regulations  prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary,  to  expend  the  proceeds  of 
such  conversion  in  the  acquisition  of  other  property  of  a character  similar  or 
related  in  service  or  use  to  the  properly  so  converted,  or  in  the  acquisition 
of  80  per  centum  or  more  of  the  stock  or  shares  of  a corporation  owning  such 
other  property,  or  in  the  establishment  of  a replacement  fund,  then  there 
shall  be  allowed  as  a deduction  such  portion  of  the  gain  derived  as  the  portion 
of  the  proceeds  so  expended  bears  to  the  entire  proceeds 
2027  Law  1184.  “The  provisions  of  this  paragraph  prescribing  the  condi- 
(Sec.  214.)  tions  under  which  a deduction  may  be  taken  in  respect 
of  the  proceeds  or  gains  derived  from  the  compulsory  or 
involuntary  conversion  of  property  into  cash  or  its  equivalent,  shall  apply 
so  far  as  may  be  practicable  to  the  exemption  or  exclusion  of  such  proceeds 
or  gains  from  gross  income  under  prior  income,  war-profits  and  excess-profits 
tax  Acts.” 

[Corporations.]  “(14)  If  property  is  compulsorily  or 
involuntarily  converted  into  cash  or  its  equivalent  as  a 
result  of” 

“(A)  its  destruction  in  whole  or  in  part,” 

“(B)  theft  or  seizure,  or” 

“(C)  an  exercise  of  the  povjer  of  requisition  or  < on- 
demnation , or  the  threat  or  imminence  thereof ;” 

“ and  if  the  taxpayer  proceeds  forthwith  in  good  faith , 
under  regulations  prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary,  to  expend  the  proceeds  of 
such  conversion  in  the  acquisition  of  other  property  of  a character  similar 
or  related  in  service  or  use  to  the  property  so  converted,  or  in  the  acquisition 
of  80  per  centum  or  more  of  the  stock  or  shares  of  a corporation  owning  such 
other  property,  or  in  the  establishment  of  a replacement  fund,  then  there  shall 
be  allowed  as  a deduction  such  portion  of  the  gain  derived  as  the  portion  of 
the  proceeds  so  expended  bears  to  the  entire  proceeds.” 

2033  Law  1429.  “ The  provisions  of  this  paragraph  prescribing  the  con- 

(Sec.  234.)  ditions  under  which  a deduction  may  be  taken  in  respect 
of  the  proceeds  or  gains  derived  from  the  compulsory  or 
involuntary  conversion  of  property  into  cash  or  its  equivalent,  shall  apply  so 
far  as  may  be  practicable  to  the  exemption  or  exclusion  of  such  proceeds  or 
gains  from  gross  income  under  prior  income,  war-profits  and  excess-profits 
tax  Acts.” — Law.  [Note:  \ These  provisions  are  new  to  the  1921 

Act.  Much  the  same  relief,  as  here,  was 

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2028 

Law  1424. 

(Sec.  234.) 

2029 

Law  1425. 

(Sec.  234.) 

2030 

Law  1426. 

(Sec.  234.) 

2031 

Law  1427. 

(Sec.  234.) 

2032 

Law  1428. 

(Sec.  234.) 

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DEDUCTIONS— INVOLUNTARY  CONVERSION  OF  PROPERTY. 


granted  by  regulations  under  the  1918 
Act,  which,  however,  made  no  provision 
for  such  a deduction  in  the  case  of  “the 
acquisition  of  80  per  centum  or  more  of 
the  stock  or  shares  of  a corporation 
owning  such  other  property.”] 


2034  Involuntary  Conversion  of  Property.— Sections  214  (a)  (12)  and 
234  (a)  (14)  of  the  statute  deal  with  cases  where  property  is  com- 
pulsorily or  involuntarily  converted  into  cash  or  its  equivalent  as  a result 
of  fire,  shipwreck,  theft,  condemnation  or  similar  causes  enumerated  in  the 
statute.  Under  regulations  prescribed  by  the  Commissioner  with  the  ap- 
proval of  the  Secretary,  the  taxpayer  is  permitted  to  deduct  gains  which 
may  be  thus  involuntarily  realized  (through  insurance  or  otherwise)  when 
he  proceeds  forthwith  in  good  faith  to  expend  the  proceeds  of  such  conver- 
sion (1)  in  the  acquisition  of  other  property  of  a character  similar  or  related 
in  service  or  use  to  the  property  so  converted,  (2)  in  the  acquisition  of  80 
per  cent  or  more  of  the  stock  or  shares  of  a corporation  owning  such  other 
property,  or  (3)  in  the  establishment  of  a replacement  fund.  When  only 
part  of  the  proceeds  of  such  conversion  is  thus  expended  (for  example,  one- 
third)  a corresponding  part  of  the  gain  (in  the  example  given,  one-third) 
may  be  deducted.  The  statute  also  provides  that  for  the  purpose  of  deter- 
mining gain  or  loss  the  property  acquired  takes  the  place  of  a like  propor- 
tion of  the  property  converted  (in  the  example  given,  one-third).  See  sec- 
tion 202  (d)  (2)  and  article  1567  [If  1477],  The  new  er  restored  property, 
to  the  extent  of  the  replacement,  shall  not  be  valued  in  the  accounts  of  the 
taxpayer  at  an  amount  in  excess  of  the  cost  of  the  old  property  (or  of  its 
value  as  of  March  1,  1913,  if  acquired  before  that  date  and  such  value  is 
higher  than  the  cost)  after  making  proper  provision  in  either  case  for  depre- 
ciation of  the  original  property,  plus  the  cost  of  any  actual  additions  and 

betterments.  _ . 

2035  This  provision  relating  to  the  involuntary  conversion  oi  property 
applies,  so  far  as  may  be  practicable,  to  the  exemption  or  exclusion 

of  the  proceeds  thereof  or  the  gains  derived  therefrom  from  gross  income 
under  prior  income,  war-profits,  and  excess-profits  tax  acts.  Articles  261, 
262,  and  263  have  no  application  to  property  which  is  voluntarily  sold  or 
disposed  of.  As  to  replacement  funds,  see  article  263  [If 203 7].  (Art.  261, 
Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Excess  of  replacement  cost  over  insurance,  loss  being  by  fire  and  replacement  immedi 
ate  (43-20-1258:  O.  D.  697).  .Dec.  1920  Cum.  Bull.  p.  110. 

Same  but  here  replacement  fund  more  than  actual,  but  less  than  replacement, 
cost  (18-21-1607:  A.  R.  M.  122).  .June  1921  Cum.  Bull.  p.  92. 

Limiting  fund  period  to  one  year,  is  proper,  with  privilege  to  apply  for  extension 
(15-19-443:  T.  B.  M.  61). . 1919  Cum.  Bull.  p.  76.  . 

Liquidating  indebtedness:  1921  Act  (see  Index-digest  following  111479.) 

Requisition  of  property  by  Government  and  payment  therefor  at  price  named  by  the 
Commission  of  the  War  Department  (18-21-1604:  O.  D.  89/).  .June  1921  Cum. 

Resident  or  farming  property  is  within  the  scope  (21-20-949:  O.  D.  513).  .June  1920 

Retroactive  effect  of  provisions  of  Art.  49  of  Reg.  45  (see  1, 1257  herein)  in  case  of  sale 
of  vessels  in  1917  to  Government  by  negotiation  the  then  effective  rule  applying 
to  property  “requisitioned”  only  (50-20-1341:  A.  R.  M.  101).  .Dec.  1920  Cum. 

Victorv' 3 notes  called  June  15,  1922;  proceeds  reinvested  in  U.  S.  obligations: 
not  involuntary  conversion  (1921  Act)  (1-24-343:  I.  T.  1354).  .June  1922  Cum. 

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DEDUCTIONS— INVOLUNTARY  CONVERSION  OF  PROPERTY. 


2036  Ascertainment  of  Gain. — In  cases  of  involuntary  conversion  of 
property  within  the  provisions  of  sections  214  (a)  (12)  or  234  (a) 
(14),  the  gain  must  be  included  in  income  and  no  deduction  will  be  allowed 
unless  the  taxpayer  proceeds  forthwith  in  good  faith  to  expend  the  proceeds 
of  such  conversion  in  any  of  the  three  ways  described  in  article  261.  If  the 
taxpayer  does  not  elect  so  to  expend  the  proceeds  of  the  conversion,  the 
gain,  if  any,  shall  be  ascertained  as  provided  in  article  49  [If  125 7].  (Art. 
262,  Reg.  62,  1922  Edition.) 


2037  Replacement  Fund  for  Loss. — In  any  case  where  the  taxpayer 

elects  to  replace  or  restore  the  converted  property,  but  where  it  is 
not  practicable  to  do  so  immediately,  he  may  obtain  permission  to  establish 
a replacement  fund  in  his  accounts  in  which  part  or  all  of  the  compensation 
so  received  shall  be  held,  without  deduction  for  the  payment  of  any  mort- 
gage, and  pending  the  disposition  thereof  the  deduction  shall  be  tentatively 
allowed.  In  such  a case  the  taxpayer  should  make  application  to  the  Com- 
missioner on  Form  1 1 14  for  permission  to  establish  such  a replacement 
fund  and  in  his  application  should  recite  all  the  facts  relating  to  the  transac- 
tion and  undertake  that  he  will  proceed  as  expeditiously  as  possible  to  re- 
place or  restore  such  property.  The  taxpayer  will  be  required  to  furnish 
a bond  with  such  surety  as  the  Commissioner  may  require  for  an  amount 
not  less  than  the  estimated  additional  income  and  war-profits  and  excess- 
profits  taxes  assessable  by  the  United  States  upon  the  income  so  carried  to  the 
replacement  fund.  See  section  1329  of  the  statute  [U.  S.  bonds  as  security, 
If  1770].  The  estimated  additional  taxes,  for  the  amount  of  which  the  claim- 
ant is  required  to  furnish  security,  should  be  computed  at  the  rates  at  which 
the  claimant  would  have  been  obliged  to  pay,  taking  into  consideration  the 
remainder  of  his  net  income  and  resolving  against  him  all  matters  in  dispute 
affecting  the  amount  of  the  tax.  Only  surety  companies  holding  certificates 
of  authority  from  the  Secretary  of  the  Treasury  as  acceptable  sureties  on 
Federal  bonds  will  be  approved  as  sureties.  The  application  should  be 
executed  in  triplicate,  so  that  the  Commissioner,  the  applicant  and  the 
surety  or  depositary  may  each  have  a copy.  (Art.  263,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  pi. 

Affiliated  corporations:  intercompany  replacement  (48-21-1942:  A.  R.  M 1421 
Dec.  1921  Cum.  Bull.  p.  94. 

Barge  for  lost  tug  is  not  a replacement  in  kind  (20-19-504:  O.  914).  1919  Cum  Bull 
p.  77. 

Interest  on  excess  of  insurance  over  book  value  of  lost  vessels  (12-20-801:  O.  D.  417: 

. .June  1920  Cum.  Bull.  p.  287. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22.  (2)  4-10-22.  (3)  1-21-22.  (4)  5-1-22.  (5)  10-11-22. 

CREDITS  TO  INDIVIDUALS. 


Profit  shown  by  replacement  in  later  year  from  fund  is  taxable  as  of  year  of  original 
conversion  into  cash:  1921  Act  (1-16-227:  Sol.  Op.  135).  .June  1922  Cum.  Lull, 
p.  190.  „ . 

Requisitioned  ships  restored  to  owner  with  sum  of  money  in  lieu  ot  restoration; 
ships  may  be  sold  by  owner  and  fund  established  (1  2-19-400:  T.  B.  R.  41) . . 1919 

Vessel  for  vessel*of  greater  capacity  is  a replacement  in  kind  (15-19-443:  T.  B.  M.  61) 
. . 1919  Cum.  Bull.  p.  76. 


2033  Law  1194.  Credits  Allowed  to  Individuals.— For  Normal  Tax 
(Sec.  216.)  Only.—' “Sec.  216.  That  for  the  purpose  of  the  normal 
tax  only  there  shall  be  allowed  the  following  credits — 
Law.  [Note;  The  1918  Act  so  provided.] 

2039  Law  ^[195.  Dividends  as  Credit  for  Normal  Tax  Only— “(a) 

(Sec.  216.)  The  amount  received  as  dividends ” 

2040  Law  1196.  “(1)  from  a domestic  corporation  other  than  a corpo- 

(Sec.  216.)  ration  entitled  to  the  benefits  of  section  262  [12070], 

or” 

[Amended;  China  Trade  Act  corporations,  '.[3  173.]  . 

2041  Law  H197.  “(2)  from  a foreign  corporation  when  it  is  shown  to  the 

(Sec.  216.)  satisfaction  of  the  Commissioner  that  more  than  50  per 

centum  of  the  gross  income  of  such  foreign  corporation 
for  the  three-year  period  ending  with  the  close  ot  its  taxable  year  preceding 
the  declaration  of  such  dividends  (or  for  such  part  of  such  period  as  the 
corporation  has  been  in  existence ) was  derived  from  sources  within  the 
United  States  as  determined  under  the  provisions  of  section  217  11 2102];”— 
Law.  [Note;  The  1918  Act  provided  for  the  credit  of  dividends  as 

follows:  “(a)  The  amount  received^as 

dividends  from  a corporation  whiclu  is 
taxable  under  this  title  upon  its  net 
income,  and  amounts  received  as  divi- 
dends from  a personal  service  corpora- 
tion out  of  earnings  or  profits  upon  which 
income  tax  has  been  imposed  by  Act  of 
Congress. ”j 

2042  Law  1198.  All  Interest  on  Government  and  War  Finance  Corpo- 
(Sec.  216.)  ration  Bonds  which  has  been  Included  as  Gross 

Income  is  Credited  for  Normal  Tax  Purposes.— 
“(b)  The  amount  received  as  interest  upon  obligations  of  the  United  States 
and  bonds  issued  by  the  War  Finance  Corporation,  which  is  included  in 
gross  income  under  section  213  [11567];”— Law.  [Note:  The  1918 

Act  so  provided.J 

2043  Credits  Against  Net  Income— (a)  For  the  purpose  of  imposing  the 
normal  tax  the  taxpayer’s  net  income  as  computed  pursuant  to 

section  212  of  the  statute  and  articles  21-26  is  first  reduced  by  the  sum  of 
the  allowable  credits.  These  include  dividends  (as  defined  in  sec.  201  and 
arts.  1541-1549)  received  from  a domestic  corporation  other  than  a corpora- 

Cafy  right  1922,  hy  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

456 


t- 27-22.  (2)  7-20-22.  (3)  10-1-22.  (4)  10-11-22. 

CREDITS  TO  INDIVIDUALS  -SPECIFIC  EXEMPTIONS. 

don  entitled  to  the  benefits  of  section  262,  or  (2)  from  a foreign  corporation 
when  it  is  shown  to  the  satisfaction  of  the  Commissioner  that  more  than 
50  per  centum  of  the  gross  income  of  such  foreign  corporation  for  the  three- 
year  period  ending  with  the  close  of  its  taxable  year  preceding  the  declara- 
tion of  such  dividends  (or  for  such  part  of  such  period  as  the  corporation 
has  been  in  existence)  was  derived  from  sources  within  the  United  States 
as  determined  under  the  provisions  of  section  217  (see  art.  318  [^[2113]); 
interest  not  entirely  exempt  from  tax  (and  hence  included  in  gross  income) 
received  upon  obligations  of  the  United  States  and  bonds  of  the  War  Finance 
Corporation;  a personal  exemption;  and  a credit  for  dependents.  Con- 
sequently, the  normal  tax  does  not  apply  to  the  dividends  just  described 
nor  to  interest  on  any  obligations  of  the  United  States.  See  section  213  (b) 
of  the  statute  and  articles  77-84  and  1131.  For  the  purpose  of  imposing 
the  surtax  the  taxpayer’s  net  income  is  entitled  to  none  of  these  credits. 
As  to  credits  allowed  corporations,  see  section  236  and  article  591  [If  1415]. 
(Art.  301,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Dividends  from  taxable  foreign  corporation;  no  matter  how  large  the  dividends  nor 
how  small  its  taxable  income  (5-19-252:  T.  B.  M.  21) . . 1919  Cum.  Bull.  p.  160. 
Same:  (4-20-706  O.  D.  383).  .June  1920  Cum.  Bull.  p.  159. 

Same:  even  though  sole  income  of  foreign  corporation  from  U.  S.  consist  of  divi- 
dends (47-20-1314:  L.  0.  1054).  .Dec.  1920  Cum.  Bull.  p.  193. 

Same:  Stock  deposited  with  American  agent  who  issues  certificates  of  partici- 
pation (1-2-21:  I.  T.  1160).  .June  1922  Cum.  Bull.  p.  269. 

(See  “Dividends”  in  Cumulative  index  following  1617.) 

Dividends  on  preferred  stock  of  certain  exempt  corporation,  a town  being  principal 
holder  of  common  stock  on  which  no  dividends  are  payable  (28-19-612:  O.  D. 
328).  . 1919  Cum.  Bull.  p.  93. 

Domestic  building  and  loan  association  dividends;  consideration  of  specific  $300 
exemption:  1921  Act  (1-29-413:  1.  T.  1394).. Bull.  I (’22)-29,  p.  7. 

Mutual  savings  bank  without  capital  stock;  interest  to  depositors  is  not  “dividends”: 
1921  Act  (1-40-537:  I.  T.  1461).. Bull.  I (’22)-40,  p.  15. 


2044  Law  1fl99.  A Specific  Exemption  of  Income  is  Allowed  for  Normal 
(Sec.  216.)  Tax  Purposes. — Single  Persons. — “(c)  In  the  case 

of  a single  person , a personal  exemption  of  $1,000;” — 
Law.  [Note:  The  1918  Act  so  provided.] 

2045  Law  ^[200.  Married  Persons  Living  Together,  and  Heads  of 

(Sec.  216.)  Families. — “or  in  the  case  of  the  head  of  a family  or 
a married  person  living  with  husband  or  wife , a personal 
exemption  of  $2,500,  unless  the  net  income  is  in  excess  of  $5,000,  in 
which  case  the  personal  exemption  shall  be  $2,000.” — Law.  [Note; 

The  1918  Act  limited  the  credit  to  $2,000 
in  the  case  of  such  taxpayers  irrespective 
of  the  amount  of  the  net  income.] 

2046  Law  ^[201.  One  $2,000  or  $2,500  Specific  Exemption  Only  to 
(Sec.  216.)  Married  Persons  Living  Together. — “ A husband  and 

wife  living  together  shall  receive  but  one  personal  exemption.  The  amount 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  7-20-22.  (3)  10-4-22.  (4)  10-11-22. 

CREDITS  TO  INDIVIDUALS— SPECIFIC  EXEMPTIONS. 

of  such  personal  exemption  shall  be  $2,500,  unless  the  aggregate  net  income 
of  such  husband  and  wife  is  in  excess  of  $5,000,  in  which  case  the  amount 
of  such  personal  exemption  shall  be  $2,000.  If  such  husband  and  wife 
make  separate  returns,  the  personal  exemption  may  be  taken  by  either  or 
divided  between  them.  — Law.  [Note:  The  1918  Act  limited  the 

credit  to  $2,000  in  such  cases  irrespective 
of  the  amount  of  the  net  income.] 

2047  Law  1f202.  Relief  Provision  for  Married  Persons  and  Heads 
(Sec.  216.)  of  Families  With  Incomes  of  Over  $5,000  but  Less 

than  $5,020. — “ In  no  case  shall  the  reduction  of  the 
personal  exemption  from  $2,500  to  $2,000  operate  to  increase  the  tax , 
which  would  be  payable  if  the  exemption  were  $2,500,  by  more  than  the 
amount  of  the  net  income  in  excess  of  $5,000;” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act.] 

2048  (b)  Under  the  Revenue  Act  of  1921  a single  person  is  entitled  to 
a personal  exemption  of  $1,000  regardless  of  the  amount  of  his  net 

income,  but  the  personal  exemption  of  a head  of  a family  or  of  a married 
person  living  with  husband  or  wife  is  $2,500,  unless  the  net  income  is  in 
excess  of  $5,000,  in  which  event  the  personal  exemption  is  $2,000.  A husband 
and  wife  living  together  have  but  one  personal  exemption,  the  amount  of 
which  depends  upon  whether  their  combined  net  income  is  in  excess  of 
$5,000.  If  they  make  separate  returns,  such  exemption  may  be  taken  by 
either  or  divided  between  them.  To  prevent  a slight  increase  above  $5,000 
in  net  income  from  causing  a disproportionate  increase  in  tax,  section  216  (c) 
provides  that  in  no  case  shall  the  reduction  of  the  personal  exemption  from 
$2,500  to  $2,000  operate  to  increase  the  tax  which  would  be  payable  if  the 
exemption  were  $2,500,  by  more  than  the  amount  of  the  net  income  in 
excess  of  $5,000.  For  example,  a married  man  with  no  dependents,  having 
a net  income  of  $5,005,  would  pay  without  the  benefit  of  this  provision  a 
normal  tax  of  $120.20  ($5,005  less  $2,000,  or  $3,005,  at  4 per  cent),  but 
under  this  provision  his  normal  tax  is  only  $105.20  ($5,005  less  $2,500,  or 
$2,505,  at  4 per  cent,  or  $100.20,  plus  $5,  the  amount  by  whi^h  his  net  income 
exceeds  $5,000).  The  only  incomes  affected  by  this  equalizing  provision 
are  those  in  excess  of  $5,000  but  not  in  excess  of  $5,019.99.  (Art.  301,  Reg. 
62,  1922  Edition.) 

2049  Personal  Exemption  of  Head  of  Family. — A head  of  a family  is  an 
individual  who  actually  supports  and  maintains  in  one  household 

one  or  more  individuals  who  are  closely  connected  with  him  by  blood  re- 
lationship, relationship  by  marriage,  or  by  adoption,  and  whose  right  to 
exercise  family  control  and  provide  for  these  dependent  individuals  is  based 
upon  some  moral  or  legal  obligation.  In  the  absence  of  continuous  actual 
residence  together,  whether  or  not  a person  with  dependent  relatives  is  a 
head  of  a family  within  the  meaning  of  the  statute  must  depend  on  the  char- 
acter of  the  separation.  If  a father  is  absent  on  business  or  at  war,  or  a 
child  or  other  dependent  is  away  at  school  or  on  a visit,  the  common  home 
being  still  maintained,  the  additional  exemption  applies.  If,  moreover, 
through  force  of  circumstances  a parent  is  obliged  to  maintain  his  dependent 
children  with  relatives  or  in  a boarding  house  while  he  lives  elsewhere,  the 
additional  exemption  may  still  apply.  If,  however,  without  necessity  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  3-22-22.  (3)  4-18-22.  (4)  10-11-22. 

CREDITS  TO  INDIVIDUALS— SPECIFIC  EXEMPTIONS. 


dependent  continuously  makes  his  home  elsewhere,  his  benefactor  is  not  the 
head  of  a family,  irrespective  of  the  question  of  support.  A resident  alien 
with  children  abroad  is  not  thereby  entitled  to  credit  as  the  head  of  a family. 
As  to  the  amount  of  the  exemption  see  article  301  [^j 2048].  [(Art.  302,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  paye  gr. 


Daughter  supporting  dependent  mother  but  living  apart  (38-20-1205:  O.  D.  665).. 
Dec.  1920  Cum.  Bull.  p.  194. 

Divorced  father,  with  two  adult  daughters,  retaining  family  home  where  they  may  live 
for  six  months  each  year  by  terms  of  separation  agreement  (51-20-1354:  O.  D. 
754).. Dec.  1920  Cum.  Bull.  p.  195 

Military  exemption  of  $3,500  has  no  bearing  (3-19-184:  O D.  123). . 1919  Cum.  Bull. 


p.  97. 

Test  generally;  independent  income  of  d pendent — here  a mother  (3-21-1397:  O.  D. 
775).. June  1921  Cum.  Bull.  p.  214. 

Widow  with  child  over  18  away  at  school  (17-20-836:  O.  D.  474).  .June  1920  Cum 
Bull.  p.  159. 

Widower  with  daughter  over  18  13-20-809:  O.  D.  422) . .June  1920  Cum.  Bull.  p.  159. 


2050  Personal  Exemption  of  Married  Person. — In  the  case  of  a mar- 
ried man  or  married  woman  the  joint  exemption  replaces  the  in- 
dividual exemption  only  if  the  man  lives  with  his  wife  or  the  woman  lives 
with  her  husband.  In  the  absence  of  continuous  actual  residence  together, 
whether  or  not  a man  or  woman  has  a wife  or  husband  living  with  h m or  her 
within  the  meaning  of  the  statute  must  depend  on  the  character  of  the 
separation.  If  merely  occasionally  and  temporarily  a wife  is  away 
on  a visit  or  a husband  is  away  on  business,  the  joint  home  being 
maintained,  the  additional  exemption  applies.  The'  unavoidable  absence 
of  a wife  or  husband  at  a sanatorium  or  asylum  on  account  of  illness  does 
not  preclude  claiming  the  exemption.  If,  however,  the  husband  voluntarily 
and  continuously  makes  his  home  at  one  place  and  the  wife  hers  at  another, 
they  are  not  living  together  for  the  purpose  of  the  statute,  irrespective  of 
their  personal  relations.  A resident  alien  with  a wife  residing  abroad  is 
not  entitled  to  the  joint  exemption.  (Art.  303,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  paye  Cl 

Husband  in  asylum  (30-20-1089  O.  D.  603) ..  Dec.  1920  Cum  Bull  p 130 

Unavoidable  absence  of  wife  due  to  war  (1-20-657:  O.  D.  357).  June  1920  Cum.  Bull 

p.  160. 

Wife  secures  annulment  under  Soviet  and  remarries;  husband  claims  all  invalid 

(49-21-1960:  O.  D.  1124).  .Dec.  1921  Cum.  Bull.  p.  177. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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2 27-22.  (2)  3-22-22.  (3)  4-18-22.  (4)  10-11-22. 

CREDITS  TO  INDIVIDUALS— SPECIFIC  EXEMPTIONS. 


2051  Law  *[[203.  Additional  $400  Specific  Exemption  for  Each  Depen- 
(Sec.  216.)  dent. — “(d)  $400  for  each  person  ( other  than  husband 

or  wife)  dependent  upon  and  receiving  his  chief  sup- 
port from  the  taxpayer  if  such  dependent  person  is  under  eighteen  years 
of  age  or  is  incapable  of  self-support  because  mentally  or  physically  de- 
fective^'— Law.  [Note:  The  credit  for  each  dependent  under  the  1918 

Act  was  $200,  only.] 

2052  A taxpayer  receives  a credit  of  $400  for  each  person  (other  than 
husband  or  wife),  whether  related  to  him  or  not  and  whether  living 

with  him  or  not,  dependent  upon  and  receiving  his  chief  support  from  the 
taxpayer,  provided  the  dependent  is  either  (a)  under  18  or  (b)  incapable 
of  self-support  because  defective.  The  credit  is  based  upon  actual  financial 
dependency  and  not  mere  legal  dependency.  It  may  accrue  to  a taxpayer 
who  is  not  the  head  of  a family.  But  a father  whose  children  receive  half 
or  more  of  their  support  from  a trust  fund  or  other  separate  source  is  not 
entitled  to  the  credit.  (Art.  304,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alien  residing  in  U.  S.  permanently  (34-20-1149:  O.  D.  640).. Dec.  1920  Cum.  Bull, 
p.  195. 

Community  property  states;  husband  and  wife  may  not  divide  credit.  .t[3097.  For 
same,  Louisiana  specifically,  1921  Act,  see  (1-15-213:  I.  T.  1275).  .June  1922 
Cum.  Bull.  p.  201. 

Head  of  family  but  not  a parent  of  the  dependants:  here  uncle  (1917  Act)  (26-21-1707: 
A.  R.  R.  551).  .June  1921  Cum.  Bull.  p.  215. 

Joint  contribution  to  support  of  dependent  (3-21-1398:  O.  D.  776).  .June  1921  Cum 
Bull.  p.  214. 

Nationality  or  residence  of  dependents  immaterial  in  case  of  American  citizen  (4-19-220: 
O.  D.  139) . . 1919  Cum.  Bull.  p.  160. 

Unemancipated  son  over  18;  earnings  appropriated  by  father  (6-21-1436:  O.  D.  797) . . 
June  1921  Cum.  Bull.  p.  214. 


2053  Law  ^[205.  Date  Determining  Amount  of  Specific'  Exemption  to 

(Sec.  216.)  be  Taken. — “(/)  The  credits  allowed  by  subdivisions 
(c),  (d),  and  ( e ) of  this  section  shall  be  determined  by  the 
status  of  the  taxpayer  on  the  last  day  of  the  period  for  which  the  return  of 
income  is  made;” — Law.  [Note:  This  provision  is  new  to  the  1921 

Act,  but  does  no  more  than  to  state  the 
rule  prescribed  by  the  regulations  under 
the  1918  Act.] 

2054  Law  *[206.  “ but  m die  case  of  an  individual  who  dies  during  the 

(Sec.  216.)  taxable  year , such  credits  shall  be  determined  by  his  status 

at  the  time  of  his  death , and  in  such  case  fuJ  credits  shall 
be  allowed  to  the  surviving  spouse , if  any , according  to  his  or  her  status 
at  the  dost:  of  the  period  for  which  such  survivor  makes  return  of  income.” — 
Law.  [Note:  This  provision  is  new  to  the  1921  Act,  but  accords 

to  the  rule  established  by  regulations 
under  the  1918  Act.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

460 


2-27-22.  (2)  4-10-22.  (3)  6-1-22.  (4)  10-11-22. 

CREDITS  TO  CORPORATIONS. 

2056  The  status  of  the  taxpayer  on  the  last  day  of  his  taxable  year  deter- 
mines his  right  to  an  additional  exemption  and  to  a credit  for  dependents. 
If  then  he  is  the  head  of  a family,  the  personal  exemption  of  $2,000  or  $2,500, 
as  the  case  may  be,  may  be  taken.  If  then  he  is  the  chief  support  of  a 
dependent  who  is  under  eighteen  years  of  age  or  incapable  of  self-support 
because  mentally  or  physically  defective,  the  credit  of  $400  may  be  taken. 
But  an  unmarried  individual  or  a married  individual  not  living  with  husband 
or  wife,  who  during  the  taxable  year  has  ceased  to  be  the  head  of  a family  or 
to  have  dependents,  is  entitled  only  to  the  personal  exemption  of  $1,000 
allowed  a single  person.  A husband  and  wife  living  together  at  the  end  of 
the  taxable  year  may  receive  but  one  personal  exemption,  divisible  as  they 
please,  against  their  aggregate  net  income.  If  an  individual  dies  during  the 
taxable  year,  his  executor  or  administrator  in  making  a return  for  him  is 
entitled  to  claim  his  full  personal  exemption  according  to  his  status  at  the 
time  of  his  death.  See  also  sections  219  (c)  and  226  (c)  of  the  statute  and 
articles  346,  [1(920],  421  [1(939],  and  431  [1(2574].  If  a husband  or  wife  so 
dies  and  the  joint  personal  exemption  is  used  by  the  executor  or  admin- 
istrator in  making  a return  for  the  decedent,  an  undiminished  personal 
exemption  according  to  the  status  of  the  survivor  at  the  end  of  the  taxable 
year  may  be  claimed  in  the  survivor’s  return.  If  a taxpayer  makes  a return 
for  a period  other  than  a taxable  year,  the  last  day  of  such  period  shall  be 
treated  as  the  last  day  of  the  taxable  year  for  the  purpose  of  this  article.  See 
section  226  and  articles  431  [1(2574]  and  1013  [1(2786].  (Art.  305,  Reg.  62, 
1922  Edition.) 


2066  Law  K433.  Credits  Against  Income  Allowed  Jto  Corporations. — 
(Sec.  236.)  “Sec.  236.  That  for  the  purpose  only  of  the  tax  im- 
posed by  section  230  [1(972]  there  shall  be  allowed  the 
following  credits :” — Law.  [Note:  The  1918  Act  so  provided.] 

2057  Law  1(434.  Any  Interest  from  Government  Obligations  and  from 
(Sec.  236.)  *Aar  Finance  Corporation  Bonds  is  to  be  Credited  for 

Purposes  of  the  Income  Tax.— “(a)  The  amount  re- 
ceived as  interest  upon  obligations  of  'he  United  States  and  bonds  issued 
by  the  War  Finance  Corporation,  which  is  included  in  gross  income  under 
Section  2 33  [1(1567];” — Law.  [Note:  The  1918  Act  so  provided.] 

2058  Law  1(435.  A Specific  Credit  of  $2,000  is  Allowed  to  Domestic 
(Sec.  236.)  Corporations  if  Net  Income  is  $25,000  or  Less. — “(b) 

In  the  case  o;  a domestic  corporation  the  net  income  of 
which  is  $25,000  or  less,  a specific  credit  of  $2,000;” — Law.  [Note: 

The  1918  Act  provided  for  a specific 
credit  of  $2,000  in  the  case  of  every 
domestic  corporation  irrespective  of  the 
amount  of  its  net  income.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

461 


2-27-22.  (2)  8-16-22.  (8)  6-1-22.  (4)  10-11-22. 

CREDITS  TO  CORPORATIONS. 

2059  Law  *[]5.  “(3)  The  term  ‘ domestic ' when  applied  to  a corporation 

(Sec.  2.'!  or  partnership  means  created  or  organized  in  the  United 

States  [see  111400.];” — Law.  [Note:  The  1918  Act  so 

provided.] 

[Act  amended:  China  Trade  Act  corporations.  . ^[3171.] 

2060  A domestic  corporation  is  a resident  corporation  even  though  it  does 
no  business  and  owns  no  property  in  the  United  States  [^[1400). 

(Art.  1509,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gr 

China;  corporation  receiving  charter  from  U.  S.  Court  far  (38-20-1199:  O.  D.  661) 
. . Dec.  1920  Cum.  Bull.  p.  19. 

Organized  in  U.  S.  but  doing  no  business  and  owning  no  property  here  constitutes  a 
resident  corporation  under  1918  Act  (1-12-158:  L.  O.  1069).  . June  1922  Cum. 
Bull.  p.  204. 

Reg.  45,  Art.  1509  amended.  .^3036. 


20  61  Law  *[436.  Relief  Provision  Applicable  to  Corporations  Having  Net 
(Sec.  236.)  Income  in  Excess  of  $25,000  but  Less  than  $25,200. — 
“ but  ij  the  net  income  is  more  than  $25,000  the  lax  im- 
posed by  section  230  shall  not  exceed  the  tax  which  would  be  payable  if  the 
$ 2,000  credit  were  allowed,  plus  the  amount  oj  the  net  income  in  excess  of 
$25,000;” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

2062  Law  ^[437.  The  Amount  of  War  and  Excess-Profits  Tax  Imposed 
(Sec.  236.)  for  the  Same  Taxable  Year  is  to  be  Credited  Against 

Income  for  Purposes  of  the  Income  Tax. — “(c)  The 
amount  oj  any  war-profits  and  i xt ess-prof its  taxes  imposed  by  .let  of  Con- 
gress lor  the  same  taxable  year.  The  credit  allowed  by  this  subdivision  shall 
be  determined  as  follows :” — Lav/.  [Note:  The  1918  Act  so  pro- 

vided.] 

2063  Law  *[438.  1920-21  Fiscal  Year.— “(1)  In  the  case  oj  a orporation 

(Sec  236  ) which  makes  return  for  a fiscal  year  beginning  in  1920 

and  ending  in  1921,  in  computing  toe  income  tax  as 
provided  m subdivision  (a)  [1!861]  of  section  205,” 

2064  Law  *[439.  '‘the  portion  of  the  war-profits  and  excess-profits  ax 
(Sec.  236  ) compu.ed  jer  .he  entire  period  under  clause  (l)  of  sub- 
division (a)  of  section  335  shall  be  cr.diied  against  the 

n,  t income  tompu:  d for  the  entire  period  as  provided  in  clauie  (1)  |1[862j 
of  subdivision  ( a ' of  section  205,  ’ 

2066  Law  *[440.  “ the  portion  of  .he  war-profits  and  exces'  prof  it  . tax 

(Sec.  236.)  compu  ed  tor  the  entirl  period  under  clause  ( 2 ) cf  subdi- 
vision (a)  oj  section  335  shad  be  credited  against  the  net 
'income  computed  for  the  entire  period  as  provided  in  clause  (2)  [^[863]  of 
subdivision  ( a ) of  section  205.” — Law.  [Note:  This  provision  is 

new  to  the  1921  Act,  in  terms,  but  in 
principle  is  the  same  as  that  carried  in 
the  1918  Act  to  meet  the  situation  for 
1917-18  fiscal  years.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
462 


2-27-22.  (2)  4-10-22.  (3)  9 8-22.  (4)  9-15-22  (5)  10-11-22. 

CREDITS  TO  CORPORATIONS 

20  66  Law  ^441.  1921-22  Fiscal  Year. — “(2)  In  the  case  of  a corporation 

(Sec.  236.)  tit  hick  makes  return  for  a fiscal  year  beginning  in  1921 
and  ending  in  1922,  in  computing  the  income  tax  as 
provided  in  subdivision  ( b ) [^865]  of  section  205,  the  war-profits  and  excess- 
profits  tax  computed  under  subdivision  (b)  of  section  335  shall  be  cr.dited 
against  the  net  income  computed  for  the  entire  period  as  provided  in  clause 
(1)  [*[866]  of  subdivision  ( b ) of  section  205.” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act,  in 
terms,  but  in  principle  is  the  same  as  that 
carried  in  the  1918  Act  to  meet  the 
situation  for  1917-18  fiscal  years.] 

China  Trade  Act  corporations;  special,  by  amendment  to  Revenue  Act  of  1921.  . ^[3 159. 

2067  Credits  Allowed  to  Corporations.— After  ascertaining  the  net  income 
of  a domestic  corporation  it  is  allowed  as  credits  against  such  net 

income  before  the  application  of  the  income  tax  rate  the  sum  of  $2,000  (only 
if  its  net  income  is  $25,000  or  less),  plus  the  amount  of  any  war  profits  and 
excess  profits  tax  assessed  or  to  be  assessed  for  the  same  taxable  year  (in 
case  of  fiscal  years  ending  in  1921  and  1922,  see  sec.  205  and  arts.  1623-1624 
[^| 87 1 ]),  and  plus  the  amount  of  interest  not  entirely  exempt  from  tax  received 
upon  obligations  of  the  United  States  and  bonds  of  the  War  Finance  Corpo- 
ration. See  section  213  (b)  of  the  statute  and  articles  77-83.  Consequently, 
in  the  case  of  corporations  no  income  tax  is  imposed  on  any  interest  received 
upon  obligations  of  the  United  States  or  bonds  of  the  War  Finance  Corpo- 
ration. A foreign  corporation  is  allowed  the  credit  provided  in  subdivision 
(c)  of  section  236  [<[2062]  but  not  the  credit  of  $2,000.  The  statute  repeals 
the  war  profits  and  excess  profits  tax  as  of  January  1,  1922.  For  the  purpose 
of  the  war  profits  and  excess  profits  tax  a corporation  is  not  entitled  to  the 
credits  mentioned  in  this  article.  To  lessen  the  inequality  between  the  tax 
upon  net  income  of  $25,000  and  upon  net  income  slightly  in  excess  of  that 
amount,  subdivision  (b),  section  236,  provides  that  the  tax  shall  not  exceed 
the  tax  which  would  be  payable  if  the  $2,000  credit  were  allowed,  plus  the 
amount  of  the  net  income  in  excess  of  $25,000.  As  to  the  equalizing  provision 
in  the  case  of  individual  incomes  slightly  in  excess  of  $5,000,  see  section  216 
(c),  and  article  301  [^[2048].  (Art.  591,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  <?/. 

Actual  not  annual  basis  income  determines  right  to  apportioned  $2,000  exemption  in 
case  of  fractional  year  return:  1921  Act  (1-36-493:  I.  T.  1439).  .Bull  I (’22)-36, 

p.  11. 

Ad  valorem  penalties  (excees-profits  tax)  not  part  of  tax  for  purposes  of  credit  (23-19 
551:  O.  926)  . 1919  Cum.  Bull.  p.  241. 

Apportioning  $2,000  exemption:  part  of  year  and  part  of  month  (51-20-1356:  O.  D 
756).. Dec.  1920  Cum.  Bull.  p.  282 

Apportioning $2,000  exemption:  return  for  5 months,  charter  granted  Aug.  1,  no  c.  pital 
paid  in  and  operations  not  begun  until  Oct.  1 (27-20-1044:  O.  D.  574).  . Dec. 
1920  Cum.  Bull.  p.  282. 

Excess-profits  tax  for  fiscal  year  ending  in  1917  (1-9-120:  A.  R.  R.  770).  .June  1922 
Cum.  Bull.  p.  289. 

2068  Credit  of  $2,000  (if  any)  Apportioned  When  Returns  Are  Being 
Made  for  a Changed  Accounting  Period. — Read  at  ^2573. 

2068  Credits  Against  the  Tax  in  the  Case  of  a Corporation. — Read  at 
If  1752. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22.  (3)  9-8-22.  (4)  9-15-22.  (5)  10-11-22. 

INCOME  FROM  SOURCES  WITHIN  U.  S.  POSSESSIONS. 

20  70  Law  ^617.  Income  of  U.  S.  Citizens  and  Domestic  Corpora- 
te. 262.)  tions  From  Sources  Within  the  Possessions  of  the 
United  States. — “Sec.  262.  (a)  That  in  the  case  of 

citizens  of  the  United  States  or  domestic  corporations , satisfying  the  fol- 
lowing conditions , gross  income  means  only  gross  income  from  sources 
within  the  United  States — ” — Law.  [Note:  This  provision  is  new 

to  the  1921  Act.] 

2071  Law  1[618.  “(1)  If  80  per  centum  or  more  of  the  gross  income  of 

(Sec.  262.)  such  citizen  or  domestic  corporation  ( computed  without 

the  benefit  of  this  section ) for  the  three-year  period 
immediately  preceding  the  close  of  the  taxable  year  (or  for  such  part  of  such 
period  immediately  preceding  the  close  of  such  taxable  year  as  may  be  ap- 
plicable) was  derived  from  sources  within  a possession  of  the  United  States; 
and ” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

2072  Law  ^[619.  “(2)  //,  in  the  case  of  such  corporation , 50  per  centum 

(Sec.  262.)  or  more  of  its  gross  income  (computed  without  the 

benefit  of  this  section ) for  such  period  or  such  part 
thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within  a 
possession  of  the  United  States;  or”— Law.  [Note:  This  provision 

is  new  to  the  1921  Act.] 

20  73  Law  ^[620.  “(3)  If,  in  the  case  of  such  citizen,  50  per  centum 

(Sec.  262.)  or  more  of  his  gross  income  (computed  without  the 

benefit  of  this  section)  for  such  period  or  such  part 
thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within  a 
possession  of  the  United  States  either  on  his  own  account  or  as  an  employee 
or  agent  of  another” — Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 

2074  Law  ^[621.  “(b)  Notwithstanding  the  provisions  of  subdivision 

(Sec.  262.)  (a)  there  shall  be  included  in  gross  income  all  amounts 

received  by  such  citizens  or  corporations  within  the 
United  States,  whether  derived  from  sources  within  or  without  the  United 
States .” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

2076  Law  %622.  “(c)  As  used  in  this  section  the  term  ‘ possession  of 

(Sec.  262.)  the  United  States'  does  not  include  the  Virgin  Islands 
of  the  United  States.”— Law.  [Note:  This  pro- 

vision is  new  to  the  1921  Act.] 

2076  The  gross  income  of  a citizen  of  the  United  States  (1)  80  per  cent  or 
more  of  whose  gross  income  (computed  without  the  benefit  of  this 
article)  for  the  three-year  period  immediately  preceding  the  close  of  the  taxable 
year  (or  for  such  part  of  such  period  immediately  preceding  the  close  of  such 
taxable  year  as  may  be  applicable)  was  derived  from  sources  within  a pos- 
session of  the  United  States,  and  (2)  50  per  cent  or  more  of  whose  gross 
income  (computed  without  the  benefit  of  this  article)  for  such  period  or  such 
part  thereof  was  derived  from  the  active  conduct  of  a trade  or  business  within 
a possession  of  the  United  States,  either  on  his  own  account  or  as  an  employee 
or  agent  of  another,  means  only  gross  income  from  sources  within  the  United 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22. 


(2)  9-8-22. 

INCOME  FROM  SOURCES  WITHIN  U.  S.  POSSESSIONS. 

States.  For  a determination  of  the  income  from  sources  within  the  United 
States,  see  section  217  and  articles  311-329  [beginning  at  2 1 02].  (Art.  1135, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

¥ Army  officer  in  Canal  Zone:  1921  Act  (1-36-492:  I.  T.  1438).  .Bull.  I (’22)-36,  p.  10. 

20  7 7 Domestic  Corporation  Deriving  Income  From  Sources  Within  a 
Possession  of  the  United  States. — The  gross  income  of  a domestic 
corporation  (1)  80  per  cent  or  more  of  the  gross  income  of  which  (computed 
without  the  benefit  of  this  article)  for  the  three-year  per:od  immediately 
preceding  the  close  of  the  taxable  year  (or  for  such  part  of  such  period  im- 
mediately preceding  the  close  of  such  taxable  year  as  may  be  applicable) 
was  derived  from  sources  within  a possession  of  the  United  States,  and  (2) 
50  per  cent  or  more  of  the  gross  income  of  which  (computed,  without  the  benefit 
of  this  article)  for  such  period  or  such  part  thereof  was  derived  from  the  active 
conduct  of  a trade  or  business  within  a possession  of  the  United  States,  means 
only  gross  income  from  sources  within  the  United  States.  See  section  217 
and  articles  316-329  [beginning  at  1(2102].  (Art.  1136,  Reg.  62,  1922  Edition.) 

20  7 8 Income  Received  Within  the  United  States.— Notwithstanding  the 
provisions  of  articles  1135  and  1136,  there  shall  be  included  in  gross 
income  of  citizens  and  domestic  corporations  therein  specified  all  amounts, 
whether  derived  from  sources  within  or  without  the  United  States,  which  are 
received  by  such  citizens  or  corporations  within  the  United  States.  From 
the  amounts  so  included  in  gross  income  there  shall  be  deducted  only  the 
expenses  properly  apportioned  or  allocated  thereto.  The  term  “United 
States”  as  used  herein  includes  only  the  States,  the  Territories  of  Alaska  and 
Hawaii,  and  the  District  of  Columbia.  The  term  “possession  o the  United 
States”  as  used  in  articles  1135,  1136,  and  this  article  includes  Porto  Rico, 
the  Philippine  Islands,  the  Panama  Canal  Zone,  Guam,  Tutuila,  Wake,  and 
Palmyra;  it  does  not  include  the  Virgin  Islands.  (Art.  1137,  Reg.  62,  1922 
Edition.) 

2079  Deductions  Allowed  Citizens  Entitled  to  Benefits  of  Sec.  262. — 
Read  at  2170  and  1(2177. 

2080  Deductions  Allowed  Corporations  Entitled  to  Benefits  of  Sec.  262. — 
Read  at  1(1412. 

2081  Credits  Allowed  Citizens  Entitled  to  Benefits  of  Sec.  262. — Read  at 
1(2176  and  1(2177. 

2082  Personal  Exemption  in  the  Case  of  a Citizen  Entitled  to  Benefits  of 
Sec.  262  — Read  at  1(2175. 

2083  Credit  for  Taxes  in  the  Case  of  a Citizen  Entitled  to  Benefits  of  Sec. 
262.— Read  at  1(1739. 

2084  Credit  for  Taxes  in  the  Case  of  a Corporation  Entitled  to  Benefits  of 
Sec.  262. — Read  at  1(1768. 

2085  Consolidated  Returns;  Corporation  Entitled  to  Benefits  of  Sec.  262 
Treated  as  a Foreign  Corporation. — Read  at  1(2558. 


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2-27-22.  (2)  9-8-22. 


TAX  ON  NONRESIDENT  ALIENS. 


2086  Tax  on  Nonresident  Aliens.— Who  is  a nonresident  alien.— Read 
at  1f754. 

2087  Law  11104.  Normal  Tax  on  Nonresident  Aliens. — “Sec.  210. 
(Sec.  210.)  That , in  lieu  of  the  tax  imposed  by  section  210  of  the 

Revenue  Act  of  1918,  there  shall  be  levied , collected , and 
paid  for  each  taxable  year  upon  the  ntt  income  of  every  individual  a normal 
tax  of  8 per  centum  of  the  amount  of  the  net  income  in  excess  of  the  credits 
provided  in  section  216  [1[2038  and  1[2 1 76 ]:” — Law.  [Note:  The 

1918  Act  so  provided.] 

2088  Lav/  If  106.  Surtax  on  Nonresident  Aliens. — “Sec.  211.  (a)  That , 
(Sec.  211.)  in  lieu  of  the  tax  imposed  by  section  211  of  the  Revenue 

Act  of  1918,  but  in  addition  to  the  normal  tax  imposed 
by  section  210  of  this  Act,  there  shall  be  levied , collected,  and  paid  for  each 
taxable  year  upon  the  net  income  of  every  individual — ” — Law.  [Note: 

The  1918  Act  so  provided.] 

2089  [Rates  same  as  for  citizens  and  resident  aliens:  For  1921,  see  1f722, 

for  1922,  see  1(727.] 

2090  Law  If  1 10.  Net  Income  of  Nonresident  Aliens  Defined. — “Sec. 

(Sec.  212.)  212.  (a)  That  in  the  case  of  an  individual  the  term 

lnet  income ’ means  the  gross  income  as  defined  in  sec- 
tion 213  [see  Sec.  213  (c)  below,  at  1[2092],  less  the  deductions  allozvcd  by 
section  214  [1[2162].” — Law.  [Note:  The  1918  Act  so  provided!] 

2091  Lav/  Iflll.  Annual  Accounting  Period  for  Nonresident  Aliens 
(See.  212.)  (Fiscal  Year  or  Calendar  Year,  as  the  Case  May  Be.) — 

Sec.  212  ( b ).  [Same  as  for  citizens  and  residents  for 

which  see  If  1044-] 

2092  Law  If  139.  Gross  Income  of  Nonresident  Aliens. — “(c)  In  the  case 
(Sec.  213.)  of  a nonresident  alien  individual,  gross  income  means 

only  the  gross  income  from  sources  within  the  United 
States,  determined  under  the  provisions  of  section  217.  [1f2102.]” — Law. 

[Note:  The  1918  Act  so  provided, 

omitting,  however,  “determined  under 
the  provisions  of  section  217”,  and 
adding  the  following:  “including  interest 
on  bonds,  notes,  or  other  interest- 
bearing  obligations  of  residents,  cor- 
porate or  otherwise,  dividends  from 
resident  corporations,  and  including  all 
amounts  received  (although  paid  under 
a contract  for  the  sale  of  goods  or  other- 
wise) representing  profits  on  the  manu- 
facture and  disposition  of  goods  within 
the  United  States,”  the  interest  portion 
of  which,  modified,  appears  [1f2 1 03]  in 
the  1921  Act  in  Section  217,  wherein  is 
prescribed,  in  the  case  of  nonresident 


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2-27-22.  (2)  4-10-22.  (3)  7-27-22.  (4)  9-15-22.  (5)  10-11-22. 

TAX  ON  NONRESIDENT  ALIENS. 

aliens,  what  is  and  what  is  not  gross 
income  from  sources  within  the  United 
States,  and  the  manner  of  determining 
net  income  from  sources  within  and 
without  the  United  States  in  far  greater 
detail  than  has  heretofore  been  at- 
tempted.] 

2093  In  the  case  of  nonresident  alien  individuals  “gross  income”  means  only 
the  gross  income  from  sources  within  the  United  States,  determined 
under  the  provisions  of  section  217.  See  articles  316-329  [beginning  at  ^[2094] . 
As  to  the  gross  income  of  foreign  corporations  see  section  233  (b)  of  the  statute 
and  article  550  [H 1410];  also  section  217  and  articles  316-329  [beginning  at 
^[2094].  The  items  of  gross  income  from  sources  without  the  United  States  and 
therefore  not  taxable  to  nonresident  aliens  or  foreign  corporations  are  des- 
cribed in  section  217(c)  and  article  322  [1[213l].  As  to  who  are  nonresident 
alien  individuals,  see  articles  311-314  [beginning  at  ^[754].  (Art.  92,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  or. 

The  rulings  cited  belozv  are  based  on  the  1918-  Act  or  prior  Acts,  and  were  formerly  grouped 
under  Article  91  of  Regulations  45,  entitled  “ Cross  Income  of 
Nonresident  Alien  Individuals." 

Bonds  of  domestic  corporation  operating  abroad;  owns  property  and  has  office  here; 
in  hands  of  receiver  appointed  by  U.  S.  Court,  and  who  has  office  here  (21-20-955 
O.  D.  517).  .June  1920  Cum.  Bull.  p.  187. 

Bonds  of  foreign  government  or  corporation  sold  here  or  liquidated  here  at  maturity; 
bought  here  or  abroad ..  (17-21-1593:  O.  D.  890)  . June  1921  Cum.  Bull 
p.  1 14. 

Same;  here  an  estate  subject  to  jurisdiction  of  a foreign  country  (14-21-1546:  O 
D.  863).  .June  1921  Cum.  Bull.  p.  113. 

Bonds  of  nonresident  foreign  corporation:  interest  payable  in  U.  S.:  not  taxable 
income  (13-19-417:  O.  D.  239)..  1919  Cum.  Bull.  p.  98. 

British  Government  treasury  bills  bought  at  discount;  realizing  discount  at  maturity; 
_ profit  from  sale  of  (23-20-985;  O.  D.  534) . .June  1920  Cum.  Bull.  p.  103. 

Dividends  from  corporation  organized  in  U.  S.  though  neither  doing  business  nor  own- 
ing property  here  (I-12-15S:  L.  O.  1069).  .June  1922  Cum.  Bull.  p.  204 

General  discussion:  Attorney  General’s  opinion  (3-21-1401:  T.  D.  3111).  .June  1921 
Cum.  Bull.  p.  280. 

Mail  order  business  or  unsolicited  orders;  not  taxable  income  (23-19-549:  O.  D.  294) 

. . 1919  Cum.  Bull.  p.  213. 

Merchandise  sold  here  by  alien  here  less  than  30  days  (23-19-543:  O.  D.  291).  1919 
Cum.  Bull.  p.  98. 

Purchasing  office  here  of  railroad  operated  by  foreign  government;  wages  of  employees 
(34-20-1146:  O.  D.  638).  Dec.  1920  Cum.  Bull.  p.  128. 

Reg.  45,  Art.  91  amended.  . H3034. 

Supreme  Court  decision  (1913  Act);  Stocks  and  bonds  held  here  under  power  of 
attorney.  .Supplementary  Page  155,  5jl49. 


1921  Act  Rulings 

Sale  of  securities  within  U.  S.  wherever  acquired  (1921  Act)  (1-7-90:  I.  T.  1204) 
June  1922  Cum.  Bull.  p.  113. 


2094  Nonresident  alien  individuals,  foreign  corporations,  and  citizens  of 
the  United  States  or  domestic  corporations  entitled  to  the  benefits  of 
section  262  [^j 2070]  are  taxable  only  upon  income  from  sources  within  the 
United  States,  See  sections  213(c),  233(b),  and  262. 

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9-97-22  (2)  4-10-22.  (3)  7-27-22.  (4)  9-15-22.  (5)  10-11-22. 

tax  on  nonresident  aliens. 

2095  JfcZT'  SV"  tefsg 

States;  '(2) 

^rom  sources  without  the  United  S, atet u Tta 

***  ;»  irL sources 

2r«U^5sP  which  is  to  sources  w,th,„ 

the  United  States.  (Art.  316,  Reg.  62,  1922  Edition., 

lor  explanation  of  Cumulative  Index  references  see  page  91. 

2996 

on 

nonresident  alien  seamen  are  taxa  ■ - 1 ered  inside  the  territorial 

United  States.  Wages  rece.ved  for  Un'.«d  States. 

United  States  are  to  be  >egaru'  <■  ^ roastwise  vessel  are  from  sources 

The  wages  of  an  alien  seaman  earn  c ' re;  2 1 1 8].  There  is  no  with- 

within  the  United  States.  See  fui  . " , " j y are  nonresidents  within 

holding  from  the  wages  of* alien  seamen  1 nlws  t Ke>  are  no  ^ ^ the 

the  rules  laid  down  in  articles  311  t°315  [begmn  .g  ^ ^ ^ ^ withhold 
case  of  a nonresident  alien  seaman,  JL.es  within  the  United  States  as 

as  residents’ see 

S 3UW £11756]°  (Art.  93.  Reg.  62.  !922  Editton.) 

For  explanation  of  Cumulative  Index  references  see  page  91 • 

Pacific  to  Atlantic  U.  S.  port  or  vice  versa  via  Panama  Canal  (5-21-1416.  0.  D.  784 

vlUe  on  vessei  u.uaUy  staking  foreign  port.  (13-.0- 

Seameni  smJmer^  foreign  trade  l^ng  for  two  weeks  in  U.  S.  port  for  repa.rs  (26-20- 
1027:  O.  D.  559).. June  1920  Cum.  Bull.  p.  103. 

2097  Sr  '“°“«idnen??  (of  "whtlf  Sw  -“t„_iddWon,S  . 'he 

following.] 


2C9S  Law  $:134. 

(Sec.  213.) 


Farrin^s  Derived  from  the  Operation  of  Ships  Docu- 
mented Under  the  Laws  of  a Foreign  Country,  Un  er 
Reciprocal  Conditions.- “(S)  The  income  of  a nouns- 

Unli  Sum  and  u corporamn^argan J„v;sion  is  new  to  the  1921 

[Act  amended,  new  paragraph  (.3)  added;  Chin,  Trade  Ac,  corporations,  «.«•! 

Copyright  1922,  by  The  Corporation  I rust  Company. 

THE. FEDERAL  INCOME  TAX  SERVICE 

468 


2-87-22  (2)  <5-2-22.  (8)  8-28-22.  (4)  9-1-22.  (6)  9-18-22.  (6)  9-27-22.  (7)  10-11-22.(8)  11-4-22 

TAX  ON  NONRESIDENT  ALIENS. 

2099  The  following  additional  exclusions  from  gross  income  not  provided  by 
the  Revenue  Act  of  1918  is  allowed  by  the  Revenue  Act  of  1921: 

Income  of  a. nonresident  alien  or  foreign  corporation  consisting  exclusively  of 
earnings  derived  from  the  operation  of  a ship  or  ships  documented  under  the 
laws  of  a foreign  country  which  grants  an  equivalent  exemption  to  citizens 
of  the  United  States,  and  corporations  organized  in  the  United  States.  Any 
taxpayer  claiming  this  exemption  must  file,  under  oath,  a statement  citing  the 
foreign  statute  which  grants  the  equivalent  exemption  and  stating  fully  the 
facts  upon  which  he  relies  to  establish  his  claim.  (Art.  89,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Foreign  countries  which  satisfy  equivalent  exemption  provision  (1921  Act): 
Argentine  Republic  (I.  T.  1430:  1-35-480).  .Bull.  I (’22)-35,  p.  2. 

* Costa  Rica  (i-44-569:  1.  T.  1485).  .hull.  I (’22)-44,  p 7. 

Egypt  (1-37-496:  I.  T.  1441) . . Bull.  I (’22)-37,  p.  4.  ‘ 

Norway  (1-22-314:  I.  T.  1327).  .June  1922  Cum.  Bull.  p.  111. 

Peru  (1-39-516:  I.  T.  1452).  .Bull.  I (’22)-39,  p.  1. 

* Siam  (1-42-552:  1.  T.  1473).  .Bull.  I (’221-42,  p.  3. 

Sweden  (1-22-315:  I.  T.  1328).  .June  1922  Cum.  Bull.  p.  111. 

Venezuela  (I.  T.  1430:  1-35-480).  .Bull.  I (’22)-35,  p.  2. 

When  no  reciprocal  conditions  exist  see  Art.  327  (a),  Reg.  62,  Transportation  services 
by  foreign  corporation  between  U.  S.  and  foreign  points  (T.  D.  3387).  .^3323. 

2100  Income  of  Nonresident  Aliens  from  United  States  Bonds.— By 
virtue  of  section  4 of  the  Victory  Liberty  Loan  Act  of  March  3,  1919, 

amending  section  3 of  the  Fourth  Liberty  Bond  Act  of  July  9,  1918,  [1(2101], 
the  interest  received  on  and  after  March  3,-1919,  on  bonds,  notes  and  cer- 
tificates of  indebtedness  of  the  United  States  and  bonds  of  the  War  Finance 
Corporation,  while  beneficially  owned  by  a nonresident  alien  individual, 
or  a foreign  corporation,  partnership  or  association,  not  engaged  in  business 
in  the  United  States,  is  exempt  from  all  income  and  war  profits  and  excess- 
profits  taxes.  See  Article  84  [If  1587].  (Art.  94,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

In  trust  for  life  beneficiary  (16-20-861:  O.  D.  464).  .June  1920  Cum.  Bull.  p.  103. 

2101  Sec.  4.  That  section  3 of  the  Fourth  Liberty  Bond  Act  is  hereby 
amended  to  read  as  follows: 

“Sec.  3.  That,  notwithstanding  the  provisions  of  the  Second  Liberty 
Bond  Act  or  of  the  War  Finance  Corporation  Act  or  of  any  other  Act,  bonds, 
notes,  and  certificates  of  indebtedness  of  the  United  States  and  bonds  of 
the  War  Finance  Corporation  shall,  while  beneficially  owned  by  a non- 
resident alien  individual,  or  a foreign  corporation,  partnership,  or  associa- 
tion, not  engaged  in  business  in  the  United  States,  be  exempt  both  as  to 
principal  and  interest  from  any  and  all  taxation  now  or  hereafter  imposed 
by  the  United  States,  any  State,  or  any  of  the  possessions  of  the  United 
States  or  by  any  local  taxing  authority.”  ^Section  4 of  “An  Act  to  amend 
the  Liberty  Bond  Acts  and  the  War  Finance  Corporation  Act,  and  for  other 
purposes,”  known  as  the  “Victory  Liberty  Loan  Act,”  March  3,  1919.) 

2102  Law  If 207.  Gross  Income  of  Nonresident  Aliens  from  Sources 
(Sec.  217.)  Within  the  United  States  Specifically. — “Sec.  217. 

(a)  That  in  the  case  of  a nonresident  alien  individual 
¥ or  of  a citizen  entitled  to  the  benefits  of  section  262  I1f2070],  the  following 
items  of  gross  income  shall  be  treated  as  income  from  sources  within  the 
United  States :” — Law.  [Note:  This  entire  section  is  new  to  the 

■r  1921  Act,  in  terms,  but  in  effect,  with 
exceptions  to  be  noted,  in  large  measure 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-87-22.  (2  8-2-82.  (8)  8-28-22.  (4)  #-1-22.  (8)  9-18-22.  (6)  9-27-22.  (7)  10-11-22.  (8)  11-4-22. 

TAX  ON  NONRESIDENT  ALIENS. 

carries  into  the  new  law  the  provisions 
of  the  1918  Act  and  the  regulations 
based  thereon,  relating  to  gross  and 
net  income  of  nonresident  alien  indi- 
viduals and  foreign  corporations.  The 
application  of  the  rules  laid  down,  to  a 
citizen  and  a domestic  corporation 
entitled  to  the  benefits  of  section  262,  is 
new,  of  course.  The  exceptions  in  the 
case  of  interest  accruing  from  residents 
are  new.  The  dividends  provisions  are 
somewhat  changed.  The  provisions 
relative  to  the  allocation  and  appor- 
tionment of  expenses,  losses,  and  other 
deductions  which  cannot  definitely  be 
allocated  to  items  of  gross  income  either 
from  sources  within  or  without  the 
United  States,  the  provisions  for  allocat- 
ing to  sources  within  and  without  the 
United  States  items  of  gross  income  not 
specifically  mentioned  and  in  turn  al- 
locating thereto,  respectively,  the  ex- 
pense and  other  items,  etc.,  etc.,  and 
the  provisions  stating  the  rule  that 
profits  derived  from  certain  sources  are 
to  be  treated  as  derived  partly  from 
sources  within  and  partly  from  sources 
without  the  United  States,  are  new  to 
the  law,  and  to  the  letter  of  the  formal 
regulations,  at  least,  under  the  1918 
Act.  The  1918  Act  provided,  as  to 
gross  income,  that  “In  the  case  of  non- 
resident alien  individuals  [and  foreign 
corporations],  gross  income  includes  only 
the  gross  income  from  sources  within  the 
United  States,  including  interest  on 
bonds,  notes,  or  other  interest-bearing 
obligations  of  residents,  corporate  or 
otherwise,  dividends  from  resident  cor- 
porations, and  including  all  amounts 
received  (although  paid  under  a con- 
tract for  the  sale  of  goods  or  otherwise) 
representing  profits  on  the  manufacture 
and  disposition  of  goods  within  the 
United  States;”  aiid  as  to  the  deduc- 
tions “the  proper  apportionment  and 
allocation  of  the  deductions  with  re- 
spect to  sources  of  income  within  and 
without  the  United  States  shall  be 
determined  under  rules  and  regulations 
prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary  [see  Law 
If  186,  1f2169] .”] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22.  (2)  4-10-22.  (8)  8-3-22  '4)  9-20-22.  (5)  10-11-22. 

TAX  ON  NONRESIDENT  ALIENS. 


2103  Law  ^[208. 

(Sec.  217.) 


2 1 04  Law  *[209. 

(Sec.  217.) 


Taxable  Interest. — “(1)  Interest  on  bonds , notes,  or 
other  interest-bearing  obligations  of  residents , cor- 
porate or  otherwise,  not  including ” 

“(d)  interest  on  deposits  with  persons  carrying  on  the 
banking  business  pa  d to  persons  not  engaged  in  busi- 
ness within  the  United  States  and  not  having  an  office 
or  place  of  business  therein,  or" 

2105  Law  If 2 10.  “(B)  interest  received  from  a resident  alien  individual 
(Sec.  217.)  or  a resident  foreign  corporation  when  it  is  shozvn  to 
the  satisfaction  of  the  Commissioner  that  less  than 
20  per  centum  of  the  gross  income  of  such  resident  payor  has  been  derived 
prom  sources  within  the  United  Stales , as  determined  under  the  provisions 
of  this  section , for  the  three-year  period  ending  with  the  close  of  the  taxable 
year  of  such  payor , or  for  such  part  of  such  period  immediately  preceding 
the  close  of  such  taxable  year  as  may  be  applicable — Law.  ’ [Note: 

See  note  at  ^[2 1 02-] 


2106  There  shall  be  included  in  the  gross  income  from  sources  within  the 
United  States,  of  nonresident  alien  individuals,  foreign  corporations 

and  citizens  of  the  United  States  or  domestic  corporations  which  are  entitled 
to  the  benefits  of  section  262  tf|2070],  all  interest  received  or  accrued,  as  the 
case  may  be,  on  bonds,  notes,  or  other  interest-bearing  obligations  of  residents 
of  the  United  States,  whether  corporate  or  otherwise,  except: 

2107  (a)  Interest  paid  on  deposits  with  persons,  including  individuals, 
partnerships,  or  corporations  cariying  on  the  banking  business,  to 

persons  (nonresident  alien  individuals,  foreign  corporations  and  citizens  of  the 
United  States,  or  domestic  corporations  entitled  to  the  benefits  of  sec.  262 
H[2070j)  not  engaged  in  business  within  the  United  States,  and  not  having 
an  office  or  place  of  business  therein;  and 

2108  (b)  . Interest  received  from  a resident  alien  individual  or  a resident 
foreign  corporation  when  it  is  shown  to  the  satisfaction  of  the  Com- 
missioner that  less  than  20  per  centum  of  the  gross  income  of  such  resident 
payor  has  been  derived  from  sources  within  the  United  States  for  the  three- 
year  period  ending  with  the  close  of  the  taxable  year  of  such  payor,  or  for 
such  part  of  such  period  immediately  preceding  the  close  of  such  taxable  year 
as  may  be  applicable. 

2109  Any  taxpayer  who  excludes  from  gross  income  from  sources  within 
the  United  States  income  of  the  type  specified  in  (a)  or  (b)  above 

shall  file  with  his  return  a statement  setting  forth  the  amount  of  such  income 
and  such  information  as  may  be  necessary  to  show  that  the  income  is  of  the 
type  specified  in  those  paragraphs.  (Art!  317,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Interest  on  bonds  of  domestic  corporation  operating  exclusively  in  U.  S.  possession 

which  guarantees  the  interest  (1921  Act)  (1-10-125:  I.  T.  1228).  . Tune  1922  Cum 
Bui!,  p.  99. 

Interest  on  U.  S.  bank  deposits  of  foreign  corporation  whose  only  activity  here  is 
purchasing  materials  througn  local  agent;  such  corporation  is  doing  business  here, 
hence  interest  is  taxable  and  agent  is  to  make  return;  1921  Act  (1-31-441-  I T 
1406).. Bull.  I (’22)— 31,  p.  10. 

Trust  fund  principal  and  interest  on  deposit  in  bank  draws  interest:  such  bank  interest 
is  not  tax  exempt  to  beneficiary  of  trust:  1 92 1 Act  (1-31-440:  I.  T 1405)  Bull 
I (’22)— 31,  p.  8. 


2110  Law  1(211.  Taxable  Dividends. — “(2)  The  amount  received  as 
(Sec.  217.)  dividends ” 


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2-27-22.  (2)1-10-22.  (3)8-3-22.  (4)  9-20-22  (5)  10-11-22. 

TAX  ON  NONRESIDENT  ALIENS. 

2111  Law  ^212.  “(A)  from  a domestic  corporation  other  than  a corpora- 

(Sec.  217.)  don  entitled  to  the  benefits  of  section  262  2070],  or" — 

2112  Law  ^213.  “(B)  from  a foreign  corporation  unless  less  than  50 

(Sec.  217.)  per  centum  of  the  gross  income  of  such  foreign  cor- 
poration for  the  three-year  period  ending  with  the  close 

of  its  taxable  year  preceding  the  declaration  of  such  dividends  (or  for  such 
part  of  such  period  as  the  corporation  has  been  in  existence ) was  derived 
from  sources  within  the  United  States  as  determin.d  under  the  provisions 
of  this  section-,” — Law.  [Note:  See  note  at  ^2102.] 

2113  Gross  income  from  sources  within  the  United  States  includes  all 
dividends,  as  defined  by  section  201  [H 1 07 7] : 

2114  (a)  From  a domestic  corporation  other  than  one  entitled  to  the 
benefits  of  section  262  [*[2070];  and 

2115  (b)  From  a foreign  corporation  unless  less  than  50  per  cent  of  its 
gross  income  for  the  three-year  period  ending  with  the  close  of  its 

taxable  year  preceding  the  declaration  of  such  dividends  or  for  such  part  of 
such  period  as  it  has  been  in  existence,  was  derived  from  sources  within  the 
United  States. 

2116  Dividends  will  be  treated  as  income  from  sources  within  the  United 
States  unless  the  taxpayer  submits  sufficient  data  to  establish  the 

fact  that  less  than  50  per  cent  of  the  gross  income  of  the  foreign  payor  corpo- 
ration for  the  three-year  period  ending  with  the  close  of  its  taxable  year  pre- 
ceding the  declaration  of  such  dividend  was  derived  from  sources  within  the 
United  States.  (Art.  318,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  <?/. 

Domestic  corporation  doing  no  business  in  U.  S.  and  owning  no  property  here;  1918 

Act  (1-12-158:  L.  O.  1069).  .June  1922  Cum.  Bull.  p.  204. 

2117  Law  ^[2 14-  Taxable  Personal  Service  Compensation. — “(3)  Com- 
(Sec.  217.)  pensation  for  labor  or  personal  services  performed  in  the 

United  States;” — Law.  [Note:  See  note  at  1[2102.] 

2118  Gross  income  from  sources  within  the  United  States  includes  com- 
pensation for  labor  or  personal  services  performed  within  the  United 

States  regardless  of  the  residence  of  the  payor,  of  the  place  in  which  the 
contract  for  services  was  made,  or  of  the  place  of  payment.  When  a specific 
amount  is  paid  for  labor  or  personal  services  performed  in  the  United  States, 
such  amount  shall  be  included  in  the  gross  income.  When  no  accurate 
allocation  or  segregation  of  compensation  for  labor  or  personal  services  per- 
formed in  the  United  States  can  be  made,  or  when  such  labor  or  service  is 
performed  partly  within  and  partly  without  the  United  States,  the  amount 
to  be  included  in  the  gross  income  shall  be  determined  by  an  apportionment 
on  the  time  basis,  i.  e.,  there  shall  be  included  in  the  gross  income  an  amount 
which  bears  the  same  relation  to  the  total  compensation  as  the  number  of 
days  of  performance  of  the  labor  or  services  within  the  United  States  bears 
to  the  total  number  of  days  of  performance  of  labor  or  services  for  which  the 
payment  is  made.  (Art.  319,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ferry-boat  (Canada-U.  S.)  employee,  boat  under  Canadian  registry;  one-half  of  com- 
pensation is  from  U.  S.  sources  and  subject  to  withholding:  1921  Act  (1-38-512. 
I.  T.  1449).  .Bull.  I (’22)-38,  p.  7. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TAX  ON  NONRESIDENT  ALIENS. 

2119  Law  1(215.  Taxable  Rentals  and  Royalties. — “(4)  Centals  or  royalties 
(See.  217.)  from  property  located  in  the  United  States  or  from  any 

interest  in  such  property , including  rentals  or  royalties  for 
the  use  of  or  for  the  privilege  of  using  in  the  United  Stales , patents,  copyrights, 
secret  processes  and  formulas,  good  will,  trade-marks,  trade  brands,  franchises, 
and  other  like  property,  and”- — Law.  [Note:  See  note  at  If 2 102.] 

2120  Gross  income  from  sources  within  the  United  States  includes  rentals 
or  royalties  from  property  located  within  the  United  States  or  from 

any  interest  in  such  property,  including  rentals  or  royalties  for  the  use  of  or 
the  privilege  of  using,  in  the  United  States,  patents,  copyrights,  secret 
processes  and  formulas,  good  will,  trade-marks,  trade  brands,  franchises,  and 
other  like  property.  The  income  arising  from  the  rental  of  property,  whether 
tangible  or  intangible,  located  within  the  United  States,  or  from  the  use  of 
property,  whether  tangible  or  intangible,  within  the  United  States,  is  from 
sources  within  the  United  States.  (Art.  320,  Reg.  62,  1922  Edition.) 


2121  Law  1(216.  Taxable  Profits  on  Sales  of  Real  Property.— “(5)  Gains, 
(Sec.  217.)  profits,  and  income  from  the  sale  of  real  property  located  in 

the  United  States” — Law.  [Note:  See  note  at  1(2102.] 

2122  Gross  income  from  sources  within  the  United  States  includes  gain,, 
computed  under  the  provisions  of  section  202,  derived  from  the  sale 

or  other  disposition  of  real  property  located  in  the  United  States.  For  the 
treatment  of  capital  net  gain,  see  section  206  and  articles  1651-1653  [Tf  1 503J. 

(Art.  321,  Reg.  62,  1922  Edition.) 


2123  Law  1(217.  Net  Income  of  Nonresident  Aliens  from  Sources 
(Sec.  217.)  Within  the  United  States.—' “(b)  From  the  items  of 

gross  income  specified  in  subdivision  (a)  [1(2102]  there 
shall  be  deducted  the  expenses,  losses,  and  other  deductions  properly  appor- 
tioned or  allocated  thereto  and  a ratable  part  of  any  expenses,  losses,  or  other 
deductions  which  can  not  definitely  be  allocated  to  some  item  or  class  of  gross 
income.  The  remainder,  if  any,  shall  be  included  in  full  as  net  income  from 
sources  within  the  United  States.” — Law.  [Note:  See  note  at  1(2102.] 

2124  Law  1(218.  Gross  and  Net  Income  of  Nonresident  Aliens  From 
(Sec.  217.)  Sources  Without  the  United  States,  Specifically. — 

“(c)  The  following  items  oj  gross  income  shall  be  treated 
as  income  jrom  sources  without  the  United  States:” — Law.  [Note:  See 

note  at  1[2 102.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TAX  ON  NONRESIDENT  ALIENS. 


2125  Law  2 19.  “(1)  Interest  other  than  that  derived  from  sources 
(Sec.  217.)  within  the  United  States  as  provided  in  paragraph 
(1)  [1f2103]  of  subdivision  ( a );” — Law.  [Note: 

See  note  at  ^[21 02-] 


2126  Law  T1 220.  “(2)  Dividends  other  than  those  derived  from  sources 

(Sec.  217.)  within  the  United  States  as  provided  in  paragraph  (2) 
[112110]  of  subdivision  (a);” — Law.  [Note:  See 

Note  at  H2102.J 


2127  Law  1f221.  “(3)  Compensation  for  labor  or  personal  service  per - 

(Sec.  217.)  formed  without  the  United  States-,” — Law.  [Note: 

See  note  at  ^[2 102.] 


2128  Law  1(222.  “('4)  Rentals  or  royalties  from  property  located  without 

("See.  217.)  the  United  States  or  from  any  interest  in  such  property , 
including  rentals  or  royalties  for  the  use  of  or  for  the 
privilege  of  using  without  the  United  States,  patents,  copyrights,  secret 
processes  and  formulas,  good  will,  trade-marks , trade  brands,  franchises , 
and  other  like  property,  and ” — Law.  [Note:  See  note  at  1f2l02.] 


2129  Law  1223.  “(5)  Gains,  profits,  and  income  from  the  sale  of  real 

(Sec.  217.)  property  located  without  the  United  States .” — Law. 

[Note:  See  note  at  1[2102.] 


2130  Law  1|224.  “(d)  From  the  items  of  gross  income  specified  in  sub- 

(Sec.  217.)  division  (c)  [1)2124]  there  shall  be  deducted  the  expenses, 

losses,  and  other  deductions  properly  apportioned  or 
allocated  thereto,  and  a ratable  part  of  any  expenses,  losses,  or  other  de- 
ductions which  can  not  definitely  be  allocated  to  some  it  tin  or  class  of  gross 
income.  The  remainder,  if  any , shall  be  treated  in  hill  as  net  income 
from  sources  without  the  United  States.”- — Law.  [Note:  See  note  at 

1f2l02.j 

2131  Gross  income  from  sources  without  the  United  States  includes: 

2132  (1)  Interest  other  than  that  specified  in  section  217(a)  (1),  and 
article  317  [1[ 2 1 06] , as  being  derived  from  sources  within  the  United 

States: 

2133  (2)  Dividends  other  than  those  derived  from  sources  within  the 
United  States  as  provided  in  section  217(a)  (2)  and  article  318 

[1)2113]: 

2134  (3)  Compensation  for  labor  or  services  performed  without  the 
United  States.  For  the  treatment  of  compensation  for  labor  or  pre- 

sonal  services  performed  partly  within  the  United  States  and  partly  without 

the  United  States,  see  article  319  [1[2 118]. 

2135  (4)  Rentals  or  royalties  derived  from  property  without  the  United 
States  or  from  any  interest  in  such  property,  including  rentals  or 

royalties  for  the  use  of  or  for  the  privilege  of  using  without  the  United  States 

patents,  copyrights,  secret  processes  and  formulas,  good  will,  trade-marks, 

trade  brands,  franchises,  and  other  like  property.  See  article  320  [1[2 120]. 

2136  (5)  Gain  derived  from  the  sale  of  real  property  located  without  the 
United  States.  See  section  202  [If  1431].  (Art.  322,  Reg.  62,  1922 

Edition.) 


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1-21-22.  (2)  4-10-22.  (8)  8-24-22.  (4)  10-11-22. 

TAX  ON  NONRESIDENT  ALIENS. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

The  rulings  cited  below  are  based  on  the  1918  Act  or  prior  Acts,  and  were  formerly  grouped 
under  Article  92  of  Regulations  45,  entitled  “Income  of  Nonresident 
Aliens  not  Subject  to  Tax .” 

Author’s  serial  rights  sold  here  (32-21-1759:  O.  D.  988).  .Dec.  1921  Cum.  Bull.  p.  117. 

Bonds  of  domestic  corporation  operating  exclusively  abroad:  reference  is  to  tax-free- 
covenant  bond  interest  (18-19-478:  O.  908).  . 1919  Cum.  Bull.  p.  100.  Revoked 
(1-12-158:  L.  O.  1069).  .June  1922  Cum.  Bull.  p.  204. 

Charter  money:  provision  in  Art.  92  (this  article)  explained  (35-20-1 174:  O.  D.  651).. 
Dec.  1920  Cum.  Bull.  p.  265. 

Dividends  of  domestic  corporation  doing  no  business  in  U.  S.  and  owning  no  property 
here  (1-12-158:  L.  O.  1069).  .June  1922  Cum.  Bull.  p.  204. 

Foreign  exchange  profit  resulting  from  collection  of  interest  here  on  foreign  government 
obligations  (1-19-47:  O.  D.  35) . .1919  Cum.  Bull.  p.  101. 

Foreign  government  bond  interest;  interest  and  principal  payable  in  U.  S.:  bonds 
underwritten  in  U.  S.  (1-19-16:  O.  786) ..  1919  Cum.  Bull.  p.  99. 

Foreign  government  bond  interest  wherever  payable  (1-19-47:  O.  D.  35) . . 1919  Cum. 
Bull.  p.  101. 

Employee  of  domestic  corporation  here  for  short  period  once  a year  (28-20-1053:  O.  D. 
578).  .Dec.  1920  Cum.  Bull.  p.  128. 

Premiums  on  insurance  contracted  for  and  written  in  Europe  covering  accounts  of 
foreign  customers  of  a U.  S.  corporation  (1-8-101:  A.  R.  R.  723).  .June  1922 
Cum.  Bull.  p.  1 13. 

Reg.  45,  Art.  92  amended.  .^3035. 

Sale  abroad  by  partnership  of  goods  purchased  here  through  purchasing  agency 
maintained  here  and  paid  for  by  draft  on  England  (29-20-1072:  O.  D.  592).. 
Dec.  1920  Cum.  Bull.  p.  128. 

Sale  abroad  to  U.  S.  Government  of  goods  manufactured  there  by  foreign  corporation 
having  no  office  or  place  of  business  here  but  owned  by  domestic  corporation; 
contracts  entered  into  and  deliveries  and  payments  made  abroad  (26-21-1703: 
A.  R.  M.  133).. June  1921  Cum.  Bull.  p.  114. 

Stock  of  foreign  corporations  all  owned  by  domestic  corporation.  (See  this  heading 
under  Art.  550,  1j  1410.) 


1921  Act  Rulings 

Nonresident  alien  member  of  domestic  partnership  not  liable  for  income  tax  on 
reasonable  compensation  for  services  rendered  abroad:  1921  Act  (1-34-466:  I.  T. 
1425).  .Bull.  I (’22)-34,  p.  3. 


2137  Law  1j225.  Income  of  Nonresident  Aliens  Allocated  and  Appor- 
tSec.  217.)  tioned  to  Sources  Within  and  Without  the  United 

States. — “(e)  Items  of  gross  income,  expenses , losses 
and  deductions , other  than  those  specified  in  subdivisions  (a)  and  (c),  shall 
be  allocated  or  apportioned  to  sources  within  or  without  the  United  Stales 
under  rules  and  regulations  prescribed  by  the  Commissioner  with  the  ap- 
proval of  the  Secretary.” — Law.  [Note:  See  note  at  1[2 102.] 

2138  Law  1j 226.  “IVhere  items  of  gross  income  are  separately  allocated 
(Sec.  217.)  to  sources  within  the  United  States , there  shall  be 

deducted  (for  the  purpose  of  computing  the  net  income 
there  prom)  the  expenses , losses  and  other  deductions  properly  apportioned 
or  allocated  thereto  and  a ratable  par.  of  other  expenses , losses  or  other  de- 
ductions which  can  not  definitely  be  allocated  to  some  item  or  class  of  gross 
income.  The  remainder , if  any , shall  be  included  in  full  as  net  income 
from  sources  within  the  United  States.” — Law.  [Note:  See  note  at 

112102.] 

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2-27-22.  (2)  4-10-22.  (3)  8-24-22.  (3)  10-11-22. 

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2139  Other  Income  From  Sources  Within  the  United  States,  items  of 
gross  income  other  than  those  specified  in  section  217  (a)  and  (c)  and 

articles  317-323  shall  be  allocated  or  apportioned  to  sources  within  or  without 
the  United  States,  as  provided  in  subdivision  (e)  of  section  217. 

2140  The  income  derived  from  the  ownership  or  operation  of  any  farm, 
mine,  oil  or  gas  well,  other  natural  deposit,  or  timber,  located  within 

the  United  States,  and  from  the  sale  by  the  producer  of  the  products  thereof 
within  or  without  the  United  States,  shall  ordinarily  be  included  in  gross 
income  from  sources  within  the  United  States.  If  however,  it  is  shown  to 
the  satisfaction  of  the  Commissioner  that  due  to  the  peculiar  conditions  of 
production  and  sale  in  a specific  case  or  for  other  reasons  all  of  such  gross 
income  should  not  be  allocated  to  sources  within  the  United  States,  an  appor- 
tionment thereof  to  sources  within  the  United  States  and  to  sources  without 
the  United  States  shall  be  made  as  provided  in  article  327  [^[2149]. 

2141  Where  items  of  gross  income  are  separately  allocated  to  sources  within 
the  United  States,  there  shall  be  deducted  therefrom,  in  computing 

net  income,  the  expenses,  losses,  and  other  deductions  properly  apportioned 
or  allocated  thereto  and  a ratable  part  of  other  expenses,  losses,  or  other 
deductions  which  can  not  definitely  be  allocated  to  some  item  or  class  of 
gross  income.  (Art.  326,  Reg.  62,  1.922  Edition.) 

2142  Law  1f227.  Computation  of  Income  from  Sources  Partly  Within 
(Sec.  217.)  and  Partly  Without  the  United  States.—' “In  the  case 

of  gross  income  derived  from  sources  partly  within  and 
partly  without  the  United  States , the  net  income  may  first  be  computed  by 
deducting  the  expenses , losses  or  other  deductions  apportioned  or  allocated 
thereto  and  a ratable  part  of  any  expenses , losses  or  other  deductions  which 
can  not  definitely  be  allocated  to  some  item  or  class  of  gross  income:  and 
the  portion  of  such  net  income  attributable  to  sources  within  the  United 
States  may  be  determined  by  processes  or  formulas  of  general  apportionment 
Prescribed  by  the  Commissioner  with  the  approval  of  the  Secretary.”  Law. 
y [Note-:  See  note  at  %2\02.} 

2143  Where  a taxpayer  has  gross  income  from  sources  within  or  without 
the  United  States  as  defined  by  section  217  (a)  or  (c)  together  with 

gross  income  derived  partly  from  sources  within  and  partly  from  sources 
without  the  United  States,  the  amounts  thereof,  together  with  the  expenses 
and  investment  applicable  thereto  shall  be  segregated,  and  the  net  income 
from  sources  within  the  United  States  shall  be  separately  computed  there- 
from. (Art.  328,  Reg.  62,  1922  Edition.) 


2144 

2145 


Lav/  *1228. 
(Sec.  217.) 

Law  1[229. 

(Sec.  217.) 


Income  Derived  from  Sources  Partly  Within  and  Partly 
Without  the  United  States.—' '‘Gains,  profits  and  income 
from”  m is  • v 

“(1)  transportation  or  other  services  rendered  partly 
within  and  partly  without  the  United  ^States,  or 


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2146  Law  ^[230.  “(2)  from  the  sale  ot  personal  properly  produced  (in 

(See.  217)  whole  or  in  part ) by  the  taxpayer  within  and  sold  without 

the  United  States , or  produced  (in  whole  or  in  part) 
by  the  taxpayer  without  and  sold  within  the  United  States,” 

2147  Law  1J231.  “ shall  be  treated  as  derived  partly  from  sources  within 

2148  (Sec.  217.)  and  partly  from  sources  without  the  United  States.” — 

Law.  [Note:  See  note  at  ^[21 02.] 

2149  Items  of  gross  income  not  allocated  by  articles  316-323  or  326  to 
sources  within  or  without  the  United  States  shall  (unless  unmis- 
takably from  a source  within  or  a source  without  the  United  States)  be 
treated  as  derived  from  sources  partly  within  and  partly  without  the  United 
States,  according  to  the  following  rules  and  cases: 

2150  Manufacturers  and  Producers. — Gross  income  derived  from  the 
sale  of  personal  property  produced  (in  whole  or  in  part)  by  the 

taxpayer  within  and  sold  without  the  United  States,  or  produced  in  whole  or 
in  part  by  the  taxpayer  without  and  sold  within  the  United  States  shall  be 
treated  as  derived  partly  from  sources  within  and  partly  from  sources  with- 
out the  United  States,  under  one  of  the  cases  named  below.  As  used  herein, 
the  word  “produced”  includes  created,  fabricated,  manufactured,  extracted, 
processed,  cured,  or  aged. 

2151  Case  1:  Where  the  manufacturer  or  producer  regularly  sells  part  of 
his  output  to  wholly  independent  distributors  or  other  selling  con- 
cerns in  such  a way  as  to  establish  fairly  an  independent  factory  or  produc- 
tion price — or  shows  to  the  satisfaction  of  the  Commissioner  that  such  an 
independent  factory  or  production  price  has  been  otherwise  established — 
unaffected  by  considerations  of  tax  liability,  and  the  selling  or  distributing 
branch  or  department  of  the  business  is  located  in  a different  country  than 
that  in  which  the  factory  is  located  or  the  production  carried  on,  the  net 
income  attributable  to  sources  within  the  United  States  shall  be  computed 
by  an  accounting  which  treats  the  products  as  sold  by  the  factory  or  pro- 
ductive department  of  the  business  to  the  distributing  or  selling  department 
at  the  independent  factory  price  so  established.  In  all  such  cases  the  basis 
of  the  accounting  shall  be  fully  explained  in  a statement  attached  to  the 
return. 

2152  Case  2:  Where  an  independent  factory  or  production  price  has  not 
been  established  as  provided  under  case  1,  the  net  income  shall  first 

be  computed  by  deducting  from  the  gross  income  derived  from  sources 
partly  within  and  partly  without  the  United  States  the  expenses,  losses,  or 
other  deductions  properly  apportioned  or  allocated  thereto  and  a ratable 
part  of  any  expenses,  losses,  or  other  deductions  which  can  not  definitely 
be  allocated  to  some  item  or  class  of  gross  income.  Of  the  amount  of  net 
income  so  determined,  one-half  shall  be  apportioned  in  accordance  with  the 
value  of  the  taxpayer’s  property  within  and  without  the  United  States,  the 
portion  attributable  to  sources  within  the  United  States  being  determined 
by  multiplying  such  one-half  by  a fraction  the  numerator  of  which  consists 
of  the  value  of  the  taxpayer’s  property  within  the  United  States  and  the 
denominator  of  which  consists  of  the  value  of  the  taxpayer’s  property  both 
within  and  without  the  United  States.  The  remaining  one-half  of  such  net 
income  shall  be  apportioned  in  accordance  with  the  gross  sales  of  the  tax- 
payer within  and  without  the  United  States,  the  portion  attributable  to 

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sources  within  the  United  States  being  determined  by  multiplying  such 
one-half  by  a fraction  the  numerator  of  which  consists  of  the  taxpayer’s 
gross  sales  for  the  taxable  year  or  period  within  the  United  States,  and  the 
denominator  of  which  consists  of  the  taxpayer’s  gross  sales  for  the  taxable 
year  or  period  both  within  and  without  the  United  States.  “Gross  sales 
within  the  United  States”  means  the  aggregate  amount  of  all  sales  made 
during  the  taxable  year  which  were  principally  secured,  negotiated  or  effected 
by  employees,  agents,  offices,  or  branches  of  the  taxpayer’s  business  resident 
or  located  in  the  United  States. 

21  53  The  term  “property”  as  used  in  this  article  includes  only  the  property 
held  or  used  to  produce  income  which  is  derived  from  sources  partly 
within  and  partly  without  the  United  States  (excluding  all  property  held  or 
used  to  produce  income  which  is  allocated  or  apportioned  under  other  articles 
or  paragraphs  of  these  regulations).  Such  property  should  be  taken  at  its 
actual  value,  which  in  the  case  of  property  valued  or  appraised  for  purposes 
of  inventory,  depreciation,  depletion,  or  other  purposes  of  the  Revenue 
Act  of  1921  shall  be  the  highest  amount  at  which  so  valued  or  appraised, 
and  which  in  other  cases  shall  be  deemed  to  be  its  book  value  in  the  absence 
of  affirmative  evidence  showing  such  value  to  be  greater  or  less  than  the 
actual  value.  The  average  value  during  the  taxable  year  or  period  shall 
be  employed.  The  average  value  of  property  as  above  prescribed  at  the 
beginning  and  end  of  the  taxable  year  or  period  ordinarily  may  be  used, 
unless  by  reason  of  material  changes  during  the  taxable  year  or  period,  such 
average  does  not  fairly  respresent  the  average  for  such  year  or  period,  in 
which  event  the  average  shall  be  determined  upon  a monthly  or  daily  basis. 
Bills  and  accounts  receivable  shall  (unless  satisfactory  reason  for  a different 
treatment  is  shown)  be  assigned  or  allocated  to  the  United  States  when  the 
debtor  resides  in  the  United  States,  unless  the  taxpayer  has  no  office  branch 
or  agent  in  the  United  States. 

2154  Case  3:  Application  for  permission  to  base  the  return  upon  the  tax- 
to  payer’s  books  of  account  will  be  considered  by  the  Commissioner  in 
2157  the  case  of  any  taxpayer  who,  in  good  faith  and  unaffected  by  con- 
siderations of  tax  liability,  regularly  employs  in  his  books  of  account  a 
detailed  allocation  of  receipts  and  expenditures  which  reflects  more  clearly 
than  the  processes  or  formulas  prescribed  under  cases  1 and  2,  the  income 
derived  from  sources  within  the  United  States.  (Art.  327,  Reg.  62,  1922 
Edition.) 

V Art.  327  (a),  Reg.  62,  Foreign  corporations  conducting  transportation  service  between 
U.  S.  and  foreign  points  (T.  D.  3387).  .^[3323. 


2158  Law  If 23 2.  Profit  from  Sales  of  Personal  Property. — “Gains, 
(Sec.  217.  profits  and  income  derived  from  the  purchase  of  personal 
property  within  and  its  sale  without  the  United  States 
or  from  the  purchase  of  personal  property  without  and  its  sale  within  the 
United  States , shall  be  treated  as  derived  entirely  from  the  country  in  which 
sold.” — Law.  [Note:  See  note  at  ^[2102.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

47  § 


2-27-22.  (2)  4-10-22.  (3)  8-3-22.  (4)  10-11-22. 

TAX  ON  NONRESIDENT  ALIENS. 


21S9  Income  derived  from  the  purchase  and  sale  of  personal  property  shall 
be  treated  as  derived  entirely  from  the  country  in  which  sold.  The 
word  “sold”  includes  “exchanged”  and  ordinarily  means  the  placeYwhere 
marketed.  This  article  does  not  apply  to  income  from  the  sale  of  personal 
property  produced  (in  whole  or  in  part)  by  the  taxpayer  within  and  sold 
without  the  United  States  or  produced  (in  whole  or  in  part)  by  the  taxpayer 
without  and  sold  within  the  United  States.  See  article  327  (b)  M]2153l 
(Art.  323,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Letters  patent  sold  here  by  foreign  partnership  (1921  Act)  (1-10-130:  I.  T.  1232) 

June  1922  Cum.  Bull.  p.  207. 

Manuscript  and  rights  of  serial  publication  (1918  Act)  (1-10-129:  I.  T.  1231).  . Tune 
1922  Cum.  Bull.  p.  206. 


2160  Law  1f233.  “Sale,”  “Sold,”  and  “Produced”  as  used  here,  de- 
(Sec.  217.)  fined,  “(f)  As  used  in  this  section  the  words  ' sale ' 
or  ' sold ' include  ' exchange ' or  ' exchanged ';  and  the 
word  ' produced ' includes  'created'  ' fabricated ,'  ' manufactured ,'  'ex- 
tracted, 'processed,'  'cured,'  or  'aged.'  " — Law.  [Note:  See  note  at 

H2102.] 


2161  Income  from  United  States  Sources  Received  Through  Foreign 
Partnership. — The  income  received  by  a nonresident  alien  part- 
nership from  sources  within  the  United  States  does  not  lose  its  identity  as 
to  source  when  distributed  to  a nonresident  alien  member  of  the  firm.  There- 
fore, the  nonresident  alien  member  will  be  required  to  file  a return  on  Form 
[1040B],  and  shall  include  therein  his  distributive  share  of  the  taxable  profits 
from  sources  within  the  United  States.  (Part  of  letter  to  The  Corporation 
Trust  Company,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated  October 
1,  1918.) 


2162  Law  If  185.  Deductions  Allowed'to  Nonresident  Aliens. — "(b)  In 

(Sec.  214.)  the  case  of  a nonresident  alien  individual  the  deductions 
allowed  in  subdivision  (a)  [of  Sec.  214,  If  140 ),  except 
those  allowed  in  paragraphs  (5),  (6)  [losses  other  than  business  losses,  ^2163 
and  112164],  and  (11)  [ contributions , 1f2165],  shall  be  allowed  only  if  and  to 
the  extent  that  they  are  connected  with  income  from  sources  within  the  United 
States ;”  Law.  [Note:  The  1918  Act  so  provided  generally,  in  effect. 

The  provisions  of  Section  217  of  the  1921 
Act  are  to  be  borne  in  mind.  See  note 
at  1f2l02.] 

2163  Law  1[155.  Losses  in  Transactions  Entered  Into  for  Profit  Out- 
(Sec.  214.)  side  of  Business  by  Nonresident  Aliens— [Such 

losses  are  generally  deductible,  If  1778,  with  a partial 
exception,  If  1787]  "but  in  the  case  of  a nonresident  alien  individual  only 
if  and  to  the  extent  that  the  profit,  if  such  transaction  had  resulted  in  a 
profit,  would  be  taxable  under  this  title.” — Law.  [Note:  The  1918 

Act  so  provided,  in  effect.] 

2164  Law  If  159.  Property  Losses  Outside  of  Business  Suffered  by 
(Sec.  214.)  by  Nonresident  Aliens.— [Such  losses  are  generally 

. ....  deductible]  ( but  in  the  case  of  a nonresident  alien 

individual  only  [of]  property  within  the  United  States)”— Law. 

[Note:  The  1918  Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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TAX  ON  NONRESIDENT  ALIENS. 

21  65  Law  1J177.  Deductible  Contributions  in  the  Case  of  Nonresident 
(Sec.  214.)  Aliens. — “7n  case  of  a nonresident  alien  individual 
this  deduction  shall  be  allowed  only  as  to  contributions 
or  gifts  made  to  domestic  corporations , or  to  community  chests , funds , 
or  foundations , created  in  the  United  States , or  to  such  vocational  rehabili- 
tation fund.” — Law.  [Note:  The  1918  Act  so  provided,  in  effect, 

if  weight  be  given  to  the  changes  made 
at  Law  1[176,  1[2001,  except  that  relating 
to  gifts  made  to  the  United  States, 
States,  etc.] 

2166  In  the  case  of  a nonresident  alien  individual  the  deductions  allowed 
by  section  214  (a)  for  business  expenses,  interest,  taxes,  losses  in 

trade,  bad  debts,  depreciation,  amortization,  depletion,  and  involuntary 
conversion  of  property,  are  allowed  only  if  and  to  the  extent  that  they  are 
connected  with  income  from  sources  within  the  United  States.  See  section 
217  and  article  329  [^[2178].  As  to  deductions  for  losses  not  connected  with 
the  trade  or  business  allowed  by  paragraphs  (5)  and  (6)  of  section  214  (a) 
and  contributions  (par.  11),  see  article  324  [H2167].  As  to  deductions  allowed 
foreign  corporations,  see  section  234  (b)  of  the  statute  and  article  573  [If  1414]. 
(Art.  271,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Foreign  income  tax  on  U.  S.  tax-exempt  income  is  not  deductible:  1921  Act  (1-31- 
438:  I.  T.  1403).  .Bull.  I (’22)— 31,  p.  8. 

Sale  of  securities  within  U.  S.  wherever  acquired  (1921  Act)  (1-7-90:  I.  T.  1204).  . 
June  1922  Cum.  Bull.  p.  113. 

2167  The  deductions  provided  for  in  section  214  shall  be  allowed  to  non- 
resident alien  individuals  and  to  citizens  of  the  United  States  en- 
titled to  the  benefits  of  section  262,  and  the  deductions  provided  for  in 
section  234  shall  be  allowed  to  foreign  corporations  and  to  domestic  corpora- 
tions entitled  to  the  benefits  of  section  262,  only  if  and  to  the  extent  that  they 
are  connected  with  income  from  sources  within  the  United  States.  In  the 
case  of  nonresident  alien  individuals,  however,  (1)  losses  sustained  during 
the  taxable  year  and  not  compensated  for  by  insurance  or  otherwise,  if 
incurred  in  any  transaction  entered  into  for  profit,  though  not  connected 
with  the  trade  or  business,  are  deductible  only  if  and  to  the  extent  that  the 
profit,  if  such  transaction  had  resulted  in  a profit,  would  have  been  taxable 
as  income  from  sources  within  the  LLiited  States;  (2)  losses  sustained  dur- 
ing the  taxable  year  of  property  not  connected  with  the  trade  or  business 
if  arising  from  fires,  storms,  shipwreck,  or  other  casualty,  or  from  theft, 
and  if  not  compensated  for  by  insurance  or  otherwise  are  deductible  only  if 
the  property  was  located  within  the  United  States;  and  (3)  contributions  or 
gifts  made  within  the  taxable  year  are  deductible  only  if  made  to  domestic 
corporations  or  to  community  chests,  funds,  or  foundations  created  in  the 
United  States  of  the  type  specified  in  section  214  (a)  (11)  and  article  251 
[1f2003],  or  to  the  vocational  rehabilitation  fund. 

2168  Losses  embraced  under  clauses  (2)  and  (3)  above  are  deductible  in 
full  from  items  of  gross  income  specified  as  being  derived  in  full  from 

sources  within  the  United  States,  but  if  greater  than  the.  sum  of  such  items, 
the  excess  of  unabsorbed  loss  may  be  deducted  from  the  income  apportioned 
to  sources  within  the  United  States  under  the  provisions  of  article  327  [1J2149]. 

Copyright  1922,  hy  The  Corporation  Trust  Company. 

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TAX  ON  NONRESIDENT  ALIENS. 


Losses  embraced  under  clause  (1)  are  deductible  in  full  (as  provided  in  article 
325  [1[2171]  or  article  326  [T[2 139])  when  the  profit  from  the  transaction,  if  it 
had  resulted  in  a profit,  would  have  been  taxable  in  full  as  income  from 
sources  within  the  United  States,  but  should  be  deducted  under  the  pro- 
visions of  article  327  [^[2 149]  when  the  profit  from  the  transaction,  if  it  had 
resulted  in  profit,  would  have  been  taxable  only  in  part.  The  amount  of 
dividends  included  in  the  gross  income  may  be  deducted  or  credited,  but 
in  the  case  of  a nonresident  alien  individual,  for  the  purpose  of  the  normal 
tax  only.  (Art.  324,  Reg.  62,  1922  Edition.) 

2169  Law  If  186.  Apportionment  and  Allocation  of  Deductions. — “and 
(Sec.  214.)  the  -proper  apportionment  and  allocation  of  the  de- 
ductions with  respect  to  sources  of  income  within  and 

without  the  United  States  shall  he  determined  as  provided  in  section  217 
[1f2 1 02]  under  rules  and  regulations  prescribed  by  the  Commissioner  with 
the  approval  of  the  Secretary .” — Law.  [Note:  The  1918  Act  so 

provided,  except  that  there,  no  reference 
to  section  217  was  made.  See  note  at 

H2102-] 

2170  Law  ^[187.  “In  the  case  of  a citizen  entitled  to  the  benefits  of  section 

(Sec.  214.)  262  [^[2070]  the  deductions  shall  be  the  same  and  shall 

be  determined  in  the  same  manner  as  in  the  case  of  a 

nonresident  alien  individual.” — 'Law.  [Note:  This  provision  is  new 

to  the  1921  Act.] 

2171  From  the  items  specified  in  articles  317—323  as  being  derived  speci- 
fically from  sources  within  and  without  the  United  States  there  shall 

be  deducted  the  expenses,  losses,  and  other  deductions  properly  apportioned 
or  allocated  thereto  and  a ratable  part  of  any  other  expenses,  losses,  or  deduc- 
tions which  can  not  definitely  be  allocated  to  some  item  or  class  of  gross 
income.  The  remainder  shall  be  included  in  full  as  income  from  sources 
within  the  United  States.  The  ratable  part  is  based  upon  the  ratio  of  gross 
income  from  sources  within  the  United  States  to  the  total  gross  income. 

2172  Example. — A nonresident  alien  individual  derived  gross  income  from 
all  sources  for  1921  of  $180,000.  There  was  included  therein: 

$9,000  interest  on  bonds  of  a domestic  corporation. 

4,000  dividends  on  stock  of  a domestic  corporation. 

12.000  royalty  for  the  use  of  patents  within  the  United  States. 

1 1 .000  gain  from  the  sale  of  real  property  located  within  the  United  States. 

$36,000  total. 

That  is,  one-fifth  of  the  total  gross  income  was  from  sources  within  the 
United  States.  The  remainder  of  the  gross  income  was  from  sources  without 
the  United  States,  determined  under  article  322  [^[2131]  above. 

21  73  The  expenses  of  the  taxpayer  for  the  year  amounted  to  $78,000.  Of 
these  expenses  the  amount  of  $8,000,  including  such  items  as  com- 
mission paid  for  the  sale  of  the  real  property  located  within  the  United  States 
and  interest  on  indebtedness  incurred  to  purchase  the  stock  of  a domestic 
corporation,  is  properly  allocated  to  income  from  sources  within  the  United 
States  and  the  amount  of  $40,000  is  properly  allocated  to  income  from  sources 
without  the  United  States. 

Copyright  1922,  by._  The  Corporation  Trust  Company. 

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TAX  ON  NONRESIDENT  ALIENS. 


2 1 74  The  remainder  of  the  expenses,  $30,000,  can  not  be  definitely  allocated 
to  any  class  of  income.  A ratable  part  thereof,  based  upon  the  rela- 
tion of  gross  income  from  sources  within  the  United  States  to  the  total  gross 
income,  shall  be  deducted  in  computing  net  income  from  sources  within  the 
United  States.  Thus,  there  is  deducted  from  the  $36,000  of  gross  income 
from  sources  within  the  United  States,  expenses  amounting  to  $14,000  (rep- 
resenting $8,000  properly  apportioned  to  the  income  from  sources  within 
the  United  States  and  $6,000,  a ratable  part  (one-fifth)  of  the  expenses  which 
could  not  be  allocated  to  any  item  or  class  of  gross  income).  The  remainder, 
$22,000,  is  the  net  income  from  sources  within  the  United  States.  (Art.  325, 
Reg.  62,  1922  Edition.) 


2175  Law  *[[204.  Specific  Exemption  of  $1,000  as  Credit  for  Normal 
(Sec.  216.)  Tax  to  Nonresident  Aliens.—' “(e)  In  the  case  of  a 
nonresident  alien  individual  or  of  a citizen  entitled 
to  the  benefits  of  section  262[^[2070],  the  personal  exemption  shall  be  only 
$1,000,  and  he  shall  not  be  entitled  to  the  credit  provided  m subdivision 
( d ) [$400  for  each  dependent , ^[2051].” — Law.  [Note:  The  1918 

Act  granted  the  same  personal  exemp- 
tions and  credit  for  dependents  to  non- 
resident alien  individuals  as  was  granted 
to  citizens  and  residents,  contingent, 
however,  in  the  case  of  an  alien  who  was 
a citizen  or  subject  of  a country  im- 
posing an  income  tax,  on  reciprocal 
concessions  being  granted  to  citizens  of 
the  United  States  not  residing  in  such 
country.] 

[Status  at  end  of  return  period  governs.  See  ^[2053.] 

21  7S  A citizen  entitled  to  benefits  of  section  262  fl[2070]  and  a nonresident 
alien  individual,  similarly  to  ajcitizen  or  resident,  are  entitled  for  the  pur- 
pose of  the  normal  tax  to  the  dividend  credit  described  in  article  301  [^[2043]. 
They  are  also  entitled  in  every  case  to  a personal  exemption  of  $1,000,  but 
under  no  circumstances  to  any  credit  for  dependents.  Under  the  Revenue 
Act  of  1921,  the  provisions  of  tax  laws  of  the  foreign  country  of  which  a non- 
resident is  a citizen  or  subject  are  immaterial,  the  right  to  a personal  exemp- 
tion of  $1,000  being  absolute.  (Art.  306,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Becoming  citizen  or  resident  during  year  (1-19-66:  O.  785).  . 1919  Cum.  Bull.  p.  160. 
+ Husband  and  wife  living  together;  $1,000  if  joint  return;  $1,000  divided  if  separate 
returns:  if  living  apart  $1,000  each:  1921  Act  (1-28-403:  I.  T.  1390)..  Bull. 
I (’22)-28,  p.  4. 


2177  Law  If 234.  Deductions][and  Credits  Allowed  Conditionally  to 

(Sec.  217.)  Nonresident  Aliens. — “(g)  -d  nonresident  alien  in- 
dividual or  a citizen  entitled  to  the  benefits  of  section 
262  [^[2070]  shall  receive  the  benefit  of  the  deductions  and  credits  allowed 
in  this  title  only  by  filing  or  causing  to  be  filed  with  the  collector  a true  and  ^ 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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482 


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TAX  ON  NONRESIDENT  ALIENS. 

accurate  return  of  his  total  income  received  from  all  sources  corporate  or 
otherwise  in  the  United  States , in  the  manner  prescribed  in  this  title; 
including  therein  all  the  information  which  the  Commissioner  may  deem 
necessary  for  the  calculation  of  such  deductions  and  credits — Law. 

[Note:  The  1918  Act  so  provided,  except 
that  no  reference  was  made  to  “a  citizen 
entitled  to  the  benefits  of  section  262.”] 

2178  Unless  a nonresident  alien  individual,  a foreign  corporation,  or  a 
citizen  of  the  United  States  or  domestic  corporation  entitled  to  the 
benefits  of  section  262,  shall  file,  or  cause  to  be  filed  with  the  collector,  a true 
and  accurate  return  of  income  from  sources  within  the  United  States,  re- 
gardless of  amount,  the  tax  shall  be  collected  on  the  basis  of  the  gross  income 
(not  the  net  income)  from  sources  within  the  United  States.  Where  a non- 
resident alien  has  various  sources  of  income  within  the  United  States,  so 
that  from  any  one  source  or  from  all  sources  combined  the  amount  of  income 
shall  call  for  the  assessment  of  a surtax,  and  a return  of  income  shall  not  be 
filed  by  him  or  on  his  behalf,  the  Commissioner  will  cause  a return  of  income  to 
be  made  and  include  therein  the  income  of  such  nonresident  alien  from  all 
sources  concerning  which  he  has  information,  and  he  will  assess  the  tax 
and  collect  it  from  one  or  more  of  the  sources  of  income  within  the  United 
States  of  such  nonresident  alien,  without  allowance  for  deductions  or  credits. 
The  benefit  of  the  credits  allowed  against  net  income  for  the  purpose  of  the 
normal  tax  may  not  be  received  by  a nonresident  alien  by  filing  a claim  with 
the  withholding  agent,  but  only  by  claiming  it  upon  filing  a return  of  income, 
except  as  permitted  in  articles  315  [^2180]  and  364  [1J2254-6].  See  section 
216  of  the  statute  and  article  306  [^2 1 76].  (Art.  329,  Reg.  62,  1922  Edition.) 


2179  Law  ^[235.  Specific  Exemption  of  $1,000  Allowed  to  Nonresident 
(Sec.  217.)  Aliens  May  be  Claimed  at  the  Source. — “ Provided , 

That  the  benefit  of  the  credit  allowed  in  subdivision 
(e)  [^f 2175]  of  section  216  may,  in  the  discretion  of  the  Commissioner , be 
received  by  filing  a claim  therefor  with  the  withholding  agent.” — Law. 

[Note:  The  1918  Act  so  provided,  in 

principle.] 

2180  Allowance  of  Personal  Exemption  to  Nonresident  Alien  Employee. 

— A nonresident  alien  employee  may  claim  the  benefit  of  the  credit 
f or  a personal  exemption  by  filing  with  his  employer  Form  1115,  duly  filled 
out  and  executed  under  oath.  On  the  filing  of  such  a claim  the  employer 
shall  examine  it.  If  on  such  examination  it  appears  that  the  claim  is  in  due 
form,  that  it  contains  no  statement  which  to  the  knowledge  of  the  employer  is 
untrue,  that  such  employee  on  the  face  of  the  claim  is  entitled  to  credit,  and 
that  such  credit  has  not  yet  been  exhausted,  such  employe*-  need  not  until 
such  credit  be  in  fact  exhausted  withhold  any  tax  from  payments  of  salary 
or  wages  made  to  such  employee.  Every  employer  with  whom  affidavits  of 
claim  on  Form  1 1 LS^are,  filed  by  employees  shall  preserve  such  affidavits 
until  the  following  calendar  year,  and  shall  then  file  them,  attached  to 
his  annual  withholding  return  on  Foim  1042,  with  the  collector  on  or  before 

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TAX  ON  NONRESIDENT  ALIENS. 

March  1.  In  case,  however,  when  the  following  calendar  year  arrives  such 
employer  has  no  withholding  to  return,  he  shall  forward  all  such  affidavits 
of  claim  directly  to  the  Commissioner  with  a letter  of  transmittal,  on  or 
before  March  15.  Where  any  tax  is  withheld  the  employer  in  every  instance 
shall  show  on  the  pay  envelope  or  shall  furnish  some  other  memorandum 
showing  the  name  of  the  employee,  the  date  and  the  amount  withheld. 
This  article  applies  only  to  payments  of  compensation  by  an  employer  to 
an  employee.  See  further  section  221  and  articles  361-371  [for  withholding 
of  the  tax  at  the  source,  beginning  at  ^[2 190].  (Art.  315,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1921  specifically.  .^3022,  herein.  TJ3030  thereof  modified  to  authorize  filing  of  Form 
1115  subsequent  to  Feb.  1,  1922  (1-14-196:  I.  T.  1266).  June  1922  Cum.  Bull, 
p.  203. 

2181  Personal  Exemption  of  Nonresident  Aliens  in  the  Case  of  Corpo- 
ration Bond  Payments. — Read  at  *[[2254-2256. 

2182  Return  of  Income  of  a Nonresident  Alien  Individual.— A nonresident 
alien  individual  shall  make  or  have  made  a full  and  accurate  return 

on  Form  1040  B of  his  income  received  from  sources  within  the  United  States, 
regardless  of  amount,  unless  the  tax  on  such  income  has  been  fully  paid  at 
the  source.  See  section  217  of  the  statute  and  articles  311-316  [^[754]. 
The  responsible  representatives  of  nonresident  aliens  in  connection  with  any 
sources  of  income  which  such  nonresident  aliens  may  have  within  the  United 
States  shall  make  a return  of  such  income,  and  shall  pay  any  and  all  tax, 
normal  and  additional,  assessed  upon  the  income  received  by  them  in  behalf 
of  their  nonresident  alien  principals,  in  all  cases  where  the  tax  on  income  so  in 
their  receipt,  custody,  or  control  shall  not  have  been  withheld  at  the  source. 
The  agent  of  a nonresident  alien  is  responsible  for  a correct  return  of  all 
income  accruing  to  his  principal  within  the  purview  of  the  agency.  The 
agency  appointment  will  determine  how  completely  the  agent  is  substituted 
for  the  principal  for  tax  purposes.  Where  upon  filing  a return  of  income  it 
appears  that  a non-resident  alien  is  not  liable  for  tax,  but  nevertheless  a tax 
shall  have  been  withheld  at  the  source,  in  order  to  obtain  a refund  on  the  basis 
of  the  showing  made  by  the  return  there  should  be  attached  to  it  a statement 
showing  accurately  the  amounts  of  tax  withheld,  with  the  names  and  post- 
office  addresses  of  all  withholding  agents.  [For  claims  for  refund  read  at 
i]2835].  See  article  375  [for  return  of  income  from  which  tax  is  withheld 
*[2330].  (Art.  404,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Alien  Property  Custodian:  return  of  property  or  income  to  former  owners  (30-20-1092: 
Op.  A.  G.  2).  .Dec.  1920  Cum.  Bull.  p.  199.  (See  “Alien  Enemy’’  in  Cumu- 
lative Index  following  ^[2390. 

Same:  and  return  of  income  from  property  not  taken  over  (36-20-1185:  O.  D 
657)  . . Dec.  1920  Cum.  Bull.  p.  219. 

Same:  Income  recovered  from  by  attornev-in-fact  for  nonresident  alien  (1-7-94: 
I.  T.  1207).  .June  1922  Cum.  Bull.  p.  239. 

Complete  return  to  accompany  claim  for  refund  in  event  of  excess  amount  withheld 
(2-19-158:  O.  D.  107).  . 1919  Cum.  Bull.  p.  184. 

Resident  broker  for  nonresident  alien  insurance  company  (28-20-1062:  O.  D.  586).  . 
Dec.  1920  Cum.  Bull.  p.  284. 

Resident  fiduciary’s  surtax  liability  when  beneficiary  makes  return  (1916-17  Act).. 
(12-20-798:  O.  1011).  June  1920  Cum.  Bull.  p.  199. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

484 


2-27-22. 


TAX  ON  NONRESIDENT  ALIENS. 


2183  When  a Broker  is  Not  the  Agent,  for  Income  Tax  Purposes,  of  a 
Nonresident  Alien  Client. — This  office  is  in  receipt  of  your  letter 

of  March  7 , 1918,  in  which  you  ask  what  constitutes  an  agent  or  representa- 
tive in  this  country  in  charge  of  property  of  a nonresident  alien,  and  by  way 
of  illustration  you  submit  the  following  statement:  “I  have  in  mind  the  ordi- 
nary relation  of  broker  and  client.  The  nonresident  alien  client  maintains 
an  account  with  a broker,  occasionally  buying  some  securities  on  margin 
and  selling  some  from  time  to  time;  interest  is  charged  on  balances  due  and 
dividends  as  paid  on  the  stocks  carried  are  credited  to  the  account.  All 
dealings  are  in  response  to  direction  from  the  customer.  Is  the  broker  in 
such  case,  agent  or  representative  of  the  alien  so  that  he  must  make  a return 
in  behalf  of  the  customer  and  become  responsible  for  normal  taxes  and  sur- 
taxes on  all  income  and  profits  passing  through  his  hands?”  <j[In  reply  you 
are  advised  that  the  facts  set  forth  in  this  statement  do  not  constitute  the 
relationship  of  agency  between  these  parties  to  an  extent  which  will  make 
the  broker  responsible  for  filing  the  return  for  the  nonresident  client.  The 
broker  in  such  case,  however,  for  the  purposes  of  the  income  tax  is  con- 
sidered the  withholding  agent  and  should  withhold  the  2%  [8%]  normal 
tax  and  the  nonresient  alien  should  file  a return  on  [Form  1040  B],  includ- 
ing all  income  received  from  sources  in  the  United  States.  (Letter  to  Henry 
W.  Beal,  Boston,  Mass.,  signed  by  Deputy  Commissioner  L.  F.  Speer,  and 
dated  April  17,  1918.) 

2184  Return  for  Nonresident  Alien  Beneficiary  by  Fiduciary.— See  If 961. 

2185  When  Returns  are  Due  from  Nonresident  Aliens— Read  at  1f2526i 

2186  Where  Returns  of  Nonresident  Aliens  are  to  be  Filed.— Read  at 


2187  Returns  Generally— Read  at  If 2382. 

2 1 88  Law  1f236.  Property  of  Nonresident  Alien  Subject  to  Distraint 

(Sec.  217.)  for  the  Tax.  “In  case  of  failure  to  file  a return , the 
collector  shall  collect  the  tax  on  such  income,  and  all 
property  belonging  to  suck  nonresident  alien  individual  or  foreign  trader 
[sic]  shall  be  liable  to  distraint  for  the  tax” — Law.  [Note:  The  1918 

Act  so  provided  except  that  no  reference 
was  made  to  a “foreign  trader.”! 

2 1 89  Payment  of  Tax  by  Nonresident  Aliens. — See  general  provisions 
governing  payment  of  the  tax,  Tf27 12. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
485 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


2190  Law  ^[275.  Payment  of  Tax  at  the  Source  on  Account  of  Non- 

(Sec.  221.)  resident  Aliens. — “Sec.  221.  ( a ) That  all  individuals, 
corporations , and  partnerships , in  whatever  capacity 
acting,  including  lessees  or  mortgagors  of  real  or  personal  property,  fiduci- 
aries, employers , and  all  officers  and  employees  of  the  United  Stales ” — 
Law.  [Note:  The  1918  Act  so  provided.] 


2191  Law  H276.  “ having  the  control,  receipt,  custody,  disposal,  or  pay- 

(Sec.  221.)  ment  of  interest* {except  interest  on  deposits  with  persons 
carrying  on  the  banking  business  paid  to  persons  not 
engaged  in  business  in  the  United  States  and  not  having  an  office  or  place 
of  business  therein),  rent,  salaries,  wages,  premiums,  annuities,  com- 
pensations, remunerations,  emoluments,  or  other  fixed  or  determinable 
annual  or  periodical  gains,  profits,  and  income,’ — Law.  [Note:  The 

1918  Act  did  not  except  the  interest  on 
bank  deposits  (the  matter  in  parentheses 
here).] 


* Payment  at  the  source,  of  tax  on  interest  on  corporate  obligations. 
— Read  at  ^[2231. 

2192  Law  1(277.  “of  any  nonresident  alien  individual  or  partnership 
(Sec.  221.)  composed  in  whole  or  in  part  of  nonresident  aliens” — 
Law.  [Note:  The  1918  Act  omitted  “or  partner- 

ship composed  in  whole  or  in  part  of 
nonresident  aliens.”] 


2193  Law  1(278.  * [ other  than  income  received  as  dividends  of  the  class 

(Sec.  221.)  allowed  as  a credit  by  subdivision  ( a ) [^[ 2039]  of  section 
216)” — Law.  [Note:  The  1918  Act  read  “(other 

than  income  received  as  dividends  from 
a corporation  which  is  taxable  under  this 
title  upon  its  net  income)”.] 


2194  Law  1(279.  “shall  ( except  in  the  cases  provided  for  in  subdivision 
(Sec.  221.)  (b)  [If 2240]  and  except  as  otherwise  provided  in  regu- 

lations prescribed  by  the  Commissioner  under  section 
217  [1(2179])” — Law.  [Note:  The  1918  Act  so  provided.] 

[See  Art.  315,  1(2180,  and  Art.  364,  1[2254-2256.] 


2195  Law  1f280.  “deduct  and  withhold  from  such  annual  or  periodical 

(Sec.  221.)  gains,  profits,  and  income” — Law.  [Note:  The 

1918  Act  so  provided.] 

2196  Law  K281.  “ a tax  equal  to  8 per  centum  thereof:” — Law.  [Note: 

The  1918  Act  so  provided.] 

2197  In  general,  withholding  is  required  (a)  of  a tax  of  8 per  cent  in  the 
case  of  fixed  or  determinable  annual  or  periodical  income  payable  to 

a nonresident  alien  individual  or  to  a partnership  composed  in  whole  or  in 
part  of  nonresident  aliens  and  having  no  office  or  place  of  business  within  the 
United  States,  except  (1)  dividends  of  a class  allowed  as  a credit  by  subdivision 
(a)  of  section  216,  (2)  interest  on  deposits  with  persons  carrying  on  the  b~  1 :,n> 

Copyright  1922,  by.  Tht  Corporation  Trust  Company. 

TH*  TTO5IA*,  IHCOMB  TAX  SUTCCB 
486 


2-27-22.  (2)  4-10-22.  (8)  4-14-22.  (4)  6-19-22.  (6)  7-7-22.  (6)  9-13-22.  (7)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 

business,  paid  to  persons  not  engaged  in  business  in  the  United  States  and  not 
having  an  office  or  place  of  business  therein,  and  (3)  interest  upon  corporate 
bonds  containing  a tax-free  covenant  clause  [for  which  see  1J2240].  (Art.  361 
Reg.  62,  1922  Edition.) 

[For  exemption  claims  at  source  see  Arts.  315,  ^[2180,  and  364,  *j 2254-2256.] 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1921  specifically.  . 1f3022,  herein.  ^3030  tljpreof  modified  to  authorize  filing  of  Form 
1115  subsequent  to  Feb.  1,  1922  (1-14-196:  I.  T.  1266).  . June  1922  C.  B.  p.  203. 

Appointment  of  agent  for  withholding  purposes  (10-19-359:  O.  D.  207).  1919  Cum. 
Bull.  p.  183. 

Contractor  operating  portion  of  mine  on  lease:  duty  to  withhold  lies  with  contractor 
(7-19-298:  O.  D.  175).  . 1919  Cum.  Bull.  p.  182. 

Debtor  assessed  if  he  fails  to  withhold  on  tax-free  bonds  when  Form  1000  is  filed 
(1-19-76:  O.  D.  56).  . 1919  Cum.  Bull.  p.  182. 

Domestic  corporation  but  all  property  and  business  in  Porto  Rico;  all  withholding 
provisions  apply  to  its  bond  interest:  1921  Act  (1-27-392:  I.  T.  1384).  .Bull.  I 
(’22)-27,  p.  10.  . 

Domestic  corporation  doing  no  business  here  and  owning  no  property  here;  interest 
payments  to  nonresident  aliens  (18-19-478:  O.  908).  . 1919  Cum.  Bull.  p.  100. 
Same:  citizen  or  resident  bondholders  (15-20-852:  O.  D.  455).. June  1920 
Cum.  Bull.  p.  1S7. 

Domestic  corporation  with  principal  assets  abroad,  in  hands  of  U.  S.  receiver,  both 
corporation  and  receiver  having  offices  here;  tax-free  bonds  owned  by  nonresident 
aliens  (21-20-955:  O.  D.  517)  .June  1920  Cum.  Bull.  p.  187. 

Exchange  and  effect  on  withholding;  here,  election  to  accept  coupon  payment  of 
5 pounds  sterling  in  London  rather  than  $24.34  gold  in  foreign  country,  the  £5 
netting  $19.75:  tax-free  bonds  of  domestic  corporation  owned  by  citizen  of  Great 
Britain  (43-20-1262:  O.  D.  700).  . Dec.  1920  Cum.  Bull.  p.  214. 

Fiduciary  a nonresident  alien:  beneficiaries  citizens  or  residents  of  U.  S.:  bon^ 

interest  (39-20-1212:  O.  D.  670).  .Dec.  1920  Cum.  Bull.  p.  213 

Fiscal  agents  here  of  foreign  corporations  (26-20-1030:  O.  D.  561).  June  1920  Cum 
Bull.  p.  188. 

Foreign  government  obligations  underwritten  here  and  interest  payable  here,  owned 
by  nonresident  aliens  (1-19-16:  O.  786).  . 1919  Cum.  Bull.  p.  99. 

Foreign  legation  bank  deposit  interest  (44-20-1275:  O.  D.  710).. Dec.  1920  Cum. 
Bull  p.  125. 

Guardian  acquiring  citizenship  by  marriage  (44-21-1897:  O.  D.  1085).. Dec.  1921 
Cum.  Bull.  p.  191. 

“Highest  applicable  rate”  (21-20-956:  O.  D.  518).  . June  1920  Cum.  Bull.  p.  188. 

Interest-bearing  bank  deposits  of  nonresident  aliens  resulting  from  collection  of 
interest  on  foreign  items  (18-19-485:  O.  D.  269).  . 1919  Cum.  Bull.  p.  183. 

Interest  on  liquidated  collateral  applied  to  principal  debt  by  trustee  for  nonresid"  t 
alien  bondholders  on  insolvency;  payment  of  arrears  of  interest;  withholding 
(32-20-1120:  O.  D.  624).  .Dec.  1920  Cum.  Bull.  p.  213. 

Life  insurance  installment  interest  payments  when  election  and  when  no  election  to  take 
principal  in  lieu  thereof  (1-21-1374:  O.  D.  767).  .June  1921  Cum.  Bull  p 231. 

Numbered  employees  when  claiming  exemption;  name  and  address  should  be  secured 
(7-19-298:  O.  D.  175).  .1919  Cum.  Bull.  p.  182. 

Purchase  of  coupons  abroad  by  bank  ( 1 1-19-385:  O.  D.  220) . 1919  Cum.  Bull.  p.  183. 

Rates  in  force  in  year  of  payment  of  bond  interest  govern  for  withholding  against 
nonresident  aliens  (6-19-277:  O.  D.  167).  . 1919  Cum.  Bull.  p.  182 

Scrip  certificates  representing  fractional  interest  in  bonds  on  reorganization:  interest 
held  in  trust  pending  presentation  sufficient  to  entitle  to  bond;  no  ownership 
certificates  on  conversion;  withholding  on  conversion  by  nonresident  aliens 
(41-20-1233:  O.  D.  680).  .Dec.  1920  Cum.  Bull.  p.  213. 

Scrip  in  payment  of  interest  (20-19-512:  O.  D.  279).  . 1919  Cum.  Bull.  p.  183. 

Seamen’s  wages;  occasional  coastwise  voyages  on  vessels  usually  engaged  in  foreign 
trade  (13-19-424:  O.  D.  245).  1919  Cum.  Bull.  p.  183. 

Supplemental  tax-free  covenant  agreements  (12-20-797:  0.  D.  414).  .June  1920  Cum. 
Bull.  p.  187. 

Tax-free  bonds  of  otner  than  corporation;  here  specifically  partnership  debtors 
(44-20-1278:  O.  D.  713).  .Dec.  1920  Cum.  Bull.  p.  214. 

Tax-free  covenant  bond  interest:  tax  oaid  by  obligor  for  obligee  as  “additional 
income”  to  latter  (1-5-51:  Ct.  D.  20).  .June  1922  Cum.  Bull.  p.  58. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

487 


2-27-22.  (2)4-10  22.  (3)  4-14-22.  (4)  6-19-22.  (6)  7-7-22.  (6)  9-13-22.  (7)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 

Tax-free  covenant  bond  interest:  tax  (1917)  withheld  and  paid  to  Government  though 
creditor  not  liable  to  normal  tax:  refund  or  credit  to  debtor  (46-21-1924:  O. 
D.  1103).  .Dec.  1921  Cum.  Bull.  p.  248. 

Yearly  visit  here  for  instructions  of  nonresident  alien  employee  (28-20-1053:  O.  D. 
578)  . Dec  1920  Cum.  Buli.  p.  128. 


2198  Withholding — Partnerships. — The  Revenue  Act  of  1921  provides  for 
withholding  in  the  case  of  payments  made  to  a partnership  composed 

in  whole  or  in  part  of  nonresident  aliens.  This  provision  does  not  apply  to 
such  payments  made  prior  to  November  23,  1921.  However,  in  the  case  of  a 
partnership  having  an  office  or  place  of  business  in  the  United  States,  with- 
holding will  not  be  required  (except  in  the  case  of  interest  upon  tax-free 
bonds)  even  though  one  or  more  of  the  members  thereof  is  a nonresident 
alien;  the  partnership,  however,  as  agent  of  the  nonresident  alien  member 
or  members,  should  file  a return  of  the  income  of  such  nonresident  alien 
member  or  members  in  accordance  with  the  provisions  of  article  404  [^[2182]. 
(Art.  371  (a),  Reg.  62,  1922  Edition.) 

2199  Release  of  Tax  Withheld  From  Interest  on  Bank  Deposits. — Under 

the  Revenue  Act  of  1921  persons  carrying  on  the  banking  business 
within  the  United  States  are  not  required  to  withhold  any  tax  from  interest 
on  bank  deposits  which  is  paid  to  (or  credited  to  the  accounts  of)  persons  not 
engaged  in  business  within  the  United  States  and  not  having  an  office  or  place 
of  business  therein.  Any  tax  which,  subsequent  to  December  31,  1920,  and 
pursuant  to  the  Revenue  Act  of  1918,  had  been  withheld  by  persons  carrying 
on  the  banking  business  within  the  United  States  from  interest  on  bank 
deposits  paid  to  (or  credited  to  the  accounts  of)  nonresident  alien  individuals 
not  engaged  in  business  within  the  United  States  and  not  having  an  office  or 
place  of  business  therein,  or  foreign  corporation  not  engaged  in  business 
within  the  United  States  and  not  having  an  office  or  place  of  business  therein, 
shall  be  released  and  paid  over  to  such  nonresident  alien  individual  or  foreign 
corporation,  or  his  or  its  representative.  (Art.  372,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  Qi 

Establishing  nonliability  of  foreign  depositor  to  our  tax  to  be  by  statement  under 
oath:  1921  Act  (1-37-500:  1.  T.  1443).  .Bull.  I (’22)-37,  p.  11. 

Form  1073  Sled  before  close  of  year  (3-19-196  O.  D 128)  lu19  Cum  Bull.  p.  165. 

Import  and  export  firms  are  noi  “persons  carrying  on  the  banking  business”;  hence 
interest  on  balances  with  such  firms  are  not  exempt:  1921  Act  (1-20-278:  I.  T. 
1311).  . June  1922  Cum.  Bull.  p.  224. 

Refund  oi  amounts  withheld  against  foreign  corporation  excessive  by  provisions  of 
retroactive  law  (2-19-159:  O 81 1) . . 1919  Cum.  Bull.  p.  186. 


Copyright  1922,  by  The  Corporation  Trust  Company, 
THE  FEDERAL  INCOME  TAX  SERVICE 

488 


2-27-22.  (2)  4-10-22.  (3)  6-16-22.  (4)  7-27-22.  (5)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 


2200  No  Withholding  on  Dividends. — No  withholding  from  corporate 
dividends  (other  than  distributions  by  a personal  service  corpora- 
tion prior  to  January  1,  1922)  is  required  in  any  case.  (Art.  363,  Reg.  62, 
1922  Edition.) 

2201  No  Withholding  Against  Domestic  and  Resident  Foreign  Corpo- 
rations.— The  income  of  domestic  and  resident  foreign  corporations 

is  free  from  withholding.  (Art.  363,  Reg.  62,  1922  Edition.) 

2202  Fixed  or  Determinable  Annual  or  Periodical  Income. — Only  (a) 

fixed  or  determinable  (b)  annual  or  periodical  income  is  subject  to 
withholding.  Among  such  income,  giving  an  idea  of  the  general  character 
of  income  intended,  the  statute  specifies  interest,  rent,  salaries,  wages,  pre- 
miums, annuities,  compensations,  renumerations  and  emoluments.  But 
other  kinds  of  income  may  be  included,  (a)  Income  is  fixed  when  it  is  to 
be  paid  in  amounts  definitely  predetermined.  On  the  other  hand,  it  is  de- 
terminable whenever  there  is  a basis  of  calculation  by  which  the  amount 
to  be  paid  may  be  ascertained,  (b)  The  income  need  not  be  paid  annually 
if  it  is  paid  periodically,  that  is  to  say,  from  time  to  time,  whether  or  not  at 
regular  intervals.  That  the  length  of  time  during  which  the  payments  are 
to  be  made  may  be  increased  or  diminished  in  accordance  with  someone’s 
will  or  with  the  happening  of  an  event  does  not  make  the  payments  any  the 
less  determinable  or  periodical.  A salesman  working  by  the  month  for  a 
commission  on  sales  which  is  paid  or  credited  monthly  receives  determinable 
periodical  income.  (Art.  362,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Annuity  (purchased),  paid  to  nonresident  alien  (44-21-1898:  O.  D.  1086)..  Dec. 

1921  Cum.  Bull.  p.  193. 

Bank  acceptances:  realized  discount  (16-20-865:  O 1024)  June  1920  Cum.  Bui', 
p.  189.  Same,  1921  Act  (1-30-429:  I.  T.  1398).  .Bull  I (’22)-30,  p.  16. 

Call  loan  interest:  domestic  bank  for  account  of  foreign  bank  (24-20-1007:  O.  D. 
549).  .June  1920  Cum.  Bull.  p.  191. 

Commission  on  single  transaction  (19-21-1623:  0.  D.  907)..  June  1921  Cum.  Bull, 
p.  232. 

Gifts  to  ship  captains  by  ship  chandlers  by  accepting  from  them  less  than  face  value 
as  full  payment  of  accounts  receivable  for  goods  sold  owners  (40-20-1225:  A.  R.  R. 
265).  Dec.  1920  Cum.  Bull.  p.  215. 

Horse  racing:  amounts  credited  to  nonresident  alien  owner  by  racing  association 
(2-19-157:  S.  975)  . 1919  Cum.  Bull.  p.  184. 

Premiums  forwarded  by  U.  S.  insurance  companies  to  foreign  brokers  for  insurance 
placed  with  foreign  insurance  companies  are  not  “fixed  or  determinable  annual  or 
periodical  income”;  1918  and  1921  Acts  (1-24-348:  I.  T.  1359).  .June  1922  Cum. 
Bull.  p.  292. 

Profit  sharing  by  foreign  corporation  on  resales  here  of  merchandise  sold  by  it  to 
domestic  corporation;  no  withholding  but  domestic  corporation  makes  return 
and  pays  tax  as  agent  (4-20-708:  O.  D.  384).  .June  1920  Cum.  Bull.  p.  212 


2203  Duties  and  Obligations  of  Employers,  in  Connection  with  With- 
holding, in  the  Case  of  Nonresident  Aliens  Employed  in  the  United 
States. — Reference  is  made  to  your  letter  dated  March  25,  1919,  transmitting 
a copy  of  your  letter  dated  February  28,  1919,  in  which  the  following  qu<  s- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

489 


2-27-22.  (2)  4-10-22.  (3)  6-10-22.  (4)  7-27-22.  (5)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 

tions  are  submitted  with  respect  to  the  duty  of  operators  of  bituminous  coal 
mines  to  withhold  income  tax  from  salaries,  wages  and  other  compensation 
paid  to  nonresident  aliens  employed  in  this  country. 

“1.  For  what  years  will  the  Department  attempt  to  make  collection 
of  such  items? 

“2.  In  the  absence  of  any  record  now  existing  as  to  the  nationality  or 
intentions  of  employees  who  have  left  the  service  of  a person  or  corporation 
which  employed  them  during  past  years,  what  action  on  the  part  of  the  em- 
ployers will  be  necessary  to  relieve  them  from  any  further  liability  for  this 
tax?  Is  not  the  burden  of  proof  on  the  Government  in  this  case? 

“3.  Will  a canvass  of  the  present  employees  with  a view  to  ascertaining 
their  nationality  or  intentions  of  becoming  resident  taxpayers,  and  a collec- 
tion of  the  taxes  due  from  them  be  a satisfactory  solution  of  the  case?  If  so, 
how  far  back  should  employers  attempt  to  make  this  collection? 

“4.  It  is  customary  in  a great  many  mining  districts  to  let  out  a certain 
portion  of  a mine  to  some  miner  who  is  usually  termed  a contractor  who 
employs  additional  labor  in  the  production  of  coal  from  the  section  of  the 
mine  assigned  to  him.  These  men,  usually  termed  “back  hands”  sometimes 
do  not  appear  upon  the  payroll  and  are  very  frequently  not  officially  known 
to  the  operator  or  employer.  Who  is  responsible  for  the  collection  in  this 
case,  the  operator  or  the  contractor?  The  operator  frequently  does  not  know 
the  amount  of  the  earnings  of  the  ‘back  hand’  or  laborer  employed  by  the 
contractor  and  the  latter  usually  keeps  no  books  of  account. 

“5.  Many  employees,  not  only  in  the  mining  industry  but  in  other 
industries,  are  known  only  by  number.  Will  it  be  necessary  to  ascertain 
their  names  and  intentions  as  to  residence? 

“6.  Does  the  failure  of  the  employer  to  make  such  collections  make 
him  liable  for  the  full  amount  of  the  tax?  If  so,  how  far  back  of  the  present 
will  the  department  attempt  to  make  collections,  and  in  the  absence  of 
specific  information  as  to  the  nationality  of  past  employees,  upon  what 
evidence  will  they  base  their  action  during  the  past  period?” 

2204  In  reply  to  your  first  inquiry  you  are  advised  that  the  Department 
is  not  limited  as  to  years  in  regard  to  investigations  relative  to  the 

liability  of  employers  to  deduct  income  tax  at  the  source  from  fixed  or  other 
determinable  income  paid  to  nonresident  aliens  as  provided  by  the  Revenue 
Act  of  1918  and  the  acts  for  prior  years.  No  effort  will  be  made  to  hold 
employers  of  nonresident  aliens  liable  for  tax  prior  to  the  issuance  of  Treasury 
Decision  2242,  September  17,  1915,  which  defined  a nonresident  alien  and  not 
then  if  such  nonresident  alien  had  been  employed  continuously  by  the  same 
person  or  corporation  for  a period  of  three  months  or  more. 

2205  In  reply  to  your  second  inquiry  you  are  advised  that  aliens  employed 
in  the  United  States  are  prima  facie  regarded  as  nonresident  aliens, 

and  in  case  where  withholding  has  not  occurred  it  will  be  necessary  for  the 
employer  to  furnish  written  proof  of  facts  which  overcome  that  presumption. 
The  burden  of  proof  is  on  the  employer.  The  records  of  a corporation, 
such  as  the  cancelled  checks  representing  payment  to  its  employees,  and  the 
payrolls,  are  held  to  constitute  written  proof. 

2206  Referring  to  your  third  inquiry  you  are  advised  that  if  an  alien  has 
been  living  in  the  United  States  for  as  much  as  one  year  immediately 

prior  to  the  time  he  entered  the  employment  of  the  withholding  agent,  or  if 
he  has  been  regularly  employed  by  an  individual  resident  in  the  United  States 
or  by  a resident  corporation  in  the  same  city  or  county  for  as  much  as  three 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

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WITHHOLDING  AT  THE  SOURCE. 

months  immediately  prior  to  any  payment  by  the  employer,  he  may  be  treated 
as  a resident  in  deciding  as  to  the  necessity  of  withholding  part  of  such  pay- 
ment, provided  no  facts  are  known  to  the  employer  showing  that  he  is  in  fact 
a transient.  The  facts  with  regard  to  the  length  of  time  the  alien  has  thus 
lived  in  this  country  or  has  been  so  regularly  employed  may  be  established 
by  the  certificate  of  the  alien.  The  employer  may  also  obtain  evidence  to 
overcome  the  prima  facie  presumption  of  nonresidence  by  securing  from 
the  alien  Form  1078,  revised,  properly  executed  or  an  equivalent  certificate 
of  the  alien  establishing  residence.  Having  secured  such  evidence,  from 
the  alien,  the  employer  may  rely  thereon  unless  the  statement  of  the  alien 
was  false  and  he  has  reasonable  cause  to  believe  it  was  false,  and  may  con- 
tinue to  rely  thereon  until  the  alien  ceases  to  be  a resident. 

2207  Referring  to  your  fourth,  inquiry  you  are  advised  that  in  case  the 
owner  or  operator  of  a mine  leases  a portion  thereof  to  a contractor 

whose  operations  are  separate  and  distinct  from  that  of  the  corporation,  the 
individuals  being  actually  employed  by  the  contractor,  the  duty  to  withhold 
is  that  of  the  contractor  and  not  of  the  corporation. 

2208  Referring  to  your  fifth  inquiry  you  are  advised  that  is  every  case 
where  the  employee  is  a nonresident  alien,  withholding  is  required, 

except  for  1918,  in  which  case  a claim  for  exemption  may  be  filed  in  accord- 
ance with  the  provisions  of  Article  315,  H[2180  Regulations  62].  The  name 
and  address  of  such  employees  should  be  secured  regardless  of  the  fact  that 
for  the  convenience  of  the  operator,  the  individual  is  known  by  number. 

2209  Referring  to  your  sixth  inquiry  you  are  advised  that  this  question 
appears  to  be  covered  by  the  answer  to  your  third  inquiry. 

2210  Replying  to  the  next  to  the  last  paragraph  of  your  letter  you  are 
advised  that  the  employer  who  fails  to  withhold  and  account  for 

income  tax  with,  respect  to  income  paid  to  alien  employees,  may  submit 
any  evidence  which  will  substantiate  the  fact  that  such  employees  are  resi- 
dents of  the  United  States  within  the  meaning  of  Article  312  to  316  [begin- 
ning at  1[754]  of  Regulations  [62].  As  to  what  action  will  be  taken  by  the 
Bureau  in  regard  to  the  collection  of  income  tax  at  the  source,  you  are 
advised  that  any  investigations  deemed  necessary  for  the  proper  admin- 
istration of  the  revenue  acts  will  be  made  in  order  that  taxpayers  may  satisfy 
their  obligations  to  the  Government. 

221  1 Referring  to  the  inquiry  contained  in  your  letter  of  March  25,  1919 
in  regard  to  aliens  who  have  been  employed  in  this  country  by 
the  corporation  for  a period  of  three  months,  you  are  advised  that  such 
circumstances  are  held  to  constitute  the  individual  a resident  of  the  United 
States  for  purpose  of  withholding,  and  no  further  tax  is  required  to  be  with- 
held.at  the  end  of  that  period  provided  no  facts  are  known  to  the  employer 
tending  to  show  that  the  individual  is  a transient  as  described  in  Article  312 
[11754],  Regulations  [62].  (Letter  to  W.  B.  Reed,  Acting  Secretary,  National 
Coal  Association,  Washington,  D.  C.,  signed  by  Commissioner  Daniel  C. 
Roper,  and  dated  May  26,  1919.) 

2212  In  reply  you  are  advised  that  where  the  status  of  an  alien  changes 
during  the  year  from  that  of  a resident  to  that  of  a nonresident  or 
from  that  of  a nonresident  to  that  of  a resident,  the  status  which  exists  at  the 
end  of  the  taxable  year  is  the  one  which  determines  his  right  to  exemption  as 
to  the  whole  year.  Where  an  employer  has  withheld  wages  from  a nonresi- 
dent during  part  of  the  year,  and  thereafter  the  employee  became  a resident 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDKEAL  INCOME  TAX  SEBVICI 
491 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


(before  the’employer  has  paid  over  to  the'JUnited  States  the  amount  with- 
held), the  employer  is  authorized  on  receiving  proof  of  the  change  to  refund 
to  the  employee  the  amounts  which  had  been  withheld  from  him  during  the 
earlier  part  of  the  taxable  year,  while  his  status  was  that  of  a nonresident. 

2213  The  ruling  contained  in  this  letter  supersedes  all  other  rulings  in  con- 
flict therewith.  (Letter  to  W.  B.  Reed,  Accounting  Secretary, 

National  Coal  Association,  Washington,  D.  C.,  signed  by  Commissioner 
Daniel  C.  Roper,  and  dated  June  12,  1919.) 

2214  Alien  Employees — Resident  and  Nonresident — Withholding 

Upon  Change  of  Status. — Reference  is  made  to  your  letter  dated 

June  30,  1919,  which  is  quoted  here  in  part:  “Referring  to  our  telephone 
conversation  of  this  morning,  we  understand  that  in  the  case  of  the  employ- 
ment of  alien  labor  that  where  such  labor  has  been  employed  for  three 
months  or  more  continuously  his  status  is  established  as  a resident  alien, 
and  there  is  no  liability  upon  the  employer  for  further  withholding  from  such 
an  employee.  In  fact,  he  may  refund  the  amounts  withheld  prior  to  that 
time.  Assuming  that  such  an  employee  has  been  in  the  service  of  an  employer 
continuously  for  a sufficient  time  to  establish  his  status  as  a resident  alien 
until  for  example  November  15th.  The  employer  has  paid  over  to  him  all 
of  the  money  which  is  due  him  up  to  that  time.  The  employee  announces 
his  intention  to  return  to  the  foreign  country  from  which  he  came,  but  con- 
tinues to  work  for  the  employer  until  the  first  of  January.  The  employer 
now  has  information  as  to  the  intentions  of  such  an  employee.  We  under- 
stand that  there  is  no  liability  upon  him  for  withholding  prior  to  the  time  in 
which  these  intentions  became  known;  namely,  November  15th,  and  that 
he  should  withhold  only  upon  the  basis  of  the  earnings  of  the  employee 
from  the  time  from  which  the  employer  knew  of  the  intention  of  the  employee 
to  quit  the  country.” 

2215  In  reply  you  are  advised  that  under  the  provisions  of  Article  315 
[^[760],  Regulations  [62],  if  wages  are  paid  without  withholding  the 

tax,  the  employer  should  be  provided  with  written  proof  of  facts  which 
overcome  the  presumption  that  such  alien  is  a nonresident.  If  an  alien  has 
been  living  in  the  United  States  for  as  much  as  one  year  immediately  prior 
to  the  time  he  entered  the  employment  of  the  withholding  agent,  or  if  he 
has  been  regularly  employed  by  a resident  individual  or  corporation  in  the 
same  county  for  as  much  as  three  months  immediately  prior  to  any  payment 
by  the  employer,  he  may  be  treated  as  a resident  in  the  absence  of  facts 
known  to  the  employer  showing  that  he  is  in  fact  a transient. 

2216  In  the  case  tax  has  been  withheld  by  the  employer  from  wages  paid 
during  three  months  period  while  the  status  was  that  of  a nonresident 

alien,  the  amount  of  tax  may  be  refunded  in  accordance  with  the  data  con- 
tained on  Form  1115  [^[2 180].  This  form  is  provided  for  the  purpose  of 
receiving  the  benefit  of  personal  exemption  and  credit  for  dependents  in 
connection  with  income  tax  withheld  at  the  source  from  salaries,  wages  and 
similar  income.  In  case  tax  has  been  withheld  from  an  alien  employee  and 
his  status  as  a resident  has  been  established  by  the  execution  of  Form  1078 
[see  *j[758]  any  income  tax  withheld  may  be  refunded  upon  receipt  of  that 
certificate.  The  fact,  however,  that  an  alien  has  been  employed  by  a cor- 
poration for  three  months  is  not  in  itself  sufficient  grounds  upon  which  to 
refund  income  tax  withheld  at  the  source.  It  was  not  the  intention  that  Ar- 
ticle 315  of  Regulations  No.  [62]  referred  to  herein,  should  be  construed  as 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

492 


2-27-22.  (2)  4-10-22.  (3)  7-27-22. 

WITHHOLDING  AT  THE  SOURCE. 

permitting  an  employer  to  withhold  from  nonresident  alien  employees  for  a 
period  of  only  three  months  and  refund  the  amount  of  tax  withheld  at  the 
end  of  that  period  merely  because  aliens  had  been  employed  by  him  for  that 

period  of  time. 

2217  If  the  status  of  a resident  employee  changes  to  that  of  a nonresident 
alien,  the  employer  should  withhold  income  tax  at  the  rate  of  eight 

per  cent  from  all  wages  paid  to  the  nonresident  employee  on  and  after 
the  date  on  which  the  employer  had  knowledge  of  the  change.  Although  the 
employee,  in  such  case,  will  be  taxable  as  a nonresident  alien  for  the  entire 
taxable  year  during  which  his  status  is  changed  from  that  of  a resident  to 
that  of  a nonresident  alien,  the  employer  will  not  be  held  liable  for  the 
deduction  of  income  tax  with  respect  to  wages  paid  preceding  the  knowledge 
of  the  employer  as  to  the  change  in  status.  (Letter  to  W.  B.  Reed,  Ac- 
counting Secretary,  National  Coal  Association,  Washington,  D.  C.,  signed 
by  Commissioner  Daniel  C.  Roper,  and  dated  August  6,  1919.) 

2218  Interest,  on  Accounts  Current  and  on  Deposits,  Accruing  to  Non- 
resident Alien  Individuals  and  Foreign  Partnerships:  Withhold- 
ing Liability  of  Debtors. — [The  following  is  inapplicable  under  the  Revenue 
Act  of  1921  to  the  extent  only  as  affected  by  the  added  matter  in  parenthesis 
at  Law  1[276,  1f2191;  and  its  application  is  extended  to  embrace  withholding 
against  partnerships  composed  in  whole  or  in  part  of  nonresident  aliens, 
Law  1[277,  1[2192.]  This  office  acknowledges  receipt  of  your  letter  dated 
March  17,  1919,  in  which  you  request  information  as  to  whether  commission 
merchants,  private  bankers,  and  others  are  required  under  Section  221  (a) 
of  the  Revenue  Act  of  1918,  to  withhold  any  part  of  interest  accruing  on 
mercantile  accounts  current,  or  upon  moneys  held  on  deposit,  to  nonresident 
alien  individuals  or  foreign  partnerships,  if  the  principal  amounts  so  due,  as 
well  as  the  interest,  are  at  all  times  subject  to  call,  and  payable  on  demand. 
Ifln  reply  you  are  advised  that  interest  upon  deposits  or  accounts  current, 
accruing  on  the  books  of  citizens  or  residents  of  the  United  States,  domestic 
partnerships  or  corporations  is  subject  to  the  deduction  of  the  tax  at  the 
source,  only  when  the  recipient  is  a nonresident  alien  individual  [or  a partner- 
ship as  provided  in  Law  Sec.  277,  1f2192.  Note  that  the  inquiry,  and  hence 
the  answer,  relates  to  individuals  and  partnerships.  There  is  withholding, 
here,  (1921  at  10%;  1922  at  12j^%)  against  foreign  corporations  to  the 
same  extent  as  against  individuals.].  The  amount  to  be  deducted  is  8% 
of  the  interest  credited  on  the  books  of  the  debtor,  at  the  time  of  crediting 
same.  Such  tax  as  is  withheld  should  be  retained  by  the  withholding  agent 
until  the  end  of  the  calendar  year  and  remitted  to  the  Collector  of  Internal 
Revenue,  accompanied  by  a return  on  Form  1042  in  the  usual  manner.  (Let- 
ter to  Hughes,  Rounds,  Schurman  & Dwight  New  York,  N.  Y.,  signed  by 
J.  H.  Callan,  Assistant  to  Commissioner,  and  dated  April  22,  1919.) 

2219  Income  of  Nonresident  Aliens  Which  is  Not  Subject  to  Tax  and 
Hence  Not  Subject  to  Withholding. — Read  at  ^[2 13 1 . 

2220  Law  If 442.  Payment  of  Tax  at  the  Source  on  Account  of  Certain 
(Sec.  237.)  Foreign  Corporations. — “Sec.  237.  That  in  the  case  of 

foreign  corporations  subject  to  taxation  under  this  title 
not  engaged  in  trade  or  business  within  the  United  States  and  not  having 
any  office  or  place  of  business  therein  ” — Law.  [Note:  The  1918 

Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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Z-27-22.  (2)  4-10-22.  (3)  7-27-22. 

WITHHOLDING  AT  THE  SOURCE. 

2221  Law  1J443.  “ there  shall  be  deducted  and  withheld  at  the  source  in 

(Sec.  237.)  the  same  manner  and  upon  the  same  items  of  income 
as  is  provided  in  section  221  [^[2190]  a tax  equal  to 
per  centum  thereof  ’ — Law.  [Note:  The  1918  Act  provided  for 

a continuing  10%  rate.] 

“(but  during  the  calendar  year  1921  only  10  per 
centum),” — Law.  [Note:  The  1918  Act  so  provided.] 

“and  such  tax  shall  be  returned  and  paid  in  the  same 
manner  and  subject  to  the  same  conditions  as  provided 
in  that  section :” — Law.  [Note:  The  1918  Act  so 

provided.] 

2224  In  general  withholding  is  required  * * * (b)  of  a tax  of  10  per 

cent  for  the  calendar  year  1921  and  12]^  per  cent  for  subsequent  year* 

in  the  case  of  fixed  or  determinable  annual  or  periodical  income  (with  the 
exceptions  just  stated)  payable  to  a foreign  corporation  not  engaged  in 
trade  or  business  within  the  United  States  and  not  having  any  office  or  place 
of  business  therein.  (Art.  361,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  2 1 97.] 

2225  With  respect  to  payments  to  foreign  corporations  not  engaged  in 
trade  or  business  within  the  United  States  and  not  having  any  office 

or  place  of  business  therein,  withholding  is  required  of  a tax  of  2 per  cent 
in  the  case  of  interest  payable  upon  corporate  bonds  or  other  obligations 
containing  a tax-free  covenant  clause,  and  of  a tax  of  12]^  per  cent  (10  per 
cent  during  the  calendar  year  1921)  in  the  case  of  other  fixed  or  determinable 
annual  or  periodical  income,  other  than  corporate  dividends.  [For  with- 
holding in  the  case  of  interest  on  corporate  obligations  read  at  ^[2231.]  To 
enable  debtors  in  the  United  States  to  distinguish  between  foreign  corpora- 
tions which  have  and  those  which  have  not  any  office  or  place  of  business 
in  the  United  States,  and  also  to  enable  such  corporations  as  have  an  office 
or  place  of  business  in  the  United  States  to  claim  exemption  from  with- 
holding the  tax  on  bond  interest  or  other  income,  a certificate,  Form  1086, 
stating  that  any  such  corporation  has  an  office  or  place  of  business  in  the 
United  States  should  be  filed  by  it  with  the  debtor.  (Art.  601,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gr. 

* Bank  acceptances  bought  through  agents  here  at  discount  collected  at  maturity  or 
resold  here  at  profit  (16-20-865:  O.  1024).  .June  1920  Cum.  Bull.  p.  189.  Same, 
1921  Act  (1-30-429:  I.  T.  1398).  .Bull.  I (’22)-30,  p.  16. 

Branch  of  foreign  bank  established  here  (27-19-605:  O.  D.  323). . 1919  Cum.  Bull,  p 
232. 

Same:  (1-20-661:  0.  D.  358).  .June  1920  Cum.  Bull.  p.  221. 

Call  loans:  interest  on  when  made  by  domestic  bank  for  account  of  foreign  bank 
(24-20-1007;  O.  D.  549).. June  1920  Cum.  Bull.  p.  191. 

Commissions  and  interest  on  account  credit  opened  with  foreign  bank  (41-21-1863: 
O.  D.  1062).  .Dec.  1921  Cum.  Bull.  p.  229. 

Commonwealth  Bank  of  Australia:  interest  credited  to  (33-20-1129:  O.  D.  628).  .Dec. 
1920  Cum.  Bull.  p.  124. 

Domestic  corporation  but  all  property  and  business  in  Porto  Rico;  all  withholding 
provisions  apply  to  its  bond  interest:  1921  Act  (1-27-392:  I.  T.  1384).  .Bull.  I 
(’22)-27,  p.  10. 

Interest  on  bank  deposits,  though  foreign  corporation  intends  to  make  return  (19-21- 
1627:  O.  D.  910).  .June  1921  Cum.  Bull.  p.  302. 

Orders  secured  from  foreign  customers  for  export,  booked  through  the  foreign  cor- 
portation  (2-19-167:  O.  D.  112)..  1919  Cum.  Bull.  p.  232. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

494 


2222  Law  ^[ 444 

(Sec.  237.) 

2223  Law  ^[ 445. 

(Sec.  237.) 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


Returns  and  refund  claims  filed  for  prior  years  by  creditor  does  not  relieve  debtor  of 
present  obligation  to  withhold  C 12-2 1-1523 : O.  D.  853).. June  1921  Cum.  Rull. 
p.  302. 

Specific  royalties  and  percentage  of  profits  on  sales  of  patented  article  manufactured 
by  domestic  corporation,  the  patent  rights  being  held  by  foreign  corporation 
(7-19-303:  T.  B.  R.  29).  .1919  Cum.  Bull.  p.  230. 

Stock  owned  by  foreign  government  to  extent  of  51%  (26-21-1702:  O.  D.  958).  .Tunc 
1921  Cum.  Bull.  p.  111. 

Subsidiaries,  foreign:  interest  credited  to  by  domestic  parent  (28-19-616:  O.  D.  330) 

. . 1919  Cum.  Bull.  p.  239. 


2226  Law  ^[19.  Definition  of  the  Term  “Withholding  Agent.” — “ The 

(Sec.  200.)  term  ‘ withholding  agent ’ means  any  person  required  to 
deduct  and  withhold  any  tax  under  the  provisions  of 
section  221  [1f2l90]  or  section  237  [112220];” — Law.  [Note:  The  1918 

Act  so  provided.] 

2227  A withholding  agent  may  be  a corporation  with  bonds  outstanding, 
a trustee  under  a corporate  mortgage,  or  any  corporation,  partner- 
ship or  private  individual.  (Art.  1533,  Reg.  62,  1922  Edition.) 

2228  Tax-Exempt  Corporations  Required  to  Withhold. — While  the  organ- 
izations enumerated  in  section  1 1 of  this  title  are  themselves  exempt 

from  the  tax  on  any  income  received  by  them,  they  are  not  exempt  from  the 
requirements,  of  the  title  with  respect  to  the  withholding  of  the  normal 
tax  on  bond  interest  * * * paid  to  foreign  corporations  or  bond  interest 

paid  to  individuals  on  bonds  having  a tax  free  covenant  or  from  furnishing 
information  in  accordance  with  the  provisions  of  this  title  as  amended  by 
section  1205  of  Title  XIII  of  the  act  of  October  3,  1917.  (Art.  81,  ^336 
Reg.  33,  Rev.,  Jan.  2,  1918.) 

2229  Return  of  Taxes  Withheld. — Read  at  ^[2321. 

2230  Payment  of  the  Taxes  Withheld. — Read  at  \2322. 


TAX  TO  BE  DEDUCTED  AT  THE  SOURCE  ON  INCOME  FROM 
INTEREST  ON  DOMESTIC  OBLIGATIONS. 

2231  Tax  Withheld  in  Case  of  Interest  on  Obligations  Not"  Containing 
Tax-Free  Covenants. — [Applies  only  to  nonresident  alien  indi- 
viduals, to.  partnerships  composed  in  whole  or  in  part  of  nonresident  aliens 
(Law  provision  at  ^[2190)  and  to  foreign  corporations  not  engaged  in  trade 
or  business  within  the  United  States  and  not  having  any  office  or  place  of 
business  therein  (Law  provision  at  ^[2220).] 

Copyright  1922,  by  Tht  Corporation  Trust  Company, 

nuttAJ.  urcoMs  tax  iktic* 

493 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


223  2 Law  1J282.  Owner  to  Be  Known  to  Withholding  Agent  or  Tax  is 

(Sec.  221.)  Withheld  in  Any  Case. — “ Provided , That  the  Com- 
missioner may  authorize  such  tax  [8%,  1(2196,  although 
the  rate  of  tax  against  corporations  is  12j^%,  1(2221  (10%/or  1921, 1f2222)] 
to  be  deducted  and  withheld  from  the  interest  upon  any  securities  the  owners 
of  which  are  not  known  to  the  withholding  agent.”- — Law.  [Note:  The 

1918  Act  so  provided.] 

2233  Where  the  owner  of  bonds  or  other  like  obligations  is  unknown 
to  the  withholding  agent  a tax  of  2 per  cent,  must  be  withheld  from 

interest  on  so-called  tax-free  covenant  bonds,  and  a tax  of  8 per  cent,  must  be 
withheld  from  interest  on  all  other  corporate  bonds  on  securities.  (Art.  361, 
Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  1(2197.] 

2234  Tax  Liability  and  Withholding  Obligation  on  Bond  Interest  Col- 
lected and  Paid  in  Year  Subsequent  to  That  in  Which  the  Inter- 
est Became  Due  and  Payable— Bond  interest  represents  income  to  taxpayer 
when  due  and  payable  in  accordance  with  Article  53,  Regulations  [62, 1(1272]. 
No  tax  required  to  be  withheld  from  interest  upon  bonds  due  prior  to  March 
1,  1913,  but  paid  subsequent  to  that  date.  Interest  due  on  and  after  March 
l’  1913’  subject  to  withholding  at  rates  in  force  at  time  of  payment  but  in 
case  excess  tax  is  withheld  and  paid  to  Government  claim  for  refund  on 
Form  46  will  be  considered.  (Telegram  to  A.  Iselin  & Co.,  New  York,  N.  Y., 
signed  by  P.  S.  Talbert,  Acting  Assistant  to  the  Commissioner,  and  dated 
September  8,  1919.) 

2235  Reference  is  made  to  office  letter  of  September  5,  1919,  in  which 
you  were  given  a ruling  in  answer  to  your  inquiry  of  June  26,  1919, 

relative  to  the  rate  of  withholding  which  attaches  to  interest  coupons  matur- 
ing in  one  year  and  presented  for  payment  in  a subsequent  year  during  which 
withholding  is  required  at  a different  specified  rate.  KYou  are  advised 
that  after  further  consideration  of  the  subject  matter  of  your  letter  of 
June  26  1919,  this  office  is  of  the  opinion  that  the  second  and  third  para- 
graph of  office  letter  of  September  5,  1919  should  have  read:  K“In  reply 
you  are  advised  that  Article  53  of  Regulations  [62  1(1272]  states  specifically 
that  where  interest  coupons  have  matured  but  have  not  been  cashed,  such 
interest  payment  though  not  collected  when  due  and  payable,  is  nevertheless 
available  to  the  taxpayer  and  should  therefore  be  included  in  his  gross 
income  for  the  year  in  which  the  coupons  matured.  KArticle  371  states 
that  in  the  case  of  every  payment  made  after  February  24,  1919,  the 
withholding  agent  must  withhold  at  the  rates  prescribed  by  the  present 
statute  from  the  whole  payment,  not  merely  from  that  part  which  applies  to 
the  period  after  February  24,  1919.  Hence,  in  the  case  of  the  foreign  owners 
of  American  securities  whose  interest  coupons  matured  during  the  years 
1915  1916,  1917  and  1918  but  which  were  not  presented  for  payment  until  the 
year  1919  the  amount  of  these  coupons  should  have  been  entered  as  income 
on  their  returns  rendered  for  the  years  in  which  the  coupons  matured  but 
the  withholding  agent  was  required  to  withhold  from  these  coupons  at  the 
rate  in  force  at  the  time  of  payment  and  in  case  excess  tax  was  withheld  and 
paid  to  the  Government  by  reason  of  this  requirement,  the  owners  of  the 
bonds  to  which  you  refer  may  exercise  their  privilege  of  filing  with  the  col- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

496 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


lector  on  Form  [843]  a claim  for  refund  of  that  portion  of  the  tax  withheld 

which  was  in  excess  of  their  true  liability.”  f[Therefore,  you  will  disre- 
gard office  letter  of  September  5,  1919  and  be  governed  by  the  ruling  given 
herein.  (Letter  to  Adorns  F.  Frey,  Guaranty  Trust  Company,  New  York, 
N.  Y.,  signed  by  P.  S.  Talbert,  Acting  Assistant  to  the  Commissioner,  by 
C.  R.  Trobridge,  Acting  Head  of  Division,  and  dated  September  23,  1919.) 

2236  Withholding  at  the  Source  on  Interest  on  Bonds  Having  No  Tax- 
Free  Covenants — Your  telegram  May  29.  Bonds  without  tax-free 
covenant  not  permitted  to  be  considered  tax-free  bonds  at  option  of  issuing 
corporations.  ^[Corporation  only  allowed  to  withhold  tax  at  rate  of  eight 
and  ten  per  cent.  [12)^%  for  1922]  from  nonresident  alien  individuals  [certain 
partnerships]  and  nonresident  alien  corporations  respectively.  ^[Corporation 
prohibited  from  paying  tax  on  interest  derived  from  such  bonds  when  owned 
by  citizens  or  residents  of  United  States.  (Telegram  to  the  Farmer’s  Loan 
and  Trust  Company,  New  York,  N.  Y.,  signed  by  Commissioner  Daniel  C. 
Roper,  and  dated  June  2,  1919.) 


2237  Coupons  of  Foreign-Owned  Domestic  Bonds  Purchased  by  a 
Domestic  Corporation. — In  case  bank  purchases  abroad  coupons 

from  bonds  issued  by  domestic  corporations  purchaser  held  prima  facie 
to  be  recipient  of  income.  Ownership  certificates  should  therefore  be 
secured  from  original  owners  of  bonds  in  order  that  tax  may  be  withheld 
as  provided  in  sections  221  and  237  Revenue  Act,  1918.  (Telegram  to 
M.  F.  Frey,  Guaranty  Trust  Company,  New  York,  N.  Y.,  signed  by  Com- 
missioner Daniel  C.  Roper,  and  dated  July  22,  1919.) 

2238  No  Withholding  Against  Known  Citizens  or  Residents  in  the  Case 
of  Interest  on  Corporate  Obligations  Not  Containing  Tax-Free 

Covenants. — Income  paid  to  citizens  or  residents  of  the  United  States  is 
subject  to  withholding  of  normal  tax  at  the  source  only  when  derived  from 
interest  on  bonds  and  mortgages,  or  deeds  of  trust,  or  other  similar  obliga- 
tions of  corporations,  joint  stock  companies,  etc.,  containing  a so-called 
“tax-free”  or  “no  deduction”  clause.  (Adimeograph  letter  to  Collectors, 
No.  1663,  Nov.  1,  1917.) 

2239  Information  Relative  to  Ownership  to  Be  Disclosed  by  Means  of 
Ownership  Certificates  in  the  Case  of  Coupon  Interest. — Read  at 

1[2265. 


2240  Law  ^[283. 

(Sec.  221.) 


obligations  of  a 
obligor  agrees ” 

2241  Law  ^[284. 

(Sec.  221.) 
Law  ^[285. 
(Sec.  221.) 
Law  ^[286. 
(Sec.  221.) 


Tax  Withheld  in  Case  of  Interest  on  Obligations  Con- 
taining Tax-Free  Covenants. — “(b)  In  any  case  where 
bonds , mortgages,  or  deeds  of  trust,  or  other  similar 
corporation  contain  a contract  or  provision  by  which  the 


“to  pay  any  portion  of  the  tax  imposed  by  this  title 
upon  the  obligee,  or” 

“to  reimburse  the  obligee  for  any  portion  of  the  tax , 
or” 

“to  pay  the  interest  without  deduction  for  any  tax 
which  the  obligor  may  be  required  or  permitted  to  pay 
thereon,  or  to  retain  therefrom  under  any  law  of  the 
United  States ,” — Law.  [Note:  The  1918  Act  so  provided.] 


2242 


2243 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


497 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


2244  Law  ^[287.  2%  to  be  Withheld  in  Case  of  Interest  on  Tax-Free 

(See.  221.)  Covenant  Obligations.  •“ the  obligor  shall  deduct  and 
•withhold  a tax  equal  to  2 per  centum  of  the  interest 
upon  such  bonds,  mortgages,  deeds  of  trust , or  other  obligations,  whether 
such  interest  is  payable  annually  or  at  shorter  or  longer  periods  and ” — Law. 

[Note:  The  1918  Act  so  provided.] 

2245  Lav/  1[288.  Withholding  of  2%  in  Case  of  Interest  on  Tax-Free 
(See.  221.)  Covenant  Obligations  Applies  Against  Nonresident 

Alien  Individuals,  Citizens  and  Residents,  and 
Partnerships. — “ whether  payable  to  a nonresident  alien  individual  or 
to  an  individual  citizen  or  resident  of  the  United  States  or  to  a partner- 
ship— Law.  [Note:  The  1918  Act  so  provided.] 

2246  Law  ^[446.  Withholding  of  2%  in  Case  of  Interest  on  Tax-Free 
(Sec.  237.)  Covenant  Obligations  Applies  Against  Foreign  Cor- 
porations Not  Engaged  in  Trade  or  Business  Within 

the  United  States  and  Not  Having  Any  Office  or  Place  of  Business 
Therein. — [$*r.  237  ^[2220]:  “ Provided , That  in  the  case  of  interest 
described  in  subdivision  ( b ) [^[2240]  of  that  section  the  deduction  and 
withholding  shall  be  at  the  rate  of  2 per  centum .” — Law.  [Note:  The 

1918  Act  so  provided.] 

2247  Liability  of  Debtor  Corporation,  When  No  Exemption  is  Claimed, 
in  Case  of  Bond  Bearing  Covenant  to  Pay  Old  1%  Rate  Only. — 

Sec.  9 — C,  Act  of  September  8,  1916,  as  amended  [*[[2240  and  ^[2245  above], 
provides  that  normal  tax  of  2%  shall  be  deducted  and  withheld  from  interest 
payments  upon  bonds  owned  by  citizens  or  residents  of  United  States, 
if  such  bonds  contain  contract  or  provision  whereby  obligor  agrees  to  pay 
any  portion  of  tax  imposed  by  that  title  upon  obligee.  Debtor  corporation 
will,  in  such  cases,  be  held  liable  for  2%  tax,  although  the  portion  of  tax 
guaranteed  is  only  1%.  (Telegram  to  S.  W.  Straus  & Co.,  New  York,  N.  Y., 
dated  Feb.  18,  1918,  and  signed  by  Commissioner  Daniel  C.  Roper.) 

2243  Lav/  *[289.  Owner  to  Be  Known  to  Withholding  Agent  or  Tax  is 

(Sec.  221.)  Withheld  in  Any  Case. — “ Provided , That  the  Com- 

missioner may  authorize  such  tax  [2%,  ^[2244]  to  be 
deducted  and  withheld  in  the  case  of  interest  upon  any  such  bonds,  mort- 
gages, deeds  of  trust , or  other  obligations,  the  owners  of  which  are  not 
known  to  the  withholding  agent.” — Law.  [Note:  The  1918  Act  so 

provided.] 

2249  Information  Relative  to  Ownership  to  be  Disclosed  by  Means  of 
Ownership  Certificates  in  the  Case  of  Coupon  Interest. — Read  at 

If 2265. 

2250  In  General  Withholding  is  Required. — * * * and  (c)  of  a tax  of 

2 per  cent  in  the  case  of  interest  payable  to  an  individual  or  a 

partnership,  whether  resident  or  nonresident,  or  to  a foreign  corporation 
not  engaged  in  trade  or  business  within  the  United  States  and  not  having 
any  office  or  place  of  business  therein,  upon  bonds  or  other  obligations  of 
domestic  or  resident  foreign  corporations  containing  a so-called  tax-free 

Copyright  1932,  hy  Tht  Corporation  Trust  Company. 

TBR  flW  IHCOMK  TAX  SRriH 
498 


2-27-22.  (2)  4-14-22.  (3)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 

covenant  clause.  * * * Bonds  issued  under  a trust  deed  containing  a tax- 
free  covenant  are  treated  as  if  they  contained  such  a covenant.  A foreign 
corporation  having  a fiscal  agent  or  paying  agent  in  this  country  is  required 
to  withhold  a tax  of  2 per  cent,  upon  the  interest  on  its  tax-free  covenant 

bonds.  [See  1f236I.]  (Art.  361,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  1(2197.] 

2251  Law  1(290.  Tax  of  Two  Per  Cent  Not  to  be  Withheld  Against 
(Sec.  221.)  Citizens  and  Residents  in  the  Case  of  Interest  on 

Tax-Free  Covenant  Obligations  if  Personal  Specific 
Exemption  be  Claimed. — “Such  deduction  and  withholding  shall  not  be 
required  in  the  case  of  a citizen  or  resident  entitled  to  receive  such  in- 
terest, if  he  files  with  the  withholding  agent  on  or  before  February  1 a signed 
notice  in  writing  claiming  the  benefit  of  the  credits  -provided  in  subdivisions 
(c)  [1(2044]  and.  ( d ) [1(2051]  of  section  216;” — Law.  [Note:  The 

1918  Act  so  provided.] 

2252  Exemption  from  Withholding. — Withholding  from  interest  on  bonds 
or  other  obligations  containing  a tax-free  covenant  shall  not  be 

required  in  the  case  of  a citizen  or  resident  alien  individual  if  he  files  with 
the  withholding  agent  when  presenting  interest  coupons  for  payment,  or  not 
later  than  February  first  following  the  taxable  year,  an  ownership  certificate 
on  Form  1001  [see  1(2310]  claiming  a personal  exemption  or  credit  for  de- 
pendents. See  section  216  of  the  statute  and  articles  301-305  [for  personal 
exemption  discussion,  1(2044].  (Art.  363,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  1(761.] 

2 253  Law  1(291.  Tax  of  Two  Per  Cent  Not  to  be  Withheld  Against 
(Sec.  221.)  Non-Resident  Aliens  in  the  Case  of  Interest  on  Tax- 
Free  Covenant  Obligations,  if  Claim  for  Personal  Spe- 
cific Exemption  at  the  Source  Has  Been  Authorized  by  Regulations,  and 
Such  Claim  be  Made. — “nor  in  the  case  of  a nonresident  alien  individual 
if  so  provided  for  in  regulations  prescribed  by  the  Commissioner  under 
subdivision  (g)  [1(2179]  of  section  217.”— Law.  [Note:  The  1918 

Act  so  provided.] 

2254  (a)  When  the  gross  income  (including  bond  interest)  of  a nonresident 
alien,  which  is  derived  from  sources  within  the  United  States,  does 

not  exceed  the  personal  exemption  of  $1,000  allowed  by  section  216(e),  an  ex- 
emption certificate,  Form  1001-B,  should  be  executed  and  filed  with  the 
withholding  agent,  if  any  part  of  the  gross  income  is  derived  from  interest 
upon  bonds  or  similar  obligations  of  a domestic  corporation  which  contain  a 
tax-free  covenant  clause.  The  amount  of  tax  due  from  the  withholding 
agent,  as  shown  by  Form  1013,  may  be  reduced  by  2 per  cent  of  the  aggregate 
amount  of  interest  payments  made  to  such  nonresident  alien  upon  tax-free 
covenant  bonds  during  the  calendar  year.  (Art.  364,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Form  i001  B executed  by  husband  and  wife,  the  bond  interest  being  community 
income,  is  acceptable.  .1(3122:  same  at  I.  T.  1320.  .June  1922  Cum.  Bull.  p.  219. 

2255  exemption  from  Withholding  Eight  Per  Cent  on  Interest  on  Bonds 
Having  No  lax-Free-Covenant. — (b)  When  the  gross  income  of  a 

nonresident  alien,  derived  from  sources  within  the  United  States,  does  not 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

499 


2-27-22.  (2)4-14-22.  (3)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 

exceed  $1,000,  such  person  may  file  with  the  withholding  agent  an  exemption 
certificate  on  Form  1001-C  with  respect  to  interest  upon  bonds  or  similar 
obligations  of  a domestic  corporation  not  containing  a tax-free  covenant 
clause.  The  debtor  organization  or  withholding  agent,  upon  receipt  of  a 
properly  executed  certificate  showing  that  the  individual’s  income  does  not 
exceed  $1,000,  shall  release  and  pay  over  to  such  individual  upon  demand 
any  tax  withheld  during  the  preceding  calendar  year.  The  tax  assessed  against 
the  withholding  agent  and  which  has  not  been  paid  may  be  made  the  subject 
of  a claim  for  abatement  to  the  extent  of  the  amount  of  excess  tax  withheld, 
and  refunded  to  the  alien  on  the  basis  of  this  certificate.  In  case  the  tax  so 
withheld  has  been  paid  to  the  Government,  refund  of  the  tax  withheld  in  the 
case  of  nontax-free  bonds  and  similar  obligations  can  only  be  made  to  the 
bond  owner  or  his  duly  authorized  representative.  (Art.  364,  Reg.  62,  1922 
Edition.) 

2256  Exemption  Certificates  of  Nonresident  Aliens. — The  exemption 
certificates,  Forms  1001-B  and  1001-C,  properly  executed,  may  be 

filed  with  the  debtor  organization  or  its  duly  authorized  withholding  agent 
at  any  time  after  the  close  of  the  calendar  year,  but  not  later  than  May  1 of 
the  succeeding  year.  Ownership  certificates,  however,  must  be  filed  in 
connection  with  all  interest  payments  upon  bonds  and  similar  obligations  of 
domestic  corporations  in  accordance  with  the  regulations,  notwithstanding 
the  fact  that  Form  1001-B  or  Form  1001-C  is  filed.  (Art.  364,  Reg.  62,  1922 
Edition.) 

2257  One  Form  of  a Qualified  Tax-Free  Covenant  Which  Relieves  the 
Debtor  from  Withholding  the  Amount  of  the  Normal  Tax  from 

Bond  Interest  Payments  to  Citizens  and  Residents. — With  further  ref- 
erence to  your  letter  of  Oct.  27,  1917,  herein  quoted,  “Please  advise  us  at 
the  earliest  possible  moment  whether  bonds  bearing  the  covenant  that 

‘Both  principal  and  interest  of  this  bond  are  payable  without  deduc- 
tions for  any  taxes,  assessments  or  other  governmental  charges  which 
the  company  may  be  required  to  pay  thereon  or  authorized  to  retain 
therefrom  under  any  present  or  future  law  or  requirement  of  the  United 
States  of  America  (except  any  Federal  Income  Tax)  or  any  State, 
county,  municipality  or  other  governmental  subdivision  thereof,’ 
come  within  the  provisions  of  subsection  (c)  of  Section  9 of  the  Federal 
Income  Tax  Law  requiring  the  debtor  corporation  to  withhold  the  amount 
of  the  normal  tax  at  the  source,”  you  are  advised  that  interest  from  bonds 
containing  the  covenant  quoted  will  not  be  subject  to  withholding  as  pro- 
vided in  subsection  (c),  [*[2240]  Section  9 of  the  Act  of  Sept.  8,  1916,  as 
amended  by  Section  1205  of  the  War  Revenue  Act  of  Oct.  3,  1917.  (Letter 
to  Simpson,  Thatcher  & Bartlett,  New  York,  N.  Y.,  signed  by  Deputy 
Commissioner  L.  F.  Speer,  and  dated  Nov.  21,  1917.) 

2258  Federal  Income  Tax  Being  a Tax  on  Income  and  Not  a Tax  on 
the  Interest  on  a Bond,  per  se,  a Tax-Free  Covenant  in  a Bond 

Does  Not  Obligate  the  Debtor  to  Pay  the  Interest  Free  of  Income  Tax. 

[This  was  the  decision  (April  2,  1917)  of  the  Supreme  Court  of  Arkansas 
in  the  Urquhart  v.  Marion  Hotel  Company  case  (194  S.  W.  1).] 

2259  The  Term  “Debtor”  Defined. — The  term  “debtor,”  as  hereinafter 
used  [in  connection  with  bond  interest]  shall  apply  to  all  corpora- 
tions, joint-stock  companies  or  associations,  and  insurance  companies. 
(Art.  38,  Reg.  33,  Jan.  5,  1914.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

500 


(8)  #16-22.  (9)6-26-22.  (10)7-27-22.  (11)9-1-22.  (12)10-11-22. 

WITHHOLDING  AT  TIIE  SOURCE. 

2260  Withholding  and  Paying  Agents  May  Be  Appointed  by  Debtors. 
A debtor  corporation  having  an  issue  of  bonds  or  other  similar 

obligations  may  appoint  a duly  authorized  withholding  agent  to  act  in  its 
behalf,  provided  notice  of  such  appointment  is  filed  with  the  Commissioner. 
(Art.  361,  Reg.  62,  1922  Edition.) 

2261  Filing  Notice  of  Appointment  of  Paying  Agent. — This  notice  of 
appointment,  should  be  placed  on  file  in  the  office  of  the  collector  of 

internal  revenue  for  the  district  in  which  the  debtor  corporation  is  located 
or  has  its  principal  place  of  business,  and  the  said  collector  should  notify 
the  collector  of  internal  revenue  for  the  district  in  which  the  duly  authorized 
withholding  agent  is  located.  (T.  D.  2135,  Jari.  23,  1915.) 

2262  Where  Returns  and  Certificates  Are  to  be  Filed  by  Paying  Agents 
Appointed  by  Debtors. — Where  such  withholding  agent  is  so  author- 
ized by  the  debtor  corporation,  he  may  file  with  the  collector  of  his  district 
the  required  returns  and  accompanying  certificates  in  wThich  case  the  assess- 
ment of  the  tax  withheld  by  him  will  be  made  in  that  district.  Unless  such 
authority  be  given,  such  reports,  etc.,  will  be  furnished  by  the  debtor  cor- 
poration to  the  collector  of  its  district  (i.  e..  the  district  in  which  its  principal 
financial  or  business  office  is  located),  where,  in  such  cases,  assessment  will 
be  made.  (Art.  38,  Reg.  33,  Jan.  5,  1914.) 

2263  The  duly  authorized  withholding  agent  is  required  to  file  its  return 
with  the  collector  of  internal  revenue  for  the  district  in  which  the 

said  withholding  agent  is  located,  and  is  not  required  to  file  a return  with  the 
collector  for  the  district  in  which  the  debtor  corporation  is  located.  (T.  D. 
2135,  Jan.  23,  1915.) 

2264  The  Debtor  Corporation  Only  Deducts  the  Tax,  if  Any.—In  reply 

you  are  advised  that  this  office  holds  that  the  normal  tax,  to  be  with- 
held under  the  Act  of  Sept.  8,  1916,  as  amended  by  Section  1205,  subdivision 
(c),  Act  of  Oct.  3,  1917,  is  required  to  be  deducted  only  by  the  debtor  cor- 
poration and  should  not  be  withheld  by  the  bank  by  whose  agency  collection 
is  made.  (Letter  to  Sackett.  Chapman  & Stevens,  New  York,  N.  Y.,  signed 
by  Deputy  Commissioner  L.  F.  Speer,  and  dated  Nov.  13,  1917.) 

2266  Ownership  Certificates  for  Interest  Coupons. — The  owners  of  bonds  or 
other  obligations,  except  domestic  and  resident  corporations,  whether 
or  not  such  bonds  or  other  obligations  contain  a tax-free  covenant,  issued 
by  domestic  or  resident  foreign  corporations,  when  presenting  interest 
coupons  for  payment  shall  file  a certificate  of  ownership  for  each  issue 
of  bonds,  showing  the  name  and  address  of  the  debtor  corporation,  the 
name  and  address  of  the  owner  of  the  bonds,  the  nature  of  the  obliga- 
tions, the  amount  of  interest  and  its  due  date,  and  the  amount  of 
any  tax  withheld.  No  ownership  certificates  need  be  filed  in  the  case  of  in- 
terest payments  on  bonds  the  income  from  which  is  not  required  to  be  in- 
cluded in  gross  income,  nor  in  the  case  of  any  obligations  of  the  United 
States.  See  section  213  (b)  of  the  statute  and  articles  74-82  [for  State  and 
Federal  obligations,  ,1564).  Where  in  connection  with  the  sale  of  its  prop- 
erty payment  of  the  bonds  or  other  obligations  of  a corporation  is  assumed 
by  the  assignee,  such  assignee,  whether  an  individual,  partnership,  corpora- 
tion, or  a State  or  political  subdivision  thereof,  must  deduct  and  withhold 
inch  taxes  as  would  have  been  required  to  be  withheld  by  the  assignor  had 
no  such  sale  and  transfer  been  made.  As  to  ownership  certificates  in  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDEKAE  INCOME  TAX  SERVICE 

501 


18)>16-U2.  (9)  6-26-22.  (10)  7-27-22.  (11)  9-1-22.  (12)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 

case  of  bonds  of  foreign  countries,  or  bonds  or  stocks  of  nonresident  for- 
eign corporations,  see  article  1077  [^[2361].  (Art.  365,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Certified  copies  (17-19-473:  0.  879)  .1919  Cum.  Bull.  p.  262. 

Conversion  privilege  exercised  (bonds  for  stock)  between  interest  dates  (24-21-1689: 
O.  D.  949).. June  1921  Cum.  Bull.  p.  234.  Overruled  and  no  ownership  certi- 
ficates required;  1918  and  1921  Acts  (1-24-345:  I.  T.  1356).  .June  1922  Cum. 
Bull.  p.  222.  See  1J3304;  same:  (1-35-484:  I.  T.  1432).  .Bull.  I (’22)-35,  p.  9. 
No  ownership  certificates  required  when  accrued  interest  is  neither  paid  nor 
credited  but  adjusted  against  dividends  accrued  on  the  stock.  .*[13121. 

Corporations  (domestic  and  resident)  not  required  to  file  ownership  certificates; 
responsibility  of  debtor  corporations  and  their  paying  agents  . . H3045;  also,  1J3095. 

Debentures:  interest  on  (41-21-1861:  O.  D.  1060).. Dec.  1921  Cum.  Bull.  p.  193. 

Debtor  purchases  own  bonds  in  open  market  paying  accrued  interest,  presenting  to 
trustee  for  cancellation,  or  holding  until  maturity,  or,  having  purchased  with 
sinking-fund  assets  places  both  bonds  and  interest  to  credit  of  such  fund-  no 
ownership  certificates  (1921  Act)  (1-7-92:  I.  T.  1206).  . June  1922  Cum.  Bull, 
p.  219.  See  “Trustee”  below.  Certificates  not  required  in  event  of  redemption 
at  a fixed  price  and  accrued  interest,  etc.  .1)3304;  same:  (1-35-484:  I.  T.  1432) 

. .Bull.  I (’22)-35,  p.  9. 

Draft  by  domestic  bank  on  foreign  bank  for  collection  of  foreign  interest  should  be 
identified  as  foreign  item  for  treatment  as  such  on  collection  (34-20-1150:  O.  D. 
641)  Dec.  1920  Cum.  Bull  p.  217. 

Equipment  trust  certificates  with  dividend  warrants  attached  involving  lease  by  do- 
mestic trust  company  of  railway  equipment  to  foreign  corporation  with  privilege 
to  buy  and  arrangement  with  second  trust  company  in  connection  with  subscribers’ 
fund  for  purchase  of  such  equipment  (42-20-1249:  O.  D 689).  Dec.  1920  Cum. 
Bull.  p.  218. 

Exemnt  foreign  corporations  (.31-20-1  105:  O.  D.  616).  Dec.  1920  Cum.  Bull.  p.  217 
Modification  of  Form  1000  when  exempt  status  has  been  established ..  1[3236. 
The  foregoing  becomes  I.  T.  1399.  .Bull.  I (’22)-30,  p.  16. 

Incomplete  and  improperly  executed  (11-21-1514:  M.  2725).. June  1921  Cum.  Bull, 
p.  232. 

Interest-bearing  scrip  in  payment  of  defaulted  bond  interest  on  reorganization 
(26-20-1032:  O.  D.  563).  June  1920  Cum.  Bull.  p.  193. 

Joint-stock  land  bank  bond  interest:  no  ownership  certificates  required  pending  decis- 
ion of  U.  S.  Supreme  Court  (52-20-1363:  0.  D.  758)..  Dec.  1920  Cum.  Bull, 
p.  218:  Supreme  Court  (in  Smith  vs.  Kansas  City  Title  and  Trust  Company  et 
al..  No.  199 — October  Term,  1920,  decided  February  28,  1921)  held  the  Farm 
Loan  Act  constitutional  and  the  securities  authorized  to  be  issued  thereunder 
legahv  exempted  from  taxation  both  as  to  principal  and  interest 

Old  ownership  certificates  to  be  accepted  for  a limited  period.  . 113047.  Same  (1-12* 
159:  I.  T.  1249).  .June  1922  Cum.  Bull.  p.  221.  See  further.  . Tf3 109.  Final 
. . H3209.  Special  (limited)  for  interest  on  registered  bonds.  . 1J3266. 

Overdue  bonds,  coupons  exhausted  (5-20-719:  0.  D.  392) . .June  ’20  C.  B.  p.  191. 

Post-office  addresses  of  debtors  (31-20-1104:  0.  D.  615).  .Dec.  ’20  C.  B.  p.  216. 

Post-office  addresses  of  nonresident  alien  creditors:  address  of  domestic  bank  in  lieu 
of  that  of  alien  <19-21-1624:  O.  D.  908)  June  1921  Cum.  Bull.  p.  233. 

Schedule  of  certificates  to  be  used  under  1918  Act  (21-20-958:  O.  D.  520).  . June  1920 
Cum.  Bull.  p.  191.  Under  1921  Act  (1-22-318:  I.  T.  1331).  .June  1922  Cum. 
Bull.  p.  221. 

Tax-free  covenant  bond  interest,  bonds  being  sold  between  interest  dates  (9-21-1483: 
O.  D 830).  . June  1921  Cum.  Bull.  p.  232. 

Trustee  under  corporate  deed  of  trust  purchases  bonds  between  interest  dates  for 

immediate  retirement;  no  ownership  certificates  required:  1921  Act..1[3265. 
See  H3304;  same:  (1-35-484:  I.  T.  1432)..  Bull.  I (’22)-35,  p.  9. 

War  Finance  Corporation  Bonds  (21-19-527:  O.  D.  284).  1919  Cum.  Bull.  p.  185. 

Wrong  forms  received  by  banks  or  other  collecting  agents;  substitution  (26-20-1031: 
O.  D.  562).  . June  1920  Cum.  Bull.  p.  192. 

2266  Substitution  by  Collecting  Agent  of  Proper  Certificate  for  Improper 
Form  Accompanying  Item  Presented  for  Collection.—  Receipt  is 
acknowledged  of  your  letter  dated  May  5,  1920.  stating  that  numerous 
couoons  are  received  by  you  attached  to  the  wrong  forms  of  ownership 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

502 


8-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


certificates,  which  are  returned  to  the  owners  with  the  request  that  proper 
forms  be  substituted.  As  this  practice  results  in  a large  number  of  coupons 
being  held  by  you,  it  is  suggested,  in  case  an  item  comes  to  your  bank  for 
collection,  accompanied  by  an  erroneous  form  of  certificate,  that  you  be 
permitted  to  transfer  the  necessary  information  from  the  erroneous  to  the 
proper  form,  and  the  following  be  stamped  in  the  lower  left-hand  corner: 

(Name  of  Bank) 


By: ■ Assistant  Cashier.” 

2267  You  are  advised  that  the  method  of  procedure  suggested  has  the 

appro\ral  of  this  office,  and  you  are  permitted  to  execute  certifi- 
cates of  ownership  in  such  cases,  provided  that  you  forward  the  original 
certificate  which  was  erroneously  executed  on  the  wrong  form  with  the 
proper  form  executed  by  you,  the  original  certificate  bearing  a notation 
substantially  as  follows:  “Superseded  by  ownership  certificate,  Form 

• > designating  the  form  of  certificate  executed  by  you  as  agent. 

(Letter  to  a subscriber,  signed  by  Commissioner  Wm.  M.  Williams,  and 
dated  June  10,  1920.) 

2268  Banks  may  adopt  in  similar  cases  procedure  outlined  in  office  letter 
[ if 2266]  quoted  in  your  letter  July  9,  in  regard  execution  ownership 

certificates  where  wrong  certificate  attached  to  interest  coupons.  (Telegram 
The  National  City  Bank  of  New  York,  New  York,  N.  Y.,  signed  by  Deputy 
Commissioner  G.  V.  Newton,  and  dated  July  14,  1920.) 

2269  Interrogatories  on  Ownership  Certificates  to  be  Answered  Fully. — 

All  information  called  for  on  ownership  certificates  must  be  sup- 
plied. Debtor  corporation  or  its  authorized  agent  will  be  held  responsible  for 
proper  execution  of  certificates  but  not  as  to  misstatements  by  bond  owners. 
Payment  of  bond  interest  should  be  refused  unless  data  is  complete.  In- 
formation necessary  for  efficient  administration  of  Revenue  Act.  (Tele- 
gram  to  the  Southern  Pacific  Company,  New  York,  N.  Y.,  signed  by  Com- 
missioner Daniel  C.  Roper,  and  dated  April  7,  1919.) 

2270  Numbers  of  Bonds;  Waiver  of  Requirements  for  Filling  in  on 
Certificates.— Notice  is  hereby  given  that  Regulation  requiring 

the  filling  in  on  certificates  of  numbers  of  bonds,  or  other  like  obligations  of 
corporations,  etc.,  from  which  interest  coupons  are  detached  or  upon  which 
registered  interest  is  to  be  paid — which  was  extended  to  Oct.  31,  1914,  by 
f'  Ch  1985,  issued  May  28,  1914 — is  hereby  waived  until  further  notice. 
(T,  D.  2022,  Oct.  3,  1914.) 

2271  Full  Post  Office  Address  on  Certificates. — -Replying  to  your  letter 
of  April  15,  1914,  relative  to  street  address  on  certificates  you  are 

advised  that  banks  should  exercise  care  in  securing  full  post  office  address 
on  certificates.  Where  no  street  address  is  given,  this  office  will  assume  that 
same  is  not  necessary  in  addressing  mail,  and  certificates  will  not  be  returned 
for  correction.  (Letter  to  National  Park  Bank,  New  York,  N.  Y.,  signed 
by  Deputy  Commissioner  L.  F.  Speer,  and  dated  April  23,  1914.) 

22  72  Address  May  Be  Omitted  from  Certificates  in  Certain  Cases. — 

Address  may  be  omitted  from  ownership  certificates  in  case  promi- 
nent corporation  and  in  its  place  description  bond  issue  inserted.  (Telegram 

Copyright  1922tby^Tlie  Corporation  Trust  Company. 
the  federal  income  tax  service 
503 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


5-YS 


to  Lee,  Higginson  & Co.,  Boston,  Mass.,  signed  by  Commissioner  Daniel  C. 
Roper,  dated  Feb.  11,  1918.) 

2273  Banks  and  Trust  Companies  May  Use  Fac-Simile  Signatures. — 

You  are  advised  that  as  a convenience  to  Banks  and  Trust  Companies 
having  a large  number  of  ownership  certificates  to  execute  in  the  collection 
of  interest  on  bonds,  it  is  hereby  provided  that  the  name  of  the  Bank  or 
Trust  Company  may  be  printed  or  stamped,  and  the  fac-simile  of  the  signa- 
ture of  the  person  authorized  to  sign  for  the  Bank  or  Trust  Company  in 
executing  the  said  ownership  certificates  may  be  printed  or  stamped  on  the 
certificate:  Provided,  that  in  all  cases  the  Bank  or  Trust  Company  shall 
first  file  with  the  Commissioner  of  Internal  Revenue  a certificate  of  its 
authorization  in  substantially  the  following  form: 

(City)  (Date) 

The  Commissioner  of  Internal  Revenue, 

Washington,  D.  C. 

The  undersigned  hereby  authorizes  the  use  of  the  fac-simile  signature 
shown  below  upon  all  income  tax  ownership  certificates  issued  in  its  name 
until  this  authorization  is  revoked  by  written  notice  to  you. 

(Name  of  Bank  or  Trust  Co.) 

By 

(Signature  of  person  authorized  to  sign.) 

(Official  position.) 

• r * 

(Fac-simile  signature  of  person 
authorized  to  sign.) 

(T.  D.  2258,  Nov.  1,  1915.) 

2274  Ownership  Certificates — Disclosure  of  Official  Position  or  Identity  of 
Person  Signing  for  Corporation  or  Partnership— Official  position  of 

person  authorized  to  sign  ownership  certificates  in  behalf  of  corporation 
and  identity  of  person  signing  ownership  certificates  in  bahalf  of  partnership 
required  to  be  disclosed  on  certificates.  (Telegram  to  the  Southern  Pacific 
Company,  New  York,  I\T.  Y.,  signed  by  Deputy  Commissioner  E.  H.  Batson, 
and  dated  June  16,  1921.) 

2275  Use  of  Initials  on  Certificates  Authorized.— Replying  to  your  tele- 
gram of  the  6th  instant,  you  are  advised  that  in  writing  the  name 

at  top  of  certificate  initials  may  be  used.  (Part  of  letter  to  the  Central 
Trust  Company  of  New  York,  New  York,  N.  Y.,  signed  by  Deputy  Com- 
missioner L.  F.  Speer,  and  dated  Jan.  7,  1914.) 

2276  Married  Woman  in  Executing  Certificate  Should  Use  Her  Own 
Christian  Name. — A married  woman  should  sign  her  own  Chris- 
tian name  and  not  the  name  of  her  husband.  (Part  of  letter  to  the  Cen- 
tral Trust  Company  of  New  York.  New  York,  N.  Y.,  signed  by  Deputy 
Commissioner  L.  F.  Speer,  and  dated  Jan.  7,  1914.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
504 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


227  7 Ownership  Certificates  in  the  Case  of  Fiduciaries  and  Joint  Own- 
ers.—When  fiduciaries  have  the  control  and  custody  of  more  than 
one  estate  or  trust,  and  such  estates  and  trusts  have  as  assets  bonds  of  cor- 
porations and  other  securities,  a certificate  of  ownership  shall  be  executed 
for  each  estate  or  trust,  regardless  of  the  fact  that  the  bonds  are  of  the 
same  issue.  When  bonds  are  owned  jointly  by  two  or  more  persons,  a separate 
ownership  certificate  must  be  executed  in  behalf  of  each  of  the  owners. 
(Art.  374,  Reg.  62,  1922  Edition.) 

2278  Separate  Ownership  Certificates  Required  for  Coupons  of  Differ- 
ing Maturity  Dates. — Separate  ownership  certificate  will  be  re- 
quired for  each  interest  coupon  of  different  maturity  date  even  though  of 
same  issue.  (Telegram  to  the  Southern  Pacific  Company,  New  York, 
N.  Y.,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated  June  24,  1919.) 

2279  Ownership  Certificates  Must  Be  Obtained. — This  office  has  re- 
ceived several  letters  with  reference  to  a letter  addressed  to  the  Old 

Colony  Trust  Company  of  Boston,  Massachusetts,  under  date  of  May  10, 
1915,  in  which  the  office  acquiesced  in  the  contention  of  various  debtor 
corporations  that  the  actual  facts  of  the  relation  of  firms,  organizations  and 
fiduciaries  to  the  withholding  provisions  of  the  Income  Tax  Law,  once 
established  to  their  satisfaction,  may  be  accepted  by  this  office  upon  the 
proper  showing  of  debtor  corporations  and  withholding  agents,  for  their 
own  convenience,  the  interest  of  the  Government  being  safeguarded  by  the 
personal  liabilities  imposed  upon  them  by  law.  In  view,  however,  of  the 
confusion  created  in  the  matter  of  the  certificates  required  to  be  furnished 
with  coupons  or  interest  orders  showing  ownership  of  bonds  and  the  exemp- 
tion claimed,  you  are  advised  that  the  office  holds  that  certificates  of  this 
character  must  be  obtained  by  debtor  corporations  and  withholding  agents 
in  all  cases  as  required  by  the  Regulations.  (Mimeograph  letter  No.  1242 
to  Collectors,  July  8,  1915.) 


2280  Stamp  Indicating  ‘ ‘Satisfied  as  to  Identity  of  Agent”  Not  Required- 

Receipt  is  acknowledged  of  your  letter  of  Februarv  20,  1918,  and  in 
reply  you  are  advised  that  it  is  not  necessary  for  the  first  collecting  agent 
receiving  coupons  accompanied  by  an  ownership  certificate  which  °was 
executed  by  an  agent  on  behalf  of  the  owner  to  affix  a stamp  containing 
the  words  Satisfied  as  to  identify  and  responsibility  of  agent.”  (Letter  to 
the  Columbia  Trust  Company,  New  York,  N.  Y.,  signed  by  Deputy  Com- 
missioner L.  F.  Speer,  and  dated  March  26,  1918.) 


2281  Person  First  Receiving  Coupons  or  Interest  Orders  for  Collection 
Need  Not  Endorse  on  the  Eack  of  the  Certificate.— This  office  is 
m receipt  of  your  letter  of  September  18,  1913,  inquiring  whether  the  pro- 
vision in  T.  D.  1887,  October  25,  1913,  requiring  that,  “the  person  or  cor- 
poration first  receiving  coupons  or  interest  orders  for  collection  shall  write 
or  stamp  his  or  its  name  and  address  and  date  on  the  back  of  said  certificates  ” 
is  still  in  force.  You  are  advised  that  this  requirement  appearing  in  the 
first  draft  of  the  Regulations  was  omitted  in  the  subsequent  draft  of  the 
Regulations,  and  as  they  now  appear  in  permanent  form  in  Regulations 
No.  33  adopted  January  5 1914.  The  foregoing  endorsement  is  not  now 
required.  (Letter  to  The  Corporation  Trust  Company,  signed  by  Deputy 
Commissioner  L.  F.  Speer,  and  dated  September  18,  1914.)  3 


Copyright  1922,  by  The  Corporation  Trust  Company 
THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


2282  “You  are  advised  that  the  endorsement  provided  in  Treasury  De- 
cision 1887,  dated  October  25,  1913,  is  no  longer  required.”  (Ex- 
tract from  a letter  to  the  National  Park  Bank,  signed  by  Internal  Revenue 
Collector  Anderson,  New  York,  and  dated  December  23,  1914.) 

2283  Exchange  of  Interest  Coupons  for  Funding  Bonds. — The  exchange 
of  interest  coupons  for  funding  bonds  is  a payment  of  interest  on  the 

bonds  and  the  income  tax  should  be  imposed  and  paid  upon  such  interest 
as  income  for  the  year  in  which  it  matures  and  such  payment  is  made,  and 
in  the  absence  of  proper  claim  for  exemption  the  tax  should  be  deducted  and 
withheld  on  the  amount  represented  by  the  coupons.  (T.  D.  2090,  Dec. 
14,  1914.) 

2284  Advance  Retirement  of  Bonds  Within  an  Interest  Period. — Where 

bonds,  under  contract  provisions  in  the  bonds,  are  retired  within  an 
interest  period  and  prior  to  the  expiration  of  the  full  term  of  the  bond, 
ownership  certificates  will  be  required  and  should  cover  that  part  of  the 
interest  period  affected  between  the  beginning  of  such  period  and  the  date 
of  the  retirement  of  the  bonds.  (T.  D.  2090,  Dec.  14,  1914.) 

2285  Receipt  is  acknowledged 'of  your  letter  of  March  17,  1916,  wherein 
you  make  reference  to  certain  rulings  of  the  office  relative  to  the 

filing  of  certificates  of  ownership  in  cases  where  bonds  are  purchased  by 
the  debtor  corporation  and  retired  between  interest  dates.  In  reply  you 
are  advised  that  after  a careful  consideration  of  the  matter  the  ruling  con- 
tained in  office  letter  of  January  5,  1916,  addressed  to  Messrs.  White  & 
Case,  14  Wall  Street,  New  York  City,  has  been  annulled,  and  it  is  now  re- 
quired that  in  a case  wherein  the  corporation  which  issued  the  bond,  or  its 
receiver  or  trustee,  is  the  purchaser,  and  the  bond  is  retired  and  all  its  coupons 
cancelled,  the  seller  of  the  bond  shall  execute  a certificate  of  ownership, 
claiming  or  not  claiming  exemption,  to  cover  such  coupons  as  are  due  and 
payable  at  date  of  sale,  but  are  still  attached  to  the  bond,  and  the  coupon 
covering  the  interest  which  had  accrued  from  last  interest  date  to  date,  of 
sale.  In  short,  in  all  cases  where  bonds  are  retired  within  an  interest  period 
and  prior  to  the  expiration  of  the  full  term  of  the  bond,  whether  under  con- 
tract or  not,  ownership  certificates  will  be  required,  which  certificates  should 
cover  that  part  of  the  interest  period  affected  between  the  beginning  of  such 
period  and  the  date  of  the  retirement  of  the  bonds.  (Letter  to  one  of  our 
subscribers,  signed  by  Deputy  Commissioner  L.  F.  Speer,  and  dated  April 
11,  1916.) 

2286  Purchase  and  Sale  of  Bonds  Between  Interest  Dates:  Ownership 
Certificates. — Read  beginning  at  H2333. 

2287  Usufruct  of  Foreign-Owned  Bonds  Belonging  to  an  American 
Citizen  or  Resident. — This  office  is  in  receipt  of  your  letter  dated 

November  9,  1914,  stating  that  you  had  received  a letter  from  one  of  your 
foreign  correspondents  containing  the  following  inquiry: 

“We  have  on  our  accounts  certain  American  bonds  which  are  the 
property  of  Swiss  citizens,  but  the  usufruct  of  which  belongs  to  an 
American  citizen;  when  collecting  the  coupons  of  these  bonds,  can  we 
sign  the  ownership  certificates  on  behalf  of  the  Swiss  owners,  or, is  it 
necessary  to  state  thereon  the  name  of  the  American  beneficiary?” 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

506 


2-27-22.  (2)  8-80-22.  (8)  5-19-22. 

WITHHOLDING  AT  THE  SOURCE. 


2288  In  reply  to  your  request  for  a ruling  based  on  the  facts  given  above 
you  are  advised  that  the  coupons  should  be  accompanied  by  a 

certificate  of  ownership  signed  by,  or  in  behalf  of,  the  person  entitled  to 
receive  the  income  from  the  bonds.  The  revised  form  of  certificates  of 
ownership  should  be  altered  to  show  that  such  person  is  entitled  to  receive 
the  interest  on  the  bonds.  For  example,  if  Form  1000,  Revised,  is  used, 
there  should  be  inserted  in  the  first  line  of  the  declaration  on  the  certificate 
the  words  “interest  on  the”  between  the  words  “the”  and  the  word  “above- 
described,”  so  that  the  certificate  will  read,  “I  do  solemnly  declare  that  I am 
a citizen  or  resident  of  the  United  States  and  am  the  owner  of  the  interest  on 
the  above-described  bonds,  etc.”  (Special  letter  of  Nov.  23,  1914.) 

2289  Size,  Color,  etc.,  of  Certificates. — All  certificates  shall  be,  in  size, 
8 by  3}^  inches,  and  shall  be  printed  to  read  from  left  to  right  along 

the  8-inch  dimension. 

2290  All  paper  upon  which  certificates  shall  be  printed  shall  correspond 
in  weight  and  texture  to  white  writing  paper  21  by  32,  about  40 

pounds  to  the  ream  of  500  sheets. 

2291  Certificates  will  be  printed  by  the  Government  and  furnished  with- 
out cost  for  the  use  of  bond  owners. 

2292  Individuals  or  organizations  desiring  to  print  their  own  certifi- 
cates may  do  so,  but  certificates  so  printed  must  conform  in  size 

and  be  printed  in  similar  type,  upon  the  same  color,  shape,  and  weight  of 
paper  as  used  by  the  Government. 

2293  Sample  certificates  showing  size  of  type  and  color  of  paper  can  be 
secured  from  collectors  of  internal  revenue  in  their  several  districts 

or  from  the  Commissioner  of  Internal  Revenue  at  Washington,  D.  C.  (T.  D. 
1976,  May  2,  1914.) 

2294  The  department  will  furnish  blank  forms  of  certificates  to  be  used 
in  connection  with  the  collection  of  the  income  tax  by  such  parties 

as  may  make  application  for  the  same.  Private  corporations  and  others 
desiring  to  have  these  certificates  printed  for  themselves  may  do  so  if  they 
will  strictly  observe  the  requirements  of  the  department  as  to  size,  print,  form, 
color,  and  contents.  (T.  D.  1939.)  (T.  D.  2090,  Dec.  14,  1914.) 

2295  Ownership  Certificates  for  Use  by  Foreigners  May  Be  Printed  in 
Two  Languages. — Certificates  of  ownership  required  to  be  filed 

with  interest  coupons  or  orders  for  registered  interest  by  non-resident  for- 
eigners * * * and  by  foreign  organizations,  shall  be  printed,  as  pre- 

scribed by  regulations,  in  the  English  language,  and  directly  under  each  line 
of  the  English  text,  on  each  of  the  above-mentioned  certificates,  there  may 
be  printed  the  text  of  said  certificate  in  a foreign  language. 

2296  In  executing  these  certificates,  however,  all  blanks  to  be  filled  in, 
with  amounts,  shall  be  filled  in  using  United  States  dollar  values. 

2297  These  certificates  shall  be  of  the  same  size  as  prescribed  by  regu- 
lations for  all  certificates  of  ownership.  (T.  D.  1926,  Dec.  30,  1913.) 

2298  Authorizing  Debtor  Corporations  and  Withholding  Agents  to  Accept 
Old  Forms  of  Ownership  Certificates  With  Respect  to  Interest  Due 

on  and  Prior  to  November  1,  1919,  When  Received  from  Continental  United 
States  and  With  Respect  to  Interest  Due  on  and  Prior  to  December  1,  1919, 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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2- 27-22.  (2)  8-80-22.  (3)  5-19-22. 

WITHHOLDING  AT  THE  SOURCE. 


When  Received  from  Abroad.* — 1.  In  view  of  the  fact  that  the  revised  forms 
of  ownership  certificates  were  placed  at  the  disposal  of  the  public  over  three 
months  ago,  this  office  is  of  the  opinion  that  a reasonable  period  of.  time  has 
elapsed  in  which  to  permit  the  public  to  have  become  familiar  with  them. 
In  order,  however,  to  prevent  inconvenience  to  individuals  and  organizations 
required  to  use  such  forms,  old  forms  of  ownership  certificates  will  be  accepted 
with  respect  to  interest  due  on  and  prior  to  November  1,  1919,  when  received 
from  continental  United  States,  and  with  respect  to  interest  due  on  and  prior 
to  December  1,  1919,  when  received  from  abroad.  _ 

2299  2.  Banks  and  collecting  agents,  debtor  corporations,  and  withhold- 
ing agents  shall  refuse  to  accept  the  old  forms,  in  connection  with 

interest  due,  after  the  respective  dates  named  herein,  and  Collectors  of 
Internal  Revenue  receiving  monthly  returns  accompanied  by  certificates  on 
the  old  forms,  when  it  shall  appear  that  such  certificates  were  filed  with 
debtor  corporations  or  withholding  agents,  with  respect  to  interest  due 
subsequent  to  such  dates,  shall  require  the  debtor  corporation  or  withhold- 
ing agent  concerned  to  secure  certificates  on  the  revised  forms.  ' 

2300  3.  In  order  that  the  fulfillment  of  the  requirements  herein  provided 
jfjjjl  may  cause  as  little  hardship  as  possible  to  individuals,  banks  col- 
lecting^agents,  debtor  corporations,  etc.,  collectors _ should  satisfy  them- 
selves that  they  have  a sufficient  supply  of  the  revised  forms  on  hand  to 
meet  anticipated  demands  and  where  the  supply  is  not  deemed  sufficient, 
requisition  should  be  made  without  delay  for  such  additional  quantity  as  may 
be  necessary.  Collectors  are  requested  to  disseminate  this  information 
throughout  their  districts  as  quickly  as  possible.  (T.  D.  2923,  September 
24,  1919.) 

2301  Ownership  Certificates— Defining  Revised  Forms  and  Old  Forms.*— 

Referring  Treasury  Decision  2923,  please  define  Revised  Forms  and 
Old  Forms.  Do  you  consider  Forms  1000  and  1001  Revised  February, 
1919  as  Revised  Forms  or  Old  Forms?  Please  telegraph  reply.  (Answer) 
Revised  Forms  of  ownership  certificates  are  those  issued  February,  1919,  and 
those  issued  subsequently.  Old  Forms  are  certificates  in  use  prior  to  Febru- 
ary  1919.  Forms  1000  Revised  February,  1919,  and  1001  Revised  February, 
1919,  considered  Revised  Forms.  (Telegram  from  The  Chase  National  Bank, 
New  York,  N.  Y.,  and  the  answer  thereto  signed  by  Commissioner  Daniel 
C.  Roper,  and  dated  September  29,  1919.) 


2302  Continued  Use  of  1919  Ownership  Certificates.*— All  of  ownership 
certificates  referred  to  in  your  telegram  April  15  (i.  e.,  revisions 
of  February,  May  and  September,  1919)  may  still  be  used  No  date  has  been 
set  beyond  which  they  may  not  be  used.  (Telegram  to  M.  R.  Dickey,  the 
Cleveland  Trust  Company,  Cleveland,  Ohio,  signed  by  Deputy  Commissioner 
G.  V.  Newton,  and  dated  April  17,  1920.) 


2303  Form  of  Certificate  Where  Withholding  Required— For  the  pur- 
poses of  article  365  [1J2265],  Form  1000  shall  be  used  (a)  by 
citizens  or  residents  of  the  United  States  when  no  personal  exemption 
or  credit  is  claimed  against  interest  on  bonds  containing  a tax-free  cove- 
nant; (b)  by  nonresident  alien  individuals,  by  partnerships  composed  in 
whole  or  in  part  of  nonresident  aliens  and  not  having  an  office  or  place  o 
business  within  the  United  States,  and  by  foreign  corporations  not  engaged 


*See'l3047,  H3I09  and  1[3209. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  federal  income  tax  service 

508 


2-27-22. 

WITHHOLDING  AT  THE  SOURCE. 

in  trade  or  business  within  the  United  States  and  not  having  any  office  or 
place  of  business  therein,  whether  or  not  such  bonds  contain  a tax-free 
covenant;  (c)  by  partnerships,  resident  or  nonresident,  and  (prior  to  Jan.  1, 
1922)  personal  service  corporations,  in  the  case  of  bonds  containing  a tax-free 
covenant;  and  (d)  where  the  owner  is  unknown  to  the  withholding  agent. 
(Art.  366,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Foreign  corporation  with  fiscal  agent  here  if  not  engaged  in  business  here  is  not  a resi- 
dent corporation  (4-19-225:  0.  D.  144)..  1919  Cum.  Bull.  p.  186. 

Personal  service  corporations  (29-19-628:  O.  D.  339).  . 1919  Cum.  Bull.  p.  186. 


2304  The  Filing  of  Form  1000  by  Personal  Service  Corporations  in  Col- 
lecting Interest  on  Tax-Free-Covenant  Bond  Interest— Reference 
is  made  to  vour  letter,  dated  October  8,  1919,  which  is  quoted  here: 
“While  the.  Revenue  act  of  1918  treats  a personal  service  corporation 
similar  to  a partnership,  no  provision  seems  to  have  been  made  to  allow 
a persona!  service  corporation  to  take  advantage  of  the  tax-free  clause 
when  collecting  coupons  from  bonds.  We  inquire  if  a personal  service 
corporation  may  alter  Certificate  Form  1000  when  collecting  coupons 
from  tax-free  covenant  obligations.”  If  In  reply  you  are  advised  that  per- 
sonal service  corporations  are  to  be  treated,  so  far  as  practicable,  on  the 
same  basis  as  partnerships  for  the  purposes  of  withholding  under  Section 
221  (b)  of  the  Revenue  Act  of  1918.  Corporations  which  have  received 
notice  from  the  Income  Tax  Unit  that  their  returns  as  personal  service 
corporations  have  been  approved  may  thereafter,  and  not  before,  issue 
Form  1000  in  collecting  interest  from  bonds  or  other  obligations  of  a cor- 
poration containing  a so-called  tax-free  covenant  clause  in  the  same  manner 
as  and  to  the  same  extent  that  partnerships  are  authorized  to  use  that  form. 
The  form  should  bear  the  stamped  or  written  notation  “Approved  by  the 
Treasury  Department  as  Personal  Service  Corporation  on  (blank  date). 
[Such  corporations  ceased  to  be  distinguished  after  Dec.  31,  1921.]  (Letter 
to  The  Corporation  Trust  Company,  signed  by  Commissioner  Daniel  C. 
Roper,  and  dated  November  20,  1919.) 

23  05  Relief  to  Debtor  Corporation  on  Account  Excess  Liability  for  Tax 
on  Tax-Free  Covenant  Bond  Interest  Due  to  Compulsory  Filing 
of  Form  1000  by  Partnership  With  Member  Having  Personal  Exemption 
in  Excess  of  Taxable  Income. — Receipt  is  acknowledged  of  your  letter  of 
August  5,  1920,  in  which  you  refer  to  Article  366  [^2310]  of  Regulations 
45,  which  provides  that  Form  1000  shall  be  used  by  partnerships  in  col- 
lecting the  interest  on  bonds  containing  a tax-free  covenant  clause. 

2306  You  state  that  in  some  cases  where  the  partnership  consists  of  two 
members  who  share  equally  in  the  profits  and  losses,  one  of  the 
partners  may  be  subject  to  income  tax  and  the  other  may  not,  and  where 
tax  is  paid  on  the  interest  on  a bond  containing  a tax-free  covenant  clause, 
which  is  owned  by  the  partnership,  one  partner  can  credit  himself  for  his 
share  of  the  tax  paid  at  the  source,  and  the  other  partner  having  a personal 
exemption  greater  than  his  income,  cannot  take  credit  for  his  share  of  the 
tax  paid  at  the  source.  You  ask  whether  there  is  any  way  whereby  the  tax 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
509 


2-27-22. 

WITHHOLDING  AT  THE  SOURCE. 

paid  by  the  corporation  to  the  Government  would  be  in  accordance  with 
the  true  facts  in  such  a case. 

2307  Section  22 1^  (b)  of  the  Revenue  Act  of  1918  provides  that  a tax 
equal  to  2 /q  of  the  interest  on  bonds  containing  a tax-free-covenant 
clause,  shall  be.  deducted  and  withheld,  when  such  interest  is  paid  to  a part- 
ncrship.  . In  view  of  this  provision  of  the  law,  Article  365  of  Regulations 
45,  provides  that  partnerships  shall  file  Torm  1000  revised,  when  present- 
mg  for  payment  interest  coupons,  from  bonds  containing  a tax-free-covenant 
clause. 

23  08  If  at  the  end  of  the  year,  the  distributive  share  of  any  member  of 
the  partnership,  combined  with  his  other  income,  is  less  than  his 
personal  exemption,  the  partner  ought,  in  justice  to  the  debtor  corporation, 
to  adv  lse  it  of  that  fact.  1 his  may  be  done  by  filing  with  the  debtor  cor- 
poration an  exemption  certificate,  l‘orm  1001  revised,  by  the  member  who 
is  not  liable  for.  tax.  The  member  should  show  by  a notation  on  the  cer- 
tificate that  he  is  a member  of  the  partnership  and  what  proportion  of  the 
interest  received  by  the  partnership  represents  his  distributive  share.  The 
debtor  corporation  would  then  be  in  a position  to  pay  the  tax  to  the  govern- 
ment in  accordance  with  the  true  facts  in  the  case. 

2309  In  case  the  annual  withholding  return  has  been  filed  and  assessment 
made  or  the  tax  paid,  a claim  for  abatement  or  refund,  respectively, 

may  be  made  by  the  debtor  corporation  for  the  proper  proportion  of  the 
tax.  (Letter  to  Halsey,  Stuart  & Co.,  Chicago,  111.,  signed  by  Commissioner 
Wm,  M.  Williams,  and  dated  October  28,  1920.) 

2310  Form  of  Certificate  Where  No  Withholding  Required.— For  the 

purposes  of  article  365  [^2265],  Form  1001  shall  be  used  (a) 
by  citizens  or  residents  of  the  United  States  when  personal  exemption 
is  claimed  against  interest  on  bonds  containing  a tax-free  covenant  and 
when  presenting  coupons  from  bonds  not  containing  a tax-free  covenant; 
(b)  by  domestic  and  resident  partnerships,  in  the  case  of  bonds  not  containing 
a tax-free  covenant.  In  case  a citizen  or  resident  alien  individual  receives 
interest  on  bonds  containing  a tax-free  covenant  in  excess  of  the  amount  of 
personal  exemption  which  the  individual  may  claim,  any  such  excess  must  be 
reported  on  Form  1000.  (Art.  367,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Domestic  corporation  transacting  no  business  and  owning  no  property  here:  bonds  of 
owned  by  nonresident  aliens  (31-19-653:  O.  D.  354)..  1919  Cum.  Bull.  p.  262. 


2311  Use  of  Substitute  Certificates. — Resident  collecting  agents,  includ- 
ing responsible  banks  and  bankers  receiving  interest  coupons  for 
collection  with  ownership  certificates  attached  may  present  the  coupons 
with  the  original  certificates  to  the  debtor  corporation  or  its  duly  authorized 
withholding  agent  for  collection  or  may  detach  and  forward  the  original 
certificates  directly  to  the  Commissioner,  provided  each  such  collecting 
agent  shall  substitute  for  such  original  certificates  its  own  certificates,  Form 
1058  or  Form  1059  and  shall  keep  a complete  record  of  each  transaction, 

C opyriglit  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

510 


2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


lowing  (a)  serial  number  of  item  received;  (b)  date  received;  (c)  name 
and  address  of  person  from  whom  received;  (d)  name  of  debtor  corporation; 
(ej  class  of  bonds  from  which  coupons  were  cut  (whether  containing  a tax- 
free  covenant  or  not);  and  (f)  face  amount  of  coupons.  The  original  cer- 
tificate for  which  the  certificate  of  the  collecting  agent  is  substituted  shall 

foeiIows0rSed’  preferably  with  a rubber  stamP»  by  ^e  collecting  agent  as 

Owner's  certificate  No 


( Name  of  collecting  agent) 

19 

(Give  date  of  certificate ) 


The  counterpart . of  the  within  certificate  bearing  like  number  was  attached 
to  the  coupons  within  mentioned  for  delivery  to  the  debtor  or  withholding  agent , 
by  whom  the  coupons  are  payable. 


2312  For  the  purpose  of  identification  the  substitnte  certificates  shall  be  num- 
bered  consecutively,  reverting  to  the  numeral  1 at  the  beginning  of  each 
calendar  yeaiq  and  corresponding  numbers  given  the  original  certificates  of 
ownership.  The  use  of  substitute  certificates  by  collecting  agents,  banks, 
and  bankers  is  not  permitted,  however,  in  the  case  of  ownership  certificates 
presented,  with  coupons  for  collection  by  nonresident  alien  individuals, 

oS’  °r<Co0rF^ati?i1.S:  ^Nor  in  the  collection  of  foreign  items,  *[2368.] 

(Art.  368,  Reg.  62,  1922  Edition.) 


2oi3  No  License  Required  of  Collecting  Agents  for  Substituting  Their 
Own  Certificates  for  Ownership  Certificates. — Until  the  further 
ruling  by  this  department,  the  banks,  bankers,  and  other  collecting  agents 
who  may  substitute  their  certificates  for  the  certificates  of  owners  under  the 
foregoing  plan  will  not  be  required  to  secure  a license  from  the  Treasury 
e?,£I'^I^ienr  c,r  being  permitted  to  make  such  substitutions  of  their  own 
certificates  for  those  of  the  owners,  provided  these  regulations  are  strictly 
complied  with.  (T.  D.  1903,  Nov.  28,  1913.) 

2314  Fac-Simile  Signature  May  Be  Used  by  Collecting  Agents  in  Sign- 
v mg  Their  Own  Certificates  Substituted  for  Ownership  Certificates* 

ou  are  advised  that  a a convenience  to  banks  and  collecting  agents  who 
desire  to  substitute  their  certificates  Form  1058  and  1059  for  the  owner’s 
certificate  accompanying  the  coupons  deposited  for  collection,  it  is  hereby 

ha^^e  n3rie  °-f  b/nk  OT.  collecting  agent  may  be  printed  or 
• 5?d’  a£d  -tbat  a fa<r'SImile  of  the  signature  of  the  person  authorized  to 

nlnti6  substltute,  certificate  for  the  bank  or  collecting  agent  may  also  be 

if  ^fii  Pudu0n^he  ce.rtl.ficate:  Provided,  that  in  all  cases  the  bank 
shall  first  file  with  the  Commissioner  of  Internal  Revenue  a certificate  of  its 
authorization  in  substantially  the  form  following- 


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2-27-22. 


WITHHOLDING  AT  THE  SOURCE. 


(City)  (Date) 

The  Commissioner  of  Internal  Revenue: 

Washington,  D.  C.  _ r< 

The  undersigned  hereby  authorizes  the  use  of  the  fac-simile  signature 
shown  below  upon  all  substitute  income  tax  certificates  issued  in  its  name 
until  this  authorization  is  revoked  by  written  notice  to  you. 

(Name  of  bank  or  collecting  agent.) 

By. t 

(Signature  of  person  authorized  to  sign.) 

Official  position. 


(Fac-simile  signature  of  person 
authorized  to  sign.) 

(T.  D.  1986,  May  29,  1914.) 

2315  Interest  Coupons  Without  Ownership  Certificates. — When  interest 
coupons  are  received  unaccompanied  by  certificates  of  ownership, 
unless  the  first  bank  be  satisfied  that  the  owner  is  a domestic  or  resident  corpor- 
ation,the  first  bank  shall  require  of  the  payee  a statement  showing  the  name  and 
address  of  the  payee,  the  name  and  address  of  the  debtor  corporation,  the 
date  of  the  maturity  of  the  interest,  the  name  and  address,  of  the  person 
from  whom  the  coupons  were  received,  the  amount  of  the  interest,  and  a 
statement  that  the  owner  of  the  bonds  is  unknown  to  the  payee.  Such  state- 
ment shall  be  forwarded  to  the  Commissioner  with  the  monthly  return  on 
Form  1012.  The  first  bank  receiving  such  coupons  shall  also  prepare  a 
certificate  on  Form  1000,  crossing  out  “owner”  and  inserting  “payee”  and 
entering  the  amount  of  interest  on  line  6,  and  shall  stamp  or  write  across  the 
face  of  the  certificate  “Statement  furnished,”  adding  the  name  of  the  bank. 
(Art.  369,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  sec  page  91. 

Lost  domestic  bond  certificates  in  transit  from  abroad  foreign  insurance  company 
making  loss  good  (33-20-1136:  O.-D.  633)..  Dec.  1920  Cum.  Bull.  p.  21S. 


2316  Foreign  Items  Presented  for  Collection  Unaccompanied  by  Own- 
ership Certificates. — Read  at  ^2366. 

2317  Interest  on  Registered  Bonds. — Ownership  certificates  are  required 
in  connection  with  interest  upon  registered  bonds  the  same  as  interest 

upon  any  other  class  of  bonds.  If  ownership  certificates  are  not  furnished 
by  the  owner  of  the  bonds,  such  certificates  must  be  prepared  by  the  debtor 
corporation  or  its  withholding  agent,  (a)  If  the  bonds  contain  a tax-free 
covenant  clause,  ownership  certificates  must  be  prepared  on  form  1000.  for 
the  following  classes  of  bondholders:  Citizens  or  residents  of  the  United 
States,  nonresident  alien  individuals,  partnerships,  whether  foreign. or  dom- 
estic, foreign  corporations  having  no  office  or  place  of  business  within  the 
United  States,  (b)  If  the  bonds  do  not  contain  a tax-free  covenant  clause, 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22.  (8)  6-9-22.  (4)  6-16-22.  (6)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 


Form  1000  shall  be  prepared  in  the  case  of  nonresident  alien  individuals, 
partnerships  composed  in  whole  or  in  part  of  nonresident  aliens  and  not  having 
an  office  or  place  of  business  within  the  United  States,  or  in  case  the  owner  is  a 
foreign  corporation  not  engaged  in  trade  or  business  within  the  United  States 
and  not  having  an  office  or  place  of  business  therein.  If  ownership  certificates 
are  not  filed  by  a citizen  or  resident  of  the  United  States  or  a resident  part- 
nership in  connection  with  interest  payments  upon  registered  bonds  not 
containing  a tax-free  covenant  clause,  Form  1001  should  be  prepared  by  the 
debtor  corporation  or  its  withholding  agent. 

2318  Regardless  of  whether  the  registered  bonds  do  or  do  not  contain  a 
t tax-free  covenant  clause,  no  ownership  certificate  is  required  in  con- 

nection with  such  bonds  owned  by  domestic  or  resident  corporations.  (Art. 
370,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Owned  by  corporation  but  registered  in  name  of  individual.  .^3237. 


Returns  of  Taxes  Withheld  at  the  Source. — “(c)  Every 
individual , corporation , or  partnership  required  to  de- 
duct and  withhold  any  tax  under  this  section” 

“shall  make  return  thereof  on  or  before  March  1 of  each 
year  and” — Law.  [Note:  The  1918  Act  so  provided.] 

Taxes  Withheld  to  be  Paid  to  the  Government. — “shall 
on  or  before  June  15  pay  the  tax  to  the  official  of  the 
United  States  Government  authorized  to  receive  it. — Law. 

[Note:  The  1918  Act  so  provided.] 

2322  (a)  Every  withholding  agent  shall  make  an  annual  return  to  the  col- 

lector of  the  tax  withheld  from  interest  on  corporate  bonds  or  other 
obligations  on  or  before  March  1 on  Form  1013.  He  shall  also  make  a 
monthly  return  on  Form  1012  on  or  before  the  twentieth  day  of  the  month 
following  that  for  which  the  return  is  made.  The  original  ownership  cer- 
tificates, or  the  substitute  certificates  where  authorized,  must  be  forwarded 
to  the  Commissioner  with  the  monthly  return,  (b)  Every  person  required 
to  deduct  and  withhold  any  tax  from  income  other  than  such  bond  interest 
shall  make  an  annual  return  thereof  to  the  collector  on  or  before  March  1 
on  Form  1042,  showing  the  amount  of  tax  required  to  be  withheld  for  each 
nonresident  alien  individual,  partnership  composed  in  whole  or  in  part  of 
nonresident  aliens  and  not  having  an  office  or  place  of  business  within  the 
United  States,  or  foreign  corporation  not  engaged  in  trade  or  business  within 
the  United  States  and  not  having  any  office  or  place  of  business  therein,  to 
whom  income  other  than  bond  interest  was  paid  during  the  previous  taxable 
year.  In  every  case  of  both  classes  the  tax  withheld  must  be  paid  on  or 
before  June  15  of  each  year  to  the  collector.  For  penalties  attaching  upon 
failure  to  make  such  returns  or  such  payment,  see  section  253  of  the  statute, 
section  3176  of  the  Revised  Statutes  as  amended,  and  articles  1004  [^[2625], 
1005  [H2603],  and  1055  ffl2629].  (Art.  371,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Extension  of  time  for  filing  1921  (returns.  . 1'3044. 

Form  1098  discontinued  (1-11-143:  Mim.  2921).  .June  1922  Cum.  Bull.  p.  220. 

Forms  1012,  1013,  and  1042  need  not  be  executed  in  duplicate;  where  filed:  1921  Act 
(1-13-184:  Mim.  2929).  .June  1922  Cum.  Bull.  p.  223. 

Release  to  alien  of  amounts  withheld  on  furnishing  of  bond  by  him  does  not  relieve 
withholding  agent  of  his  liability;  1921  Act  (1-24-346:  I.  T.  1357).  .June  1922 
Cum.  Bull.  p.  223. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


2319 

Law  H292. 

(Sec.  221.) 

2320 

Law  ^[293. 

(Sec.  221.) 

2321 

Law  ^294. 

(Sec.  221.) 

513 


’2-27-22.  (2)4-10-22.  (3)6-9-22.  (4)  6-16-22  (5)  10-11-22. 

WITHHOLDING  AT  THE  SOURCE. 

Return  filed  by  alien  showing  no  tax  liability  does  not  relieve  withholding  agent  of 
obligation  to  pay  to  Government  any  tax  properly  withheld  (31-21-1756:  O.  D. 
985)..  Dec.  1921  Cum.  Hull.  p.  194. 

Tax  erroneously  collected  on  wages  of  seamen  who  can  not  be  located  (16-19-463: 
O.  D.  258).  . 1919  Cum.  Bull  p 186. 

2323  Use  of  Information  Return  Where  No  Actual  Withholding. — Where 

a debtor  corporation  or  its  duly  authorized  withholding  agent  has 
made  payments  of  interest  on  its  bonds,  but  in  certain  instances  has  been 
required  to  withhold  no  tax,  the  ownership  certificates  on  Form  1001  filed 
in  connection  with  such  payments  shall  be  transmitted  to  the  Commissioner, 
accompanied  by  a return  on  Form  1096A  showing  the  number  of  ownership 
certificates  thus  transmitted  and  the  total  amount  of  interest  paid.  This 
return  shall  be  made  by  the  20th  day  of  each  month  following  that  for  which 
the  return  is  made  and  need  not  be  sworn  to.  An  annual  return  shall  be 
forwarded  to  the  Commissioner  not  later  than  March  15  of  each  year  on 
Form  1096B,  on  which  shall  be  given  a summary  of  the  monthly  returns. 
To  the  extent  that  there  has  been  actual  withholding  of  the  tax  returns 
should  be  made  in  accordance  with  article  371  [*|2322].  (Art.  373,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Franking  privilege  denied  (18-20-901:  L.  O.  1025).  . June  1920  Cum.  Bull.  p.  194. 

2324  Law^[295  Withholding  Agents  Are  Liable  for  the  Tax  to  be 

(Sec.  221.)  Withheld. — “ Every  such  individual , corporation , or 
partnership  is  hereby  made  liable  {or  such  tax  and ” — 
Law.  [Note:  The  1918  Act  so  provided.] 

2325  Law  ^296.  Withholding  Agents  Are  Indemnified.—  [Every  with- 
(Sec.  221.)  holding  agent ] “is  hereby  indemnified  against  the  claims 

and  demands  of  any  individual,  corporation,  or  partner- 
ship for  the  amount  of  any  payments  made  in  accordance  with  the  pro- 
visions of  this  section.''’— Law.  [Note:  The  1918  Act  so  provided.] 

2326  Law  ^[297.  Income  on  Which  Tax  Has  Been  Withheld  to  be 
(Sec.  221.)  Included  in  Recipient’s  Return  of  Income. — “(d)  In- 
come upon  which  any  tax  is  required  to  he  withheld  at 

the  source  under  this  section  shall  be  included  in  the  return  of  the  recipient 
of  such  income ,” — Law.  [Note:  The  1918  Act  so  provided.] 

2327  Law  ^[298.  Amount  of  Tax  Withheld  at  the  Source  to  be  Credited 
(Sec.  221.)  Against  Amount  of  Tax  as  Computed  in  Creditor’s 

Return. — “but  any  amount  of  tax  so  withheld  shall  be 
credited  against  the  amount  of  income  tax  as  computed  in  such  return." 
— Law.  [Note:  The  1918  Act  so  provided.] 

2328  Law  <[299.  If  Tax  Required  to  be  Withheld  is  Paid  by  Creditor 
(Sec.  221.)  Such  Tax  is  Not  to  be  Re-collected  from  the  With- 
holding Agent. — “(e)  If  any  tax  required  under  this 

section  to  be  deducted  and  withheld  is  paid  by  the  recipient  of  the  income, 
it  shall  not  be  re-collected  from  the  withholding  agent;" — Law.  [Note: 

The  1918  Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2329  Law  1f300.  If  Tax  Required  to  be  Withheld  be  Paid  by  the  Cred- 
(Sec.  221 .)  itor  no  Penalty  Attaches  for  Innocent  Failure  to  Make 

Return  or  to  Pay  Tax. — “ nor  in  cases  in  which  the  tax 
is  so  paid  shall  any  penalty  be  imposed  upon  or  collected  from  the  recipient 
of  the  income  or  the  withholding  agent  for  failure  to  return  or  pay  the  same, 
unless  such  failure  was  fraudulent  and  for  the  purpose  of  evading  pay- 
ment.” — Law.  [Note:  The  1918  Act  so  provided.] 

2330  Return  of  Income  from  Which  Tax  Withheld. — The  entire  amount 
of  the  income  from  which  the  tax  was  withheld  shall  be  included 

in  gross  income  without  deduction  for  such  payment  of  the  tax  But  any 
tax  actually  so  withheld  shall  be  credited  against  the  total  tax  as  computed 
in  the  taxpayer’s  return.  See  article  31  [*]  1075].  If  the  tax  is  paid  by  the 
recipient  of  the  income  or  by  the  withholding  agent  it  shall  not  be  recollected 
from  the  other,  regardless  of  the  original  liability  therefor,  and  in  such  event 
no  penalty  will  be  asserted  against  either  person  for  failure  to  return  or  pay 
the  tax  where  no  fraud  or  purpose  to  evade  payment  is  involved.  (Art.  375, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ad  valorem  penalties  for  delinquent  and  fraudulent  returns  (8-20-758:  S.  1334).. 
June  1920  Cum.  Bull.  p.  229. 

Credit  against  surtax  for  amount  withheld  if  taxpayer  is  liable  for  surtax  only  (13-20- 
812:  O.  D.  423).  .June  1920  Cum.  Bull.  p.  195. 


2331  If  for  any  reason  there  is  included  in  the  return  which  a foreign 
corporation  is  required  to  make  of  all  income  received  from  sources 

within  the  United  States  any  income  upon  which  tax  has  been  withheld  at 
the  source,  such  foreign  corporation  may  take  credit  against  the  amount 
of  tax  due  for  the  amount  of  the  tax  so  withheld  at  the  source;  provided 
a statement  is  attached  to  the  return  setting  forth  the  source  and  amount 
of  the  income  upon  which  the  tax  was  so  withheld.  (Art.  201,  1[602,  Reg. 
33,  Rev.,  Jan.  2,  1918.) 

2332  If  a corporation  shall  have  returned  as  income  interest  received  on 
bonds,  the  interest  upon  which  the  debtor  corporation  had  agreed 

to  pay  without  deduction  of  income  taxes,  and  if  the  debtor  corporation 
shall  have  actually  paid  the  income  tax  assessable  on  such  interest  income, 
it  will  be  permissible  for  the  corporation  receiving  such  interest  to  take 
credit  against  the  tax  assessable  on  the  basis  of  its  net  income  returned, 
for  the  amount  of  tax  paid  thereon  by  the  debtor  corporation.  (Art.  199, 
1(593,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

2333  Purchase  and  Sale  of  Bonds  Between  Interest  Dates. — This  office 
acknowledges  receipt  of  your  letter  of  Dec.  20,  1915,  and  in  reply  you 

are  advised  that,  as  stated  in  office  letter  of  December  18,  1915,  it  is  held 
that  where  a bond  is  purchased  between  interest-bearing  dates,  the  seller  is 
not  required  to  execute,  for  Federal  Income  Tax  purposes,  an  ownership 
certificate  to  accompany  the  interest  coupon  which  is  not  due  and  payable 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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WITHHOLDING  AT  THE  SOURCE. 


and  is  not  detached  from  the  bond,  but  such  a certificate  will  be  required 
from  the  purchaser  of  the  bond,  when,  at  a later  date,  the  coupon  is  detached 
and  presented  for  payment  or  collection.  (Letter  to  White  & Case,  New 
h ork,  N.  \ .,  signed  bv  Deputy  Commissioner  L.  F.  Speer,  and  dated  Tan.  5, 
1916.) 

2334  Refund  of  Amounts  Withheld  in  Excess  of  Tax  Liability.— Read 
at  If  1429  and  at  <[2182. 

2335  Penalty  for  Failure  to  Make  Return  and  to  Pay  Tax. — Read  at 
112627. 


not 


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2-27-22.  (2)  3-20-22.  (3)  4-28-22  (4)  8-19-22.  (6)  10-11-22. 

INFORMATION  AT  THE  SOURCE. 

2336  Law  1(590.  Returns  of  Information  at  Source. — “Sec.  256.  That 
(Sec.  256.)  all  individuals , corporations , and  partnerships , in  rcAaf- 

capacity  acting , including  lessees  or  mortgagors  oj 
real  or  personal  property , fiduciaries , and  employers ” 

2337  Law  1(591.  “ making  payment  to  another  individual , corporation , 
(Sec.  256.)  or  partnership ,” 

2338  Law  1(592.  “of  interest , rrn/,  salaries , wages,  premiums,  annuities, 
(Sec.  256.)  compensations,  remunerations,  emoluments,  or  other 

fixed  or  determinable  gains,  profits,  and  income  {other 
than  payments  described  in  sections  254  [dividends  1(2378]  anJ  255  [profits 
paid  to  customers  by  brokers,  1(2380]),” 

2339  Law  K593.  “o/  $1,000  or  tnorr  in  any  taxable  year,” 

(Sec.  256.) 

2340  Law  1(594.  “or,  in  /Ar  cajr  o/  jncA  payments  made  by  the  United 
(Sec.  256.)  States,  the  officers  or  employees  of  the  United  States 

having  information  as  to  such  payments  and  required  to 
make  returns  in  regard  thereto  by  the  regulations  hereinafter  provided 
for”  [No  return  required  of  payments  made  by  the  United  States  to 
sailors,  soldiers,  and  civilian  employees,  1(2350  (i).] 

2341  Law  K595.  “shall  render  a true  and  accurate  return  [1(2627]  to  the 
(Sec.  256.)  Commissioner,  under  such  regulations  and  in  such  form 

and  manner  and  to  such  extent  as  may  be  prescribed  by 
him  with  the  approval  of  the  Secretary,  setting  forth  the  amount  of  such 
gains,  profits,  and  income,  and  the  name  and  address  of  the  recipient  of 
such  payment.” — Law.  [Note:  The  1918  Act  so  provided.] 

2342  Law  1(600.  Information  at  the  Source  Provisions  Apply  to  Calen- 

(Sec.  256.)  dar  Year  1921  and  1922. — “The  provisions  of  this  sec- 
tion shall  apply  to  the  calendar  year  1921  and  each 
calendar  year  thereafter,” — Law.  [Note:  The  1918  Act  so  provided.] 

2343  Return  of  Information  as  to  Payments  of  $1,000. — All  persons 
making  payment  to  another  person  of  fixed  or  determinable  income 

of  $1,000  or  more  in  a taxable  year  must  render  a return  thereof  to  the 
Commissioner  for  the  preceding  calendar  year  on  or  before  March  15  of  each 
year,  except  as  specified  in  articles  1073,  1074,  1075,  1076,  and  1079  [be- 
ginning at  1(2350].  The  return  shall  be  made  in  each  case  on  Form  1099, 
accompanied  by  a letter  of  transmittal  on  Form  1096  showing  the  number 
of  returns  filed.  The  street  and  number  where  the  recipient  of  the  payment 
lives  should  be  stated,  if  possible.  Where  no  present  address  is  available, 
the  last  known  post-office  address  must  be  given.  Although  to  make  nec- 
ecessary  a return  of  information  the  income  must  be  fixed  or  determinable, 
it  need  not  be  annual  or  periodical.  See  article  362  [for  definition  of  fixed 
or  determinable  income,  1(2202].  (Art.  1071,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Actual  amounts  paid  or  credited  if  made  available  (13-20-818:  O.  D.  428).  .June  1920 
Cum.  Bull.  p.  249. 

Affiliated  corporations  make  separate  returns  of  information  (16-20-868:  O.  D.  469) 
. .June  1920  Cum.  Bull.  p.  249. 

Building  and  loan  associations;  payments  to  stockholders  (52-20-1364:  O.  D.  759) 
. .Dec.  1920  Cum.  Bull.  p.  312. 

Deposit  to  guarantee  carrying  out  lease  provisions,  when  later  applied  against  annual 
rental;  1921  Act  (1-17-246:  I.  T.  1291).  .June  1922  Cum.  Bull.  p.  324. 

Extension  of  time,  1921  specifically: 

Alaska  and  Hawaii.  .^[3093 

Fiduciaries,  partnerships,  and  personal  service  corporations.  .^[3009 
Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
517 


2-27-22.  (2)  3-20-22. 


(3)  4-2H-22  fl- 19-22.  (5)  10-11-22. 

INFORMATION  AT  THE  SOURCE. 

Merged  corporations;  combined  return  to  be  made  by  continuing  corporation:  1921 
Act  (1-20-281:  I.  T.  1313).  .June  1922  Cum.  Bull.  p.  324. 

Municipal  government  department  to  make  return  omitting  certain  items  (16-20-869: 
O.  D.  470).  .June  1920  Cum.  Bull.  p.  249. 

Partnership  incorporated  during  year,  employees  retained:  one  return  only  required 
(5-21-1422:  0.  D.  788).  .June  1921  Cum.  Bull  p.  347. 

Penalties  for  failure  to  supply  information  or  to  make  return  (18-19-489:  0.  907) . . 1919 
Cum.  Bull.  p.  261. 

Professional  services;  fees  paid  for  (12-20-800:  0.  D.  416).. June  1920  Cum.  Bull, 
p.  248. 

Receiver  in  partition  proceedings  (52-21-1995:  0.  D.  1149).. Dec.  1921  Cum.  Bull. 

p.  252.  _ 

Royalties,  oil  and  gas;  agent  or  “trustee”  acting  for  group  of  owners  of  royalty 
interests  (16-21-1569:  O.  D.  875).  .June  1921  Cum.  Bull  p.  14. 

Secrecy  of  returns  (18-19-489:  O.  907) . . 1919  Cum.  Bull.  p.  261. 


2344  Tax  Exempt  Organization  to  Furnish  Information  at  the  Source.— 

If  it  is  held  that  the  corporation  itself  is  exempt  from  the  income 
and  excess  profits  taxes,  it  is  not,  however,  exempt  from  the  withholding 
requirements  nor  from  furnishing  information  in  accordance  with  the 
provisions  of  the  Act  of  October  3,  1917.  (T.  D.  2693,  April  8,  1918.) 

2345  Return  of  Information  as  to  Payments  to  Employees.— The  names 
of  all  employees  to  whom  payments  of  $1,000  or  over  a year  are  made, 

whether  such  total  sum  is  made  up  of  wages,  salaries,  commissions,  or 
compensation  in  any  other  form,  must  be  reported.  Heads  of  branch 
offices  and  subcontractors  employing  labor,  who  keep  the  only  complete 
record  of  payments  therefor,  should  file  returns  of  information  in  regard 
to  such  payments  directly  with  the  Commissioner.  When  both  main  office 
and  branch  office  have  adequate  records,  the  return  should  be  filed  by 
the  main  office.  In  case  an  employer  has  a large  number  of  em- 
ployees and  the  computation  of  exact  amounts  paid  during  the  calendar 
year  will  result  in  an  undue  hardship,  careful  estimates  may  be  made  on 
the  basis  of  any  representative  month,  and  unless  the  yearly  payment  based 
on  this  estimate  in  the  case  of  any  employee  amounts  to  $1,000  or  more, 
no  return  of  payments  to  such  employee  is  required.  (Art.  1072,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

American  employees  of  domestic  corporation  paid  in  Canadian  money  for  work  done 
in  Canada  (42-21-1870:  O.  D.  1066).. Dec.  1921  Cum.  Bull.  p.  66. 

Board  and  lodging  furnished  servants  (15-21-1566:  O.  D.  874).. June  1921  Cum. 
Bull.  p.  348. 

State  income  tax  law  requiring  withholding  (6-20-733:  O.  D.  401).  .June  1920  Cum. 
Bull.  p.  249. 


2346  Status  of  “Board  and  Lodging”  Furnished  Seamen. — Read  at 
Hi  177. 

2347  Returns  of  Information  Covering  Payments  Made  to  Insurance 
Agents  and  Agencies. — Replying  to  your  letter  of  February  26, 

1918,  relative  to  the  reporting  on  Forms  1096  and  1099  of  commissions  paid 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

518 


4 27-22.  (2)  4-10-22.  (3)  10-11-22. 

INFORMATION  AT  THE  SOURCE. 

to  insurance  agents  during  1917,  you  are  advised  that  if  the  coinmissions 
are  paid  to  soliciting  agents  for  personal  service  in  securing  insurance  con- 
tracts, the  amount  must  be  reported. 

2343  If,  however,  the  agent  conducts  a branch  office,  or  is  employed  by 
an  insurance  company  under  a contract  that  makes  it  necessary ^to 
bear  the  expenses  of  the  branch  office,  and  all  payments  received  are  in- 
tended to  cover  such  expenses,  it  is  not  then  necessary  that  reports  on  Forms 
1096  and  1099  be  filed.  (Letter  to  The  Corporation  Trust  Company,  signed 
by  Commissioner  Daniel  C.  Roper,  and  dated  March  28,  1918.) 

2349  Return  of  Information  at  the  Source  Required  of  Employer  if  Wage 
Payments  to  Employee  Aggregate  $1,000  for  the  Year  Irrespective 

of  the  Basis  for  Such  Wage  Payments. — Receipt  is  acknowledged  of  your 
letter  dated  October  15,  1917,  requesting  that  you  be  advised  whether  the 
provisions  of  Section  28  added  to  the  Act  of  September  8,  1916,  by  Section 
1211,  Act  of  October  3,  1917,  apply  to  employers  of  workmen  paid  by  the 
hour  or  by  the  piece,  stating  in  this  connection  as  follows:  “One  of  our 

clients  employs  some  three  thousand  workmen  who  are  almost  all  on  piece 
work  on  an  hourly  basis  and  a large  number  of  them  will  be  paid  more  than 
$800  during  the  year.  Their  wages,  however,  are  not  fixed  as  would  be  a 
weekly  or  monthly  salary,  payments  to  them  being  variable  from  week  to 
week  and  even  from  day  to  day.”  (Answer.)  In  reply  your  are  advised 
that  in  accordance  with  the  provisions  of  the  law  as  stated  in  the  Section 
referred  to  above  each  person,  corporation,  partnership,  etc.,  is  authorized 
and  required  to  render  a true  and  accurate  return  to  the  Commissioner  of 
Internal  Revenue  setting  forth  the  amount  of  salary  or  compensation  and 
the  name  and  address  of  each  employee  who  is  paid  [$1,000]  or  more  during 
the  year  1917,  and  subsequent  tax  years.  The  liability  for  such  return 
attaches  in  all  cases  of  payments  of  sala  y or  compensation  amounting  to 
[$1,000]  or  more  during  the  year,  without  regard  to  the  basis  of  payment 
or  the  period  during  the  year  in  which  it  was  earned  and  for  which  it  was  paid. 
[See  ^[2202  for  fixed  or  determinable  income.]  (Letter  to  Palmer  and  Series, 
New  York,  N.  Y.,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated 
October  25,  1917.) 

2350  Cases  Where  No  Return  of  Information  Required. — Payments  of 
the  following  character,  although  over  $1,000,  need  not  be  reported 

in  returns  of  information  on  Form  1099:  (a)  payments  of  interest  on  obli- 
gations of  the  United  States  [see  ^[2265];  (b)  dividends  paid  by  domestic  or 
resident  foreign  corporations;  (c)  payments  by  a broker  to  his  customers;  (d) 
payments  of  any  type  made  to  corporations;  (e)  bills  paid  for  merchandise, 
telegrams,  telephone,  freight,  storage,  professionsal  services,  and  similar 
charges;  (f)  annuities  representing  the  return  of  capital;  (g)  payments  of 
rent  made  to  real  estate  agents  (but  the  agent  must  report  payments  to  the 
landlord  if  they  amount  to  $1,000  or  more  annually);  (h)  payments  made  by 
branches  of  business  houses  located  in  foreign  countries  to  alien  employees 
serving  in  foreign  countries;  and  (i)  payments  made  by  the  United  States 
Government  to  sailors  and  soldiers  and  to  its  civilian  employees.  (Art.  1073, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Accident  or  health  insurance  or  damages  paid  (13-21-1535:  O.  D.  858).  .June  1921 
Cum.  Bull.  p.  349. 

Crop  shares;  rent  paid  in  (2-19-172:  O.  D.  1 15) ..  1919  Cum.  Bull.  p.  261. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

519 


2-27-22.  (2)4-10-22.  (3)  10-11-22. 

INFORMATION  AT  THE  SOURCE. 

Distributable  interests  of  beneficiaries,  partners,  and  personal  service  corporation 

stockholders  (1-11-143:  Mim.  2921).  . June  1922  Cum.  Bull.  p.  220. 


2351  Lav«r  ^[601.  Information  at  the  Source  Provisions  Do  Not  Apply  to 
(Sec.  256.)  Payments  of  Interest  on  Government  Obligations. — 

“but  [the  information  at  the  source  provisions]  shall  not 
apply  to  the  payment  of  interest  on  obligations  of  the  United  States.”— Lav/. 

[Note:  The  1918  Act  so  provided.] 

2352  Return  of  Information  as  to  Payments  to  Nonresident  Aliens. — 

In  the  case  of  payments  of  annual  or  periodical  income  to  nonresi- 
dent alien  individuals,  partnerships  composed  in  whole  or  in  part  of  non- 
resident aliens  and  not  having  an  office  or  place  of  business  within  the 
United  States,  or  to  foreign  corporations  not  engaged  in  trade  or  business 
within  the  United  States  and  not  having  any  office  or  place  of  business 
therein,  the  returns  filed  by  withholding  agents  on  Form  1042  shall  constitute 
and  be  treated  as  returns  of  information.  See  sections  221  and  237  of  the 
statute  and  articles  361-375  [for  withholding  at  the  source  beginning  at 
^[2 1 90,  and  particularly  ^[2322]  and  601  [withholding  against  foreign  cor- 
porations, ^[ 2225].  (Art.  1075,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  sec  page  gt. 

Fixed  or  determinable  income  only  to  be  reported  (39-20-1215:  O.  D.  673).. Dec. 
1920  Cum.  Bull.  p.  312. 

Form  1098  discontinued  (1-11-143:  Mim.  2921).  .June  1922  Cum.  Bull.  p.  220. 

No  return  on  Form  1099  required  when  Forms  1098  and  1042  are  filed  (39-20-1215 
O.  D.  673).  .Dec.  1920  Cum.  Bull.  p.  312. 

Partnerships;  payments  to,  of  interest  on  bank  deposits  (1-19-110:  O.  D.  76)  1919 

Cum.  Bull.  p.  261. 

Record  vs.  actual  owner  of  stock;  disclosure  of  actual  ownership  on  Form  1087, 
obligation  of  nonresident  alien  individuals,  as  actual  owners  of  stock,  to  make 
return  (5-19-263:  O.  D.  162) . . 1919  Cum.  Bull.  p.  261. 


2353 

2354 


Law  ^[596. 

(Sec.  256.) 

Law  ^[597. 

(Sec.  256.) 


Returns  of  Information  of  Payments  ot  Corporate 
Obligation  Interest. — “Such  returns  may  be  required , 
regardless  of  amounts ,” 

“(1)  in  the  ca:e  °f  payments  of  interest  upon  bonds , 
mortgages , deeds  of  trust , or  other  similar  obligations 
of  corporations ,” — Law.  INote:  The  1918  Act 

so  provided.] 


2355  In  the  case  of  payments  of  interest,  regardless  of  amount,  upon 
bonds  and  similar  obligations  of  domestic  or  resident  foreign  cor- 
porations, the  original  ownership  certificates,  when  duly  filed,  shall  con- 
stitute and  be  treated  as  returns  of  information.  If  a bondholder  files  no 
ownership  certificate  in  the  case  of  payments  of  interest  on  registered  bonds, 
the  withholding  agent  shall  make  out  such  a certificate  in  each  instance 
and  file  it  with  his  monthly  return.  No  ownership  certificate  is  required  to 
be  filed  in  case  bonds  or  other  obligations  are  owned  by  domestic  or  resident 
corporations.  See  sections  221  and  237  of  the  statute  and  articles  361-375 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


520 


*-27-22.  (2)8-22-22.  (8)8-30-22.  (4)  6-19-22.  (6)  6-2-22.  (6)  10-11-22. 

INFORMATION  AT  THE  SOURCE 

and  601  [for  withholding  at  the  source  beginning  at  1)2190  and  particularly 
1[2322  and  1)2323].  (Art.  1074,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gt. 

Incomplete  and  improperly  executed  ownership  certificates  (11-21-1514:  M.  2725) 
..June  1921  Cum.  Bull.  p.  232 


2366  Law  11598.  Returns  of  Information  Concerning  the  Collection  of 

(Sec.  256  ) Foreign  Items. — “(2)  [Such  returns  may  be  required, 
regardless  of  amounts ] in  the  case  of  collections  of  items 
{not  payable  in  the  United  States ) of  interest  upon  the  bonds  of  foreign 
countries  and  interest  upon  the  bonds  of  and  dividends  from  foreign  cor- 
porations by  individuals,  corporations,  or  partnerships,  undertaking  as  a 
matter  of  business  or  for  profit  the  collection  of  foreign  payments  of  such 
interest  or  dividends  by  means  of  coupons,  checks,  or  bills  of  exchange 
[U2371].” — Law.  [Note:  The  1918  Act  so  provided.] 

2357  Source  of  Information  as  to  Foreign  Items. — The  term  “foreign 
item,”  as  here  used  means  any  dividend  upon  the  stock  of  a non- 
resident foreign  corporation  or  any  item  of  interest  upon  the  bonds  of  foreign 
countries  or  nonresident  foreign  corporations,  whether  or  not  such  divi- 
dend or  interest  is  paid  in  the  United  States  or  by  check  drawn  on  a domestic 
bank,  (a)  Wherever  a foreign  country  or  nonresident  foreign  corporation 
issuing  bonds  has  appointed  a paying  agent  in  this  country  charged  with 
the  duty  of  paying  the  interest  upon  such  bonds,  such  paying  agent  shall 
be  the  source  of  information.  If  such  foreign  country  or  foreign  corporation 
has  no  such  agent,  then  the  last  bank  or  collecting  agent  in  this  country 
shall  be  the  source  of  information,  (b)  In  the  case  of  dividends  on  the 
stock  of  a nonresident  foreign  corporation,  however,  the  first  bank  or  col- 
lecting agent  accepting  such  item  for  collection  shall  be  the  source  of  infor- 
mation. No  return  of  information  is  required  with  respect  to  foreign  items 
owned  by  a nonresident  alien  individual,  a foreign  partnership,  or  a foreign 
corporation,  provided  the  first  bank  or  collecting  agent  is  satisfied  as  to  such 
ownership.  In  such  case  the  foreign  item  may  be  stamped  “foreign  owner.” 
(Art.  1076,  Reg.  62,  1922  Edition.) 

2358  Suggested  Method  of  Identifying  Dividend  Checks  of  Resident 
Foreign  Corporations  as  Domestic  Items. — Reference  is  made  to 

your  letter  dated  July  22,  1920,  stating  that  the , a Canadian  cor- 

poration doing  business  in  the  United  States  and  paying  an  income  tax  to 
the  United  States  Government,  on  practically  all  of  its  earnings,  pays  its 
dividends  with  checks  drawn  on  its  New  York  banking  institution.  Under- 
standing that  it  is  necessary  for  checks  representing  dividends  of  a foreign 
corporation  to  be  accompanied  by  ownership  certificates,  you  inquire  whether 
this  corporation  may  obviate  the  necessity  of  having  its  dividend  checks 
accompanied  by  such  certificates  by  the  attachment  of  the  following  notice: 

“This  Company  carries  on  its  manufacturing  operations  within  the 
United  States,  and  under  the  U.  S.  Income  Tax  law  it  is  termed  a 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

521 


2-37-Z2.  (2 1 2-22-22  (3)  3-30-22  (4)  6-19-22.  (5)  (i-2-22.  (6)  10-11-22. 

INFORMATION  AT  THE  SOURCE. 

Resident  Foreign  Corporation.  rfhis  dividend  check,  therefore,  is  not  a 
foreign  item,  and  need  not  be  accompanied  by  a United  States  owner- 
ship certificate.” 

2359  You  are  advised,  that  as  the is  required  to  pay  the  normal 

tax  on  its  net  earnings,  the  dividends  derived  therefrom  are  only 

subject  to  surtaxes  in  the  hands  of  the  stockholders  As  such  dividends 
are  regarded  as  domestic  dividends  for  income  tax  purposes,  ownership  cer- 
tificates are  not  required  to  accompany  the  dividend  checks  for  collection. 

2360  ’Fhe  proposed  notation  submitted  by  you  has  the  approval  of  this 
Bureau  and  will  undoubtedly  have  the  effect  of  identifying  the 

dividend  checks  as  domestic  items.  (Letter  to  A.  H.  Whan  & Company, 
New  York,  N.  Y.,  signed  by  Deputy  Commissioner  G V.  Newton,  by  H. 
A.  Haywood,  Acting  Head  of  Division,  and  dated  August  23,  1920.) 

2 361  Ownership  Certificates  for  Foreign  Items.  — When  bonds  of 
foreign  countries,  or  bonds  or  stocks  of  nonresident  foreign  cor- 
porations, are  owned  by  citizens  or  residents  of  the  United  States,  indi- 
vidual or  fiduciary,  or  by  resident  partnerships,  ownership  certificate 
Form  1001  A shall  be  executed  by  the  actual  owner  or  by  his  duly  authorized 
agent  when  presenting  the  item  for  collection,  whether  such  item  is  a dividend 
or  an  interest  payment,  except  in  the  case  of  a foreign  country  or  a foreign 
corporation  having  a fiscal  agent  or  a paying  agent  in  this  country  and  issuing 
bonds  which  contain  a tax-free  covenant  clause.  In  such  excepted  case  the 
fiscal  agent  or  a paying  agent  is  required  to  withhold  a tax  of  2 per  cent, 
from  the  interest  on  such  bonds  and  ownership  certificate  Form  1000,  modified 
to  show  the  name  and  address  of  the  fiscal  agent  or  the  paying  agent,  should 
be  used,  unless  the  owner  (if  so  entitled)  desires  to  claim  exemption,  in  which 
case  Form  1001  A should  be  filed.  See  article  361  [^2250].  (Art.  1077, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

(See  “Collection  of  Foreign  Irems”  at  Law  Sec.  259,  1f2371.) 

“Collections”  includes  what  (1-4-47:  I.  T.  1176).  .June  1922  Cum.  Bull.  p.  325. 

Coupons  from  bonds  of  domestic  corporation  transacting  no  business  and  owning  no 
property  here;  certificate  to  accompany  when  presented  by  nonresident  alien 
individual  or  partnership  or  foreign  corporation:  stamping  of  Form  1000  if  filed 
with  such  item  (31-19-653:  O.  D.  354).  1919  Cum.  Bull.  p.  262. 

No  ownership  certificate  required  on  issuance  by  domestic  bank  of  check  or  draft  on 
foreign  bank  covering  payment  of  foreign  security  interest;  such  check  or  draft 
should  be  identified  as  foreign  item  to  be  treated  as  such  when  presented  for 
collection  (34-20-1150:  O.  D.  641).  .Dec.  1920  Cum.  Bull.  p.  217 

Old  Ownership  certificates:  continued  use  of  for  limited  period.  . 1J3047,  ^[3109,  3209. 

Ownership  certificates  no  longer  required  (Feb.  23,  1922)  in  certain  cases  (1-11-143: 
Mim.  2921).  . June  1922  Cum.  Bull.  p.  220.  Note  ^3095  in  connection  with  the 
subject  matter  of  the  foregoing. 

Schedule  of  ownership  certificates  under  1918  Act  (21-20-958:  O.  D.  520).  .June  1920 
Cum.  Bull.  p.  191.  Under  1921  Act  (1-22-318:  I.  T.  1331).  .June  1922  Cum. 
Bull.  p.  221. 

2362  Foreign  Corporations  or  Countries  Having  Fiscal  or  Paying  Agents 
in  This  Country  Under  No  Obligation  to  Withhold  on  Their  Tax- 
Free  Covenant  Bond  Interest  in  Case  of  Domestic  or  Resident  Foreign 
Corporation  Bondholders. — Receipt  is  acknowledged  of  your  letter  dated 
June  16,  1920,  stating  that  apparently  it  is  the  intent  of  Treasury  Decision 
3031  [TJ236 1]  to  require  a domestic  corporation  owning  bonds  of  a foreign 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

522 


2-- 7-22. 


INFORMATION  AT  THE  SOURCE. 


country,  containing  a tax-free  covenant,  to  file  ownership  certificate,  Form 
1000  Revised,  and  thereby  obtain  the  credit  of  two  per  cent  tax  paid  at  the 
source,  and  desiring  a ruling  on  this  point. 

2363  In  reply  you  are  advised  that  Treasury  Decision  3031  was  issued  to 
amplify  the  provisions  of  Article  1077,  so  as  to  impose  upon  the 

paying  agent  in  the  United  States,  of  a foreign  country  or  a foreign  cor- 
poration which  has  issued  bonds  containing  a tax-free  covenant  clause,  the 
liability  to  withhold  as  provided  in  Section  221  (b)  of  the  Revenue  Act  of 
1918,  as  the  original  Article  1078  contemplated  such  withholding  only  in 
case  the  foreign  debtor  had  a fiscal  agent  in  the  United  States,  ignoring  the 
possibility  that  a foreign  corporation  or  a foreign  country  might  appoint 
as  its  agent  in  this  country,  a mere  paying  agent  charged  only  with  dis- 
bursing monies. 

2364  Article  1077  treats  primarily  of  the  form  of  ownership  certificate 
required  to  be  used  in  connection  with  foreign  items,  which  is  Form 

1001-A  Revised,  unless  the  item  is  an  interest  payment  on  bonds  containing 
a tax-free  covenant  clause  issued  by  a foreign  country  or  a foreign  corpor- 
ation having  a fiscal  agent  in  this  country  in  which  case  the  provisions  of 
Section  221  (b)  can  be  enforced  against  the  resident  agent  in  the  United 
States  of  the  foreign  organization.  Since  that  section  of  the  statute  (Sec- 
tion 221  (b)),  provides  for  withholding  from  the  interest  on  tax-free  bonds, 
when  the  bonds  are  owned  by  citizens  or  residents  or  nonresident  alien  in- 
dividuals, partnerships  and  nonresident  alien  corporations  (Section  221  (b) 
being  extended  to  cover  nonresident  alien  corporations  by  Section  237) 
[See  1[2250],  no  article  of  the  regulations  or  any  amendment  thereof  could 
alter  the  provisions  of  the  statute  by  requiring  withholding  in  the  case  of 
interest  on  tax-free  bonds  owned  by  a domestic  or  resident  corporation. 

2365  A resident  fiscal  agent  or  resident  paying  agent  of  a foreign  corpo- 
ration or  a foreign  country  which  has  issued  bonds  containing  a tax- 

free  covenant  clause,  is  required  to  withhold  the  normal  tax  of  two  per 
cent  from  the  interest  on  such  bonds  when  ownership  certificates,  Form 
1000  Revised,  are  presented,  which  certificate  should  be  executed  in  the 
following  instances:  When  the  owner  of  the  bonds  is  a citizen  or  resident 
of  the  United  States  who  does  not  wish  to  claim  exemption  from  having 
tax  paid  at  the  source:  When  the  owner  of  the  bonds  is  a domestic  or  resi- 
dent partnership  * * *:  When  interest  coupons  from  such  bonds  are 

presented  unaccompanied  by  a certificate  of  ownership.  (Letter  to  Franklin 
Carter,  Jr.,  The  Equitable  Trust  Company  of  New  York,  New  York  City, 
signed  by  Paul  F.  Myers,  Acting  Commissioner,  and  dated  July  7,  1920.) 

2366  Foreign  Items  Presented  for  Collection  Unaccompanied  by  Own- 
ership Certificates. — If  the  foreign  item  is  an  interest  coupon  de- 
tached from  bonds  containing  a tax-free  covenant  clause,  issued  by  a foreign 
country  or  corporation  having  a paying  agent  in  the  United  States,  a 
statement  and  ownership  certificate,  Form  1000,  shall  be  furnished  as  pro- 
vided in  Article  369  [1(2315], 

2367  In  the  case  of  other  foreign  items  which  are  received  unaccompanied 
by  an  ownership  certificate  and  the  owner  is  unknown,  a statement 

shall  be  required  of  the  payee,  showing  the  name  and  address  of  the  payee, 
the  name  and  address  of  the  debtor  organization,  the  date  of  the  dividend 
check  or  the  maturity  of  the  interest  coupon,  the  name  and  address  of  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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INFORMATION  AT  THE  SOURCE. 


person  from,  whom  the  dividend  check  or  interest  coupon  was  received,  and 
a statement  that  the  owner  of  the  securities  is  unknown  to  the  payee.  The 
first  bank  receiving  such  foreign  item  shall  prepare  a certificate  of  owner- 
ship, Form  1001  A,  crossing  out  the  word  “owner”  and  substituting  therefor 
the  W'ord  “payee.”  The  first  bank  shall  stamp  or  write  across  the  face  of 
the  certificate  “statement  furnished,”  adding  the  name  of  the  bank.  There- 
upon the  statement  and  certificate  shall  be  forwarded  to  the  Commissioner 
as  provided  in  Article  1079  [^i 2368].  (Art.  1078,  Reg.  62,  1922  Edition.) 

2368  Return  of  Information  as  to  Foreign  Items. — In  the  case  of  col- 
lections of  foreign  items,  regardless  of  amount,  the  original  owner- 
ship certificates,  when  duly  filed,  shall  constitute  and  be  treated  as  returns 
of  information,  (a)  In  the  case  of  dividends,  as  to  which  the  first  bank 
or  collecting  agent  is  the  source  of  information,  it  shall  detach  the  ownership 
certificate  and  indorse  on  the  item  the  words,  “Certificate  detached  and  in- 
formation furnished,”  adding  its  name  and  address.  When  foreign  items 
have  been  indorsed  as  above  prescribed,  the  certificates  shall  be  forwarded 
to  the  Commissioner  on  or  before  the  20th  day  of  the  month  following 
that  during  which  the  items  were  accepted,  accompanied  by  a return  on 
Form  1096  A showing  the  number  of  certificates.  An  annual  return  on  Form 
1096  B shall  be  forwarded  to  the  Commissioner  not  later  than  March  15  of 
each  year,  on  which  shall  be  given  a summary  of  the  monthly  returns,  (b)  In 
the  case  of  interest  items,  as  to  which  the  paying  agent  or  the  last  bank  or 
collecting  agent  in  this  country  is  the  source  of  information,  the  ownership 
certificate  shall  accompany  the  coupon  to  such  agent  or  source  of  information, 
who  shall  forward  the  ownership  certificate  to  the  Commissioner  in  the  same 
manner  as  above  provided  with  respect  to  dividend  items.  Where  ownership 
certificate  Form  1000  is  used,  a monthly  return  shall  be  made  on  Form  1012 
and  an  annual  return  on  Form  1013.  as  provided  in  articles  361-375  [partic- 
ularly Art.  371,  ^[2322].  Forms  1012  and  1013,  when  so  used,  should  be 
modified  to  show  the  name  and  address  of  the  paying  agent.  The  use  of 
substitute  certificates  is  not  permitted  in  the  collection  of  foreign  items. 
(Art.  1079,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Registered  bond  interest  (39-20-1216:  O.  D.  674).  .Dec.  1920  Cum.  Bull.  p.  313. 


2369  Law  H599.  Name  and  Address  of  Recipient  of  Income  to  be  Fur- 

(Sec.  256.)  nished  on  Request. — “ When  necessary  to  make  effec- 
tive the  provisions  of  this  section  the  name  and  address 
of  the  recipient  of  income  shall  be  furnished  upon  demand  of  the  indi- 
vidual, corporation,  or  partnership  paying  the  income .” — Law.  [Note: 

The  1918  Act  so  provided.] 

2370  Information  as  to  Actual  Owner. — When  the  person  receiving  a 
payment  falling  within  the  provisions  of  the  statute  for  information 

at  the  source  is  not  the  actual  owner  of  the  income  received,  the  name  and 
address  of  the  actual  owner  shall  be  furnished  upon  demand  of  the  individ- 
ual, corporation  or  partnership  paying  the  income,  and  in  default  of  a com- 

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pliance  with  such  demand  the  payee  becomes  liable  to  the  penalties  provided* 
See  section  253  of  the  statute  and  article  1055  [for  penalties,  ^[2629].  (Art. 
1080,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

(See  “Record  vs.  Actual  Owner  of  Stock’’  in  Cumulative  Index  following  ^2352.) 

Revocable  trust;  trustee’s  obligation  (32-20-11  16:  O.  D.  621).. Dec.  1920  Cum. 
Bull.  p.  202. 


2371  Law  ^[609.  License  Required  for  the  Collection  of  Foreign  Items 
(Sec.  259.)  and  all  Persons  Collecting  Foreign  Items  are  Subject 

to  Regulations. — “Sec.  259.  That  all  individuals , 
corporations , or  partnerships  undertaking  as  a matter  of  business  or  for 
profit  the  collection  of  foreign  payments  of  interest  or  dividends  by  means 
of  coupons,  checks,  or  bills  of  exchange  H[2356j” 

2372  Law  ^[610.  “ shall  obtain  a license  from  the  Commissioner  and 

(Sec.  259.)  shall  be  subject  to  such  regulations  enabling  the  Govern- 
ment to  obtain  the  information  required  under  this  title 

as  the  Commissioner,  with  the  approval  of  the  Secretary,  shall  prescribe 

2373  Law  ^611.  “ and  whoever  knowingly  undertakes  to  collect  such 

(Sec.  259.)  payments  without  having  obtained  a license  therefor,  or 

without  complying  with  such  regulations,  shall  be  guilty 
of  a misdemeanor  and  shall  be  fined  not  more  than  $5,000,  or  imprisoned 

for  not  more  than  one  year,  or  both.” — Law.  [Note:  The  1918  Act 

so  provided.] 

2374  License  to  Collect  Foreign  Items. — Banks  or  agents  collecting 
foreign  items,  as  defined  in  article  1076  [^[2357],  and  required  by 

article  1079  [^[2368]  to  make  returns  of  information  with  respect  thereto, 
must  obtain  a license  from  the  Commissioner  to  engage  in  such  business. 
Application  Form  1017  for  such  license  may  be  procured  from  collectors. 
The  license  is  issued  without  cost  on  Form  1010.  Foreign  items  shall  not 
be  accepted  for  collection  by  any  bank  or  collecting  agent  so  licensed  unless 
properly  indorsed  or  accompanied  by  proper  ownership  certificates  giving 
all  the  information  called  for  by  such  certificate.  See  section  256  and 
articles  1076-1079  [for  source  of  information,  ownership  certificates  and 
returns  of  information  as  to  foreign  items,  beginning  at  ^[2361],  (Art.  1111, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p I. 

“Collections:”  term  defined  (1-4-47:  I.  T.  1176).  .June  1922  Cum.  Bull.  p.  325. 

No  bond  required  for  issuance  of  license  if  collector  satisfied  as  to  responsibility 
(35-20-1176:  O.  D.  653)..  Dec.  1920  Cum.  Bull.  p.  313. 

23  75  Each  Bank  Handling  a Foreign  Item  Before  it  Reaches  the  Source 
of  Information  is  Required  to  be  Licensed. — Receipt  is  acknowl- 
edged of  your  letter  of  recent  date,  referring  to  Treasury  Decision  2759 
[superseded  by  Art.  1079,  ^[2368]  as  follows:  “In  instances  where  a foreign 
country  or  corporation  has  no  paying  agent  in  this  country  the  above  num- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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INFORMATION  AT  THE  SOURCE. 


bered  Treasury  Decision  requires  the  last  bank  to  be  the  source  of  informa- 
tion. It  may  be  that  several  banks  may  handle  a foreign  item  before  it 
reaches  the  source  of  information.  We  inquire  if  each  of  the  banks  hand- 
ling a foreign  item  before  it  reaches  the  last  bank  in  this  country  must  take 
out  a license?”  If  In  reply  you  are  advised  that  the  provision  referred  to  is 
applicable  only  to  interest  coupons  detached  from  bonds  issued  by  a foreign 
government,  corporation,  etc.  In  cases  where  a dividend  check  or  warrant 
is  presented  for  collection,  the  first  bank  accepting  the  item  is  held  to  be  the 
source  of  information.  IjThe  first  bank  making  payment  of  a foreign  item 
and  the  last  bank  in  this  country  handling  same,  as  well  as  the  intermediary 
banks  concerned  in  the  transmission  of  the  item  between  these  two  agencies, 
are  required  to  obtain  a license.  (Letter  to  The  Corporation  Trust  Company, 
signed  by  Commissioner  Daniel  C.  Roper,  and  dated  November  28,  1918.) 

2376  Licenses  Required  for  Branch  Offices  of  Persons  or  Firms  Col- 
lecting Foreign  Items.— When  any  person,  firm,  or  corporation 

shall  have  branch  offices  and  desire  to  collect  foreign  interest  or  dividend 
income  through  such  branch  offices,  the  application  for  license  or  licenses 
shall  be  made  by  the  person,  firm,  or  corporation  through  its  principal  office 
for  its  branch  office  or  offices.  Application  for  licenses  in  such  cases  shall 
be  made  to  the  collector  of  internal  revenue  for  the  district  in  which  the 
home  office  is  located.  (Art.  57,  Reg.  33,  Jan.  5,  1914.) 

2377  License  for  Branch  Office  of  Person  or  Firm  Collecting  Foreign 
Items  Having  Branch  Office,  to  be  Issued  by  Collector  of  District 

Where  Branch  is  Located.— The  names  and  addresses  of  the  branch  offices 
shall  be  furnished  to  the  collector  in  the  application  of  the  said  principal, 
and  if  the  requirements  of  the  foregoing  regulations  have  been  complied 
with  to  the  satisfaction  of  the  collector,  he  shall  certify  this  fact  to  the  col- 
lector of  internal  revenue  for  the  district  in  which  the  branch  office  is  located, 
and  the  collector  to  whom  this  certification  is  made  shall  issue  to  such  branch 
office  a license,  as  in  the  case  provided  in  article  55  [Article  1111,  paragraph 
2374],  (Art.  57,  Reg.  33,  Jan.  5,  1914.) 

2378  Law  If 588.  Returns  of  Information  Relative  to  Payments  of  Divi- 
de. 254.)  dends  to  be  Rendered  When  Required. — “Sec.  254. 

That  every  corporation  subject  to  the  tax  imposed  by 
this  title  and  every  personal  service  corporation  [If 7 78]  shall , when  required 
by  the  Commissioner , render  a correct  return  [^[2629],  duly  verified  under 
oath  [^f25 14],  of  its  payments  of  dividends , stating  the  name  and  address 
of  each  stockholder , the  number  of  shares  owned  by  him,  and  the  amount 
of  dividends  paid  to  him”— Law.  [Note:  The  1918  Act  so  provided.] 

2379  Return  of  Information  as  to  Payments  of  Dividends.— When  di- 
rected by  the  Commissioner,  either  specially  or  by  general  regulation, 

every  domestic  or  resident  foreign  corporation  and  every  personal  service 
corporation  shall  render  a return  on  Form  1097  of  its  payments  of  dividends 
and  distributions  to  stockholders  for  such  period  as  may  be  specified,  stating 
the  name  and  address  of  each  stockholder,  the  number  and  class  of  shares 
owned  by  him,  the  date  and  amount  of  each  dividend  paid  him,  and  when 
the  surplus  out  of  which  it  was  paid  was  accumulated.  (Art.  1060,  Reg.  62, 
1922  Edition.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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INFORMATION  AT  THE  SOURCE. 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

Actual  vs.  record  owner  of  stock  in  case  of  nonresident  alien  individual  or  partnership 
and  foreign  corporation;  disclosure  of  actual  ownership  for  purposes  of  domestic 
corporation  in  event  dividend  information  return  is  called  for  (5-19-263:  O.  D. 
162).  . 1919  Cum.  Bull.  p.  261. 


2380  Law  ^ 589.  Returns  of  Information  by  Brokers  to  be  Rendered 

(Sec.  255.)  When  Required. — “Sec.  255.  That  every  individual , 
corporation , or  partnership  doing  business  as  a broker 
shall , when  reqtiired  by  the  Commissioner , render  a correct  return  [^[2629] 
duly  verified  under  oath  [^f 2 5 14],  under  such  rules  and  regulations  as  the 
Commissioner , with  the  approval  of  the  Secretary , may- prescribe,  showing 
the  names  of  customers  for  whom  such  individual , corporation , or  partner- 
ship has  transacted  any  business , with  such  details  as  to  the  profits , losses, 
or  other  information  which  the  Commissioner  may  require , as  to  each  of 
such  customers,  as  will  enable  the  Commissioner  to  determine  zvhether  all 
income  tax  due  on  profits  or  gains  of  such  customers  has  been  paid.”- — Law. 

[Note:  The  1918  Act  so  provided.] 

2381  Return  of  Information  by  Brokers. — When  directed  by  the  Com- 
missioner, either  specially  or  by  general  regulation,  every  person 

doing  business  as  a broker  shall  render  a return  on  Form  1100,  showing 
the  names  and  addresses  of  customers  to  whom  payments  were  made  or  for 
whom  business  was  transacted  during  the  calendar  year  or  other  specified 
period  next  preceding  and  giving  the  other  information  called  for  bv  the 
form.  (Art.  1065,  Reg.  62,  1922  Edition.) 


( npyriglit  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

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2-27-22  (2)  10-11-22. 


RETURNS. 


2382  LawH313.  Returns  by  Individuals. — “Sec.  223.  (a)  That  the 

(Sec.  223.)  following  individuals  shall  each  make  under  oath  a 
return  stating  specifically  the  items  of  his  gross  income 
and  the  deductions  and  credits  allowed  under  this  title — ” — Law.  [Note: 

The  1918  Act  so  provided.] 


2383  Law^[314.  “(1)  Every  individual  having  a net  income  for  the  taxable 

(Sec.  223.)  year  of  $1,000  or  over , if  single , or  if  married  and  not 

living  with  husband  or  wife;” — Law.  [Note:  The 

1918  Act  so  provided.] 

2384  Law  ^[315.  “(2)  Every  individual  having  a net  income  for  the  taxable 

(Sec.  223.)  year  of  $2,000  or  over,  if  married  and  living  with  husband 

or  wife;  and” — Law.  [Note:  So  in  1918  Act.] 


2385 


Law  ^[316.  “(3)  Every  individual  having  a gross  income  for  the 

(Sec.  223.)  taxable  year  of  $5,000  or  over , regardless  of  the  amount 
of  his  net  income.”—- Law.  [Note:  New,  1921  Act.] 


Law  ^[317.  Joint  of  Separate  Returns  by  Husband  and  Wife 

(Sec.  223.)  Living  Together. — “(b)  If  a husband  and  wife  living 
together  have  an  aggregate  net  income  for  the  taxable 
year  of  $2,000  or  over,” — Law.  [Note:  The  1918  Act  so  provided.] 

Law  ^[318.  “or  an  aggregate  gross  income  for  such  year  of  $5,000 
(Sec.  223.)  or  over — ” — Law.  [Note:  New,  1921  Act.] 

Law  ^[3 19.  “(1)  Each  shall  make  such  a return,  or”— Law. 
(Sec.  223.)  [Note:  The  1918  Act  so  provided.] 

Law  *[320.  “(2)  The  income  of  each  shall  be  included  in  a single 

(Sec.  223.)  joint  return , in  which  case  the  tax  shall  be  computed  on 
the  aggregate  income.”— Law.  [Note:  The  1918 

Act  read,  “unless  the  income  of  each  is 
included  in  a single  joint  return,” 
merely.] 


2386 


2387 


2388 


2389 


2390  For  each  taxable  year  every  single  person  whose  gross  income,  as 

**  defined  in  section  213  of  the  statute,  is  $5,000  or  over,  or  whose  net 

income,  as  defined  in  section  212  of  the  statute  and  articles  21-26,  is  $1,000 
or  over,  must  make  a return  of  income.  The  return  shall  be  for  his  taxable 
year,  whether  calendar  or  fiscal.  Whether  or  not  an  individual  is  the  head 
of  a family  or  has  dependents  is  immaterial  in  determining  his  liability  to 
render  a return.  If  an  individual  is  a married  person  living  with  husband 
or  wife,  no  return  need  be  made  unless  their  aggregate  gross  income  is  at 
least  $5,000  or  their  aggregate  net  income  is  at  least  $2,000;  but  a separate 
return  must  be  made  by  each  of  them,  regardless  of  the  amount  of  the  in- 
dividual income  of  each,  where  their  aggregate  gross  income  is  $5,000  or 
over,  or  their  aggregate  net  income  is  $2,000  or  over,  unless  they  join  in  a 
single  joint  return.  Where  the  income  of  each  is  included  in  a single  joint 
return,  the  tax  is  computed  on  the  aggregate  income  and  all  deductions  and 
credits  to  which  either  is  entitled  shall  be  taken  from  such  aggregate  income. 
The  husband  shall  include  in  his  return  the  income  derived  from  services 
rendered  by  the  wife  or  from  the  sale  of  products  of  her  labor  if  she  does  not 
file  a separate  return  or  join  with  him  in  a return  setting  forth  her  income 

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(9)  8-10-tt.  (0)  10-11-e*.  (10)  11-4-22. 

RETURNS. 

separately.  (Art.  401,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  reference t eee  page  p/. 

Alien  enemy  with  no  fund*  to  pay  tax  property  having  been  taken  over  by  Alien 
Property  Custodian  (1-19-78:  0.  D.  57)..  1919  Cum.  Bull.  p.  189.  See  “Alien 

Property  Custodian”  in  Cumulative  Index  following  ^[2182. 

Amended  returns  (because  of  the  use  of  inflated  values  for  invested  capital  purpose* — 
1917  Act).  .(37-21-1822:  T.  D.  3220)..  Dec.  1921  Cum.  Bull.  p.  285. 

Amended  returns  (on  account  of  ruling  embodied  in  T.  D.  3071 — community  property 
in  Texas)  (43-20-1270:  O.  D.  708).. Dec.  1920  Cum.  Bull.  p.  309:  modified 
by  (51-20-1358:  0.  D.  757).  .Dec.  1920  Bull.  p.  310;  also  (12-21-1525:  O.  D. 
854).  .June  1921  Cum.  Bull.  p.  335. 

Effect  on  excess-profits  tax  returns  for  1917  (16-21-1581:  O.  D.  881).  .June  1921 
Cum.  Bull.  p.  254. 

In  event  of  death  of  either  spouse  (20-21-1643:  O.  D.  920)  . .June  1921  C.  B.  p.  335. 
Penalties  in  connection  with  (1-1-13:  I.  T.  1154).  .June  1922  Cum.  Bull.  p.  302. 
Community  property  (21-19-528:  0.  D.  285).  .1919  Cum.  Bull.  p.  189:  also  (13-20-815: 
0.  D.  426) . .June  1920  Cum.  Bull.  p.  198.  (See  Texas  “community  property” 
in  Cumulative  Index  following  2831,  for  abatement,  credit,  or  refund  claim.) 
See  “Amended  returns”  above. 

Abandoning  domicile  in  Idaho  (39-21-1845:  Sol.  Op.  121).  .Dec.  1921  C.  B.  p.  197. 
Abandoning  domicile  in  Texas  during  taxable  year  (7-21-1451:  O.  D.  810).  .June 
1921  Cum.  Bull.  p.  235. 

Abandoning  domicile  in  Washington  (O.  D.  1110).  .Dec.  1921  Cum.  Bull.  p.  199. 
California:  earnings  of  wife  (49-21-1964:  O.  D.  1128).. Dec.  1921  C.  B.  p.  199. 
Credit  for  dependents  may  not  be  divided.  .^3097.  For  same,  Louisiana  spec- 
ifically, 1921  Act,  see  (1-15-213:  I.  T.  1275).  .June  1922  Cum.  Bull.  p.  201. 
¥ Cuba:  1918  and  1921  Acts  (1-43-562:  I.  T.  1479).  .Bull.  I (’22)-43,  p.  9. 

France:  U.  S.  citizen*  there  domiciled:  1918  Act  (1-32-450:  I.  T.  1414).. Bull.  I 
(’22)-32,  p.  5. 

Idaho:  sale  of  property  in  Nebraska  acquired  while  living  there,  by  couple 
living  in  Idaho  (1921  Act)  (1-10-135:  I.  T.  1236).  .June  1922  C.  B.  p.  234. 
Income  from  land  acquired  in  Texas  by  nonresidents  of  that  State  (28-21-1727: 

0.  D.  975).. Dec.  1921  Cum.  Bull.  p.  195. 

Income  to  be  reported  in  detail  and  appropriate  expenses  to  be  equally  divided 
(19-21-1625:  O.  D.  909).  .June  1921  Cum.  Bull.  p.  254. 

One  spouse  living  in  and  one  out  of  community  property  state  (36-21-1805:  O.  D. 
1023).  .Dec.  1921  Cum.  Bull.  p.  196. 

Phillipine  Islands  (U.  S.  citizens  there  residing);  all  income  from  community 
property  to  be  returned  by  husband:  1917,  1918  and  1921  Acts  (1-18-254: 

1.  T.  1297).  .June  1922  Cum.  Bull.  p.  235. 

Separate  returns  must  be  made  if  community  income  is  divided:  1918  and  1921 
Acts  (1-16-228:  I.  T.  1283).  .June  1922  Cum.  Bull.  p.  235. 

Texas;  sale  of  property  acquired  by  husband  with  hi*  per»onal  earning*  but 
deeded  to  wife:  1918  Act  (1-21-305:  I.  T.  1321).  .June  1922  C.  B.  p.  236. 
Washington;  at  marriage  wife  had  no  property;  husband  owned  farm:  profit* 
from  large  wheat  crop  in  1917:  excess-profits  tax  (1-10-133:  I.  T.  1235).  . 
June  1922  Cum.  Bull.  p.  232. 

Washington:  realty  in  another  state  (here,  Oregon)  acquired  with  joint  earnings: 
1921  Act  (1-14-198:  I.  T.  1268).  .June  1922  Cum.  Bull.  p.  234. 

Gross  income  exceeding  $5,000  in  interest  from  municipal  bonds:  no  return  required 

1921  Act)  (1-9-116:  I.  T.  1223).  .June  1922  Cum.  Bull.  p.  231. 

Gross  income  of  $5, COO  explained  (1921  Act)  (Mim.  2915).  .June  1922  C.  B.  p.  233. 

Gross  income  of  $5,000:  merchants  (1921  Act)  (1-11-144:  I.  T.  1241).  .June  1922 
Cum.  Bull.  p.  234. 

¥ Incompetent  becomes  competent  during  year:  1921  Act  (1-43-563:  I.  T.  1480) . .Bull. 
I (’22)-43,  p.  10. 

Joint  net  income  of  husband  and  wife  less  than  $2,000,  though  net  income  of  one 
exceeds  f2,000;  no  return  (34-21-1784:  O.  D.  1005).  .Dec.  1921  Cum.  Bull.  p.  196. 
Joint  return  by  husband  and  wife:  extension  of  time  (21-20-959:  O.  D.  521).  .June 
1920  Cum.  Bull.  p.  203. 

Joint  return  by  husband  and  wife;  offsetting  losses  and  other  deductible  item*  of  one 
against  gains  of  the  other  (7-21-1452:  Sol.  Op.  90)  June  1921  C.  B.  p.  236. 
Amended  returns  for  prior  year*  (16-21-1580:  0.  D.  880).  .June  1921  C.  B.  p.  254. 
Joint  return  by  husband  and  wife  may  be  filed  one  year  and  separate  returns  the  next 
(27-21-1715:  O.  D.  968).. Dec.  1921  Cum.  Bull.  p.  195.  But  not  amended 
return*  for  1921  or  subsequent  years  on  different  basis  for  *ame  year:  1921  Act 
(1-26-372:  I.  T.  1372).  .June  1922  Cum.  Bull.  p.  238. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  WDEXAL  INCOME  TAX  IEXVICX 

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(8)  8-10-22.  (9)  10-11-22.  (10)  11-4-22. 

RETURNS. 

Joint  return  by  husband  and  wife  thowing  separate  income  of  each;  statua  when 
taxpayers  compute  tax  (1)  on  combined  income  and  (2)  on  separate  incomes 
(26-21-1708:  ().  D.  960)  June  1921  Cum.  Bull.  p.  255.  Not  applicable  when 
community  property  is  divided  between  husband  and  wife:  1918  and  1921  Acts 
(1-16-228:  I.  T.  1283).  .June  1922  Cum.  Bull.  p.  235. 

Marriage  agreement  for  co-ownership  of  all  property  and  fruits  does  not  create  com- 
munity of  interest  justifying  returns  on  50-50  basis  (1-7-93:  A.  R.  R.  755).  .June 
1922  Cum.  Bull.  p.  225. 

Seamen:  vessels  of  U.  S.  registry  (27-20-1035:  O.  D.  566) . . Dec.  1920  Cum.  Bull  p.  73. 
Tenants  in  common  under  a father's  will  (13-20-814:  O.  D.  425).  .June  1920  Cum 
Bull.  p.  198. 

Tentative  return  filed  though  no  obligation  to  file  return:  if  any  amount  of  tax  paid 
complete  return  necessary  (30-19-643:  O.  D.  347).  .1919  Cum.  Bull.  p.  189. 
ir  Trust  income,  exclusive  of  dividends,  being  insufficient  to  pay  trustee’s  commissions; 
how  beneficiary  handles  distributive  share:  1921  Act  (1-41-545:  I.  T.  1468).  . 
Bull.  I (’22)-41,  p.  5. 

Trustee  in  bankruptcy  and  bankrupt  individual  (7-19-297:  O.  D.  174)..  1919  Cum 
Bull.  p.  175. 

2391  Returns  by  Husband  and  Wife  of  Income  from  Community  Prop- 
erty (Texas  specifically.)  [For  other  states  see  beginning  at  ^2423.] — 

(1)  The  earnings  of  husband  and  wife  domiciled  in  Texas  are  community 
income,  and  such  husband  and  wife  in  rendering  separate  income  tax  return* 
may  each  report  as  gross  income  one-half  the  total  earnings  of  the  husband 
and  wife. 

2392  (2)  The  income  from  separate  property,  except  the  increase,  rents 
and  revenues  from  lands,  is  community  income,  and  therefore  hus- 
band and  wife  domiciled  in  Texas,  in  rendering  separate  income  tax  returns, 
may  each  report  as  gross  income  one-half  the  total  income  from  separate 
property,  except  the  increase,  rents  and  revenues  from  land  held  separately. 

2393  (3)  The  income  from  community  property  as  defined  in  Article 
4622,  Vernon’s  Sayles’  Statutes,  is  community  income,  and.  there- 
fore husband  and  wife  domiciled  in  Texas,  in  rendering  separate  income 
tax  returns,  may  each  report  as  gross  income  one-half  the  total  income  from 
such  community  property.  [Captions  to  T.  D.  3071,  112394,  below.] 

2394  There  is  given  below  [beginning  at  1[2395]  in  full  for  your  information 
and  guidance  an  opinion  rendered  by  the  Attorney  General  under 

date  of  August  24,  1920,  dealing  with  the  right  of  husband  and  wife  domi- 
ciled in  certain  States  having  so-called  “Community  Property”  laws  to 
divide  certain  of  their  income  for  the  purpose  of  the  income  tax.  (T.  D. 
3071,  Sept.  18,  1920.) 

2395  Dear  Mr.  Secretary:  Further  acknowledging  receipt  of  your  favor 
of  August  12th,  requesting  my  opinion  on  the  three  questions  of  law 

set  forth  below,  to  wit: 

(1)  Are  the  earnings  of  husband  and  wife  domiciled  in  Texas  com- 
munity income,  and  may  they  therefore  in  rendering  separate  income 
tax  returns,  each  report  as  gross  income  one-half  of  the  total  earnings 
of  the  htisband  and  wife? 

(2)  Is  the  income  from  separate  property,  as  defined  in  Article 

4621,  Vernon’s  Sayles’  Statutes,  1918  Edition,  community  income  and 
may  therefore  husband  and  wife  domiciled  in  Texas,  in  rendering 
separate  income  tax  returns,  each  report  as  gross  income  one-half  of  the 
total  income  from  all  separate  property  owned  by  them  ? 

(3)  Is  the  income  from  community  property  as  defined  in  Article 

4622,  Vernon’s  Sayles’  Statutes,  1914  Edition,  community  income,  and 
may  therefore  husband  and  wife  domiciled  in  Texas,  in  rendering  sep- 
arate income  tax  returns,  each  report  as  gross  income  one-half  of  the  total 
income  from  community  property? 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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RETURNS. 


I have  the  honor  to  advise  you  as  follows: 

2396  The  Revenue  Act  of  1918  levies  a tax  on  the  net  income  of  every 
individual  (Secs.  210  and  211).  Net  income  is  defined  as  gross  in- 

come  less  deductions  allowed  (Sec.  212).  Gross  income  is  defined  as  fol- 

lows  (Sec.  213) : ,••11 

That  for  the  purpose  of  this  title  (except  as  otherwise  provided 

in  Section  233)  the  term  “gross  income”— 

(a)  Includes  gains,  profits,  and  income  derived  from  salaries, 
wages,  or  compensation  for  personal  service  (including  in  the  case. of 
the  President  of  the  United  States,  the  judges  of  the  Supreme  and  in- 
ferior courts  of  the  United  States,  and  all  other  officers  and  employees, 
whether  elected  or  appointed,  of  the  United  States,  Alaska,  Hawaii,  or 
any  political  subdivision  thereof,  or  the  District  of  Columbia,  the  com- 
pensation received  as  such),  of  whatever  kind  and  in  whatever  form  paid, 
or  from  professions,  vocations,  trades,  businesses,  commerce,  or  sales, 
or  dealings  in  property,  whether  real  or  personal,  growing  out  of  the 
ownership  or  use  of  or  interest  in  such  property;  also,  from  interest,  rent, 
dividends,  securities,  or  the  transaction  of  any  business  carried  on  for 
gain  or  profit,  or  gains  or  profits  and  income  derived  from. any  source 
whatever.  The  amount  of  all  such  items  shall  be  included  in  tne  gross 
income  for  the  taxable  year  in  which  received  by  the  taxpayer,  unless, 
under  methods  of  accounting  permitted  under  subdivision  (b)  of  Section 
212,  any  such  amounts  are  to  be  properly  accounted  for  as  of  a different 
period. 

2397  The  State  Constitution  of  Texas  provides: 

Art.  VII,  Sec.  19,  Constitution  1845:  All  property,  both,  real  and 
personal,  of  the  wife,  owned  or  claimed  by  her  before  marriage,  and 
that  acquired  afterward[s]  by  gift,  devise  or  descent,  shall  be  her.  sep- 
arate property;  and  laws  shall  be  passed  more  clearly  defining  the  rights 
of  the  wife,  in  relation  as  well  [as]  to  her  separate  property  as  that  held 
in  common  with  her  husband.  Laws  shall  also  be  passed  providing  for 
the  registration  of  the  wife’s  separate  property.  [Art.  XVI,  Sec.  15, 
Constitution  1876.]  . , 

2398  The  Statutes  of  the  State  of  Texas  determining  property  rights  of 
husband  and  wife  are  as  follows.  Article  4622,  Vernon  s Sayles 

Statutes,  1914  Edition: 

All  property  acquired  by  either  the  husband  or  wife  during  marriage, 
except  that  which  is  the  separate  property  of  either  one  or  the  other, 
shall  be  deemed  the  common  property  of  the  husband  and  wife,,  and 
during  coverture  may  be  disposed  of  by  the  husband  only,  provided, 
however,  the  personal  earnings  of  the  wife,  the  rents  from  the  wife.s 
real  estate,  the  interest  on  bonds  and  notes  belonging  to  her,  and  divi- 
dends on  stocks  owned  by  her  shall  be  under  the  control,  management 
and  disposition  of  the  wife  alone,  subject  to  the  provisions  of  Article  4621, 
as  hereinabove  written;  and  further  provided  that  any  funds  on  deposit 
in  any  bank  or  banking  institution,  whether  in  the  name  of  the  hus- 
band or  the  wife,  shall  be  presumed  to  be  the  separate  property  of  the 
party  in  whose  name  they  stand,  regardless  of  who  made  the  deposit, 
and  unless  said  bank  or  banking  institution  is  notified  to  the  contrary, 
it  shall  be  governed  accordingly  in  honoring  checks  and  orders  against 
such  account. 


Copyright  1922 , by  The  Corporation  Trust  Company. 
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RETURNS. 

2399  Article  4621,  Vernon’s  Sayles’  Statutes,  1918  Edition: 

All  property,  both  real  and  personal,  of  the  husband  owned  or 
claimed  by  him  before  marriage,  and  that  acquired  afterwards  by 
gut,  de\  isc  or  descent,  as  also  the  increase  of  all  lands  thus  acquired, 
and  the  rents  and  revenues  derived  therefrom,  shall  be  his  separate 
property.  The  separate  property  of  the  husband  shall  not  be  subject 
to  the  debts  contracted  by  the  wife,  either  before  or  after  marriage, 
except  for  necessaries  furnished  herself  and  children,  after  her  marriage 
with  him.  All  property  of  the  wife,  both  real  and  personal,  owned  or 
claimed  by  her  before  marriage,  and  that  acquired  afterwards  by  gift, 
devise  or  descent,  as  also  the  increase  of  all  lands  thus  acquired,  and  the 
rents  and  lovcnucs  derived  therefrom,  shall  be  the  separate  propertv  of 
the  wife.  During  marriage  the  husband  shall  have  the  sole  management, 
control  and  disposition  of  his  separate  property,  both  real  and  personal, 
and  the  wife  shall  have  the  sole  management,  control  and  disposition  of 
her  separate  property,,  both  real  and  personal;  provided,  however,  the 
joinder  of  the  husband  in  the  manner  now  provided  by  law  for  conveyance 
of  t he  separate  real  estate  of  the  wife  shall  be  necessary  to  an  encumbrance 
or  conveyance  by  the  wife  of  her  lands,  and  the  joint  signature  of  the 
husband  and  wife  shall  be  necessary  to  a transfer  of  stocks  and  bonds 
belonging  to  her,  or  of  which  she  may  be  given  control  by  this  Act;  pro- 
vided, also,  that  if  the  husband  shall  have  permanently  abandoned  his 
wife,  be  insane,  or  shall  refuse  to  join  in  such  encumbrance,  conveyance 
or  transfer  of  such  property,  the  wife  may  apply  to  the  District  Court 
of  the  county  of  her  residence,  and  it  shall  be  the  duty  of  the  court,  in 
term  time  or  vacation,  upon  satisfactory  proof  that  such  encumbrance, 
conveyance  or  transfer  would  be  advantageous  to  the  interest  of  the 
wife,  to  make  an  order  granting  permission  to  make  such  encumbrance, 
conveyance  or  transfer  without  the  joinder  of  her  husband,  in  which 
ev  ent  she  may  encumber,  convey  or  transfer  said  property  without  such 
joinder.  Neither  the  separate  property  of  the  wife,  nor  the  rents  from  the 
wife  s separate  real  estate,  nor  the  interest  on  bonds  and  notes  belonging 
to  her,  nor  dividends  on  stocks  owned  by  her,  nor  her  personal  earnings, 
shall  be  subject  to  the  payment  of  debts  contracted  by  the  husband. 

1 he  homestead,  whether  the  separate  property  of  the  husband  or  wife, 
or  the.  community  property  of  both,  shall  not’ be  disposed  of  except  by 
the  joint  conveyance  of  both  the  husband  and  the  wife,  except  where 
the  husband  has  permanently  abandoned  the  wife,  or  is  insane,  in  which 
instance  the  wife  may  sell  and  make  title  to  any  such  homestead,  if  her 
separate  property,  in  the  manner  herein  provided  for  conveying  or  making 
title  to  her  other  separate  estate. 

The  community  property  of  the  husband  and  wife  shall  not  be  liable 
for  debts  or  damages  resulting  from  contracts  of  the  wife,  except  for 
necessaries  furnished  herself  and  children,  unless  the  husband  joins 
in  the  execution  of  the  contract.  Provided  that  her  rights  with  reference 
to  the  community  property  on  permanent  abandonment  by  the  husband 
shall  not  be  affected  by  the  preceding  sentence. 

2400  Article  2469,  Vernon’s  Sayles’  Statutes: 

Upon  the  dissolution  of  the  marriage  relation  by  death  all  property 
belonging  to  the  community  estate  of  the  husband  and  wife  shall  go 
to  the  survivor,  if  there  be  no  child  or  children  of  the  deceased  or  their 
descendants;  but  if  there  be  a child  or  children  of  the  deceased,  or 

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RETURNS. 


descendant  of  such  child  or  children,  then  the  survivor  shall  he  entitled 
to  one-half  of  said  property,  and  the  other  half  shall  pass  to  such  child 
or  children,  or  their  descendants.  But  such  descendants  shall  inherit  only 
such  portion  of  said  property  as  the  parent  through  whom  they  inherit 
would  be  entitled  to  if  alive.  _ . 

2401  The  community  property  system  prevails  in  Texas,  Arizona.  Cali- 
fornia, Washington,  Louisiana  and  New  Mexico.  It  seems  to  have 

had  its  origin  in  France  and  Spain  and  to  have  been  brought  thence  into 
our  judicial  system. 

2402  Community  property  laws  provide  generally  that  all  property 
acquired  during  marriage,  by  the  industry  and  labor  of  either  husband 

or  wife  or  both,  together  with  the  produce  and  increase  thereof,  belongs  to 
both  in  equal  shares,  during  the  continuance  of  the  marital  relation.  It  has 
its  foundation  in  the  fact  of  the  legal  presumption  that  all  pioperty  acquired 
during  marriage,  otherwise  than  by  gift,  devise  or  descent,  is  acquired  by 
the  joint  efforts  of  husband  and  wife  (Nickerson  v.  Nickerson,  65  Tex.  281, 
284).  Their  relation  partakes  of  the  nature  of  a partnership  in  which  each 
partner  may  have  separate  estates,  or  property,  as  well  as  common  stock 
of  acquisitions  and  gains.  The  business  of  the  firm  generally  is.  transacted 
in  the  name  of  the  husband  and  he  prosecutes  and  defends  its  suits  with  the 
same  effect  as  if  his  partner  were  named  in  the  case  (Simpson  v.  Brotherton, 
62  Tex.  170);  and  although  community  property  has  not  all  the  incidents  of 
partnership  property,  it  has  many  of  them,  and  is  commonly  spoken  of  as 
partnership  property  (De  Blanc  v.  Lynch  & Co.,  23  Tex.  25;  Wilkinson  v. 
Wilkinson,  20  Tex.  237).  In  the  conventional  partnerships  the  gains  of  the 
partners  are  in  proportion  to  their  respective  shares  of  stock  and  sen  ices, 
but  in  the  conjugal  partnerships  the  division  is  equal,  though  one  may  have 
brought  in  the  greater  part,  if  not  all  of  the  property  from  which  the  profits 
are  derived,  or  may  have  contributed  all  his  skill  and  services  unaided  b} 
the  other  (Wheat  v.  Owens,  15  Tex.  241;  Routh  v.  Routh,  57  Tex.  589,  595). 
The  fact  that  one  or  the  other  of  the  spouses  may  do  all  the  work  does  not 
change  the  character  of  community  property  (Tates  v.  Houston,  3 lex. 
452,  454).  And  though  the  management  and  disposal  of  community  property 
during  marriage  are  usually  given  to  the  husband  this  is  said  to  be  for  reasons 
of  public  policy  and  social  economy  and  not  on  the. grounds  that  the  husband 
has  any  greater  interest  in  it  than  the  wife.  Section  4622,  Vernon  s Sayles 
Statutes,  as  amended  in  1913,  and  as  set  forth  above,  provides  that  the 
personal  earnings  of  the  wife,  the  rents  from  her  estate,  the  interest  on  bonds 
and  notes  belonging  to  her,  and  dividends  owned,  on  stocks  owned  by  her,  shall 
be  under  the  control,  management  and  disposition  of  the  wife  alone,  but  the 
Supreme  Court  of  Texas  held  in  Tannehill  v.  Tannehill,  171  S.  W.  1050,  that 
such  amendment  did  not  change  the  character  of  rents  from  the  wife  s 
separate  property  so  as  to  make  them  her  separate  property,  but  that  tne) 
continued  to  belong  to  the  community  estate,  and  the  husband  was.  owner 
of  one-half  of  same.  (This  before  the  amendment  of  Section  4621  in  1917 
made  the  rents  from  separate  lands  the  separate  property  of  the  owner  of  the 
land.) 

2403  In  Tucker  v.  Carr,  39  Tex.  98,  102,  the  Court  said:  It  is  well 

settled  that  all  property  acquired  during  the  marriage  whether  by 
the  labor  of  the  husband  or  the  wife,  or  the  joint  labor  of.  both,  whether 
the  title  be  made  to  the  husband  or  to  the  wife  or  to  both  jointly,  is  com- 
munity property.” 

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2404  Also  see  Cooke  v.  Bremond,  27  Tex  457 

2406  In  Holyoke  y.  Jackson,  3 Pac.  841,  the  Supreme  Court  of  Washing- 

™ ’ -n  c°mmunity  property  rights  in  that  State  held  that 

the  community  “is  like  a partnership,  in  that  some  property  coming  from 

monhr,roS  T °r,°thcr  °r  both  °f  thc  individuals,  forms  for  both  f com- 
mon  stock  which  bears  the  losses  and  receives  the  profits  of  its  manage- 

iT  !?  Iab  ° f°r  individual  debtsi  but  it  is  unlike  in  that  thfre 

thl t o • j-31  vi t0  Pr0P0IJ10I}ate  contribution,  service,  or  business  fidelity; 
at  each  individual  once  in  it  is  incapable  of  disposing  of  his  or  her  in- 

itsTcrm nd  l^at r0t M are  Fowerless  t0  escape  from  the  relationship,  to  vary 
inr,r^?  f0rVi  KdlSyibUJte  ‘-r  3SSetS  0r  its  Profits  * * * In  it  the  proprietary 
he eqUa1’  an<1  ,h°Se  i,UCreS,S  d°  "0t  SCem  ,0 

2406  1 here  are  numerous  decisions  holding  that  the  proportional  interests 

their  indfvSacltHbudon^m  C°mmUnity  pr°Per^  arc  <^ual  of 

2407  In  Merrill  v.  Moore,  104  S.  W.  514,  the  Court  said:  “This  com- 
. m“nity  O'  interest  is  not  made  to  depend  upon  the  acquisition  of  the 

?r°P"  y,  lUnng  tHe  t,me  the  parties  actuallF  live  together,  nor  upon  the 
faCeVhat  th7e  )Yas.  ai}  equal  amount  of  labor  or  capital  contributed  by  the 
husband  and  wife  in  its  accumulation.  It  is  the  property  acquired  during 
the  marriage  (with  exceptions  stated)  that  shall  be  deemed  the  common 
^ J3  j1-  y -°  husband  and  wife,  and  the  right  to  an  equality  of  enjoyment 
and  division  thereof  regardless  of  whether  the  one  or  the  other  has  con- 
ributed  little  or  nothing  to  its  acquisition  is  well  recognized.” 

2408  Also  see:  Edwards  v.  Brown,  68  Tex.  329;  Saunders  v.  Isbell,  24 
in  T iin  -J°7;  ?arr  V-  SimPson>  1 17  S-  W.  1041 ; Wright  v.  Hays’  Admr., 

10  lex.  130;  Zimpelman  v.  Robb,  53  Tex.  274. 

1 hat  one-half  of  the  common  estate  belongs  to  each  spouse  is  recognized 
in  treasury  Decision  2450,  which  determines  the  method  of  assessing  estate 
tax  upon  the  estate  of  a decedent  spouse. 

2409  1 he  decisions  in  the  various  States  seem  to  be  unanimous  on  the 
proposition  that  the  earnings  of  both  husband  and  wife  during  the 

marriage  belong  to  the  community. 

2410  In  Fennell  v.  Drinkhouse,  131  Cal.  447,  it  was  held  that  money 
earned  by  the  wife  while  living  with  her  husband  was  community 

property,  the  Court,  saying:  “The  possession  of  community  property  by 

tlie  Wife  is  the  possession  of  the  husband.”  And  in  Martin  v.  Southern 
acme  Company,  130  Cal.  285,  holding  that  moneys  received  as  damages 
lor  injury  to  the  wife  are  community  property,  it  was  said: 

The  services  of  the  wife  are  a part  of  the  earning  power  of  the  com- 
munity, and  the  earnings  received  for  her  services  constitute  com- 
munity property  as  much  as  do  the  earnings  received  for  the  services 
° | e husband.  If  the  injury  had  been  received  by  the  husband,  it 
would  not  be  contended  that  he  could  not  recover  for  the  damage 
sustained  by  the  loss  of  his  earning  capacity.  In  either  case  the  earnings 
would  be  community  property,  and  any  act  by  which  either  husband  or 
v ite  is  deprived  of  the  capacity  to  render  services  diminishes  the  capacity 
to  accumulate  community  property.  If  the  services  voluntarily  rendered 
by  the  wife  obviate  the  necessity  of  employing  other  assistance  the 
amount  of  the  community  property  is  thereby  enhanced  in  the  amount 
that  would  be  required  for  such  assistance. 


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241 1 See  also  Washburn  v.  Washbrun,  9 Cal.  475. 

2412  Under  the  Louisiana  Statutes  the  profits  of  the  industry  of  both 
spouses  and  the  fruits  of  their  separate  estates  fall  into  the  com- 
munity. 

Succession  of  Webre,  49  La.  1491;  22  So.  390. 

Knight  v.  Kaufman,  105  La.  35;  29  So.  711. 

Manning  v.  Burke,  107  La1.  456;  31  So.  862. 

The  decisions  of  the  Supreme  Court  of  the  State  of  Washington  are  to  the 

Sciinc  effect* 

Abbott  v.  Weatherby,  6 Wash.  507;  33  Pac.  1070. 

Yake  v.  Pugh,  13  Wash.  78;  42  Pac.  528. 

Sherlock  v.  Denny,  28  Wash.  170;  68  Pac.  452. 

There  are  numerous  decisions  by  the  Supreme  Court  of  Texas  holding  that 
in  Texas  the  earnings  of  the  husband  and  wife  are  community  property. 
Cline  v.  Hackbarth,  27  Tex.  Civ.  App.  391;  65  S.  W.  1086. 

Johnson  v.  Burford,  39  Tex.  242. 

Pearce  v.  Jackson,  61  Tex.  642. 

Cooke  v.  Bremond,  27  Tex.  457. 

In  the  latter  case  the  Court  said; 

Our  whole  system  of  marital  rights  is  based  upon  the  fact  that 
acquisitions  either  of  the  joint  or  separate  labor  or  industry  of  the 
husband  or  wife,  become  common  property;  and  as  a general  rule 
deductible  from  this  principal,  all  property  acquired  by  purchase 
or  apparent  onerous  title,  whether  the  conveyance  be  in  the  name 
of  the  husband  or  of  the  wife,  or  in  the  names  of  both,  is  prima  facie 
presumed  to  belong  to  the  community. 

Under  the  laws  of  the  various  States  wherein  the  community  property 
system  obtains,  the  earnings  of  separate  property  of  the  spouses  with  such 
exceptions  as  are  specifically  provided  for  by  Statute,  are  community  property. 
See  Barr  v.  Simpson,  117  S.  W.  1040  (Tex.)  and  Hayden  v.  McMillan,  23 
S.  W.  430  (Tex.). 

2413  The  latter  case  was  decided  when  Article  2851  Revised  Statutes  of 
Texas  provided  that  all  the  property  owned  by  the  wife  before 

marriage  or  acquired  afterwards  by  gift,  devise  or  descent,  and  the  “increase 
of  all  lands  thus  acquired”  should  be  the  separate  property  of  the  wife. 
And  the  Court  held  that  rents  accruing  on  the  separate  lands  of  the  wife 
were  community  property  and  subject  to  garnishment  for  community  debts. 
This  case  also  establishes  the  proposition  that  such  community  interest 
attaches  the  moment  the  property  comes  into  existence,  the  Court  saying: 
“The  moment  the  rents  become  due  they  are  disconnected  from  the  land 
and  become  personal  property,  and  being  acquired  by  the  joint  labors  of  the 
married  couple  put  forth  during  the  marital  relation  they  must  necessarily 
be  community.” 

2414  From  the  above  authorities  I am  convinced  that  under  the  Ja_w  of 
Texas  the  earnings  of  the  husband  and  wife  belong  to  them  jointly 

in  equal  shares;  that  the  community  interest  attaches  as  soon  as  the  right 
to  the  wages  comes  into  existence;  and  that  the  increase  and  revenues  from 
the  separate  property  of  each  spouse  except  the  increase,  rents  and  revenues 
from  lands,  is  also  community  property  in  which  the  interests  of  husband 
and  wife  are  equal. 

2415  These  propositions  being  established  it  follows  that  the  earnings  of 
husband  and  wife  and  the  revenues  from  their  separate  personal 

property  are  community  “income,”  under  the  provisions  of  the  Act  of 

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I ebruary  24,  1219.  Gross  income  under  the  terms  of  the  Act  includes' 
gains,  profits  and  income  derived  from  salaries,  wages,  or  compensation 
>r  personal  services  of  whatever  kind  and  in  whatever  form  paid,  or  from 
professions,  vocations  trades,  businesses,  commerce,  or  sales,  or  dealings  in 
property,  whether  real  or  persona],  growing  out  of  the  ownership  or  use  of 
or  interest  in  such  property.” 

2416  The  law  of  Texas  presumes  that  the  earnings  of  the  husband  and 
wife  are  the  product  of  the  their  joint  labor  and  rests  the  ownership  of 

same  in  the  community;  they  are  therefore  community  “income”  to  wit 
gains,  profits  and  income”  of  the  community,  “derived  from  salaries’ 
wages,  or  compensation  for  personal  services,  * * * professions,  voca- 

tions, as  the  case  may  be. 

2417  Under  the  Statutes  of  Texas  heretofore  set  forth,  the  separate 
property  of  the  spouses  is  defined  as  that  “owned  or  claimed  by  him 

(or  lieU  before  marriage,  and  that  acquired  afterwards  by  gift,  devise  or 
cescent,  and  also  ‘the  increase  of  all  lands  thus  acquired,  and  the  rents 
and  revenues  derived  therefrom.”  It  is  to  be  noted  that  the  increase  of 
separate  personal  property  and  the  revenues  derived  therefrom,  are  not  the 
separate  property  of  the  owner  of  the  personalty,  but  are  community  prop- 
erty (Carry  Tucker,  42  lex.  330;  Epperson  v.  Jones,  65  Tex.  425;  Barr  v. 
Simpson,  1 17  S.  W.  1041).  They  are  therefore  “income”  to  the  community, 
to  wit,  gains,  profits  and  income  * * * from  business,  conmerce,  or 

sales  or  dealings  in  property  * * * growing  out  of  the  ownership  or 

use  of  or  interest  in  such  property.” 

2418  Since  one-half  of  all  community  property  vests  in  each  spouse  it 
follows  that  one-half  of  the  increase  and  revenues  from  separate 

property  of  the  spouses  except  increase  and  rents  and  revenues  from  lands 
is  income  to  each  of  said  spouses. 

2419  Community  property  under  the  laws  of  Texas,  belongs  jointly  to 
lusband  and  wife;  it  follows  that  the  income  therefrom  accrues  to 

husband  and  wife  m equal  shares.  I therefore  conclude: 

2420  1.  That  the  earnings  of  husband  and  wife  domiciled  in  Texas  are 
community  income,  and  such  husband  and  wife  in  rendering  separate 

income  tax  returns  may  each  report  as  gross  income  one-half  "the  total 
earnings  of  the  husband  and  wife. 

2421  2.  That  the  income  from  separate  property,  except  the  increase, 
i x re,ntS,  a,  reven},es  fro.m  lands,  is  community  income,  and  that 

therefore  husband  and  wife  domiciled  in  Texas,  in  rendering  separate  income 
tax  returns,  may  each  report  as  gross  income  one-half  the  total  income  from 
separate  property,  except  the  increase,  rents  and  revenues  from  land  held 
separately. 

2422  3.  That  the  income  from  community  property  as  defined  in  Article 
i u i^’  yernon  s Sayles  Statutes,  quoted  above,  is  communitv  income, 

and  that  therefore  husband  and  wife  domiciled  in  Texas,  in  rendering  separate 
income  tax  returns,  may  each  report  as  gross  income  one-half  the  total 
income  from  such  community  property.  (Opinion  of  Attornev-General 
Palmer,  Aug.  24,  1920,  embodied  in  T.  D.  3071,  f2391.) 

2423  Returns  by  husband  and  wife  of  income  from  community  property 
rt-  r-  as|llnStori>  Arizona,  Idaho,  New  Mexico,  Louisiana  and  Nevada). 

[For  California  see1[2458  and  for  Texas  see  U2391.]— Income  taxes— Husband 
and  wife— Community  property.  In  Washington,  Arizona,  Idaho,  New  Mex- 
ico, Louisiana  and  Nevada  the  husband  and  wife  domiciled  therein,  in 

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rendering  separate  income  tax  returns,  map  each  report  as  gross  income, 
one-half  of  the  income  which  under  the  laws  of  the  respective  States  becomes, 
simultaneously  with  its  receipt,  community  property;  this  is  not  based  upon 
any  statute  enacted  subsequent  to  March  1,  1913,  and  applies  under  Income 
Tax  Acts  prior  to  the  Revenue  Act  of  1918.  . 

2424  Estate  tax — Husband  and  wife— Community  property. — In  Washing- 
ton, Arizona,  Idaho,  New  Mexico,  Louisiana  and  Nevada  there  should 

be  included’ in  gross  estate,  in  computing  the  estate  tax  of  a deceased  spouse, 
one-half  of  the  community  property  of  husband  and  wife  domiciled  therein; 
this  is  not  based  upon  any  statute  enacted  subsequent  to  March  1,  1913, 
and  applies  under  estate  tax  acts  prior  to  the  Revenue  Act  of  1918.  [Captions 
to  T.  D.  3138,  H2425,  below.]  . 

2425  There  is  given  below  [beginning  at  1[2426]  in  full  for  your  information 
and  guidance  an  opinion  rendered  by  the  Attorney  General  under 

date  of  February  26,  1921,  dealing  with  the  right  of  husband  and  wife  domi- 
ciled in  certain  states  having  so-called  “community  property”  laws  to  divide 
certain  of  their  income  for  the  purpose  of  the  income  tax,  and  as  to  the  in- 
clusion of  community  property  in  the  gross  estate  of  a deceased  spouse. 
See,  in  this  connection,  Treasury  Decision  No.  3071  [^[2391].  (T.  D.  3138, 

signed  by  Commissioner  Wm.  M.  W illiams,  and  dated  March  3,  1921.  ) 

Law  Sec.  223,  Art.  401.) 

{Attorney-General’ s Opinion  referred  to  above  in  ^[2425.) 

2426  Dear  Mr.  Secretary:  My  opinion  has  been  requested  upon  the  fol- 
lowing questions: 

2427  1.  In  which  of  the  states,  other  than  Texas,  in  which  the  community 
property  system  exists  may  a husband  and  wife  domiciled  therein, 

in  rendering  separate  income  tax  returns,  each  report  as  gross  income  one- 
half  of  the  income  which  under  the  laws  of  such  state  becomes,  simultaneous 
with  its  receipt,  community  property?  [For  answer  see  ^[2482.] 

2428  2.  In  which  of  the  states  in  which  the  community  property  system 
exists  should  there  be  included  in  gross  estate,  in  computing  the  estate 

tax  of  the  estate  of  a deceased  spouse,  one-half  and  only  one-half  of  the 
community  property  of  husband  and  wife  domiciled  therein?  [For  answer 
see  1[2483.]  . 

2429  3.  In  your  answers  to  questions  1 and  2,  as  to  any  state  are  based 
upon  a statute  enacted  subsequent  to  March  1,  1913,  please  give  the 

rule  as  to  such  state  existing  from  March  1,  1913  to  the  passage  of  such 
statute,  for  my  guidance  in  allowing  claims  for  refund.  [For  answer  see 
•[2484.] 

2430  4.  Do  your  answers  to  questions  1 and  2 apply  under  income  and 
estate  tax  acts  prior  to  the  Revenue  Act  of  1918?  [For  answer  see 

1F2485.] 

2431  The  community  property  system  prevails  in  Arizona,  California, 
Idaho,  Louisiana,  Nevada,  New  Mexico,  Texas  and  Washington. 

The  application  of  the  income  tax  act  to  the  income  from  community  property 
belonging  to  husband  and  wife  domiciled  in  Texas  was  disposed  of  in  my 
opinion  of  September  10,  1920.  [^[2485]. 

2432  The  significant  portions  of  the  Arizona  statutes  bearing  upon  the 
community  property  system  in  that  state,  all  of  which  except  Article 

1100  were  enacted  prior  to  1913,  are: 

Art.  3850.  All  property  acquired  by  either  husband  or  wife  during 

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the  marriage,  except  that  which  is  acquired  by  gift,  devise  or  descent, 
or  earned  by  the  wife  and  her  minor  chiidern,  while  she  has  lived  or  may 
live,  separate  and  apart  from  her  husband,  shall  be  deemed  the  common 
property  of  the  husband  and  wife,  and  during  the  coverture  personal 
property  may  be  disposed  of  by  the  husband  only;  but  husband  and  ' 
wife  must  join  in  all  deeds  and  mortgages  affecting  real  estate  except 
unpatented  mining  claims,  which  may  be  conveyed  by  the  husband  or 
wife  only,  as  provided  by  the  laws  of  this  State  relating  to  conveyances- 
provided  that  either  husband  or  wife  may  convey  or  mortgage  separate 
properl  y without  the  other  joining  in  such  conveyance  or  mortgage 
Art..  1100.  Upon  the  death  of  the  husband  one-half  of  the  com- 
munity property  shall  go  to  the  surviving  wife,  and  the  other  half  is 
subject  to  the  testamentary  disposition  of  the  husband,  and  in  the  absence 
of  such  disposition  goes  to  his  descendants,  equally,  if  such  descendants 
are  of  the  same  degree  of  kindred  to  the  decedent,  otherwise  according 
to  the  right  of  representation;  and  in  the  absence  of  both  such  distribu- 
tion and  such  descendants  is  subject  to  distribution  in  the  same  manner 
as  the  separate  property  of  the  husband.  Upon  the  death  of  the  wife 
one-half  of  the  community  property  shall  go  to  the  surviving  husband, 
and  the  other  half  is  subject  to  the  testamentary  disposition  of  the  wife, 
and  in  the  absence  of  such  disposition  goes  to  the  descendants,  equally, 
if  such  descendants  are  of  the  same  degree  of  kindred  to  the  decedent 
otherwise  according  to  the  right  of  representation,  and  in  the  absence  of 
Doth  such  distribution  and  such  descendants,  is  subject  to  distribution 
in  the  same  manner  as  the  separate  property  of  the  husband. 

Art.  2061.  No  conveyance,  transfer,  mortgage  or  incumbrance  of 
any  real  estate  which  is  the  common  property  of  husband  and  wife,  or 
any  interest  therein,  shall  be  valid  unless  such  conveyance,  transfer 
mortgage  or  incumbrance  shall  be  executed  and  acknowledged  by  both 
the  husband  and  wife.  But  the  provisions  of  this  section  shall  not  apply 
to  unpatented  mining  claims,  which  may  be  conveyed,  transferred, 
mortgaged  or  incumbered  by  the  one  in  whose  name  the  title  or  right  of 
possession  of  any  such  mining  claim  may  be,  without  the  other  joining 
in  such  conveyance,  transfer,  mortgage  or  incumbrance. 

Art.  3848;  All  property,  both  real  and  personal,  of  the  husband, 
owned  or  claimed  by  him  before  marriage  and  that  acquired  afterward, 
by  gift,  devise  or  descent,  as  also  the  increase,  rents,  issues  and  profits 
of  the  same,  shall  be  his  separate  property,  and  all  property,  both  real 
and  personal  of  the  wife,  owned  or  claimed  by  her  before  marriage,  and 
that  acquired  afterward  by  gift,  devise  or  descent,  as  also  the  increase, 
rents,  issues  and  profits  of  the  same,  shall  be  here  separate  property. 

Prior  to  1913  Article  1100  read: 

Upon  the  dissolution  of  the  marriage  relation  by  death  all  the  com- 
mon property  belonging  to  the  community  estate  of  the  husband  and 
wife  shall  go  to  the  survivor  if  the  deceased  have  no  child  or  children; 
but  if  the  deceased  have  a child  or  children,  his  survivor  shall  be  entitled 
to  one-half  of  said  property,  and  the  other  half  shall  pass  to  the  child 
or  children. 

2433  The  Supreme  Court  of  the  State  of  Arizona  has  held  these  statutes 
establish  in  the  wife  an  equal  interest  with  the  husband  in  community 
property  in  that  state.  In  the  case  of  La  Tourette  v.  La  Tourette,  15  Ariz. 
200  (1914),  the  Court  said,  after  reviewing  the  statutes  above  set  forth: 

“Thejaw  makes  no  distinction  between  the  husband  and  wife  in 

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respect  to  the  right  each  has  in  the  community  property.  It  gives 
the  husband  no  higher  or  better  title  than  it  gives  the  wife.  _ It  recog- 
nizes a marital  community  wherein  both  are  equal.  Its  policy  plainly 
expressed  is  to  give  the  wife  in  this  marital  community  an  equal  dignity, 
and  make  her  an  equal  factor  in  matrimonial  gains. 

***  ********* 

That  the  interest  of  the  wife  in  ;he  community  property  during  the 
coverture  is  not  a mere  possibility- -not  the  expectancy  of  an  heii 
in  quite  apparent.  The  old  saying  is  not  true  that  community  is  a 
partnership  which  begins  only  at.  its  end.  Upon  the  dissolution  of  the 
community  by  death,  the  wife  does  not  inherit  her  share  of  the  common 
property,  but  with  the  death  of  the  husband  the  management  and  con- 
trol of  the  statutory  agent  or  trustee  ceases.  The  wife  acquires  not 
her  share  for  that  was  already  hers,  but  in  addition  to  her  share  she 
acquires  the  right  of  management,  control  and  disposition  of  that 
share.  Her  status  being  thereby  fixed  as  that  of  a feme  sole.  If  there 
be  no  child  or  children  of  the  deceased  husband,  all  of  the  common 
property  goes  to  the  surviving  wife.  She  has  her  share  in  the  property, 
and  in  addition,  by  right  of  survivorship  and  not  as  an  heir,  she  acquires 
the  share  that  belonged  to  the  husband,  and  she  takes  all  of  the  property 
in  her  own  right,  and  with  respect  to  the  management,  control,  and 
disposition  of  such  property  is  reduced  to  the  status  of  a feme  sole  and 
must  thenceforward  with  respect  to  it  act  for  herself.” 

2434  The  Idaho  law  provides,  Article  4656  of  the  Compiled  Statutes  of 
1919,  that  all  property  of  the  wife  owned  by  her  before  marriage, 

and  that  acquired  afterward  by  gift,  bequest,  devise  or  descent,  or  that  which 
she  shall  acquire  with  the  proceeds  of  her  separate  property,  shall  remain 
her  sole  and  separate  property  to  the  extent  and  with  the  same  effect  as  the 
property  of  her  husband  similarly  acquired. 

2435  Article  4659  defines  the  separate  property  of  the  husband  to  be  all 
property  owned  by  him  before  marriage,  and  that  acquired  by  gift, 

bequest,  devise  or  descent.  Community  property  is  defined  as  “all  other 
property  acquired  after  marriage  by  either  husband  or  wife,  including  the 
rents  and  profits  of  the  separate  property  of  the  husband  and  wife  * * * 

unless  by  the  instrument  by  which  any  such  property  is  acquired  by  the 
wife  it  is  provided  that  the  rents  and  profits  thereof  be  applied  to  her  sole 
and  separate  use;  in  which  case  the  management  and  disposal  of  such  rents 
and  profits  belong  to  the  wife,  and  they  are  not  liable  for  the  debts  of  the 
husband.” 

2436  By  Article  4666  “the  husband  has  the  management  and  control 
of  the  community  property  except  the  earnings  of  the  wife  for  the 

personal  services  and  the  rents  and  profits  of  her  separate  estate.  But  he 
cannot  sell,  convey,  or  encumber  the  community  real  estate  unless  the  wife 
join  with  him  in  executing  and  acknowledging  the  deed  or  other  instrument 
of  conveyance  by  which  the  real  estate  is  sold,  conveyed  or  encumbered. 

2437  This  section,  which  was  amended  in  1915  to  read  as  above,  previously 
and  by  amendment  in  1913  provided: 

The  husband  has  the  management  and  control  of  the  community 
property,  but  he  shall  not  sell,  convey  or  encumber  community  real 
estate,  unless  the  wife  join  with  him  in  executing  the  deed  or  other 
instrument  of  conveyance  by  which  the  real  estate  is  sold,  conveyed  or 
encumbered,  and  such  deed  or  other  instrument  of  conveyance  must  be 

acknowledged  by  him  and  by  his  wife. 

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2438  ^ new  provision  of  the  law  of  1915,  Article  4667,  reads: 

I he  wife  has  the  management  and  control  of  the  earnings  for  her 
persona!  services,  and  the  rents  and  profits  of  her  separate  estate. 

2439  On  the  death  of  either  husband  or  wife  it  is  provided  bv  Article 
7803,  that: 

One-half  of  all  the  community  property  shall  go  to  the  survivor, 
subject  to  the  community  debts,  and  the  other  half  shall  be  subject  to  the 
testamentary  disposition  of  the  deceased  husband  or  wife  in  favor  only 
"i  his,  her  or  their  children  or  a parent  of  either  spouse,  subject  also 
to  the  community  debts  provided  that  not  more  than  one-half  of  the 
decedent’s  half  of  the  community  property  may  be  left  by  will  to  a parent 
or  parents.  In  case  no  such  testamentary  disposition  shall  have  been 
made  by  the  deceased  husband  or  wife  of  his  or  her  half  of  the  community 
property  it  shall  go  to  the  survivor,  subject  to  the  community  debts, 
the  family  allowance  and  the  charges  and  expenses  of  administration: 

! rovided,  however,  that  no  administration  of  the  estate  of  the  wife  shall 
be  necessary  if  she  dies  intestate. 

2440  Section  5713,  as  previously  enacted  in  1907,  provided: 

Lpon  the  death  of  either  husband  or  wife  one-half  of  the  community 
property  shall  go  to  the  survivor,  subject  to  the  community  debts,  and 
'he  other  half  shall  be  subject  to  the  testamentary  disposition  of  the 
deceased  husband  or  wife,  subject  also  to  the  community  debts.  In  case 
no  testamentary  disposition  shall  have  been  made  by  the  deceased 
husband  or  wife  of  his  or  her  share  of  the  community  property  it  shall 
descend  equally  to  the  legitimate  issue  of  his,  her  or  their  bodies.  If 
trmre  be  no  issue  of  said  deceased  living,  or  none  of  their  representatives 
living,  then  the  said  community  property  shall  all  pass  to  the  survivor, 
to  the  exclusion  of  collateral  heirs,  subject  to  the  community  debts, 
the  family  allowance,  and  the  charges  and  expenses  of  administration. 

2441  In  Ewald  v.  Hufton,  31  Idaho  373  (173  Pac.  247),  decided  in  1918, 
..  . the  Supreme  Court  of  Idaho  said  that  under  the  laws  of  Idaho  no 
distinction  is  made  between  husband  and  wife  as  to  the  degree,  quantity, 
nature  or  extent  of  the  interest  each  has  in  community  property,  and  held 
that  upon  the  dissolution  of  the  community  by  the  death  of  either  spouse  the 
sure  i\  or  becomes  tenant  in  common  with  the  heirs  of  the  deceased  member  and 
the  survivor  cannot  convey  title  to  the  half  belonging  to  the  heirs  which 
descended  to  them  from  the  deceased  spouse.  It  was  therein  decided 
that  after  the  death  of  the  wife  a convevance  bv  the  surviving  husband 
conveys  title  only  to  his  half. 

2442  In  Kohny  v.  Dunbar.  21  Idaho  258  (121  Pac.  544),  decided  in  1912, 
the  Supreme  Court  of  Idaho  fully  considered  the  respective  interests 

of  husband  and  wife.  This  was  a case  where  it  was  attempted,  after  the 
death  of  the  husband,  to  levy  an  inheritance  tax  under  the  Idaho  inheritance 
tax  law  upon  the  wife’s  half  of  the  community  property.  The  court  held  that 
• ■"'713  Revised  Statutes  of  Idaho,  as  amended  in  1907,  in  force  at  the  time 
of  the  death  of  Kohny  recognized  the  husband  and  wife  as  equal  partners  in 
the  community  estate  and  authorized  each  to  dispose  of  his  or  her  half  by 
will,  and  that  the  survivor  on  the  death  of  one  spouse,  merely  continued  to 
hold  as  owner  one-half  of  the  community  property  subject  to  the  payment 
of  community  debts,  saying: 

“This  statute  clearly  and  unmistakably  provides  that  the  surviving 
spouse  takes  his  or  her  half  of  the  community  property,  not  by  succes- 

Lopy right  1922,  by.  The  Corporation  Trust  Company. 

J HE  EEUEKAL  INCOME  TAX  SERVICE 
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sion,  descent  or  inheritance,  but  as  survivor  of  the  marital  community 
or  partnership.  Idle  same  section  provides  further  that  in  the  event  there 
be  no  issue  of  the  marriage  living  at  the  time  of  the  death  of  one  of  the 
spouses  and  he  or  she  leaves  no  will  or  testament,  the  half  of  the  com- 
munity property  which  belonged  to  the  deceased  shall  go  to  the  survivor 
as  an  heir,  and,  therefore,  by  descent  and  under  and  by  virtue  of  the 
intestate  laws  of  the  state. 

U*  * * 

“Since  the  interests  of  both  husband  and  wife  are  the  same  and 
equal  in  and  to  the  community  property,  and  each  takes  one-half  interest 
therein  by  will,  it  is  clear  to  us  that  if  the  wife  must  pay  an  inheritance 
tax  on  her  half  of  the  property  upon  the  death  of  the  husband,  that  the 
husband  would  likewise  be  obliged  to  pay  an  inheritance  tax  on  his  half 
of  the  property  on  the  death  of  his  wife.  The  law  clearly  places  them 
both  on  an  equality  in  this  respect.  This  illustration,  however,  accentu- 
ates the  unreasonableness  of  the  contention,  for  no  one  claims  that  the 
husband  is  required  to  pay  such  tax  on  his  interest  in  the  community 
estate. 

i 4 * 7k 

“We  conclude  that  upon  the  death  of  husband  or  wife,  the  survivor 
takes  one-half  of  the  property  in  his  or  her  own  right  as  survivor  and 
is  not  liable  under  sec.  1873  (Inheritance  Tax  Act)  to  pay  an  inheritance 
tax  on  such  interest  in  the. community  estate.” 

2443  The  significant  portions  of  the  laws  of  Louisiana  bearing  on  the 
questions  before  us  are  found  in  the  following  articles  of  the  Revised 
Civil  Code. 

Art.  915.  In  all  cases,  when  either  husband  or  wife  shall  die,  leaving 
no  descendants  nor  ascendants,  and  without  having  disposed  by  last  will 
and  testament,  of  his  or  her  share  in  the  community  property,  such 
undisposed  of  share  shall  be  inherited  by  the  survivor  in  full  ownership. 

Art.  916.  In  all  cases,  when  the  predeceased  husband  or  wife  shall 
have  left  issue  of  the  marriage  with  the  survivor,  and  shall  not  have 
disposed  by  last  will  and  testament,  of  his  or  her  share  in  the  community 
property,  the  survivor  shall  hold  a usufruct,  during  his  or  her  natural 
life,  so  much  of  the  share  of  the  deceased  in  such  community  property 
as  may  be  inherited  by  such  issue.  This  usufruct  shall  cease,  however, 
whenever  the  survivor  shall  enter  into  a second  marriage. 

Article  915  was  amended  in  1920  to  read  as  follows: 

When  either  husband  or  wife  shall  die,  leaving  neither  a father  nor 
mother  nor  descendants,  and  without  having  disposed  by  last  will  and 
testament  of  his  or  her  share  of  the  community  property,  such  undisposed 
of  share  shall  be  inherited  by  the  surviving  spouse  in  full  ownership. 
In  the  event  the  deceased  leave  descendants  his  or  her  share  in  the  com- 
munity estate  shall  be  inherited  by  such  descendants  in  the  manner 
provided  by  law.  Should  the  deceased  leave  no  descendants,  but  a father 
and  mother  (or  either),  then  the  share  of  the  deceased  in  the  community 
estate  shall  be  divided  in  two  equal  portions,  one  of  which  shall  go  to  the 
father  and  mother  or  the  survivor  of  them,  and  the  other  portion  shall 
go  the  the  surviving  spouse. 

Art.  2332.  The  partnership,  or  community  of  acquets  or  gains,  needs 
not  be  stipulated;  it  exists  by  operation  of  law,  in  all  cases  where  there 
is  no  stipulation  to  the  contrary. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

T HE  FEDERAL  INCOME  TAX  SERVICE 

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RETURNS. 

it  slfnll  no'e*,*.1'8  m°dify  °r  limit  !,;  they  “-a, 

P~X22S’cS^>^nUr,W  PerS°nS  " divided  in“  s'par«' 

Separate  property  is  that  which  either  party  brings  into  the  marriage 

himoTha  particularly mama^e  * ^ donatio"  * 

Common  property  is  that  which  is  acquired  by  the  husband  and  wife 
Anr8t  ln  any  ,man”er  different  from  that  above  declared. 

2385‘  Ci  pa,raPhern.al  property,  which  is  not  administered  by 
of  tlTe ^husband  6 7 ^ * °ne’  ’S  cons,dered  to  be  under  the  management 

la,,  uTt  j238u‘  ,^hen  ^ ParaPhernal  property  is  administered  by  the 
;Srd’  or  by  blm.a“d  the  ^lfe  indifferently,  the  fruits  of  this  property, 
whether  natural  civil,  or  the  result  of  labor,  belongs  to  the  conjugal 
partnership,  if  there  exists  a community  of  gains.  " If  there  do  not 
each  party  enjoys,  as  he  chooses,  that  which  comes  to  his  hands;  but 
the  fruits  and  revenues  which  are  existing  at  the  dissolution  of  the 
marriage,  belong  to  the  owner  of  the  things  which  produce  them. 

of  rfw  239?'  ECery  marriage  contracted  in  this  State,  superinduces 
right  partnership  or  community  of  acquets  or  gains,  if  there  be  no 
stipulation  to  the  contrary. 

all  ilrt‘  Pt  Partl^ership  or  community  consists  of  the  profits  of 

all  the  effects  of  which  the  husband  has  the  administration  and  enjoy- 

rndniaborhnf  h T m,factj  of.the  produce  of  the  reciprocal  industry 

and  labor  of  both  husband  and  wife,  and  of  the  estates  which  they  may 

acquire  during  the  marriage,  either  by  donations  made  jointly  to  them 
both,  or  by  purchase,  or  in  any  other  similar  way,  even  although  the 
purchase  be  only  in  the  name  of  the  two  and  not  of  both,  because  in  that 
case  the  period  of  time  when  the  purchase  is  made  is  alone  attended  to, 
and  not  the  person  who  made  the  purchase. 

Art.  2404.  The  husband  is  the  head  and  master  of  the  partnership 
or  community  of  gains;  he  administers  its  effects,  disposes  of  the 
revenues  which  they  produce,  and  may  alienate  them  by  an  onerous 
title,  without  the  consent  and  permission  of  his  wife. 

. He  can  mabe  no  conveyance  inter  vivos , by  a gratuitous  title,  of  the 
immovables  of  the  community,  nor  of  the  whole,  or  of  a quote  of  the 
movables,  unless  it  be  for  the  establishment  of  the  children  of  the 
marriage. 

Nevertheless,  he  may  dispose  of  the  movable  effects  by  a gratuitous 
and  particular  title,  to  the  benefit  of  all  persons. 

But  if  it  should.be  proved  that  the  husband  has  sold  the  common 
property  or  otherwise  disposed  of  the  same  by  fraud,  to  injure  his  wife 
she  may  have  her  action  against  the  heirs  of  her  husband,  in  support 
the  fraud"1  °ne-ha  f of  the  ProPerty,  on  her  satisfactorily  proving 

Art.  2406.  The  effects  which  compose  the  partnership  or  community 
of  gains,  are  divided  into  two  equal  portions  between  the  husband  and 
the  wife,  or  between  their  heirs,  at  the  dissolution  of  the  marriage;  and 

u it  u uamf  W1^b  {?sPect  to  the  profits  arising  from  the  effects  which 
both  husband  and  wife  brought  reciprocally  in  marriage,  and  which  have 
been  administered  by  the  husband,  or  by  husband  and  wife  conjointly, 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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RETURNS. 


although  what  has  been  thus  brought  in  marriage,  by  either  the  husband 
or  the  wife  be  more  considerable  than  what  has  been  brought  by  the 
other,  or  even  although  one  of  the  two  did  not  bring  anything  at  all 

2444  These  statutes  were  all  enacted  prior  to  1913  except  Article  915 
which  was  amended  in  1916  and  again  in  1920.  The  later  amendments 

provide  for  the  succession  of  the  deceased  spouse’s  half  of  the  community 
property  when  such  spouse  dies  without  disposition  of  such  interest  by  will. 

2445  Up  to  1907,  with  a few  exceptions,  the  courts  of  Louisiana  appear 
to  have  generally  adhered  to  the  view  that  the  wife’s  interest  in  the 

community  property  is  that  of  an  expectant  heir,  and  that  she  has  no  vested 
interest  therein  until  the  dissolution  of  the  community.  But  in  the  Succes- 
sion of  Marsal,  118  La.  21 1 (1907),  it  was  held  that  the  wife  did  not  take  either 
her  one-half  of  the  community  property  nor  the  usufruct  of  her  husband  s 
one-half  as  heir  (Art.  916)  and  that  she  was  not  therefore  compelled  to  pay 
an  inheritance  tax  on  either  under  the  inheritance  tax  law  of  Louisiana, 

^ jg  true  that  the  right  of  usufruct  which  is  vested  in  the  surviving 

spouse  is  defeasible  at  the  will  of  the  deceased,  but  it  is,  nevertheless, 
a right  conferred  by  the  law,  which  enters  into  and  forms  a part  of  the 
marriage  contract,  and,  of  which  the  survivor  can  be  deprived  by  no  one 
save  the  decreased  spouse,  and  it  seems  to  us  hardly  correct  to  say  that  the 
surviving  spouse  necessarily  takes  the  usufruct  by  inheritance  front  t te 
deceased,  because  the  latter  has  not  made  a testamentary  disposition  to 

the  contrary.”  , . . , . , , . 

2446  In  the  Succession  of  May,  120  La.  691  (1908),  it  was  held  on  the  other 
hand  that  where  a deceased  wife  had  by  will  bequeathed  her  one-halt 

interest  in  the  community  property  to  her  husband,  the  husband  must  pay 
an  inheritance  tax  on  such  share  after  community  debts  had  been  deducted 

2447  The  principle  that  the  rights  of  husband  and  wife  in  the  partnership  s 
gains  grow  out  of  the  marriage  contract  and  do  not  originate  at  its 

dissolution  was  expounded  by  the  court  in  Dixon  v.  Dixon  s Executors, 
4 La.  188  (1831),  where  it  was  said  that  the  wife  has  rights  in  the  acquets 
before  the  husband  dies  and  that  the  objection  confounds  the  power  of  the 
husband  to  defeat  the  wife’s  rights  with  the  existence  of  such  rights. 

2448  In  Beck  v.  Natalie  Oil  Co.,  143  La.  154  (1918),  the  court  said: 

“The  property  involved  in  this  suit  was  acquired  by  the  father  of 

plaintiffs  while  the  community  of  acquets  and  gains  existed  between 
him  and  the  mother  of  the  plaintiffs,  and  the  mother  of  the  plaintiffs, 
as  partner  in  community,  became  owner  of  one-half  of  it.  I his  halt  the 
plaintiffs  inherited  from  their  mother,  subject  to  the  payment  of  the 
debts  of  the  community.” 

2449  In  New  Mexico  the  following  statutes  enacted  in  1907  or  prior  thereto 
define  the  respective  rights  of  husband  and  wife  in  that  state.. 

Sec.  2757.  All  property  of  the  wife  owned  by  her  before  marriage 
and  that  acquired  afterwards  by  gift,  bequest,  devise  or  descent,  with  the 
rents,  issues  and  profits  thereof  is  her  separate  property.  The  wife  may 
without  the  consent  of  her  husband  convey  her  separate  property. 

Sec.  2758.  All  property  owned  by  the  husband  before  marriage,  and 
that  acquired  afterwards  by  gift,  bequest,  devise  or  descent,  with  t le 
rents,  issues  and  profits  thereof  is  his  separate  property..  . 

Sec.  2764.  All  other  property  acquired  after  marriage  by  either 

Copyright  1922.  by  The  Corporation  Trust  Company. 

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filing  for  record  in  the  county  clerk’s  office  of  such 


ively. 


conveyances  respect- 


r r uie .nu5Dana  ana  wile,  or  which  has  been  declared 


+ i ii  • . ^ ui  v>  uccii  ueciarea 

to  be  such  by  a written  instrument  signed  and  acknowledged  by  the 
husband  and  wife  and  recorded  in  the  county  clerk’s  office  of  the  county, 
and  urniture,  furnishings  and  fittings  of  the  home,  or  of  the  clothing 
and  wearing  apparel  of  the  wife  or  minor  children,  which  is  community 
property  shall  be  made  without  the  written  consent  of  the  wife 

bee.  2767.  Whenever  the  husband  is  non  compos  mentis  or  has 
een  convicted  of  a felony  and  sentenced  to  imprisonment  for  a period 
ol  more  than  one  year  or  has  abandoned  his  wife  and  family,  and  left 
er  and  his  family,  if  they  have  children,  without  support  or  is  an 
abitual  drunkard  or  for  any  other  reason  is  incapacitated  to  manage 
and  administer  the  community  property  the  wife  may  present  a petition 
duly  verified  to  the  district  court  of  the  county  wherein  any  of  the 
community  property  is  located  or  situated,  stating  the  name  of  her 
husband,  a description  of  all  community  property,  both  real  and  per- 
sonal,  and  the  facts  which  render  him  incapacitated  to  manage  and 
administer  the  community  property,  and  praying  that  she  be  substituted 
tor  her  husband  as  the  head  of  said  community,  with  the  same  power 
o managing,  administering  and  disposing  of  the  community  property, 
as  is  vested  in  the  husband  by  this  chapter. 

Sec.  2770.  Upon  the  hearing  of  the  petition  so  filed  by  the  wife 
the  court  shall  render  judgment  therein,  either  dismissing  said  petition 
or  adjudging  the  wife  thereafter  to  be  the  head  of  said  community,  with 
full  power  of  managing,  administering  and  disposing  of  the  community 
property,  either  real  or  personal,  with  such  limitation  therein  as  to  the 
court  may  appear  to  be  in  furtherance  of  justice. 

Sec.  2774.  \\  henever  husband  and  wife  shall  have  permanently 

separated  and  no  longer  live  or  cohabit  together  as  husband  and  wife, 


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either  may  institute  suit  in  the  district  court  for  a.  division  of  property, 
or  for  the  disposition  of  the  children,  without  waiting  for ^or  obtaining 
in  said  suit  a dissolution  of  the  bonds  of  matrimony; 

Sec.  2781.  The  failure  to  divide  the  property  on  divorce  shall  not 
affect  the  property  rights  of  either  the  husband  or  wife,  either  may 
subsequently  institute  and  prosecute  a suit  for  division  and  distribution 
thereof,  or  with  reference  to  any  other  matter  pertaining  thereto  which 
could  have  been  litigated  in  the  original  suit  for  divorce. 

Sec.  1840.  Upon  the  death  of  the  wife,  the  entire  community  prop- 
erty, without  administration,  belongs  to  the  surviving  husband,  except 
such  portion  thereof  as  may  have  been  set  apart  to  her  by  a judicial  decree, 
for  her  support  and  maintenance,  which  portion  is  subject  to  her  testa- 
mentary disposition,  and  in  the  absence  of  such  disposition,  goes  to  her 
descendants,  or  heirs,  exclusive  of  her  husband. 

Sec.  1841.  Upon  the  death  of  the  husband  one-half  of  the  community 
property  goes  to  the  surviving  wife  and  the  other  half  is  subject  to  the 
testamentary  disposition  of  the  husband,  and  in  the  absence  of  sue 
disposition  goes  one-fourth  to  the  surviving  wife  and  the  remainder  in 
equal  shares  to  the  children  of  the  decedent  and  further  as  provided  by 
law.  In  the  case  of  the  dissolution  of  the  community  by  the  death  of  the 
husband  the  entire  community  property  is  equally  subject  to  his  debts, 
the  family  allowance  and  the  charge  and  expenses  of  administration. 

2450  Section  2766  was  amended  in  1915  to  read  as  follows: 

The  husband  has  the  management  and  control  of  the  Pers°n^{ 
property  of  the  community,  and  during  the  coverture  the  husband  shall 
have  the  sole  power  of  disposition  of  the  personal  property  of  the  com- 
munity, other  than  testamentary,  .as  he  has  of  his  separate  estate, 
but  the  husband  and  wife  must  join  in  all  deeds  and  mortgages  affecting 
real  estate;  Provided,  that  either  husband  or  wife  may  convey  or  mort- 
gage separate  property  without  the  other  joining  in  such  conveyance 
or  mortgage;  And  provided,  Further,  that  any  transfer  or  conveyance 
attempted  to  be  made  of  the  real  property  of  the  communitt  y eit  er 
husband  or  wife  alone  shall  be  void  and  of  no  effect. 

2451  In  the  recent  case  of  Beals  v.  Ares,  185  Pac.  780  (1919),  the  Supreme 
Court  of  New  Mexico  carefully  reviewed  the  history  of  the  community 

property  system  in  New  Mexico,  arriving  at  the  following  conclusions: 

(1)  That  under  the  law  in  this  jurisdiction  the  wife  s interest  in  the 
community  property  is  equal  with  that  of  the  husband;  that,  while  he 
is  by  statute  made  the  agent  of  the  community  and  given  dominion  and 
control  over  the  community  property  during  the  continuance  of  the 
marriage  relation,  his  interest  in  the  property  by  reason  of  such  fact 
is  not  superior  to  that  of  his  wife. 

(2)  That  the  wife  does  not  forfeit  her  interest  in  the  community 
property  by  the  commission  of  adultery. 

(3)  That  there  is  no  statute  in  this  state  conferring  upon  the  district 
court  the  power  to  divide  the  community  property  between  the  parties 
at  its  discretion;  that,  while  it  has  power  to  divide  the  property,  this 
power  does  not  extend  further  than  to  set  apart  to  each  of  the  spouses 
their  undivided  half  interest  in  the  property. 

(4)  That  the  district  courts  have  the  power  in  all  cases  to  set  apart 
such  portion  of  the  community  property  or  of  the  property  of  the  respec- 
tive spouses  as  in  its  discretion  may  be  necessary  for  the  proper  support, 
care,  and  maintenance  of  the  children  born  as  a result  of  the  marriage. 

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2462  The  conclusion  of  the  court  that  the  interest  of  husband  and  wife 

secs  2 the  °f 

clearly  recognizes  an  existing,  present  interest  in  the  wife  during  the 
thTt °-f  thC  matnmomal  s^tus:  * * * Section  7481  recognizes 
L not  ^ fruSt  ^on^nues  ,even  after  divorce,  where  the  property 
is  not  divided  by  the  decrees  the  divorce  case.  Now,  if  she  had  no 
interest  in  the  property  during  the  existence  of  the  community,  but 
simply  an  expectancy  which  would  ripen  into  an  interest  only  upon  the 
eath  ot  the  husband,  and  which  expectancy  continued  only  during  the 
existence  of  the  marital  status,  this  expectant  interest  could  be  cut  off 
by  the  divorce  decree  * * *. 

• • r sectipns  referred  to  clearly  recognize  a present  interest 

in  the  wife,  and  the  whole  act  shows  that  she  was  an  equal  partner  with 
er  husband  in  the  matrimonial  gains.  He  was  constituted  by  section  16, 
c.  37  Laws  of  1907,  as  the  agent  or  manager  of  the  community  property, 
but  this  did  not  vest  him  with  the  larger  or  superior  interest  in  the 
property  upon  division. 

2453  In  Nevada  the  relative  rights  of  husband  and  wife  in  community 
of  that  s^r7  are  ^e^net*  'n  tbe  f°U°wing  sections  of  the  Revised  Laws 

atl  iS,lC\2155‘  • AJ1  Pr?Pert>:  of  the  wife  owned  by  her  before  marriage, 
f"?d,  Jv,  acquifed  by  her  afterwards  by  gift,  bequest,  devise  or  descent, 
h the  rents,  issues,  and  profits  thereof,  is  her  separate  property:  and  all 
property  of  the  husband,  owned  by  him  before  marriage,  and  that 
acquired  by  him  afterwards  by  gift,  bequest,  devise,  or  descent,  with  the 
rents,  issues  and  profits  thereof,  is  his  separate  property. 

bee  2156  All  other  property  acquired  after  marriage,  by  either 
husband  or  wife  or  both,  except  as  provided  by  sections  14,  and  15  of  this 
act  is  community  property. 

Sec.  2160.  The  husband  shall  have  the  entire  management  and 
control  of  the  community  property,  with  the  like  absolute  power  of 
disposition  thereof  except  as  hereinafter  provided,  as  of  his  own  separate 
estate;  provided , that  no  deed  of  conveyance  or  mortgage  of  a homestead 
as  now  defined  by  law,  regardless  of  whether  a declaration  thereof  has 

u u j1"  ncf’  .sba11  be  valld  *or  any  Purpose  whatever  unless  both 
the  husband  and  wife  execute  and  acknowledge  the  same  as  now  provided 
by  aw  for  the  conveyance  of  real  estate;  provided,  further,  that  the  wife 
shall  have  the  entire  management  and  control  of  the  earnings  and 
accumulations  of  herself  and  her  minor  children  living  with  her,  with  the 
like  absolute  power  of  disposition  thereof,  when  said  earnings  and 
accumulations  are  used  for  the  care  and  maintenance  of  the  family. 

section  2164.  Upon  the  death  of  the  wife  the  entire  community 
property  belongs,  without  administration,  to  the  surviving  husband, 
except  that  in  case  the  husband  shall  have  abandoned  his  wife  and  lived, 
separate  and  apart  from  her  without  such  cause  as  would  have  entitled 
him  to  a divorce,  the  half  of  the  community  property  subject  to  the 
payment  of  its  equal  share  of  the  debts  chargeable  to  the  estate  owned  in 
community  by  the  husband  and  wife,  is  at  her  testamentary  disposition 
m “ie,.sam(:  manner  as  her  separate  property,  and  in  the  absence  of 
such  disposition  goes  to  her  descendants  equally,  if  such  descendants 
are  in  the  same  degree  of  kindred  to  the  decedent;  otherwise,  according 

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to  the  right  of  representation;  and  in  the  absence  of  both  such  disposition 
and  ’such"descendants,  goes  to  her  other  heirs  at  law,  exclusive  of  her 
husband. 

Section  2165.  Upon  the  death  of  the  husband  one-half  of  the  com- 
munity property  goes  to  the  surviving  wife,  and  the  other  half  is  subject 
to  the  testamentary  disposition  of  the  husband,  and  in  the  absence  of  such 
disposition  goes  to  his  surviving  children,  equally,  and  in  the  absence 
of  both  such  disposition  and  surviving  children,  the  entire  community 
property  belongs  without  administration  to  the  surviving  wife  except 
as  hereinafter  provided,  subject,  however,  to  all  debts  contracted  by 
the  husband  during  his  life  that  were  not  barred  by  the  statute  of  limita- 
tions at  the  time  of  his  death;  provided , however , that  the  homestead 
set  apart  by  the  husband  and  wife,  or  either  of  them  before  his  death, 
and  such  other  property  as  may  be  exempt  by  law  from  execution  or 
forced  sale,  shall  be  set  apart  for  the  use  of  the  widow  and  minor  heirs, 
and  if  no  minor  heirs,  for  the  use  of  the  widow.  In  case  of  the  dissolution 
of  the  community  by  the  death  of  the  husband,  the  entire  community 
property  is  equally  subject  to  his  debts,  the  family  allowance  and  charges 
and  expense  of  administration;  provided  however , that  if  in  the  absence 
of  said  testamentary  disposition  the  surviving  wife  and  children,  and  in 
the  absence  of  such  children  the  wife  shall  pay  or  cause  to  be  paid  all 
indebtedness  legally  due  from  said  estate,  or  secure  the  payment  of  the 
same  to  the  satisfaction  of  the  creditors  of  said  estate,  then  and  in  such 
case  the  said  community  property  shall  not  be  subject  to  administration. 

2454  Section  2166.  provides  that  on  dissolution  of  the  marriage  on  divorce 
the  community  property  must  be  equally  divided  between  the  parties, 

except  that,  in  case  of  divorce  for  adultery  or  extreme  cruelty  the  guilty 
party  is  entitled  to  only  so  much  thereof  as  the  court  may  allow.  All  of  the 
above  sections,  except  2160,  which  was  amended  in  1917,  were  enacted  orior 
to  1913.  F 

2455  One  of  the  most  recent  and  comprehensive  decisions  of  the  Supreme 
Court  of  Nevada,  interpreting  the  above  statutes  and  defining  the 

interests  of  husband  and  wife  in  community  property,  is  In  re  Williams 
40  Nev.  241,  rendered  in  1916.  In  that  case  it  was  sought  to  collect  a tax 
under  the  Nevada  inheritance  tax  act  of  1913  on  the  one-half  of  the  com- 
munity property  which  passed  to.  the  wife  on  the  death  of  the  husband. 
But  the  Court,  after  a careful  review  of  the  decisions  and  the  Constitution 
of  the  state,  which  provided  in  Sec.  31  of  Art.  4 that  “laws  shall  be  passed 
more  clearly  defining  the.  rights  of  the  wife  in  relation  as  well  to  her  separate 
property,  as  to  that  held  in  common  with  her  husband”  said: 

“It.  may,  we  think,  be  asserted,  supported  by  the  great  weight  of 
authority,  that  the  interest  of  the  wife  in  the  community  property  and 
her  title  thereto  is.no  less  than  that  held  by  the  husband,  and  this  interest 
and  title  in  the  wife  is  not  to  be  regarded  as  a mere  expectancy. 

“Concluding,  as  we  do,  that  the  wife’s  interest  in  the  community 
property  goes  to  her,  not  by  succession  or  inheritance,  but  rather  by 
a right  vested  in  her  at  all  times  during  marriage,  it  follows  that  it  is 
not  subject  to  the  law  of  inheritance  tax.” 

2456  The  respective  rights  of  the  husband  and  wife  in  the  community 
property  of  the  state  of  Washington  are  defined  by  the  following 

sections  of  Pierce’s  Washington  Code  of  1919,  all  of  which  were  enacted 
prior  to  1913. 

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Sec.  1424.  The  property  and  pecuniary  rights  of  every  married 
woman  at  the  time  of  her  marriage  or  afterwards  acquired  by  gift, 
devise  or  inheritance,  with  the  rents,  issue,  profits  thereof,  shall  not  be 
subject  to  the  debts  or  contracts  of  her  husband,  and  she  may  manage, 
lease,  sell,  convey,  encumber  or  devise  by  will  such  property  to  the  same 
extent  and  in  the  same  manner  that  her  husband  can,  property  belong- 
ing to  him. 

Sec.  1428.  A wife  may  receive  the  wages  of  her  personal  labor,  and 
maintain  an  action  therefor,  in  her  own  name  and  hold  the  same  in  her 
own  right,  and  she  may  prosecute  and  defend  all  action  at  law  for  the 
preservation  and  protection  of  her  rights  and  property  as  if  unmarried. 

Sec.  1432.  Property  and  pecuniary  rights  owned  by  the  husband 
before  marriage  and  that  acquired  by  him  afterwards  by  gift,  bequest, 
devise  or  descent,  with  the  rents,  issues,  and  profits  thereof,  shall  not  be 
subject  to  the  debts  or  contracts  of  his  wife,  and  he  may  manage,  lease, 
sell,  convey,  encumber  or  devise  by  will  such  property  without  the  wife 
joining  in  such  management,  alienation  or  encumbrance,  as  fully  and  to 
the  same  effect  as  though  he  were  unmarried. 

Sec.  1433.  Property  not  acquired  or  owned,  as  prescribed  in  sections 
2400  and  2408  acquired  after  marriage  by  either  husband  or  wife  or 
both,  is  community  property.  The  husband  shall  have  the  management 
and  control  of  community  personal  property,  with  a like  power  of  dis- 
position as  he  has  of  his  separate  personal  property,  except  he  shall  not 
devise  by  will  more  than  one-half  thereof. 

Sec.  1434.  The  husband  has  the  management  and  control  of  the 
community  real  property,  but  he  shall  not  sell,  convey  or  encumber, 
the  community  real  estate,  unless  the  wife  join  with  him  in  executing 
the  deed  or  other  instrument  of  conveyance  by  which  the  real  estate  is 
sold,  conveyed  or  encumbered,  and  such  deed  or  other  instrument  of  con- 
veyance must  be  acknowledged  by  him  and  his  wife:  Provided , however , 
That  all  such  community  real  estate  shall  be  subject  to  the  liens,  of 
mechanics  and  others  for  labor  and  materials  furnished  in  erecting 
structures  and  improvements  thereon  as  provided  by  law  in  other  cases, 
and  to  liens  of  judgments  recovered  for  community  debts,  and  to  sale 
on  execution  issued  thereon. 

Sec.  1435.  Upon  the  death  of  either  husband  or  wife,  one-half  of  the 
community  property  shall  go  to  the  survivor  subject  to  the  community 
debts,  and  the  other  half  shall  be  subject  to  his  testamentary  disposition 
of  the’ deceased  husband  or  wife,  subject  also  to  the  community  debts. 

Sec.  1436.  In  case  no  testamentary  disposition  shall  have  been  made 
by  the  deceased  husband  or  wife  of  his  or  her  half  of  the  community  prop- 
erty it  shall  descend  equally  to  the  legitimate  issue  of  his,  her  or  their 
bodies.  If  there  be  no  issue  of  said  deceased  living  or  none  of  their  repre- 
sentatives living,  then  the  said  community  property  shall  all  pass  to  the 
survivor,  to  the  exclusion  of  collateral  heirs,  subject  to  the  community 
debts,  the  family  allowance  and  the  charges  and  expenses  of  administra- 
tion. 

2457  It  appears  to  be  the  settled  law  of  that  state  that  the  wife  has,  during 
coverture,  as  well  as  upon  the  dissolution  of  the  marriage,  a vested 
and  definite  interest  and  title  in  community  property,  equal  in  all  respects 
to  the  interest  and  title  of  her  husband  therein.  Leading  cases  are: 

Holyoke  v.  Jackson,  3 Wash.  T.  235; 

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Mabie  v.  Whittaker,  39  Pac.  172; 

Marston  v.  Rue,  92  Wash.  129  (159  Pac.  Ill); 

Schramm  v.  Steel,  166  Pac.  634  (97  Wash.  309); 

Iluyvaerts  v.  Roedtz,  178  Pac.  801. 

2458  The  statutes  of  California  defining  the  relative  property  rights  of 
husband  and  wife  are  found  in  the  following  sections  of  the  Civil 

Code: 

Sec.  162.  All  property  of  the  wife,  owned  by  her  before  marriage, 
and  that  acquired  afterwards  by  gift,  bequest,  devise,  or  descent,  with  the 
rents,  issues,  and  profits  thereof,  is  her  separate  property.  The  wife  may, 
without  the  consent  of  her  husband,  convey  her  separate  property.  p?i 

Sec.  163.  All  property  owned  by  the  husband  before  marriage,  and 
that  acquired  afterwards  by  gift,  bequest,  devise,  or  descent,  with  the 
rents,  issues,  and  profits  thereof,  is  his  separate  property. 

Sec.  164.  All  other  property  acquired  after  marriage  by  either  hus- 
band or  wife,  or  both,  including  real  property  situated  in  this  state , and 
personal  property  wherever  situated,  acquired  while  domiciled  elsewhere , 
which  would  not  have  been  the  separate  property  of  either  if  acquired  while 
domiciled  in  this  state,  is  community  property;  but  wherever  any  prop- 
erty is  conveyed  to  a married  woman  by  an  instrument  in  writing,  the 
presumption  is  that  the  title  is  thereby  vested  in  her  as  her  separate 
property.  And  in  case  the  conveyance  is  to  such  married  woman  and  to 
her  husband,  or  to  her  and  any  other  person,  the  presumption  is  that  the 
married  woman  takes  the  part  conveyed  to  her,  as  tenant  in  common, 
unless  a.  different  intention  is  expressed  in  the  instrument,  and  the  pre- 
sumption in  this  section  mentioned  is  conclusive  in  favor  of  a purchaser 
or  encumbrancer  in  good  faith  and  for  a valuable  consideration.  And  in 
cases  where  married  women  have  conveyed,  or  shall  hereafter  convey, 
real  property  which  they  acquired  prior  to  May  nineteenth,  one  thousand 
eight  hundred  eighty-nine,  the  husband,  or  their  heirs  or  assigns,  of  such 
married  woman,  shall  be  barred  from  commencing  or  maintaining  any 
action  to  show  that  said  real  property  was  community  property,  or  to 
recover  said  real  property,  as  follows:  As  to  conveyances  heretofore 

made,  from  and  after  one  year  from  the  date  of  the  taking  effect  of  this 
act;  and  as  to  conveyances  hereafter  made,  from  and  after  one  year 
from  the  filing  for  record  in  the  recorder’s  office  of  such  conveyances, 
respectively. 

Sec.  172.  The  husband  has  the  management  and  control  of  the  com- 
munity personal  property,  with  like  absolute  power  of  disposition,  other 
than  testamentary,  as  he  has  of  his  separate  estate;  provided,  however, 
that  he  cannot  make  a gift  of  such  community  personal  property,  or  dis- 
pose of  the  same  without  a valuable  consideration,  or  sell,  convey,  or  en- 
cumber  the  furniture,  furnishings  or  fittings  of  the  home,  or  the  clothing 
or  wearing  apparel  of  the  wife  or  minor  children  that  is  community,  with- 
out the  written  consent  of  the  wife. 

Sec.  172a.  The  husband  has  the  management  and  control  of  the 
community  real  property,  but  the  wife  must  join  with  him  in  executing 
any  instrument  by  which  such  community  real  property  or  any  interest 
therein  is  leased  for  a longer  period  than  one  year,  or  is  sold,  conveyed, 
or  encumbered;  provided,  however,  that  the  sole  lease,  contract,  mort- 
gage or  deed  of  the  husband,  holding  the  record  title  to  community  real 
property,  to  a lessee,  purchaser'orjencumbrancer,  in  good  faith  without 

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knowledge  of  the  marriage  relation  shall  be  presumed  to  be  valid;  but 
no  action  to  avoid  such  instrument  shall  be  commenced  after  the  expira- 
tion of  one  year  from  the  filing  for  record  of  such  instrument  in  the 
recorder’s  office  in  the  country  in  which  the  land  is  situate. 

Sec.  1401.  Upon  the  death  of  the  wife,  the  entire  community  property, 
without  administration,  belongs  to  the  surviving  husband,  except  such 
portion  thereof  as  may  have  been  set  apart  to  her  by  judicial  decree, 
for  her  support  and  maintenance,  which  portion  is  subject  to  her  testa- 
mentary disposition,  and  in  the  absence  of  such  disposition,  goes  to  her 
descendants,  or  heirs,  exclusive  of  her  husband. 

Sec.  1402.  Upon  the  death  of  the  husband,  one  half  of  the  community 
property  goes  to  the  surviving  wife,  and  the  other  half  is  subject  to  the 
testamentary  disposition  of  the  husband,  and  in  the  absence  of  such  dis- 
position, goes  to  his  descendants,  equally,  if  such  descendants  are  in  the 
same  degree  of  kindred  to  the  decedent;  otherwise,  according,  to  the 
right  of  representation;  and  in  the  absence  of  both  such  disposition  and 
such  descendants,  is  subject  to  distribution  in  the  same  manner  as  the 
separate  property  of  the  husband.  In  case  of  the  dissolution  of  the 
community  by  the  death  of  the  husband,  the  entire  community  prop- 
erty is  equally  subject  to  his  debts,  the  family  allowance,  and  the 
charges  and  expenses  of  administration. 

2459  Sections  164  and  172  were  amended  to  read  as  above  in  1917,  and 
172a  was  then  added.  The  changes  in  Sec.  164  then  made  are  under- 
lined. Prior  to  1917  Sec.  172  applied  to  all  the  community  property  and 
was  amended  only  by  the  insertion  of  the  word  “personal.”  Section  172a 
imposes  a limitation  upon  the  power  of  the  husband  to  alienate  community 

real  property.  . 

2460  While  the  statutes  of  California  are  in  some  respects  similar  to  the 
community  property  laws  of  the  other  community  property  states, 

the  rule  established  by  the  highest  courts  of  that  state  is  that  during  coverture 
the  wife  has  no  vested  interest  in  the  community  property,  her  interest 
therein  being  a mere  expectancy. 

2461  In  Spreckles  v.  Spreckles,  116  Cal.  339  (1897),  the  Supreme  Court 
of  that  state  held  that  prior  to  the  amendment  of  1891  to  Sec.  172 

of  the  Civil  Code,  forbidding  the  husband  to  give  away  community  property 
without  the  consent  of  the  wife  in  writing,  the  code  vested  in  the  husband 
all  the  elements  of  absolute  ownership  of  the  community  property;  that  the 
wife’s  interest  was  a mere  expectancy,  and  as  to  all  the  world  except  the 
wife,  there  was,  prior  to  that  amendment,  no  distinction  between  the  com- 
munity estate  and  the  separate  estate  of  the  husband;  and  that  the  amend- 
ment could  not  be  construed  retroactively  so  as  to  deprive  the.  husband 
of  his  vested  right  to  dispose  by  gift  of  community  property  acquired  prior 
to  the  amendment,  without  the  consent  of  the  wife. 

2462  In  1905  California  passed  an  inheritance  tax  law,  and  subsequently  the 
question  was  raised  whether  a widow  should  be  compelled  to  pay  such 

tax  on  that  one-half  of  the  community  property  that  she  took  on  the  death 
of  her  husband.  In  the  Estate  of  Moffitt,  153  Cal.  359  (1908),  the  Supreme 
Court  of  California  held  that  she  did,  since  she  had  no  vested  interest  in 
the  community  estate  and  took  her  one-half  on  the  death  of  her  husband  as 

2463  This  case  was  taken  to  the  Supreme  Court  of  the  United  States 
(Moffitt  v.  Kelly,  218  U.  S.  400)  where  the  judgment  of  the  lower 

court  was  affirmed,  the  court  laying  down  the  rule  that  the  nature  and 

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character  of  the  right  of  the  wife  in  community  property  for  the  purpose 
of  taxation  is  a peculiarly  local  question,  and  the  determination  of  the  state 
court  in  regard  thereto  is  not  reviewable  by  thejSupreme  Court;  and,  further, 
that  the  law  of  California  of  1905,  taxing  all  property  passing  by  will  or 
intestacy,  having  been  construed  by  the  highest  court  of  that  state  as  applying 
to  the  wife’s  share  of  the  community  property,  such  tax  is  not  in  conflict  with 
the  contract,  due  process,  or  equal  protection  clauses  of  the  Constitution. 

2464  Subsequently  the  inheritance  tax  law  of  California  was  amended  to 
provide  “that  for  the  purpose  of  this  act”  the  one-half  of  the  com- 
munity property  which  goes  to  the  surviving  wife  on  the  death  of  her  husband, 
under  the  provisions  of  Sec.  1402  of  the  Civil  Code  “shall  not  be  deemed  to 
pass  to  her  as  heir  to  her  husband,  but  shall,  for  the  purpose  of  this  act, 
be  deemed  to  go,  pass,  or  be  transferred,  to  her  for  valuable  and  adequate 
consideration.” 

2465  It  is  obvious  that  this  language  does  not  change  the  rule  of  community 
property  in  the  state  nor  vest  in  the  wife  any  interest  thereto  prior 

to  the  dissolution  of  the  community;  rather  it  emphasizes  the  existing  rule 
that  the  wife  has  no  vested  interest  in  community  property., 

2466  As  to  the  effect  of  Sec.  172a  of  the  Civil  Code,  enacted  in  1917,  it 
is  not  to  be  presumed  that  the  legislature  intended,  by  the  enactment 

of  same  to  make  so  revolutionary  a change  in  the  existing  rule  of  property 
in  California  as  to  divest  the  husband  of  his  ownership  in  the  community 
property.  As  was  said  in  Spreckles  v.  Spreckles,  supra,  “If  a husband  can- 
not make  a valid  transfer  of  the  property  for  the  purpose  of  depriving  his 
wife  of  it,  that  does  not  show  a vested  right  in  her;”  and  giving  the  fullest 
ossible  effect  to  the  language,  unless  the  wife  had  a vested  interest  by  virtue 
of  the  law  as  it  theretofore  existed,  which  it  must  be  conceded  she  did  not, 
the  operation  of  the  amendment  would  necessarily  be  confined  to  com- 
munity property  acquired  after  May  23,  1917. 


m 


I 


SUMMARY 

2467  Summarizing,  it  appears  that  in  all  of  the  community  property  states 
except  California  their  own  courts  have  held  that  the  wife  has,  during 

the  existence  of  the  marriage  relation,  a vested  interest  in  one-half  of  the 
community  property.  Her  rights  in  the  property  of  the  community  are 
perhaps  most  fully  recognized  in  the  State  of  Washington,  where  both  spouses 
rave  testamentary  disposition  over  one-half  of  the  community  property, 
and  where  in  the  absence  of  such  disposition  it  descends  to  their  issue,  or, 
in  the  absence  of  issue,  to  the  survivor;  while  the  husband  is  manager  of 
the  community  estate  in  Washington  he  may  not  sell,  convey,  or  encumber  real 
estate  unless  the  wife  join  with  him  in  the  conveyance;  and  as  was  held  in 
Huyvaerts  v.  Roedtz,  ante,  and  Schramm  v.  Steele,  ante,  the  separate 
debt  of  the  husband  cannot  be  satisfied  out  of  community  property  where 
t is  not  incurred  in  connection  with  the  community  business,  nor  for  the 
enefit  of  the  community. 

2468  In  Idaho  it  is  seen  that  the  limitation  upon  the  alienation  of  the  com- 
munity real  property  is  the  same  as  in  Washington.  But  while  the 

wife’s  earnings  and  the  rents  and  profits  of  her  separate  estate  are  com- 
munity property  she  is  given  the  management  and  control  of  same.  The 
Idaho  rule  governing  the  disposition  of  community  property  on  the  death 
.of  either  spouse  is,  with  minor  variations,  the  same  as  that  of  Washington, 
n neither  state  is  an  inheritance  tax  payable  on  the  one-half  of  the  com- 
munity that  goes  to  the  one  spouse  on  the  death  of  the  other. 

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2469  In  Arizona  the  husband  only  may  dispose  of  community  personal 
property,  but  the  wife  must  join  him  in  deeds  or  mortgages  affecting 

real  estate,  except  unpatented  mining  claims.  One-half  of  the  community 
property  is  subject  to  the  testamentary  disposition  of  either  spouse,  and  in 
absence  of  such  disposition  goes  to  his  or  her  descendants;  where  there  is 
neither  testamentary  disposition  nor  descendants,  it  is  subject  to  distribution 
in  the  same  manner  as  the  separate  property  of  the  husband.  On  decree 
of  divorce  the  Court  may  divide  the  property  as  he  sees  fit,  but  in  the  absence 
of  provision  for  the  community  property  the  parties  from  the  date  of  the 
decree  hold  as  tenants  in  common.  The  courts  of  Arizona  hold  that  the  wife 
is  equal  owner  with  her  husband. 

2470  In  Nevada  the  husband  has  the  entire  management  and  control  of 
the  community  property,  except  that  the  wife  has  entire  control  of 

her  earnings  when  living  separate  from  her  husband.  Upon  her  death  the 
husband  takes  the  whole  community  estate,  except  that  where  he  has  aban- 
doned her  without  good  cause  she  may  by  will  dispose  of  half  and  in  absence 
of  such  disposition  it  goes  to  her  heirs,  exclusive  of  her  husband.  On  the 
death  of  the  husband  the  wife  takes  half  and  the  husband  may  dispose  of 
the  other  half  by  will,  or  it  goes  to  his  surviving  children;  if  there  is  no  will 
and  no  children  survive,  the  whole  goes  to  the  wife  without  administration, 
subject  to  certain  provisos.  On  dissolution  of  community  by  divorce  for 
any  other  ground  than  adultery  or  extreme  cruelty,  the  community  property 
must  be  equally  divided  between  the  parties.  The  wife  pays  no  inheritance 
tax  under  the  inheritance  tax  law  of  Nevada  on  her  interest  in  community 
property  the  courts  holding  that  she  takes  not  as  heir  but  by  a right  vested 
in  her  at  all  times  during  marriage.  It  is  to  be  noted  that  the  Constitution 
of  Nevada  recognizes  the  wife’s  interest  in  community  property. 

2471  In  New  Mexico  while  the  husband  is  manager  of  the  community 
estate,  he  may  not  transfer  real  property  without  a valuable  consider- 
ation without  the  written  consent  of  his  wife;  and  under  certain  circumstances 
the  wife  may  be  substituted  as  manager;  prior  to  1915  he  could  not  transfer 
community  personal  property  except  for  a valuable  consideration  without  her 
written  consent;  on  dissolution  of  the  community  by  the  death  of  the  wife 
the  husband  takes  all  except  such  portion  as  may  have  been  set  aside  to  the 
wife  by  judicial  decree,  which  portion  goes  to  her  heirs  unless  she  has  disposed 
of  same  by  will;  on  death  of  the  husband  one-half  goes  to  the  wife  and  the 
other  half  is  subject  to  testamentary  disposition  by  the  husband.  If  he  makes 
no  will  one-fourth  of  his  one-half  goes  to  the  wife  and  the  remainder  to  the 
children.  On  separation  either  may  petition  for  division  of  community 
property  and  after  divorce  continue  to  hold  as  tenants  in  common  where  no 
disposition  has  been  made  in  the  divorce  decree.  New  ^Mexico  has  no  state 
inheritance  tax  act. 

2472  In  Louisiana  the  community  property  comprehends  all  property 
acquired  during  the  marriage  by  either  husband  or  wife  except  that 

acquired  with  separate  funds  or  by  inheritance  or  particular  donation,  and 
excepting  the  earnings  of  the  wife  when  she  is  living  separate  from  her  hus- 
band; the  husband  is  manager  of  the  community  but  he  may  not  convey 
community  immovables  by  gratuitous  title,  and  cannot  dispose  of  movables 
in  fraud  of  the  wife;  either  spouse  may  dispose  of  one-half  the  community 
property  by  will  and  the  laws  governing  the  descent  of  such  property  in  the 
absence  of  testamentary  disposition  apply  equally  to  both  spouses,  the  sur- 
vivor taking  the  deceased  spouse’s  half  by  inheritance  when  there  is  no  will, 

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RETURNS. 


and  neither  father,  mother  or  descendants.  As  heretofore  stated  the  sur- 
vivor pays  no  inheritance  tax  on  his  or  her  one-half  of  the  community  property 
but  does  pay  on  that  part  inherited  from  the  deceased  spouse. 

2473  In  California  the  wife  has  no  power  of  testamentary  disposition  of 
community  property  except  of  such  as  may  have  been  set  aside  to 

her  by  judicial  decree;  she  takes  one-half  as  heir  on  the  death  of  the  husband; 
but  on  the  death  of  the  wife  the  entire  community  property  belongs  to  the 
husband  without  administration.  The  California  courts  have  held  that 
under  the  law  as  it  stood  prior  to  1917  the  wife  had  no  vested  interest  in  com- 
munity property  prior  to  the  dissolution  of  the  marriage;  the  amendment 
to  the  inheritance  tax  act  being  limited  to  the  purposes  of  that  act  could  not 
have  had  the  effect  of  vesting  an  interest  in  her,  and  had  the  addition  of  Sec. 
172a  had  that  effect  any  amendment  of  the  inheritance  tax  act  would  have 
been  unnecessary  to  exempt  her  one-half  from  taxation  thereunder.  In  the 
case  of  Blum  v.  Warded,  now  pending  before  the  Circuit  Court  of  Appeals 
of  the  Ninth  Circuit,  on  appeal  from  the  District  Court  of  the  Northern  Dis- 
trict of  California,  the  application  of  the  Federal  estate  tax  act  of  1916  is 
under  consideration. 

2474  As  appears  from  my  opinion  of  Sept.  10,  1920  ft[2391],  in  Texas  the 
control  of  community  property  is  divided  between  the  husband  and 

wife;  in  that  state  on  the  death  of  either  spouse  without  issue  the  survivor 
takes  the  whole  and  where  there  is  issue,  takes  one-half,  the  other  half  going 
to  said  issue  or  their  descendants.  Under  the  state  inheritance  tax  law  the 
wife  pays  no  tax  on  her  half  of  the  community  property. 


2475  In  Warburton  v.  White,  176  U.  S.  484,  496,  the  principle  was  enunci- 
ated that  where  state  decisions  have  interpreted  state  laws  govern- 
ing property  or  controlling  relations  that  are  essentially  of  a domestic  and 
state  nature  the  United  States  Supreme  Court  will  follow  the  state  decisions 
if  possible  to  do  so,  in  the  discharge  of  its  duties.  Also  in  De  Vaughn  v. 
Hutchinson,  165  U.  S.  566,  570,  it  was  held  that  to  the  law  of  the  state  in  which 
property  is  situated  we  must  look  for  the  rules  which  govern  its  descent, 
alienation  and  transfer,  and  for  the  effect  and  construction  of  wills  and  other 
conveyances.  In  United  States  v.  Crosby,  7 Cranch  115,  it  was  held  that  the 
title  to  land  can  be  acquired  and  lost  only  in  the  manner  prescribed  by  the 
law  of  the  place  where  same  is  situated. 

2476  In  arriving  at  an  answer  to  the  questions  propounded  by  you  we  are 
called  upon  to  determine  the  rules  of  property  in  the  community 

property  states;  we  have,  therefore,  pursuant  to  the  rules  of  the  above  cases, 
adopted  the  rules  laid  down  by  the  highest  courts  of  the  various  states.  There 
remains  to  be  determined  the  application  thereto,  of  the  income  and  estate 
tax  provisions  of  Federal  statutes.  In  my  previous  opinion  it  was  stated 
that  since  in  Texas  the  ownership  in  one-half  of  all  community  property 
vests  in  each  spouse,  whatever  is  income  to  the  community  is  income  to  both. 
This  conclusion  applies,  therefore,  to  all  states  in  which  community  property 
is  held  to  be  vested  equally  in  both  spouses. 

2477  Section  201  of  the  Revenue  Act  of  1916  and  Sec.  401  of  that  of  1918 
imposes  a tax  “upon  the  transfer  of  the  net  estate  of  every  decedent” 

dying  after  the  passage  thereof,  to  be  determined  as  is  set  forth  in  the  sections 
following,  which  are: 

Revenue  Act  of  1918. 

Sec.  402.  That  the  value  of  the  gross  estate  of  the  decedent  shall 

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be  determined  by  including  the  value  at  the  time  of  his  death  of  all 
property,  real  or  personal,  tangible  or  intangible,  wherever  situated — 
t (a)  ..Tojdie  extent  of  the  interest  therein  of  the  decedent  at  the  time 
of  his  death  which  after  his  death  is  subject  to  the  payment  of  the  charges 
against  his  estate  and  the  expenses  of  its  administration  and  is  subject 

to  distribution  as  part  of  his  estate; 

* * * 

(d)  To  the  extent  of  the  interest  therein  held  jointly  or  as  tenants 
in  the  entirety  by  the  decedent  and  any  other  person,  or  deposited  in 
banks  or  other  institutions  in  their  joint  names  and  payable  to  either  or 
the  survivor,  except  such  part  thereof  as  may  be  shown  to  have  originally 
belonged  to  such  other  person  and  never  to  have  belonged  to  the  de- 
cedent. 

2478  Subdivisions  (a)  and  (c)  of  Section  202  of  the  Revenue  Act  of  1916 
are  identical  with  subdivisions  (a)  and  (d)  of  Section  402  of  the  Rev- 
enue Act  of  1918,  quoted  above. 

2479  While  the  community  estate  of  husband  and  wife  has  not  in  the 
strictest  sense  all  the  incidents  of  a joint  estate  or  an  estate  in  the 

entirety  as  they  were  known  at  common  law,  I am  convinced  that  the  com- 
munity estate  is  for  all  practical  purposes  within  the  language  of  subdivision 
(d)  of  Sec.  402,  there  being  deductible  therefrom,  in  arriving  at  the  net  estate 
of  decedent,  the  one-half  interest  of  the  surviving  spouse,  which  may  be  shown 
to  have  originally  belonged  to  such  person,  and  never  to  have  belonged  to  the 
decedent. 

2480  And  even  though  it  should  be  held  that  the  community  estate  is  not  a 
“joint  estate”  or  an  “estate  in  the  entirety”  within  the  meaning  of  the 

revenue  acts,  the  one-half  interest  of  the  deceased  spouse  in  community 
property  would  still  be  subject  to  tax  under  the  language  of  subdivision  (a) 
above. 

2481  My  answers  to  your  questions  are  therefore: 

2482  (1)  That  in  Washington,  Arizona,  Idaho,  New  Mexico,  Louisiana 
and  Nevada  the  husband  and  wife  domiciled  therein,  in  rendering 

separate  income  tax  returns,  may  each  report  as  gross  income,  one- 
half  of  the  income  which  under  the  laws  of  the  respective  states  becomes, 
simultaneously  with  its  receipt,  community  property. 

2483  (2)  In  the  states  mentioned  in  answer  to  question  one  there  should  be 
included  in  gross  estate,  in  computing  the  estate  tax  of  a deceased 

spouse,  one-half  only  of  the  community  property  of  husband  and  wife  domic- 
iled therein. 

2484  (3)  Neither  of  the  above  answers  is  based  upon  a statute  enacted 
subsequent  to  March  1,  1913. 

2485  (4)  My  answers  to  these  questions  apply  under  income  and  estate 
tax  acts  prior  to  the  Revenue  Act  of  1918.  (Opinion  of  Attorney 

General  A.  Mitchell  Palmer,  February  26,  1921,  appended  to  and  made  a 
part  of  T.  D.  3138,  ^[242 3.) 

2486  Form  of  Return. — The  return  shall  be  on  Form  1040,  except  that  it 
may  be  on  short  Form  1040  A where  the  net  income  does  not  exceed 

$5,000  and  the  net  income  subject  to  the  normal  tax,  that  is,  after  applying 
the  personal  exemption  and  other  credits,  does  not  exceed  $4,000.  The  forms 
may  be  had  from  the  collectors  of  the  several  districts.  The  return  may  be 
made  by  an  agent  when  by  reason  of  illness,  absence,  or  nonresidence  the 

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RETURNS. 

person  liable  for  the  return  is  unable  to  make  it,  the  agent  assuming  tne 
responsibility  for  making  the  return  and  incurring  liability  to  the  specific 
penalties  provided  for  erroneous,  false,  or  fraudulent  returns.  See  section 
253  and  article  1055  [If 2629].  (Art.  402,  Reg.  62,  1922  Edition.) 


2487  Law  1f461.  Returns  by  Corporations. — “ Sec . 239.  (a)  That  every 

(Sec.  239.)  corporation  subject  to  taxation  under  this  title  and  every 

personal  service  corporation,  [^1 778]  shall  make  a return , 
stating  specifically  the  items  of  its  gross  in  ome  [^f  1073]  and  the  d-ductions 
[IT  1616]  and  credits  [H2056]  allowed  by  this  title.” — Law.  [Note:  Th*. 

1918  Act  so  provided 

2488  Law  1[465.  “ Returns  made  under  this  section  shall  be  subject  tc 

(Sec.  239.)  the  provisions  of  sections  226  [‘  Returns  zvhen  accounting 

period  is  changed ,’  H2567]  and  228  [‘  Under  statement  in 
Returns 1[2577].” — Law.  [Note:  The  1918  Act  so  provided.] 

2489  Every  corporation  not  expressly  exempt  from  tax  must  make  a return 
of  income,  regardless  of  the  amount  of  its  net  income.  In  the  case  of 

ordinary  corporations  the  return  shall  be  on  Form  1 120.  For  returns  of  insur- 
ance companies  see  article  623  [IT  1 362] ; of  personal  service  corporation  see 
article  624  [If 843];  of  foreign  corporations  see  article  625  [If  1423);  and  of 
affiliated  corporations  see  section  240  of  the  statute  and  article  632  [1f2544[.  A 
corporation  having  an  existence  during  any  portion  of  a taxable  year  is 
required  to  make  a return.  A corporation  which  has  received  a charter,  but 
has  never  pe  fected  its  organization,  and  which  has  transacted  no  business 
and  had  no  income  from  any  source,  may  upon  presentation  of  the  facts  to 
the  collector  be  relieved  from  the  necessity  of  making  a return  so  long  as  it 
remains  in  an  unorganized  condition.  In  the  absence  of  a proper  showing 
to  the  Collector  such  a corporation  will  be  required  to  make  a return.  A 
corporation  which  was  dissolved  in  1921  prior  to  the  enactment  of  the 
present  statute  is  not  relieved  from  the  necessity  of  render  ng  returns  there- 
under for  such  portion  of  1921  as  elapsed  before  its  dissolution.  [For  returns 
by  corporations  going  into  liquidation,  see  H2535.]  See  further  section  228 
of  the  statute  and  articles  406  [for  verification  of  returns,  ^[25 14],  407  [for 
use  of  prescribed  forms,  1f250l]  and  451  [for  under  statement  of  income, 
1[2579].  (Art.  621,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi 

1921  fiscal  year  return  under  1921  Act  required  though  return  under  1918  Act  for 
same  period  filed:  1921  Act  (1-15-216:  I.  T.  1277).  .June  1922  Cum.  Bull.  p.  291. 

Alien  Property  Custodian:  return  to  time  property  taken  over  by  (4-19-231:  O.  D. 
148)  1919  Cum.  Bull.  p.  234 

Amended  returns  not  necessary  wh.n  deductions  made  on  account  contributions  to 
Red  Cross,  etc.,  prior  to  T.  D.  2847;  statements  filed  in  lieu  thereof  (14-19-438: 
M.  2207).  1919  Cnm.  Bull.  p.  221. 

Amended  returns  on  account  deduction  of  capital  charges:  right  reserved  by  Govern- 
ment to  penalize  (2-19-169- O.  D.  1 13) . 1919  Cum  Bull.  p.  234 

Amended  returns  on  account  depreciation  not  claimed  by  corporation  now  but  not 
then  in  hands  of  trustees  may  be  filed  by  officers  with  refund  claim  by  them: 
1918  Act  (1-38-513:  I.  T.  1450).  .Bull.  I (’22)-38,  p.  8. 

Amended  returns  on  account  use  of  inflated  values  for  invested  capita)  (37-21-1822: 
T.  D.  3220)..  Dec.  1921  Cum.  Bull.  p.  285.  No  waiver  because  no  further 
tax  due  (49-21-1968:  O.  D.  11313  Dec.  1921  Cum  Bull,  p 289 
Insurance  companies  (1-6-82:  I.  T.  1201).  .June  1922  Cum.  Bull.  p.  345. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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*-•-57-22.  (2)  4-10-22.  (8)  4-18-22.  (4)  8-10-22.  (6)  9-20-22  (6)  10-11-22. 

RETURNS. 

Bank  liquidated,  liquidating  agents  discharged,  subsequently  discovered  tax  liability; 

assets  followed  (16-21-1583:  O.  D.  883).  June  1921  Cum.  Bull.  p.  308. 

Charter  declared  forfeited  hut  business  continued  for  several  years  thereafter  (2-20-677: 
O D 365)  June  1920  Cum  Bull.  p.  222. 

Charter  expired  but  business  continued  in  corporate  form  (14-21-1552:  Sol.  Op.  93).  . 
June  1921  Cum.  Bull.  p.  305 

Dissolving  and  no  provision  made  for  tax:  distributees  liable  (29-20-1079:  O.  D.  597)  . . 

Dec  1920  Cum.  Bull  p.  300 

Dissolution,  business  being  continued  as  a partnership:  1921  Act  (1-32-452:  I.  T. 
1416).  Bull.  I (’22)-32,  p.  8. 

Domicile  changed  merely  (3-20-697:  A.  R.  R.  16).. June  1920  Cum.  Bull.  p.  312. 

Also  (48-21-1950:  O.  D.  11 19)..  Dec.  1921  Cum.  Bull.  p.  232. 

Execution  by  one  officer  (19-21-1628:  O.  D.  91 1) . June  1921  Cum.  Bull.  p.  307 
Fiscal  year  ending  in  1917;  1917  excess-profits  tax  credit  (1-9-120:  A.  R.  R.  770).. 
June  1922  Cum.  Bull.  p.  289. 

Fractional  year  return:  proportionate  specific  credit  (27-20-1044:  O.  D.  574).. Dec. 

1920  Cum.  Bull.  p.  282.  (See  also  Art.  626,  25 76.) 

Illinois:  on  liquidation  (39-20-1214:  O.  D.  672).  .Dec.  1920  Cum.  Bull.  p.  284. 
Michigan  when  there  has  been  a “change  of  attitude’’  (20-21-1641:  O.  D.  919).  .June 

1921  Cum.  Bull.  p.  308. 

New  corporation  taking  over  old  Dec.  31,  1919  as  of  Oct.  4,  1919  (36-21-1808:  O.  D. 
1025).. Dec.  1921  Cum.  Bull,  p 231. 

Ohio  corporation  stock  all  acquired  by  one  stockholder  is  de  facto  even  if  not  a de  jure 
corporation  (12-21-1524:  Sol.  Op.  91).  June  1921  Cum.  Bull.  p.  302. 

Organization  not  completed  and  no  business  transacted;  no  return  made  and  no 
notice  to  collector  of  status  (48-21-1951:  O.  D.  1120).. Dec.  1921  Cum.  Bull,  p 
233 

Organization  not  completed  but  articles  filed  and  business  transacted  (2-19-168:  S. 
972)  1919  Cum.  Bull.  p.  233. 

Partnership  business  incorporated,  but  business  always  carried  on  as  partnership 
(43-21-1887:  O.  D.  1078).. Dec.  1921  Cum.  Bull.  p.  232. 

Partnership  business  incorporated  by  intention  as  of  May,  1920  (stock  being  sold  on 
understanding  of  sharing  in  profits  from  that  date,  and  on  transferring  the  busi- 
ness the  corporation  assumed  operation  thereof  then)  but  charter  not  issued  until 
Oct.,  1920  (35-21-1796:  O.  D.  1016).. Dec.  1921  Cum.  Bull.  p.  231. 

Partnership  business  incorporated  retroactively  (48-21-1952:  O.  D.  1121).. Dec. 
1921  Cum.  Bull.  p.  233. 

Penalties  for  failure  to  file  when  no  income,  not  operating,  etc.  (16-21-1582:  O.  D 
882).  June  1921  Cum.  Bull.  p.  307. 

Railroads  under  Federal  control:  election  to  have  claims  adjusted  under  Sec.  3 of  Act 
of  March  21,  1918,  rather  than  under  Sec.  1 of  that  Act  (34-20-1151:  O.  D.  642) 
..Dec.  1920  Cum.  Bull.  p.  231. 

Return  required  under  retroactive  law  is  case  of  fiscal  year  corporation  showing  loss 
by  rerurn  under  old  law  (1-19-100:  O.  D.  71).  . 1919  Cum.  Bull.  p.  234. 

State  bank  converted  into  National  bank  (17-20-888:  O.  D.  476).. June  1920  Cum. 
Bull.  p.  222. 


2490  Corporations  Dissolving  Be  ore  the  Time  for  Making  Returns. — 
A corporation  which  has  continued  in  business  through  a calendar 
year  cannot  evade  liability  for  the  special  excise  tax  imposed  by  Act  of 
August  5,  1919,  Section  38.  by  dissolving  before  the  time  when  it  is  required 
to  make  a return  of  said  business  to  the  collector  of  internal  revenue  and 
the  assessment  of  the  tax.  (United  States  v.  General  Inspection  & Loading 
Co.,  192  Fed.  223.)  ; i 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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2-27-22.  (2)  4-10-22. 

RETURNS. 

2491  Corporation  Dissolved  Prior  to  October  4,  1917.— A corporation 
which  was  dissolved  in  1917,  prior  to  the  passage  of  the  war-revenue 

act  of  October  3,  1917,  is  subject  to  tax  under  the  act  of  September  8,  1916, 
as  amended,  and  also  to  the  war  income  tax  and  the  war  excess  profits  tax 
imposed  by  the  act  of  October  3,  1917  (Brady  et  al.  v.  Anderson,  240  Fed. 
665). . A corporation  so  situated  will  make  a return  on  revised  Form  1031, 
covering  the  period  in  1917  during  which  it  was  in  business  prior  to  its  dis- 
solution. If  it  shall  have  previously  made  a return  covering  this  period  and 
shall  have  paid  any  excess  profits  tax  under  the  act  of  March  3,  1917,  it  shall 
oe  entitled  to  credit  for  the  amount  of  such  tax  so  paid  against  any  excess 
profits  tax  assessable  against  it  under  Title  II  of  the  act  of  October  3,  1917. 
(Art.  61,  ^[304,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

2492  Liquidating  Colorations— [Read  1f2535]  Before  distributing  its 
assets,  a dissolving  corporation  should  reserve  funds  sufficient  to  pay 

any  income  tax  assessable  against  it.  Otherwise  the  tax  may  be  collected  by 
suit  against  the  stockholders.  (Art.  205,  fl612,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

2493  Following  Asse  s of  Corporation  Into  Hands  of  Stockholders  for 
Purpose  of  Collecting  the  Tax.— The  appended  decision  [^[2494  be- 
low] of  the  District  Court  of  the  United  States,  for  the  District  of  Mon- 
tana, in  the  case  of  United  States  vs.  John  J.  McHatton  et  ah,  is  published 
for  the  information  of  internal  revenue  officers  and  others  concerned.  (T.  D. 
3043,  July  2,  1920.) 

2494  United  States  vs.  John  J.  McHatton  et  al.  (District  Court  of  the 
United  States,  District  of  Montana.)  (May  16,  1920.)  (Revenue 

Act  of  1916.)  Bourquin,  J.:  Herein,  the  demurrer  to  the  complaint  is  over- 
ruled. 

2495  When  the  corporation  was  in  being  and  at  dissolution,  it  owned  the 
duty  to  pay  all  taxes  lawfully  imposed  upon  it  for  income,  during 

its  life,  at  any  ime.  Taxes  could  be  lawfully  imposed  by  retrospective 
law,  and  were  [see  1fSl3].  If  material,  the  law  speaks  of  and  from  a time 
anterior  to  the  dissolution,  takes  effect  as  though  enacted  prior  to  the  dis- 
solution. Taxes  are  not  debts  nor  government  a creditor,  in  strict  sense. 
They  are  of  higher  nature.  But  no  reason  is  perceived  why  they  are  not 
within  the  principle  that  those  who  gratuitously  receive  a debtor’s  property, 
to  the  extent  thereof  are  liable  for  his  debts  and  obligations  then  inchoate 
or  vested;  within  this  principle  otherwise  known  as  the  “trust  fund’  doc- 
trine in  respect  to  corporations. 

249  6 Accordingly,  when  this  corporation  without  consideration  dis- 
tributed part  of  its  assets  to  these  defendants,  it  was  under  obli- 
gation to  plaintiff  to  pay  any  taxes  that  might  thereafter  be  imposed.  De- 
fendants received  the  assets  subject  thereto  and  to  the  principles  aforesaid. 
The  obligation  was  contingent,  the  plaintiff’s  right  inchoate.  The  con- 
tingency happened,  the  right  vested.  And  the  corporation’s  assets  so  dis- 
tributed, may  be  pursued  in  the  hands  of  these  defendants,  by  virtue  of  the 
principles  aforesaid. 

2497  In  principle,  the  case  is  very  like  the  Brady  case,  240  Fed.  665 
[1f942].  (Opinion  appended  to  and  made  a part  of  T.  D.  3043, 
July  2,  1920.) 

Copyright  1922,  by  The  Corporation  Trr.it  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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RETURNS. 


2498  Change  of  Corporate  Name. — A mere  change  in  name  does  not 
constitute  a new  corporation.  If  the  business  was  continuous 

throughout  the  year,  no  change  in  management  or  operation  other  than  the 
change  in  name  having  occurred,  the  return  should  be  made  covering  the 
business  transacted  throughout  the  year,  such  return  to  be  made  by  the 
corporation  in  the  name  which  it  bears  at  the  end  of  the  year,  with  a nota- 
tion on  the  return  to  the  effect  that  the  name  had  been  changed,  giving 
both  the  old  and  the  new  names.  (Art.  206,  ^[613,  Reg.  33,  Rev.,  Jan.  2, 
1918.) 

2499  Law  ^|464.  Receivers,  Trustees  in  Bankruptcy,  and  Assignees 
(Sec.  239.)  Operating  the  Property  or  Business  of  Corporations 

to  Make  Returns. — “ In  cases  where  receivers , trustees 
in  bankruptcy , or  assignees  are  operating  the  property  or  business  of  cor- 
porations, such  receivers , trustees , or  assignees  shall  make  returns  for  such 
corporations  in  the  same  mariner  and  form  a • corporations  are  required  to 
make  returns.  Any  tax  due  on  the  basis  of  such  returns  made  by  receivers , 
trustees , or  assignees  shall  be  collected  in  the  same  manner  as  if  collected 
from  the  corporations  of  whose  business  or  property  they  have  custody  and 
control .” — Law.  [Note:  The  1918  Act  so  provided.] 

2500  Returns  by  Receivers. — Receivers,  trustees  in  dissolution,  trustees 
in  bankruptcy,  and  assignees,  operating  the  property  or  business 

of  corporations,  must  make  returns  of  income  for  such  corporations  on 
Form  1120,  covering  each  year  or  part  of  a year  during  which  they  are  in 
control.  Notwithstanding  that  the  powers  and  functions  of  a corporation 
are  suspended  and  that  the  property  and  business  are  for  the  time  being 
in  the  custody  of  the  receiver,  trustee,  or  assignee,  subject  to  the  order  of 
the  court,  such  receiver,  trustee,  or  assignee  stands  in  the  place  of  the  corporate 
officers  and  is  required  to  perform  all  the  duties  and  assume  all  the  liabilities 
which  would  devolve  upon  the  officers  of  the  corporation  were  they  in  con- 
trol. A receiver  in  charge  of  only  part  of  the  property  of  a corporation, 
however,  as  a receiver  in  mortgage  foreclosure  proceedings  involving  merely 
a small  portion  of  its  property,  need  not  make  a return  of  income.  See 
article  424  [for  further  discussion  of  returns  by  receivers,  1|956]  and  548  [for 
gross  income  of  a corporation  in  liquidation  and  return  by  receiver,  ^[1294]. 
(Art.  622,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p /. 

Banks  (32-21-1763:  O.  D.  990).  .Dec.  1921  Cum.  Bull.  p.  233. 

Discharged  during  year,  corporation  in  full  control  thereafter  (15-21-1365:  O.  D.  893) 
. .June  1921  Cum.  Bull.  p.  308. 

Entire  year,  both  before  and  after  taking  charge  (1-19-102:  O.  D.  73)..  1919  Cum. 

Bull.  p.  235:  See  (16-21-1584:  O.  D.  884).  June  1921  Cum.  Bull.  p.  309. 
Insolvent  bank  (2-19-170:  O.  D.  114)..  1919  Cum.  Bull.  p.  235  See  (16-21-1583: 
O.  D.  883).  .June  1921  Cum.  Bull.  p.  308. 

Liquidating  national  bank:  discharge,  subsequently  determined  tax  liability,  following 
assets  (16-21-1583:  0.  D.  883).  .June  1921  Cum.  Bull  p.  308. 

Liquidating:  no  business  but  income  from  investments  (12-19-406:  0.  D.  231)..  1919 
Cum.  Bull.  p.  2 1 C 

Marshalling,  selling  and  distributing  assets,  merely  (16-21-1584:  O.  D.  884).. June 
1921  Cum.  Bull.  p.  309. 

Ohio  particularly  (16-21-1584:  O.  D.  884).. June  1921  Cum.  Bull.  p.  309. 

Trustees  in  liquidation  (6-19-280:  O.  853).  .1919  Cum.  Bull.  p.  235.  See  (16-21-1584: 
O.  D.  884).  .June  1921  Cum.  Bull.  p.  309 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-i  7-2*.  (2)9-20-22.  (8)10-11-22. 


RETURNS. 


Trustees  continuing  business  of  corporation  to  avoid  immediate  sale  of  assets  at  loss 
(Minnesota)  <22-21-1658:  O.  D.  931).. June  1921  Cum.  Bull.  p.  11. 

Trustees  in  dissolution  (New  York)  not  required  to  make  return  though  corporation 
officers  are:  1918  Act  (1-38-514:  A.  R.  R.  11 15).. Bull.  I (’22)-38,  p.  8. 


2501  Use  of  Prescribed  Forms. — Copies  of  the  prescribed  return  forms 
will  so  far  as  possible  be  furnished  taxpayers  by  collectors.  Fail- 
ure on  the  part  of  any  taxpayer  to  receive  a blank  form  will  not,  however, 
excuse  him  from  making  a return.  Taxpayers  not  supplied  with  the  proper 
forms  should  make  application  therefor  to  the  collector  in  ample  time  to  have 
their  returns  prepared,  verified,  and  filed  with  the  collector  on  or  before  the 
last  due  date.  Each  taxpayer  should  carefully  prepare  his  return  so  as  fully 
and  clearly  to  set  forth  the  data  therein  called  for.  Imperfect  or  incorrect 
returns  will  not  be  accepted  as  meeting  the  requirements  of  the  statute.  In 
lack  of  a prescribed  form  a statement  made  by  a taxpayer  disclosing  his 
gross  income  and  the  deductions  therefrom  may  be  accepted  as  a tentative 
return,  and  if  filed  within  the  prescribed  time  a return  so  made  will  relieve 
the  taxpayer  from  liability  to  penalties,  provided  that  without  unnecessary 
delay  such  a tentative  return  is  replaced  by  a return  made  on  the  proper 
form.  See  further  articles  443-446  [for  extensions  of  time  and  tentative 
returns,  beginning  at  1J2564.]  .(Art.  407,  Reg.  62,  1922  Edition.) 

2602  Correction  by  the  Taxpayer  of  Erroneous  Return. — All  returns 
should  be  carefully  scrutinized,  and,  if  improperly  prepared,  they 

should  be  returned  to  the  taxpayer  for  correction,  with  instructions  that  if 
a new  return  be  executed,  the  old  one,  showing  the  date  of  the  receipt  thereon, 
should  be  forwarded  to  the  Collector  to  avoid  the  possibility  of  subjecting 
the  taxpayer  to  additional  tax  or  penalties  for  failure  to  file  the  return  within 
the  period  required  by  law. 

2603  A record  of  each  return  sent  back  to  the  taxpayer  for  correction 
should  be  made  in  the  office  of  the  Collector  so  that  if  the  taxpayer 

fails  to  properly  amend  and  forward  same,  the  Collector  may  take  steps  to 
secure  the  return.  (Extract  from  Mimeograph  Letter  No.  1160  to  Col- 
lectors, signed  by  Acting  Commissioner  David  A.  Gates,  and  dated  Feb- 
ruary 9,  1915.) 

2604  Correction  of  Erroneous  Returns  at  the  Instance  of  the  Collector, 

to  — Referring  to  the  returns  of  annual  net  income  to  be  filed  by  cor- 

2607  porations  for  the  year  [1914],  you  are  requested  to  examine  each 
return  closely  with  a view  to  having  such  returns  as  nearly  correct  as 

possible  before  forwarding  to  this  office.  (Mimeograph  letter  No.  1148  to 
Collectors,  Jan.  16,  1915.) 

m 

2608  Law  ^[467.  Corporation  Return  to  Include  Detailed  Information 
(Sec.  239.)  Sufficient  to  Enable  Commissioner  to  Determine  What 

8e  Portion  of  the  Year’s  Profits  Have  been  Distributed 

or  Ordered  to  be  Distributed  to  Stockholders. — “(c)  There  shall  be  xn- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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RETURNS. 


eluded  in  the  return  or  appended  thereto  a statement  of  such  facts  as  will  enable 
the  Commissioner  to  determine  the  portion  of  the  earnings  or  profits  of  the 
corporation  ( including  gains,  profits  and  income  not  taxed ) accumulated 
during  the  taxable  year  for  which  the  return  is  made,  which  have  been  distrib- 
uted or  ordered  to  be  distributed,  respectively,  to  its  stockholders  or  members 
during  such  year.” — Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 

2509  Section  239  (c)  requires  every  corporation  to  include  in  its  return 
a statement  of  such  facts  as  will  enable  the  Commissioner  to  deter- 
mine the  portion  of  the  earnings,  including  gains,  profits,  and  income  not 
taxed,  accumulated  during  the  taxable  year  which  have  been  distributed 
or  ordered  to  be  distributed,  respectively,  to  its  stockholders  during  such 
year.  (Art.  621,  Reg.  62,  1922  Edition.)  ' 

2510  Law  ^[462.  Returns  to  be  Made  Under  Oath. — “ The  [corpora- 
(Sec.  239.)  tion ] return  shall  be  sworn  to  by  the  president , vice-presi- 
dent, or  other  principal  officer  and  by  the  treasurer  or 

assistant  treasurer .” — Law.  [Note:  The  1918  Act  so  provided.] 


2511  (Sec.  223.)  “The  following  individuals  shall  each  make  under  oath 
a return,”  ^[2382. 

2512  (Sec.  224.)  “The  return  shall  be  sworn  to  by  any  one  of  the  part- 
ners,” 1[793. 

2513  (Sec.  225.)  “Every  fiduciary  * * * shall  make  under  oath  a 

return  for  any  of  the  following  individuals,  estates,  or  trusts  for  which 

he  acts,”  ^[928. 


2514  All  income  tax  returns  must  be  verified  under  oath  or  affirmation 
before  an  officer  duly  authorized  to  administer  oaths  either  by  the 
laws  of  the  United  States  or  by  the  laws  of  the  State  or  Territory  where 
such  officer  resides.  Persons  in  the  naval  or  military  service  of  the  United 
States  may  verify  their  returns  before  any  official  authorized  to  adminis- 
ter oaths  for  the  purposes  of  those  services.  Income  tax  returns  executed 
abroad  may  be  attested  free  of  charge  before  United  States  consular  officers. 
Where  a foreign  notary  or  other  official  having  no  seal  shall  act  as  attesting 
officer,  the  authority  of  such  attesting  officer  should  be  certified  to  by  some 
judicial  official  or  other  proper  officer  having  knowledge  of  the  appointment 
and  official  character  of  the  attesting  officer.  (Art.  406,  Reg.  62,  1922  Edi- 
tion.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

“Before  an  officer  duly  authorized:”  meaning  explained;  postmasters  (43-20-1263: 
O.  D.  701).. Dec.  1920  Cum.  Bull.  p.  228. 

China  (8-19-327:  O.  D.  189)..  1919  Cum.  Bull.  p.  190 
★ Notarial  seals  not  required  in  certain  States:  1921  Act  (1-41-544:  I.  T.  1467).  .Bull. 
I (’22)-41,  p.  4. 


Ctipj right  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

560 


Z-87-28.  (2)8-20-22.  (8)  8-80-22. 


RETURNS. 


2616  The  annual  return  must  be  verified  by  oath  * * * of  the  person 
making  the  same.  Collectors  are  directed  by  law  to  require  every 
return  to  be  so  verified  by  the  person  rendering  it.  The  affidavit  may  be 
made  before  the  collector  for  the  district  or  before  any  officer  authorized 
by  law  to  administer  oaths.  (Art.  22,  Reg.  33,  Jan.  5,  1914.) 

2616  (2)  If  a return  is  executed  in  a State  before  a notary  who  is  not  re- 
quired by  the  laws  of  the  State  to  use  a seal,  and  none  is  used,  the 

notary  should  file  with  the  Commissioner  of  Internal  Revenue  the  certificate 
of  an  officer  possessing  a seal,  showing  that  he  is  duly  commissioned  and 
authorized  to  administer  oaths;  otherwise  the  certificate  will  not  be  recog- 
nized. (T.  D.  2090,  Dec.  14,  1914.) 

2617  Replying  to  your  letter  of  the  23d  ultimo  you  are  informed  that 
affidavits  to  tax  returns  may  be  made  before  Justices  of  the  Peace  or 

any  officer  authorized  by  law  to  administer  oaths. 

2618  If  made  before  a Notary  Public  who  is  not  required^by  the  laws  of 
the  State  to  use  a seal,  and  none  is  used,  or  if  made  before  a Justice 

of  the  Peace  who  has  no  seal,  certificates  of  the  Clerk  of  the  Court  as  to 
their  authority  to  administer  oaths  may  be  waived  in  your  State  or  in  any 
other  State  where  such  jurats  are  accepted  in  the  State  Courts  either  with 
or  without  seal,  and  without  a certificate  showing  authority.  (T.  D.  2174, 
March  12,  1915.) 

2619  Assistance  from  CoUectorsIm  Preparing^Returns. — All  Collectors  of 
Internal  Revenue  who  have  not  already  done  so  will  please  arrange 

to  inform  the  public,  in  their  respective  districts,  through  the  press  or  other 
means  of  publicity  without  cost  to  the  Government  or  by  posting  appro- 
priate notices,  that  any  assistance  or  information  which  may  be  required  in 
connection  with  preparing  and  filing  Income  Tax  Returns  will  be  gladly  and 
promptly  furnished  by  applying  to  or  calling  at  any  Internal  Revenue  Office. 

2620  In  pursuance  of  the  above,  Collectors  should  assign  from  the  pres- 
ent office  forces,  an  employee  or  employees,  as  the  case  may  require 

who  should  be  thoroughly  posted  on  the  provisions  of  the  Income  Tax  law 
and  all  Treasury  Decisions  and  Regulations  in  connection  with  same,  par- 
ticularly with  relation  to"the  Personal  Tax  and  the  filing  of  Individual 
Returns,  to  promptly  furnish  the  public  with  information  desired  when 
calling  at  the  various  Internal  Revenue  offices.  (Letter  to  Collectors, 
Feb.  10,  1914.) 

2621  A large  part  of  the  volume  of  correspondence  coming  to  this  office 
asking  for  information  relative  to  making  return  and  ascertainment 

of  net  income,  etc.,  for  the  income  tax,  is  sufficiently  covered  by  regulations, 
and  should  be  answered  in  the  offices  of  collectors. 

2522  Collectors  are  therefore  advised  that  letters  coming  to  this  office  ask- 
ing for  information  which  should  be  supplied  by  collectors  in  accord- 
ance with  instructions  and  regulations  furnished  them,  will  be  referred  to 
collectors  for  reply  and  writers  of  the  letters  advised  of  the  reference.  Col- 
lectors, upon  receipt  of  letters  referred  to  them  by  this  office,  will  give  im- 
mediate attention  to  the  subject-matter  of  the  inquiry,  in  accordance  with 
the  regulations  and  instructions  bearing  upon  the  same.  (T.  D.  1949,  Feb. 
14,  1914,  and  T.  D.  1956,  Feb.  14,  1914.) 

2623  Law  ^479.  Time  for  Filing  Returns. — “S ec.  241.  (a)  That  re- 

(Sec.  241.)  turns  of  corporations  shall  be  made  at  the  same  time  as 
is  provided  in  subdivision  (a)  of  section  227  [^f 2524 
below]” — Law.  [Note:  The  1918  Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
561 


1-47-22. 


(2)  3-20-22.  (8)  3-30-22. 


RETURNS. 


2524  Law  ^340.  Time  for  Filing  Returns  by  Citizens  and  Residents. — 

(Sec.  227.)  “Sec.  227 . ( a ) That  returns  ( except  in  the  case  of  non- 
resident aliens  [see  1[2526])  shall  be  made  on  or  before 
the  fifteenth  day  of  the  third  month  following  the  close  of  the  fiscal  year , or,” 

2525  Law  1f341.  “if  the  return  is  made  on  the  basis  of  the  calendar  year, 
(Sec.  227.)  then  the  return  shall  be  made  on  or  before  the  15th  day  of 

March.” — Law.  [Note:  The  1918  Act  so  pro- 

vided in  the  case  of  all  taxpayers,  in- 
cluding nonresident  aliens.] 


2526  Law  H342.  Time  for  Filing  Returns  by  Nonresident  Aliens. — 
(Sec.  227.)  “In  the  case  of  a nonresident  alien  individual  returns 

shall  be  made  on  or  before  the  fifteenth  day  of  the  sixth 
month  following  the  close  of  the  fiscal  year,  or,” 

2527  Law  If 343.  “if  the  return  is  made  on  the  basis  of  the  calendar  year, 
(Sec.  227.)  then  the  return  shall  be  made  on  or  before  the  15 th  day 

of  June.” — Law.  [Note:  The  1918  Act  provided 

that  a nonresident  alien  should  file  his 
return  at  the  same  time  prescribed  for  a 
citizen  or  resident,  i.  e.,  on  or  before  the 
15th  day  of  the  3rd  month  following 
the  close  of  the  taxable  year.] 


2528  Time  for  Filing  Returns  by  Foreign  Corporations  Not  Having  Any 
Office  or  Place  of  Business  in  the  United  States. — Same  as  for  non- 
resident aliens  at  If 2526  and  If 2527  above.  For  Law  provision  read  at  If  1419. 


Comment:  [All  returns  of  net  income  are  “for  the  taxable  year.”  “Tax- 
able year”  is  defined  at  If  1061 , in  general,  as  being  coextensive  with  the  tax- 
payer’s annual  accounting  period.  If  the  taxpayer  has  no  accounting 
period,  or  keeps  no  books,  his  taxable  year  is  the  calendar  year.] 

2529  Returns  of  income  on  a calendar  year  basis  must  be  made  on  or 
before  the  fifteenth  day  of  March  following  the  taxable  year,  and 
returns  on  the  basis  of  a fiscal  year  must  be  made  on  or  before  the  fifteenth 
day  of  the  third  month  following  the  close  of  the  fiscal  year.  Returns  in 
the  case  of  nonresident  aliens  must  be  made  on  or  before  the  fifteenth  day 
of  the  sixth  month  following  the  close  of  the  fiscal  year  or  on  or  before  the 
fifteenth  day  of  June,  if  on  the  basis  of  the  calendar  year.  (Art.  441,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  Qi. 

*Extension"  of  time  for  filing  new  returns  under  1921  Act  for  fiscal  year*  ended  i> 

1921.  ,1f3092.  Amended.  .1J31 10. 

Extension  of  time  for  Alaska  and  Hawaii  for  filing  returns.  . H3093 


2530  Law  1J345.  Where  Returns  Are  to  be  Filed  by  Individuals. — “(b) 
(Sec.  227.)  Returns  shall  be  made  to  the  collector  for  the  district  in 

which  is  located  the  legal  residence  or  principal  place  of 
business  of  the  person  making  the  return,  or,” 

2531  Law  1f346.  “if  he  has  no  legal  residence  or  principal  place  of  business 
(Sec.  227.)  in  the  United  States,  then  to  the  collector  at  Baltimore , 

Maryland.” — Law.  [Note:  The  1918  Act  so 

provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
562 


i- 27-22.  (2)  8-20-22.  (8)  8-80-22.  (4)  4-10-22.  (5)  9-27-22.  (6)  10-11-22. 

RETURN  is. 

2632  Law  1)481.  Where  Returns  Are  to  be  Filed  by  Corporations. — “(A) 
(Sec.  241.)  Returns  shall  be  made  to  the  collector  of  the  district  in 

which  is  located  the  principal  place  of  business  or  princi- 
pal office  or  agency  of  the  corporation , or," 

2633  Law  1j482.  “i f it  has  no  principal  place  of  business  or  principal 
(Sec.  241.)  office  or  agency  in  the  United  States , then  to  the  collector 

at  Baltimore , Maryland." — Law.  [Note:  The 

1918  Act  so  provided.] 

2634  Place  for  Filing  Return. — Returns  of  income  must  be  delivered 
or  mailed  to  the  collector  for  the  district  of  the  legal  residence  or 

principal  place  of  business  of  the  person  making  the  return.  Persons  having 
no  domicile  or  place  of  business  in  the  United  States,  and  persons  in  the 
military  or  naval  service  of  the  United  States,  may  file  their  returns  of 
income  with  the  collector  at  Baltimore.  (Art.  447,  Reg.  62,  1922  Edition.) 
For  explanation  of  Cumulative  Index  references  see  page  pi. 

Decedent:  ancillary  and  domiciliary  executors,  both  domestic  (28-20-1060:  O D. 

S84!  TVc  1920  Cum.  Bull  o '31 

Virgin  Islands;  U.  S.  citizen  resident  in  U.  S.  at  end  of  taxable  year  files  and  pays  in 
U.  S.  through  resident  in  Virgin  Islands  after  end  of  taxable  year:  1921  Act 
(1-39-518:  1.  T.  1454).  .Bull.  I (’22)-39,  p.  2. 

2636  Time  and  Place  for  Filing  Returns  by  Corporations. — Returns 

of  income  must  be  made  on  or  before  the  fifteenth  day  of  the 
third  month  following  the  close  of  the  fiscal  or  calendar  year,  as  provided  in 
section  227  of  the  statute  and  articles  441-447  [beginning  at  ^[2524  above 
and  continuing  through  this  discussion].  In  the  case  of  foreign  corporations 
not  having  any  office  or  place  of  business  in  the  United  States, 
however,  returns  shall  be  made  on  or  before  the  fifteenth  day  of  the  sixth 
month  following  the  close  of  the  fiscal  year,  or,  if  the  return  is  made  on  the 
basis  of  the  calendar  year,  then,  on  or  before  June  15.  A corporation  going 
into  liquidation  during  any  taxable  year  may  upon  the  completion  of  such 
liquidation  prepare  a return  covering  its  income  for  the  fractional  part  of 
the  year  during  which  it  was  engaged  in  business  and  may  immediately  file 
such  return  with  the  collector.  A corporation  having  an  office  or  agency 
in  the  United  States  must  make  its  return  to  the  collector  of  the  district 
in  which  is  located  its  principal  office  or  agency  Other  corporations  must 
make  their  returns  to  the  collector  at  Baltimore.  (Art.  651,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Extension  of  time  for  filing  new  returns  under  1921  Act  for  fiscal  years  ended  in 
1921.  .^3092.  Amended.  43110. 

Extension  of  time  for  tiling  returns  by  domestic  corporations  for  calendar  year  1921, 
and  for  fiscal  year  ended  (an.  31  or  Feb.  28,  1922.  43041. 

Hawaii:  extension  for  tentative  returns  in  connect:on  with  above  extension  (1-13- 
185:  I.  T.  1257).  .June  1922  Cum.  Bull.  p.  246. 

Extension  of  time  for  filing  returns  by  foreign  corporations  for  1921  and  subsequent 

years.  . If.3032. 

“Final”  returns:  same  dates,  etc.,  prevail  as  though  fiscal  year  had  been  completed 
(42-20-1253:  O.  D.  692).. Dec.  1920  Cum.  Bull.  p.  286. 

Illinois;  on  completion  of  liquidation  (39-20-1214:  0.  D.  672).  .Dec.  1920  Cum.  Bull, 
p.  284 

Porto  Rico:  U.  S.  corporation  with  principal  office,  books,  and  all  business  in,  and  all 
income  from,  Porto  Rico  (1917  Act)  (25-21-1694:  L.  O.  1066).. June  1921  Cum. 
Bull.  p.  259 

Receiver  of  fiscal  year  corporation  on  discharge  (25-20-1018:  O.  D.  557)  June  1920 
Cum.  Bull.  p.  226 

Copyright  1922 , by  The  Corporation  Tryst  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
563' 


Z-27-22.  (2l  8-20-22.  (8)  8-80-22.  (4)  4-10-82.  (6)  9-27-22.  (6)  10-11-22. 

RETURNS. 

2636  The  principal  place  of  business  of  a corporation  is  the  place  or  office 
in  which  are  kept  the  books  of  account  and  other  data  from  which 

the  return  is  to  be  prepared.  (T.  D 2090,  Dec.  14,  1914.) 

2637  Dissolved  Corporation  to  Make  Final  Return. — All  corporations 
having  an  existence  as  such  dur  ng  all  or  any  portion  of  a year, 

unless  coming  within  the  class  specifically  enumerated  as  exempt,  are  re- 
quired to  make  returns.  Corporations  dissolved  during  the  year  and  whose 
fiscal  year  coincides  with  the  calendar  year  will  make  returns  covering  the 
period  from  January  1,  to  date  of  dissolution,  and  such  corporations  having 
a fiscal  year  other  than  the  calendar  year,  will  make  returns  covering  the 
period  from  the  beginning  of  the  fiscal  year  to  the  date  of  dissolution,  and  new 
corporations  will  make  returns  for  the  period  from  the  date  of  organization 
to  December  31,  unless  a fiscal  year  is  designated  in  the  proper  manner, 
in  which  case  returns  for  a period  from  the  date  of  organization  to  the  close 
of  the  fiscal  year  so  established,  in  no  case  to  exceed  12  months,  will  be  filed. 
(Art.  203,  tb08,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

2638  Last  Due  Date. — The  last  due  date  is  the  last  day  upon  which  a 
return  is  required  to  be  filed  in  accordance  with  the  provisions  of 

the  statute  or  the  last  day  of  the  period  covered  by  an  extension  of  time 
granted  by  the  collector  or  Commissioner.  When  the  last  due  date  falls 
on  Sunday  or  a legal  holiday,  the  last  due  date  for  filing  returns  will  be  the 
day  following  such  Sunday  or  legal  holiday.  If  placed  in  the  mails  the  re- 
turn should  be  posted  in  ample  time  to  reach  the  collector’s  office,  under 
ordinary  handling  of  the  mails,  on  or  before  the  date  on  which  the  return 
is  required  to  be  filed.  If  a return  is  made  and  placed  in  the  mails  in  due 
course,  properly  addressed  and  postage  paid,  in  ample  time  to  reach  the 
office  of  the  collector  on  or  before  the  last  due  date,  no  penalty  will  attach 
should  the  return  not  be  actually  received  by  such  officer  until  subsequent 
to  that  date.  Where  a question  may  be  raised  as  to  whether  or  not  the  return 
was  posted  in  ample  time  to  reach  the  collector’s  office  on  or  before  the  due 
date,  the  envelope  in  which  the  return  was  transmitted  will  be  preserved 
by  the  collector  and  forwarded  to  the  Commissioner  with  the  return.  (Art. 
446,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Extension  of  time  extends  last  due  date  for  purpose  of  measuring  3-year  limitation 
on  assessment  (also,  presumably,  5-year  limitation  under  Sec.  250  (d)  and  Sec. 
252)  (13-21-1534:  Sol.  Op.  92).. June  1921  Cum.  Bull.  p.  325. 


Copyright  1922,  by  The  Corporation  Trust  Company, 
THE  FEDERAL  INCOME  TAX  SERVICE 
564 


2-2T-22  (2)  4-28-22  (8)  10-11-22. 

CONSOLIDATED  RETURNS. 

2539  Law  1(468.  Consolidated  Returns  of  Affiliated  Corporations  for 
(Sec.  240.)  taxable  Year  beginning  on  or  after  January  1,  1922. — 

“Sec.  240.  (a)  That  corporations  which  are  affiliated 

within  the  meaning  of  this  section  may,  for  any  taxable  year  beginning  on  or 
after  January  1,  1922,  make  separate  returns ” 

2540  Law  ^[469.  “or,  under  regulations  prescribed  by  the  Commissioner  ' 
(Sec.  240.)  with  the  approval  of  the  Secretary , make  a consolidated 

return  of  net  income  for  the  purpose  of  this  title,  in  which 
case  the  taxes  thereunder  shall  be  computed  and  determined  upon  the  basis 

“If  return  is  made  on  either  of  such  bases,  all  returns 
thereafter  made  shall  be  upon  the  same  basis  unless  per- 
mission to  change  the  basis  is  granted  by  the  Commis- 
[Note:  Under  the  1918  Act  there  was  no  option 
(and  there  is  none  now  under  the  1921 
Act  for  taxable  years  beginning  prior 
to  January  1,  1922).  The  1918  Act 
provided  for  the  severance  from  the 
affiliated  group  of  a corporation  organ- 
ized after  Aug.  1,  1914,  and  not  sue- 
cessor  to  a then  existing  business  deriving 
50%  or  more  of  its  income  from  Govern- 
ment contracts  (made  between  April  6, 
1917  and  November  11,  1918). 

2542  Law  H478.  Consolidated  Returns  of  Affiliated  Corporations  for 
(Sec.  240.)  Taxable  Year  beginning  prior  to  January  1,  1922. — ' 

Corporations  which  are  affiliated  within  the  mean- 
ing  of  this  section  shall  make  consolidated  returns  for  any  taxable  year 
beginning  prior  to  January  1,  1922,  in  the  same  manner  and  subject  to  the  ’ 
same  conditions  as  provided  by  the  Revenue  Act  of  1918.” — Law.  > 

2543  Consolidated  returns  are  based  upon  the  principle  of  levying  the 
tax  according  to  the  true  net  income  and  invested  capital  of  a single 

enterprise,  even  though  the  business  is  operated  through  more  than  one 
corporation.  Where  one  corporation  owns  or  controls  the  capital  stock  of 
another  corporation  or  other  corporations,  or  where  the  stock  of  two  or 
more  corporations  is  owned  by  the  same  interests,  a situation  results  which 
is  closely  analogous  to  that  of  a business  maintaining  one  or  more  branch 
establishments.  In  the  latter  case,  because  of  the  direct  ownership  of  the 
property,  the  invested  capital  and  net  income  of  the  branch  form  a part  of 
the  invested  capital  and  net  income  of  the  entire  organization.  (Art.  631, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p /.  ; 

Branch  operating  as  separate  entity  but  not  incorporated  (16-20-866:0.  D.  467).. 
June  1920  Cum.  Bull.  p.  224. 

“Controlled  by  the  same  interests”;  1918  Act  (incidentally  1917-1921  Acts)  (1-16- 
234:  A.  R.  R.  855).  .June  1922  Cum.  Bull.  p.  413. 

Liberty  bond  exemption  (2-19-171  T.  B.  R.  7)  1919  Cum.  Bull.  p.  87. 

Minority  interests  in  two  corporations  19%  and  39%,  respectively,  in  the  former  ca*e 
13%  owned  by  one  officer  and  in  the  latter  10%  by  another  officer:  affiliation  denied 
(5-21-1421:  A.  R.  R.  378).  June  1921  Cum.  Bull.  p.  309. 

Partnership  owning  corporation  (6-21-1431:  O.  D.  795).  .June  1921  Cum.  Bull.  p.  153. 
Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
565 


uj  sum  return. 

2541  Law  1J470. 

(Sec.  240.) 


sioner." — Law. 


2-27-22.  (2)  4-28-22.  (8)  10-11-22. 

CONSOLIDATED  RETURNS. 

2544  Affiliated  corporations,  as  defined  in  the  statute  and  in  article  633 

[112555],  for  a taxable  period  beginning  prior  to  January  1,  1922, 
are  required  to  file  consolidated  returns,  and  for  a taxable  period  beginning 
on  or  after  January  1,  1922,  may  elect  to  file  such  returns.  The  return  for 
the  first  taxable  period  beginning  on  or  after  January  1,  1922,  may  be  made 
either  upon  a consolidated  basis  or  as  separate  corporations,  regardless,  of 
the  manner  in  which  returns  for  previous  years  were  filed,  but  an  election 
so  made  shall  be  binding  upon  the  taxpayer  as  to  the  manner  of  reporting 
for  subsequent  years,  unless  express  permission  is  obtained  from  the  Com- 
missioner to  make  a change  in  the  method  of  reporting.  In  applying  for 
permission  to  make  such  change  the  taxpayer  should  submit  a statement 
in  the  form  of  an  affidavit  executed  by  a person  qualified  to  sign  the  return 
(see  sec.  239),  setting  forth  the  reasons  for  making  the  request. 

2545  The  consolidated  return  shall  be  filed  on  Form  1120  by  the  parent 
or  principal  reporting  corporation  in  the  office  of  the  collector  of  the  district 
in  which  it  has  its  principal  office.  Each  of  the  other  affiliated  corporations 
shall  file  in  the  office  of  the  collector  of  its  district  Form  1122,  along  with 
the  several  schedules  indicated  thereon.  The  parent  or.  principal  corpora- 
tion filing  a consolidated  return  for  the  first  time  shall  include  in  such  re- 
turn a statement  setting  forth  (a)  the  name  and  address  of  each  of  the  sub- 
sidiary or  affiliated  corporations  included  in  such  return;  (b)  the  par  value 
of  the  total  outstanding  capital  stock  of  each  of  such  corporations  at  the 
beginning  of  the  taxable  year;  (c)  the  par  value  of  such  capital  stock  held 
by  the  parent  corporation  or  by  the  same  interests  at  the  beginning  of  the 
taxable  year;  (d)  in  the  case  of  affiliated  corporations,  the  stock  of  which 
is  owned  or  controlled  by  the  same  interests,  a list  of  the  individuals,  part- 
nerships, or  corporations  constituting  such  interests,  with  the  percentage 
of  the  total  outstanding  stock  of  each  affiliated  corporation  neld  by  each 
of  such  individuals,  partnerships,  or  corporations  during  all  or  any  part 
of  the  taxable  year;  and  (e)  a schedule  showing  the  proportionate  amount 
of  the  total  tax  which  it  is  agreed  among  them  is  to  be  assessed  upon  each 
affiliated  corporation.  If  there  are  substantial  changes  of  ownership  during 
the  taxable  year,  the  information  required  under  (b)  and  (c)  above  should 

-show  the  conditions  existing  immediately  subsequent  to  such  changes. 

2546  In  the  case  of  a taxable  period  beginning  prior  to  January  I,  . 1922, 
where  two  or  more  corporations  are  affiliated  within  the  meaning  of 

this  section,  if  the  business  of  any  one  or  more  of  the  corporations  taken 
independently  is  such  as  to  entitle  it  to  classification  as  a personal  service 
corporation,  and  the  business  of  one  or  more  of  the  corporations  is  such  that 
it  would  not  be  so  entitled,  all  the  affiliated  corporations  shall  be  consoli- 
dated and  the  corporations  of  the  former  class  shall  lose  their  status  as  per- 
sonal service  corporations.  ■ If  the  business  of  the  consolidated  group  as  a 
whole  is  such  that  it  meets  the  requirements  of  section  303,  the  tax  shall 
be  computed  under  the  provisions  of  that  section;  provided,  however,  that 
if  the  income  of  the  consolidated  group  is  to  be  ascribed  primarily  to  the 
activities  of  the  principal  owners  or  stockholders,  and  if  the  affairs  of  each 
affiliated  corporation  are  actively  and  regularly  conducted  by  the.  owners 
or  stockholders  of  the  consolidated  group,  and  if  capital,  (whether  invested 
or  borrowed),  is  not  a material  factor  in  producing  the  income  of  the  con- 
solidated group,  the  consolidated  group  may  be  treated  as  a personal  ser- 
» vice  corporation.  See  [for  personal  service  corporation]  sections  200  and 
218  and  articles  1523-1532  [beginning  at  1|825j  and  336-339  [beginning 
at  If 841]. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

566 


2-27-22.  (2)  4-10-22.  (3)  5-1-22. 

CONSOLIDATED  RETURNS. 

2547  Foreign  corporations  and  corporations  entitled  to  the  benefits  of 
section  262  [1[2070]  may  not  file  consolidated  returns;  but  see  article 

637  [1[2561].  (Art.  632,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Foreign  corporations,  one  in  effect  a branch  of  the  other;  no  authority  for  consolidated 
return  (1917  Act)  (9-21-1486:  A.  R.  R.  397).  .June  1921  Cum.  Bull.  p.  311. 

Information  at  the  source  (16-20-868:  O.  D.  469) . .June  1920  Cum.  Bull.  p.  249. 

Partnership  becoming  a corporation  (6-19-286:  T.  B.  R.  27).  . 1919  Cum.  Bull.  p.  307. 

Refunds  and  claims  for  credit:  over-payments  in  years  prior  to  consolidated  return 
authorization,  additional  tax  due  on  consolidated  return  (41-20-1237:  O.  D.  683) 
. . Dec.  1920  Cum.  Bull.  p.  311. 


2548  Different  Fiscal  Years  of  Affiliated  Corporations. — In  the  case  of  all 
consolidated  returns  for  taxable  years  beginning  prior  to  January 

1,  1922,  consolidated  invested  capital  must  be  computed  as  of  the  beginning 
of  the  taxable  year  of  the  parent  or  principal  reporting  corporation  and  con- 
solidated income  must  be  computed  on  the  basis  of  its  taxable  year.  If  a 
consolidated  return  is  made  for  any  taxable  year  beginning  on  or  after  Jan- 
uary 1,  1922,  consolidated  income  must  be  computed  on  the  basis  of  the 
taxable  year  of  the  parent  or  principal  reporting  corporation.  Whenever 
the  fiscal  year  of  one  or  more  subsidiary  or  other  affiliated  corporations 
differs  from  the  fiscal  year  of  the  parent  or  principal  corporation,  the  Com- 
missioner should  be  fully  advised  by  the  taxpayer  in  order  that  provision 
may  be  made  for  assessing  the  tax  in  respect  of  the  period  prior  to  the  begin- 
ning of  the  fiscal  year  of  the  parent  or  principal  corporation.  See  section 
226  of1  the  statute  and  article  431  [H2574].  (Art.  638,  Reg.  62,  1922  Edition.) 

2549  Law  H471.  In  the  Case  of  Consolidated  Returns  the  Tax  is 
(Sec.  240.)  Assessed  as  a Unit  and  then  Apportioned. — “(b)  In 

any  case  in  which  a tax  is  assessed  upon  the  basis  of  a 
consolidated  return , the  total  tax  shall  be  computed  in  the  first  instance  as  a 
unit  and  shall  then  be  assessed  upon  the  respective  affiliated  corporations  in 
such  proportions  as  may  be  agreed  upon  among  them , or,  in  the  absence  of 
any  such  agreement,  then  on  the  basis  of  the  net  income  properly  assignable 
to  each.” — Law.  [Note:  The  1918  Act  so  provided.] 

2550  Law  1[472.  In  the  Case  of  Consolidated  Returns,  One  Specific 
(Sec.  240.)  Credit  Only  (if  any)  is  Allowed. — “ There  shall  be 

allowed  in  computing  the  income  tax  only  one  specific 
credit  computed  as  provided  in  subdivision  (b)  [H2058]  of  section  236.” — 
Law.  [Note:  The  1918  Act  so  provided.] 

2651  Consolidated  Net  Income  of  Affiliated  Corporations. — Subject  to  the 
provisions  covering  the  determination  of  taxable  net  income  of 
separate  corporations,  and  subject  further  to  the  elimination  of  intercompany 
transactions  (whether  or  not  resulting  in  any  profit  or  loss  to  the  separate 
corporations),  the  consolidated  taxable  net  income  shall  be  the  combined 
net  income  of  the  several  corporations  consolidated.  Only  one  specific  credit 
of  $2,000,  as  provided  in  section  236  (b)  and  article  591,  shall  be  allowed 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
567 


c 2-27-22.  (2)  4-10-22.  (5)  5-1-22. 

CONSOLIDATED  RETURNS. 


the  consolidated  group,  and  this  only  in  case  the  net  income  of  the  group 
does  not  exceed  $25,000;  but  if  such  net  income  is  more  than  $25,000,  the 
tax  imposed  by  section  230  shall  not  exceed  the  tax  which  would  be  payable 
if  the  $2,000  were  allowed,  plus  the  amount  of  the  net  income  in  excess  of 
$25,000.  In  respect  of  the  statement  of  gross  income  and  deductions  and 
the  several  schedules  required  under  Form  1120,  a corporation  filing  a con- 
solidated return  is  required  to  prepare  and  file  such  statements  and  schedules 
in  columnar  form  to  the  end  that  the  details  of  the  items  of  gross  income  and 
deductions  for  each  corporation  included  in  the  consolidation  may  be  readily 
audited.  (Art.  636,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Government  contract  income  accruing  to  several  of  affiliated  group  (12-20-799:0.  D. 
415) . .June  1920  Cum.  Bull.  p.  226. 

Replacement  fund  for  one  subsidiary  used  for  purchase  of  “like  property”  from 
another  subsidiary  (48-21-1942:  A.  R.  M.  142).. Dec.  1921  Cum.  Bull.  p.  94. 


2 552 

2553 

2554 

* [Act 


Law  H473. 
(Sec.  240.) 

Law  ^|474. 
(Sec.  240.) 

Law  1[475. 
(Sec.  240.) 


What  Corporations  are  Deemed  to  be  Affiliated. — 

“(c)  For  the  purpose  of  this  section  two  or  more  dom- 
estic corporations  shall  be  deemed  to  be  affiliated ” 

“(1)  if  one  corporation  owns  directly  or  controls  through 
closely  affiliated  interests  or  by  a nominee  or  nominees 
substantially  all  the  stock  of  the  other  or  others , or” 

“(2)  if  substantially  all  the  stock  of  two  or  more  cor- 
porations is  owned  or  controlled  by  the  same  interests.”  ★ 
— Law.  [Note:  The  1918  Act  so  provided.] 


amended  by  adding  sentence  here,  relating  to  China  Trade  Act  corporations 


*"  3 1 7 0 . J 


2655  When  Corporations  are  Affiliated. — Corporations  will  be  deemed  to 
be  affiliated  (a)  when  one  domestic  corporation  owns  directly  or 
controls  through  closely  affiliated  interests  or  by  a nominee  or  nominees  sub- 
stantially all  the  stock  of  the  other  or  others,  or  (b)  when  substantially  all 
the  stock  of  two  or  more  domestic  corporations  is  owned  or  controlled  by  the 
same  interests.  The  words  “substantially  all  the  stock”  can  not  be  inter- 
preted as  meaning  any  particular  percentage,  but  must  be  construed  accord- 
ing to  the  facts  of  the  particular  case.  The  owning  or  controlling  of  95  per 
cent  or  more  of  the  outstanding  voting  capital  stock  (not  including  stock 
in  the  treasury)  at  the  beginning  of  and  during  the  taxable  year  will  be 
deemed  to  constitute  an  affiliation  within  the  meaning  of  the  statute.  _ Con- 
solidated returns  may,  however,  be  required  for  any  taxable  year  beginning 
prior  to  January  1,  1922,  even  though  the  stock  ownership  is  less  than  95 
per  cent.  When  the  stock  ownership  or  control  is  less  than  95  per  cent, 
but  in  excess  of  70  per  cent,  a full  disclosure  of  the  affiliations  should  be  made 
showing  all  pertinent  facts,  including  the  stock  owned  or  controlled  in  each 
subsidiary  or  affiliated  corporation  and  the  percentage  of  such  stock  owned 
or  controlled  to  the  total  stock  outstanding.  This  information  will  also  be 
required  where  like  conditions  exist  and  the  taxpayer  elects  to  file  a consoli- 
dated return  for  any  taxable  period  beginning  on  or  after  January  1,  1922. 
Such  statement  should  preferably  be  made  in  advance  of  filing  the  return, 
but  if  a consolidated  return  is  filed  subject  to  the  approval  of  the  Commis- 

• Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22.  (2)  4-10-22.  (3)  0-30-22  (4)  10-11-22. 

CONSOLIDATED  RETURNS. 

•ioner,  the  required  statement  should  be  filed  as  a part  of  the  return.  1 he 
words  “the  same  interests”  shall  be  deemed  to  mean  the  same,  individual, 
partnership,  or  corporation,  or  the  same  individuals,  partnerships,  or  cor- 
porations, but  when  the  stock  of  two  or  more  corporations  is  owned  or  con- 
trolled by  two  or  more  individuals,  by  two  or  more  partnerships.,  or  by  two 
or  more  corporations,  the  corporations  will  not  be  held  to  be.affiliated  unless 
the  percentage  of  stock  of  such  corporations  held  by  each  individual,  each 
partnership,  or  each  corporation  is  substantially  the  same  in  each  of  the 
corporations.  (Art.  633,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  01. 

69.04%  stock  control  without  intercompany  operating  transactions,  etc.,  insufficient 
gj  tv  (14-21-1553:  A.  R.  R.  448) . .June  1921  Cuin.  Bull.  p.  314. 

Close  commercial  or  financial  relations  without  necessary  stock  ownership  basis,  of  no 
avail  ( 22-20-976:  A.  R R.  123).  June  1920  Cum.  Bull.  p.  225. 

Corporation  owning  all  stock  of  another  assigns  this  to  trustee  who  owns  no  stock  in 
first  corporation;  irrevocable  trust:  no  affiliation  (43-21-1888:  A.  R.  R,  641).. 
Dec.  1921  Cum.  Bull.  p.  235.  _ . t. 

Distinct  and  unrelated  lines  of  business;  instructions  on  Form  1120.  being  in  conflict 
with  Art.  633,  should  be  ignored:  1921  Act  (1-13-188:  Mim.  2930).  .June  1922 
Cum.  Bull.  p.  298. 

Intercompany  sales  not  conclusive  as  to  “closely  related  businesses  (1917  Act) 
(38-21-1834:  A.  R.  R.  624).. Dec.  1921  Cum.  Bull.  p.  234. 

National  banks  and  stockholders’  trustee  account  (17-20-881:  A.  R.  M.  43).. June 
1920  Cum.  Bull.  p.  281. 

Receiver  in  control  of  subsidiaries:  1921  Act  (1-12-162:  A.  R.  R.  818).  .June  1922 
Cum.  Bull.  p.  296. 

“The  same  interests’’:  Government’s  interpretation  questioned;  explanation  sustain- 
ing (16-19-465:  T.  B.  R.  52).  . 1919  Cum.  Bull.  p.  236. 

Same:  and  statement  that  if  Government  could  not  insist  on  consolidated  return, 
taxpayers  should  not  be  permitted  to  elect  to  make  (7-19-304:  T.  B.  M.  32) 

. . 1919  Cum.  Bull.  p.  236. 

“The  same  interests”:  holdings  by  husband  and  wife  considered  (Wisconsin):  1917 
and  1918  Acts  (1-26-373:  A.  R.  R.  942).  .June  1922  Cum.  Bull.  p.  298. 

2556  Change  in  Ownership  During  Taxable  Year. — (a)  Where  corpora- 
tions are  affiliated  at  the  beginning  of  a taxable  year  but  due  to  a 

change  in  stock  ownership  or  control  during  the  year  the  affiliated  status  is 
terminated,  or  (b)  where  corporations  are  not  affiliated  at  the  beginning 
of  the  taxable  year  but  through  change  of  stock  ownership  or  control  during 
the  year  become  affiliated,  a full  disclosure  of  the  circumstances  of  such 
changes  of  stock  ownership  shall  be  submitted  to  the  Commissioner.  Ordi- 
narily in  such  cases  the  parent  or  principal  company,  under  the  conditions 
described  in  (a)  above,  should  exclude  from  its  return  the  income  and  in- 
vested capital  of  such  subsidiary  or  subordinate  company  from  the  date  of 
the  change  of  stock  ownership,  and  under  the  conditions  described  in  (b) 
above,  should  include  in  its  return  the  income  and  invested  capital  of  such 
subsidiary  or  subordinate  company  from  the  date  of  the  change  of  stock 
ownership.  In  either  case  the  subsidiary  or  subordinate  corporation  whose 
status  is  changed  during  the  taxable  year  should  make  a separate  return  for 
that  part  of  the  taxable  year  during  which  it  was  outside  of  the  affiliated 
group. 

2557  Where,  in  accordance  with  the  procedure  set  forth  above,  a return 
is  made  by  a corporation  for  a period  less  than  a year,  the  tax  shall 

be  computed  in  accordance  with  sections  226  and  239  and  the  articles  there- 
under. In  any  case  in  which  the  change  of  consolidated  status  is  for  a period 
so  short  as  to  be  negligible,  a consolidated  return  or  separate  returns  for  the 
entire  period,  as  the  case  may  be,  may  be  filed;  in  such  cases,  however,  there 

Copyright  1922,  by  The  Corporation  Trupt  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
569 


2-27-22.  (2)4-10-22.  (3)6-30-22.  (4)  10-11-22. 

CONSOLIDATED  RETURNS. 

should  accompany  the  return  a complete  statement  setting  forth  the  changes, 
in  the  affiliated  status  occurring  during  the  taxable  year.  (Art.  634,  Reg.  62, 
1922  Edition.) 


2558  Law  *[[476.  A Corporation  Entitled  to  the  Benefits  of  Sec.  262  is 
(Sec.  240.)  to  be  Treated  as  a Foreign  Corporation. — “(d)  For  the 

purposes  of  this  section  a corporation  entitled  to  the  ben- 
efits of  section  262  [^f 207 0J  shall  be  treated  as  a foreign  corporation :” — Law. 

[Note:  This  provision  is  new  to  the 

1921  Act.] 

2559  Domestic  Corporation  Affiliated  with  Foreign  Corporation. — A domes- 
tic corporation  which  owns  a majority  of  the  stock  of  a foreign  cor- 
poration or  of  a corporation  entitled  to  the  benefits  of  section  262  [H2070] 
shall  not  be  permitted  or  required  to  include  the  net  income  or  invested 
capital  of  such  corporation  in  a consolidated  return;  but  see  article  637 
[H 256 1 ] regarding  related  trades  or  businesses  owned  or  controlled  by  the 
same  interests,  as  comprehended  by  section  240  (d).  See  subdivision  (e)  of 
section  238  and  article  612  [Hi  767]  regarding  credit  for  taxes  on  account 
of  ownership  of  stocks  of  foreign  corporations  and  of  corporations  entitled 
to  the  benefits  of  section  262.  (Art.  635,  Reg.  62,  1922  Edition.) 


2560  Law  ^[477.  Accounts  of  related  businesses,  individual,  partner- 
(Sec.  240.)  ship,  trust,  or  corporate,  may  be  consolidated  for  pur- 
pose of  apportioning  income,  deductions,  and  capital. — 

‘ Provided , That  in  any  case  of  two  or  more  related  trades  or  businesses 
{whether  unincorporated  or  incorporated  and  whether  organized  in  the 
United  States  or  not ) owned  or  controlled  directly  or  indirectly  by  the  same 
interests , the  Commissioner  may  consolidate  the  accounts  of  such  related 
trades  and  businesses , in  any  proper  case , for  the  purpose  of  making  an 
accurate  distribution  or  apportionment  of  gains , profits,  income,  deductions , 
or  capital  between  or  among  such  related  trades  or  businesses .” — Law. 

[Note:  This  provision  is  new  to  the  1921 
Act.  See  note  at  Law  1|459,  Hi 766.] 

2561  Subdivision  (d)  of  section  240  provides  that  in  any  case  of  two  or 
more  related  trades  or  businesses  (whether  incorporated  or  not,  and 

whether  organized  in  the  United  States  or  not),  owned  or  controlled  directly 
or  indirectly  by  the  same  interests,  the  Commissioner  may  consolidate  the 
accounts  of  such  related  trades  or  businesses,  in  any  proper  case,  for  the 
purpose  of  making  an  accurate  distribution  or  apportionment  of  gains, 
profits,  income,  deductions,  or  capital  between  or  among  such  related  trades 
or  businesses.  This  provision  relates  not  to  the  payment  of  taxes,  but  to  the 
determination  of  the  true  income  of  related  trades  or  businesses  and  thus 
indirectly  to  the  amount  of  taxes  which  may  be  due  under  Title  II  [Income 
Tax]  and  Title  III  [Excess-Profits  Tax]  of  the  statute.  (Art.  637,  Reg.  62, 
1922  Edition.) 


Copyright  1122.  hy  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 


2-27-22.  (2)  8-20-22.  (8)  8-80-22  (4)  4-10-22.  (6)  10-11-22. 

EXTENSIONS  OF  TIME— RETURNS. 

2662  Law  If 642.  Extension  of  Time  for  Filing  Returns  May  be  Granted 
(Sec.  1311.)  by  the  Collector. — Sec.  3176,  Revised  Statutes  [second 
paragraph).  “//  the  failure  to  file  a return  or  list  is 
due  to  sickness  or  absence,  the  collector  may  allow  such  further  time,  not 
exceeding  thirty  days,  for  making  and  filing  the  return  or  list  as  he  deems 
proper .” — Law.  [Note:  No  change.) 

2563  Law  1[344.  Extension  of  Time  for  Filing  Returns  May  Be  Granted 
(Sec.  227.)  by  the  Commissioner. — “ The  Commissioner  may  grant 

a reasonable  extension  of  time  for  filing  returns  when- 
ever in  his  judgment  good  cause  exists  and  shall  keep  a record  of  every 
such  extension  and  the  reason  therefor.  Except  in  the  case  of  taxpay- 
ers who  are  abroad,  no  such  extension  shall  be  for  more  than  six  months .” 

— Law.  [Note:  The  1918  Act  so  provided.) 

2564  Extension  of  Time  by  Collector. — It  is  important  that  the  taxpayer 
render  before  the  return  due  date  a return  as  complete  and  final  as 

it  is  possible  for  him  to  prepare.  However,  in  cases  of  sickness  or  absence 
collectors  are  authorized  to  grant  an  extension  of  not  exceeding  thirty  days, 
where  in  their  judgment  such  further  time  is  actually  required  for  the  making 
of  an  accurate  return.  See  Article  1002  [for  extension  of  time  by  collector, 
see  1)256 2 above).  The  application  for  such  extension  must  be  made  prior 
to  the  due  date  of  the  return.  The  absence  or  sickness  of  one  or  more  officers 
of  a corporation  at  the  time  the  return  is  required  to  be  filed  will  not  be 
accepted  as  a reasonable  cause  for  failure  to  file  the  return  within  the  pre- 
scribed time,  unless  it  is  satisfactorily  shown  that  there  were  no  other  principal 
officers  available  and  sufficiently  informed  as  to  the  affairs  of  the  corporation 
to  make  and  verify  the  return.  As  a condition  of  granting  an  extension  of 
time  for  filing  a return  the  collector  may  require  the  submission  of  a tentative 
return  and  estimate  of  the  tax  and  the  payment  of  one-fourth  of  the  estimated 
amount  of  tax.  A tentative  return  should  be  made  on  the  usual  return  form, 
plainly  marked  “tentative”  at  the  top,  contain  a statement  as  to  the  estimated 
amount  of  tax  believed  to  be  due,  and  be  properly  executed.  No  other  data 
need  be  given.  Tentative  returns  will  not  be  accepted  unless  permission  is 
obtained  previous  to  filing.  A copy  of  the  authority  for  filing  the  tentative 
return  must  be  attached  thereto  when  filed.  Where  a taxpayer  has  filed  a 
tentative  return  and  has  failed  to  file  a complete  return  within  the  period  of 
the  extension  requested  by  him,  the  complete  return  when  filed  is  subject  to 
penalties  prescribed  for  delinquency.  Where  a tentative  return  has  been 
filed  and  no  time  has  been  fixed  within  which  a complete  return  must  be  filed, 
the  collector  may  at  any  time  send  notice  to  the  taxpayer  to  file  a complete 
return  within  a period  of  time  therein  specified  by  him,  and  a taxpaver  who 
fails  to  comply  with  such  request  will  incur  the  penalties  prescribed  by 
statute  for  delinquency  in  filing  a return.  As  to  interest  see  article  1003 
[1)2727].  Collectors  should  not  grant  extensions  of  time  for  filing  Forms  1096 
and  1099.  Requests  for  such  extensions  should  be  made  to  the  Commissioner. 
(Art.  443,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  Qi. 

Extension  having  been  granted  by  Commissioner,  collector  is  without  authority  to 
(^gtant  further  extension  (35-20-1171:  O.  D.  650).. Dec.  1920  Cum.  Bull.  p.  231. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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571 


•£-‘*1-22.  (2)  8-20-22.  ;3>  8-30-22.  (4)  4-1U-22.  (6;  10-11-22. 

EXTENSIONS  OF  TIME— RETURNS. 

2565  Extension  of  Time  by  Commissioner. — If  before  the  end  of  an  exten- 
sion of  30  days  granted  by  the  Collector  an  accurate  return  can  not 

be  made,  an  appeal  for  a further  extension  must  be  made  to  the  Commissioner 
with  a full  recital  of  the  causes  for  the  delay.  The  Commissioner  will  not 
grant  an  additional  extension  without  a clear  showing  that  a complete  return 
can  not  be  made  at  the  end  of  the  30-day  period.  The  Commissioner  will 
grant  no  such  extension  beyond  the  original  due  date  of  the  third  installment 
of  the  tax.  Either  a complete  or  a tentative  return,  as  complete  as  possible 
and  giving  a ground  for  assessment  of  the  tax,  must  be  submitted  on  or 
before  the  due  date  as  extended,  and  the  tax  shown  to  be  due  must  be  paid 
with  the  submission  of  the  return.  If  a complete  return  cannot  be  made 
at  that  time,  the  facts  must  be  submitted  to  the  Commissioner  for  such 
further  action  as  he  deems  warranted.  In  exceptional  circumstances  the 
taxpayer  may  apply  originally  to  the  Commissioner  for  an  extension  of  time. 
As  to  interest,  see  article  1003  [*,[2727];  as  to  extension  of  time  for  payment 
in  certain  cases  where  a deficiency  in  tax  is  discovered,  see  article  1014 
[1(2608.]  (Art.  444,  Reg.  62,  1922  Edition.) 

hnr  explanation  of  Cumulative  Index  references  see  page  gi. 

1921  specifically;  Alaska  and  Hawaii:  individual  income  returns,  and  information 

returns . 1)3093 

1921  specifically:  Fiduciaries,  partnerships,  and  personal  service  corporations.  . ^[3009; 

1921  specifically;  Hawaii:  extension  for  calendar  year  corporations  tentative  returns 
under  T.  D.  3291  (1-13-185:  1.  T.  1257).  .June  1922  Cum.  Bull.  p.  246. 

1921  specifically;  new  returns  for  fiscal  years  ended  in  1921.  .113092.  Amended.  . 
113110. 

1921  ca  enuar  year  and  fiscal  year  ended  Jan.  31  or  Feb.  28,  1922;  domestic  cor- 
porations. . H304 1 . 

1921  calendar  year;  return  of  amounts  withheld  at  source — Form  1013  and  Form 

1042  1)3044. 

1921  and  thereafter;  foreign  corporations  and  partnerships  having  office  or  place  of 
business  in  U.  S..  . H3WJ2 

Amended  returns  required  by  T.  D.  3220  (48-21-1954:  T.  D.  3243).  .Dec.  1921  Cum. 

Bull.  p.  289. 

Joint  return  of  husband  and  wife,  extension  having  been  granted  to  one  (21-20-959: 
O D.  521)  June  1920  Cum.  Bull.  p.  203. 

2566  Extension  of  Time  in  the  Case  of  Persons  Abroad  and  the  Pay- 
ment of  the  Tax  in  Such  Cases. — Where  a delinquent  return  is 

filed  by  or  on  behalf  of  a person  who  is  abroad,  an  affidavit  must  be  attached 
to  the  return,  stating  the  cause  of  the  delay  in  filing  it,  in  order  that  the  Com- 
missioner may  determine  whether  the  failure  to  file  the  return  in  time  was 
due  to  a reasonable  cause  and  whether  the  return  was  filed  without  any 
unnecessary  delay.  If  the  showing  justifies  the  conclusion  that  the  failure 
to  file  the  return  in  time  was  excusable,  no  penalty  will  be  imposed.  The 
installments  of  tax  which  are  actually  due  must  be  paid  at  the  time  of  filing 
the  return  and  the  other  installments  shall  be  paid  as  they  fall  due.  In 
case  an  extension  is  granted,  interest  is  payable  at  the  rate  of  one-half  of 
1 per  cent  per  month  from  the  time  the  tax  would  have  been  due  if  no  ex- 
tension had  been  granted.  (Art.  445,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

of  1%  interest  does  not  accrue  (2-19-160:  O.  809) . . 1919  Cum.  Bull.  p.  192. 

Domestic  corporations  transacting  business  and  keeping  books  of  account  abroad  arc 
within  scope  (14-20-839;  O.  D.  443)-.  June  1920  Cum.  Bull.  p.  203. 

Penalty  for  failure  to  pay  tax  applies,  return  having  been  tiled  (30-20-1095:  O.  D. 
(S08)  Dec.  1920  Cum.  Bull.  p.  299. 

Extension  of  time  for  filing  returns  for  1921  and  subsequent  vears  H3032,  herein. 

Copyright  1922,  by  The  Corporation  Trust  Capipiny. 

THE  FEDERAL  INCOME  TAX  SERVICE 
.<72 


2-27-22. 


RETURNS  FOR  PERIOD  OF  LESS  THAN  TWELVE  MONTHS. 


2567  Law  ^[334,  Returns  for  a Period  of  Less  than  Twelve  Months. — 

(Sec.  226.)  “Sec.  226.  (a)  That  if  a taxpayer , with  the  approval 

of  the  Commissioner , changes  the  basis  of  computing  net 
income  from  fiscal  year  to  calendar  year  a separate  return  shall  be  made  for 
the  period  between  the  close  of  the  last  fiscal  year  for  which  return  was  made 
and  the  following  December  31.” — Law.  [Note:  The  1918  Act  so 

. provided.] 


2568  Law  ^[335.  “If  the  change  is  from  calendar  year  to  fiscal  year , a 
(Sec.  226.)  separate  return  shall  be  made  for  the  period  between  the 
close  of  the  last  calendar  year  for  which  return  was  made 
and  the  date  designated  as  the  close  of  the  fiscal  year” — Law.  [Note: 

The  1918  Act  so  provided.] 


2569  Law  ^[336.  “If  the  change  is  from  one  fiscalyear  to  another  fiscal  year 
(Sec.  226.)  a separate  return  shall  be  made  for  the  period  between  the 

close  of  the  former  fiscal  year  and  the  date  designated  as 
the  close  of  the  new  fiscal  year.” — Law.  [Note:  The  1918  Act  so 

provided.] 

2570  Law  1[337.  Basis  of  Computation  of  Net  Income  and  Application 
(Sec.  226.)  of  Tax  Rates  when  Return  is  Made  for  a Period  of 

Less  than  Twelve  Months. — “(b)  In  all  cases  where 
a separate  return  is  made  for  a part  of  a taxable  year  the  net  income  shall  be 
computed  on  the  basis  of  such  period  for  which  separate  return  is  made , and 
the  tax  shall  be  paid  thereon  at  the  rate  for  the  calendar  year  in  which  such 
period  is  included” — Law.  [Note:  The  1918  Act  so  provided  in 

effect.  Provision  was  made  here  for 
apportioning  the  specific  exemption  and 
credit  for  dependents  in  such  cases,  which 
the  1921  Act  does  not  require.  The  1921 
Act  provides  that  in  such  cases  the  in- 
come is  to  be  placed  on  an  annual  basis 
before  computing  the  tax,  which  is  then 
apportioned.  See  Law  ^[338,  ^[2571. 
The  specific  credit,  if  any,  in  the  case  of 
corporations,  is  apportioned.  See  Law 
If 466,  H2573-] 

2571  Law  ^[338.  Net  Income  Placed  on  Annual  Basis  and  Tax  Com- 
(Sec.  226.)  puted  Thereon  Proportionately. — “(c)  In  the  case  of 

a return  for  a period  of  less  than  one  year  the  net  income 
shall  be  placed  on  an  annual  basis  by  multiplying  the  amount  thereof  by 
twelve  and  dividing  by  the  number  of  months  included  in  such  period;” 

2572^Law  ^[339.  “and  the  tax  shall  be  such  part  of  a tax  computed  on  such 
(Sec.  226.)  annual  basis  as  the  number  of  months  in  such  period  is 

of  twelve  months.” — Law.  [Note:  These  provisions 

are  new  to  the  1921  Act.  See  note  to 
Law  1[337,  1[2570.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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2-27-22. 

RETURNS  FOR  PERIOD  OF  LESS  THAN  TWELVE  MONTHS. 

2573  Law  If 466.  Apportioning  the  Specific  Credit  of  $2,000  in  the  Case 
(Sec.  239.)  of  Corporations  When  Return  is  Made  for  a Period  of 

Less  than  Twelve  Months. — “ When  return  is  made 
under  section  226  [1f2567]  the  credit  provided  in  subdivision  [b)  of  section 
236  [^[  2058]  shall  be  reduced  to  an  amount  which  bears  the  same  ratio  to  the 
full  credit  therein  provided  as  the  number  of  months  in  the  period  for  which 
such  return  is  made  bears  to  twelve  months .” — Law.  [Note:  The  1918 

Act  so  provided;  the  1918  Act,  however, 
did  not  provide  for  placing  the  net  in- 
come on  an  annual  basis,  and  the  com- 
putation of  the  tax  thereon  proportion- 
ately, in  the  case  of  a return  for  a period 
of  less  than  12  months,  as  does  the  1921 
Act,  Law  1f338,  1f2571.] 

2574  Returns  for  Periods  of  Less  Than  Twelve  Months. — No  return  can  be 
made  for  a period  of  more  than  12  months.  A separate  return  for  a 

fractional  part  of  a year  is,  therefore,  required  wherever  there  is  a change, 
with  the  approval  of  the  Commissioner,  in  the  basis  of  computing  net  income 
from  one  taxable  year  to  another  taxable  year.  The  periods  to  be 
covered  by  such  separate  returns  in  the  several  cases  are  stated  in  the 
statute.  The  requirements  with  respect  to  the  filing  of  a separate  return 
and  the  payment  of  tax  for  a part  of  a year  are  the  same  as  for  the  filing 
of  a return  and  the  payment  of  tax  for  a full  taxable  year  closing  at  the  same 
time.  See  sections  227  and  250  of  the  statute  and  articles  441-447  [for  re- 
turns for  full  taxable  year,  beginning  at  ^[2529]  and  1001  [for  payment  of 
tax,  ^[27 12].  The  tax  on  net  income  computed  on  the  basis  of  the  period 
for  which  a separate  return  is  made  shall  be  paid  thereon  at  the  rate  for 
the  calendar  year  in  which  such  period  is  included.  In  any  case  of  a return 
for  a period  of  less  than  one  year  the  net  income  shall  be  placed  on  an  annual 
basis  and  the  tax  computed  as  provided  in  subdivision  (c)  of  section  226. 
See  further  section  212  and  articles  25  [for  accounting  period,  If  1064]  and  26 
[for  change  in  accounting  period,  If  1066],  and  as  to  corporations  sections 
232  and  239  and  articles  531  [accounting  periods,  [^f  1043]  and  626  [for  returns 
for  fractional  part  of  year,  1f2576]. 

2575  Illustration  of  computation  of  tax  for  a period  of  less  than  one  year. — 
For  the  calendar  year  1921  the  income  tax  of  a married  person 

entitled  to  a personal  exemption  of  $2,000,  making  a return  for  a six  months’ 
period  of  $10,000  net  income,  is  $995,  computed  as  follows: 


Net  income $10,000 

Multiplied  by  12 120,000 

Divided  by  6 20,000 

Subtracting  exemption  of  $2,000 18,000 

Normal  tax  on  $18,000 1,280 

Surtax  on  $20,000 710 


Total $1,990 

Divided  by  2 995 


(Art.  431,  Reg.  62,  1922  Edition.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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574 


8-87-22.  (2)  8-22-22.  (8)  4-10-22.  (4)  4-14-22.  (6)  9-1-22.  (6)  9-8-22.  (7)  10-11-22.  (8)  11-4-22. 

RETURNS  FOR  PERIOD  OF  LESS  THAN  TWELVE  MONTHS. 

For  explanation  of  Cumulative  Index  references  see  page  91, 

Alien  arriving  here  with  established  fiscal  year:  notice  to  collector  (15-20-853:  O.  D. 
456).  June  1920  Cum.  Bull.  p.  201. 

Decedent’s  income  to  be  placed  on  annual  basis.  1921  Act.  .^3098.  Same  (1-12-160: 
I.  T.  1250)  and  (1-12-161:  I.  T.  1251).. June  1922  Cum.  Bull,  p.243.  Same 
again  (M  1-199-  Mini.  2934).  . June  1922  t urn.  Bull.  p.  244.  Again.  .^3378. 

Dividends  and  tax-free  interest  placed  on  annual  basis  for  normal  tax  purposes — 
1921  Act.  43098. 

Fiscal  year  ending  June  30:  change  to  calendar  year  basis  (24-20-996:  Sol.  Op.  5) 
. .June  1920  Cum.  Bull.  p.  67. 

Tax  computation  on  any  resulting  fractional  year  return  (45-20-1296:  O.  D.  723)  Dec 
1920  Cum.  Bull.  p.  230 


2576  In  the  case  of  a corporation  making  its  first  return  of  income  for 
only  a part  of  the  calendar  year  and  in  the  case  of  a corporation 
changing  its  accounting  period,  whether  from  calendar  year  to  fiscal  year, 
from  fiscal  year  to  calendar  year,  or  from  one  fiscal  year  to  another  fiscal 
year,  a separate  return  for  a fractional  part  of  a year  is  required.  See  section 
226  of  the  statute  and  article  431  [^[2574  above].  In  such  a case  the  credit 
of  $2,000  against  net  income  allowed  a domestic  corporation  having  a net  in- 
come not  exceeding  $25,000  shall  be  reduced  to  such  proportion  of  the  full 
credit  as  the  number  of  months  in  the  period  for  which  the  return  is  made 
bears  to  twelve  months.  This  prorated  credit  shall  be  applied  to  the.net 
income  before  such  net  income  is  placed  on  an  annual  basis,  as  provided 
in  section  226(c)  [^[2571].  See  sections  236  and  305  and  articles  591  [for  cred- 
its allowed  1J2067]  and  761  [for  apportionment  of  the  $3,000  specific  ex- 
emption from  excess  profits  tax. — War  Tax  Service].  (Art.  626,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Actual  not  annual  basis  income  determines  right  to  apportioned  $2,000  exemption: 
1921  Act  (1-36-493:  I.  T.  1439).  .Bull.  I (’22)-36,  p.  11. 

Fractional  part  of  month  (1-35-484:  I.  T.  1432).  .Bull.  I (’22)-35,  p.  9. 

Specific  credit  apportioned  (31-19-650:  O.  D.  352)..  1919  Cum.  Bull.  p.  235  (See 

“Fractional  yt  ar  return”  in  Cumulative  Index  following  2489.) 


Copyright  1922,  by  The  Corporation  Trust  Companx. 

THE  FEDERAL  INCOME  TAX  SERVICE 

575 


8-27-22.  (2)  8-22-22.  (8)  4-10-22.  (4)  4-14-22.  (5)  9-1-22.  (6)  9-8-22.  (7)  10-11-22 

INCORRECT  OR  FALSE  RETURNS— PENALTIES. 


(8)  11-4-22. 


2677  Law  1(347.  Understatement  in  Returns  and  Increases  by  the  Col- 

(Sec.  228.)  lector.  “Sec . 228.  That  if  the  collector  or  deputy 
collector  has  reason  to  believe  that  the  amount  of  any 
income  returned  is  understated , he  shall  give  due  notice  to  the  taxpaery 
making  the  return  to  show  cause  why  the  amount  of  the  return  should  not 
be  increased,  and  upon  proof  of  the  amount  understated,  may  increase  the 
same  accordingly.”— Law.  [Note:  The  1918  Act  so  provided.] 


2678  Law  U348.  Taxpayer  May  Appeal  Collector’s  Decision,  to  the 

(Sec.  228.)  Commissioner.  “Such  taxpayer  may  furnish  sworn 
-Li  j • • testimony  to  prove  any  relevant  facts  and  if  dissatisfied 
with,  the  decision  of  the  collector  may  appeal  to  the  Commissioner  for  his  de- 
cisioriy  under  such  rules  of  procedure  as  may  be  prescribed  by  the  Commis- 
sioner  with  the  approval  of  the  Secretary .”— Law.  [Note:  The  1918 

Act  so  provided.] 


2679  Understatement  of  Income.. — If  a collector  has  reason  to  believe  that 
. . amount  of  any  income  is  understated  in  a return,  he  may  on  his 
own  initiative  take  up  the  matter  with  the  taxpayer  and  upon  becoming  satis- 
fied  that  the  amount  Vvas  understated  may  increase  it  accordingly  subject  to 
the  right  of  the  taxpayer  to  appeal  to  the  Commissioner.  The  Commissioner 
however,  without  the  intervention  of  the  collector  may  exercise  original  juris- 
diction in  cases  of  understatements  or  other  errors  in  returns,  in  which  event 
sections  250  [beginning  at  112597]  and  1300  [1[2709]  of  the  statute  and  section 
3176  [beginning  at  1[2612]  of  the  Revised  Statutes,  as  reenacted  by  section  1311 
of  the  statute,  are  applicable  instead  of  section  228  [1[2577  above].  See 
articles  1002  [payment  of  tax  when  no  proper  return,  1[2624],  1005  [penalty 
for  understated  return,  H2603],  and  1711  [Commissioner  has  benefit  of  all 
existing  internal  revenue  laws  as  aids  to  collection  of  the  tax,  H2711].  Section 
3172  of  the  Revised  Statutes,  as  reenacted  by  section  1311  of  the  Revenue 
Act  of  1921,  provides  [H2583].  See  also  section  3173  of  the  Revised  Statutes 
as  reenacted  by  section  1311  of  the  Revenue  Act  of  1921  [does  not  relate 
specifically  to  income  tax,  but  see  1[2701].  (Art.  451,  Reg.  62,  1922  Edition  ) 


2580  Reasonable  Time  for  Investigation  After  Government’s  Notifica- 
tion That  Return  is  Incorrect.— Referring  to  your  statement  that 

the  representative  of  this  office  insists  upon  the  officers  of  corporations 
signing  amended  returns  without  giving  any  reasonable  time  for  investi- 
gation on  the  part  of  the  officers,  you  are  informed  that  examining  officers 
have  been  instructed  by  this  office  to  secure  from  corporations  amended 
returns  wherever,  as  a result  of  their  examinations,  it  is  shown  that  the 
original  returns  were  not  correct. 

2581  It  is  not  the  desire  of  this  office,  however,  that  examining  officers 
shall  not.  give  the  officers  of  corporations  the  fullest  opportunity  to 

make  any  investigation  they  may  desire  prior  to  signing  these  amended  re- 
turns, provided,  of  course,  such  investigation  does  not  cover  an  unreason- 
able length  of  time.  (Extract  from  letter  to  the  Industrial  Association  of 
Cincinnati,  signed  by  Commissioner  W.  H.  Osborn,  and  dated  Februarv 
2,  1915.)  y 

{Decision.) 

2582  The  acceptance  of  amended  returns,  and  the  status  thereof,  when 
not  specifically  authorized  by  law— [Comment:  On  appeal,  in  a 

Copyright  1922 1 by  The  Corporation  Trust  Company . 

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2-27-22. 


INCORRECT  OR  FALSE  RETURNS  PENALTIES. 


criminal  prosecution  by  the  United  States  (Levy  vs.  United  States,  271  Fed. 
942),  Judge  Woolley  in  handing  down  the  decision  of  the  Circuit  Court  of 
Appeals,  Third  Circuit,  February  19,  1921,  affirming,  on  this  count,  the 
judgment  of  the  District  Court,  said,  in  part:  “Both  in  the  trial  court  and 
in  this  court  Levy  insisted  that  his  conviction  under  either  count  cannot  be 
sustained,  mainly  because  the  offenses  which  the  counts  charged  relate  to 
an  amended  return  of  income  and  excess  profits  taxes  when,  as  he  urges,  no 
return  of  that  character  is  known  to  the  law.  While  amended  or  corrected 
income  tax  returns  may  not  be  prescribed  by  the  statute,  they  are  never- 
theless allowed  and  received  by  the  Treasury  Department  in  the  administra- 
tion of  the  Income  Tax  Law,  and  no  such  returns  taxes  are  assessed  by  the 
Commissioner  of  Internal  Revenue.  When  so  assessed,  these  are  the  taxes 
which  under  the  law  are  charged  against  and  collected  from  the  taxable.” — 
The  Corporation  Trust  Company.) 

2583  Law  ^[637.  Collectors  to  Inquire  After  and  Concerning  Persons 
(Sec.  1311.)  Liable  to  Make  Income  Tax  Returns. — Sec.  3172, 

Revised  Statutes.  “ Every  collector  shall , from  time  to 
time,  cause  his  deputies  to  proceed  through  every  part  of  his  district  and 
inquire  after  and  concerning  all  persons  therein  who  are  liable  to  pay  any 
internal-revenue  tax,  and  all  persons  owning  or  having  the  care  and  manage- 
ment of  any  objects  liable  to  pay  any  tax,  and  to  make  a list  of  such  persons 
and  enumerate  said  objects.” — Law.  [Note:  No  change.] 

2584  Income-Tax  Agents  and  Inspectors. — Revenue  agents  in  charge  of 
revenue  agents’  divisions  and  income-tax  revenue  agents  and  inspec- 
tors are  hereby  instructed  as  follows: 

2585  1.  Income-tax  agents  and  inspectors  appointed  under  the  provisions 
of  the  act  of  October  3,  1913,  and  paid  from  the  appropriation  for 

collecting  the  income  tax  will  be  assigned  to  duty  under  the  supervision  of 
agents  in  charge  of  revenue  agents’  divisions. 

2586  2.  Persons  appointed  either  as  income-tax  agents  or  income-tax 
inspectors,  when  the  appointment  is  sent  from  this  office,  will  be 

instructed  by  letter  to  report  to  one  of  the  division  revenue  agents  for  duty, 
and  until  otherwise  ordered  may  report  either  in  person  or  by  letter,  and 
if  by  letter  await  the  instructions  of  the  agent  in  charge  of  the  division  to 
which  they  are  assigned. 

2587  3.  Officers  of  this  class  are  expected  to  perform  the  duties  of  their 
offices  where  their  services  are  required,  but  for  the  present,  and 

until  they  become  somewhat  familiar  with  the  duties  of  their  places,  they 
will  be  assigned  to  the  revenue  agent  in  charge  of  the  division  embracing 
their  legal  residence. 

2588  4.  Income-tax  agents  and  inspectors  will  be  expected  to  confine 
their  operations  to  income-tax  work  so  long  as  there  is  income-tax 

work  to  be  performed,  and  division  agents  are  admonished  not  to  employ 
officers  of  this  class  for  the  general  or  ordinary  work  of  the  bureau  except 
when  their  services  are  not  required  on  income-tax  work. 

2589  5.  The  duties  of  officers  of  this  class  are  to  ascertain  and  report 
the  names  of  persons  who  in  their  opinion  are  liable  to  the  income 

tax  and  who  have  failed  to  make  return  as  required  by  law,  to  inquire  into 
income-tax  returns  where  there  is  any  suspicion  that  the  return  made  is 
erroneous,  to  examine  the  books  and  accounts  of  persons  who  have  made 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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2-27-22. 


INCORRECT  OR  FALSE  RETURNS- — PENALTIES. 


returns,  for  the  purpose  of  ascertaining  and  reporting  as  to  whether  the  law 
has  been  complied  with,  when  so  ordered  by  the  agent  in  charge  of  the 
division  to  which  they  are  assigned;  to  inquire  into  the  manner  in  which 
income-tax  employees  are  discharging  their  official  duties  and  to  report  those 
who  have  failed  in  this  respect.  For  the  purpose  of  securing  such  informa- 
tion as  they  may  desire  they  may  visit  the  office  of  any  State,  county,  or 
municipal  officer,  and  for  the  general  purpose  of  their  employment  may 
confer  with  any  collector  or  deputy  collector  of  internal  revenue  within  the 
territory  n which  they  are  authorized  to  operate. 

2590  6.  The  reports  of  these  officers  should  be  made  to  the  agent  in  charge 
of  the  division  to  which  they  are  assigned,  who  in  turn  will  report 

to  the  Commissioner  of  Internal  Revenue  and  the  collector  of  the  proper 
district. 

2591  7.  In  the  discharge  of  the  official  duties  officers  of  this  class,  as 
well  as  all  officers  of  the  Internal-Revenue  Bureau,  in  making  in- 
quiries and  investigations  are  expected  to  exercise  sound  discretion,  treat 
all  persons  with  due  courtesy,  and,  while  acting  firmly  and  courageously,  to 
avoid  all  contention  or  controversy  that  would  give  just  ground  for  com- 
plaint. (T.  D.  1932,  Jan.  13,  1914.) 

2592  Law  ^[627.  Return  May  Be  Required  of  Any  Person  Whether 

(Sec.  1307.)  Liable  to  Tax  or  Not. — “ Whenever  in  the  judgment  of 
the  Commissioner  necessary  he  may  require  any  person , 
by  notice  served  upon  him , to  make  a return  or  such  statements  as  he  deems 
sufficient  to  show  whether  or  not  such  person  is  liable  to  tax.” — Law. 

[Note:  The  1918  Act  so  provided.] 

2593  Law  *[628.  Examination  of  Persons,  Books  and  Papers. — “ The 

(Sec.  1308.)  Commissioner , for  the  purpose  of  ascertaining  the  cor- 
rectness of  any  return  or  for  the  purpose  of  making  a 
return  where  none  has  been  made , is  hereby  authorized , by  any  revenue 
agent  or  inspector  designated  by  him  for  that  purpose , to  examine  any 
books , papers , records , or  memoranda  bearing  upon  the ■ matters  required  to 
be  included  in  the  return , and  may  require  the  attendance  of  the  person  render- 
ing the  return  or  of  any  officer  or  employee  of  such  person , or  the  attendance 
of  any  other  person  having  knowledge  in  the  premises , and  may  take  his 
testimony  with  reference  to  the  matter  required  by  law  to  be  included  in  such 
return , with  power  to  administer  oaths  to  such  person  or  persons.” — Law. 

[Note:  The  1918  Act  so  provided.] 

2594  Law  ^[629.  Unnecessary  Examinations. — “ That  no  taxpayer  shall 
(Sec.  1309.)  be  subjected  to  unnecessary  examinations  or  investiga- 
tions, and  only  one  inspection  of  a taxpayer's  books  of 

account  shall  be  made  for  each  taxable  year  unless  the  taxpayer  requests 
otherwise  or  unless  the  Commissioner , after  investigation , notifies  the  tax- 
payer in  writing  that  an  additional  inspection  is  necessary.”— 'Law. 

[Note:  This  provision  is  new  to  the  1921 

Act.] 

2595  Law  ^[630.  Jurisdiction  of  District  Courts  in  Connection  with  At- 
(Sec.  1310.)  tendance.  Testimony  or  Production  of  Books. — ( a ) 

That  if  any  person  is  summoned  under  this  Act  to  appear , 
to  testify,  or  to  produce  books , papers  or  other  data,  the  district  court  of  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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2-27-22.  (2)  3-20-22.  13)  3-30-22.  (4)110-11-22. 

INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

United  States  for  the  district  in  which  such  person  resides  shall  have  juris- 
diction by  appropriate  process  to  compel  such  attendance,  testimony,  or 
production  of  books,  papers,  or  other  data.”— Law.  [Note:  The  1918 

Act  so  provided.] 

2696  Law  If 631.  “(b)  The  district  courts  of  the  United  States  at  the 

(Sec.  1310.)  instance  of  the  United  States  are  hereby  invested  with 

such  jurisdiction  to  make  and  issue,  both  in  actions  at  law 
and  suits  in  equity,  writs  and  orders  of  injunction,  and  of  ne  exeat  republica, 
orders  appointing  receivers,  and  such  other  orders  and  process,  and  to  render 
such,  judgments  and  decrees,  granting  in  proper  cases  both  legal  and  equitable 
relief  together , as  may  be  necessary  or  appropriate  for  the  enforcement  of  the 
provisions  of  this  Act.  7 he  remedies  hereby  provided  are  in  addition  to  and 
not  exclusive  of  any  and  all  other  remedies  of  the  United  States  in  such 
courts  or  otherwise  to  enforce  such  provisions  .” — Law.  [Note:  The 

1918  Act  so  provided.] 

2697  Law  1f545.  Recomputation  of  Installments  After  an  Examination 
(Sec.  250.)  of  the  Return  by  the  Commissioner.— “(fc)  As  soon 

as  practicable  after  the  return  is  filed,  the  Commissioner 
shall  examine  it.  If  it  then  appears  that  the  correct  amount  of  the  tax  is 
greater  or  less  than  that  shown  in  the  return,  the  installments  shall  be  re- 
computed. Law.  [Note:  The  1918  Act  so  provided.] 

2598  Law  1| 546.  Crediting  or  Refund  of  Excess  Payment. — “If  the 
(Sec.  250.)  amount  already  paid  exceeds  that  which  should  have 
been  paid  on  the  basis  of  the  installments  as  recomputed, 
the  excess  so  paid  shall  be  credited  against  the  subsequent  installments ; 
and  if  the  amount  already  paid  exceeds  the  correct  amount  of  the  tax,  the 
excess  shall  be  credited  or  refunded  to  the  taxpayer  in  accordance  with  the 
provisions  of  section  252  [1f2825].”— Law.  [Note:  The  1918  Act  so 

provided.] 

2699  Law  1J547.  Payments  of  Amounts  Due  Because  of  Underpayments 
(Sec.  250.)  Originally. — “If  the  amount  already  paid  is  less  than 
that  which  should  have  been  paid,  the  difference,  to  the 
extent  not  covered  by  any  credits  due  to  the  taxpayer  under  section 
252  [1J2825]  ( hereinafter  called  ‘deficiency’),  together  with  interest  thereon 
at  the  rate  of  one-half  of  1 per  centum  per  month  from  the  time  the  tax  was 
due  {or,  if  paid  on  the  installment  basis,  on  the  deficiency  of  each  installment 
from  the  time  the  installment  was  due),  shall  be  paid  upon  notice  and 
demand  by  the  collector.” — Law.  Note:  The  of  1%  interest 

provision  is  new  to  the  1921  Act,  as  is 
the  defining  of  “deficiency.”] 

2600  Law  1 548.  “If  any  part  of  the  deficiency  is  due  to  negligence  or  inten- 
(Sec.  250.)  tional  disregard  of  authorized  rules  and  regulations  with 
knowledge  thereof,  but  without  intent  to  defraud,  there 
shall ' be  added  as  part  of  the  tax  5 per  centum  of  the  total  amount  of  the 
deficiency  in  the  tax,  and  interest  in  such  a case  shall  be  collected  at  ike 
rate  of  1 per  centum  per  month  on  the  amount  of  such  deficiency  in  the  tax 
from  the  time  it  was  due  (or,  if  paid  on  the  installment  basis,  on  the  amount 

Copyright  1 922,  by  7 be  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22.  (2)  3-20-22.  (S'  3-80-22.  (4)  10-11-22. 

INCORRECT  OR  FALSE  RETURNS— PENALTIES. 


of  the  deficiency  in  each  installment  from  the  time  the  installment  was  due), 
which  penalty  and  interest  shall  become  due  and  payable  upon  notice  and 
demand  by  the  collector .” — Law.  [Note:  “or  intentional  disregard 

of  authorized  rules  and  regulations  with 
knowledge  thereof”  is  new.  The  1918 
Act  failed  to  recognize  here,  definitely, 
that  the  deficient  tax  might  have  been 
paid  in  a single  payment,  nor  did  it 
definitely  provide,  here,  that  “the  pen- 
alty and  interest  shall  become  due  and 
payable  upon  notice  and  demand  by  the 
collector.”] 

2601  Law  If 549.  “//  any  part  of  the  deficiency  is  due  to  fraud  with  intent  to 

(Sec.  250.)  evade  tax,  then,  in  lieu  of  the  penalty  provided  by  section 
3176  [12612]  of  the  Revised  Statutes,  as  amended,  for 
false  or  fraudulent  returns  willfully  made,  but  in  addition  to  other  penalties 
provided  by  law  for  false  or  fraudulent  returns , there  shall  be  added  as  part 
of  the  tax  50  per  centum  of  the  total  amount  of  the  deficiency  in  the  tax.  In 
such  case  the  whole  amount  of  the  tax  unpaid,  including  the  penalty  so  addled, 
shall  become  due  and  payable  upon  notice  and  demand  by  the  collector \ 
Law.  [Note:  The  1918  Act  provided  “if  the  understatement  not 

“if  any  part  of  the  deficiency”  was  due  to 
fraud,  etc.  The  last  sentence  is  new  to 
the  1921  Act.] 


2602  Upon  recomputation  of  the  tax,  if  the  amount  already  paid  exceeds  the 
correct  amount  of  the  installment  or  of  the  whole  tax,  the  excess  shall  be 
credited  against  subsequent  installments  or  other  similar  taxes  then  due 
from  the  taxpayer  or,  if  there  is  no  such  tax  or  installment  of  tax,  such  excess 
shall  be  refunded  to  him;  but  if  the  amount  already  paid  is  less  than  the 
correct  amount  of  the  installment  or  tax  then  due,  the  difference  or  deficiency, 
together  with  interest  thereon  at  6 per  cent  per  annum  from  the  time  the 
tax  was  due,  or  if  paid  on  the  installment  basis,  on  the  deficiency  of  each 
installment  from  the  time  the  installment  was  due,  shall  be  paid  upon  notice 
and  demand  by  the  collector.  See  articles  1003  [112727],  1005  [12603],  and 
1006  [12763],  and  section  252  of  the  statute,  and  articles  1034-1036  [beginning 
at  12829].  The  6 per  cent  interest  as  above  outlined  does  not  attach  to 
deficiencies  discovered  under  Acts  prior  to  the  Revenue  Act  of  1921.  (Art. 
1001,  Reg.  62, 1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

1921  new  fiscal  year  returns  under  1921  Act  and,  in  certain  cases,  old  returns  under 
1918  Act.  .13092.  Amended.  . 131 10.  . 

Additional  tax  due  from  fiscal  year  corporations  under  retroactive  1918  Act:  method 
prescribed  by  T.  D.  2797  is  within  the  administrative  authority  of  the  Bureau 
r 1-19-15:  S.  920).  .1919  Cum.  Bull.  p.  239.  . „ . . > 

Claim  for  special  assessment  (income  from  Government  contract  on  per  unit  oasis; 
prior  to  payment  of  fourth  installment  (26-19-599:  O.  D.  321)..  1919  Cum.  Bull. 

Extension^  time  for  payment  of  deficiencyapplicable  to  assessments  under  1917  and 
1918  Acts,  thoueh  made  prior  to  Nov.  23,  1921  (1921  Act)  (1-6-78:  I.  T.  11  9 
Tune  1922  Cum.  Bull.  p.  310.  See  Art.  1014,  12608. 

To  whom  benefit  accrues  (1921  Act)  (1-9-121:  I.  T.  1225).  .June  1922  Cum. 
Bull.  p.  310.  See  Art.  1014,  12608.  , 

Partial  payment  of  an  installment:  effect  of,  and  duty  of  collector  (48-20-1 326 .*ool. 
Op.  77).  .Dec.  1920  Cum.  Bull  p.  286. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

580 


2-27-22.  (2)  10-11-22.  (8)  11-4-22. 

INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

Return  shows  no  tax  due  but  statement  attached  calls  attention  to  profits  on  sale  of 
capital  assets;  subsequent  to  Supreme  Court  decision  taxpayer  remits  one- 
quarter  of  tax  on  such  profits:  this  satisfies  requirements  (26-21-1709:  O.  D.  961) 

1 J ..June  1921  Cum.  Bull.  p.  317. 

Rule  as  to  each  installment;  explaining,  particularly  as  to  5%  penalty  (22-21-1666: 
M.  2784) . .June  1921  Cum.  Bull.  p.  316. 


2603  Section  250(b)  provides  that  as  soon  as  practicable  after  the  return  is 
filed  the  Commissioner  shall  examine  it  and  if  it  is  found  that  the  amount 
already  paid  is  less  than  that  which  should  have  been  paid  the  deficiency,  to 
the  extent  not  covered  by  any  credits  under  section  252,  shall  be  paid  upon 
notice  and  demand  by  the  collector  with  interest  and  penalties  as  follows: 
(1)  If  the  deficiency  arises  under  the  Revenue  Act  of  1921  and  is  not  due 
to  negligence  or  intentional  disregard  of  authorized  rules  and  regulations  or 
fraud,  with  intent  to  evade  the  tax,  interest  shall  be  paid  on  the  deficiency 
at  the  rate  of  6 per  cent  per  annum  from  the  date  the  tax  was  due;  or,  if  paid 
on  the  installment  basis,  on  the  deficiency  of  the  installment  from  the  time  the 
installment  was  due.  See  article  1001  [1(2602].  (2)  If  any  part  of  the  de- 

ficiency is  due  to  negligence,  but  without  intent  to  defraud,  there  shall  be 
added  as  a penalty,  5 per  cent  of  the  total  amount  of  the  deficiency  together 
with  interest  on  the  amount  of  the  deficiency  at  the  rate  of  12  per  cent  per 
annum  from  the  time  the  tax  was  due,  or,  if  paid  on  the  installment  basis,  on 
the  deficiency  in  each  installment  from  the  time  the  installment  was  due. 
Negligence  is  the  absence  of  reasonable  care  under  the  circumstances.  (3)  If 
any  part  of  the  deficiency  of  the  tax  due  under  the  Revenue  Act  of  1921  is  the 
result  of  intentional  disregard  of  rules  and  regulations  prescribed  by  the 
Commissioner  with  the  approval  of  the  Secretary,  with  knowledge  thereof, 
but  without  intent  to  defraud,  there  shall  be  added  as  a penalty  5 per  cent 
of  the  total  amount  of  the  deficiency  together  with  interest  on  the  amount 
of  the  deficiency  at  the  rate  of  12  per  cent  per  annum  from  the  time  the  tax 
was  due,  or,  if  paid  on  the  installment  basis,  on  the  amount  of  the  deficiency 
in  the  installment  from  the  time  the  installment  was  due.  (4)  If  any  part 
of  the  deficiency  is  due  to  fraud  with  intent  to  evade  tax  there  shall  be  added 
as  a penalty  50  per  cent  of  the  total  amount  of  the  deficiency,  and  the  whole 
amount  of  the  tax  unpaid,  including  the  penalty  so  added,  shall  become  due 
and  payable  upon  notice  and  demand.  This  penalty  is  in  lieu  of  the  50  per 
cent  penalty  provided  for  in  section  3176  of  the  Revised  Statutes  as  amended 
(see  section  1311  and  article  1002  [1(2624]),  but  is  in  addition  to  other  penalties 
provided  by  law  for  false  or  fraudulent  returns.  See  section  253  of  the 
statute  and  article  1055  [1(2629].  (Art.  1005,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  pr. 

Amortization:  claiming  in  excess  of  25%,  allowable  deduction  proving  to  be  in  excess 
of  25%  but  less  than  amount  claimed  (3-20-692:  A.  R.  M.  24) . .June  1920  Cum. 
Bull.  p.  23!. 

Banks  deducting  taxes  paid  by  them  on  stock  for  stockholders  (1919)  (23-21-1677: 
O.  D.  944).  .June  1921  Cum.  Bull.  p.  294. 

False  statements  to  examining  officers,  followed  by  admission  of  facts  on  direct 
inquiry  based  on  confidential  information  (1-19-105:  S.  926) . . 1919  Cum.  Bull.  p. 
248. 

Fraud  penalties  after  assessment  and/or  payment  of  additional  tax  (36-20-1188: 
Sol.  Op.  52).  .Dec.  1920  Cum.  Bull.  p.  290. 

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2-27-22.  (2)  10-11-22.  (3)  11-4-22. 

INCORRECT  OR  FALSE  RETURNS— PENALTIES. 


“Negligence”  not  presumed  if  full  disclosure  of  omissions,  etc.,  be  made  on  return, 

thus  putting  Bureau  on  notice  and  making  possible  immediate  assessment  by 
it  of  additional  tax;  general  and  specific  ruling:  the  latter  lumber  companies, 
appreciation  due  to  growth  of  timber — invested  capital  (2-21-1392:  A.  R.  M. 
105).. June  1921  Cum.  Bull.  p.  322.  Same  in  connection  with  profits  on 
sale  of  assets  by  one  not  a dealer  therein  (23-21-1674:  Mim.  2791).. June 
¥ 1920  Cum.  Bull.  p.  72.  Same:  solicitor’s  opinion:  1918  Act  (1-44-573: 

A.  R.  R.  1167).  .Bull.  1 (’22)-44,  p.  4. 

See  “Return  shows  no  tax  due”  in  Cumulative  Index  following  <[2602. 

But  see  “ ‘Negligence”  presumed”  and  “Red  Cross”  below. 

“Negligence”  presumed  if  in  direct  conflict  with  specific  provisions  of  law  and  regula- 
tions but  not  if  error  may  be  ascribed  to  error  in  judgment  (7-20-746:  A.  R.  M. 
23).. June  1920  Cum.  Bull.  p.  231. 

Red  Cross  contributions  by  corporations  deducted  but  itemized  as  such  in  1918  returns; 
resulting  understatement  not  due  to  negligence  (1-21-1377:  A.  R.  R.  360).. 
June  1921  Cum.  Bull.  p.  322.  See  also  “ ‘Negligence’  not  presumed”  above. 
Statute  of  limitations  (1909-1913-1916  Acts):  assessment  of  penalties,  suits  for  ad 
valorem  penalties,  effect  of  waivers  on  ad  valorem  penalties  (36-20-1189:  Sol. 
Op.  60).. Dec.  1920  Cum.  Bull.  p.  295. 

Texas;  community  property:  amended  returns  in  accordance  with  T.  1).  3071  (1-1-13: 
I.  T.  1154).  .June  1922  Cum.  Bull.  p.  302. 

“Understatement”  discussed  <10-20-782:  0.  1008).. June  1920  Cum.  Bull.  p.  232: 
also  (18-20-903:  L.  O.  1028).. June  1920  Cum.  Bull.  p.  233. 


2604  Law  <[571.  Extension  of  Time,  to  Not  Later  than  May  23,  1923, 
(Sec.  250.)  May  be  Granted  for  Payment  of  Second  Assessments 

not  Resulting  from  Negligence  or  Fraud  on  the  Part 
of  the  Taxpayer. — 1917,  1918,  and  1921  Acts,  <[2787. — “(f)  In  the  case 
of  any  deficiency  ( except  where  the  deficiency  is  due  to  negligence  or  to  fraud 
with  intent  to  evade  tax)  where  it  is  shown  to  the  satisfaction  of  the  Commis- 
sioner that  the  payment  of  such  deficiency  would  result  in  undue  hardship 
to  the  taxpayer,  the  Commissioner  may,  with  the  approval  of  the  Secretary, 
extend  the  time  for  the  payment  of  such  deficiency  or  any  part  thereof  for 
such  period  not  in  excess  of  eighteen  months  from  the  passage  of  this  Act 
as  the  Commissioner  may  determine .” 

2605  Law  <[572.  “In  such  case  the  Commissioner  may  require  the  taxpayer 
(Sec.  250.)  to  furnish  a bond  with  sufficient  sureties  conditioned  upon 

the  payment  of  the  deficiency  in  accordance  with  the  terms 
of  the  extension  granted .” 

2606  Law  ^[573.  “ There  shall  be  added  in  lieu  of  other  interest  provided  by 

(Sec.  250.)  law,  as  a part  of  such  deficiency,  interest  thereon  at  the 

rate  of  two-thirds  of  1 per  centum  per  month  from  the 
time  such  extension  is  granted ; except  where  such  other  interest  provided  by 
law  is  in  excess  of  interest  at  the  rate  of  two-thirds  of  1 per  centum  per 
months 

2607  Law  <[574.  “If  the  deficiency  or  any  part  thereof  is  not  paid  in  accord- 
(Sec.  250.)  ance  with  the  terms  of  the  extension  granted,  there  shall 

be  added  as  part  of  the  deficiency,  in  lieu  of  other  interest 
and  penalties  provided  by  law,  the  sum  of  5 per  centum  of  the  deficiency  and 
interest  on  the  deficiency  at  the  rate  of  1 per  centum  per  month  from  the  time 
it  becomes  payable  in  accordance  with  the  terms  of  such  extension — Law. 

[Note:  These  provisions  are  new  to  the 

1921  Act.] 

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INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

2608  Section  250  (f)  of  the  Revenue  Act  of  1921  contains  a special  relief  pro- 
vision which  will  be  in  effect  for  only  18  months  after  November  23, 1921, 

the  date  of  the  passage  of  the  Act.  It  provides  that  in  the  case  of  any  de- 
ficiency in  tax  revealed  on  the  examination  of  an  income  or  profits  tax  return 
(except  where  the  deficiency  is  due  to  negligence  or  to  fraud  with  intent  to 
evade  tax)  where  it  is  shown  to  the  satisfaction  of  the  Commissioner  that 
the  payment  of  such  deficiency  would  result  in  undue  hardship  to  the  tax- 
payer. the  Commissioner  may,  with  the  approval  of  the  Secretary,  extend  the 
time  for  the  payment  of  such  deficiency  or  any  part  thereof  for  a period  not 
to  extend  beyond  18  months  from  November  23,  1921.  Where  such  an 
extension  is  granted  there  is  to  be  added  as  part  of  the  deficiency  in  lieu  of 
other  interest  provided  by  law,  interest  at  the  rate  of  two-thirds  of  1 per 
cent  per  month  from  the  time  the  extension  is  granted.  Where  such  other 
interest  provided  by  law,  however,  is  in  excess  of  two-thirds  of  1 per  cent  per 
month  the  higher  rate  will  be  charged.  If  the  deficiency  or  any  part  thereof 
is  not  paid  in  accordance  with  the  terms  of  the  extension  agreement,  there  is 
to  be  added  as  part  of  the  deficiency,  in  lieu  of  other  interest  and  penalties 
provided  by  law,  the  sum  of  5 per  cent  of  the  deficiency  together  with  interest 
on  the  deficiency  at  the  rate  of  1 per  cent  per  month  from  the  time  it  became 
payable  under  the  terms  of  the  extension  agreement.  The  extension  will  be 
granted  only  in  case  the  taxpayer  establishes  to  the  satisfaction  of  the  Com- 
missioner that  without  such  extension  undue  hardship  will  result  to  the 
taxpayer.  The  term  “undue  hardship”  means  more  than  an  inconvenience 
to  the  taxpayer.  It  is  defined  as  meaning  that  substantial  financial  loss  or 
sacrifice  will  result  to  the  taxpayer  from  making  payments  of  the  deficiency 
at  the  due  date.  This  provision  of  the  statute  is  applicable  only  to  deficiencies 
in  taxes  which  have  accrued  or  may  accrue  under  the  Revenue  Act  of  1917, 
the  Revenue  Act  of  1918,  or  the  Revenue  Act  of  1921,  and  the  deficiency 
referred  to  is  only  such  deficiency  in  tax  as  is  revealed  on  the  examination  of 
an  income  or  profits  tax  return.  It  has  no  application  to  deficiencies  in  taxes 
other  than  deficiencies  in  income  and  profits  taxes  under  the  three  Acts 
named.  No  extension  of  time  may  be  granted  under  subdivision  (f)  of  Section 
250  for  the  payment  of  any  regular  installment  of  tax  due  as  shown  by  the 
original  return  of  the  taxpayer. 

2609  Any  application  for  the  extension  must  be  made  under  oath  on 
Form  1127  in  accordance  with  instructions  printed  thereon  and  must 

be  accompanied  by  evidence  showing  that  undue  hardship  to  the  taxpayer 
would  result  if  the  extension  were  refused.  The  extension  will  not  be  granted 
on  a general  statement  of  hardship,  but  in  each  case  there  must  be  furnished 
a statement  of  the  specific  facts  showing  what,  if  any,  financial  loss  or  sacrifice 
will  result  if  the  extension  is  not  granted.  The  application  should,  wherever 
practicable,  contain  a certified  statement  of  assets  and  liabilities  of  the 
taxpayer. 

2610  The  application,  with  the  evidence,  must  be  filed  with  the  collector, 
who  will  at  once  transmit  it  to  the  Commissioner  with  his  recom- 
mendations as  to  the  extension.  When  it  is  received  by  the  Commissioner  it 
will  be  examined  and  within  30  days  either  rejected  or  tentatively  approved. 
261  1 Where  the  application  is  tentatively  approved  and  a bondjs  required 

it  must  be  filed  with  the  collector  within  10  days  after  the  notification 
by  the  Commissioner  that  a bond  is  required.  It  shall  be  conditioned  for  the 
payment  of  the  deficiency  and  applicable  penalties,  if  any,  and  interest  in 
accordance  with  the  terms  of  the  extension  to  be  granted  and  shall  be  executed 
by  a surety  company  holding  a certificate  of  authority  from  the  Secretary  of 

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INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

the  Treasury  as  an  acceptable  surety  on  Federal  bonds  and  shall  be  subject 
to  the  approval  of  the  Commissioner.  In  lieu  of  such  a bond  the  taxpayer 
may  file  a bond  secured  by  deposit  of  Liberty  bonds  or  other  bonds  or  notes 
of  the  United  States  equal  in  their  total  par  value  to  the  amount  of  the 
deficiency  and  applicable  penalties,  if  any,  and  interest,  as  provided  in  section 
1329  [f  1770]  of  the  Revenue  Act  of  1921.  (Art.  1014,  Reg.  62,  1922  Edition.) 
For  explanation  of  Cumulative  Index  references  see  page  91. 

See  “Extension  of  time”  in  Cumulative  Index  following  1T2602. 

“Personal  service  corporation”  classification  having  been  refused,  the  tax  found  due 
may  be  dealt  with  as  a deficiency:  1921  Act  (1-32-453:  I.  T.  1417).. Bull.  I 

(’22)-32,  p.  8.  , , 

Reou^st  for  extension  not  in  order  when  correctness  of  assessment  is  questioned; 
1921  Act  (1-17-245:  I.  T.  1290).  .June  1922  Cum.  Bull.  p.  311. 

2612  Law  *| 638.  Penalty  for  Failure  to  Make  Return  or  for  False  or 
(Sec.  1311.)  Fraudulent  Return. — Sec.  3176,  Revised  Statutes. — 

“//  any  person,  corporation , company , or  association 
fails  to  make  and  file  a return  or  list  at  the  time  prescribed  by  law  or  by 
regulation  made  under  authority  of  law , or  makes , willfully  or  otherwise , a 
false  or  fraudulent  return  or  list” 

2613  Law  1f639.  uthe  collector  or  deputy  collector  shall  make  the  return  or 
(Sec.  1311.)  list  from  his  own  knowledge  and  from  such  information 

as  he  can  obtain  through  testimony  or  otherwise  ” 

2614  Law  1]640.  “In  any  such  case  the  Commissioner  may , from  his  own 
(Sec.  1311.)  knowledge  and  from  such  information  as  he  can  obtain 

through  testimony  or  otherwise , make  a return  or  amend 
any  return  made  by  a collector  or  deputy  collector .” 

2616  Law  H641.  “ Any  return  or  list  so  made  and  subscribed  by  the  Com- 

(Sec.  1311.)  missioner,  or  by  a collector  or  deputy  collector  and 
approved  by  the  Commissioner , shall  be  prima  facie  good 
and  sufficient  for  all  legal  purposes.”  ^ 

2616  Law  H642.  [Extension  of  time  by  collectors.  See  R2562.] 

2617  Law  H643.  “The  Commissioner  of  Internal  Revenue  shall  determine 
(Sec.  1311.)  and  assess  all  taxes , other  than  stamp  taxes , as  to  which 

returns  or  lists  are  so  made'yunder  the  provisions  of  this 

section .”  _ .. 

2618  Law  1f644.  “In  case  of  any  failure  to  make  and  file  a return  or  List 
(Sec.  1311.)  within  the  time  prescribed  by  law.  or  prescribed  by  the 

Commissioner  of  Internal  Revenue  or  the  collector  in 
pursuance  of  law,  the  Commissioner  of  Internal  Revenue  shall  add  to  the 
tax  25  per  centum  of  its  amount _ 

2619  Law  11645.  “except  that  when  a return  is  filed  after  such  time  and  it 
(Sec.  1311.)  is  shown  that  the  failure  to  file  it  was  due  to  a reasonable 

cause  and  not  to  willful  neglect,  no  such  addition  shall 
be  made  to  the  ta>  ” 

2620  Law  1f646.  “In  case  a false  or  fraudulent  return  or  list  is  willfully 
(Sec.  1311.)  made,  the  Commissioner  of  Internal  Revenue  shall  add 

to  the  tax  50  per  centum  of  its  amount.” 

2621  Law  1| 647.  “The  amount  so  added  to  any  tax  shall  be  collected  at  the 
(Sec.  1311.)  same  time  and  in  the  same  manner  and  as  part  of  the 

tax ” , 

2622  Law  1 648.  “unless  the  tax  has  been  paid  before  the  discovery  of  the 
(Sec.  1311.)  neglect , falsity . or  fraud,  m which  case  the  amount  so 

added  shall  be  collected,  in  the  same  manner  as  the  tax.”  — 
Law.  (Note:  No  change.] 

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INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

2623  Law  1(550.  Payment  of  the  Tax  in  Installments  Does  Not  Apply 
(Sec.  250.)  to  Tax  Due  on  Returns  Made  by  the  Collector  or  by 

the  Commissioner. — “(c)  If  the  return  is  made  pursu- 
ant to  section  3176  [1(2612]  of  the  Revised  Statutes  as  amended , the  amount 
of  tax  determined  to  be  due  under  such  return  shall  be  paid  upon  notice  and 
demand  by  the  collector.” — Law.  [Note:  The  1918  Act  so  provided.] 

2624  Accordingly,  if  a return  is  not  made  on  time  or  is  fraudulent  the  col- 
lector or  his  deputy  is  required  to  make  the  return  from  his  own 

knowledge  and  from  such  information  as  he  can  obtain  from  testimony  or 
otherwise.  In  such  a case  the  Commissioner  may  from  similar  sources  of 
information  make  the  return  or  amend  the  return  made  by  the  collector  or 
his  deputy.  The  amount  of  tax  determined  to  be  due  under  the  return  as 
thus  made  for  the  taxpayer  shall  be  paid  in  full  upon  notice  and  demand  by 
the  collector.  The  installment  plan  of  payment  has  no  application  to  such 
a case.  See  further  articles  443-446  [for  extensions  of  time  for  filing  returns, 
1(2564],  1004  [for  specific  penalty  for  failure  to  make  return,  1(2625],  and 
1005  [for  penalty  for  understated  return,  1(2603].  (Art.  1002,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ad  valorem  penalties  are  not  “taxes”  for  any  purpose  except  that  of  collection  (23- 
19-551:  O.  926).  . 1919  Cum.  Bull.  p.  241. 

Removal  of  taxpayer  from  United  States  (20-19-516:  S.  1156) ..  1919  Cum.  Bull.  p.  243. 


2626  Penalty  for  Failure  to  File  Return. — In  case  of  failure  to  file  a 
return  on  time,  a penalty  of  25  per  cent  of  the  amount  of  the  tax  is 
added  to  it,  unless  the  return  is  later  filed  and  failure  to  file  it  within  the 
prescribed  time  is  satisfactorily  shown  to  the  Commissioner  to  be  due  to  a 
reasonable  cause  and  not  to  willful  neglect.  This  penalty  is  imposed  by 
section  3176  of  the  Revised  Statutes  as  amended.  See  section  1311  and 
article  1002  [1(2624].  Two  classes  of  delinquents  are  liable  to  penalty: 
(a)  Those  who  do  not  file  returns  and  for  whom  returns  are  made  by  the 
collector  or  Commissioner;  and  (b)  those  who  file  tardy  returns  and  are 
unable  to  show  reasonable  cause  for  the  delay.  A taxpayer  who  files  a tardy 
return  and  wishes  to  avoid  the  penalty  must  make  an  affirmative  showing 
of  all  the  facts  alleged  as  a reasonable  cause  for  failure  to  file  the  return 
on  time  in  the  form  of  an  affidavit,  which  should  be  attached  to  the  return 
If  such  an  affidavit  is  furnished  with  the  return  or  upon  the  collector’s  de- 
mand, the  collector,  unless  otherwise  directed  by  the  Commissioner,  will 
forward  the  affidavit  with  the  return,  and  if  the  Commissioner  determines 
that  the  delinquency  was  due  to  a reasonable  cause  and  not  to  willful  neglect 
the  25  per  cent  penalty  will  not  be  assessed.  If  the  taxpayer  exercised 
ordinary  business  care  and  prudence  and  was  neverthless  unable  to  file  the 
return  in  the  prescribed  time,  then  the  delay  is  due  to  “reasonable  cause.’’ 
See  Article  445  [for  extension  of  time  in  the  case  of  persons  abroad,  1(2566]. 
See  also  section  253  of  the  statute  and  article  1055  [for  specific  penalty  for 
failure  to  make  return  1(2629].  (Art.  1004,  Reg.  62,  1922  Edition.) 

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INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

For  explanation  of  Cumulative  Index  references  see  page  gi 

1914  after  expiration  of  3-year  limitation  (22-20-977:  O.  D.  530).. June  1920  Cum 
Bull.  p.  248. 

1918  supplemental  returns  necessitated  by  retroactive  Act,  in  case  of  fiscal  year 
corporations  (7-19-306:  T.  B.  R.  31)..  1919  Cum.  Bull.  p.  247. 

Bankruptcy  (1918  and  1921  Acts)  (1-7-96:  I.  T.  1209).  .June  1922  Cum.  Bull.  p.  302. 
Indians;  restricted  and  unrestricted  (49-21-1966:  O.  D.  1130).. Dec.  1921  Cum.  Bull, 
p.  237 . " * - 

“Neglect”  (1913  Act)  construed  so  as  to  mean  “inexcusable  neglect”:  refunds  on  claims 
seasonably  filed  (14-21-1554:  L.  O.  1060) . .June  1921  Cum.  Bull.  p.  318. 

Plea  of  ignorance  may  not  be  sufficient  (3-19-204:  O.  818) . . 1919  Cum.  Bull.  p.  247. 
“Reasonable  cause”  and  “notice  from  collector”  (1916  and  1917  Acts)  apply  only 
when  a return  is  voluntarily  filed  (13-20-817:  S.  1359).. June  1920  Cum.  Bull, 
p.  230. 

“Reasonable  cause”  vs.  “willful  neglect,”  and  “voluntary  return”  “without  notice 
from  the  collector”;  1916  Act  (Court  Decision).  . 1(3268. 

Texas:  community  property  (43-20-1270:  0.  D.  708).. Dec.  1920  Cum.  Bull.  p.  309. 

Modified  by  (51-20-1358:  O.  D.  757).  .Dec.  1920  Cum.  Bull.  p.  310. 

Withholding  agents  (8-20-758:  S.  1334).  .June  1920  Cum.  Bull.  p.  229. 

2626  Husband  and  Wife  Filing  Separate. — Where  husband  and  wife  file 
separate  returns  of  income,  one  of  them  being  filed  in  time  and  the 

other  delinquent,  such  returns  are  not  supplemental  of  each  other  and 
delinquency  must  be  answered  for  by  the  one  in  connection  with  whose 
return  it  occurred.  (Art.  26,  If  182.  Reg.  33,  Rev.,  Jan.  2,  1918.) 

2627  Law  ^[586.  Specific  Penalties. — “Sec.  253.  That  any  individual , 

(Sec.  253.)  corporation , or  partnership  required  under  this  title 

to  pay  or  collect  any  tax , 
to  make  a return  or 
to  supply  information, 

who  fails 

to  pay  or  collect  such  tax, 

to  make  such  return,  or 

to  supply  such  information 

at  the  time  or  times  required  under  this  title, 

shall  be  liable  to  a penalty  of  not  more  than  $1,000.” — Law.  [Note: 

The  1918  Act  so  provided.] 

2628  Law  If 587.  “ Any  individual,  corporation,  or  partnership,  or  any 

(Sec.  253.)  officer  or  employee  of  any  corporation  or  member  or  em- 
ployee of  a partnership, 

who  willfully  refuses 

to  pay  or  collect  such  tax, 

to  make  such  return,  or 

to  supply  such  information 

at  the  time  or  times  required  under  this  title,  or 

who  willfully  attempts  in  any  manner 
to  defeat  or  evade  the  tax  imposed  by  this  title, 

shall  be  guilty  of  a misdemeanor  and 

shall  be  fined  not  more  than  $10,000  or  imprisoned  for  not  more  than  one 
year,  or  both,  together  with  the  costs  of  prosecution.” — Law.  [Note: 

The  1918  Act  so  provided.] 

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INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

2629  Specific  Penalties. — A penalty  of  not  more  than  $ 1,000  attaches 
for  failure  punctually  to  make  a required  return,  whether  of  income, 
withholding  or  information,  or  to  pay  or  collect  a required  tax.  If  the  failure 
is'I willful,  however,  or  an  attempt  is  made  to  defeat  or  evade  the  tax,  the 
offender  is  liable  to  imprisonment  and  to  a fine  of  not  more  than  $10,000  and 
costs.  See  also  the  Act  of  July  5,  1884.  In  addition  to  these  specific  penalties 
ad  valorem  penalties  are  imposed  in  various  cases.  An  ad  valorem  penalty 
is  assessed  and  collected  as  a part  of  the  tax,  while  a specific  penalty  is  enforce- 
able only  by  suit.  See  section  250  of  the  statute  and  articles  1004  [ad 
valorem  penalty  for  failure  to  file  return,  1(2625],  1005  [ad  valorem  penalty 
for  false  return,  1(2603],  and  1006  [ad  valorem  penalty  for  nonpayment  of 
tax,  1(2763].  (Art.  1055,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Advice  not  to  make  return  or  to  pay  tax:  those  giving,  are  amenable  to  specific  penalty 
provisions  (1-19-108:  S.  931)..  1919  Cum.  Bull.  p.  259. 

Citizen  leaving  country  amenable  to  specific  penalty  provisions;  powers  of  Government 
in  premises  (6-19-282:  O.  D.  168) . . 1919  Cum.  Bull.  p.  260. 

Delinciuent  individual  returns  for  1914  filed  after  3-year  period  of  limitation  (1913  Act) 
(22-20-977:  O.  D.  530) . .June  1920  Cum.  Bull.  p.  248. 

Information  returns  (18-19-489:  O.  907)..  1919  Cum.  Bull.  p.  261. 

Officers  of  corporation  for  which  no  return  made  even  though  no  income,  not  operating, 
etc.  (16-21-1582:  O.  D.  882),  June  1921  Cum.  Bull.  p.  307. 


2630  Law  K663.  Limitation  on  Prosecutions  for  Offenses  Under  the 
(Sec.  1321.)  Internal  Revenue  Laws. — “Sec.  1321.  ( a ) That  the 

Act  entitled  ‘ An  Act  to  limit  the  time  within  which 
prosecutions  may  he  instituted  against  persons  charged  with  violating  internal- 
revenue  laws,’  approved  July  5,  1884,  is  amended  to  read  as  follows: 

‘ That  no  person  shall  be  prosecuted , tried , or  punished  for  any  of  the 
various  offenses  arising  under  the  internal-revenue  laws  of  the  United 
States  unless  the  indictment  is  found  or  the  information  instituted  within 
three  years  next  after  the  commission  of  the  offense:  Provided,  That  the  time 
during  which  the  person  committing  the  offense  is  absent  from  the  district 
wherein  the  same  is  committed  shall  not  be  taken  as  any  part  of  the  time 
limited  by  law  for  the  commencement  of  such  proceedings:  Provided  further, 
That  the  provisions  of  this  Act  shall  not  apply  to  offenses  committed  prior 
to  its  passage:  Provided  further,  That  where  a complaint  shall  be  instituted 
before  a commissioner  of  the  United  States  within  the  period  above  limited, 
the  time  shall  be  extended  until  the  discharge  of  the  grand  jury  at  its  next 
session  within  the  district:  And  provided  further,  That  this  Act  shall  not 
apply  to  offenses  committed  by  officers  of  the  United  States. ’ 

2631  Law  1(664.  “(b)  Any  prosecution  or  proceeding  under  an  indictment 

(Sec.  1321.)  found  or  information  instituted  prior  to  the  passage  of 

this  Act  shall  not  be  affected  in  any  manner  by  this  amend- 
ment, but  such  prosecution  or  proceeding  shall  be  subject  to  the  limitations 
imposed  by  law  prior  to  the  passage  of  this  Act.” — Law.  [Note:  Here- 

tofore the  3-year  limitation  applied  “in 
all  cases  where  the  penalty  prescribed 
may  be  imprisonment  in  the  peni- 
tentiary.” In  all  other  cases  the 
limitation  was  two  years.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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INCORRECT  OR  FALSE  RETURNS— PENALTIES. 

2632  Compromise  of  Tax  Cases. — The~,  Commissioner,  with  the  advice 
andjLconsent  of ' the*' Secretary^oU  the  Treasury,  may  compromise 
any  civil  or  criminal  case  arising  under  the  internal  revenue^laws  instead 
of  commencing  suit  thereon,  and  with  the  advice  and  consent  of  the  Secretary 
and  the  recommendation  of  the  Attorney-General  may  compromise  any 
such  case  after  suit  thereon  has  been  commenced  by  the  United  States. 
Accordingly,  the  power  to  compromise  extends  to  (a)  civil  and  criminal 
cases : (b)  cases  whether  before  or  after  suit;  and  (c)  taxes  and  penalties,  except 
that  taxes  legally  due  from  a solvent  taxpayer  may  not  be  compromised. 
Refunds  can  not  be  made  of  accepted  offers  in  compromise  in  cases  where  it 
is  subsequently  ascertained  that  no  violation  of  law  was  involved.  See  further 
section  3229  [^[2635]  of  the  Revised  Statutes.  (Art.  1011,  Reg.  62,  1922 
Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Ad  valorem  penalty  may  be  compromised  even  though  not  formally  assessed  (41-21- 
1864:  L.  0.  1072).. Dec.  1921  Cum.  Bull.  p.  240. 

Collector  has  no  authority  to  waive  penalty  or  interest  (1-2-22:  I.  T.  1161).  .June 
1922  Cum.  Bull.  p.  305. 

Dissolved  partnership;  tax  assessed  against  firm  (6-21-1438:  0.  D.  799).. June  1921 
Cum.  Bull.  p.  325. 

Form  656  is  now  used  by  Collectors  in  notifying  taxpayers  (see  Tf2648)  of  their  privilege 
to  submit  offers  in  compromise. 

Rejected  offers  where  no  penalty  due:  refunds  (23-20-990:  O.  D.  539).. June  1920 
Cum.  Bull.  p.  239. 

Solvent  taxpayer:  taxes  legally  due  from  (24-20-1006:  S.  1371).. June  1920  Cum.  Bull 
p.  178. 

Statute  of  limitations : acceptance  of  offer  on  specific  penalty,  though  action  be  barred 
(25-20-1019:  Sol.  Op.  7).. June  1920  Cum.  Bull.  p.  239. 


2633  Sir:  I have  had  under  careful  consideration  for  some  time  a re- 
quest from  your  predecessor^for  an  opinion  as  to  the  power  of  the 

Commissioner  ofJInternaU Revenue, |with  the  advice^and.Jconsent  of  the 
Secretary  of  the  Treasury,  to  compromise  claims  for  certain^ penalties' arising 
under  the  income-tax  laws.  The  specific  claims  mentioned  are:  f 

(1)  Claims  for  amounts  50  per  cent  in  addition  to  amounts  of  income 
and  excess-profit  taxes  assessed  under  authority  ofA  section  3176  of  Re- 
vised Statutes, fas  amended  by^section  16)_of  the  act^of  September  8,  1916, 
and  of  section  21 2^of  the  act  of  October  3,  1917, |in  cases  of  failure  to  make 
and  file  returns  or  lists  within  the  time  prescribed  by  law  or  by  the  collector; 

(2)  Claims  for  amounts  100  per  cent  in  addition  to  amounts  of  income 
and  excess-profit  taxes  assessed  under  authority  of  said  sections  in  cases  of 
false  or  fraudulent  returns  or  lists  wilfully  made;  and 

(3)  Claims  for  sums  of  5 per  cent  on  amounts  of^income  and  excess- 
profit  taxes  not  paid  when  due  and  interest  at  the  rate  of  1 per  cent  per  month 
on  said  taxes,  the  collection  of  which  is  authorized  by  sections  9 (a)  and  14 
(a)  of  the  act  of  September  8,  1916,  and  section  212  of  the  act  of  October  3, 

1917.  , • X 

2634  The  exact  question  submitted  is  whether,  under  the  authority  of 
section  3229  of  Revised  Statutes,  the  Commissioner  of  Internal 

Revenue  is  authorized  to  compromise  these  penalties  in  cases  in  which 
there  is  no  doubt  as  to  the  legal  liability  of  the  taxpayer  or  as  to  the  col- 
lectibility of  the  claim,  but  in  which,  in  the  opinion  of  the  Secretary  of  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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INCORRECT  OR  FALSE  RETURNS- PENALTIES. 


Treasury  and  that  of  the  Commissioner,  considerations  of  justice,  equity, 
and  public  policy  warrant  a reduction  of  the  amount  to  be  collected  on  the 
ground  that  the  statutory  amounts  are  in  the  nature  of  penalties  for  delin- 
quencies, and  that,  though  such  amounts  are  technically  due  and  are  collecti- 
ble, the  collection  of  them  inflicts  punishment  which  is  unduly  severe  in  view 
of  the  culpability. 

2 635  Section  3229  of  the  Revised  Statutes  is  as  follows: 

“The  Commissioner  of  Internal  Revenue,  with  the  advice  and  con- 
sent of  the  Secretary  of  the  Treasury,  may  compromise  any  civil  or  criminal 
case  arising  under  the  internal-revenue  laws  instead  of  commencing  suit 
thereon;  and,  with  the  advice  and  consent  of  the  said  Secretary  and  the 
recommendation  of  the  Attorney-General,  he  may  compromise  any  such  case 
after  a suit  thereon  has  been  commenced.  Whenever  a compromise  is  made 
in  any  case  there  shall  be  placed  on  file  in  the  office  of  the  commissioner  the 
opinion  of  the  Solicitor  of  Internal  Revenue,  or  of  the  officer  acting  as  such, 
with  his  reasons  therefor,  with  a statement  of  the  amount  of  tax  assessed,  the 
amount  of  additional  tax  or  penalty  imposed  by  law  in  consequence  of  the 
neglect  or  delinquency  of  the  person  against  whom  the  tax  is  assessed,  and 
the  amount  actually  paid  in  accordance  with  the  terms  of  the  compromise.” 

2636  It  will  be  observed  that  the  power  to  compromise  is  given  in  very 
broad  and  general  terms.  Congress  has  not  seen  fit  to  specify  the 

considerations  which  shall  control  the  commissioner  in  determining  whether 
a case  ought  or  ought  not  to  be  compromised  instead  of  commencing  suit, 
nor  to  place  any  limitation  upon  this  exercise  of  power,  except  that  his  action 
shall  be  with  the  advice  and  consent  of  the  Secretary  of  the  Treasury.  After 
suit  is  commenced  the  power  is  to  be  exercised  only  with  the  advice  and  con- 
sent of  the  Secretary  of  the  Treasury  and  the  recommendations  of  the  Attor- 
ney-General. 

2637  The  act  of  Congress  which,  somewhat  condensed  and  shortened, 
was  carried  into  the  Revised  Statutes  as  section  3229  was  section 

102  of  the  act  of  June  20,  1868  (15  Stat.  125,  166).  That  act  conferred 
the  power  to  compromise  in  all  cases  arising  under  the  internal-revenue 
laws  where,  instead  of  commencing  or  proceeding  with  a suit,  “it  may  appear 
to  the  Commissioner  of  Internal  Revenue  to  be  for  the  interest  of  the  United 
States  to  compromise  the  same.”  The  language  just  quoted  was  omitted 
from  section  3229.  It  will  be  seen,  therefore,  that  the  original  act,  authorized 
a compromise  whenever,  in  the  opinion  of  the  Commissioner  of  Internal  Rev- 
enue it  was  “for  the  interest  of  the  United  States.”  These  words  were  by 
way  of  limitation  upon  his  power.  Their  omission  from  section  3229,  there- 
fore, can  not  be  said  to  render  the  power  more  restricted  than  it  was  under 
the  original  act.  Certainly,  then,  section  3229  can  not  be  given  a narrower 
meaning  than  to  say  that  the  power  is  conferred  to  make  any  compromise 
which  in  the  opinion  of  the  commissioner,  acting  with  the  advice  and  consent 
of  the  Secretary  of  the  Treasury,  and,  in  the  event  suit  has  been  commenced, 
upon  the  recommendation  of  the  Attorney-General,  will  be  for  the  interest 
of  the  United  States.  The  fact  that  the  act  applies  to  both  civil  and  crim- 
inal cases,  and  the  further  fact  that  when  a compromise  is  made  there  shall 
be  placed  on  file  the  opinion  of  the  Solicitor  of  Internal  Revenue  stating  the 
reasons  for  the  compromise,  the  amount  of  tax  assessed,  the  amount  of  addi- 
tional tax  or  penalty  imposed,  and  the  amount  actually  paid,  make  it  plain 
that  whatever  power  to  compromise  is  given  extends  to  penalties,  such  as 
those  mentioned  in  the  request  for  this  opinion. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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INCORRECT  OR  FALSE  RETURNS— PENALTIES. 


2638  Opinions  of  my  predecessors  touching  the  nature  and  extent  of  the 
power  of  the  Commissioner  to  make  compromises  are  more  or  less 
conflicting  and  it  will  not,  I think,  serve  any  useful  purpose  to  review  and 
attempt  to  reconcile  them.  I have  given  them,  as  well  as  all  decisions  of  the 
courts  bearing  in  any  way  on  the  question,  careful  consideration  and  will 
content  myself  with  stating  my  conclusions. 

2 639  Your  request  does  not  relate  to  compromises  of  taxes,  but  only  to 
penalties  and  interest  imposed  on  account  of  delinquencies  of  the 
taxpayer.  I shall  accordingly  confine  my  opinion  to  penalties  and  interest. 

2640  It  seems  clear  that  Congress  has  left  it  to  the  judgment  and  dis- 
cretion of  the  Commissioner  to  determine  when  it  is  to  the  interest 

of  the  United  States  to  compromise  such  claims  instead  of  commencing  or 
prosecuting  suits  therefor,  and  that  the  only  limitation  placed  upon  the  exer- 
cise of  this  judgment  and  discretion  is  that  his  action  shall  be  with  the  advice 
and  consent  of  the  cabinet  officers  mentioned  in  the  statute.  And  I am  of  the 
opinion  that,  subject  to  this  limitation,  he  has  the  power  to  compromise  the 
penalties  and  interest  mentioned  in  the  request  for  this  opinion  whenever, 
in  his  judgment,  such  compromises  are  for  the  interest  of  the  United  States. 
Congress  has  not  said  that  such  compromises  may  be  made  only  when  in  the 
judgment  of  the  Commissioner  more  money  can  thereby  be  realized  than 
can  be  realized  by  commencing  and  prosecuting  a suit.  It  can  not  be  said, 
therefore,  as  a matter  of  law,  that  the  power  to  compromise  is  limited  to 
cases  in  which  either  the  liability  for  the  penalty  or  the  collectibility  of  the 
claim  is  doubtful.  In  these  matters  I think  the  judgment  of  the  Commissioner 
as  to  what  is  for  the  interest  of  the  United  States  is  made  conclusive.  What 
considerations  shall  control  are  fixed  by  no  rule  of  law,  but  depend  upon  his 
own  discretion  and  sound  judgment  exercised  in  good  faith.  It  may  be 
that  with  respect  to  the  amount  of  tax  to  be  collected,  or  the  amount  of 
penalty  resulting  from  willful  fraud,  the  Commissioner  may  find  a case  in 
which  he  will  feel  justified  in  accepting  less  than  can  be  legally  collected, 
whereas  in  cases  of  penalties  resulting  from  accident,  negligence,  or  technical 
omission,  he  may  honestly  believe  that  the  interests  of  the  United  States 
will  be  best  served  by  accepting  less  than  the  full  penalty.  In  such  cases, 
I am  of  opinion  that  he  has  the  right  to  compromise  upon  any  ground  which, 
in  his  judgment,  renders  the  compromise  for  the  interest  of  the  United  States. 
(Opinion  by  Attorney-General  A.  Mitchell  Palmer  to  the  Secretary  of  the 
Treasury  and  dated  June  3,  1919.) 

2641  * * * * * [the  following  was  issued  in  1917  as  will  be  noted] 

the  specific  penalty  will  be  asserted,  and  if  the  delinquency  was 

not  due  to  an  intention  to  delay  the  administration  of  the  law  the  mini- 
mum amount  which  will  be  accepted  in  compromise  is  as  follows: 

$5.00  in  the  case  of  an  individual  or  withholding  agent.  # . 

$10.00  in  the  case  of  a corporation,  joint-stock  company  or  association, 
or  insurance  company.  _ _ . 

2642  These  amounts  will  be  considered  insufficient  and  will  not  be  ac- 
cepted in  any  case  where  it  appears  that  a taxpayer  was  intentionally 

violating  the  provisions  of  law,  and  purposely  delaying  the  filing  of  the  returns. 
In  all  cases  where  revenue  agents  or  other  examining  officers  discover  that 
any  individual  has  an  appreciable  taxable  income  and  the  examining  officer 
is  of  the  opinion  that  the  individual  knew  or  should  have  known  that  he  was 
required  to  make  a return,  he  should  make  a recommendation  as  to  themin- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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INCORRECT  OR  FALSE  RETURNS-  PENALTIES. 


imum  amount  which  should  be  accepted  as  an  offer  in  compromise,  and  where 
the  intent  to  evade  tax  is  plain  he  should  recommend  prosecution.  Special 
attention  should  be  called  to  cases  of  individuals  having  a taxable  income 
who  have  failed  to  file  returns  for  a number  of  years. 

2643  In  the  case  of  delinquent  returns  filed  pursuant  to  the  provisions 
of  Section  2 of  the  Act  of  October  3,  1913,  specific  penalty  will  not 

be  asserted  * * * against  taxpayers  or  withholding  agents  specifically 

relieved  from  specific  penalty  by  the  proviso  contained  in  Section  19  of  the 
Income  Tax  Law  of  September  8.  1916,  as  amended  by  Section  1209  of  the 
Act  of  October  3,  1917  [1f2329],  which  reads  as  follows: 

“PROVIDED,  That  where  any  tax  heretofore  due  and  payable  has 
been  duly  paid  by  the  taxpayer,  it  shall  not  be  re-collected  from  any 
withholding  agent  required  to  retain  it  at  its  source,  nor  shall  any  penalty 
be  imposed  or  collected  in  such  cases  from  the  taxpayer,  or  such  with- 
holding agent  whose  duty  it  was  to  retain  it,  for  failure  to  return  or  pay 
the  same  unless  such  failure  was  fraudulent  and  for  the  purpose  of 
evading  payment.” 

2644  Furthermore,  specific  penalty  will  not  be  asserted  against  tax- 
payers delinquent  in  filing  returns  for  1913,  nor  against  corpora- 
tions, j lint-stock  companies  or  associations  or  insurance  companies  de- 
linquent in  filing  returns  for  prior  years,  unless  it  appears  beyond  a reson- 
able  doubt  that  there  was  an  intent  on  the  part  of  the  delinquent  to  violate 
the  provisions  of  law.  The  specific  penalty  cannot  in  any  case  be  asserted 
after  five  years  from  date  of  delinquency,  and  no  recommendation  with 
respect  to  penalty  in  such  cases  need  be  made.  The  minimum  amounts 
mentioned  above  will  be  accepted  in  compromise  of  liability  to  specific 
penalty  for  each  of  the  years  1914  and  1915,  as  well  as  for  1916,  except  where 
there  was  an  apparent  intent  to  violate  the  taxing  act,  in  which  case  the  offer 
must  be  increased  in  a substantial  amount. 

2645  In  the  case  of  every  delinquent  return,  the  collector  should  secure 
a statement  [Read  at  1[2652]  from  the  delinquent  of  the  cause  of 

delinquency,  which  should  be  attached  to  and  made  a part  of  the  return, 
together  with  delinquent  card.  If  the  delinquent  is  not  relieved  from 
specific  penalty  * * * or  if  he  fails,  upon  request,  to  file  a statement  of 

the  reason  for  delinquency,  the  specific  penalty  should  be  promptly  asserted 
and  the  delinquent  advised  of  his  privilege  to  submit  an  offer  in  compromise. 
If  the  collector  is  of  the  opinion  that  the  delinquent  should  be  relieved  from 
the  specific  penalty  under  the  provisions  of  this  Mimeograph  Letter,  he 
should  note  on  the  delinquent  card  “Relieved  under  Mim.  No.  1675.” 

2646  In  all  cases  of  delinquency  discovered  by  revenue  agents  and  other 
examining  officers,  if  the  delinquency  falls  within  a period  for  which 

the  penalty  can  be  asserted,  such  officers  should  secure  from  the  delinquent 
a sworn  statement  setting  forth  the  reason  for  delinquency.  This  statement 
should  be  attached  to  the  return  forwarded  to  the  collector.  The  examining 
officer  should  state  in  his  report  the  alleged  reason  for  delinquency  and  if 
he  is  of  the  opinion  that  the  minimum  amount  should  not  be  accepted  as  an 
offer  in  compromise  of  liability  to  specific  penalty,  he  should  make  a recom- 
mendation as  to  the  minimum  amount  which  should  be  accepted.  Consider- 
ation will  be  given  such  recommendation  by  this  office  in  accepting  an  offer 
in  compromise.  In  forwarding  offers  in  compromise  on  Form  656  collectors 
should  call  attention  to  revenue  agent’s  reports,  if  any,  in  which  the  non- 
acceptance  of  the  minimum  amount  as  an  offer  in  compromise  is  recommended. 

Copyright  1922.  by  The  Corporation  Trust  Company. 

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INCORRECT  OR  FALSE  RETURNS  PENALTIES. 


The  statement  or  affidavit  attached  to  the  return  setting  forth  the  reason 
for  delinquency  is  not  in  lieu  of  the  affidavit  required  to  be  attached  to  Form 

656.  , _ 

2647  Mimeograph  Letters  Nos.  1347,  1390,  1465,  1477,  1530  and  CT- 
Mim.  No.  54  and  CT-Mim.  No.  56  are  hereby  superseded.  (L 

Mimeograph  Letter  to  Collectors  No.  1675,  November  3,  1917.) 

2648  Offers  in  Compromise  by  the  Taxpayer— [A  letter,  similar  in  content 
to  the  following,  suitably  modified  if  the  delinquent  was  a corpora- 
tion, has  been  used  in  the  past  by  Collectors  in  charging  taxpayers  with 
delinquency  and  in  notifying  them  of  their  privilege  to  submit  offers  in 
compromise.] 

2649  Sir:  Your  return  of  net  income  was  not  received  in  this  office  until 

thereby  involving  you  in  liability  to  a specific  penalty 

of  not  * * * more  than  $1,000  under  the  Act  of  — , in 

addition  to  the  [25]%  additional  tax  which  will  be  assessed  and  collected. 

2650  The  provisions  of  the  Act  are  mandatory,  and  no  excuse  or  expla- 
nation can  be  accepted,  except  a showing  that  a complete  or  tentative 

return  was  in  fact  mailed  in  time  to  have  reached  this  office,  or  a Deputy 
Collector,  in  the  ordinary  course  of  business  on  or  before  . 

2651  However,  before  instituting  proceedings  in  Court  for  the  imposi- 
tion ol  the  specific  penalty,  I am  directed  to  call  your  attention  to 

the  provisions  of  Section  3229  [112635],  Revised  Statutes,  which  reads  in 
part  as  follows: 

“The  Commissioner  of  Internal  Revenue  with  the  advice  and  con- 
sent of  the  Secretary  of  the  Treasury,  may  compromise  any  civil  or 
criminal  case  arising  under  the  internal  revenue  laws  instead  of  com- 
mencing suit  thereon.”  * * *• 

2652  Should  you  desire  to  take  advantage  of  your  privilege  under  this 
section  and  to  submit  an  offer  in  compromise,  the  amount  offered 

should  be  forwarded  promptly  to  this  office  in  the  form  of  cash,  postal  money 
order,  or  certified  check  which  can  be  cashed  without  cost,  payable  to  my 
order,  accompanied  by  an  affidavit  substantially  in  the  following  form. 

“To  the  Commissioner  of  Internal  Revenue:  . 

“I  hereby  solemnly  swear  for  affirm)  that  my  delinquency  in  filing 
return  of  net  income  as  required  by  the  Act  of  - , was  not 

due  to  any  intent  to  violate  the  law  or  evade  taxation,  but  was  due 
to  (here  insert,  concisely  and  clearly,  the  reason  for  delay). 

“Desiring  to  compromise  my  liability  I hereby  tender  the  sum  of 

$1 } which  I request  be  accepted  in  compromise  of  the  specific 

penalty  only.” 

2653  To  be  signed  and  sworn  to  before  a deputy  collector,  notary,  or 
other  officer  authorized  to  administer  oaths. 

2654  This  affidavit  will  then  be  forwarded  by  me,  together  with  the 
offered,  to  the  Commissioner  for  consideration,  and  you  will  be 

notified  by  him  of  his  acceptance  or  rejection  of  your  proposal.  In  the  latter 
event,  you  mav  increase  your  offer,  if  you  so  desire. 

+ * * * * * * 

Respectfully, 


Collector  of  Internal  Revenue. 

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2655  Compromises  for  the  Taxable  Year  1918  Under  the  Revenue  Act 
of  1918. — In  view  of  the  delay  in  the  final  passage  of  the  Revenue 

Act  of  1918  and  the  short  period  allowed  for  filing  returns  thereunder,  it 
has  been  decided  that  if  a return  is  filed  on  or  before  May  1,  1919,  by  an  in- 
dividual, partnership  or  corporation  under  the  provisions  of  such  Act,  the 
specific  penalty  of  $1,000  will  not  be  asserted. 

2656  Where  returns  of  income  are  filed  after  the  date  mentioned  above 
or  where  returns  of  information  at  the  source  are  filed  after  May 

15,  1919,  the  specific  penalty  will  be  asserted  unless  it  can  be  shown  that 
the  delay  was  due  to  a reasonable  cause,  and  offers  in  compromise  will  be 
accepted  in  the  minimum  amounts  stated  below: 


Delinquent  returns  of  income  by  individuals $5.00 

Delinquent  returns  of  income  by  corporations 10.00 

Delinquent  returns  of  information 5.00 


2657  Of  course  it  must  be  borne  in  mind  that  the  above  does  not  relate 
to  cases  where  there  is  evidence  of  wilful  intent  or  hostility  toward 

the  administration  of  the  law.  Such  cases  will  be  taken  care  of  in  the  same 
manner  as  heretofore. 

2658  Cards,  Form  7245A,  prepared  in  the  manner  indicated  in  Mim. 
1480,  dated  February  26,  1917,  should  accompany  every  original 

delinquent  return  filed  after  the  dates  mentioned  above  as  the  last  dates 
for  filing  returns  before  the  specific  penalty  will  be  asserted.  (IT-Mim. 
2077,  signed  by  Commissioner  Daniel  C.  Roper,  and  dated  March  13,  1919.) 


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2659  Law  602.  Returns  to  be  Public  Records.— “iVc.  257.  That 
(Sec.  257.)  returns  upon  which  the  tax  has  been  determined  by  the 

Commissioner  shall  constitute  public  records — Law. 

[Note:  The  1918  Act  so  provided.] 

2660  1.  The  original  income  return  of  an  individual,  partnership,  corpora- 
tion, association,  joint-stock  company,  insurance  company,  or  fiduci- 
ary, or  a copy  thereof,  may  be  furnished  by  the  Commissioner  of  Internal 
Revenue  to  a United  States  attorney  for  use  as  evidence  before  a United 
States  grand  jury  or  in  litigation  in  any  court,  where  the  United  States  is 
interested  in  the  result,  or  for  use  in  the  preparation  for  such  litigation,  or 
to  an  attorney  connected  with  the  Department,  of  Justice  designated  to  handle 
such  matters,  upon  written  request  of  the  Attorney-General,  the  Assistant 
to  the  Attorney-General,  or  an  Assistant  Attorney-General.  When  an 
income  return  or  copy  thereof  is  thus  furnished,  it  must  be  limited  in  use  to  the 
purpose  for  which  it  is  furnished  and  is  under  no  conditions  to  be  made  public 
except  where  publicity  necessarily  results  from  such  use.  In  case  the  original 
return  is  necessary,  it  shall  be  placed  in  evidence  by  the  Commissioner  of 
Internal  Revenue  or  by  some  other  officer  or  employee  of  the  Internal  Revenue 
Bureau  designated  by  the  Commissioner  for  that  purpose,  and  after  it  has 
been  placed  in  evidence  it  shall  be  returned  to  the  files  in  the  office  of  the 
Commissioner  in  Washington.  An  original  return  will  be  furnished  only  in 
exceptional  cases,  and  then  only  when  it  is  made  to  appear  that  the  ends  of 
justice  may  otherwise  be  defeated.  Neither  the  original  nor  a copy  of  an 
income  return,  desired  for  use  in  litigation  in  court  where  the  Unified  States 
Government  is  not  interested  in  the  result  and  where  such  use  might  result 
in  making  public  the  information  contained  therein,  will  be  furnished,  except 
as  otherwise  provided  in  the  next  succeeding  paragraph. 

2661  2.  A copy  of  an  income  return  may  be  furnished  by  the  Commissioner 
of  Internal  Revenue  to  the  person  who  made  the  return  or  to  his  duly 

constituted  attorney,  or  if  the  person  is  deceased,  to  his  executor  or  admin- 
istrator; or  if  the  entity  is  in  the  hands  of  a receiver,  trustee  in  bankruptcy, 
guardian,  or  similar  legal  custodian,  to  the  receiver,  trustee,  or  other  similar 
custodian  upon  written  application  for  same,  accompanied  by  satisfactory 
evidence  that  the  applicant  comes  within  this  provision.  “The  person  who 
made  the  return,”  as  herein  used,  refers  in  the  case  of  an  individual  return 
to  the  individual  whose  return  is  desired,  and  in  the  case  of  a return  of  a 
corporation,  association,  joint-stock  company,  insurance  company,  or  fiduci- 
ary to  the  corporation,  association,  joint-stock  company,  or  fiduciary,  a 
copy  of  whose  return  is  desired.  A corporation  may  also  designate  by  proper 
action  of  its  Board  of  Di-ectors  the  officer  or  individual  to  whom  a copy 
of  a return  made  by  the  corporation  may  be  furnished,  and  upon  sufficient 
evidence  of  such  action  and  of  the  identity  of  the  officer  or  individual,  a copy 
may  be  furnished  to  such  person.  A copy  of  a partnership  income  return 
will  be  furnished  to  the  partners  only  in  case  all  the  partners  join  in  the  request 
therefor,  it  matters  not  what  particular  partner  or  officer  of  the  partnership 
made  the  return.  If  the  partnership  has  been  dissolved,  the  members  sur- 
viving may  be  furnished  a copy  if  all  the  members  surviving  join  in  the 
request.  (Art.  1091,  Reg.  62,  1922  Edition.) 


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2662  Law  1[603.  Returns  to  be  Open  to  Inspection  Only  on  Order  by 
(Sec.  257.)  the  President. — “ but  they  shall  be  open  to  inspection 

only  upon  order  of  the  President  and  under  rules  and 
regulations  prescribed  by  the  Secretary  and  approved  by  the  President :” 

— Law.  [Note:  The  1918  Act  so  provided.] 

2663  Inspection  of  Returns. — The  returns  upon  which  the  tax  has  been 
determined  by  the  Commissioner,  although  public  records,  are  open 

to  inspection  only  to  the  extent  authorized  by  the  President,  except  as  other- 
wise expressly  provided.  The  President,  by  an  executive  order  dated  Jan- 
uary 24,  1922,  directed  that  returns  of  income  should  be  subject  to  inspec- 
tion in  accordance  with  the  following  regulations  prescribed  by  the  Secretary 
of  the  Treasury: 

2664  1.  These  regulations  deal  only  with  inspection  of  returns,  as  the 
statutes  expressly  require  the  approval  of  the  President  of  regulations 

on  this  subject.  Other  uses  to  which  returns  may  be  lawfully  put,  without 
action  by  the  President,  are  not  covered  by  these  regulations. 

2665  2.  The  word  “corporation”  when  used  alone  herein  shall,  unless 
otherwise  indicated,  include  corporations,  associations,  joint-stock 

companies,  and  insurance  companies.  The  word  “return”  when  so  used 
shall,  unless  otherwise  indicated,  include  income  and  profits  tax  returns;  and 
also  special  excise  tax  returns  of  corporations  filed  pursuant  to  Section  1000, 
Title  X.,  of  each  of  the  Revenue  Acts  of  1918  and  1921. 

2666  3.  Written  statements  filed  with  the  Commissioner  of  Internal 
Revenue  designed  to  be  supplemental  to  and  to  become  a part  of 

tax  returns  shall  be  subject  to  the  same  rules  and  regulations  as  to  inspection 
as  are  the  tax  returns  themselves. 

2667  4.  Except  as  hereinafter  specifically  provided,  the  Commissioner  of 
Internal  Revenue  may,  in  his  discretion,  upon  written  application 

setting  forth  fully  the  reasons  for  the  request,  grant  permission  for  the 
inspection  of  returns  in  accordance  with  these  regulations.  The  application 
will  be  considered  by  the  Commissioner  and  a decision  reached  by  him 
whether  the  applicant  has  met  the  conditions  imposed  by  these  regulations 
and  whether  the  reasons  advanced  for  permission  to  inspect  are  sufficient 
to  permit  the  inspection.  Such  written  application  is  not  required  of  the 
officers  ana  employees  of  the  Treasury  Department  whose  official  duties 
require  inspection  of  a return,  or  of  the  Solicitor  of  Internal  Revenue. 

2668  5.  The  return  of  an  individual  shall  be  open  to  inspection  as  follows: 
(a)  By  the  officers  and  employees  of  the  Treasury  Department  whose 

official  duties  require  such  inspection  and  by  the  Solicitor  of  Internal  Revenue; 
(b)  by  the  person  who  made  the  return,  or  by  his  duly  constituted  attorney- 
in-fact;  (c)  by  the  administrator,  executor  or  trustee  of  the  taxpayer’s  estate, 
or  by  the  duly  constituted  attorney-in-fact  of  such  administrator,  executor, 
or  trustee,  where  the  maker  of  the  return  has  died;  and  (d)  in  the  discretion 
of  the  Commissioner  of  Internal  Revenue,  by  one  of  the  heirs  at  law  or  next 
of  kin  of  such  deceased  person  upon  showing  that  he  has  a material  interest 
which  will  be  affected  by  information  contained  in  the  return. 

2669  6.  A joint  return  of  a husband  and  wife  shall  be  open  to  inspection 

_ (a)  by  the  officers  and  employees  of  the  Treasury  Department  whose 

official  duties  require  such  inspection,  and  by  the  Solicitor  of  Internal  Revenue; 
and  (b)  by  either  spouse  for  whom  the  return  was  made  (or  his  or  her  duly 
constituted  attorney-in-fact,  or  legal  representative),  upon  satisfactory 
evidence  of  such  relationship  being  furnished. 

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2670  7.  The  return  of  a partnership  shall  be  open  to  inspection  (a)  by  the 
officers  and  employees  of  the  Treasury  Department  whose  official 

duties  require  such  inspection  and  by  the  Solicitor  of  Internal  Revenue;  and 
(b)  by  any  individual  (or  his  duly  constituted  attorney-in-fact,  or  legal 
representative)  who  was  a member  of  such  partnership  during  any  part  of 
the  time  covered  by  the  return,  upon  satisfactory  evidence  of  such  fact  being 
furnished. 

2671  8.  The  return  of  an  estate  shall  be  open  to  inspection  (a)  by  the 
officers  and  employees  of  the  Treasury  Department  whose  official 

duties  require  such  inspection,  and  by  the  Solicitor  of  Internal  Revenue; 
(b)  by  the  administrator,  executor,  or  trustee  of  such  estate,  or  by  his  duly 
constituted  attorney-in-fact;  and  (c)  by  one  of  the  heirs  at  law  or  next  of 
kin  of  the  deceased  person  whose  estate  is  being  administered  upon  a showing 
of  a material  interest  which  will  be  affected  by  information  contained  in  the 
return. 

2672  9.  The  return  of  a trust  upon  which  a tax  has  been  determined  shall 
be  open  to  inspection  (a)  by  the  officers  and.  employees  of  the 

Treasury  Department  whose  official  duties  require  such  inspection,  and  by 
the  Solicitor  of  Internal  Revenue;  (b)  by  the  trustee  or  trustees,  or  the  duly 
constituted  attorney-in-fact  of  such  trustee  or  trustees;  and  (c)  by  any 
individual  (or  his  duly  constituted  attorney-in-fact  or  legal  representative) 
who  was  a beneficiary  under  such  trust  during  any  part  of  the  time  covered 
by  the  return,  upon  satisfactory  evidence  of  such  fact  being  furnished. 

2673  10.  The  return  of  a corporation  shall  be  open  to  inspection  (a)  by 
the  officers  and  employees  of  the  Treasury  Department  whose  official 

duties  require  such  inspection  and  by  the  Solicitor  of  Internal  Revenue;  (b) 
upon  satisfactory  evidence  of  identity  and  official  position,  by  the  president, 
vice-president,  secretary  or  treasurer  of  such  corporation,  or,  if  none,  its 
principal  officer;  and  (c)  by  a stockholder  of  such  corporation  as  provided 
in  paragraph  1 1 hereof. 

2674  11.  A stockholder  of  record  owning  one  per  centum  or  more  of  the 
shares  of  the  outstanding  stock  of  a corporation  may  be  permitted 

to  inspect  its  return.  Such  permission  will  only  be  granted  upon  an  applica- 
tion in  writing  to  the  Commissioner  of  Internal  Revenue  accompanied  by  an 
affidavit  showing  applicant’s  address,  the  name  of  the  corporation,  the 
period  of  time  covered  by  the  return  he  desires  to  inspect,  and  a certificate 
from  the  officials  of  the  corporation,  or  other  satisfactory  evidence  showing 
the  amount  of  the  corporation’s  outstanding  capital  stock,  the  number  of 
shares  owned  by  the  applicant,  the  date  when  such  stock  was  acquired,  and 
satisfactory  proof  of  identity.  This  privilege  of  inspection  is  personal  and 
will  be  granted  only  to  the  stockholders.  This  rule  has  no  application  to 
the  return  of  a corporation  filed  pursuant  to  the  Revenue  Acts  of  1918  and 
1921;  specific  provision,  independent  of  presidential  regulation,  being  made 
in  those  acts  for  inspection  by  a stockholder  of  a return  of  a corporation 
filed  thereunder  (second  proviso  of  Section  257  [^|2691]). 

2675  12.  When  the  head  of  an  executive  department  (other  than  the 
Treasury  Department)  or  of  any  other  United  States  Government 

establishment  desires  to  inspect  or  to  have  some  other  officer  or  employee 
of  his  branch  of  the  service  inspect  a return  in  connection  with  some  matter 
officially  before  him,  the  inspection  may,  in  the  discretion  of  the  Secretary 
of  the  Treasury,  be  permitted  upon  written  application  to  him  by  the  head 
of  such  executive  department  or  other  Government  establishment.  The 

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application  must  be  signed  by  such  head  and  must  show  in  detail  why  the 
inspection  is  desired,  the  name  and  address  of  the  taxpayer  who  made  the 
return,  and  the  name  and  official  designation  of  the  one  it  is  desired  shall  in- 
spect the  return.  When  the  head  of  a bureau  or  office  in  the  Treasury 
Department,  not  a part  of  the  Internal  Revenue  Bureau,  desires  to  inspect 
a return  in  connection  with  some  matter  officially  before  him,  other  than  an 
income,  profits  tax  or  corporation  excise  tax  matter,  the  inspection  may,  in 
the  discretion  of  the  Secretary,  be  permitted  upon  written  application  to  him 
by  die  head  of  such  bureau  or  office,  showing  in  detail  why  the  inspection  is 
desired.  The  reasons  submitted  for  permission  to  inspect  as  provided  in 
this  paragraph  shall  be  considered  by  the  Secretary  and  a decision  reached 
by  him  whether  the  reasons  are  sufficient  to  permit  the  inspection. 

2 676  13.  When  it  becomes  necessary  for  the  Department  to  furnish 

returns  or  copies  thereof  for  use  in  legal  proceedings,  inspection  of 
such  returns  or  copies  that  necessarily  results  from  such  use  is  permitted. 

2677  14.  Except  as  provided  in  paragraph  13  returns  may  be  inspected 
only  in  the  office  of  the  Commissioner  of  Internal  Revenue,  Wash- 
ington, District  of  Columbia. 

2678  15.  A person  who,  under  these  regulations,  is  permitted  to  inspect  a 
return  may  make  and  take  a copy  thereof  or  a memorandum  of  data 

contained  therein. 

2679  16.  By  Section  3167  R.  S.,  as  amended  by  the  Revenue  Act  of  1918, 
and  reenacted  without  change  in  Section  1311  of  the  Revenue  Act 

of  1921  H[2696],  it  is  made  a misdemeanor  for  any  person  to  print  or  publish 
in  any  manner  whatever  not  provided  by  law  any  income  return,  or  any 
part  thereof,  or  source  of  income,  profits,  losses,  or  expenditures  appearing 
in  any  income  return,  which  misdemeanor  is  punishable  by  a fine  not  exceed- 
ing $1,000  or  by  imprisonment  not  exceeding  one  year,  or  both,  at  the  discre- 
tion of  the  Court;  and  if  the  offender  be  an  officer  or  employee  of  the  United 
States,  by  dismissal  from  office  or  discharge  from  employment. 

2680  17.  All  former  regulations  bearing  on  the  subject  of  inspection  of 
returns  are  hereby  superseded. 

2681  18.  These  regulations  shall  remain  in  force  until  expressly  with- 
drawn or  overruled.  [T.  D.  3277,  Jan.  24,  1922.]  (Art.  1090,  Reg. 

62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p I. 

Decedent’s  letter  to  collector  relating  to  return  (27-20-1046:  0.  D.  576).. Dec.  1920 
Cum.  Bull.  p.  313. 

Executor  of  an  estate  (31-19-654:  0.  D.  355). . 1919  Cum.  Bull.  p.  265. 

Same:  letter  written  by  decedent  taxpayer  (27-20-1046:  O.  D.  576).. Dec.  1920 
Cum.  Bull.  p.  313. 

Joint  returns  of  husband  and  wife  (27-19-607:  O.  D.  325)..  1919  Cum.  Bull.  p.  265. 
Lists  of  individuals  making  returns;  posting;  supplying  to  State  authorities;  does 
not  extend  to  partnerships  or  fiduciaries  (14-19-439:  0.  897)..  1919  Cum. 
Bull.  p.  263. 

Same:  have  been  posted  in  collectors’  offices  and  post  offices  (22-20-978:  0.  D. 
531).  .June  1920  Cum.  Bull.  p.  259. 

Ownership  certificates  (17-19-473:  O.  879)..  1919  Cum.  Bull.  p.  262. 

Same:  by  debtor  corporation  (6-20-734:  S.  1301).. June  1920  Cum.  Bull.  p.  259. 
Regulations  under  the  1918  Act  (4-20-710:  T.  D.  2961).  .June  1920  Cum.  Bull.  p.  250. 
Also  (4-20-711:  T.  D.  2962)..  June  1920  Cum.  Bull.  p.  253. 


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2682  Law  1[604.  Returns  of  Corporations  to  be  Open  to  Inspection 
(Sec.  257.)  of  Proper  State  Officers. — “ Provided , That  the  proper 

officers  of  any  State  imposing  an  income  tax  may , upon 
the  request  of  the  governor  thereof,  have  access  to  the  returns  of  any  corpora- 
tion, or  to  an  abstract  thereof  showing  the  name  and  income  of  the  corpora- 
tion, at  such  times  and  in  such  manner  as  the  Secretary  may  prescribe — 
Law.  [Note:  The  1918  Act  so  provided.] 

2683  1.  The  proper  officers  of  a State  imposing  an  income  tax  are  en- 
titled as  of  right  upon  the  request  of  its  governor  to  have  access  to 

the  income  and  profits  tax  returns  of  a corporation,  association,  joint-stock 
company,  or  insurance  company,  or  to  an  abstract  thereof,  showing  its 
name  and  income.  Proper  officers  in  this  connection  are  only  those  officers 
of  the  State  who  are  charged  with  the  enforcement  of  the  State  income-tax 
law  and  who  are  to  use  the  information  gained  by  the  access  only  in  con- 
nection with  such  enforcement.  _ . . 

2684  2.  The  request  or  application  of  the  governor  must  be  in  writing, 
signed  by  him  under  the  seal  of  his  State,  and  must  show: 

(a)  That  the  State  imposes  an  income  tax. 

(b)  The  name  and  address  of  the  corporation,  association, _ joint- 
stock  company,  or  insurance  company  making  the  returns  to  which  ac- 
cess is  desired. 

(c)  Why  access  is  desired. 

(d)  The  names  and  official  positions  of  the  officers  designated  to 
have  the  access. 

(e)  That  such  designated  officers  are  charged  with  the  enforcement 
of  the  State  income  tax  law. 

(f)  That  the  information  to  be  gained  by  the  access  is  to  be  used 
only  in  connection  with  such  enforcement. 

2685  3.  The  request  or  application  of  the  governor  may  be  addressed 
either  to  the  Secretary  of  the  Treasury  or  to  the  Commissioner  of 

Internal  Revenue,  but  should  be  transmitted  to  the  Commissioner,  who 
will  set  a convenient  time  for  the  access  to  the  returns  (or  to  an  abstract 
thereof  as  he  may  determine). 

2686  4.  Access  shall  be  given  only  in  the  office  of  the  Commissioner  of 
Internal  Revenue  in  Washington. 

2687  5.  The  officers  designated  by  the  governor  will  not  be  permitted  to 
name  another  person  or  persons  to  examine  the  returns  (or  ab- 

stracts)  for  them. 

2 683  6.  The  officers  designated  will  be  given  access  only  to  the  returns 

of  those  corporations,  associations,  joint-stock  companies,  or  in- 
surance companies  organized  or  doing  business  in  their  State. 

2689  7.  The  officers  designated  may  have  access  to  lists  furnished  to 
supplement  and  become  a part  of  the  returns  to  which  they  are 

given  access. 

2690  8.  The  proper  officers,  as  defined  in  paragraph  1,  may  have  access 
to  the  capital  stock  tax  returns  filed  under  the  provisions  of  Section 

1000  of  the  Revenue  Act  of  1921  under  the  same  conditions  prescribed  in 
the  preceding  paragraph  for  access  to  the  income  and  profits  tax  returns 
of  corporations,  associations,  joint-stock  companies,  and  insurance  com- 
panies. This  right  does  not  extend  to  the  examination  of  capital  stock 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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tax  returns  filed  pursuant  to  prior  Acts  of  Congress,  except  the  Revenue  Act 

of  1918.  (Art.  1092,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Individuals;  returns  of  (1-19-1 12:  0.  D.  78). . 1919  Cum.  Bull.  p.  265. 

(See  “Lists  of  Individuals”  in  Cumulative  Index  following  2 6 8 1 . ) 


2691  Law  605.  Returns  to  Be  Open  to  Inspection  by  Stockholders 
(Sec.  257.)  of  Record  Owning  One  Per  Cent  or  More  of  the  Out- 
standing Stock  of  a Corporation. — “Provided further, 

That  all  bona  fide  stockholders  of  record  owning  1 per  centum  or  more  of 
the  outstanding  stock  of  any  corporation  shall,  upon  making  request  of 
the  Commissioner,  be  allowed  to  examine  the  annual  income  returns  of 
such  corporation  and  of  its  subsidiaries.” — Law.  [Note:  The  1918 

Act  so  provided.] 

2692  Law  *[606.  “ Any  stockholder  who  pursuant  to  the  provisions  of 

(Sec.  257.)  this  section  is  allowed  to  examine  the  return  of  any 

corporation,  and  who  makes  known  in  any  manner 
whatever  not  provided  by  law  the  amount  or  source  of  income,  profits,  losses, 
expenditures,  or  any  particular  thereof,  set  forth  or  disclosed  in  any 
such  return , shall  be  guilty  of  a misdemeanor  and  be  punished  by  a fine 
not  exceeding  $1,000,  or  by  imprisonment  not  exceeding  one  year,  or  both.” — 
Law.  [Note:  The  1918  Act  so  provided.] 


2693  A bona  fide  stockholder  of  record  owning  1 per  centum  or  more 
of  the  outstanding  stock  of  a corporation  shall  be  entitled  as  of  right, 
upon  making  request  of  the  Commissioner  of  Internal  Revenue,  to  examine 
the  annual  income  returns  of  such  corporation  and  of  its  subsidiaries  made 
under  Titles  II  and  III  of  the  Revenue  Acts  of  1918  or  1921,  and  all  returns 
of  corporations  filed  for  purposes  of  the  tax  imposed  by  Sec.  1000,  Title  X, 
of  said  Acts.  His  request  for  permission  to  examine  such  returns  must  be 
made  in  writing  and  must  be  in  the  form  of  an  affidavit  showing  his  address, 
the  name  of  the  corporation,  the  period  of  time  covered  by  the  return  he 
desires  to  inspect,  the  amount  of  the  corporation’s  outstanding  capital  stock, 
the  number  of  shares  owned  by  him,  the  date  when  he  acquired  them,  and 
whether  he  has  the  beneficial  as  well  as  the  record  title  to  such  shares.  It 
must  also  show  that  he  has  not  acquired  his  shares  for  the  purpose  of  the 
examination  of  the  income  returns  of  the  corporation.  If  he  has  acquired 
them  for  this  purpose  he  is  not  a bona  fide  stockholder  within  the  meaning 
of  the  statute.  The  application  must  be  supported  by  satisfactory  evidence 
showing  that  the  applicant  is  a bona  fide  stockholder  of  record  of  the  required 
amount  of  stock  of  the  corporation.  The  supporting  evidence  may  be 
partly  in  the  form  of  a certificate  signed  by  the  president  or  vice-president 
of  the  corporation,  and  countersigned  by  the  secretary  under  the  corporate 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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seal.  Upon  being  satisfied  from  the  evidence  presented  that  the  applicant 
has  fully  met  these  conditions  the  Commissioner  will  grant  the  permission 
to  examine  the  returns  and  set  a convenient  time  for  the  examination  in  the 
office  of  the  Commissioner.  This  privilege  is  personal  and  will  be  granted 
only  to  the  stockholder,  who  cannot  delegate  it  to  another.  (Art.  1093, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

“Stockholders’  protective  committee”  (18-19-490:  0.  D.  273) . . 1919  Cum.  Bull.  p.  265. 


2 694  [See  ^[2674  for  inspection  of  corporation  returns  under  prior  Revenue 
Acts.] 

2 695  A stockholder  who  examines  the  return  of  a corporation  and  re- 
veals without  express  authority  of  law  any  particulars  of  its  in- 
come statement  is  guilty  of  a misdemeanor  and  liable  to  fine  and  imprison- 
ment. Section  3167  of  the  Revised  Statutes,  as  amended  by  section  1317 
of  the  Revenue  Act  of  1918,  also  provides  [^[2696  below].  (Art.  1094,  Reg. 
62,  1922  Edition.) 

2696  Law  If 636.  Specific  Information  Relative  to  Taxpayer’s  Affairs 
(Sec.  1311.)  Disclosed  by  Returns  or  Otherwise,  Not  to  be  Di- 
vulged.— [Sec.  1311  of  the  Revenue  Act  of  1921  re- 
enacts Sec.  3167,  Revised  Statutes,  without  change  as  follows]: 

“Sec.  3167.  It  shall  be  unlawful  for  any  collector , deputy  collector , 
agent , clerk,  or  other  officer  or  employee  of  the  United  States  to  divulge  or 
to  make  known  in  any  manner  whatever  not  provided  by  law  to  any  person 
the  operations,  style  of  work , or  apparatus  of  any  manufacturer  or  producer 
visited  by  him  in  the  discharge  of  his  official  duties,  or  the  amount  or  source 
of  income,  profits,  losses,  expenditures,  or  any  particular  thereof,  set  forth 
or  disclosed  in  any  income  return,  or  to  permit  any  income  return  or  copy 
thereof  or  any  book  containing  any  abstract  or  particulars  thereof  to  be 
seen  or  examined  by  any  person  except  as  provided  by  law;  and  it  shall  be 
unlawful  for  any  person  to  print  or  publish  in  any  manner  whatever  not 
provided  by  law  any  income  return,  or  any  part  thereof  or  source  of  in- 
come, profits,  losses,  or  expenditures  appearing  in  any  income  return;  and 
any  offense  against  the  foregoing  provision  shall  be  a misdemeanor  and  be 
punished  by  a fine  not  exceeding  $1,000  or  by  imprisonment  not  exceeding 
one  year,  or  both,  at  the  discretion  of  the  court ; and  if  the  offender  be  an 
officer  or  employee  of  the  United  States  he  shall  be  dismissed  from  office 
or  discharged  from  employment .” — Law.  [Note:  No  change.] 

2 697  The  attention  of  collectors  of  internal  revenue,  internal-revenue 
agents,  and  other  officers  concerned  is  invited  to  sections  3167  of  the 
United  States  Revised  Statutes,  which  prohibits  the  disclosure  of  information 
contained  in  income  and  other  returns  of  internal-revenue  taxpayers. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22. 


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2698  All  internal-revenue  officers  will  preserve  as  inviolably  confiden- 
tial all  income  tax  returns,  as  the  slightest  infraction  of  law  upon 

this  subject  will  be  severely  punished.  (T.  D.  1962,  March  20,  1914.) 

2699  Disclosure  of  Return— Penalty. — The  disclosure  by  a collector, 
deputy  collector,  agent,  clerk,  or  other  officer  or  employee  of  the 

United  States,  to  any  person  not  legally  authorized  to  receive  the  same, 
of  any  information  whatever  contained  in  or  set  forth  by  any  return  of 
annual  net  income  made  pursuant  to  this  act,  is  by  the  act,  made  a misde- 
meanor, and  is  punishable  by  a fine  not  exceeding  $1,000,  or  by  imprison- 
ment not  exceeding  one  year,  or  both,  in  the  discretion  of  the  court,  and  if 
the  offender  is  an  officer  or  employee  of  the  United  States  he  shall  be  dis- 
missed and  be  incapable  thereafter  of  holding  any  office  under  the  United 
States  Government.  (Art.  229,  *[651,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

2700  Your  attention  is  directed  to  the  following  legislation  relating  to 
the  divulging  of  information  contained  in  the  returns  of  taxpayers. 

2701  Section  257  of  the  Revenue  Act  of  1918  provides:  [TJ2659].  Section 
3167  R.  S.,  as  amended  by  Section  1317  of  the  said  Revenue  Act  of 

1918,  provides:  [^[2696].  Section  3152,  R.  S.,  as  amended  by  Act  of  March 
1,  1879,  authorizing  the  employment  of  internal  revenue  agents  also  pro- 
vides: “And  all  provisions  of  section  thirty-one  hundred  and  sixty-seven, 
* * * of  the  Revised  Statutes  shall  apply  to  internal-revenue  agents  as 

fully  as  internal-revenue  officers.”  Section  3173  (R.  S.,  as  amended  by  said 
Section  1317)  of  the  Revenue  Act  of  1918  provides  that:  “It  shall  be  the 
duty  of  any  person,  partnership,  firm  or  association  or  corporation,  made 
liable  to  any  duty,  special  duty,  special  tax,  or  other  tax  imposed  by  law, 
when  not  otherwise  provided  for,  (1)  in  case  of  a special  tax,  on  or  before  the 
thirty-first  day  of  July  in  each  year,  and  (2)  in  other  cases  before  the  day  on 
which  the  taxes  accrue  to  make  a list  or  return  * * *:  Provided,  That 

if  any  person  liable  to  pay  any  duty  or  tax,  or  owning,  possessing,  or  having 
the  care  or  management  of  property,  goods,  wares,  and  merchandise,  articles 
or  objects  liable  to  pay  any  duty,  tax  or  license,  shall  fail  to  make  and  exhibit 
a list  or  return  required  by  law,  but  shall  consent  to  disclose  the  particulars 
of  any  and  all  the  property,  goods,  wares,  and  merchandise,  articles,  and 
objects  liable  to  pay  any  duty  or  tax.  or  any  business  or  occupation  liable  to 
pay  any  duty  or  tax,  or  any  business  or  occupation  liable  to  pay  any  tax  as 
aforesaid,  then,  and  in  that  case,  it  shall  be  the  duty  of  the  collector  or  deputy 
collector  to  make  such  list  or  return.  * * *”  Section  3176,  R.  S.  as 
amended  by  said  Section  1317,  Revenue  Act  of  1918.  further  provides- 
[H2612], 

2702  Reading  these  provisions  of  law  together,  it  is  evident  any  col- 
lector, deputy  collector,  agent,  clerk,  or  other  officer  or  employee  of 

the  Bureau  of  Internal  Revenue,  including  internal-revenue  agents,  who  di- 
vulges or  makes  known  in  any  manner  whatsoever  not  provided  by  law  the 
amount  or  source  of  income,  profits,  losses,  expenditures,  or  any  particulars 
thereof  set  forth  or  disclosed  in  any  income  return  made  by  any  taxpayer, 
or  by  a collector  or  deputy  collector,  or  by  the  Commissioner  of  Internal 
Revenue,  or  who  permits  any  income  return  or  copy  thereof,  or  any  book 
containing  any  abstract  or  particulars  thereof,  to  be  seen  or  examined  by 
any  person,  except  as  provided  by  law,  or  who  prints  or  publishes  in  any 
manner|whatever,  not  provided  by  law,  any  income  return  or  any  part 
thereof,  or  source  of  income,  profits,  losses,  or  expenditures  appearing  in 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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any  income  return,  is  guilty  of  a misdemeanor  and  subject  to  a fine  not 
exceeding  $1,000  or  to  imprisonment  not  exceeding  one  year,  or  both,  at  the 
discretion  of  the  court,  and  if  he  be  an  officer  or  employee  of  the  United 
States,  to  be  dismissed  from  office  or  discharged  from  employment. 

2703  The  only  provisions  of  law  authorizing  the  making  known  of  any 
income  return  under  the  Revenue  Act  of  1918  are  those  contained 

in  Section  257  of  said  Act,  above  quoted. 

2704  Similar  provisions  to  those  contained  in  Section  257,  Revenue  Act  of 
1918,  and  Sections  3173  and  3176,  as  amended  by  said  Revenue  Act 

of  1918,  were  also  contained  in  the  Act  of  October  3,  1914,  and  the  Act  of 
September  8,  1916. 

2705  You  should  endeavor  in  every  way  possible  to  impress  employees 
under  your  supervision  with  the  seriousness  of  the  offenses  which  are 

intended  to  be  prevented  by  this  legislation.  Any  violations  of  these  pro- 
visions of  the  law  which  become  known  to  any  officer  or  employee  of  the 
Bureau  must  be  immediately  reported  for  investigation.  [All  equally  ap- 
plicable under  the  Revenue  Act  of  1921.]  (T.  D.  2903,  July  30,  1919.) 

270  6 Law  607.  Lists  of  Individuals  Making  Income  Tax  Returns  to  Be 

(Sec.  257.)  Prepared. — “ The  Commissioner  shall  as  soon  as  prac- 
ticable in  each  year  cause  to  be  prepared  and  made  avail- 
able to  public  inspection  in  such  manner  as  he  may  determine , in  the  office 
of  the  collector  in  each  internal-revenue  district  and  in  such  other  places 
as  he  may  determine,  lists  containing  the  names  and  the  post-office  addresses 
of  all  individuals  making  income-tax  returns  in  such  district .” — Law. 

[Note:  The  1918  Act  so  provided.] 

2707  Law  608.  Annual  Report  by  the  Commissioner  of  Statistical 

(Sec.  258.)  Information. — “Sec.  258.  That  the  Commissioner, 
with  the  approval  of  the  Secretary,  shall  prepare  and  pub- 
lish annually  statistics  reasonably  available  with  respect  to  the  operation 
of  the  income,  war-profits  and  excess-profits  tax  laws,  including  classifica- 
tions of  taxpayers  and  of  income,  the  amounts  allowed  as  deductions,  ex- 
emptions, and  credits,  and  any  other  facts  deemed  pertinent  and  valuable .” — 
Law.  [Note:  The  1918  Act  so  provided.] 

2708  The  Commissioner  will  publish  annually  a volume  of  statistics  of 
income,  showing,  among  other  things,  the  distribution  of  incomes 

between  corporations  and  individuals  and  by  States,  by  classes  and  by 
occupations.  (Art.  1101,  Reg.  62,  1922  Edition.) 

2709  Law  If 624.  The  General  Administrative  Provisions  of  Law  Rela- 
(Sec.  1300.)  tive  to  the  Making  of  Returns,  etc.,  are  Applicable.— 

“Sec.  1300.  That  all  administrative,  special,  or  stamp 
provisions  of  law,  including  the  law  relating  to  the  assessment  of  taxes,  so 
far  as  applicable,  are  hereby  extended  to  and  made  a part  of  this  Act,  and 
every  person  liable  to  any  tax  imposed  by  this  Act,  or  for  the  collection 
thereof,  shall  keep  such  records  and  render,  under  oath,  such  statements 
and  returns,  and  shall  comply  with  such  regulations  as  the  Commissioner, 
with  the  approval  of  the  Secretary,  may  from  time  to  time  prescribe .” — Law. 

[Note:  The  1918  Act  so  provided.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22. 


INSPECTION  OF  RETURNS. 


27  10  Law  1(635.  Sec.  3165,  Revised  Statutes. — “ Every  collector,  deputy 
(Sec.  1311.)  collector,  internal-revenue  agent,  and  internal-revenue 
officer  assigned  to  duty  under  an  internal-revenue 
agent,  is  authorized  to  administer  oaths  and  to  take  evidence  touching 
any  part  of  the  administration  of  the  internal-revenue  laws  with  which 
he  is  charged,  or  where  such  oaths  and  evidence  are  authorized  by  law  or 
regulation  authorized  by  law  to  be  taken.'’ — Law.  [Note:  No  change.] 

2711  In  collecting,  the  income,  war  profits  and  excess  profits  taxes 
the  .Commissioner  has  the  benefit  of  all  existing  internal  revenue 
laws.  In  aid  of  the  enforcement  of  the  statute  the  Commissioner  may  re- 
quire any  person  to  keep  specific  records,  to  render  returns  and  state- 
ments as  directed,  to  submit  himself  and  his  books  to  examination,  and  to 
comply  with  such  regulations  as  may  be  prescribed.  Section  3165  of  the 
Revised  Statutes,  as  re-enacted  by  section  1311  of  the  Revenue  Act  of  1921 
provides:  [1(2710],  See  also  sections  228  [1(2577]  and  250  [1(2597]  of  the 
statute  and  articles  451  [1(2579]  and  1002  [1(2624].  (Art.  1711,  Reg.  62, 
1922  Edition.)  ’ 5 ’ 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Authority  and  identity  of  inspector,  agent  or  other  person  making  request  to  examine 
books,  accounts,  records,  etc.:  here,  a bank  (30-20-1096:  O.  D.  609)  Dec. 
1920  Cum.  Bull.  p.  371. 

Oaths  administered  by  internal-revenue  men:  Form  1078  specifically  (52-20-1368: 
O.  D.  761).  .Dec.  1920  Cum.  Bull.  p.  371. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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2-27-22. 


COLLECTION  AND  PAYMENT  OF  TAX. 


27  12  Law  535.  The  Tax  is  to  be  Paid  in  Four  Equal  Installments 
(Sec.  250.)  Except  When  Withheld  at  the  Source. — “Sec.  250. 

(a)  That  except  as  otherwise  provided  in  this  section 
and  sections  221  and  237  [1f2190  and  1(2220,  taxes  collected  at  the  source] 
the  tax  shall  be  paid  in  jour  installments , each  consisting  of  one-fourth  of 


the  total  amount 


2713 


2714 


2716 


2716 


2717 


Law  536. 
(Sec.  250.) 
Law  ^{537. 
(Sec.  250.) 
Law  1(538. 
(Sec.  250.) 
Law  1(539. 
(Sec.  250.) 
Law  1(540. 
(Sec.  250.) 


of  the  tax. 

“ The  first  installment  shall  be  paid  at  the  time  fixed 
by  law  for  filing  the  return , and ” 

“ the  second  installment  shall  be  paid  on  the  fifteenth 
day  of  the  third  month” 

“the  third  installment  on  the  fifteenth  day  of  the  sixth 
month , and ” 

“the  fourth  installment  on  the  fifteenth  day  of  the  ninth 
month” 

“after  the  time  fixed  by  law  for  filing  the  return.” — Law. 

[Note:  The  1918  Act  so  provided.] 


2718  The  installment  plan  of  payment  has  no  application  to  a case  where 
the  return  is  fraudulent  or  was  not  filed  on  time.  See  article  1002 
[1(2624].  (Art.  1001,  Reg.  62,  1922  Edition.) 


2719  Law  1(544.  The  Entire  Tax  May  Be  Paid  on  or  Before  the  Due 

(Sec.  250.)  Date  of  the  Return.—"  The  tax  may  at  the  option  of 
the  taxpayer  be  paid  in  a single  payment  instead  of  in 
installments , in  which  case  the  total  amount  shall  be  paid  on  or  before  the 
time  fixed  by  law  for  filing  the  return , or,  where  an  extension  of  time  for 
filing  the  return  has  been  granted , on  or  before  the  expiration  of  the  period 
of  such  extension.” — Law.  [Note:  The  1918  Act  so  provided.] 


2720  The  tax,  unless  paid  at  the  source,  is  to  be  paid  to  the  collector,  in 
four  equal  installments,  the  first  at  the  time  fixed  by  law  for  filing 
the  return  and  the  others  at  intervals  of  three  months  thereafter,  or  the 
whole  tax  may  at  the  option  of  the  taxpayer  be  paid  in  a single  payment  on  or 
before  the  time  fixed  by  law  for  filing  the  return,  or  such  time  as  extended  by 
the  collector  or  the  Commissioner.  See  section  227  of  the  statute  and 
articles  441-447  [for  time  for  filing  returns  1(2529.  for  the  last  due  date 
1(2538,  etc.].  (Art.  1001,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  1(2602.) 


2721  Payment  of  Taxes  to  Deputy  Collector  Unauthorized  to  Collect- 

Binding  Effect  on  Collector— Under  Act  of  March  1,  1879,  Chapter 
125  Section  2,  providing  that  “each  deputy  collector  shall  have,  the  like 
authority  in  every  respect  to  collect  the  taxes  levied  or  assessed  within  the 
portion  of  the  district  assigned  to  him  which  is  by  law  vested  in  the  col- 
lector himself,”  payment  of  money  to  a deputy  collector  other  than  the  one 
authorized  to  receive  it  is  not  a satisfaction  of  the  tax  liability,  and  does  not 

bind  the  collector.  , r , rT  • , o 

(The  decision  [syllabus  only,  as  shown  above]  of  the  United  States  Circuit 
Court  of  Appeals,  for  the  Third  Circuit,  in  the  case  of  Marriott  Hurst  v. 
Lederer  collector  [273  Fed.  174],  is  published  for  the  information  of  internal 
revenue  officers  and  others.)  (T.  D.  3221,  August  29,  1921.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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604 


2-27-22.  (2)  4-10-22.  (3)  8-24-22. 

COLLECTION  AND  PAYMENT  OF  TAX. 

2 722  Law  11541 . When  First  Installment  Is  Due  V/hen  Time  for  Filing 
(See.  250.)  Return  Has  Been  Extended. — “fVhere  an  extension  of 

time  for  filing  a return  is  granted  the  time  for  payment 
of  the  first  installment  shall  he  postponed  until  the  dale  of  the  expiration 
of  the  period  of  th.fi  extension,  but  the  time  for  payment  of  the  other  install- 
ments shall  not  be  postponed  unless  the  Commissioner  so  provides  in  grant- 
ing the  extension ^aw.  [Note:  The  1918  Act  so  provided.] 

2723  An  unconditional  extension  of  time  for  filing  a return  will  post- 
pone the  date  for  payment  of  the  first  installment  until  the  expiration 

of  the  period  of  th  • extension,  but  will  not  postpone  the  date  of  the  payment 

of  the  other  installments  unless  the  Commissioner  so  provides  in  granting 

the  extension.  (Art.  1001,  Reg.  62,  1922  Edition.) 

[Sec  Cumulative  Index  following  1f2602.] 

2724  Law  If 542.  Interest  Runs  on  Amount  of  Installment  During 
(Sec.  250.)  Period  of  Extension  Availed  of. — “In  any  case  in  which 

the  time  for  the  payment  of  any  installment  is  at  the 
request  of  the  taxpayer  thus  postponed , there  shall  be  added  as  part  of  such 
installment  interest  thereon  at  the  rate  of  one-half  of  1 per  centum  per 
month  from  the  time  it  would  have  been  due  if  no  extension  had  been  granted, 
until  paid”— Law.  [Note:  The  1918  Act  so  provided.] 

2725  Law  1f567.  Ad  Valorem  Penalty,  Plus  Interest,  for  Delay  in  Pay- 
(Sec.  250.)  ment  of  Tax. — “(e)  If  any  tax  remains  unpaid  after 

the  date  when  it  is  due,  and  for  ten  days  after  notice  and 
demand  by  the  collector,  then,  except  in  the  case  of  estates  of  insane,  de- 
ceased, or  insolvent  persons,  there  shall  be  added  as  part  of  the  tax  the  sum 
of  5 per  centum  on  the  amount  due  but  unpaid,  plus  interest  at  the  rate 
of  1 per  centum  per  'month  upon  such  amount  from  the  time  it  became  due:” 
[Applies  to  1917  and  1918  Acts  as  well,  1[2787.]— Law.  [Note:.  The 

1918  Act  so  provided.] 

2726  Law  If 568.  Interest  Rate  Lower  as  to  Any  Amount  Subject  to  a 
(Sec.  250.)  Eona  Fide  Claim  for  Abatement  under  Certain 

Conditions  —“Provided,  That  as  to  any  such  amount 
which  is  the  subject  of  a bona  fide  claim  for  abatement  filed  within  ten  days 
after  notice  and  demand  by  the  collector,  where  the  taxpayer  has  not  had  the 
benefit  of  the  provisions  of  subdivision  (d)  [1[2757],  such  sum  of  5 per  centum 
shall  not  be  added  and  the  interest  from  the  time  the  amount  was  due  until 
the  claim  is  decided  shall  be  at  the  rate  of  one-half  of  1 per  centum  per  month 
on  that  part  of  the  claim  rejected.”  [Applies  to  1917  and  1918  Acts  as  well, 
1f2787.] — Law.  [Note:  In  the  absence  of  the  relief  provisions  of 

Sec.  250(d),  Law  1f561  and  those  follow- 
ing, 1[2757,  the  1918  Act  provided, 
merely,  “That  as  to  any  such  amount 
which  is  the  subject  of  a bona  fide 
claim  for  abatement  such  sum  of  5 per 
centum  shall  not  be  added  and  the 
interest  from  the  time  the  amount  was 
due  until  the  claim  is  decided  shall  be  at 
the  rate  of  ^ of  1 per  centum  per 
month.”] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDEKAL  INCOME  TAX  SEHVICE 
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2-27-22.  (2)  1 10-22.  (8)  8-24-22. 

COLLECTION  AND  PAYMENT  OF  TAX. 

2727  Nonpayment  of  Tax— Interest  and  Penalty.— Where  the  time  for 
the  payment  of  any  installment  of  the  tax  is  postponed  at  the  request 
of  the  taxpayer,  interest  at  the  rate  of  6 per  cent  per  annum  is  added  from 
the  original  clue  date  until  paid.  Except  in  the  case  of  estates  of  insane 
deceased,  or  insolvent  persons,  if  any  tax  remains  due  and  unpaid  for  10 
days  after  notice  and  demand  by  the  collector  (in  the  case  of  the  first  install- 
ment the  instructions  printed  on  the  return  and  the  taxpayer’s  computa- 
tion of  the  tax  on  the  return  constitute  notice  and  demand)  there  shall  be 
added  as  part  of  the  tax  5 per  cent  of  the  amount  due  but  unpaid  plus  in- 
terest at  the  rate  of  12  per  cent  per  annum  from  the  due  date,  except  that 
the  interest  on  any  amount  which  is  the  subject  of  a bona  fide  claim  in  abate- 
ment filed  within  10  days  (where  the  taxpayer  has  not  had  the  benefit  of 
the  notice  and  the  30-day  period  for  filing  an  appeal  as  provided  in  sec. 
250  (d)  and  art.  1006  [1[2763])  shall  be  at  the  rate  of  6 per  cent  per  annum 
and  the  5 per  cent  penalty  shall  not  be  added.  Upon  receipt  of  notice  of 
rejection  of  claim  in  abatement  (or  so  much  thereof  as  is  not  allowed)  the 
collector  will  notify  the  claimant  and  demand  payment  of  the  tax  If  the 
tax  is  not  then  paid  within  10  days  the  5 per  cent  penalty  will  be  assessed 
on  the  amount  of  tax  not  abated.  If  abatement  of  the  entire  tax  was  not 
requested  and  the  balance  of  the  tax  was  not  paid  within  the  required  10 
days,  the  5 per  cent  penalty  accrues  immediately  on  such  balance.  Interest 
is  to  be  added  in  all  cases  in  which  the  demand  of  payment  is  made  of  the 
taxpayer  personally,  although  he  subsequently  dies,  or  becomes  insane  or 
insolvent,  so  that  collection  of  the  tax  is  made  from  his  estate  in  the  hands 
of  his  legal  representative;  but  the  estate  of  a deceased  person,  regardless 
of  the  date  of  his  death,  or  of  an  insane  or  insolvent  person,  can  not  be  charged 
with  liability  to  the  5 per  cent  penalty  on  account  of  his  or  the  fiduciary’s 
delinquency  in  making  payment  of  the  tax.  See  further  articles  1004  11)26251 
1005  [112603]  and  1006  [1)2763].  This  article  applies  to  the  assessment  and 
collection  of  taxes  which  have  accrued  or  may  accrue  under  the  Revenue 
Act  of  1918,  and  the  Revenue  Act  of  1921,  and  except  in  so  far  as  it  relates 
to  the  installment  plan  of  payment,  under  the  Revenue  Act  of  1917  (Art 
1003,  Reg.  62,  1922  Edition.)  ‘ 1 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Abatement  claim  fled  after  service  of  second  notice  and  demand  and"  issuance  of 
warrant  of  distraint  (51-21-1985:  O.  D.  1143).. Dec.  1921  Cum.  Bull.  p.  238 

Abatement  claim  rejected  in  part  m 1919  for  1<717  additional  tax-  1%  not  on 

disallowed  part  (6-21-1437:  O.  D.  798).  June  1921  Cum.  Bull,  p 318  Same 
* rejecting  claim  for  reiund:  1917  and  1918  Acts  (1-34-470-  A R R irpfi-  Rnll’ 

I (’22)-34,  p.  7.  ' • ,i>uu. 

Abatement  claims  rejected:  prior  and  subsequent  to  1918;  when  claims  based  on 

inventory  (13-19-427:  O.  D.  247).  1919  Cum.  Bull.  p.  247 

Same:  also  rejection  of  claim  for  credit  (31-20-1106:  Sol.  Op  32)  Dec  1920 
Cum.  Bull.  p.  288  ‘ ' i«u 

Ad  valorem  penalty  and  interest  apply  to  ad  valorem  penalty  for  delinquency  or  fraud 
and  to  tax  itself  (14-20-836:  0.  D.  441).  June  1920  Cum.  Bull.  p.  229 
But  interest  does  not  attach  to  the  5%  penalty  (45-20-1298:  O.  D.  725)  Dec  1920 
Cum.  Bull.  p.  290. 

Allen  Property  Custodian  taking  over  property  after  notice  and  demand  but  before 

^!)aot,0n  °r>f  !,°  day  penod  (1913  and  1916  Acts)  (17-20-876:  O.  1026)  June 
1920  Cum.  Bull  p.237.  J 

Amended  return  (42-20-1251:  O.  D.  691).  .Dec.  1920  Cum.  Bull  p 290 

Amended  return  showing  reduced  tax  liability:  as  claim  for  abatement  of  excess 
though  not  filed  until  after  10  days  following  notice  and  demand  was  allowed 
penalty  and  interest  are  not  asserted  (11-21-1511:  O.  D.  846).  .June  1921  Cum’ 
Bull.  p.  324. 

Amended  return:  no  interest  on  additional  amount  until  notice  and  demand  unless 
fraud  (2-20-678:  O.  D.  366).  June  1920  Cum.  Bull.  p.  235. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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*-27-22.  (8)  4-10-22.  (3)  4-14-22.  (4)  6 16-22.  (6)  8-3-22.  (6)  9-27-22.  (7)  10-11-22. 

COLLECTION  AND  PAYMENT  OF  TAX. 


Complete  return  after  filing  tentative  return  (4-19-323:  O.  D.  149).  . 1919  Cum.  Bull, 
p.  247. 

Death  before  granted  extension  expires  (41-20-1234:  O.  D.  681).. Dec.  1920  Cum. 
Bull.  p.  230. 

Deductible  item  of  exDense  (26-19-595:  O.  D.  319)..  1919  Cum.  Bull.  p.  247:  alto 
(7-20-745:  O.  922).  .June  1920  Cum.  Bull.  p.  227. 

Dissolved  corporation;  when  assessment  is  subsequent  to  dissolution  former  stock- 
holders arc  not  liable  to  5%  penalty  and  1%  per  month  interest  for  nonpayment 
of  tax  within  10  days  after  notice:  1921  Act  (1-39-520:  I.  T.  1455).  .Bull.  I (’22) 
39,  p.  3. 

Extension  due  to  war:  penalties  for  failure  to  pay  tax  apply,  return  having  been  filed 
(30-20-1095:  O.  D.  608).  .Dec.  1920  Cum.  Bull.  p.  299. 

Extension  in  case  of  individuals  in  Hawaii  and  Alaska:  1921  Act.  . f3093. 

Extension  in  case  of  persons  abroad  (1921  Act).  .^3032. 

Extension  of  time  under  relief  Sec.  250  (f);  interest  on  rejected  abatement  claim  for 
1917  taxes:  1921  Act  (1-24-349:  I.  T.  1360).  .June  1922  Cum.  Bull.  p.  301. 
Modified  (1-31-443:  I.  T.  1408).  .Bull.  I (’22)-31,  p.  11. 

First  installment  (1-19-106:  O.  D.  74)..  1919  Cum.  Bull.  p.  246;  also  T.  D.  3136 
(11-21-1513).  June  1921  Cum.  Bull.  p.  316. 

General  discussion;  fractional  part  of  month:  “full  month”:  collectible  from  date 
tax  due  (13-19-426:  O.  884)..  1919  Cum.  Bull.  p.  244. 

Indians  who  are  incompetent,  and  are  wards  of  nation  (18-20-902:  O.  D.  487).  .June 
1920  Cum.  Bull.  p.  229. 

Installments  after  the  first.  .T.  D.  3136  (11-21-1513).  .June  1921  Cum.  Bull.  p.  316. 

Installments  after  the  first:  taxpayer  is  on  notice  by  fact  of  having  filed  return  and 
paid  first  installment  (9-20-775:  O.  D.  408) . .June  1920  Cum.  Bull.  p.  236. 

“Reasonable  cause”  relates  to  failure  to  file  return  only;  here,  amended  return  filed, 
no  claim  for  abatement  until  10  day  period  following  notice  and  demand  for  tax 
shown  due  by  original  return  had  expired;  penalties  asserted  (43-20-1268:  O.  D. 
706)..  Dec.  1920  Cum.  Bull.  o.  299. 

Sec.  250  (e)  applicable  to  Title  IJ  of  1918  Act  only,  except  by  specific  provision  (7- 
20-747:  O.  931).  .June  1920  Cum.  Bull.  p.  235. 

Total  tax  paid  at  time  of  filing  delinquent  return  (25-19-588:  0.  D.  313).  . 1919  Cum. 
Bull.  p.  249:  Overruled  (47-21-1935:  O.  D.  1111).  .Dec.  1921  Cum.  Bull.  p.  238 


2728  Law^569.  Ipso  Facto  Assessment  of  the  Tax  and  Notice  and 
(Sec.  250.)  Demand  for  the  First  Installment. — “/*  the  case  ot 

the  first  installment  provided,  for  in  subdivision  (a)  the 

instructions  printed  on  the  return  shall  be  sufficient  notice  of  the  date  when 
the  tax  is  due  and  sufficient  demand , and  the  taxpayer's  computation  of 
the  tax  on  the  return  shall  be  sufficient  notice  of  the  amount  due." — Law. 

[Note:  The  1918  Act  so  provided.] 

2729  Law  ^[570.  Notice  and  Demand  for  Payment  of  Installments 
(Sec.  250.)  Subsequent  to  the  First  May  be  Given  by  the  Col- 
lector.— “/n  the  case  of  each  subsequent  installment  the 

collector  may,  within  thirty  days  and  not  later  than  ten  days  before  the  instal- 
ment becomes  due , mail  to  the  taxpayer  notice  of  the  amount  of  the  installment 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2-27-22.  (2)  1-10-22.  (3)4-14-22.  (4)6  16-22.  (6)  8-3-22.  (6)  9 27-22.  (7)  10-11-22. 

COLLECTION  AND  PAYMENT  OF  TAX. 

and  the  date  on  which  it  is  due  for  payment.  Such  notice  of  the  collector 
shall  be  sufficient  notice  and  sufficient  demand  under  this  section .” — Law. 

[Note:  This  provision  is  new  to  the  1921 
Act.  (The  practice  has  been  to  send  the 
notices.  The  statutory  provisions  re- 
lative to  notice  and  demand  are  un- 
changed.)] 

2730  Notice  and,Demand  for  Payment. — In  the  case  of  the  first  install- 
ment provided  for  in  subdivision  (a)  of  section  250  the  instructions 
printed  on  the  return  shall  be  sufficient  notice  of  the  date  when  the  tax  is 
due  and  sufficient  demand.  In  the  case  of  each  subsequent  installment  the 
collector  may  within  30  days  and  not  later  than  10  days  before  the  install- 
ment becomes  due  mail  to  the  taxpayer  notice  (on  Form  1123)  of  the  amount 
of  the  installment  and  the  date  on  which  it  is  due  for  payment  and  such 
notice  of  the  collector  shall  be  sufficient  notice  and  sufficient  demand  for 
the  subsequent  installment.  In  all  other  cases  and  in  cases  where  the  col- 
lector failed  to  give  advance  notice  on  Form  1123,  notice  and  demand  will 
be  given  on  Form  1-1 7a.  The  service  of  the  notice  and  demand  on  Form 
l-17a  is  complete  upon  mailing  it,  and  the  time  within  which  the  tax  must 
be  paid  runs  from  the  date  of  mailing  the  notice  and  not  from  the  date  of  its 
receipt  by  the  taxpayer.  [For  notice  and  demand  on  account  of  the  first 
installment,  see  ^[2728.]  But  payment  of  the  tax  must  actually  reach  the 
collector  within  the  ten-day  period,  and  merely  mailing  a remittance 
before  the  expiration  of  the  ten  days  is  not  sufficient.  So,  to 
avoid  the  prescribed  penalties,  no  more  than  ten  days  may  elapse  after  the 
mailing  of  the  notice  before  the  payment  is  in  the  collector’s  hands.  See 
section  3184  of  the  Revised  Statutes  [See  ^[2733,  below].  By  reason,  how- 
ever, of  the  absence  from  home  or  place  of  business  in  a foreign  country 
or  in  the  military  or  other  service  of  the  country  and  the  consequent  delay 
in  receiving  mail,  or  by  reason  of  the  location  of  the  residence  of  an  indi- 
vidual or  of  the  office  of  a corporation  to  which  the  notice  was  addressed  at 
a distance  from  the  collector’s  office,  it  is  frequently  impossible  for  a tax- 
payer to  receive  notice  and  demand  and  to  make  payment  of  the  tax  so  that 
such  payment  may  be  received  by  the  collector  within  the  ten-day  period 
(following  the  service  of  notice  and  demand).  In  all  such  cases  the  collector 
will  enter  on  the  notice  as  the  date  on  which  the  tax  becomes  due  and  pay- 
able a date  as  nearly  as  possible  ten  days  after  the  time  that  the  notice  should 
be  received-  in  the  ordinary  course  of  the  mails  by  the  taxpayer.  In  such 
cases  where  it  is  established  that  a remittance  for  the  tax  was  placed  in  the 
mails  within  the  ten-day  period  after  the  due  date  specified  in  the  notice,  and 
tardiness  was  occasioned  because  the  notice  was  not  delivered  in  due  time 
by  reason  of  delay  in  the  mail  and  satisfactory  evidence  of  that  fact  is  fur- 
nished, the  penalty  and  interest  will  not  be  collected.  (Art.  1007,  Reg.  62, 
1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  9/. 

First  installment  not  paid  when  return  filed  (12-19-408:  O.  D.  233) . . 1919  Cum.  Bull, 
p.  249;  also,  T.  D.  3136  (11-21-1513).  .June  1921  Cum.  Bull.  p.  316. 

Installments  after  the  first.  . T.  D.  3136  (11-21-1513) . . June  1921  Cum.  Bull.  p.  316. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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273 1 Law  If 543.  If  Any  Installment  Is  Not  Paid  When  Due  the  Entire 
(Sec.  250.)  Unpaid  Tax  Becomes  Due. — “If  any  installment  is 

not  paid  when  due,  the  whole  amount  of  the  tax  unpaid 
shall  become  due  and  payable  upon  notice  and  demand  by  the  collector.” — 

Law.  [Note:  The  1918  Act  so  provided.] 

2732  Upon  failure  to  pay  an  installment  on  time,  all  of  the  tax  remain- 
ing unpaid  becomes  due  and  payable  upon  notice  and  demand 

by  the  collector.  (Art.  1001,  Reg.  62,  1922  Edition.) 

[See  Cumulative  Index  following  Tf2602.] 

2733  “Where  it  is  not  otherwise  provided  the  collector  shall  in  person 
or  by  deputy,  within  ten  days  after  receiving  any  list  of  taxes  from 

the  Commissioner  of  Internal  Revenue,  give  notice  to  each  person  liable  to 
pay  any  taxes  stated  therein,  to  be  left  at  his  dwelling  or  usual  place  of 
business,  or  to  be  sent  by  mail,  stating  the  amount  of  such  taxes  and  de- 
manding payment  thereof.  If  such  person  does  not  pay  the  taxes  within 
ten  days  after  the  service  or  the  sending  by  mail  of  such  notice  it  shall  be 
the  duty  of  the  collector  or  his  deputy  to  collect  the  said  taxes,  with  a penalty 
of  5 per  cent  additional  upon  the  amount  of  taxes  and  interest  at  the  rate  of 
1 per  centum  a month.”  (Section  3184,  Revised  Statutes.) 

2734  Form  17. — Collectors  should  issue  Form  17  for  the  purpqge  of  fixing 
definitely  the  date  when  the  5 per  cent  penalty  accrues  and  interest 

at  1 per  cent  per  month  begins  to  run,  and  a copy  oi  this  notice  should  be 
filed  as  provided  by  act  of  August  17,  1912,  amending  section  3186,  Revised 

Statutes.  (Art.  41,  ^[252,  Reg.  33,  Rev.,  Jan.  2,  1918.) 

2735  It  appears  that  certain  collectors  hold  that  notice  of  assessment 
and  demand,  Form  17,  is  not  necessary  to  create  a liability  to  5 

per  cent,  penalty  and  interest  at  1 per  cent,  per  month  in  the  case  of  income 
tax  remaining  unpaid  after  [ * * * the]  due  date.  This  view  as  to 

the  requirements  of  the  law  is  clearly  wrong  and  contrary  to  the  instructions 
(Art.  197,  Reg.  33)  issued  on  the  subject. 

2736  The  necessity  of  issuing  Form  17  is  twofold — first,  to  determine 
the  date  when  5 per  cent  penalty  accrues  and  interest  at  1 per  cent 

per  month  begins  to  run,  and,  second,  to  complete  the  Government’s  lien 

on  property  belonging  to  the  taxpayer. 

* * * * + * 

2737  In  case  of  non-payment,  * * * a formal  notice  and  demand 

which  the  law  clearly  contemplates  and  which  the  courts  hold  to  be 

necessary  before  the  delinquent  taxpayer  becomes  chargeable  with  penalty 
and  interest  [is  to  be  issued]. 

2738  In  all  cases,  therefore,  where  an  assessed  tax  remains  unpaid  after 
it  becomes  due  a notice  on  Form  17  should  be  at  once  issued,  to  be 

followed,  when  necessary,  by  Form  21  and  69,  in  their  order.  The  fact 
that  a claim  for  abatement  is  pending  or  the  tax  is  in  litigation  does  not  relieve 
the  collector  from  issuing  the  notices,  demands,  etc.,  required  by  law. 

2739  A misunderstanding  on  the  part  of  certain  collectors  as  to  these 
requirements  has  occasioned  a considerable  loss  to  the  Govern- 
ment of  penalty  and  interest,  especially  where  claims  for  abatement  were 
pending.  (T.  D.  1995,  June  12,  1914.) 


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2 740  Notice  of  Assessment  (Form  17)  may  lawfully  be  given  by  mail, 
and  when  so  given  is  presumed  to  have  been  received.  The  burden 
rests  on  the  taxpayer  to  prove  the  contrary  in  order  to  avoid  penalty.  (U. 
S.  v.  General  Inspection  & Loading  Company,  204  F.  657.) 


2741  [Comment:  The  following  word  was  given  to  The  Corporation 

Trust  Company  orally,  regarding  the  practice  of  the  Department  rel- 
ative to  the  proof  “to  the  contrary.”  The  taxpayer  is  required  only  to 
prove  to  the  satisfaction  of  the  Commissioner  that  he  did  not  receive  notice 
of  assessment.  Under  such  conditions,  it  has  been  the  practice  of  the  Bureau 
of  Internal  Revenue  to  waive  the  penalties  and  give  the  taxpayer  an  oppor- 
tunity to  pay  his  taxes.  Of  course,  the  Collector  would  be  called  on  to 
produce  his  records  to  prove  his  assertion,  that  notice  had  been  sent,  but 
that  would  not  stand  in  the  way  of  the  taxpayer  offering  proof  that  the 
notice  did  not  reach  him.  (July,  1917). 


2742  Law  ^[551.  Four-year  Limitation  on  the  Assessment  of  Taxes 
(Sec.  250.)  Under  the  1921  Act  for  Taxable  Year  1921  and  Suc- 
ceeding Taxable  Years. — “{d)  The  amount  of  income, 

excess-profits,  or  war-profits  taxes  due  under  any  return  made  under  this 
Act  for  the  taxable  year  1921  or  succeeding  taxable  years ” 

2743  Law  ][552.  “ shall  be  determined  and  assessed  by  the  Commissioner 

(Sec.  250.)  within  four  years  after  the  return  was  filed,  and” — Law. 

[Note:  This  provision  is  new  to  the  1921 

Act.] 


2 744  Law  ^553.  Five-year  Limitation  on  the  Assessment  of  Taxes 
(Sec.  250.)  Under  the  1921  Act  for  Years  Prior  to  1921  (?),  and 
Under  Prior  Acts. — “ the  amount  of  any  such  taxes 
due  under  any  return  made  under  this  Act  for  prior  taxable  years  or  under 
prior  income,  excess-profits,  or  war-profits  tax  Acts , or  under  section  38  of 
the  Act  entitled  ‘An  Act  to  provide  revenue,  equalize  duties,  and  encourage 
the  industries  of  the  United  States,  and  for  other  purposes ,’  approved 
August  5,  1909,” 

2 745  Law  If 554.  “shall  be  determined  and  assessed  within  five  years  after 
(Sec.  250.)  the  return  was  filed,” — Law.  [Note:  By  the  1918 

Act  the  limitation,  as  applied  to  returns 
under  that  Act,  was  five  years,  as  here, 
but  “after  the  return  was  due  or  was 
made”;  by  prior  Acts,  as  applied  to 
returns  thereunder,  the  limitation  was 
three  years  after  “return  is  due”  or  after 
“return  is  due  or  has  been  made.”] 


2746  Law  ^[555.  Four-year  and  Five-year  Limitations  on  Assess- 
(Sec.  250.)  ment  of  Taxes  May  be  Waived.- — “ unless  both  the 
Commissioner  and  the  taxpayer  consent  in  writing  to 
a later  determination,  assessment,  and  collection  of  the  tax',” — Law. 

[Note:  This  provision  is  new  to  the 
1921  Act.  (Statutory  provision  for 
“waivers”.)] 


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(9)  10-30-22. 

COLLECTION  AND  PAYMENT  OF  TAX. 


2747  Assessment  of  Tax.  — When %the  returns  are  received  at  the  collec- 
tors’ offices  they  are  examined  and  listed  before  being  forwarded  to 
the  Commissioner.  As  soon  as  practicable  after  the  returns  are  received  in 
the  office  of  the  Commissioner  they  are  carefully  audited  in  connection  with 
any  reports  of  examination  that  may  have  been  made  by  agents  of  the  De- 
partment. If  error  in  the  amount  of  tax  as  stated  in  the  return  is  detected 
the  tax  is  recomputed  and  if  the  amount  is  less  than  that  shown  in  the  return 
the  excess  will  be  credited  or  refunded.  See  section  252  of  the  statute  and 
articles  1031-1038  [beginning  at  ^[2813J.  If  the  amount  is  greater  than  that 
shown  in  the  return  the  deficiency  will  be  handled  as  provided  in  section 
250  (d)  of  the  statute  and  article  1006  [^[2763].  The  amount  of  tax  due 
under  a return  made  under  the  Revenue  Act  of  1921  for  the  taxable  year 
1921  or  succeeding  taxable  years  must  be  determined  and  assessed  within 
four  years  after  the  return  was  filed  and  the  amount  of  tax  due  under  a return 
made  for  prior  years  under  this  Act,  or  under  prior  income,  excess  profits 
or  war  profits  tax  Acts,  or  under  section  38  of  the  Act  of  August  5,  1909, 
must  be  determined  and  assessed  within  five  years  after  the  return  was  filed, 
with  the  following  exceptions:  (1)  Where  the  Commissioner  and  the  tax- 
payer may  consent  in  writing  to  a later  determination,  assessment  and  col- 
lection of  the  tax.  (2)  In  the  case  of  income  received  during  the  lifetime 
of  a decedent  all  taxes  due  thereon  shall  be  determined  and  assessed  within 
one  year  after  written  request  therefor  by  the  fiduciary  or  legal  representa- 
tive of  the  estate  of  such  decedent.  (3)  In  the  case  of  a failure  to  file  a 
required  return  the  amount  of  tax  due  may  be  determined,  assessed  and  col- 
lected at  any  time  after  it  becomes  due.  (4)  In  the  case  of  a false  or  fraudu- 
lent return  with  intent  to  evade  tax  the  amount  of  tax  due  may  be  deter- 
mined, assessed  and  collected  at  any  time  after  it  becomes  due.  (5)  In 
cases  of  amortization  coming  within  the  scope  of  paragraph  (9)  of  subdivision 
(a)  of  section  214,  or  of  paragraph  (8)  of  subdivision  (a)  of  section  234  of 
the  Revenue  Acts  of  1918  and  1921,  or  in  cases  of  final  settlement  of  losses 
and  other  deductions  tentatively  allowed  by  the  Commissioner  pending  a 
determination  of  the  exact  amount  deductible,  the  amount  of  tax  due  may 
be  determined,  assessed  and  collected  at  any  time,  but  prior  to  the  assess- 
ment the  taxpayer  shall  be  notified  and  given  a period  of  not  less  than  30 
days  in  which  to  file  an  appeal.  See  article  1006  [^[2763]. 

2748  Where  a taxpayer  has  had  an  opportunity  to  file  an  appeal  and 
show  cause  or  reason  why  an  additional  tax  or  deficiency  in  tax 
should  not  be  paid  no  claim  in  abatement  of  the  amount  assessed  shall  be 
entertained,  but  in  such  a case  if  the  taxpayer  desires  to  contest  the  assess- 
ment he  should  pay  the  tax  and  file  a claim  for  credit  or  refund.  See  section 
252  of  the  statute  and  articles  1031  ffi2813]  and  1034-1038  [beginning  at 
^2829].  (Art.  1012,  Reg.  62,  1922  Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  pi. 

Arbitrary  second  assessment  may  not  be  supplemented  by  further  assessment  on 
final  audit  unless  amount  due  was  discovered  within  3-year  period  (13-21-1334: 
Sol.  Op.  92).  .June  1921  Cum.  Bull.  p.  325. 

Commissioner’s  authority  under  all  recent  Acta  fully  discussed  (49-20-1337:  Sol.  Op. 
79).  .Dec.  1920  Cum.  Bull.  p.  302. 

Debts  of  decedent  due  U.  S.  and  the  State:  priority  generally:  North  Carolina  speci- 
fically (50-20-1346:  O.  D.  750).  .Dec.  1920  Cum.  Bull.  p.  301. 

Extension  of  time  shifts  due  date  of  return  in  establishing  beginning  of  old  3-year 
limitation  (and  presumably  for  present  blanket  5-year  limitation)  (13-21-1534. 
So!.  Op.  92).. June  1921  Cum.  Bull.  p.  325. 

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COLLECTION  AND  PAYMENT  OF  TAX 

Expeditious  disposition  of  tax  cases  in  which  an  emergency  has  been  found  to  exRt' 
1918  and  1921  Acts.  . If 32 11. 

Government’s  priority  of  Claim  for  its  tax  (Sec.  3466,  Rev.  Stats.)  against  claims  of 
creditors  of  corporation  in  hands  of  receiver  (47-20- 1316:  0.  D.  733).  .Dec.  1920 
Cum  Bull.  p.  308. 

Court  decision:  administration  expenses  of  the  bankruptcy  proceedings  (15-20- 
857:  T.  D.  3000).  .June  1920  Cum.  Bull,  p.  241. 

Court  decision:  insolvent  corporation  (1917  Act).  . 1*3085.  Reproduced  in  full 
(1-14-202).  .June  1922  Cum.  Bull.  p.  306. 

•¥■  Court  decision:  priority  over  claims  for  wages.  ,1[3383 

Practicing  before  the  Bureau.  .See  1[2932  and  June  1921  Cum.  Bull.  p.  408.  Also 
H3104.  Revised  Department  Circular  No.  230  on  the  recognition  of  attorneys 
and  agents.  . H3174.  Conference  and  practice  requirements  (June  1,  1922).  . 1f3227. 
Form  of  power  of  attorney,  etc.  . 1[3300.  On  the  use  of  certified  copies  and  advis- 
ing Bureau  when  writing  or  appearing  on  behalf  of  taxpayer  that  power  has  been 
filed:  1921  Act  (1-29-414:  1.  T.  1395).  .Bull.  I (’22)-29,  p.  8. 

Second  assessment  with  abatement  claim  pending  in  connection  with  same  return  of 
income  (51-21-1987:  L.  0.  1080).  .Dec.  1921  Cum.  Bull.  p.  246.  (T.  D.  3251, 

H2823,  is  a brief  summary  of  the  foregoing.) 

Thirty-day  notice  of  assessment,  and  hcarinu  (1921  Act)  not  applicable  ro  assessments 
made  prior  to  Nov.  23,  1921  (1-6-79:  I.  T.  1200).  .June  1922  Cum.  Bull.  p.  305. 


2749  Law  1|556.  Five-year  Limitation  on  the  Bringing  of  Suit  for 
(Sec.  250.)  the  Collection  of  Taxes  Under  All  Acts, — “and  no 
suit  or  proceeding  for  the  collection  of  any  such  taxes 
due  under  this  Act  or  under  prior  income,  excess-profits,  or  war-profits 
tax  Acts,  or  of  any  taxes  due  under  section  38  of  such  Act  of  August  5,  1909, 
shall  be  begun , after  the  expiration  of  five  years  after  the  date  when  such 
return  was  filed,” 

2 750  Law  11557.  “but  this  shall  not  affect  suits  or  proceedings  begun  at 
(Sec.  250.)  the  time  of  the  passage  of  this  Act:” — Law.  [Note: 

The  5-year  limitation  of  the  1918  Act 
was  restricted  to  actions  for  the  recovery 
of  taxes  under  that  Act,  and  the  time 
began  to  run  from  “the  date  when  the 
return  was  due  or  was  made”.] 


2751  Law  H662.  Five-year  Limitation  on  Suits  for  Collection  of  Internal- 
(Sec.  1320.)  Revenue  Taxes  Generally. — “Sec.  1320.  That  no 
suit  or  proceeding  for  the  collection  of  any  internal 
revenue  tax  shall  be  begun  after  the  expiration  of  five  years  from  the  time 
such  tax  was  due,  except  in  the  case  of  fraud  with  intent  to  evade  tax,  or 
willful  attempt  in  any  manner  to  defeat  or  evade  tax.  This  section  shall 
not  apply  to  suits  or  proceedings  for  the  collection  of  taxes  under  section 
250  of  this  Act , nor  to  suits  or  proceedings  begun  at  the  time  of  the  passage 
of  this  Act” — Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 


2762  Under  section  1320  no  suit  or  proceeding  for  the  collection  of  any 
internal  revenue  tax  shali  be  begun  after  the  expiration  of  live  years 
from  the  time  such  tax  was  due,  except  in  case  of  fraud  with  intent  to  evade 
tax,  or  willful  attempt  in  any  manner  to  defeat  or  evade  tax.  This  section 
does  not  apply  to  suits  or  proceedings  begun  at  the  time  of  the  passage  of 
the  Revenue  Act  of  1921,  or  to  suits  or  proceedings  for  the  collection  of  taxes 
under  section  250  of  that  Act.  See  section  250  (d)  and  articles  1008  [H2756] 
and  1012  ffl2747].  (Art.  1050,  Reg.  62,  1922  Edition.) 

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2 753  Law  If 558.  Taxes  on  Income  of  Decedent  to  Time  of  His  Death 
(Sec.  250.)  to  be  Assessed  Within  One  Year  Thereafter,  on 
Request. — “ Provided , That  in  the  case  of  income  re- 
ceived during  the  lifetime  of  a decedent,  all  taxes  due  thereon  shall  be  deter- 
mined and  assessed  by  the  Commissioner  within  one  year  after  written 
request  therefor  by  the  executor,  administrator,  or  other  fiduciary  repre- 
senting the  estate  of  such  decedent:” — Law.  [Note:  This  provision  is 

[See  1(2747  at  (3).]  new  to  the  1921  Act.] 

2 754  Law  1)559.  No  Limitation  on  Assessments  or  Suits  in  the  Case 
(Sec.  250.)  of  False  or  Fraudulent  Returns. — “ Provided  further, 
That  in  the  case  of  a false  or  fraudulent  return  with  intent 
to  evade  tax , or  of  a failure  to  file  a required  return,  the  amount  of  tax  due 
may  be  determined,  assessed,  and  collected , and  a suit  or  proceeding  for  the 
collection  of  such  amount  may  be  begun , at  any  time  after  it  becomes  due-T — 
Law.  [Note:  The  1918  Act  read:  “In  the  case  of  such  false  or 

fraudulent  returns,  the  amount  of  tax 
due  may  be  determined  at  any  time  after 
the  return  is  filed,  and  the  tax  may  be 
collected  at  any  time  after  it  becomes 
due.”] 

2755  Law  1f560.  No  Limitation  on  Assessment  of  Taxes  in  Special 
(Sec.  250.)  Amortization  Cases  and  in  Cases  of  Unsettled  Allow- 
ances for  Losses  and  Other  Deductions. — “ Provided 

further.  That  in  cases  coming  within  the  scope  of  paragraph  (9)  [If  1860] 
of  subdivision  (a)  of  section  214,  or  of  paragraph  (8)  [If  1 86 1 ] of  subdivision 
(a)  of  section  234,  or  in  cases  of  final  settlement  of  losses  and  other  deduc- 
tions tentatively  alloived  by  the  Commissioner  pending  a determination  of 
the  exact  amount  deductible,  the  amount  of  tax  or  deficiency  in  tax  due  may 
be  determined , assessed,  and  collected  at  any  time-,” — Law.  [Note: 

This  provision  is  new  to  the  1921  Act.] 

2756  Collection  of  Tax  by  Suit. — Taxes,  fines,  penalties,  and  forfeitures 
may  be  sued  for  and  recovered  in  the  name  of  the  United  States  in 

the  district  courts  of  the  United  States.  A suit  or  proceeding  for  the  collec- 
tion of  tax  due  under  the  Revenue  Act  of  1921,  or  prior  income,  excess  profits, 
or  war  profits  tax  Acts,  or  under  section  38  of  the  Act  of  August  5,  1909, 
may  be  brought  at  any  time  after  the  tax  becomes  due  if  the  return  filed 
by  the  taxpayer  is  false  or  fraudulent  with  intent  to  evade  tax  or  if  the  tax- 
payer failed  to  file  a required  return;  also  in  cases  of  amortization  coming 
within  the  scope  of  paragraph  (9)  of  subdivision  (a)  of  section  214,  or  of 
paragraph  (8)  of  subdivision  (a)  of  section  234,  of  the  Revenue  Acts  of 
1918  and  1921  and  in  cases  of  final  settlement  of  losses  and  other  deductions 
tentatively  allowed  by  the  Commissioner  pending  a determination  of  the 
exact  amount  deductible,  collection  of  the  amount  of  tax  or  deficiency  in 
tax  due  may  be  collected  at  any  time.  In  other  cases  suits  for  the  collection 
of  taxes  due  under  the  Acts  named  may  be  brought  at  any  time  within  five 
years  after  the  return  was  filed  whether  or  not  the  taxes  have  been  assessed 
or  are  assessable.  Section  3164  of  the  Revised  Statutes,  as  amended  by  the 
Revenue  Act  of  1918,  re-enacted  by  section  1311  of  the  Revenue  Act  of  1921, 
provides  [1f2777].  However,  no  suit  for  the  recovery  of  unpaid  taxes  or  of 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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any  line,  penally,  or  forfeiture  shall  be  commenced  until  the  collector  shall 
have  submitted  to  the  Commissioner  a full  report  of  all  material  facts  and 
circumstances  in  the  case  and  shall  have  received  from  him  express  authority 
to  proceed.  Sec  sections  3212-3216  of  the  Revised  Statutes  and  also  Regu- 
lations No.  2 (revised)  and  Regulations  No.  12  (revised).  (Art.  1008,  Reg. 
62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Statute  of  limitations:  the  5-year  limitation  applies  only  to  taxes  due  under  the  1918 
Act,  does  not  preclude  filing  refund  claims  within  2 years  after  cause  of  action 
arose,  and  does  not  apply  to  claims  in  abatement  (4-19-235:  O.  833).. 1919 
Cum.  Bull.  p.  249. 

Same:  Effect  of  extension  of  time  on  “last  due  date”  in  establishing  beginning  of 
5-year  period  (by  implication)  (13-21-1534:  Sol.  Op.  92).. June  1921  Cum. 
Bull.  p.  325. 

Same:  waivers  or  amended  returns  should  be  secured  as  heretofore,  in  connection 
with  taxes  due  under  Acts  prior  to  that  of  1918  (12-19-409:  O.  D.  234) . .1919 
Cum.  Bull.  p.  252:  see  (13-21-1534:  Sol.  Op.  92).. June  1921  Cum.  Bull, 
p.  325. 

Stockholders  of  liquidated  corporation  ( 1-19-107 : O.  D.  75). . 1919  Cum.  Bull.  p.  251. 

Same:  and  penalties  attach  to  officers  (29-20-1079:  O.  D.  597).  .Dec.  1920  Cum. 
Bull.  p.  300. 

Same:  some  of  the  stockholders  being  without  assets  to  satisfy  their  pro  rata  share 
of  tax  (43-20-1269:  O.  D.  707).  .Dec.  1920  Cum  Bull.  p.  300. 

Same:  assessment  for  additional  tax  being  made  subsequent  to  dissolution  and  dis- 
tribution of  assets  (1-21-1378:  O.  D.  769).  .June  1921  Cum.  Bull.  p.  324. 


2757  Law  ‘[1561.  Thirty-day  Notice  of  Contemplated  Second  or  Ad- 
(Sec.  250.)  ditional  Assessments  With  Opportunity  for  Hearing. — - 

“ but  prior  to  the  assessment  thereof  the  taxpayer  shall  be 
notified  and  given  a period  of  not  less  than  thirty  days  in  which  to  file  an 
appeal  and  be  heard  as  hereinafter  provided  in  this  subdivision.” 

2758  Law  ^[562.  “If  upon  examination  of  a return  made  under  the  Revenue 
(Sec.  250.)  Act  of  1916,  the  Revenue  Act  of  1917,  the  Revenue 

Act  of  1918,  or  this  Act , a tax  or  a deficiency  in  tax  is 
discovered , the  taxpayer  shall  be  notified  thereof  and  given  a period  of  not 
less  than  thirty  days  after  such  notice  is  sent  by  registered  mail  in  which 
to  file  an  appeal  and  show  cause  or  reason  why  the  tax  or  deficiency  should 
not  be  paid.” 

2759  Law  *11563.  “ Opportunity  for  hearing  shall  be  granted  and  a final 

(Sec.  250.)  decision  thereon  shall  be  made  as  quickly  as  practicable.” 

2760  Law  *[564.  “ Any  tax  or  deficiency  in  tax  then  determined  to  be  due 

(Sec.  250.)  shall  be  assessed  and  paid , together  with  the  penalty  and 

interest , if  any , applicable  thereto , within  ten  days  after 
notice  and  demand  by  the  collector  as  hereinafter  provided ,” 

2761  Law  ^[565.  “and  in  such  cases  no  claim  in  abatement  of  the  amount 
(Sec.  250.)  so  assessed  shall  be  entertained :” 

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COLLECTION  AND  PAYMENT  OF  TAX. 

2762  Law  1(566.  “Provided,  That  in  cases  where  the  Commissioner 
(Sec.  250.)  believes  that  the  collection  of  the  amount  due  will  be 

jeopardized  by  such  delay  he  may  make  the  assessment 
without  giving  such  notice  or  awaiting  the  conclusion  of  such  hearing — 
Law.  [Note:  These  provisions,  collectively,  are  new  to  the  192!  Act.] 

2763  Appeals  and  Hearings.— Section  250  (d)  of  the  Revenue  Act  of  1921 
provides  that  if  upon  examination  of  a return  made  under  the  Rev- 
enue Act  of  1916,  1917,  1918,  or  1921,  an  income  or  excess  profits  tax  or  a 
deficiency  therein  (which  deficiency  is  defined  in  section  250  (b)  as  meaning  the 
difference,  to  the  extent  not  covered  by  any  credit  due  to  the  taxpayer  under 
section  252,  between  the  amount  of  the  tax  already  paid  and  that  which 
should  have  been  paid)  is  discovered  the  taxpayer  shall  be  notified  thereof 
and  shall  have  the  right  of  an  appeal  and  a hearing  before  an  assessment 
is  made.  As  soon  as  practicable,  therefore,  after  a return  is  filed,  whether 
by  the  taxpayer  or  as.  provided,  in  section  3176  ffl2612]  Revised  Statutes, 
as  amended,  it  is  examined  and  if  a tax  or  a deficiency  in  tax  is  discovered, 
the  taxpayer  shall  be  notified  thereof  by  letter  in  which  he  shall  be  given  a 
reasonable  time  in  which  to  protest  and  file  exceptions  specifying  the  reasons 
why  the  tax  or  deficiency  should  not  be  assessed. 

2764  (a)  If  the  taxpayer  protests  against  the  proposed  assessment  after 
the.  first  notification  by  mail  as  above  set  forth,  he  will  present  his 

exceptions  in  writing  to  the  income  tax  unit  in  Washington  or  to  the  division 
thereof  where  the  said  proposed  assessment  is  being  considered.  Such 
exceptions  must  state  fully  the  facts  and  grounds  upon  which  the  taxpayer 
relies.  A reasonable  additional  time  in  which  to  file  other  data  in  support 
of  the  taxpayer's  contentions  may  be  allowed  upon  request  showing  cause 
for  such  extension.  A hearing  by  the  income  tax  unit  shall  be  granted  the 
taxpayer  if  requested  by  him;  if  no  hearing  is  requested  a decision  will  be 
made  by  the  income  tax  unit  upon  the  written  data  submitted.  Whether 
a heaiing  is  had  or  not  a decision  shall  be  made  by  the  income  tax  unit  at 
the  earliest  practicable  date  and  the  taxpayer  notified  thereof.  The  noti- 
fication of  the  decision  of  the  income  tax  unit  shall  be  made  by  registered 
mail  and  a period  of  not  less  than  thirty  days  given  the  taxpayer  in  which 
to  file  an  appeal  to  the  Commissioner  and  show  cause  or  reason  why  such 
tax  or  deficiency  should  not  be  paid.  Full  thirty  days  from  the  mailing  (not 
the  receipt)  of  such  notice  to  file  an  appeal  shall  be  given  the  taxpayer.  The 
appeal  must  be  filed  in  the  office  of  the  Commissioner  in  Washington  within 
thirty-one  days  from  the  mailing  of  the  notice,  but  if  it  is  mailed  in  time 
to  be  received  by  the  Commissioner  within  such  period  in  the  ordinary  course 
of  the  mails  it  will  be  considered  as  having  been  filed  within  such  period. 
No  particular  form  of  appeal  is  required,  but  the  appeal  must  set  forth 
specifically  the  exceptions  upon  which  it  is  taken.  The  appeal  shall  be 
under  oath  and  must  contain  a statement  that  it  is  not  taken  for  the  pur- 
pose of  delay.  Opportunity  for  a hearing  shall  be  granted  if  requested  within 
a reasonable  time.  The  taxpayer  in  his  appeal  may  rely  upon  the  data 
previously  submitted,  or  he  may  obtain  a reasonable  extension  of  time  if 
cause  therefor  is  shown  in  which  to  file  additional  data,  evidence  or  argument. 
Such  request  shall  be  under  oath  and  must  state  specifically  the  reasons  for 
additional  time.  When  a decision  has  been  made  by  the  proper  officer, 
employee  or  employees  of  the  bureau  and  approved  by  the  Commissioner, 
an  assessment,  if  any,  shall  be  made  forthwith  in  accordance  with  the  terms 
of  such  decision. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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COLLECTION  AND  PAYMENT  OF  TAX. 

2765  (b)  If  the  taxpayer  does  not  protest  within  the  time  fixed  by  the 
first  notification  by  mail,  then  and  in  that  case  the  proposed  assess- 
ment shall  be  the  decision  of  the  income  tax  unit  and  the  taxpayer  shall  be 
notified  thereof.  This  notification  of  the  decision  of  the  income  tax  unit 
shall  be  made  by  registered  mail  and  a period  of  not  less  than  thirty  days 
given  the  taxpayer  in  which  to  file  an  appeal  to  the  Commissioner  and  to 
show  cause  or  reason  why  such  tax  or  deficiency  should  not  be  paid.  The 
procedure  on  said  appeal  shall  be  the  same  as  in  the  case  of  an  appeal  to 
the  Commissioner  as  provided  in  (a)  above. 

2766  In  the  case  of  a return  which  is  examined  in  the  collector’s  office 
where  a tax  or  deficiency  of  tax  is  discovered  and  notice  of  the  pro- 
posed assessment  is  sent  out  by  the  collector,  the  procedure  shall  be  the 
same  in  said  collector’s  office  as  herein  provided  for  in  the  income  tax  unit. 
The  decision  of  the  collector  may  be  appealed  from,  which  appeal  shall  be 
to  the  Commissioner  at  Washington,  and  shall  follow  the  same  procedure 
as  provided  for  in  (a)  or  (b)  above. 

2767  No  assessment  under  section  250  (d)  shall  be  made  without  notifi- 
cation to  the  taxpayer  of  his  right  to  appeal  and  show  cause,  except 

that  in  any  case  where  the  Commissioner  believes  that  the  collection  of  the 
amount  due  will  be  jeopardized  by  delay,  he  may  make  the  assessment  with- 
out giving  such  notice  or  awaiting  the  conclusion  of  a hearing. 

2768  Where  a taxpayer  has  been  given  an  opportunity  to  appeal  and 
has  not  done  so,  as  above  set  forth,  and  an  assessment  has  been  made, 

or  where  a taxpayer  has  appealed  and  an  assessment  in  accordance  with  the 
final  decision  on  such  appeal  has  been  made,  no  claim  in  abatement  of  the 
assessment  shall  be  entertained. 

2769  Where  an  assessment  has  been  made  without  giving  the  taxpayer 
an  opportunity  to  appeal  or  without  awaiting  a decision  on  an  appeal 

that  has  been  perfected,  a bona  fide  claim  in  abatement  of  the  assessment, 
filed  within  ten  days  after  notice  and  demand  by  the  collector,  may  be 
entertained.  fT.  D.  3269.  Jan.  5,  1922  ] (Art.  1006,  Reg.  62,  1922  Edition.) 

[Read  beginning  at  *i 2924.] 

For  explanation  of  Cumulative  Index  references  see  page  Qi. 

Practicing  before  the  Bureau.  See  “Practicing  before  the  Bureau”  in  cumulative 
index  following  ^2748  on  page  611. 

Probable  running  of  the  statute  of  limitations  against  the  Government  constitutes 
jeopardy  (^[2767  above);  1921  Act  (1-22-320:  I.  T.  1333).  .June  1922  Cum.  Bull, 
p.  305.  ' 


2770  Law  If  1.  “Revenue  Act  of  1921”  Identified. — “That  this 

(Sec.  1.)  Jet  may  be  cited  as  the  ‘ Revenue  Act  of  1921.’ — Law. 

27  71  “Revenue  Act  of  1916”  Identified. — “The  term,  ‘Revenue  Act 
of  1916’  means  the  Act  entitled  ‘An  Act  to  increase  the  revenue, 
and  for  other  purposes,’  approved  September  8,  1916;”  (Title  I,  Revenue 
Act  of  1918,  not  repealed  ) 

2772  “Revenue  Act  of  1917”  Identified. — “The  term  ‘Revenue  Act  of 
1917’  means  the  Act  entitled  ‘An  Act  to  provide  revenue  to  defray 
war  expenses,  and  for  other  purposes,’  approved  October  3,  1917;”  (Title  I, 
Revenue  Act  of  1918,  not  repealed.) 

2 773  “Revenue  Act  of  1918”  Identified. — “Sec.  1405.  That  this  Act 
may  be  cited  as  the  ‘Revenue  Act  of  1918’.”  (Title  XIV,  Revenue 
Act  of  1918,  not  repealed.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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COLLECTION  AND  PAYMENT  OF  TAX. 

2 774  Law  If 698.  Continuing  Effect  of  The  Revenue  Act  of  1918  for 
(Sec.  1400.) '/  the  Assessment  and  Collection  of  Taxes,  and  the 

Imposition  of  Penalties,  that  have  Accrued  There- 
under.— “Sec.  1400.  ( Revenue  Act  of  1921.)  ( a ) That  the  following 
parts  of  the  Revenue  Act  of  1918  are  repealed , to  take  effect  ( except  as 
otherwise  provided  in  this  Act)  on  January  1,  1922,  subject  to  the  limi- 
tations provided  in  subdivision  (b):  Title  II  ( called  “ Income  Tax”) 

as  of  January Jl,  1921;” — Law. 

****** 

2775  Law  11699. '.  “Sections  1314,  1315,  1316,  1317,  1319,  and  1320  of 
(Sec.  1400.)  Title  XIII  ( being  certain  administrative  provisions) 

on  the  passage  of  this  Act.” — Law. 

2776  Law  1f700.  “(b)  The  parts  of  the  Revenue  Act  of  1918  which  are 

(Sec.  1400.)  repealed  by  this  Act  shall  ( unless  otherwise  specifically 

provided  in  this  Act)  remain  in  force  for  the  assessment 
and  collection  of  all  taxes  which  have  accrued  under  the  Revenue  Act  of 
1918  at  the  time  such  parts  cease  to  be  in  effect , and  for  the  imposition 
and  collection  of  all  penalties  or  forfeitures  which  have  accrued  or  may 
accrue  in  relation  to  any  such  taxes.  In  the  case  of  any  tax  imposed  by 
any  part  of  the  Revenue  Act  oj  1918  repealed  by  this  Act , if  there  is  a tax 
imposed  by  this  Act  in  lieu  thereof , the  provision  imposing  such  tax  shall 
remain  in  force  until  the  corresponding  tax  under  this  Act  takes  effect 
under  the  provisions  of  this . Act.  The  unexpended  balance  of  any  appro- 
priation heretofore  made  and  now  available  for  the  administration  of  any 
such  part  of  the  Revenue  Act  of  1918  shall  be  available  for  the  adminis- 
tration of  this  Act  or  the  corresponding  provision  thereof.” — Law. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Statute  of  limitations  on  assessments  under  prior  Acts;  waivers  or  amended  returns 
to  be  secured  (12-19-409:  O.  D.  234) . . 1919  Cum.  Bull.  p.  252 

1% 


27  7 7 Lawj634.  Duty  of  Collector  to  Report  Violations  of  Law.— 
(Sec.  1311.)  [Sec.  1311  of  the  Revenue  Act  of  1921  reenacts 
Sec.  3164,  Revised  Statutes,  without  change,  as 
follows]:  “Sec.  3164.  It  shall  be  the  duty  of  every  collector  of  internal 
revenue  having  knowledge  of  any  willful  violation  of  any  law  of  the  United 
States  relating  to  the  revenue , within  thirty  days  alter  coming  into  possession 
of  such  knowledge , to  file  with  the  district  attorney  of  the  district  in  which 
any  fine,  penalty,  or  forfeiture  may  be  incurred,  a statement  of  all  the  facts 
and  circumstances  of  the  case  within  his  knowledge,  together  with  the  names 
of  the  witnesses,  setting  forth  the  provisions  of  law  believed  to  be  so  violated 
on  which  reliance  may  be  had  for  condemnation  or  conviction.” — Law. 

[Note:  No  change.] 

27  78  Violations>fJLaw  to^Be  Reported  by  Internal  Revenue  Officers  — 
An  internal^ revenue., officer  discovering  in  the  course  of  his  duty 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  4-10-22.  (3)29-13-22.  T 

COLLECTION  AND  PAYMENT  OF  TAX. 

information  leading  him  to  suspect  a possible  violation  of  any  law  with  the 
enforcement  of  which  he  is  not  directly  concerned  should  immediately  report 
the  matter  to  the  Commissioner,  who  is  authorized  to  communicate  with  the 
proper  department  involved.  (Art.  1094,  Reg.  62,  1922  Edition.)  jp^ 

2779  Collection  of  Tax  by  Distraint. — If  any  person  liable  to  pay  any 
taxes  neglects  or  refuses  to  pay  them  within  ten  days  after  notice 
and  demand,  it  shall  be  lawful  for  the  collector  or  his  deputy  to  collect  such 
taxes  with  5 per  cent  additional  and  interest  at  12  per  cent  per  annum  by 
distraint  and  sale  of  the  goods,  chattels  or  effects,  including  stocks,  se- 
curities and  evidences  of  debt,  or  other  property  or  rights  of  property  of  the 
person  delinquent.  When  goods,  chattels,  or  effects  sufficient  to  satisfy  the 
taxes  and  penalties  imposed  upon  any  person  are  not  found  by  the  collector 
or  deputy  collector,  he  is  authorized  to  collect  such  taxes  by  seizure  and  sale 
of  real  estate.  See  further  sections  3186  (as  amended  by  the  Act  of  March 
3,  1913),  3187-3196,  3197  (as  amended  by  the  Act  of  March  1,  1879),  3198- 
3202,  3203  (as  amended  by  the  Act  of  March  1,  1879)  3204-3207,  3208  (as 
amended  by  the  Act  of  March  1,  1879),  and  3209  of  the  Revised  Statutes  and 
Regulations  No.  12  (revised).  Distraint  may  also  be  used  against  a delin- 
quent collector.  See  section  3217  of  the  Revised  Statutes.  (Art.  1009, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  p i. 

Estate  of  deceased  delinquent  (51-21-1986:  0.  D.  1144).  .Dec.  1921  Cum.  Bull.  p.  239. 

One  spouse’s  property  not  liable  generally  to  distraint  on  account  other  spouse’s 
delinquent  tax  (40-21-1856:  O.  D.  1056).  .Dec.  1921  Cum.  Bull.  p.  239. 

Procedure  (29-20-1080:  T.  D.  3042).  .Dec.  1920  Cum.  Bull.  p.  300.  Modified  (7-21- 
1454:  T.  D 3126)  .June  1921  Cum.  Bull.  p.  324. 

¥ Running  of  statute  of  limitations  on  bringing  of  “suit  or  proceedings”  does  not  pre- 
clude distraint,  assessment  having  been  made  within  statutory  period:  1921 
Act  (1-37-504:  I.  T.  1446).  .Bull.  I (’22)-37,  p.  13. 


2780  Collection  by  Distraint,  of  Tax  Assessed  By  Collector  ex  parte 
against  a long  since  dissolved  corporation,  the  business  being  con- 
tinued by  the  former  stockholders  as  a partnership  (Pennsylvania),  and  the 
property  against  which  the  collector  is  proceeding  being  that  of  the  partner- 
ship, may  not  be  enjoined  by  the  members  of  the  partnership,  they  being 
taxable  persons  and  the  property  itself  being  such  as  to  be  liable  to  distraint 
for  any  tax  assessed  against  them.  (Substance  of  decision  of  U.  S.  District 
Court,  M.  D.  Pennsylvania,  September  27,  1920,  in  Markle  et  al.  vs.  Kirken- 
dall,  Collector  (267  Fed.  498).) 

2781  Liens  and  Enforcement  of  Tax  Liens  by  Bill  in  Equity. — In  the 
event  of  nonpayment  of  a tax  and  penalties  after  demand,  the  amount 

becomes  a lien  in  favor  of  the  United  States  from  the  time  when  the  assess- 
ment list  was  received  by  the  collector  upon  all  property  and  rights  to  prop- 
erty belonging  to  the  taxpayer,  except  that  the  lien  is  not  valid  as  against 
any  bona  fide  mortgagee,  purchaser,  or  judgment  creditor  until  notice  thereof 
is  filed  in  the  proper  public  office  or  offices  on  Form  668.  The  collector  may 
file  such  notice  of  lien  upon  making  demand  for  payment  of  the  tax,  unless 
payment  is  made  immediately  upon  demand.  What  is  immediate  payment 
will  depend  upon  the  nature  of  the  demand.  Where  the  collector  contem- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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COLLECTION  AND  PAYMENT  OF  TAX. 

plates  filing  such  notice  of  lien  on  demand,  whenever  practicable,  the  demand 
should  be  made  upon  the  taxpayer  in  person.  In  any  case  where  there  has 
been  refusal  or  neglect  to  pay  the  tax  and  it  has  become  necessary  to  seize 
and  sell  real  estate  to  satisfy  it,  a bill  in  equity  may  be  filed  in  a district 
court  of  the  United  States  to  enforce  the  lien  of  the  United  States  for  tax 
upon  any  real  estate  in  which  the  delinquent  has  any  right,  title,  or  interest 
subject  to  the  lien.  This  remedy  does  not  supersede  distraint  but  is  cumu- 
lative. (Art.  1010,  Reg.  62,  1922?Edition.) 

For  explanation  of  Cumulative  Index  references  see  pctQe  p l . 

Prior  mortgage  lien  paramount  to  government’s  lien  for  taxes  (1-21-1379-  0 D 7701 
..June  1921  Cum.  Bull.  p.  325.  ' * ' 

Insolvency.  Priority  of  U.  S.  claim  for  unpaid  taxes.  (District  Court  Decision  T D 
3298).  .1f3085.  Reproduced  in  full  (1-14-202).  .June  1922  Cum.  Bull.  p.  306. 


2 782  Law  1fS75.  Procedure  When  Commissioner  Finds  That  a Tax- 
(Sec.  250.)  payer  Designs  to  Prejudice  or  to  Render  Wholly 
or  Partly  Ineffectual  Proceedings  to  Collect  the  Tax 
for  the  Preceding  or  Current  Taxable  Year “(g)  If  the  Commissioner 
finds  that  a taxpayer  designs  quickly  to  depart  from  the  United  States  or  to 
remove  his  property  therefrom. , or  to  conceal  himself  or  his  property  therein , 
or  to  do  any  other  act  tending  to  prejudice  or  to  render  wholly  or  partly 
ineffectual  proceedings  to  collect  the  tax  for  the  taxable  year  then  last  past 
or  the  taxable  year  then  current  unless  such  proceedings  be  brought  without 
delay,  the  Commissioner  shall  declare  the  taxable  period  for  such  taxpayer 
immediately  terminated  and  shall  cause  notice  of  such  finding  and  declaration 
to  be  given  the  taxpayer , together  with  a demand  for  immediate  payment  of 
the  tax  for  the  taxable  period  so  declared  terminated  and  of  the  tax  for  the 
preceding  taxable  year  or  so  much  of  said  tax  as  is  unpaid , whether  or  not 
the  time  otherwise  allowed  by  law  for  filing  return  and  paying  the  tax  has 
expired;  and  such  taxes  shall  thereupon  become  immediately  due  and 
payable.  In  any  action  or  suit  brought  to  enforce  payment  of  taxes  made 
due  and  payable^  by  virtue  of  the  provisions  of  this  subdivision  the  finding 
of  the  Commissioner , made  as  herein  provided,  whether  made  after  notice 
to  the  taxpayer  or,  not , shall  be  for  all  purposes  presumptive  evidence  of 
the  taxpayer's  design.  A taxpayer  who  is  not  in  default  in  making  any 
return  or  paying  income , war-profits,  or  excess-profits  tax  under  any  act 
of  Congress  may  furnish  to  the  United  States,  under  regulations  to  be  pre- 
scribed by  the  Commissioner  with  the  approval  of  the  Secretary,  security 
approved  by  the  Commissioner  that  he  will  duly  make  the  return  next  there- 
after required  to  be  filed  and  pay  the  tax  next  thereafter  required  to  be  paid. 
The  Commissioner  may  approve  and  accept  in  like  manner  security  for 
return  and  payment  of  taxes  made  due  and  payable  by  virtue  of  the  pro- 
visions of  this  subdivision,  provided  the  taxpayer  has  paid  in  full  all  other 
income,  war-profits,  or  excess-profits  taxes  due  from  him  under  any  act 
of  Congress.  _ If  security  is  approved  and  accepted  pursuant  to  the  provisions 
of  this  subdivision  and  such  further  or  other  security  with  respect  to  the 
tax  or  taxes  covered  thereby  is  given  as  the  Commissioner  shall  from  time 
to  time  find  necessary  and  require , payment  of  such  taxes  shall  not  be  en- 
forced by  any  proceedings  under  the  provisions  of  this  subdivision  prior 
to  the  expiration  of  the  time  otherwise  allowed  for  paying  such  respective 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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COLLECTION  AND  PAYMENT  OF  TAX. 

taxes.” — Law.  [Note:  The  1918  Act  provided  that  in  such  cases  the 

Commissioner  “shall  declare  the  taxable 
period  of  such  taxpayer  terminated  at 
the  end  of  the  calendar  month  then  last 
past”  instead  of  “immediately.”] 

2783  Law  ^[576.  “In  the  case  of  a citizen  of  the  United  States  about  to 
(Sec.  250.)  depart  from  the  United  Stales  the  Commissioner  may , 

at  his  discretion , waive  any  or  all  of  the  requirements 
placed  on  the  taxpayer  by  this  subdivision.” — Law.  [Note:  This 

provision  is  new  to  the  1921  Act,  in 
terms.  The  discretion  granted  was 
exercised  under  general  authority  under 
the  1918  Act.] 

2784  Law  577.  “No  alien  shall  depart  from  the  United  States  unless 

(Sec.  250.)  he  first  secures  from  the  collector  or  agent  in  charge  a 

certificate  that  he  has  complied  with  all  the  obligations 
imposed  upon  him  by  the  income , war-profits,  and  excess-profits  lax  laws.” 

— Law.  [Note:  This  provision  is  new  to  the  1921  Act,  in  terms. 

The  rule  prescribed  is  in  accord  with  the 
regulations  under  the  1918  Act.] 

2785  Law  ^[578.  “If  a taxpayer  violates  or  attempts  to  violate  this  sub- 

(Sec.  250.)  division  there  shall,  in  addition  to  all  other  penalties, 

be  added  as  part  of  the  tax  25  per  centum  of  the  total 
amount  of  the  tax  or  deficiency  in  the  tax,  together  with  interest  at  the  rate 
of  1 per  centum  per  month  from  the  time  the  tax  became  due.” — Law. 

[Note:  This  provision  is  new  to  the  1921 

Act.] 

2786  Declaration  of  Termination  of  Taxable  Period. — Section  250  (g) 
provides  that  in  the  case  of  a taxpayer  who  designs  by  immediate 

departure  from  the  country  or  otherwise  to  avoid  payment  of  the  tax  for  the 
preceding  or  current  taxable  year,  the  Commissioner  may  uppn  evidence 
satisfactory  to  him  declare  the  taxable  period  for  such  taxpayer  immediately 
terminated  and  cause  the  service  upon  him  of  a notice  and  demand  for 
immediate  payment  of  the  tax  declared  due  and  any  other  tax  unpaid.  In 
such  a case  the  taxpayer  is  entitled  to  a full  personal  exemption  and  credit 
for  dependents,  if  otherwise  allowable.  See  Section  216  of  the  statute  and 
Articles  301-6  [for  credits  allowed,  beginning  at  ^[2038].  Aliens  departing 
from  the  United  States  will  be  required  to  obtain  certificates  of  compliance 
with  income  tax  obligations  from  the  collector  or  revenue  agent  in  charge. 
Aliens,  whether  resident  or  non-resident,  who  intend  to  depart  from  this 
country,  should  appear  before  the  collector  or  revenue  agent  in  charge  for 
the  district  in  which  they  reside  and  satisfy  all  income  tax  obligations  with 
respect  to  income  received  up  to  and  including  the  calendar  month  next 
preceding  that  of  their  intended  departure.  Upon  payment  of  such  obliga- 
tions or  upon  satisfactory  evidence  that  no  tax  is  due  and  payable  the  col- 
lector or  revenue  agent  in  charge  will  issue  a certificate  of  compliance  to  the 
applicant.  A certificate  of  compliance  issued  by  a collector  or  revenue  agent 
in  charge  must  be  presented  at  the  office  of  the  revenue  agent  at  the  point 

Copyright  1922,  by  Tht  Corporation  Trust  Company. 

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COLLECTION  AND  PAYMENT  OF  TAX. 

of  departure,  who  will  issue  an  income  tax  clearance  which  will  be  taken 
up  at  the  pier.  Aliens  presenting  themselves  at  the  point  of  departure 
without  such  certificates  of  compliance  will  be  examined  by  internal  revenue 
officers  at  that  point  and  such  taxes  as  appear  to  be  due  and  owing  will  be 
collected.  American  citizens  departing  from  the  United  States  will  not  be 
required  to  procure  certificates  of  compliance  or  to  present  any  other  evi- 
dence of  compliance  with  income  tax  obligations.  If  suit  is  necessary  to 
collect  the  tax  made  due  and  payable  by  the  provisions  of  Section  250  (g) 
of  the  statute,  the  Commissioner’s  finding  is  presumpti ve  evidence  of  the 
taxpayer’s  design.  A taxpayer  who  is  not  in  default  in  making  returns  or 
in  paying  other  taxes  may  procure  the  postponement  until  the  usual  time 
of  the  payment  of  taxes  which  are  or  may  be  due  pursuant  to  this  article 
by  depositing  with  the  Commissioner  United  States  bonds  of  a principal 
amount  double  the  estimated  amount  of  taxes  due  for  the  taxable  year  or 
by  furnishing  such  other  security  as  may  be  approved  by  the  Commissioner. 
See  Section  1329  [for  U.  S.  bonds  in  lieu  of  sureties,  1)1770],  If  a taxpayer 
violates  or  attempts  to  violate  this  subdivision  of  section  250,  there  shall, 
in  addition  to  all  other  penalties,  be  added  as  part  of  the  tax,  25  per  cent 
of  the  amount  of  the  tax,  or  deficiency  therein,  together  with  interest  at 
the  rate  of  1 per  cent  per  month  from  the  time  the  tax  became  due.  (Art, 
1013,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Aliens  having  status  as  resident  (28-19-617:  O.  D.  331). . 1919  Cum  Bull.  p.  252. 
Same,  but  more  specific  ( 1 0-2 1-1501:  O.  D.  840) . June  1921  Cum.  Rutl.  p.  329. 

Certificate  of  collector  for  district  of  residence  or  for  district  of  port  of  departure 
(3-19-205:  O.  D.  131).  . 1919  Cum.  Bull.  p.  252. 

Same:  branch  office  (27-19-606:  O.  D.  324) . . 1919  Cum.  Bull.  p.  252. 

Citizens  (38-20-1207:  O.  D.  666) ..  Dec.  1920  Cum.  Bull.  p.  301.  (See  “Consular 
receipt'”  below.) 

Citizens  residing  abroad,  temporarily  in  this  country,  tax  being  paid  in  installment* 
(51-20-1357:  M.  2643) . Dec.  1920  Cum  Bull.  p.  301. 

Consular  receipts:  U.  S.  citizens  residing  abroad  temporarily  in  this  country  (19- 
20-923:  O 1).  500).  June  1920  Cum.  Bull  p 224. 

Corporat.on  contemp  at.ng  d.sso  ut:on,  to  evade  or  defeat  collection  of  tax  (42- 
20-1253-  O.  D.  692)  Dec.  1920  Cum.  Bull.  p.  286. 

Diplomats  (18-19-487:  O.  D.  271).  , 1919  Cum.  Bull  p.  252. 

Servants  of  (7-21-1455:  O.  D.  812)  June  1921  Cum.  Bull.  p.  329. 

Employer’s  possible  liability  (4-20-709-  O.  D.  385)  fune  1920  Cum.  Bull.  p.  243. 

Income  to  be  placed  on  annual  basis:  1921  Act  (1-14-199:  Mim.  2934).  June  1922 
Cum.  Bull.  p.  244. 

Procedure  outlined  in  full  (13-19-429:  M.2195) . . 1919  Cum.  Bull.  p.  253. 

Sailors  on  U.  S.  vessels  (27-20-1035  O.  D.  566)  Dec.  1920  Cum.  Bull.  p.  73. 

Status  of  alien  determined  on  last  day  of  his  taxable  period:  what  is  taxable  period; 
when  alien  formed  intention  to  depart-  temporary  absence  does  not  cause  los* 
of  status  as  resident  (16-20-867:  O.  D.  468)  . June  1920  Cum.  Bull  p 243 

Virgin  Islands  (28-19-618:  O.  D.  332)..  1919  Cum.  Bull.  p.  253. 


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THE  FEDERAL  INCOME  TAX  SERVICE 
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COLLECTION  AND  PAYMENT  OF  TAX. 


2787  Law  1579.  Application  of  Certain  Relief  Provisions  Extended  to 

(Sec.  250.)  1917  and  1918  Acts. — “(h)  The  provisions  of  sub- 

divisions (e)  112725  to  12730],  (/)  (12604]  and  (g) 

[12782]  of  this  section  shall  apply  to  the  assessment  and  collection  of  taxes 
which  have  accrued  or  may  accrue  under  the  Revenue  Act  of  1917,  the 
Revenue  Act  of  1918  or  this  Act  .” — Law.  [Note:  This  provision  is 

new  to  the  1921  Act.] 

2788  Law  1626.  Fractional  Part  of  Cent  to  Be  Disregarded  in  Payment 

(Sec.  1306.)  of  Tax. — “That  in  the  payment  of  any  tax  under  this 
Act  not  payable  by  stamp  a fractional  part  of  a cent 
shall  be  disregarded  unless  it  amounts  to  one-half  cent  or  more,  in  which 
case  it  shall  be  increased  to  1 cent.” — Law.  [Note:  The  1918  Act  so 

provided.] 

2788a  In  the  payment  of  taxes  a fractional  part  of  a cent  shall  be  disregarded 
unless  it  amounts  to  one-half  cent  or  more,  in  which  case  it  shall  be 
increased  to  one  cent.  Fractional  parts  of  a cent  should  not  be  disregarded 
in  the  computation  of  taxes.  (Art.  1721,  Reg.  62,  1922  Edition.) 

2789  Law  11673.  Payment  of  the  Tax  by  Means  of  United  States  Notes 
(Sec.  1325.)  or  Treasury  Certificates  of  Indebtedness  and  Un- 
certified Checks. — “Sec.  1325.  That  collectors  may 

receive , at  par  with  an  adjustment  for  accrued  interest , notes  or  certificates 
of  indebtedness  issued  by  the  United  States  and  uncertified  checks  in  pavment 
of  income,  war-profits  and  excess-profits  taxes  and  any  other  taxes  payable 
other  than  by  stamp,  during  such  time  and  under  such  regulations  as  the 
Commissioner,  with  the  approval  of  the  Secretary,  shall  prescribe;  but  if 
a check  so  received  is  not  paid  by  the  bank  on  which  it  is  drawn  the  person 
by  whom  such  check  has  been  tendered  shall  remain  liable  for  the  payment 
of  the  tax  and  for  all  legal  penalties  and  additions  the  same  as  if  such  check 
had  not  been  tendered.” — Law.  [Note:  The  1918  Act  omitted 

“notes.”] 


2790  Acceptance  of  Certificates  of  Indebtedness  in  payment  of  taxes. 

— Collectors  of  internal  revenue  are  authorized  and  directed  to 
receive  at  par  United  States  Treasury  certificates  of  indebtedness  of  series 
TM-1922  dated  March  15,  1921,  series  TM2,  1922,  dated  August  1,  1921, 
and  series  TM3,  1922,  dated  September  15,  1921,  all  maturing  March  15, 
1922,  in  payment  of  income  and  profits  taxes  payable  on  March  15,  1922; 
Treasury  certificates  of  indebtedness  of  series  TJ-1922,  dated  June  15,  1921, 
and  series  TJ2,  1922,  dated  December  15,  1921,  both  maturing  June  15, 
1922,  in  payment  of  income  and  profits  taxf'S  due  on  June  15,  1922;  series 
TS-1922,  dated  September  15,  1921,  TS2,  1922,  dated  November  1,  1921, 
both  maturing  on  September  15,  1922,  in  payment  of  income  and  profits 
taxes  payable  on  September  15,  1922;  and  TD-1922,  dated  December  15, 
1921,  maturing  on  December  15,  1922,  in  payment  of  income  and  profits 
taxes  payable  on  December  15,  1922.  Collectors  are  further  authorized  and 
directed  to  receive  at  par,  in  payment  of  income  and  profits  taxes  payable 
at  the  maturity  of  the  certificates,  respectively,  Treasury  certificates  of  in- 
debtedness of  any  other  series  which  may  be  issued  maturing  on  March 
15,  June  15,  September  15,  or  December  15,  1922.  Collectors  are  not  author- 

Copynght  1922.  hy  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
62  2 


M7-*.  («)  4-912?.  (8)  6-18-08.  (4)  6-60-80. 

COLLECTION  AND  PAYMENT  OF  TAX 


ized  hereunder  to  receive  in  payment  of  income  or  profits  taxes  any  Treas- 
ury certificates  of  indebtedness  not  expressed  to  be  acceptable  in  payment  of 
income  and  profits  taxes,  nor  any  Treasury  certificates  maturing  on  a date 
other  than  the  date  on  which  the  taxes  are  payable.  Collectors  are  author- 
ized to  receive  Treasury  certificates  of  indebtedness  which  are  acceptable 
as  herein  provided  in  payment  of  income  and  profits  taxes  in  advance  of 
the  respective  dates  on  which  the  certificates  mature.  Treasury  certificates 
acceptable  in  payment  of  income  and  profits  taxes  have  one  or  more  interest 
coupons  attached,  including  as  to  each  series  a coupon  payable  at  the  ma- 
turity of  the  certificates,  but  all  interest  coupons  must  in  each  case  be  de- 
tached by  the  taxpayer  before  presentation  to  the  collector,  and  collected 
in  ordinary  course  when  due.  The  amount,  at  par,  of  the  Treasury  certi- 
ficates of  indebtedness  presented  by  any  taxpayer  in  payment  of  income  and 
profits  taxes  must  not  exceed  the  amount  of  the  taxes  to  be  paid  by  him, 
and  collectors  shall  in  no  case  pay  interest  on  the  certificates  or  accept  them 
for  an  amount  other  or  greater  than  their  face  value.  [T.  D.  3280,  February 
7,  1922.]  (Art.  1731,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Series  TD2-1922  (6-1-22,  maturing  12-15-22)  acceptable  for  taxes  payable  Dec.  15, 
1922.  . 1f3238. 

2790a  Acceptance  of  Victory  Notes  in  coupon  form  in  payment  of  taxes. — 

Read  at  ^[3015  and  at  ^[3151.  * See  note  following  1(3157. 

2791  Procedure  with  Respect  to  Certificates  of  Indebtedness. — Deposits 
of  Treasury  certificates  of  indebtedness  received  in  payment  of  income 

and  profits  taxes  must  be  made  by  collectors,  unless  otherwise  specifically 
instructed  by  the  Secretary  of  the  Treasury,  with  the  Federal  reserve  bank 
of  the  district  in  which  the  collector’s  head  office  is  located,  or  in  case  such 
head  office  is  located  in  the  same  city  with  a branch  Federal  reserve  bank, 
with  such  branch  Federal  reserve  bank.  Specific  instructions  may  be  given 
to  collectors  by  the  Secretary  of  the  Treasury  in  certain  instances  for  the 
deposit  of  the  certificates  with  Federal  reserve  banks  of  other  districts  and 
branch  Federal  reserve  banks.  The  term  “Federal  reserve  bank,”  where  it 
appears  herein,  unless  otherwise  indicated  by  the  context,  includes  branch 
Federal  reserve  banks.  Treasury  certificates  accepted  by  the  collector  prior 
to  the  dates  when  the  certificates  respectively  mature,  should  be  forwarded 
by  the  collector  to  the  Federal  reserve  bank  to  be  held  for  account  of  the 
collector  until  the  date  of  maturity,  and  for  deposit  on  such  date. 

2792  Collectors  of  internal  revenue  are  not  authorized,  unless  express 
instructions  otherwise  are  given  by  the  Secretary  of  the  Treasury,  to 

receive  in  payment  of  income  or  profits  taxes  interim  receipts  issued  by 
Federal  reserve  banks  in  lieu  of  definitive  certificates  of  the  series  herein 
described. 

2793  Certificates  of  indebtedness  should  in  all  cases  be  indelibly  stamped 
on  the  face  thereof  as  follows  by  the  collectors,  and  when  so  stamped 

should  be  delivered  to  the  Federal  reserve  bank  in  person  if  the  collector  is 
located  in  the  same  city,  and  in  all  pother  cases  forwarded^by  registered  mail 
uninsured: 


This  certificate  has  been  accepted  in  payment  of  income  and  profits 
taxes  and  will  not  be  redeemed  by  the  United  States  except  for  credit  of 

the  undersigned.  

Collector  of  Internal  Revenue  for  the district  of . 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


623 


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COLLECTION  AND  PAYMENT  OF  TAX. 

2794  Collectors  should  make  in  tabular  form  a schedule  in  duplicate  of 
the  certificates  of  indebtedness  to  be  forwarded  to  the  Federal 

reserve  bank,  showing  the  serial  number  of  each  certificate,  the  date  of  issue 
and  maturity,  with  serial  designation,  and  face  value.  Certificates  of  in- 
debtedness accepted  prior  to  the  date  of  maturity  must  be  scheduled  sepa- 
rately. At  the  bottom  of  each  schedule  there  should  be  written  or  stamped 

“Income  and  profits  taxes,  $ ,”  which  amount  must  agree  with  the 

total  shown  on  the  schedule.  One  copy  of  this  schedule  must  accompany 
certificates  sent  to  the  Federal  reserve  bank,  and  the  other  be  retained  by 
the  collector.  The  income  and  profits  tax  deposits  resulting  from  the  de- 
posits of  such  certificates  must  in  all  cases  be  shown  on  the  face  of  the  cer- 
tificate of  deposit  (national  bank  Form  15)  separate  and  distinct  from  the 
item  of  miscellaneous  internal  revenue  collections  (formerly  called  ordinary). 
Until  certificates  of  deposit  are  received  from  the  Federal  reserve  bank, 
the  amounts  represented  by  the  certificates  of  indebtedness  forwarded  for 
deposit  must  be  carried  by  collectors  as  cash  on  hand,  and  not  credited  as  col- 
lections, as  the  dates  of  certificates  of  deposit  determine  the  dates  of  col- 
lections. 

2795  For  the  purpose  of  saving  taxpayers  the  expense  of  transmitting 
such  certificates  as  are  held  in  Federal  reserve  cities  or  Federal 

reserve  branch-bank  cities  to  the  office  of  the  collector  in  whose  district 
the  taxes  are  payable,  taxpayers  desiring  to  pay  income  and  profits  taxes 
by  such  Treasury  certificates  of  indebtedness  acceptable  in  payment  of  taxes, 
should  communicate  with  the  collector  of  the  district  in  which  the  taxes  are 
payable  and  request  from  him  authority  to  deposit  such  certificates  with 
the  Federal  reserve  bank  in  the  city  in  which  the  certificates  are  held.  Col- 
lectors are  authorized  to  permit  deposits  of  Treasury  certificates  of  indebted- 
ness in  any  Federal  reserve  bank  with  the  distinct  understanding  that  the 
Federal  reserve  bank  is  to  issue  a certificate  of  deposit  in  the  collector’s 
name  covering  the  amount  of  the  certificates  of  indebtedness  at  par  and  to 
state  on  the  face  of  the  certificate  of  deposit  that  the  amount  represented 
thereby  is  in  payment  of  income  and  profits  taxes.  The  Federal  reserve 
bank  should  forward  the  original  certificate  of  deposit  to  the  Treasurer  of 
the  United  States,  with  its  daily  transcript,  and  transmit  to  the  collector 
the  duplicate  and  triplicate,  accompanied  by  a statement  giving  the  name 
of  the  taxpayer  for  whom  the  payment  is  made  in  order  that  the  collector 
may  make  the  necessary  record  and  forward  the  duplicate  to  the  office  of 
the  Commissioner  of  Internal  Revenue.  [T.  D.  3280,  February  7,  1922.] 
(Art.  1732,  Reg.  62,  1922  Edition.) 


2796  Payment  of  Tax  by  Uncertified  Checks. — Collectors  may  accept 
uncertified  checks  in  payment  of  income  and  war-profits  and  excess- 
profits  taxes,  provided  such  checks  are  collectible  at  par,  that  is,  for  their 
full  amount,  without  any  deduction  for  exchange  or  other  charges.  The 
collector  will  stamp  on  the  face  of  each  check  before  deposit  the  words. 
“This  check  is  in  payment  of  an  obligation  to  the  United  States  and  must 
be  paid  at  par.  No  Protest,”  with  his  name  and  title.  The  day  on  which 
the  collector  receives  the  check  will  be  considered  the  date  of  payment  so 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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COLLECTION  AND  PAYMENT  OF  TAX. 


far  as  the  taxpayer  is  concerned,  unless  the  check  is  returned  dishonored. 
If  one  check  is  remitted  to  cover  two  or  more  persons'  taxes,  the  remittance 
must  be  accompanied  by  a letter  of  transmittal  stating  (a)  the  name  of  the 
drawer  of  the  check;  (b)  the  amount  of  the  check;  (c)  the  amount  of  any 
cash,  money  order  or  other  instrument  included  in  the  same  remittance; 

(d)  the  name  of  each  person  whose  tax  is  to  be  paid  by  the  remittance 

(e)  the  amount  of  the  payment  on  account  of  each  person;  and  (f)  the  kind 
of  tax  paid.  (Art.  1733,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Canadian  money  orders  at  par  (42-21-1870:  O.  D.  1066).  .Dec.  1921  Cum.  Bull.  p.  314. 
Lost  checks;  collector  not  required  to  furnish  bond  of  indemnity  prior  to  issuance  of 
duplicate  (32-20-1125:  0.  D.  626) ..  Dec.  1920  Cum.  Bull.  p.  371. 

No  release  from  obligation  in  any  event  (32-20-1125:  O.  D.  626).. Dec.  1920  Cum 
Bull.  p.  371. 


2797  Procedure  with  Respect  to  Dishonored  Checks.-— If  the  bank'on 
which  any  such  check  is  drawn  should  refuse  to  pay  it  at  par,  the 
check  should  be  returned  through  the  depositary  bank  and  be  treated  in  the 
same  manner  as  a bad  check.  All  expenses  incident  to  the  attempt  to  col- 
lect such  a check  and  the  return  of  it  through  the  depositary  bank  must 
be  paid  by  the  drawer  of  the  check  to  the  bank  on  which  it  is  drawn,  since 
no  deduction  can  be  made  from  amounts  received  in  payment  of  taxes.  See 
section  3210  of  the  Revised  Statutes.  If  any  taxpayer  whose  check  has  been 
returned  uncollected  by  the  depositary  bank  should  fail  at  once  to  make 
the  check  good,  the  collector  should  proceed  to  collect  the  tax  as  though  no 
check  had  been  given.  A taxpayer  who  tenders  a certified  check  in  pay- 
ment for  taxes  is  also  not  released  from  his  obligation  until  the  check  has 
been  paid.  See  chapter  191  of  the  Act  of  March  2,  1911.  (Art.  1734,  Reg. 
62,  1922  Edition.) 

2 798  Law  11580.  Receipts  for  Taxes.—1 “Sec.  251.  That  every  collector 
(Sec.  251.)  to  whom  any  payment  of  any  tax  is  made  under  the 
provisions  of  this  title  shall  upon  request  give  to  the 
person  making  such  payment  a full  Written  or  printed  receipt,  stating 
the  amount  paid  and  the  particular  account  for  which  such  payment  was 
made — Law.  [Note:  The  1918  Act  so  provided.] 

2799  Receipts  for  Tax  Payments. — Upon  request  a collector  will  give  a 
receipt  for  each  tax  payment.  In  the  case  of  payments  made  by 

check  or  money  order  the  cancelled  check  or  the  money  order  receipt  is  usually 
a sufficient  receipt.  In  the  case  of  payments  in  cash,  however,  the  tax- 
payer should  in  every  instance  require  and  the  collector  should  furnish  a 
receipt.  (Art.  1021,  Reg.  62,  1922  Edition.) 

2800  Simuktionfof  .[Income  Tax  Receipts — Decision  of  Court. — The  "ap- 
pended opinion  and  charge  of  Judge  Westenhaver  in  the  District 

Court  of  the  United  States,  for  the  Northern  District  of  Ohio,  Eastern 
Division,  in  the  case  of  United  States  v.  Pittaro,  is  published  for  the  infor- 
mation of  internal  revenue  officers  and  others  concerned.  [Captions  only.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

_ __  . TH*  IXDXXAL  INCOME  TAX  SUTICS 

$2  S 


2-27-22.  (2)  4-10-22. 


COLLECTION  AND  PAYMENT  OF  TAX. 


2801  1.  Receipts  to  taxpayers — Duty  to  issue. 

The  fact  that  Section  251  of  the  act  of  February  24,  1919,  requires 
that  full  written  or  printed  receipts  be  issued  to  taxpayers  only  on  request 
therefor  does  not  limit  the  collector’s  mandatory  duty  to  issue  them  when 
requested  and  does  not  fail  to  make  them  documents  required  to  be  issued 
whenever  requested,  and  the  receipts  are  plainly  documents  required  to  be 
issued  by  such  section. 

2802  2.  Same — Simulation  or  fraudulent  execution. 

Such  receipts  are  documents  required  by  provisions  of  the  internal 
revenue  laws  and  by  regulations  made  in  pursuance  thereof  within  the  mean- 
ing of  Section  3451,  R.  S.,  making  it  an  offense  to  simulate  or  falsely  or 
fraudulently  execute  or  sign  any  document  required  by  the  internal  revenue 
laws,  or  any  regulation  made  in  pursuance  thereof,  or  to  procure  the  same  to 
be  falsely  or  fraudulently  executed,  or  to  advise,  aid  in,  or  connive  at  such 
execution  thereof. 

2803  3.  Same — Blanks. 

The  offense  may  be  committed  either  where  thef receipt  itself  is  a 
genuine  receipt  of  the  kind  kept  for  that  purpose  in  the  office  of  the  internal 
revenue  collector  but  signed  by  the  defendant  without  authority,  or  where, 
even  if  not  a blank  of  the  kind  required  to  be  kept,  the  blank  itself  is  simu- 
lated or  falsely  or  fraudulently  executed  and  issued  by  a person  who  has  no 
power  or  authority  to  do  so. 

2804  4.  Same — Income  tax  receipts. 

Where  defendant  was  charged  with  violating  Section  3451,  R.  S., 
in  that  he  falsely,  fraudulently,  etc.,  simulated  and  executed  and  advised, 
aided  in,  and  connived  at  the  execution  »f  certain  income  tax  receipts  re- 
quired by  Section  251  of  the  act  of  February  24,  1919,  to  be  given  when 
requested,  what  defendant  told  the  persons  who  paid  the  money  is  not 
material,  nor  is  the  question  whether  or  not  such  persons  were  subject  to  the 
payment  of  an  income  tax,  or  to  assessment  and  levy  of  such  tax.  (T.  D. 
2874,  June  23,  1919.) 

2805  Unofficial  Receipts. — The  department  has  received  from  time  to 
time  complaints  from  taxpayers,  especially  those  paying  corporation 

income  tax,  that  collectors  refuse  to  sign  what  is  known  as  commercial  re- 
ceipts, or  refuse  to  indorse  what  is  generally  known  as  voucher  checks,  many 
of  such  receipts  and  checks  stating  on  the  face  that  by  indorsement  the 
voucher  check  or  receipt  becomes  a receipt  in  full  for  amount  and  purpose 
drawn. 

2806  The  only  official  receipt  for  taxes  that  collectors  may  sign  under  the 
law  are  stamps,  where  stamps  are  issued,  or  Form  1,  when  the  tax 

is  not  payable  by  stamp,  which  receipts  are  to  be  issued  to  every  taxpayer  for 
taxes  paid.  However,  the  department  has  no  objection  to  collectors  signing 
commercial  receipts  or  voucher  checks  (subj’ect  in  the  latter  case  to  the  rules 
of  the  depositary),  but  they  should,  in  signing  such  receipts  or  vouchers, 
write  or  stamp  across  the  face  thereof  the  words  “Not  an  official  receipt.” 
The  official  receipt  on  Form  1,  must,  however,  be  furnished;  and  it  is  to  be 
distinctly  understood  that  an  unofficial  receipt  is  not  in  any  manner  binding 
on  the  department,  and  will  not  be  received  by  it  as  evidence  of  payment  of 
the  tax.  (T.  D.  2226,  July  14,  1915.) 

2807  Deputy  Collectors  to  Give  Personal  Receipts  for  Collections  Made 
by  Them. — After  careful  consideration,  this  office  has  reached  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

626 


* 

m 


2-27-22.  (2)  6-16-22.  (3)  10-11-22. 

COLLECTION  AND  PAYMENT  OF  TAX. 

conclusion  that,  in  order  thoroughly  to  protect  the  interests  of  both  the 
taxpayers  and  the  Government,  some  evidence  of  payment  should  be  given  at 
the  time  to  taxpayers  who  pay  taxes  directly  to  deputy  collectors,  and  that 
such  a receipt  as  herein  described  is  not  in  violation  of  Section  3188,  which 
prohibits  the  issuance  of  a receipt  in  lieu  of  a stamp. 

2808  You  are  therefore  instructed  to  direct  vour  deputies  hereafter  to  give 
to  special  and  other  taxpayers,  at  the  time  of  payment,  a personal 

receipt  for  moneys  collected,  substantially  in  the  following  form: 

“Received  of  JOHN  DOE  $ , to  beforwarded  to  the  Collector. 

to  cover  special  tax  due  as ” 

2809  In  case  the  payment  is  for  stamp  tax  or  for  amounts  other  than 
special  tax,  the  form  of  receipt  may  be  modified  accordingly.  (T. 

D.  2341,  June  19,  1916.) 

2810  Law  1f581.  Receipts  to  Be  Given  for  Payments  Made  by  W?th* 
(Sec.  251.)  holding  Agents  on  Account  of  Amounts  Deducted 

at  the  Source. — “ whenever  any  debtor  pays  taxes 
on  account  of  payments  made  or  to  be  made  by  him  to  separate  creditors  the 
collector  shall , il  requested  by  such  debtor , give  a separate  receipt  for  the 
tax  paid  on  account  of  each  creditor  in  such  form  that  the  debtor  can  con- 
veniently produce  such  receipts  separately  to  his  several  creditors  in  satis- 
faction of  their  respective  demands  up  to  the  amounts  staled  in  the  receipts; 
and  such  receipt  shall  be  sufficient  evidence  in  favor  of  such  debtor  to  justify 
him  in  withholding  from  his  next  payment  to  his  creditor  the  amount  therein 
stated ; but  the  creditor  may , upon  giving  to  his  debtor  a full  written  receipt 
acknowledging  the  payment  to  him  of  any  sum  actually  paid  and  accepting 
the  amount  of  tax  paid  as  aforesaid  ( specifying  the  same)  as  a further  satis- 
faction of  the  debt  to  that  amount , require  the  surrender  to  him  of  such 
collector's  receipt.”— Law.  [Note:  The  1918  Act  so  provided.] 


Copyright  1022.  hy  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
627 


2-27-22.  (2)  6-16-22.  (3)  10-11-22. 

ABATEMENT,  CREDIT,  ANDjfREFUND  OF  TAXES. 

2811  Law  11655.  Taxes  Erroneously  Assessed  or  Collected,  Penalties 
(Sec.  1315.)  Collected  Without  Authority,  and  Excessive  Taxes 

May  be  Remitted  or  Refunded  by  the  Commissioner. 

— “Sec.  131.5.  Thai  section  3220  of  the  Revised  Statutes , as  amended , is 
reenacted  without  change , as  follows: 

‘Sec.  3220.  The  Commissioner  of  Internal  Revenue , subject  to  regula- 
tions prescribed  by  the  Secretary  of  the  Treasury , is  authorized  to  remit , 
refund , and  pay  back  all  taxes  erroneously  or  illegally  assessed  or  collected , 
all  penalties  collected  without  authority , and  all  taxes  that  appear  to  be 
unjustly  assessed  or  excessive  in  amount , or  in  any  manner  wrongfully 
collected ; also  to  repay  to  any  collector  or  deputy  collector  the  full  amount 
of  such  sums  of  money  as  may  be  recovered  against  him  in  any  court , for 
any  internal  revenue  taxes  collected  by  him , with  the  cost  and  expenses  of 
suit  [112920);  also  all  damages  and  costs  recovered  against  any  assessor , 
assistant  assessor , collector , deputy  collector , agent , or  inspector , in  any 
suit  brought  against  him  by  reason  of  anything  done  in  the  due  performance 
of  his  official  duty , and  shall  make  report  to  Congress  at  the  beginning  of 
each  regular  session  oj  Congress  of  all  transactions  under  this  section .’  ” — 
Law.  [Note:  No  change.) 

2812  On  the  Recognition  of  Attorneys  and  Agents  and  Other  Persons 
Representing  Claimants  Before  the  Bureau  of  Internal  Revenue. — 

Read  at  112932. 

2813  Authority  for  Abatement,  Credit,  and  Refund  of  Taxes. — Author- 
ity for  the  credit,  refund  and  abatement  of  taxes  erroneously  collected 

or  assessed  is  contained  in  section  252  of  the  statute  [H2825]  and  in  section 
3220  of  the  Revised  Statutes,  as  amended  by  the  Revenue  Act  of  1918,  and 
reenacted  by  section  1315  of  this  Act  which  provides  [1)28 1 1 above.) 

2814  Section  3225  of  the  Revised  Statutes,  which  was  amended  by  the 
Revenue  Act  of  1918  and  reenacted  without  change  by  section  1323 

of  Revenue  Act  of  1921,  provides  [1)2881]. 

2815  Section  3228  of  the  Revised  Statutes,  as  amended  by  section  1316 
of  the  Revenue  Act  of  1921,  reads  as  follows  [1)2827]. 

2816  Claims  in  abatement  of  income  and  excess  profits  taxes  will  not 
be  entertained  where  the  taxpayer  has  had  the  benefits  of  section 

250  (d).  See  article  1006  [1)2763],  Authority  for  the  abatement  of  uncol- 
lectible taxes  due  from  persons  absconded  or  insolvent  is  contained  in  sec- 
tion 3218  of  the  Revised  Statutes.  The  provisions  of  section  252  apply  to 
the  income  and  war  profits  and  excess  profits  taxes  imposed  by  the  present 
statute  and  also  to  the  excise  taxes  under  the  Act  of  1909,  the  income  tax 
under  the  Aits  of  1913  and  1916  and  the  income  and  excess  profits  taxes 
under  the  Acts  of  1917  and  1918.  (Art.  1031,  Reg.  32,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Amount  refundable  not  to  be  applied  against  a tax  noncollectible  due  to  running  of 
statute  of  limitations;  1921  Act  (1-24-350:  L.  O.  1095).  .June  1922  Cum.  Bull, 
p.  313. 

Arbitrary  second  assessment  may  be  abated  in  part  or  in  whole  though  statutory 
assessment  period  lias  expiied  (13-21  1534:  Sol.  Op.  92).. June  1921  Cum.  Bull, 
p 125. 

Commissioner’s  authority  under  all  recent  Acts  fully  discussed  (49-20-1337:  Sol. 
Op  79).  Lee.  1920  Cum.  Bull.  p.  302:  Interpreting  the  foregoing  (20-21-1642: 
M 2704)  June  1921  Cum.  Bull,  p 332. 

Dissolved  partnership;  tax  assessed  against  firm  (6-21-1438:  O.  D.  799).  . June  1921 
Cum.  Bull,  p 325. 

Copyright  1922,  by  Tlic  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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2 t7-8t.  (21  S-80-22.  (2)  4*14-22.  «!  6-3-22.  (6)  6-9-22.  (6)  7-20-22.  (7)  8-24-22.  (8)  10-11-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXtb 

Expediting  claims  before  the  Department  (52-21-1994:  T.  D.  3260).. Dec.  1921  Cura 
Bull.  p.  243.  See  ^[2817  below. 

General  discussion  on  the  running  of  the  nature  of  limitations  considering  recent 
amendments;  no  relief  under  \rr  of  March  H,  I o | « (protection  of  civil  rights  of 
soldiers  and  sailors):  1918  and  1921  Acts  (1-14-203:  I.  T.  1269).  . June  1922  Cum. 
Bull.  p.  311. 

Munition  manufacturers  tax  overpayments  not  to  he  credited  against  additional 
assessment  on  account  of  such  tax  or  against  income  or  excess-profits  tax  (18-21- 
1613:  A R M 123)  June  1921  Cum  Bull.  p.  330. 

Practicing  before  the  Bureau.  See  “Practicing  before  the  Bureau”  in  cumulative 
index  following  ^J2748  on  page  611. 


2817  Refund,  Credit,  and  Abatement  Adjustments.— Reduction  of  internal 

revenue  assessments  and  adjustments  of  overpayments  of  revenues 
will  be  accomplished  in  one  of  three  ways: 

281  8 (a)  On  the  basis  of  an  application  submitted  by  a taxpayer  on  Form 

843.  together  with  appropriate  supporting  evidence  to  be  filed  in 
the  office  of  the  collector  of  internal  revenue  of  the  district  in  which  the  tax 
is  assessed. 

2819  (b)  On  the  basis  of  a certificate  of  overassessment  prepared  by  the 
appropriate  administrative  unit  in  the  bureau  in  each  case  in  which 

an  overassessment  of  tax  is  disclosed  through  the  audit  of  a return. 

2820  (c)  On  the  basis  of  a blanket  claim,  a schedule  of  taxes  found  to  be 
uncollectible,  or  a schedule  of  duplicate  payments  and  overpayment* 

due  to  obvious  error  on  all  forms  of  taxable  returns  submitted  by  a collector 
of  internal  revenue 

2821  In  cases  covered  by  fb)  the  taxpayer  need  not  file  a claim.  Proper 
adjustment  will  be  made  in  the  bureau  and  notice  thereof  forwarded 

to  the  taxpayer.  (Art.  1031(a),  Reg.  62,  1022  Edition.) 

[See  official  announcement  at  1)2836  of  interest  in  connection  with  above.] 

2822  Claims  for  Abatement  of  Taxes  Erroneously  Assessed. — Claims  for 
abatement  of  taxes  illegally  or  erroneously  assessed  shall  be  made  on 

Form  843.  They  must  be  sustained  by  the  affidavits  of  the  parties  against  whom 
the  taxes  were  assessed,  or  of  other  parties  cognizant  of  the  facts.  When  a 
tax  has  been  assessed  and  turned  over  to  the  collector,  the  presumption  is 
that  the  assessment  is  correct.  The  burden  of  proof  in  rebutting  the  pre- 
sumption and  showing  that  it  was  improperly  or  illegally  assessed,  or  that 
relief  should  be  given  under  a remedial  statute,  rests  upon  the  applicant 
for  abatement.  The  affidavits  must  therefore  contain  full  and  explicit 
statements  of  all  the  material  facts  relating  to  the  claim  in  support  of  which 
they  are  offered  and  to  the  proper  consideration  of  which  they  are  essential. 
The  legality  of  the  claim  is  to  be  determined  by  the  Commissioner  upon  the 
facts  presented  to  him.  The  filing  of  a claim  for  abatement  does  not  necessarily 
operate  as  a suspension  of  the  collection  of  the  tax  or  make  it  any  less  the  duty 
of  .the  collector  to  exercise  due  diligence  to  prevent  the  collection  of  the  tax 
being  jeopardized.  He  should,  if  he  considers  it  necessary,  collect  the  tax 
and  leave  the  taxpayer  to  his  remedy  by  a claim  for  refund.  Claims  for 
abatement  may  not  be  filed  where  the  taxpayer  has  had  the  benefit  of  the 
provisions  of  section  2.50(d).  See  article  1006  [1)2763],  A collector  may 
himself  present  once  a month  a blanket  claim  on  Form  843  for  the  abate- 
ment of  taxes  coming  within  certain  classes  of  taxes  erroneously  assessed. 
(Art.  1032,  Reg.  62,  1922  Edition.) 

Copyright  1922.  by  The  Corporation  Trust  Company. 

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|T  2-27-22  E (2>  8-30-22.  (8)  4-14-22.  (4)  5-8-22.  1-9-22.  (6)  7-20-22.  (7)  8-24-22.  (8)10-11-22 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES*. 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Abatement  claim  not  to  be  allowed  though  claim  is  good  per  se,  if  evidence  disclose* 
an  additional  lax  due  in  connection  with  i .come  on  which  original  assessment 
was  based  (51-21-1987:  L.  O.  1080).. Dec.  1921  Cum.  Bull.  p.  246.  (T.  D. 

3251,  TJ2823  is  a brief  summary  of  the  foregoing.) 

Additional  assessment  for  one  year  barred  does  not  preclude  claim  for  abatement  for 
later  year  (23-20-984;  A.  R.  M.  56).  .June  1920  Cum.  Bull,  p 86. 

Adversely  decided  claim:  interest  and  penalty  (31-20-1106;  Sol.  Op.  32).. Dec.  1920 
Cum.  Bull.  p.  288.  See  “Abatement”  in  Cumulative  Index  following  1(2727. 
Bond  may  be  required  by  collector  as  condition  to  suspension  of  collection  (31-19-652: 
O.  957) ..  1919  Cum.  Bull.  p.  256.  % *2 

Should  not  be  required  of  receiver  (47-20-1316:  0.  D.  733).. Dec.  1920  Cum. 
Bull.  p.  308.  ' . . , . _ 

Credit  for  excess  amounts  actually  paid  only,  not  those  against  which  cla'ins  for 
abatement  are  made  (31-19-652;  O.  957).  .1919  Cum.  Bull.  p.  256. 

Second  notice  and  demand  served  and  warrant  of  distraint  issued  (51-21-1985:  0 D. 

1 143) . . Dec.  1921  Cum.  Bull.  p.  238.  _ n 

Tentative  return:  no  claim  considered  prior  to  complete  return  (33-20-1139:  O.  D. 
634).  .Dec.  1920  Cum.  Bull.  p.  308. 


2823  Abatement  of  Assessments  as  Erroneous  or  Illegal  When  an  Equiva- 
lent Amount  of  Tax  is  Properly  Due.-- -The  validity  of  an  assessment 
d tprds  upon  the  law  and  actual  facts  existing.  Therefore,  an  assessment 
made  upon  an  erroneous  theory  or  by  mistake  may  not  be  remitted  or  abated 
because  so  made  if,  at  the  time  its  validity  is  passed  upon  the  Commissioner 
is  in  possession  of  evidence  which  shows  an  equivalent  amount  of  tax  is  prop- 
erly due  in  connection  with  the  income,  transaction  or  matter  upon  which 
the  assessment  is  predicated.  (T.  D.  3251,  Nov.  25,  1921.)  a 


2824  Claims  for  Abatement  of  Uncollectible  Taxes.— When  a tax  [is 
found  to  be  uncollectible,  the  collector  or  deputy  collector  who  made 
thefdemand  for  payment  and  is  conversant  with  the  facts  may  prepare 
a claim  for  abatement  on  Form  53.  Although  credits  allowed  on  account  of 
insolvency  or  absconding  release  the  collector  from  the  obligation  created  by 
his  receipt  for  the  amount  credited,  the  obligation  to  pay  still  remains,  upon 
the  person  assessed.  It  is  the  duty  of  the  collector  to  use  the  same  diligence 
to  collect  a tax  after  it  has  been  abated  as  uncollectible  as  before  abatement. 
Collectors  should  therefore  kee/  a record  of  all  taxes  thus  credited  and  of  the 
persons  from  whom  they  are  due,  and  should  enforce  payment  whenever  it  u 
in  their  power  to  do  so.  (Art.  1033,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 


Insolvent  bank:  so 
may  be  abated: 


much  of  tax  assessed  as  will  affect  payment  of  depositors  in  full 
1918  Act  (1-34-471:  I.  T.  1428)..  Bull.  I (’22)-34,  p.  9. 


2825  Law  11582.  Credit  or  Refund,  on  Disclosure  by  Examination  of 
" (Sec.  252.)  Any  Return,  of  Amount  Paid  in  Excess  of  that  Prop- 
erly Due.— “S<?c.  252.  That  if,  upon  examination  of 
any  return  of  income  made  pursuant  to  this  Act , the  Act  of  August  5,  1909, 
entitled,  ‘An  Act  to  provide  revenue,  equalize  duties,  and  encourage  the 
industries  of  the  United  States,  and  for  other  purposes the  Act  of  October 
3,  1913,  entitled,  ‘An  Act  to  reduce  tariff  duties  and  to  provide  revenue 
for  the  Government , and  for  other  purposes,”  the  Revenue  Act  of  1916,  as 


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(8)  9-27-22.  (9)  10-11-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES. 


amended , the  Revenue  Act  of  1917,  or  the  Revenue  Act  of  1918,  it  appears 
that  an  amount  of  income,  war-profits  or  excess-profits  tax  has  been  paid 
in  excess  of  that  properly  due , then , notwithstanding  the  provisions  of 
section  3228  (112827 1 of  the  Revised  Statutes , the  amount  of  the  excess  shall 
be  credited  against  any  income,  war-profiis  or  excess-profits  taxes,  or  install- 
ment thereof,  then  due  from  the  taxpayer  under  any  other  return , and  any 
balance  of  such  excess  shall  be  immediately  refunded  to  the  taxpayer:” — 
Law.  [Note:  The  1918  Act  so  provided,  though,  naturally,  the 

1921  Act  was  not  embraced  within  its 
terms.] 


2826  Law  11583.  Five-year  Limitation  Generally  for  Making  Claim 
(Sec.  252.)  for  Credit  or  Refund .—“Provided,  That  no  such  credit 

or  refund  shall  be  allowed  or  made  after  five  years  from 
the  date  when  the  return  was  due , unless  before  the  expiration  of  such  five 
years  a claim  therefor  is  filed  by  the  taxpayer :” — Law.  (Note:  The 

1918  Act  so  provided.] 

2827  Law  H656.  Four-Year  Limitation  on  Claims  for  Refunding  Other 
(Sec.  1316.)  Than  Those  Based  on  an  Examination  of  a Return 

of  Income  under  1916,  1917,  1918,  and  1921  Acts.— 
Sec.  1316.  That  section  3228  of  the  Revised  Statutes  is  amended  to  read 
as  follows: 

Sec.  3228.  All  claims  for  the  refunding  or  crediting  of  any  internal 
revenue  tax  alleged  to  have  been  erroneously  or  illegally  assessed  or  col- 
lected, or  of  any  penalty  alleged  to  have  been  collected  without  authority,  or 
of  any  sum  alleged  to  have  been  excessive  or  in  any  manner  wrongfully  col- 
lected, must  be  presented  to  the  Commissioner  of  Internal  Revenue  within 
four  years  next  after  payment  of  such  tax,  penalty,  or  sum.’  ” 

2828  Law  If 657.  “ This  section,  except  as  modified  by  section  252  fl|2825], 

(Sec.  1316.)  shall  apply  retroactively  to  claims  for  refund  under  the 

Revenue  Act  of  1916,  the  Revenue  Act  of  1917,  and  the 
Revenue  Act  of  1918.”  Law.  [Note:  Section  3228  of  the  Revised 

Statutes,  prior  to  its  amendment  here 
(effective  generally  November  23,  1921, 
but  to  be  retroactively  applied  as  stated 
in  Law  1[657,  112828)  omitted  “or  credit- 
ing, and  provided  that  all  claims  must 
be  presented  within  two  years  next 
after  the  cause  of  action  accrued.”] 


2829  Cla  ms  for  Credit  of  Taxes  Erroneously  Collected.— Any  amount 
of  income  war  profits  or  excess  profits  tax  paid  in  excess  of  that 
properly  due  shall  be  credited  against  any  such  taxes  due  from  the  taxpayer 

follows -°ther  rCtUrn'  T°  obtain  uch  credit  the  taxpayer  should  proceed 


2830  (1)  Where  the  credit  demanded  is  equal  to  or  less  than  any  outstand- 

fi!  ,n8  assessment  of  tax,  a taxpayer  desiring  to  obtain  such  credit  shall 
file  with  the  collector  for  the  district  in  which  his  original  return  was  filed 
a claim  on  Form  843,  which  shall  be  sworn  to  and  shall  contain  the  follow- 
ing statements;  (a)  business  engaged  in  by  the  claimant;  (b)  character  of  as- 
'S;  °r.  ^ (c)  amount  of  tax  claimed  as  a credit;  (d)  unpaid  assessment 
against  which  credit  is  asked  and  for  what  taxable  year;  and  (e)  all  factR 
regarding  the  over-payment.  v 


Copyright  1922,  by  The  Corporation  Trust  Company 
THE  FEDERAL  INCOME  TAX  SERVICE 
631 


(8)  9 27  22.  (9)10-11-22. 

ABATEMENT,  credit,  and  refund  of  taxes. 

2831  (2)  Where  the  amount  claimed  as  a credit  is  greater  than  the  out- 

standing assessment  of  tax  a taxpayer  desiring  to  obtain  such  credit 
and  the  refund  to  which  he  is  entitled  shall  file  Form  843,  stating  thereon  the 
respective  amounts  claimed  as  a credit  or  as  a refund.  See  article  1036 
[12835].  All  the  facts  regarding  the  total  overpayment  should  be  stated  in 
the  claim  (Art  1034,  Reg.  62,  1Q22  Edition.) 

For  explanation  of  Cumulative  Index  references  see  paac  Ql 
Amortization  deduction  under  1 0 1 » Act  ev--n  though  ' <•  rl-iim  made  in  return  for 
1918,  1919,  1920,  or  1921:  1918  and  1921  Acts  (1-20-273:  Sol.  Op.  138).  June 
1922  Cum.  Bull.  p.  174. 

Community  pioperty:  single  claim,  applied  against  tax  of  either  spouse,  by  agreement 
(42-2 1-1873  O.  D.  1068).  .Dec.  1921  Cum.  Bull.  p.  247.  (See  “Texas  community 
property"  below.) 

Credit  allowed  constitutes  payment  to  that  extent  of  tax  against  which  credit  is  applied, 
the  whole  then  becoming  subject  to  proper  refund  claim  (25-21-1697:  Sol.  Op. 
107)  June  1921  Cum.  Bull  p.  336 

Effect  of  claim:  general  discussion'  also,  interest,  if  reiectrd  (16-20-924:  A.  R.  M.  46) 
lune  1920  Cum.  Bull  p.  247.  Does  not  stay  collection  of  tax,  necessarily 

1921  Act  (1-26-374:  1.  T.  1373).  .June  1922  Cum.  Bull.  p.  318. 

Enemy  alien:  erroneous  tax  withheld  at  source  (36-20-1183:  O.  D.  657)..  Dec.  1920 
Cum.  Bull.  p.  219. 

Husband  and  wife;  one  filed  return  and  paid  tax,  the  other  filed  no  return  because 
rut  loss-  now  amended  joint  return  and  ronsennent  claim  (1918  and  1921  Acts) 
(1-2-23:  I.  T.  1162).  .June  1922  Cum.  Bull.  p.  316. 

Judgment  entered  by  Court  in  favor  of  taxpayer  may  not  be  credited  against  taxes 
due  from  judgment  creditor:  1921  Act  (1-39-52 1 : L.  O.  1 106).  . Bull.  I ( 22)-39,  p.  4. 
Partnership  electing  to  be  taxed  as  corporation:  claims  arising  by  virtue  of  ( 15-20-854: 

0.  D.  457).  .June  1920  Cum.  Bull.  p.  247. 

Partnership  members’  overpayments  of  income  tax  may  he  credited  against  excess- 
profits  tax  assessment  (1917  Act)  on  partnership  (1-15-217:  A.  R.  R.  859).  .June 

1922  Cum.  Bull.  p.  316.  See  O.  D.  ISO,  1919  Cum.  Bull.  p.  309,  which  is  modified 
by  (1-24-351:  I.  T.  1361).  .June  1922  Cum.  Bull.  p.  318. 

Penalties  (ad  valorem)  and  interest  are  subject  to  credit  claims:  1921  Act  (1-37-505: 

1.  T.  1447).  . Bull.  1 (’22)-37,  p.  14. 

Returns  for  two  years,  respectively,  filed  in  different  districts:  procedure  to  adjust 
tax  due  on  one  against  overpayment  on  other  (48-20-1327:  O.  D.  740).. Dec. 
1920  Cum.  Bull.  p.  310. 

Sole  owner  of  corporation  may  not  apply  corporation's  credit  for  overpayment  against 
taxes  du'  under  h>s  personal  return:  1918  and  1921  acts  (1-13-189:  I T.  1259).  . 
June  1922  Cum.  Bull.  p.  316.  _ 

Sole  proprietor  files  partnership  return  and  pays  tax  on  such  in  error;  credit  allowed 
against  his  future  personal  tax  installments  (26-21-1710:  O.  D.  962).  June  1921 
Cum  Rull.  p.  338. 

Stock  dividends:  instructions  for  making  claim  on  account  of  tax  paid  on  (11-20- 
786A.  M.  2429).. June  1920  Cum.  Bull.  p.  245:  I-  urther  instructions  (11-20- 
789R:  M.  2436)  June  1920  Cum.  Rull.  p.  245. 

Same:  stock  carried  on  margin  with  broker  (32-20-1123:  O.  D.  625).. Dec.  1920 
Cum.  Bull.  p.  308. 

Successor  corpoiation  in  event  of  merger  or  consolidation  under  New  Jersey  statute 
(24-21-1690:  O.  D 950)  June  1921  Cum  Rull.  p.  335 
Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (1917  Act)  (46-21-1924:  O.  D.  1103).. Dec.  1921  Cum. 

Bul1'  P 248'  - . 

Texas  community  property  income:  claims  because  of  ruling  contained  in  T.  D.  3071 

(43-20-1270:  O.  D.  708).  .Dec.  1920  Cum.  Bull.  p.  309.  Modified  by  (51-20- 
V 1358:  O.  D.  757).. Dec.  1920  Cum.  Bull.  p.  310:  also  (12-21-1525:  O.  D. 

854).  .June  1921  Cum.  Bull  p.  335. 

Abandoning  domicile  in  Te-as  during  taxable  year  (7-21-1451:  0.  D.  810)..  June 
1921  Cum.  Bull.  p.  235. 

f In  event  of  death  of  either  spouse  (20-21-1643:  O.  D.  920).  .June  1921  Cum.  Bull, 
p.  335. 

See  “Community  property”  above.  , 

Undistributed  surplus  tax  on  corporations:  excess  may  be  credited  (1-20-662:  O.  974) 
..June  1920  Cum.  Bull  p.  244. 

Copyright  1922.  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

632 


2-27-22.  (2)  4-10-22.  (3)  4-18-22.  (4'  6-16-22.  (6)  7-12-22.  (6)  10-11-22. 

ABATEMENT  CREDIT,  AND  REFUND  OF  TAXES. 

2832  Action  on  Claims  for  Credit. — Upon  receipt  by  the  collector  of  a claim 
for  credit  on  Form  843,  he  will  make  proper  record  thereof  in  his 

office  and,  except  in  the  case  of  claims  covering  tax  assessed  on  the  basis  of 
returns  on  Form  1040A,  forward  the  claim  immediately  to  the  Commissioner 
irrespective  of  whether  or  not  a claim  for  refund  of  the  tax  now  claimed  as  a 
credit  has  previously  been  filed.  Due  notice  will  be  given  the  collector  and 
the  taxpayer  of  the  action  taken  on  the  claim. 

2833  If  a claim  is  allowed  against  additional  taxes  due  for  other  years, 
but  such  other  taxes  have  not  yet  been  assessed,  only  the  amount  of 

the  excess  of  such  taxes  over  the  overpayment  shall  be  assessed,  or  the  excess 
of  the  overpayment  over  such  taxes  due  shall  be  refunded  as  the  case  may  be. 
The  effective  date  of  the  filing  of  a claim  for  credit  shall  be  the  actual  date  of 
presentation  to  the  collector.  The  filing  of  a claim  for  credit  against  the 
tax  due  under  another  return  shall  be  subject  to  the  same  rules  with  respect 
to  the  addition  of  interest  and  penalties  as  if  the  taxpayer  had  filed  a claim 
for  abatement  of  the  tax  against  which  credit  is  desired.  See  articles  1003  [for 
interest  on  amount  of  tax,  ^12727]  and  1006  [for  appeals  and  hearings,  1| 2763]. 

2834  Under  no  circumstances  will  a taxpayer  be  entitled  to  credit  for  an 
alleged  overpayment  of  tax  prior  to  the  allowance  of  such  credit  by 

the  Commissioner.  An  attempt  to  take  a credit  prior  to  such  allowance  shall 
not  be  held  to  be  the  filing  of  a claim  under  section  252  of  the  Revenue  Act 
of  1921.  (Art.  1035,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  paoe  Qi 

Time  when  credit  made  or  allowed  (in  connection  with  5-year  limitation):  consideration 
by  Commissioner  and  notification  letter  not  controlling,  formal  notification  to 
collector  being  necessary  (23-21-1678.  Sol.  Op.  106) . .June  1921  Cum.  Bull.  p.  339 


2835  Claims  for  Refund  of  Taxes  Erroneously  Collected. — Claims  by 
the  taxpayer  for  the  refunding  of  taxes  and  penalties  erroneously  or 
illegally  collected  shall  be  made  on  Form  843.  In  this  case  the  burden  of 
proof  rests  upon  the  claimant.  All  the  facts  relied  upon  in  support  of  the 
claim  should  be  clearly  set  forth  under  oath.  In  the  case  of  the  taxpayer’s 
death,  certified  copies  of  the  letters  of  administration  or  letters  testamentary, 
or  other  similar  evidence,  must  be  annexed  to  the  claim  to  show  the  authority 
of  the  administrator  or  executor.  The  affidavit  may  be  made  by  an  agent  of 
the  person  assessed,  but  in  such  a case  a power  of  attorney  must  accompany 
the  claim.  Checks  in  payment  of  claims  allowed  will  be  drawn  in  the  names 
of  the  persons  entitled  to  the  money  and  shall,  unless  otherwise  directed  be 
sent  directly  to  the  proper  persons.  The  Commissioner  has  no  authority  to 
refund  on  equitable  grounds  penalties  legally  collected.  As  to  claims  for 
refund  of  sums  recovered  by  suit  see  article  1051  [^[2920].  (Art.  1036,  Reg. 
62,  1922_Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  91. 

Affiliated  corporations,  excess  taxes  paid  in  prior  years  individually — additional  tax 
due  under  consolidated  return;  separate  refund  or  credit  claims  necessary; 
credit  may  be  applied  against  proportionate  share  of  additional  tax  due  under 
consolidated  return  (41-20-1237:  O D 683) ..  Dec.  1920  Cum.  Bull.  p.  311 1 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

3 633 


i -27-22  (21  4-10-22.  (3)  4-18-22.  (4)  6-16-22.  (6)  7-12-22.  (6)  10-11-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES. 

Amortization  deduction  under  1918  Act  even  though  no  claim  made  in  return  for  1918 
1919,  1920,  or  1921:  1918  and  1921  Acts  (1-20-273:  Sol.  Op.  138).  .June  1922 
Cum.  Bull.  p.  174. 

Aliens  (Othce  procedure)  08-19-488:  O.  D.  472)..  1919  Cum.  Bull.  p.  258. 
Established  procedure  of  Bureau  outlined  (14-21-1555:  O.  D.  867).  .June  1921  Cum. 
Bull.  p.  341. 

Foreign  corporation:  tax  erroneously  withheld  at  source  (31-20-1105:  0.  D.  616).. 
Dec.  1920  Cum.  Bull.  p.  217. 

Foreign  government:  diplomatic  representative  may  not  art  forin  absence  of  special 
authorization  (1-4-46:  I.  T.  1175).  .June  1922  Cum.  Bull.  p.  318. 

Interest  on  refunds:  no  authority  of  law  (or  allowance  of  by  Commissioner  (45-21- 
1913:  O.  D.  1095).. Dec.  1921  Cum.  Bull.  p.  248. 

Minor  may  claim  refund  on  account  loss  due  to  misappropriation  of  funds  by  guardian 
(50-21-1974:  A.  R.  M.  144).. Dec.  1921  Cum.  Bull.  p.  199. 

Partnership  excess-profits  tax:  no  credit  privilege  to  members  but  refund  claim  should 
be  filed  (9-19-310:  O.  D.  180).  . 1919  Cum.  Bull.  p.  309.  Modified  by  (1-24-351: 
I.  T.  1361).  .June  1922  Cum.  Bull.  p.  318.  See  A.  R.  R.  859,  June  1922  Cum. 
Bull.  P.  316. 

Powers  of  attorney  in  connection  with  refund  claims  (21-21-1654:  O.  D.  927).. June 

1921  Cum.  I nil.  p 341.  In  behalf  of  foreign  government  (1-4-46:  I.  T.  1175) 
. .June  1922  Cum.  Bull.  p.  318. 

Refund  may  not  be  made  though  claim  be  good  per  se,  if  evidence  discloses  an  addi- 
tional tax  due  in  connection  with  income  on  which  the  tax  to  a part  of  which  the 
refund  claim  applies,  was  originally  assessed  (51-21-1987:  L.  O.  1080).  . Dec.  1921 
Cum.  Bull.  p.  246.  (T.  D.  3251,  ^2823  is  a brief  summary  of  the  foregoing.) 
statute  of  limitations  (see  “Statute  of  limitations  Cumulative  Index  iollowing 
112756). 

Surplus  account  adjustment  for  excess-profits  tax  purposes  (18-21-1615:  0.  D.  901).. 
June  1921  Cum.  Bull.  p.  391. 

Tentative  return  where  actually  no  tax  due:  complete  return  necessary  for  claim  for 
refund  (30-19-643:  0.  D.  347).  . 1919  Cum.  Bull.  p.  189. 

Where  filed  (21-21-1654:  O.  D.  927).. June  1921  Cum.  Bull.  p.  341. 


£836  Claims  for  abatement,  refund,  and  credit  need  not  be  filed  in  certain 
to  cases.  No  interest  allowed  on  amount  of  refund  or  credit  when  no 

2844  claim  for  such  refund  or  credit  has  been  filed. — Important  changes  in 
income  tax  procedure,  directed  by  Commissioner  David  H.  Blair,  are 

embodied  in  a Treasury  decision  [read  at  ^2817]  effective  December  16,  which 
provides  for  the  prompt  adjustment  of  claims  for  refund  and  abatement 
of  Federal  taxes.  Heretofore  when  an  overassessment  or  overpayment  was 
disclosed  by  the  audit  of  an  income  tax  return,  the  taxpayer  was  invited  to 
file  a claim  for  the  abatement  of  the  overassessment  or  the  refund  of  the  over- 
payment. When  received  the  claim  was  registered  and  tiled  away  until 
reached  in  due  course  for  consideration.  Because  of  tire  large  number  of 
such  claims  tiled,  delay  in  adjustment  necessarily  resulted. 

2845  After  December  15,  taxpayers  will  not  be  advised  of  their  privilege 
of  filing  a claim  for  the  refund  of  taxes  which  have  been  paid  in  excess 

of  amounts  legally  due,  but  instead  will  receive  a certificate  of  overassessment 
and  a check  in  correction  of  the  error,  or  if  an  assessment  is  outstanding 
against  the  taxpayer  for  income  or  excess  profits  tax,  the  overpayment  will 
be  applied  as  a credit  against  the  assessment,  and  the  balance  immediately 
refunded.  This  will  be  of  distinct  financial  advantage  to  bothfthe  taxpayer 
and  the  Government.  It  will  do  away  with  the  necessity|for  the  taxpayer 

Copyright  1922 . by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
634 


2-27-22.  (2)  4-10-22.  (3)  5-8-22.  (4)  10-11-22. 

ABATEMENT,  CREDIT.TAND  REFUND  OF  TAXES 

filing  a claim  for  refund,  and  will  greatly  reduce  the  amount  of  work  to  be 
done  by  the  Bureau  in  the  adjustment  of  claims. 

2846  Taxpayers  may  continue  to  file  claims  for  abatement  and  refund,  but 
it  is  expected  that  the  number  of  such  claims  filed  each  month  will  be 

greatly  reduced.  Efforts  are  being  made  by  the  Bureau  to  adjust  within  six 
months,  all  claims  now  pending  and  thereafter  to  keep  the  work  current. 
The  Revenue  Act  of  1921  provides  [read  at  112854]  that  under  certain  con- 
ditions interest  shall  be  paid  upon  claims  from  the  date  of  the  payment 
of  the  tax  to  the  date  of  the  allowance  of  the  claim.  The  new  procedure  should 
greatly  reduce  the  amount  of  interest,  which  the  Government  must  of 
necessity  pay  upon  claims  for  refund.  (Official  announcement,  dated 
December  16,  1921.) 

2847  On  the  Right  to  Refund,  Pavment  Having  Been  Made  Without 
Specific  Protest  and  Duress  Not  Having  Been  Asserted. — In  Green- 

port  Basin  & Construction  Company,  vs.  United  States  and  Young  vs. 
United  States,  U.  S.  District  Court,  Eastern  District  of  New  York  (269 
Fed.  58),  Judge  Garvin  said,  in  part:  “It  is  contended,  first  that  the  com- 
plaint is  insuthc-ent  because  it  does  not  allege  that  the  taxes  were  paid  under 
protest  and  duress  before  a cause  of  action  arose.  The  statute  (section  252, 
Revenue  Act  of  1918)  provides  (see  1(2825 j: 

“ ‘That  if,  upon  examination  of  any  return  of  income  made  pursuant  to 
this  act,  the  act  of  August  5,  1909,  entitled  “An  act  to  provide  revenue, 
equalize  duties,  and  encourage  the  industries  of  the  United  States  and  for 
other  purposes,”  the  act  of  October  3,  1913,  entitled  “An  act  to  reduce  tariff 
duties  and  to  provide  revenue  for  the  government,  and  for  other  purposes,” 
the  Revenue  Act  of  1916,  as  amended,  or  the  Revenue  Act  of  1917,  it  appears 
that  an  amount  of  income,  war  profits  or  excess  profits  tax  has  been  paid  in 
excess  of  that  properly  due,  then,  notwithstanding  the  provisions  of  section 
3228  of  the  Revised  Statutes,  the  amount  of  the  excess  shall  be  credited  against 
any  income,  war  profits  or  excess  profits  taxes,  or  installments  thereof, 
then  due  from  the  taxpayer  under  any  other  return,  and  any  balance  of  such 
excess  shall  be  immediately  refunded  to  the  taxpayer:  Provided,  that  no 
such  credit  or  refund  shall  be  allowed  or  made  after  five  years  from  the  date 
when  the  return  was  due,  unless  before  the  expiration  of  such  five  years  a 
claim  therefor  is  filed  by  the  taxpayer/ 

2848  “Under  the  act,  therefore,  the  refund  is  a matter  of  right,  without 
proof  of  duress  or  protest.  It  has  been  so  held  under  a similar 

statute.  U.  S.  v.  Hvoslef,  237  U.  S.  1,  35  Sup.  Ct.  459,  59  L.  Ed.  813,  Ann. 
Cas.  1916A,  286. 

2849  “Even  if  it  were  necessary  to  plead  duress  or  protest,  the  petition 
or  complaint  sets  forth  that  the  defendant  computed  the  tax  under 

compulsion  of  the  regulations  and  filed  a claim  for  abatement  of  the  taxes 
assessed  before  payment.  This  complies  with  every  requisite  of  a payment 
under  protest.  Chesebrough  v.  U.  S.,  192  U.  S.  253,  24  Sup.  Ct.  262,  48 
L.  Ed.  432;  City  ol  Philadelphia  v.  Collector,  5 Wall.  720,  18  L.  Ed.  614. 
The  government  urges  that  it  is  necessary  to  make  a protest  at  the  time  of 
actual  payment,  but  it  seems  to  the  court  that  this  would  be  a useless  require- 
ment. The  objects  of  the  protest  are  to  define  the  taxpayer’s  attitude  and 
to  notify  the  government  thereof.  These  have  been  fully  accomplished  by 
the  objection  of  the  taxpayer  when  the  computation  was  made  and  by  the 
filing  of  his  claim.” — The  Corporation  Trust  Company. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)1  10  22  (3)5-8-22.  (4)  10-11-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXEo. 

2350  Law  * 584.  No  Five-year  Limitation  for  Making  Claim  for  Credit 
(Sec.  252.)  or  Refund  When  Certain  Readjustments  of  Invested 
Capital  Result  in  a Decreased  Income  Tax  for  Prior 
Years. — “ Provided  further,  7 hot  if  upon  examination  of  any  return  of 
income  made  pursuant  to  the  Revenue  Act  of  1917,  the  Revenue  Act  of  1918, 
or  this  Act , the  invested  capital  of  a taxpayer  is  decreased  hy  the  Com- 
missioner, and  such  decrease  is  due  to  the  fact  that  the  taxpayer  failed 
to  take  adequate  deductions  in  previous  years , with  the  result  that  an  amount 
of  income  tax  in  excess  of  that  properly  due  was  paid  in  any  previous  year 
or  years,  then,  notwithstanding  any  other  provision  of  law  and  regardless 
of  the  expiration  of  such  five-year  period,  the  amount  of  such  excess  shall , 
without  the  filing  of  any  claim  therefor,  he  credited  or  refunded  as  provided 
in  this  section — Law.  [Note:  This  provision  is  new  to  the  1921 

Act.] 

2851  Section  252  of  the  statute  provides  that  where  an  amount  of  income 
tax  in  excess  of  that  properly  due  was  paid  in  prior  years  (such  excess 

payment  being  disclosed  by  subsequent  action  of  the  Commissioner  requir- 
ing decrease  of  invested  capital  due  to  the  fact  that  the  taxpayer  failed  to 
take  adequate  depreciation  or  other  deductions  in  previous  years),  such 
excess  amount  of  income  tax  shall  be  credited  or  refunded  to  the  taxpayer 
regardless  of  the  possible  expiration  of  the  five-year  period  of  limitation. 
This  applies  to  returns  filed  under  the  Revenue  Acts  of  1917,  1918,  and  1921. 
The  Commissioner  is  directed  to  grant  this  relief  without  requiring  the  filing 
of  a claim  therefor.  (Art.  1037,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  or. 

Effect  on  invested  capital  of  refund  or  credit:  1921  Act  (1-13-191:  I.  T.  1261).  .June 
1922  Cum.  Bull.  p.  370. 

2852  Law  T585.  Allowance  of  Certain  Prior  Refund  Claims  Not 

(Sec.  252.)  Barred  by  Provisions  of  this  Section. — “ And  pro- 
vided further,  That  nothing  in  this  section  shall  be  con- 
strued to  bar  from  allowance  claims  for  refund  filed  prior  to  the  passage  of 
the  Revenue  Act  of  1918  under  subdivision  ( a ) of  section  14  of  the  Revenue 
Art  of  1916 , or  filed  prior  to  the  passage  of  this  Act  under  section  252  of  the 
Revenue  Act  of  1918.” — Law.  [Note:  This  provision  is  new  to  the 

°1  Act.] 

2853  Under  section  252  of  the  Revenue  Act  of  1921  any  claim  for  refund 
filed  prior  to  the  passage  of  the  Revenue  Act  of  1918  under  section 

14  (a)  of  the  Revenue  Act  of  1916  or  filed  prior  to  passage  of  the  Revenue 
Act  of  1921  under  section  252  of  the  Revenue  Act  of  1918  may  be  allowed 
if  at  the  time  it  was  filed  it  was  properly  allowable  under  the  refunding  pro- 
vision of  the  Act  in  effect  at  the  time.  (Art.  1038,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  or. 

Genera!  discussion  by  the  solicitor;  1921  Act  (1-18-257:  L.  0.  1093).  .June  1922  Cum. 

Bull.  p.  319. 

2854  Law  H666.  Interest  on  Amount  of  Allowed  Refund  or  Credit. — 
(Sec.  1324.)  "Sec.  1324.  fa)  That  upon  the  allowance  of  a claim  for 

the  refund  of  or  credit  for  internal  revenue  taxes  paid , 
interest  shall  be  allowed  and  paid  upon  the  total  amount  of  such  refund 
or  credit  at  the  rate  of  one-half  of  1 per  centum  per  month  to  the  date  of  such 
allowance , as  follows:" 

Copyright  1922.  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  6-2-22.  (8)  8-17-22.  (4)  10-11-22. 

ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES. 

2855  Law  ^[667.  “(1)  if  such  amount  was  paid  under  a specific  protest 

(Sec.  1324.)  setting  forth  in  detail  the  basis  ol  and  reasons  for  such 

protest , from  the  time  when  such  lax  was  paid,  or'' 

2856  Law  *1668.  “(2)  if  such  amount  was  not  paid  under  protest  but 

(Sec.  1324.)  pursuant  to  an  additional  assessment,  from  the  time 

such  additional  assessment  was  paid , or ” 

285?  Law  * 669.  “(3)  if  no  protest  was  made  and  the  tax  was  not  paid 

(Sec.  1324.)  pursuant  to  an  additional  assessment,  from  six  months 
aiter  the  date  of  filing  of  such  claim  /o>  rejund  or  credit .” 

2858  Law  * 670.  “ The  term  ‘ additional  assessment'  as  used  in  this  sec- 
(Sec.  1324.)  tion  means  a further  assessment  tor  a tax  of  the  same 

character  previously  paid  in  part." — Law.  [Note: 

These  provisions  are  new  to  the  1921 
Act.J 

2859  Section  1324  of  the  Act  provides  that  after  the  passage  of  the  Act 
interest  in  certain  cases  shall  be  paid  on  refunds  or  credits  of  internal 

revenue  taxes  paid  under  this  or  prior  internal  revenue  acts  to  the  date  of 
the  allowance  of  such  refunds  or  credits  at  the  rate  of  one-half  of  1 per  centum 
per  month.  A claim  for  refund  or  credit  is  allowed  within  the  meaning  of 
the  statute  when  the  Commissioner  approves  the  schedule  in  whole  or  in 
part,  for  transmission  to  the  proper  accounting  officer,  for  credit  or  refund. 
The  date  at  which  interest  begins  is  as  follows:  (1)  If  the  amount  of  tax 
was  paid  under  specific  protest,  setting  forth  in  detail  the  basis  of  and  reasons 
for  such  protest,  from  the  time  the  tax  was  paid;  or  (2)  if  such  amount  was 
not  paid  under  protest  but  pursuant  to  an  additional  assessment,  from  the 
time  the  additional  assessment  was  paid;  or  (3)  if  no  protest  was  made  and 
the  tax  v as  not  paid  pursuant  to  an  additional  assessment,  from  six  months 
after  the  date  of  filing  such  claim  for  refund  or  credit.  In  other  words,  under 
(3)  if  a taxpayer  voluntarily  pays  a tax  and  later  discovers  that  he  has  over- 
paid the  tax.  he  may  get  interest  only  from  six  months  subsequent  to  the 
filing  of  such  claim.  The  statute  further  provides  that  the  term  “additional 
assessment,  as  used  in  section  1324  of  the  statute,  means  a further  assess- 
ment for  a tax  of  the  same  character  previously  paid  in  part.  T hus  an 
income  tax  is  not  of  the  “same  character”  as  a capital  stock  tax.  (Art.  1040. 
Reg.  62,  1922  Edition.)  ’ 

For  explanation  of  Cumulative  Index  references  see  page  Q i 
Application  for  soecial  assessment  under  Secs.  327  and  328  withour  mom  not  specific 
protest;  1921  Act  (1-22-323:  I.  T.  1335).  .June  1922  Cum.  Bull.  p.  404. 

2860  No  Interest  Paid  if  Refund  or  Credit  is  Made  by  Government  Vol- 
untarily, No  Claim  Therefor  by  the  Taxpayer  Having  Been  Filed. 

—Read  at  1j2836. 

2861  Appropriation  fer  the  Payment  of  Refunds.— Read  at  «;2919. 

2862  Law  * 649.  Agreements  to  Finally  Close  Cases,  Barring  Re- 
(Sec.  1312.)  opening,  Modification  of  Findings,  and  the  Biinging 

of  Suit.  Sec.  1312.  That  if  a*ter  a determination 
and  assessment  in  any  case  the  taxpayer  has  without  protest  paid  in  whole 
any  tax  or  penalty , or  accepted  any  abatement , credit,  or  refund  based 
on  such  determination  and  assessment,  and  an  agreement  is  made  in  wilting 

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ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES. 


between  the  taxpayer  and  the  Commissioner,  with  the  approval  of  the  Secre- 
tary, that  such  determination  and  assessment  shall  be  final  and  conclusive, 

“( except  upon  a showing  of  fraud  or  malfeasance  or 
misrepresentation  of  fact  materially  affecting  the  de- 
termination or  assessment  thus  made)” 

“(1)  the  case  shall  not  be  reopened  or  the  determina- 
tion and  assessment  modified  by  any  officer , employee, 
or  agent  of  the  United  States,  and” 

“(2)  no  suit,  action , or  proceeding  to  annul,  modify,  or 
set  aside  such  determination  or  assessment  shall  be 
enter  tamed  by  any  court  of  the  United  Stales  ” — Law. 
[Note:  These  provisions  are  new  to  1921  Act.] 

Findings  of  the  Commissioner  Are  Not  Subject  to 
Review  by  Any  Other  Administrative  Officer,  Em- 
ployee, or  Agent. — “ Sec . 1313.  That  in  the  absence 
of  fraud  or  mistake  in  mathematical  calculation,  the  findings  of  facts  in  and 
the  decision  of  the  Commissioner  upon  (or  in  case  the  Secretary  is  authorized 
to  approve  the  same,  then  after  such  approval)  the  merits  of  any  claim 
presented  under  or  authorized  by  the  internal-revenue  laws  shall  not  be  sub- 
ject to  review  by  any  other  administrative  officer,  employee,  or  agent  of 
the  United  States.”-— Law.  [Note:  This  provision  is  new  to  the 

1921  Act.] 


then 

2863 

Law 

11650. 

(Sec. 

1312.) 

2864 

Law 

T651. 

(Sec. 

1312.) 

2865 

Law 

T652. 

(Sec. 

1312.) 

2866 

Law 

T653. 

(Sec. 

1313.) 

.2867  Section  1312  of  the  Revenue  Act  of  1921  provides  a method  whereby 
a determination  by  the  Commissioner  of  the  amount  of  tax  or  penalty 
due  may  become  finally  conclusive  upon  the  making  of  an  agreement  to 
that  effect  between  the  taxpayer  and  the  Commissioner  with  the  approval 
of  the  Secretary.  Such  agreement  may  be  made  where  the  taxpayer  has 
(1)  without  protest  paid  in  whole  any  tax  or  penalty,  (2)  accepted  any  abate- 
ment, (3)  accepted  any  credit,  or  (4)  accepted  any  refund,  based  upon  a de- 
termination and  assessment  by  the  Commissioner.  When  such  agreement 
is  entered  into,  the  case  shall  not  be  reopened  or  the  determination  and 
assessment  modified  by  any  officer,  employee,  or  agent  of  the  United  States, 
and  no  suit,  action,  or  proceeding  to  annul,  modify,  or  set  aside  such  deter- 
mination or  assessment  shall  be  entertained  by  any  court  of  the  United 
States  except  upon  a showing  of  fraud  or  malfeasance  or  misrepresentation 
of  fact  materially  affecting  the  determination  or  assessment  thus  made.  In 
case  the  taxpayer  is  a corporation  a certified  copy  of  the  minutes  of  the  board 
of  directors  authorizing  an  officer  or  officers  of  such  corporation  to  enter 
into  such  agreement  shall  be  filed  with  such  agreement  at  the  time  of  the 
execution  thereof.  Such  agreements  shall  be  executed  in  duplicate,  one  to 
be  placed  in  the  files  of  the  case  in  the  bureau  and  one  to  be  given  to  the 
taxpayer.  (Art.  1141,  Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  or. 

Statement  required  of  amount  of  taxes  paid;  to  be  verified  by  local  collector  prior  to 
presentation:  1921  Act  (1-33-460:  I.  T.  1421).. Bull.  I (’22)-33,  p.  7. 

2868  Reopening  of  Cases. — Where  any  case  in  the  Bureau  of  Internal 
Revenue  has  been  finally  closed  after  the  taxpayer,  or  other  party 
thereto,  has  had  a hearing  or  has  been  afforded  by  written  notice  an  oppor- 
tunity to  present  oral  or  written  arguments  or  statements  of  fact  in  support 
of  his  contentions,  the  case  will  not  be  reopened  except  (1)  where  a showing 


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is  made  of  new  and  material  facts,  accompanied  by  an  explanation,  satisfac- 
tory to  the  Commissioner  of  Internal  Revenue,  of  the  failure  to  produce 
such  facts  prior  to  the  closing  of  the  case,  or  (2)  where  the  case  is  materially 
affected  by  the  change  of  regulations  or  by  the  final  decision  of  another 
case  either  by  the  Commissioner  of  Internal  Revenue  or  by  a court  of  com- 
petent jurisdiction.  The  application  for  reopening  a case  should  be  addressed 
to  the  Commissioner  of  Internal  Revenue,  should  state  succinctly  the  facts 
and  circumstances  upon  which  the  application  is  based  and  must  be  supported 
by  the  affidavit  of  a person  having  knowledge  of  the  facts. 

2869  This  decision  is  not  to  be  construed  as  modifying  the  regulations 
relating  to  the  filing  of  claims  in  abatement  or  claims  for  refund,  nor 

as  denying  the  right  of  a taxpayer  to  a hearing  or  to  an  appeal  at  any  stage 
of  his  case  until  the  case  has  been  finally  closed.  After  the  taxpayer  has 
exhausted  his  remedies  within  the  Bureau,  however,  and  the  case  has  been 
finally  closed,  it  will  be  reopened  only  under  the  conditions  stated  in  this 
decision.  (T.  D.  3240,  October  31,  1921.) 

2870  Suits  to  Restrain  Assessment  or  Collection  of  Taxes. — “No  suit  for 
the  purpose  of  restraining  the  assessment  or  collection  of  any  tax  shall 

be  maintained  in  any  court.”  (Section  3224,  Revised  Statutes.) 

2871  No  suit  for  the  purpose  of  restraining  the  assessment  or  collection 
of  any  taxes  shall  be  maintained  in  any  court.  “Restraining”  is  used 

in  its  broad,  popular  sense  of  hindering  or  impeding,  as  well  as  prohibiting 
or  staying,  and  the  provision  is  not  limited  in  its  application  to  suits  for 
injunctive  relief.  The  prohibition  of  such  suits  cannot  be  waived  by  any 
ofneer  of  the  Government.  (Art.  1050,  Reg.  62,  1922  Edition.) 

Copyright  1922,  by  The  Corporation  Trust  Company . 
y Preliminary  injunction  granted  in  duPont  vs.  Graham;  1921  Act.  . 1(3239. 

2872  ^The  appended  decision  of  the  Supreme  Court  of  the  United  States 

in  the  case  of  Dodge  v.  Osborn,  Commissioner  of  Internal  Revenue, 
is  published  for  the  information  of  internal-revenue  officers  and  others 
concerned.  (T.  D.  2301,  March  3,  1916.) 

2873  The  appellants  filed  their  bill  in  the  Supreme  Court  of  the  District 
of  Columbia  against  the  Commissioner  of  Internal  Revenue  to  enjoin 

the  assessment  and  collection  of  the  taxes  imposed  by  the  Income  Tax  sec- 
tion of  the  Tariff  Act  of  October  3,  1913  (38  Stat.  166,  181)  and  especially 
the  surtaxes  therein  provided  for  on  the  ground  that  the  statute  was  void 
for  repugnancy  to  the  Constitution  of  the  United  States.  The  case  is  here 
on  appeal  from  the  judgment  of  the  court  below  affirming  the  action  of  the 
trial  court  in  sustaining  a motion  to  dismiss  the  complaint  for  want  of  juris- 
diction because  the  complainants  had  an  adequate  remedy  at  law  and  be- 
cause of  the  provision  of  section  3224  Revised  Statute  that  4 No  suit  for 
the  purpose  of  restraining  the  assessment  or  collection  of  any  tax  shall  be 
maintained  in  any  court.” 

2874  We  at  once  put  out  of  view  a contention  that  section  3224  [1[2870] 
is  not  applicable  to  taxes  imposed  by  the  Income  Tax  Law  since  we 

are  clearly  of  the  opinion  that  it  is  within  the  contemplation  of  paragraph 
L of  the  Act  which  provides: 

[H2709.J  “That  all  administrative,  special  and  general  provisions  of 
law,  including  the  laws  in  relation  to  the  assessment,  remission,  collection, 
and  refund  of  internal  revenue  taxes  not  heretofore  specifically  repealed 

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ABATEMENT,  CREDIT,  AND  REFUND  OF  TAXES 

and  not  inconsistent  with  the  provisions  of  this  section,  are  hereby  extended 
and  made  applicable  to  all  the  provisions  of  this  section  and  to  the  tax  herein 
imposed.” 

2875  And  for  the  same  reason  we  do  not  further  notice  a contention  as  to 
the  inapplicability  of  sections  3220,  3226  and  3227,  to  which  effect 
was  given  by  the  court  below  requiring  an  appeal  to  the  Commissioner  of 
Internal  Revenue  after  payment  of  a tax  claimed  to  have  been  erroneously 
and  illegally  assessed  and  collected  and  upon  his  refusal  to  return  the  sum 
paid  giving  a right  to  sue  for  its  recovery. 

287  6 The  question  for  decision  therefore  is  whether  the  sections  of  the 
Revised  Statutes  referred  to  are  controlling  as  to  the  case  in  hand. 
The  plain  purpose  and  scope  of  the  sections  are  thus  stated  in  Snyder  v. 
Marks,  109  U.  S.  189,  193-194,  a suit  brought  to  enjoin  the  collection  of  a 
revenue  tax  on  tobacco: 

“The  inhibition  of  Section  3224  applies  to  all  assessments  of  taxes,  made 
under  color  of  their  offices,  by  internal  revenue  olhcers  charged  with  general 
jurisdiction  of  the  subject  of  assessing  taxes  against  tobacco  manufacturers. 
The  remedy  of  a suit  to  recover  back  the  tax  after  it  is  paid  is  provided 
by  statute,  and  a suit  to  restrain  its  collection  is  forbidden.  The  remedy  so 
given  is  exclusive,  and  no  other  remedy  can  be  substituted  for  it.  Cheatham 
v.  United  States,  92  U.  S.  85,  88,  and  again  in  State  Railroad  Tax  Cases, 
92  U.  S.  575,  613,  it  was  said  by  this  court  that  the  system  prescribed  by 
the  United  States  in  regard  to  both  customs  duties  and  internal  revenue 
taxes,  of  stringent  measures,  not  judicial,  to  collect  them,  with  appeals  to 
specified  tribunals,  and  suits  to  recover  back  moneys  illegally  exacted  was  a 
system  of  coriective  justice  intended  to  be  complete,  and  enacted  under  the 
right  belonging  to  the  government  to  prescribe  the  conditions  on  which  it 
would  subject  itself  to  the  judgment  of  the  courts  in  the  collection  of  its  rev- 
enues. In  the  exercise  of  that  right,  it  declares,  by  Sec.  3224,  that  its  officers 
shall  not  be  enjoined  from  collecting  the  tax  claimed  to  have  been  unjustly 
assessed,  when  those  officers,  in  the  course  of  general  jurisdiction  over  the 
subject  matter  in  question_have_made  the  assignment  (assessment)  and 
claim  that  it  is  valid.” 

287  7 And  this  doctrine  has  been  repeatedly  applied  until  it  is  no  longer 
(g . open  to  question  that  a suit  may  not  be  brought  to  enjoin  the  assess- 
ment or  collection  of  a tax  because  of  the  alleged  unconstitutionality  of 
the  statute  imposing  it,  Sheldon  v.  Platt,  139  U.  S.  591;  Pittsburgh,  etc. 
Ry.  v.  Board  of  Public  Works,  172  U.  S.  32;  Pacific  Whaling  Company  v. 
United  States,  187  U.  S.  447,  451,  452. 

2878  But  it  is  contended  tfiat  this  doctrine  has  no  application  to  a case 
where  wholly  independent  of  any  ciaim  of  the  constitutionality  of  the 
tax  sought  to  be  enjoined,  additional  equities  sufficient  to  sustain  juris- 
diction are  alleged,  and  this,  it  is  asserted,  being  such  a case,  falls  within  the 
exception  to  the  general  rule.  But  conceding  for  argument's  sake  only 
the  legal  premise  upon  which  the  contention  rests,  we  think  the  conclusion 
that  this  case  falls  within  such  exception  is  wholly  without  merit,  since 
after  an  examination  of  the  complaint  we  are  of  the  opinion  that  no  ground 
for  eauitable  jurisdiction  is  alleged.  It  is  true  the  complaint  contains  aver- 
ments that  unless  the  taxes  are  enjoined  many  suits  by  other  persons  will 
be  brought  for  the  recovery  of  the  taxes  paid  by  them,  and  also,  that  by 
reason  of  Section  3187  Rev.  Stat.  making  the  tax  a lien  on  plaintiff's  property 
the  assessment  of  the  taxes  would  constitute  a cloud  on  plaintiff's  title. 

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But  these  allegations  are  wholly  inadequate  under  the  hypothesis  which  we 
have  assumed  solely  for  the  sake  of  the  argument,  to  sustain  jurisdiction, 
since  it  is  apparent  on  their  face  they  allege  no  ground  for  equitable  relief 
independent  of  the  mere  complaint  that  the  tax  is  illegal  and  unconstitutional 
and  should  not  be  enforced — allegations  which  if  recognized  as  a basis  for 
equitable  jurisdiction  would  take  every  case  where  a tax  was  assailed  be- 
cause of  its  unconstitutionality  out  of  the  provisions  of  the  statute  and 
thus  render  it  nugatory,  while  it  is  obvious  that  the  statute  plainly  for- 
bids the  enjoining  of  a tax  unless  by  some  extraordinary  and  entirely  ex- 
ceptional circumstance  its  provisions  are  not  applicable. 

2879  There  is  a contention  that  the  provisions  requiring  an  appeal  to  the 
Commissioner  of  Internal  Revenue  after  payment  of  the  taxes  and 

giving  a right  to  sue  in  case  of  his  refusal  to  refund  are  wanting  in  due  process 
and  therefore  there  is  jurisdiction.’  But  we  think  it  suffices  to  state  that 
contention  to  demonstrate  its  entire  want  of  merit. 

Affirmed.  U.  S.  Supreme  Court.  Dodge  vs.  Osborn,  240  U.  S.  118. 

2880  No  Suit  to  Enjoin  Collection  of  Penalties  Shall  Be  Maintained  in 
Any  Court. — In  Kohlhamer  vs.  Smietanka,  Collector  (239  Fed. 

408),  it  was  held  that  while  Section  3224  R.  S.  [Paragraph  2870]  which 
prohibits  suits  to  enjoin  the  collection  of  internal  revenue  taxes,  does  not 
specifically  include  “penalties”  as  such,  yet  where  penalties  are  authorized 
by  statute  to  be  added  to  the  tax  and  collected  as  a part  of  the  tax,  the 
court  will  hold  that  the  penalty  Is  a part  of  the  tax,  the  assessment  and 
collection  of  which  are  governed  by  Section  3224.  (239  Fed.  408.) 


2881  Law  ^[665.  Abatement  of  Second  Assessments,  Refund  of  Taxes 
(Sec.  1323.)  Collected  on  Such  Assessments,  and  the  Recovery 
by  Suit  of  Taxes  So  Paid. — “ That  section  3225  of  the 
Revised  Statutes  of  the  United  States , as  amended , is  reenacted  without 
change  as  follows : 

‘Sec.  3225.  When  a second  assessment  is  made  in  case  of  any  list, 
statement , or  return , which  in  the  opinion  of  the  collector  or  deputy  col- 
lector was  false  or  fraudulent , or  contained  any  understatement  or  under- 
valuation, such  assessment  shall  not  be  remitted , nor  shall  taxes  collected 
under  such  assessment  be  refunded,  or  paid  back , or  recovered  by  any  suit, 
unless  it  is  proved  that  such  list,  statement,  or  return  was  not  willfully  false 
or  fraudulent  and  did  not  contain  any  willful  understatement  or  under- 
valuation.’  ” — Law.  [Note:  No  change.] 


2882  Law  ^[659.  Suit  for  Recovery  of  Taxes  Erroreously  Collected. — 
(Sec.  1318.)  “Sec.  1318.  That  section  3226  of  the  Revised  Statutes 
is  amended  to  read  as  follows’. 

‘Sec.  3226.  No  suit  or  proceeding  shall  be  maintained  in  any  court 
for  the  recovery  of  any  internal-revenue  tax  alleged  to  have  been  erroneously 
or  illegally  assessed  or  collected,  or  of  any  penally  claimed  to  have  been  col- 
lected without  authority,  or  of  any  sum  alleged  to  have  been  excessive  or  m 
any  manner  wrongfully  collected,  until  a claim  for  refund  or  credit  has 
been  duly  filed  with  the  Commissioner  of  Internal  Revenue,  according  to 
the  provisions  of  law  in  that  regard,  and  the  regulations  of  the  Secretary 

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of  the  Treasury  established  in  pursuance  thereof.  No  such  suit  or  pro- 
ceeding shall  be  begun  before  the  expiration  of  six  months  from  the  date 
of  filing  such  claim  unless  the  Commissioner  renders  a decision  thereon 
within  that  lime,  nor  after  the  expiranon  of 'five  years  from  the  date  of  the 
payment  of  such  tax , penalty , or  sum.’  ” 

2883  Law  If 660.  “ This  section  shall  not  affect  any  suit  or  proceeding 

(Sec.  1318.)  instituted  prior  to  the  passage  of  this  Act,  but  shall 

apply  to  all  suits  and  proceedings  instituted  after  the 
passage  of  this  Act,  whether  or  not  barred  by  prior  Acts  of  Congress.” — Law. 

[Note:  Section  3226  of  the  Revised 

Statutes  prior  to  its  amendment  here 
(effective  November  23,  1921,  subject  to 
the  provisions  of  Law  ^(660,  1(2883), 
specified  “suit”  instead  of  “suit  or 
proceeding”  and  “appeal”  rather  than 
“a  claim  for  refund  or  credit.”  Section 
3227  of  the  Revised  Statutes  (repealed, 
effective  November  23,  1921,  subject  to 
the  provisions  of  Law  1(661,  1(2885), 
which  provided  that  “No  suit  or  pro- 
ceeding for  the  recovery  of  any  internal 
tax”  etc.,  “shall  be  maintained  in  any 
court  unless  the  same  is  brought  within 
two  years  next  after  the  cause  of  action 
accrued”  is  consolidated  with  and  be- 
comes a part  of  Revised  Statutes  Section 
3226,  changed,  in  this  regard,  to  estab- 
lish a five-year  limitation  from  the  “date 
of  the  payment  of  such  tax,  penalty,  or 
sum.”] 

2884  Under  the  provisions  of  section  1318  of  the  Revenue  Act  of  1921, 
suit  for  the  recovery  of  taxes  or  penalties  can  not  be  maintained  until 

a claim  for  refund  or  credit  has  been  duly  filed  with  the  Commissioner,  and 
six  months  have  elapsed  from  the  date  of  filing  such  claim,  unless  the  Com- 
missioner renders  a decision  within  six  months,  in  which  case  suit  may  be 
brought  upon  the  rendition  of  the  decision.  Suit  can  not  be  brought  after 
the  expiration  of  five  years  from  the  date  of  the  payment  of  a tax,  penalty, 
or  other  sum.  This  section  does  not  affect  any  suit  or  proceeding  instituted 
prior  to  the  passage  of  the  Revenue  Act  of  1921.  (Art.  1050,  Reg.  62,  1922 
Edition.) 


For  explanation  of  Cumulative  Index  references  see  page  gi. 

(See  “Statute  of  limitations”  in  Cumulative  Index  following  1(2756. 

Amounts  due  U.  S.  as  valid  offset  against  amount  found  due  the  taxpayer  as  result 
of  suit  (9-19-347:  T.  D.  2882) . . 1919  Cum.  Bull.  p.  258. 

Claim  for  refund  essential  (1-21-1380:  Ct.  D.  2) . .June  1921  Cum.  Bull.  p.  342. 
Collector  to  whom  taxes  were  paid  is  one  against  whom  suit  is  to  be  brought:  dictum 
as  to  necessity  for  payment  under  protest  (29-21-1738:  Ct.  D.  16).. Dec.  1921 
Cum.  Bull.  p.  248. 

*Protest  a necessary  step  precedent  to  the  bringing  of  suit.  .1(3100 
Trustees  in  liquidation:  Connecticut  (23-21-1679:  T.  D.  3166).. June  1921  Cum. 

Bull.  p.  343. 


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2885  Law  1[661.  R.  S.  Sec.  3227  Repealed. — “Sec.  1319.  ( Revenue 

(Sec.  1319.)  Act  of  1921.)  That  section  3227  of  the  Revised  Statutes 

is  hereby  repealed  but  such  repeal  shall  not  affect  any 
suit  or  proceeding  instituted  prior  to  the  passage  of  this  Act.”  [See  R.  S. 
Sec.  3226,  as  amended,  1[2882.] — Law.  [Note:  This  provision  is 

new  to  the  1921  Act.] 

2886  Section  1319  repeals  section  3227  of  the  Revised  Statutes,  which 
limited  the  bringing  of  suit  to  two  years  next  after  the  cause  of 

action  accrued.  Under  section  3227,  which  applies  to  suits  instituted  prior 
to  the  passage  of  the  Revenue  Act  of  1921,  the  cause  of  action  accrued  upon 
an  unfavorable  decision  by  the  Commissioner,  or  at  the  expiration  of  six 
months  after  an  appeal  without  action  thereon  by  the  Commissioner.  (Art. 
1050,  Reg.  62,  1922  Edition.) 

2887  Claim  for  Refund  Essential  to  Suit  for  Recovery  of  Taxes  Even 
Though  Claim  for  Abatement  Has  Been  Filed  and  Adversely  Acted 

on. — This  is  a claim  for  a sum  paid  as  an  internal  revenue  tax  under  the  Act 
of  August  5,  1909,  c.  6,  §38,  36  Stat.  11,  112.  It  is  alleged  that  the  claimant 
was  not  engaged  in  or  doing  business  in  the  year  for  which  the  tax  was  col- 
lected and  that  therefore  it  was  not  due.  The  Court  of  Claims  dismissed 
the  petition  on  the  ground  that  the  claimant  had  not  complied  with  the  con- 
ditions imposed  by  statute  and  the  claimant  appealed  to  this  Court. 

2888  The  facts  are  simple.  After  the  tax  was  assessed  a claim  for  an 
abatement  was  sent  to  the  Commissioner  of  Internal  Revenue  in 

July,  1913.  On  December  18  of  the  same  year  the  Commissioner  rejected 
the  application,  whereupon  on  December  26  the  claimant  paid  the  tax 
with  interest  and  a penalty.  So  far  as  appeals  there  was  no  protest  at  the 
time  of  payment  and  it  is  found  that  aftei  it  nothing  was  done  to  secure 
repayment  of  the  tax.  By  Rev.  Sts.  §3226,  amended  by  Act  of  February 
27,  1877,  c.  69,  §1,  19  Stat.  248,  no  suit  shall  be  maintained  in  any  Court 
for  the  recovery  of  any  tax  alleged  to  have  been  illegally  assessed  “until 
appeal  shall  have  been  duly  made  to  the  Commissioner  of  Internal  Revenue 
according  to  the  provisions  of  law  in  that  regard,  and  the  regulations  of  the 
Secretary  of  the  Treasury  established  in  pursuance  thereof,  and  a decision 
of  the  Commissioner  has  been  had  thereon,  provided,”  etc.  Regulations  of 
the  Secretary  established  a procedure  and  a form  to  be  used  in  applications 
for  abatement  and  distinct  ones  for  claims  for  refunding  them.  The  claimant 
took  the  first  step  but  not  the  last.  [Read  beginning  at  ^[2890.]  By  Rev. 
Sts.  §3220  [1[2811]  the  Commissioner  of  Internal  Revenue  is  authorized  ‘on 
appeal  to  him  made,  to  remit,  refund,  and  pay  back’  taxes  illegally  assessed. 
It  is  urged  that  the  ‘appeal’  to  him  to  remit  made  a second  appeal  to  him 
to  refund  an  idle  act  and  satisfied  the  requirement  of  §3226.  Decisions  to  that 
effect  in  suits  against  a collector  are  cited,  the  latest  being  Loomis  v.  Wattles, 
266  Fed.  Rep.  876. — But  the  words  on  appeal  to  him  made’  mean,  of  course, 
on  appeal  in  respect  of  the  relief  sought  on  appeal— to  refund  if  refunding  is 
what  he  is  asked  to  do.  The  words  of  §3226  also  must  be  taken  to  mean  an 
appeal  after  payment,  especially  in  view  of  §3228  [as  formerly]  requiring 
claims  of  this  sort  to  be  presented  to  the  Commissioner  within  two  years 
after  the  cause  of  action  accrued.  So  that  the  question  is  of  reading  an 
implied  exception  into  the  rule  as  expressed,  when  substantially  the  same 
objection  to  the  assessment  has  been  urged  at  an  earlier  stage. 

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2889  Men  must  turn  square  corners  when  they  deal  with  the  Govern- 
ment. If  it  attaches  even  purely  formal  conditions  to  its  consent 

to  be  sued  those  fconditions  must  be  complied  with.  Lex  non  praecipit 
inutilia  (Co.  Lit.  I27b)  expresses  rathei  an  ideal  than  an  accomplished  fact. 
But  in  this  case  we  cannot  pronounce  the  second  appeal  a mere  form.  On 
appeal  a judge  sometimes  concurs  in  a reversal  of  his  decision  below.  It 
is  possible  as  suggested  by  the  Court  of  Claims  that  the  second  appeal  may 
be  heard  by  a different  person.  At  all  events  the  words  are  there  in  the 
statute  and  the  regulations,  and  the  Court  is  of  opinion  that  they  mark 
the  conditions  of  the  claimant’s  right.  See  Kings  County  Savings  Institu- 
tion v.  Blair , 116  U.  S.  200.  It  is  unnecessary  to  consider  other  objections 
that  the  claimant  would  have  to  meet  before  it  could  recover  upon  this  claim. 
(Decision  of  U.  S.  Supreme  Court,  Nov.  22,  1920,  in  Rock  Island,  Arkansas 
and  Louisiana  Railroad  Company  v.  United  States. — 254  U.  S.  141.) 

2890  Conditions  Precedent  to  Suit  Which  the  Law  Requires— [Com- 
ment: The  following  example  of  procedure,  with  the  Court’s  com- 
ment thereon,  is  taken  from  Gulf  Oil  Corporation  v.  Lewellyn  in  the  lower 
court. (242  Fed.  709).  Reversed  by  Circuit  Court  of  Appeals,  245  Fed.  1. 
Decision  of  Circuit  Court  reversed  by  U.  S.  Supreme  Court  (248  U.  S.,  71).] 

2891  From  the  evidence  produced  at  the  trial,  the  Court  has  found  the 
following: 

FACTS. 

2892  FIRST.  * * * 

2893  SECOND.  The  Gulf  Oil  Corporation,  on  the  14th  day  of  Febru- 
ary, 1914,  in  compliance  with  the  provisions  of  the  Act  of  Congress 

of  October  3,  1913,  made  a return  of  its  annual  net  income  for  the  twelve 
months  ending  December  31,  1913,  as  required  by  said  Act.  In  making 
flaid  return  the  Gulf  Oil  Corporation  certified  that  it  had  not  included  in  the 
statement  of  gross  income  for  the  year  1913  certain  dividends  amounting 
to  $11,424,440  received  by  it  from  subsidiary  companies  out  of  earnings 
and  surplus  of  said  subsidiary  companies  accrued  prior  to  January  1,  1913. 

2894  THIRD.  In  said  return  the  Gulf  Oil  Corporation  showed  net  in- 
come for  the  twelve  months  eliding  December  31,  1913,  of  $886,- 

250.44,  but  under  date  of  May  1,  1914,  the  said  C.  G.  Lewellyn,  Collector, 
mailed  to  said  corporation  notice  of  an  assessment  of  tax  thereon  amounting 
to  $9,072.56.  A claim  for  abatement  of  this  overcharge  amounting  to  $210.06 
was  filed  with  the  Collector  June  9,  1914,  and  on  June  30,  1914,  the  Gulf  Oil 
Corporation  paid  to  the. said  C.  G.  Lewellyn,  Collector,  the  sum  of  $8,862.50, 
being  the  amount  of  said  assessment,  less  the  $210.06  for  which  abatement 
was  claimed.  Said  claim  for  abatement  having  been  disallowed,  said  Gulf 
Oil  Corporation,  on  the  5th  day  of  November,  1914,  paid  the  said  Collector 
the  additional  sum  of  $210.06,  with  interest  amounting  to  $6.30,  making  a 
total  payment  of  $216.36. 

2895  FOURTH.  On  the  30th  day  of  December,  1914,  the  said  C.  G. 
Lewellyn,  Collector,  acting  under  instructions  from  the  Commis- 
sioner of  Internal  Revenue  at  Washington,  D.  C.,  mailed  notice  and  demand 
?or  tax  assessment  against  the  Gulf  Oil  Corporation  for  the  year  ending 
December  31,  1913,  amounting  to  $114,034.34.  In  fact,  this  additional  as- 
sessment amounted  to  $114,244.40,  being  the  1%  upon  the  entire  amount  of 
the  dividends  received  by  the  Gulf  Oil  Corporation  from  subsidiary  compan- 
ies out  of  surplus  accrued  to  such  subsidiaries  prior  to  January  1,  1913,  and 

C opyi  ig.ht  1922,  by  The  Corporation  Trust  Company. 

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SUITS  FOR  RECOVERY  OF  TAXES. 


payable  to  the  Gulf  Oil  Corporation  prior  to  March  1,  1913,  and  said  ad- 
ditional assessment  was  based  solely  on  said  dividends.  In  making  the  as- 
sessment, however,  the  Commissioner  of  Internal  Revenue  reconsidered  and 
allowed  the  previous  claim  for  abatement  of  $210.06,  erroneously  assessed 
against  the  corporation  in  the  original  assessment,  and  credited  the  same 
as  having  been  paid  upon  the  assessment  of  December  30,  1913,  leaving  the 
net  balance  of  such  assessment  $114,034.34  as  stated. 

2896  FIFTH.  The  notice  and  demand  of  the  said  C.  G.  Lewellyn,  Col- 
lector, for  the  payment  of  this  additional  tax  recited  that  if  the  tax 

is  not  paid  on  or  before  January  8,  1915,  it  would  be  the  duty  of  the  Collec- 
tor to  collect  said  tax,  together  with  5%  additional  and  interest  at  the  rate 
of  1%  per  month  until  paid. 

2897  SIXTH.  That  subsequently  the  plaintiff  filed  with  the  defendant 
for  presentation  to  the  Commissioner  of  Internal  Revenue  a claim  for 

the  abatement  ol  said  income  tax  amounting  to  $114,034.34,  a copy  of 
which  claim  is  attached  to  and  made  a part  of  plaintiff’s  Statement  as  Exhibit 
A.  That  after  an  examination  of  said  claim  for  abatement  the  Commis- 
sioner of  Internal  Revenue  rejected  the  same. 

2898  SEVENTH.  On  February  17,  1915,  the  said  Gulf  Oil  Corporation 
paid  to  the  said  C.  G.  Lewellyn,  Collector,  said  additional  income 

taxes  assessed  for  the  period  ending  December  31,  1913,  in  the  sum  of 
$114,034.34,  and  at  the  same  time  filed  with  C.  G.  Lewellyn  a written  pro- 
test, a copy  of  which  protest  is  attached  to  and  made  a part  of  plaintiff’s 
statement  as  Exhibit  B. 

2899  EIGHTH.  That  subsequently  the  plaintiff  filed  with  the  said  C.  G. 
Lewellyn  for  presentation  to  the  Commissioner  or  Internal  Revenue 

a claim  for  the  refund  of  the  net  amount  of  the  assessment  of  said  income 
tax,  to  wit:  $114,034.34,  and  also  the  amount  of  the  credit  allowed  thereon 
of  $210.06,  representing  an  over  assessment  against  the  corporation  on  the 
basis  of  its  return  as  originally  filed,  the  two  amounts  constituting  the  entire 
amount  of  the  assessment  in  the  sum  of  $114,244.40.  A copy  of  the  said 
claim  for  refund  is  attached  to  and  made  a part  of  plaintiff’s  statement  as  Ex- 
hibit C. 

2900  NINTH.  That  after  consideration  of  said  claim  for  refund,  the 
Commissioner  of  Internal  Revenue  rejected  the  same,  and  the  said 

C.  G.  Lewellyn  was  instructed  to  notify  the  Gulf  Oil  Corporation,  and  on  or 
about  April  13,  1915,  did  so  notify  said  corporation,  that  said  claim  was  re- 
jected a copy  of  which  notice  is  attached  to  and  made  a part  of  plaintiff’s 
statement  as  Exhibit  D.  * * * * 

2901  The  payment  of  all  taxes  hitherto  required  of  the  several  subsidiaries 

by  acts  of  Congress,  and  the  full  disclosure  by  the  plaintiff  in  its  re- 
turn for  1913  of  the  dividends  from  its  subsidiaries  negative  any  suggestion 
that  the  conduct  of  the  plaintiff  has  been  in  any  way  evasive  or  otherwise 
improper.  The  plaintiff  has  merely  asserted  its  legal  rights.  Its  rights  to 
bring  this  action  is  clear  because  it  has  performed  all  the  conditions  pre- 
cedent to  suit  which  the  law  requires.  * * * (242  Fed.  709.) 

2902  A Suit  for  Recovery  of  Taxes  Erroneously  or  Illegally  Assessed 
May  Be  Brought  Against  the  Collector  Only  Who  Collected  the 

Taxes,  and  Not  His  Successor. — -The  appended  decision  (236  Fed.  604) 
oL,the  United  States  District  Court  for  the  Southern  District  of  New  York, 
in  the  case  of  Duncan  I.  Roberts  v.  John  Z.  Lowe,  Jr.,  collector,  is  published 
for  the  information  of  internal  revenue  officers  and  others  concerned. 

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2903  [Summary:  A suit  to  recover  back  taxes  can  not  be  maintained 
against  the  successor  to  the  collector  to  whom  the  taxes  were  paid,  ex- 

cept  in  his  individual  capacity.  The  remedy  lies  either  in  an  action  against 
the  collector  ' who  actually  received  the  taxes  or  in  an  action  against  the 
United  States.]  (T.  D.  2394,  Nov.  14,  1916.) 

2904  The  appended  decision  of  the  United  States  Circuit  Court  of  Appeals 
for  the  I hird  Circuit  in  the  case  of  Philadelphia,  Harrisburg  & Pitts- 

urgh  Railroad  Company  to  use,  etc.,  v.  Ephraim  Lederer,  collector  of  in- 
ternal revenue,  is  published  for  the  information  of  internal-revenue  officers 

and  others  concerned.  (T.  D.  2507,  July  2,  1917.) 

2905  The  satisfactory  opinion  of  Judge  Thompson  (239  Fed.,  184)  re- 
lieves  us  from  discussing;  nearly  all  the  questions  raised  by  this  writ 

o error.  \\e  concede  the  force  of  the  company’s  argument  that  in  sub- 
stance, and  especially  in  practical  effect,  suits  such  as  this  are  against  the 
co  ector  as  an  official  rather  than  as  an  individual — his  personal  liability  is 
rare  y n ever  enforced— and  it  may  be  that  Congress  might  with  safety  and 
propriety  extend  the  existing  law  to  cover  the  situation  now  presented.  But 
until  the  change  be  actually  made  we  are  bound  by  the  law  as  it  stands,  and 
we  see  no  reason  to  doubt  that  the  statutes  and  decisions  now  in  force  pre- 
vimt.  the  company  from  recovering  in  this  action  for  the  taxes  collected  by 
ilham  McCoach,  the  defendant’s  predecessor  in  office.  No  suit  to  recover 

ion?*  j as  keen  brought  against  McCoach,  and  for  this  reason  the  Act  of 
1899  does  not  apply. 

2906  We  need  hardly  say  that  without  statutory  permission  no  suit  to 
recover  a Federal  tax  can  be  maintained.  Moreover  the  statutes  on 

this  subject  must  be  strictly  obeyed;  they  lay  down  the  conditions  and  limita- 
tions tinder  which  the  sovereign  consents  to  be  sued,  and  this  consent  should 
not; be  enlarged  by  construction.  We  turn  for  a few  moments  to  the  act  of 
1899,  since|this  seems  to  be  the  company’s]  principal  reliance.  Some  addi- 
tional facts  should  be  stated  in  order  to  make  the  position  clear.  The  com- 
panyjpaid  the  tax  fop  1909^in  June,  1910,  the  tax  for  1910  in  June,  1911, 
a°A  taxjfor  1911  in  June,  1912.  These  taxes  were  paid  under  protest 
to  McCoach,  who  remained  in  office  until  October  7,  1913.  During  his  term, 
namely,  in  June,  1912,  January,  1913,  and  May,  1913,  respectively,  the 
company  claimed  the  refund  of  these  three  taxes;  and  in  June,  1913,  it  also 
presented  a petition  to  abate  the  tax  of  1912  apparently  on  the  ground  that 
penalties  had  been  incurred  in  addition  to  the  tax,  although  we  do  not  pre- 
cisely know  what  abatement  was  asked  for.  The  claim  for  the  refund  of 
the  tax  for  1909  was  rejected  by  the  Commissioner  of  Internal  Revenue  on 
July  15,  1912,  but  apparently  the  subsequent  claims  for  refund  of  the  taxes 
of  1910  and  1911  and  also  the  petition  for  abatement  in  connection  with  the 
tax  for  1912  were  not  disposed  of  until  February,  1914. 

2907  On  October  22,  1913,  after  McCoach  had  retired  from  office,  the 
company  filed  a supplemental  affidavit  with  the  commissioner  in 

support  of  its  petition  to  abate  the  tax  of  1912,  and  on  the  same  day  asked 
him  to  reopen  and  reconsider  his  refusal  to  refund  the  tax  of  1909.  On  Oc- 
tober 27,  1913,  this  request  to  reopen  was  granted,  and  at  the  same  time 
the  commissioner  asked  for  additional  information  and  affidavits  in  reference 
to  the  claims  for  the  refund  of  the  taxes  for  1909,  1910,  and  1911,  and  also 
in  reference  to  the  petition  to  abate  the  tax  of  1912.  Accordingly,  an  affidavit 
was  furnished  on  January  14,  1914.  In  February,  1914,  the  petition  for 

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abatement  was  refused,  and  apparently  at  the  same  time  the  claims  for  the 
refund  of  the  taxes  for  1909,  1910,  and  191 1 were  also  refused,  for  on  February 
13,  1914,  Lederer  notified  the  company  that  these  claims,  and  also  the  pe- 
tition for  abatement,  had  been  examined  and  rejected  by  the  commissioner. 
In  March,  1914,  a claim  to  refund  the  tax  for  1913  wds  presented,  and  was 
refused  soon  afterwards.  The  present  suit  was  brought  on  June  29,  1914, 
and  sought  to  recover  from  Lederer  the  taxes  for  the  four  years. 

2908  From  these  facts  it  seems  clear  to  us  that  the  Act  of  1899  does  not 
apply.  The  act  is  as  follows: 

No  suit,  action,  or  other  proceeding,  lawfully  commenced  by  or 
against  the  head  of  any  department  or  Bureau  or  other  officer  of  the 
United  States  in  his  official  capacity  or  in  relation  to  the  discharge  of 
his  official  duties,  shall  abate  by  reason  of  his  death,  or  the  expiration 
of  his  term  of  office,  or  his  retirement,  or  resignation  or  removal  from 
office;  but,  in  such  event  the  court,  on  motion  or  supolemental  petition 
filed,  at  any  time  within  twelve  months  thereafter,  showing  a necessity 
for  the  survival  thereof,  to  obtain  a settlement  of  the  questions  involved, 
may  allow  the  same  to  be  maintained  by  or  against  his  successor  in  office, 
and  the  court  may  make  such  order  as  shall  be  equitable  for  the  payment 
of  costs. 

2909  The  only  “suit,  action,  or  other  proceeding”  that  could  have  been 
begun  against  McCoach  while  he  was  in  office  would  have  been  a 

suit  for  the  taxes  of  1909  and  1910,  but  no  such  suit  was  brought,  and  it  can 
not  be  successfully  contended  that  a mere  claim  for  refund,  which  is  a matter 
wholly  for  the  commissioner  is  a suit  proceeding  against  the  collector.  The 
basis  of  an  action  against  the  collector  is  his  receipt  of  the  tax,  and  if  he 
has  not  received  it  we  do  not  see  how  he  can  be  called  on  to  pay  it  back.  And 
the  fact  that  Lederer  was  the  channel  by  which  the  commissioner  transmitted 
the  refusal  to  refund  did  not  impose  liability.  Lederer  was  liable,  if  at  all, 
for  the  tax  of  1912,  for  this  had  come  into  his  own  hands,  but  no  statute 
made  him  liable  for  the  money  that  was  collected  by  his  predecessor  but 
had  never  been  sued  for. 

2910  For  these  reasons,  and  for  those  to  be  found  in  Judge  Thompson’s 
opinion,  the  judgment  is  affirmed.  (242  Fed.  492.) 

( U . S.  Supreme  Court  Decision.) 

291  1 This  is  a suit  brought  to  recover  internal  revenue  special  excise  taxes 
for  the  years  1910  and  1912,  assessed  under  the  Act  of  Congress  of 
August  5,  1909,  c.  6,  §38;  36  Stat.  11,  112;  and  paid  by  the  plaintiff, 
the  defendant  in  error,  under  duress.  The  taxes  were  collected  by  S.  M.  Fitch, 
then  collector  of  internal  revenue,  and  it  was  certified  by  the  District  Court 
as  part  of  its  judgment  that  there  was  probable  cause  for  the  act  of  the 
collector,  that  he  acted  under  the  direction  of  the  Commissioner  of  Internal 
Revenue,  and  that  the  amounts  recovered  should  be  provided  for  and  paid 
out  of  the  proper  appropriation  from  the  Treasury  of  the  United  States.  The 
defendant  is  the  present  collector  for  what  was  Fitch’s  district  and  was  held 
liable  by  this  judgment.  The  case  was  taken  to  the  Circuit  Court  of  Appeals 
which  has  certified  the  following  questions: 

“1.  Assuming  that  the  declaration  states  a guod  cause  of  action  had  the 
suit  been  brought  against  S.  M.  Fitch,  the  internal  revenue  collector  who 
actually  collected  and  received  the  taxes,  does  it  state  any  cause  of  action 

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whatever  against  said  S.  M.  Fitch’s  successor  in  office,  the  plaintiff  in  error, 
against  whom  the  suit  was  brought,  but  who  had  no  participation  in  the 
collection,  receipt  or  disbursement  of  such  taxes? 

“2.  May  suit  in  the  District  Court  of  the  United  States  properly  be 
brought  and  maintained  against  a United  States  collector  of  internal  revenue 
for  the  recovery  of  the  amount  of  a United  States  internal  revenue  tax, 
unlawfully  assessed  and  collected,  but  in  the  collection  and  disbursement  of 
which  such  collector  had  no  agency,  the  entire  transaction  of  such  assessment, 
collection  and  disbursement  having  occurred  during  the  incumbency  of  such 
office  of  a predecessor  in  office  of  such  collector?” 

2912  As  the  law  stood  before  later  statutes  a collector  was  liable  personally 

for  duties  mistakenly  collected,  if  the  person  charged  gave  notice, 

at  the  time,  of  his  intention  to  sue,  and  warning  not  to  pay  over  the  amount 
to  the  Treasury.  Elliott  v.  Swartwout.  10  Peters  137.  But  after  an  Act 
of  Congress  had  required  collectors  to  pay  over  such  monies,  it  was  held, 
against  the  dissent  of  Mr.  Justice  Story,  that  the  personal  liability  was 
gone.  Cary  v.  Curtis,  3 How.  236.  Later  statutes,  however,  recognize 
suits  against  collectors  in  such  cases,  and  the  plaintiff  contends  that  they 
should  be  construed  to  create  a new  statutory  liability  attached  to  the  office 
and  passing  to  successors,  as  was  held  in  this  case,  the  formal  defendant 
being  saved  from  harm  by  the  United  States.  This,  however,  is  not 
the  language  of  the  statutes  and  hardly  can  be  reconciled  with  the  decision 
of  this  Court  in  Sage  v.  United  States,  250  U.  S.  33  and  other  cases  to  which 
we  shall  refer. 

2913  To  show  that  the  action  still  is  personal,  as  laid  down  in  Sage  v. 

United  States,  250  U.  S.  33,  37,  it  would  seem  to  be  enough  to  observe 

that  when  the  suit  is  begun  it  cannot  be  known  with  certainty  that  the  judg- 
ment will  be  paid  out  of  the  Treasury..  That  depends  upon  the  certificate  of 
the  Court  in  the  case.  It  is  not  to  be  supposed  that  a stranger  to  an  unwar- 
ranted transaction  is  made  answerable  for  it;  yet  that  might  be  the  result  of 
the  suit  if  it  could  be  brought  against  a successor  to  the  collectorship.  A 
personal  execution  is  denied  only  when  the  certificate  is  given.  It  is  true  that 
in  this  instance  the  certificate  has  been  made,  but  the  intended  scope  of  the 
action  must  be  judged  by  its  possibilities  under  the  statutes  that  deal  with  it. 
The  language  of  the  most  material  enactment,  Rev.  St.,  §989,  gives  no 
countenance  to  the  plaintiff’s  argument.  It  enacts  that  no  execution  shall 
issue  against  the  collector  but  that  the  amount  of  the  judgment  shall  “be 
provided  for  and  paid  out  of  the  proper  appropriation  from  the  Treasury,” 
when  and  only  when  the  Court  certifies  to  either  of  the  facts  certified  here, 
and  “when  a recovery  is  had  in  any  suit  or  proceedings  against  a collector 
or  other  officer  of  the  revenue  for  any  act  done  by  him,  or  for  the  recovery 
of  any  money  exacted  by  or  paid  to  him  and  by  him  paid  into  the  Treasury, 
in  the  performance  of  his  official  duty.”  A recovery  for  acts  done  by  the 
defendant  is  the  only  one  contemplated  by  the  word  ‘by  him.’  The  same 
is  true  of  Rev.  Sts.,  §77,  requiring  District  Attorneys  to  defend  such  suits. 

2914  No  different  conclusion  results  from  the  Act  of  February  8,  1899,  c. 

121,  30  Stat.  822.  That  is  a general  provision  that  a suit  by  or 

‘against  an  officer  of  the  United  States  in  his  official  capacity’  should  not  abate 
by  reason  of  his  death,  or  the  expiration  of  his  term  of  office,  &c.,  but  that 
the  Court  upon  motion  within  twelve  months  showing  the  necessity  for  the 
survival  of  the  suit  to  obtain  a settlement  of  the  question  involved,  may  allow 
the  same  to  be  maintained  by  or  against  his  successor  in  office.  Whether 

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this  would  apply  to  a suit  of  the  present  kind  is  at  least  doubtful.  Roberts 
v.  Lowe,  236  Fed.  Rep.  604,  605.  In  Patten  v.  Brady,  184  U.  S.  608,  a suit 
against  a collector  begun  after  the  passage  of  this  statute,  it  was  held  that  it 
could  be  revived  against  his  executrix,  which  shows  again  that  the  action  is 
personal  as  also  does  the  fact  that  this  collector  may  be  held  liable  for  interest. 
Erskine  v.  Van  Arsdale,  15  Wall.  75.  Redfield  v.  Bartels,  139  U.  S.  694. 
But  in  any  event  the  statute  supposes  a suit  already  begun  against  the  officer 
in  his  lifetime.  We  need  not  consider  the  remedies  against  the  United 
States.  United  States  v.  Emery,  Bird,  Thayer  Realty  Co.,  237  U.  S.  28; 
Sage  v.  United  States,  250  U.  S.  33.  It  appears  to  us  plain  without  further 
discussion  that  both  questions  must  be  answered:  No. 

Answer  to  Questions  1 and  2:  No. 

(U.  S.  Supreme  Court.  Smietanka  vs.  Indiana  Steel  Company.  October 
24,  1921.) 

291  5 Law  632.  U.  S.  District  Courts  Given  Jurisdiction  to  Hear  and 
(See.  1310.)  Determine  Claims  Against  the  United  States  for  the 
Amount  of  Taxes  or  Penalties  Illegally  Collected 
if  the  Collector  to  Whom  Such  Taxes  or  Penalties  were  Paid  is  Dead. — 

“(c)  Paragraph  Twentieth  of  section  24  of  the  Judicial  Code  is  amended 
by  adding  at  the  end  thereof  the  following  new  paragraph: 

‘ Concurrent  with  the  Court  of  Claims , of  any  suit  or  proceeding , com- 
menced after  the  passage  of  the  Revenue  Act  of  1921,  for  the  recovery  of  any 
internal-revenue  tax  alleged  to  have  been  erroneously  or  illegally  assessed  or 
collected,  or  of  any  penalty  claimed  to  have  been  collected  without  authority 
or  any  sum  alleged  to  have  been  excessive  or  in  any  manner  wrongfully  col- 
lected, under  the  internal-revenue  laws , even  if  the  claim  exceeds  $10,000, 
if  the  collector  of  internal-revenue  by  whom  such  tax,  penalty,  or  sum  was 
collected  is  dead  at  the  time  such  suit  or  proceeding  is  commenced ” — Law. 

[Note:  This  amendment  to  paragraph 
20th  of  Sec.  24  of  the  Judicial  Code  is 
new  to  the  1921  Act.  Note  paragraph 
5th  of  Sec.  24  of  the  Judicial  Code.] 

2916  Law  1J671.  Interest  May  be  Allowed  in  Any  Judgment  of  Any 
(Sec.  1324.)  Court  Rendered  Against  the  United  States  for  Internal 
Revenue  Taxes  or  Penalties  Illegally  Collected. — 

‘(b)  Section  177  of  the  Judicial  Code  is  amended  to  read  as  follows: 

‘Sec.  177.  No  interest  shall  be  allowed  on  any  claim  up  to  the  time 
of  the  rendition  of  judgment  by  the  Court  of  Claims,  unless  upon  a contract 
expressly  stipulating  for  the  payment  of  interest ,’  ” — Law.  [Note: 

The  word  “thereon”  after  “judgment” 
has  been  omitted.] 

291  7 Law  *i  672.  “ ‘except  that  interest  may  be  allowed  in  any  judgment 

(Sec.  1324.)  of  any  court  rendered  after  the  passage  of  the  Revenue 
Act  of  1921  against  the  United  States  for  any  internal- 
revenue  tax  erroneously  or  illegally  assessed  or  collected,  or  for  any  penalty 
collected  without  authority  or  any  sum  which  was  excessive  or  in  any  manner 
wrongfully  collected,  under  the  internal-revenue  laws.’  ” — Law.  [Note: 

This  is  all  new.] 


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2918  iScct.ion  177  of  the  Judicial  Code,  amended  by  section  1324  of  this 

Act,  provides  .that  interest  may  be  allowed  in  any  judgment  of  any 
court  rendered  after  the  passage  of  the  Revenue  Act  of  1921  against  the 
United  States;  for  any  internal  revenue  tax  erroneously  or  illegally  assessed 
or  collect cd  or  for  any  penalty  collected  without  authority  or  any  sum  which 
was  excessive  or  in  any  manner  wrongfully  collected  under  the  internal 
revenue  laws.  (Art.  1040,  Reg.  62,  1922  Edition.) 

I'ot-  ff.r plan at i oft  of  Cumulative  Index  references  see  page  )i. 

■¥■  Interest  on  judgment  c'ciims;  full  discussion:  1921  Act  (1-39-522 : Sol.  Op.  142).  • 
Bull.  1 (’22)-39,  p.  6. 

2919  Law  1[658.  Appropriation  for  the  Payment  of  Refunds  and  the 
(Sec.  1317.)  Satisfaction  of  judgments. — “Sec.  1317.  That  the 

-paragraph  of  section  2 689  of  the  Revised  Statutes,  as 
amended,  reading  as  follows:  ‘ Refunding  taxes  illegally  collected  ( internal 
revenue);  To  refund  and  pay  back  duties  erroneously  or  illegally  assessed 
or  collected  under  the  internal  revenue  laws,’’  is  repealed  from  and  after  June 
30,  1920;  and  the  Secretary  of  the  Treasury  shall  submit  for  the  fiscal  year 
1921,  and  annually  thereafter,  an  estimate  of  appropriations  to  refund  and 
pay  back,  duties  or  taxes  erroneously  or  illegally  assessed  or  collected  under 
the  internal-revenue  laws,  and  to  pay  judgments,  including  interest  and 
costs,  rendered  for  taxes  or  penalties  erroneously  or  Illegally  assessed  or  col- 
lected under  the  internal-revenue  lazes.”— Law.  [Note:  This  is  new.] 

2920  Claims  for  Refund  of  Sums  Recovered  by  Suit.— (a)  Claims  by 
taxpayers  for  the  amount  of  a judgment  representing  taxes  or  pen- 
alties erroneously  collected  should  be  made  on  Form  843.  The  claim- 
ant should  state  the  grounds  of  his  claim  under  oath,  giving  the  names 
of  all  the  parties' to  the  suit,  the  cause  of  action,  the  date  of  its  commence- 
ment, the  date  of  the  judgment,  the  court  in  which  it  was  recovered,  and  its 
amount.  To  this  affidavit  there  should  be  annexed  a certified  copy  of  the  final 
judgment,  a certificate  of  probable  cause,  and  an  itemized  bill  of  the  costs  paid 
receipted  by  the  clerk  or  other  proper  officer  of  the  court,  together  with  a cer- 
tified copy  of  the  docket  entries  of  the  court  in  the  case  or  so  much  thereof 
as  may  be  required  by  the  Commissioner.  When  a recovery  is  had  in  any  suit 
or  proceeding  against  a collector  or  other  internal  revenue  officer  for  any  act 
done  by  him,  or  for  the  recovery  of  any  money  exacted  by  or  paid  to  him 
and  by  him  paid  into  the  Treasury,  in  the  performance  of  his  official  duty, 
and  the  court  certifies  that  there  was  probable  cause  for  the  act  done  by 
the  collector  or  other  officer,  or  that  he  acted  under  the  directions  of  the 
Secretary  of  the  Treasury,  or  other  proper  officer  of  the  Government,  no 
execution  shall  issue  against  such  collector  or  other  officer,  but  the  amount 
so  recovered  shall,  upon  final  judgment,  be  provided  for  and  paid  out  of  the 
proper  appropriation  from  the  Treasury.  See  section  989  of  the  Revised 
Statutes,  (b)  If  the  judgment  debtor  shall  have  already  paid  the  amount 
recovered  against  him,  the  claim  should  be  made  in  his  name.  There  should 
also  be  a certificate  of  the  clerk  of  the  court  in  which  the  judgment  was  re- 
covered (or  other  satisfactory  evidence),  showing  that  the  judgment  has 
been  satisfied  and  specifying  the  exact  sum  paid  in  its  satisfaction,  with  a 
detail  of  all  items  of  costs  which  were  paid  by  the  judgment  debtor  or  for 
which  he  is  liable.  See  further  articles  1031  [*[2813]  and  1040  1^2859].  (Art. 
1051,  Reg.  62,  1922  Edition.) 


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RULES,  REGULATIONS,  ETC. 


292!  Organization  of  a Committee  on  Review  and  Appeal  to  Take  Over 
the  Work  of  the  Advisory  Tax  Board  Which  Ceased  to  Exist  on 
October  1,  1919. — Taxpayers  in  many  parts  of  the  country  have  expressed 
interest  in  the  plans  of  the  Bureau  for  continuing  the  important  work  en- 
trusted to  the  Advisory  Tax  Board.  The  function  of  the  Board  has  been 
to  review,  upon  appeal,  the  administrative  decisions  of  the  Income  Tax 
Unit  in  important  income  and  excess  profits  cases,  particularly  cases  in- 
volving exceptional  or  unusual  conditions  with  respect  to  questions  of  in- 
vested capital,  amortization,  depletion,  depreciation,  etc.  The  newly 
organized  Committee  on  Review  and  Appeal  will  take  over  this  highly  im- 
portant function,  and  taxpayers  are  assured  of  the  same  throughtful  and 
impartial  consideration  of  their  problems  that  has  been  a feature  of  the 
work  of  the  retiring  Board. 

2922  The  individual  members  of  the  Committee  on  Review  and  Appeal 
will  be  selected  with  the  greatest  care  from  our  most  experienced 

men  in  order  that  their  combined  judgment  may  represent  the  best  experi- 
ence and  highest  intelligence  of  the  Bureau’s  personnel.  I am  confident  that 
this  body  of  men  will  continue  in  a most  satisfactory  manner  the  work  in- 
augurated by  the  Advisory  Tax  Board  and  taxpayers  may  be  assured  of 
courteous,  intelligent  and  impartial  hearings.  (Announcement  by  Com- 
missioner Daniel  C.  Roper,  dated  September  27,  1919.) 

2923  Personnel  of  the  Committee  on  Appeals  and  Reviews. — The  per- 
sonnel of  the  Committee  on  Appeals  and  Review,  March  1,  1922: 

N.  T.  Johnson,  Chairman 

G.  R.  Davis,  Vice-Chairman 

A.  W.  Gaumer 

Leslie  Gillis 

C.  P.  Hoffman 

W.  H.  Lawder 

C.  P.  McGinley 

R.  J.  Service 

R.  G.  Stetson 

M.  E.  Stickley 

F.  G.  Smith,  Secretary 

2924  Method  of  procedure  before  Committee  on  Appeals  and  Review. — 

[In  reading  the  following  the  new  law  provisions , ^2757,  et  seq.,  should 
be  borne  in  mind.]  The  Committee  was  created  to  succeed  and  to  function 
in  the  same  way  as  the  Advisory  Tax  Board.  • 

2925  With  reference  to  the  taking  of  an  appeal  to  the  Committee,  the  tax- 
payer or  representative,  is  requested  to  submit  a formal  request  in 

writing  to  the  Commissioner  of  Internal  Revenue,  attention  Committee  on 
Appeals  and  Review,  appealing  from  the  action  of  the  Income  Tax  Unit,  and 
requesting  that  his  case  be  referred  to  the  Committee  for  consideration  of  the 
questions  which  he  desires  to  appeal. 

2926  The  Committee  has  recently  adopted  the  rule  that  a succinct  state- 
ment of  such  facts  as  the  appellant  desires  considered  by  the  Bureau 

in  connection  with  his  appeal  be  submitted,  duly  sworn  to,  and  he  may  in 
addition  thereto  submit  such  arguments  as  he  may  desire  to  present  in  con- 
nection with  his  appeal  in  form  of  brief. 

2927  Upon  receipt  of  formal  request  and  sworn  statement  of  facts,  the 
Income  Tax  Unit  is  requested  to  submit  the  case  and  related  papers 

to  the  Committee  as  a formal  appeal,  and  upon  receiptjand  examination  of 

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case,  the  taxpayer  is  further  notified  as  to  date  set  for  oral  presentation  of  his 
appeal,  if  so  requested  in  his  formal  request  addressed  to  the  Commissioner. 

2928  It  is  contrary  to  the  policy  of  the  Bureau  to  defer  assessments  oending 
the  taking  up  of  an  appeal,  and  in  the  event  that  notice  and  demand 

for  payment  of  tax  is  received  from  the  Collector,  the  taxpayer  is  advised  to 
file  claim  for  abatement,  Form  [843],  with  the  Collector,  attaching  thereto 
copy  if  formal  appeal  in  order  that  the  claim  will  not  be  acted  upon  pending 
the  decision  of  the  Committee.  [Caution:  Read  beginning  at  1(2757.] 

2929  In  the  event  of  an  oral  hearing,  which  is  expected  to  be  final,  the  tax- 
payer is  expected  to  submit  such  arguments  and  presentation,  both 

as  to  the  law  and  the  facts,  as  he  desires  to  have  considered  by  the  Bureau. 
The  oral  hearing  may  be  supplemented  by  a written  brief,  to  be  submitted 
either  before  or  after  the  hearing,  but  preferably  at  least  three  days  prior  to 
the  date  of  the  hearing.  Three  copies  of  this  brief  should  be  furnished,  but 
it  need  not  be  printed. 

2930  Upon  receipt  of  the  Committee’s  decision,  approved  by  the  Commis- 
sioner of  Internal  Revenue,  the  taxpayer  is  notified  by  the  Committee 

of  its  recommendation  and  the  case  is  referred  to  the  Income  Tax  Unit  for  such 
further  action  in  accordance  with  the  decision  of  the  Committee  as  may  be 
necessary,  of  which  action  the  taxpayer  is  duly  notified. 

2931  Attention  is  also  called  to  the  fact  that  a rule  for  procedure  on  appeals 
from  the  Income  Tax  Unit,  recently  prepared  by  the  Commissioner, 

appears  in  Bulletin  Service  43-20  [December  1920  Cumulative.  Bulletin, 
page  370.]  covering,  in  a general  way,  the  procedure  as  outlined  above. 
(Announcement  by  the  Bureau  of  Internal  Revenue,  January  15,  1921.) 

2932  On  the  Recognition  of  Attorneys  and  Agents  and  Other  Persons 
Representing  Claimants  Before  the  Bureau  of  Internal  Revenue. — 

Comment:  The  following  [1(2933  to  1(2936]  is  extracted  from  Treasury 
Department  Circular  No.  230.  Exhibit  A of  this  circular  is  ‘ Treasury 
Department,  Chief  Clerk,  Form  23”  and  constitutes  a blank  application 
form,  including  oath,  for  members  of  the  bar  and  others,  addressed  to  the 
Secretary  of  the  Treasury,  for  admission  to  practice  before  the  Treasury 
Department  and  its  Bureaus,  of  which  the  Bureau  of  Internal  Revenue  is 
one.  (For  Department  Circular  No.  230,  Exhibit  A,  and  Supplement,  see 
June,  1921,  Cumulative  Bulletin,  page  408.)— The  Corporation  Trust  Com- 
pany. 

[Extract  from  Circular  No.  230  referred  to  in  ^[2932  above.] 

2933  “ Applications  for  Enrollment.- — Applicants  for  enrollment  pursuant 
to  these  regulations  shall  submit  to  the  Secretary  of  the  Treasury 

an  application,  properly  executed,  on  the  form  attached  hereto  (Exhibit  A). 
Applications  in  any  other  form  will  not  be  considered.  Persons  members 
of  the  bar  of  a court  of  record  will  apply  for  enrollment  as  “attorney  all 
others  will  apply  for  enrollment  as  “agent.”  Members  of  a firm  may  apply 
for  enrollment  either  individually  or  collectively.  In  the  latter  case  applica- 
tion should  be  made  in  the  firm  name,  giving  the  name  of  each  member  and 
the  required  information  as  to  each,  and  the  application  should  be  signed 
in  the  firm  name  and  by  each  member  of  the  firm.  The  Secretary  of  the 
Treasury  may  in  any  case  require  other  and  further  evidence  ot  qualification. 
Applicants  will  be  notified  of  the  approval  or  rejection  of  their  application. 

2934  “ Restriction  of  Right  to  be  Heard  to  Parties  and  Enrolled  Attor- 
neys and  Agents— The  committee  on  enrollment  and  disbarment 

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shall  maintain  in  the  office  of  the  chief  clerk,  Treasury  Department,  a roll 
of  attorneys  and  agents  entitled  to  practice  before  the  Treasury  Department. 
It  shall  likewise  maintain  lists  of  those  whose  applications  foi  enrollment 
have  been  rejected  and  those  who  have  been  suspended  or  disbarred.  The 
chief  clerk  shall  furnish  copies  of  the  said  roll  and  lists,  with  such  additions 
thereto  or  subtractions  therefrom  as  may  be  made  from  time  to  time,  to  the 
bureaus,  offices,  and  divisions  of  the  Treasury  Department. 

2936  “All  bureaus,  offices,  and  divisions  of  the  Treasury  Department  are 
hereby  prohibited  from  recognizing  or  dealing  with  anyone  appear- 
ng  as  attorney  or  agent  unless  the  name  of  such  attorney  or  agent  appears 
upon  the  list  of  those  entitled  to  practice  before  the  Trea  ury  Department. 
Nothing  herein  contained  shall  preclude  individual  parties  or  members 
of  firms  or  officers  of  corporations  from  appearing,  upon  proper  identification, 
as  representatives  of  their  own  interests  or  of  their  respective  firms  or  corpor- 
ations in  any  matter  before  the  department  in  which  such  person,  firm, 
or  corporation  is  concerned  as  a principal:  but  attorneys,  counsel,  or  solicitors 
or  other  agents  for  such  persons,  firms,  or  corporations  must  be  enrolled. 

2936  “It  shall  be  the  duty  of  the  bureaus,  offices  and  divisions  of  the 
Treasury  Department  to  ascertain  in  each  case  whether  the  name 

of  one  appearing  before  them  in  a representative  capacity  appears  on  the 
roll  of  those  entitled  to  practice.  In  any  case  where  such  enrollment  does 
not  appear,  the  requirement  therefor  shall  be  brought  to  the  attention  of 
such  representative.  The  head  of  such  bureau,  office,  or  division  may,  in 
his  discretion,  temporarily  recognize  such  representative  pending  applica- 
tion for  enrollment,  provided  his  name  does  not  appear  on  the  list  ol  those 
whose  applications  for  enrollment  have  been  rejected  or  on  the  list  of  those 
who  have  been  suspended  or  disbarred.”  (Extract  from  Department  Cir- 
cular No.  230.) 

2937  There  is  in  operation  now  a new  system  of  enrollment.  Applicants  arc 
enrolled  and  certified  by  a committee,  which  constantly  is  functioning 

for  that  purpose.  They  must  submit  a sworn  statement  that  they  are  familiar 
with  the  laws  and  regulations  of  the  Treasury  Department,  and  are  qualified 
to  act  as  the  representative  of  others  and  “render  them  valuable  service.” 
Reply  must  be  given  to  the  question  of  whether  or  not  they  have  ever  been 
rejected,  suspended  or  disbarred  from  appearing  as  an  attorney  or  agent,  or 
in  any  other  representative  capacity,  be 'ore  any  branch  of  the  Federal  or 
any  State  Government,  or  municipality  or  court  thereof. 

2938  Scores  of  applications  are  now  being  held  for  investigation,  which  is 
conducted  by  field  agents  of  the  Bureau  of  Internal  Revenue. 

2939  Applicants  are  required  also  to  state  whether  they  have  read  and 
noted  paragraph  5 of  Treasury  Department  Circular  230  relating 

to  the  recognition  of  attorneys,  agents  and  other  persons  representing  claim- 
ants before  the  Treasury  Department,  and  especially  the  following  significant 
paragraph: 

“The  Secretary  of  the  Treasury  regards  as  unethical  any  suggestion  of 
acquaintance  with  officials  or  prior  connection  with  the  Treasury  Depart- 
ment.” 

2940  Supplemental  regulations  provide  that  “no  attorney  or  agent  shall 
be  permitted  to  appear  in  a representative  capacity  as  attorney, 

or  agent  before  the  Treasury  Department,  or  any  of  the  bureaus,  depart- 
ments, divisions,  subdivisions,  units  or  other  agencies  thereof,  in  regard  to 

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KULES,  REGULATIONS,  ETC. 

any  claim,  application  for  re-audit,  refund,  abatement,  reduction  in  tax 
assessed,  or  in  any  other  matter  to  which  he  gave  actual  personal  considera- 
tion, or  as  to  the  facts  of  which  he  had  actual  personal  knowledge  while  in 
the  service  of  the  Treasury  Department.” 

2941  On  and  after  August  1,  1921  power  of  attorney  from  the  principal 
in  each  case  will  be  required  of  all  attorneys,  agents  or  other  person 

representing  claimants  before  the  Bureau  of  Internal  Revenue.  Such  power 
of  attorney  mun  be  filed  before  such  agent;  attorney  or  other  person  is 
recognized  by  the  Bureau.  (Official  statement,  signed  by  Commissioner 
David  IT.  Blair,  and  dated  July  25,  1921.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

On  the  necessity  for  powers-of-attorney,  and  the  stamping  thereof.  . ^3104.  Revised 
Department  Circular  No.  230  on  the  recognition  of  attorneys  and  agents.  .^[3174. 
Conference  and  practice  requirements  (June  1,  1922) . .^[3227.  l'orm  of  power-of- 
* attorney;  power  of  substitution  or  revocation;  restricting  force  of.  A[3300;  same 
(1-33-461:  I.  T.  1422).  .Bull  I (’22)-33,  p.  8.  On  the  use  of  certified  copies  and 
advising  Bureau  when  writing  or  appearing  on  behalf  of  tax-payer  that  power 
has  been  filed:  1921  Act  (1-29-414:1.  T.  1395).. Bull.  1 (’22)-29,  p.  8. 

2942  Law  T[625.  The  Commissioner  Authorized  to  Make  Rules  and 
(Sec.  1303.)  Regulations. — “Sec.  1303.  That  the  Commissioner , 

with  the  approval  of  the  Secretary,  is  hereby  authorized 
to  make  all  needful  rules  ana  regulations  for  the  enforcement  of  the  pro- 
visions of  this  Act.” — Law.  [Note:  The  1918  Act  so  provided.] 

2943  In  pursuance  of  the  statute  the  foregoing  regulations  [Regulations 
62,  1922  Edition]  are  hereby  made  and  promulgated  [February  15, 

1922]  and  all  rulings  inconsistent  herewith  are  hereby  revoked.  (Art.  1800, 
Reg.  62,  1922  Edition.) 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

Practicing  before  the  Bureau.  See  “Practicing  before  the  Bureau”  in  cumulative 
index  following  ^[2748  on  page  611. 

2944  Law  1f6S4.  Regulations  May  Be  Applied  Without  Retroactive 
(Sec.  1314.)  Effect. — “Sec.  1314.  That  in  case  a regulation  or 

Treasury  decision  relating  to  the  internal-revenue  laws 
made  by  the  Commissioner  or  the  Secretary,  or  by  the  Commissioner  with 
the  approval  of  the  Secretary , is  reversed  by  a subsequent  regulation  or  Treas- 
ury decision,  and  such  reversal  is  not  immediately  occasioned  or  required 
by  a decision  of  a court  of  competent  jurisdiction , such  subsequent  regu- 
lation or  Treasury  decision  may,  in  the  discretion  of  the  Commissioner, 
with  the  approval  of  the  Secretary,  be  applied  without  retroactive  effect.” 

— Law.  [Note:  This  provision  is  new  to  the  1921  Act.] 

2945  Policy  of  the  Bureau  of  Internal  Revenue  with  Regard  to  Requests 
for  Rulings  and  Advice  Upon  Abstract  Propositions. — The  Bureau 

ot  Internal  Revenue  herein  definitely  outlines  its  policy  with  regard  to  re- 
quests wh'ch  are  received  daily  for  rulings  and  advice  upon  abstract  proposi- 
tions involving  questions  of  income  tax  and  profit  liability.  For  example, 
taxpayers  considering  the  reorganization  of  corporations  frequently  ask 
whether  the  contemplated  plans  will  result  in  the  realization  of  taxable 
income.  These  requests  for  advance  information  have, become  so  numerous, 
that  the  Bureau  deems  it  advisable  to  state  why  it  is  found  necessary  to 
decline  to  make  advance  rulings  in  particular  cases.  The  policy  of  the 
Bureau,  it  is  announced,  will  be  not  to  answer  such  inquiries  except  under 
the  following  circumstances: 

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The  transaction  must  be  completed  and  not  merely  proposed  or  planned. 
The  complete  facts  relating  to  the  tiansaction,  together  with  abstracts 
from  contracts  or  other  documents  necessary  to  pre-ent  the  complete  facts 
must  be  given. 

The  names  of  all  the  real  parties,  interested  (not  “dummies”  used  in  the 
transaction)  must  be  stated  regardless  of  who  presents  the  question,  whether 
attorney,  accountant,  tax  service  or  other  representative. 

2946  The  Conclusions  upon  which  the  rulings  are  based  are  as  follows: 
“An  examination  of  the  revenue  laws  setting  forth  the  duties  of  the 

Commissioner  ot  Internal  Revenue  does  not  disclose  any  function  assigned 
to  him  by  statute  which  authorizes  him  to  make  a decision  in  any  particular 
case  which  does  not  arise  in  actual  course  of  administering  the  law.  He  is 
authorized,  with  the  approval  of  the  Secretary  of  the  Treasury,  to  make 
regulations,  but  this  would  not  authorize  him,  even  with  the  approval  of 
the  Secretary,  to  decide  any  particular  case  in  advance  of  its  actual  presenta- 
tion of  the  facts  for  a decision. 

2947  “In  the  interval  between  an  informal  advance  decision  and  the  time 
when  the  case  is  finally  presented  for  actual  decision,  developments 

may  occur  which  affect  the  decision.  When  a question  is  actually  presented 
in  the  regular  course  of  administration  for  the  decision  of  the  Commissioner, 
the  decision  must  then  be  in  accoi'dance  with  such  light,  whether  from  ex- 
perience or  from  judical  decision,  as  he  may  then  have.  Any  taxpayer 
who  had  relied  on  an  advance  decision  would  necessarily  be  prejudiced  when- 
ever the  final  decision  did  not  agree  with  the  advance  decision.  The  fact 
that  taxpayers  asking  for  advance  decision'  are  usually  unwilling  to  accent 
an  oral  opinion  shows  that  taxpayers  are  intending  to  rely  on  such  advance 
decisions,  and  are  likely  to  be  misled  by  them  if  change  later  becomes  neces- 
sary. 

2948  “It  is  also  a matter  of  practical  experience  that  when  facts  are  pre- 
sented for  advance  decision  it  is  practically  impossible  to  present 

the.  same  facts  as  will  afterwards  come  up  in  the  regular  course  for  actual 
decision.  Reorganization  plans,  for  instance,  when  they  actually  work 
out,  may  be  changed  in  some  particular  which  the  taxpayer  regards  as 
unimportant,  but  which  in  fact  may  be  decisive  of  the  case. 

2949  “The  large  number  of  taxpayers  which  must  be  dealt  with  under 
, the  present  law  and  the  great  variety  of  intricate  questions  involved 

requires  employees  not  only  of  native  ability  but  of  special  training.  Even 
such  a force  is  taxed  to  the  utmost  in  dealing  with  the  actual  cases  as  they 
arise,  and  every  attempt  to  render  an  advance  decision  takes  just  so  much 
time,  away  from  the  taxpayers  who  have  a definite  right  under  the  law  to  a 
consideration  of  their  cases  which  are  ready  for  final  disposal. 

2950  Experience  in  the  past  shows  that  when  such  questions  were  con- 
sidered a single  advance  decision  was  not  sufficient  in  most  cases. 

2951  It.  is  realized  that  the  uncertainty  which  exists  in  the  minds  of 
business  men  as  to  the  construction  of  various  parts  of  the  law  is 

unfortunate  and  tends  to  hamper  business  development,  but  since  such  un- 
certainty can  be.  resolved  only  through  decisions  of  the  courts,  and  since 
an  advance  decision  by  the  Commissioner  is  not  a real  but  only  an  apparent 
resolution  of  the  uncertainty,  it  appears  that  in  giving  such  advance  decisions 
the  Commissioner  would  be  doing  the  taxpayer  an  injustice  rather  than  a 
favor. 


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2952  “Where  a question  presented  is  not  covered  by  the  regulations  and 
is  so  general  that  the  regulations  should  contain  a provision  bear- 
ing on  it,  an  amendment  of  the  regulations  will  be  prepared  as  heretofore. 

2953  “The  conclusions  here  stated  are  the  same  conclusions  that  have 
been  reached  in  practically  every  instance  by  bodies  whose  duty  it 

is  to  make  decisions  based  on  facts — that  it  is  unsafe  and  misleading  to  treat 
hypothetical  questions  or  to  give  advance  information  even  on  real  questions.” 
(Statement  by  the  Bureau  of  Internal  Revenue,  dated  August  26,  1919.) 

2954  “Requests  are  being  received  daily  for  rulings  and  advice  upon 
abstract  cases  or  prospective  transactions  involving  questions  of 

income  tax  and  profits  liability.  These  requests  are  so  numerous  and  the 
insistence  on  prompt  action  so  great  that  it  seems  advisable  at  this  time 
definitely  to  outline  the  Bureau’s  policy  which  will  govern  the  consideration 
of  these  requests. 

2955  “The  Revenue  Acts  of  1918  and  1921  depart  widely  at  many  points 
from  prior  law  or  practice,  and  have  given  rise  to  new  questions  of 

such  importance,  complexity,  and  number  that  the  resources  of  the  Bureau 
are  no  more  than  adequate  to  advise  taxpayers  promptly  of  their  present 
liabilities  arising  out  of  past  transactions.  It  is  impossible  to  answer  every 
question  which  the  invention  or  ingenuity  of  the  inquirer  may  devise  without 
neglecting  the  fundamental  duty  of  determining  tax  liability  upon  the  basis 
of  actual  happenings.  Under  these  circumstances,  the  administrative  neces- 
sity is  obvious  of  giving  precedence  over  abstract  or  prospective  cases  to 
actual  cases  in  which  the  taxpayer  desires  to  know  what  are  his  immediate 
liabilities  under  the  law. 

2956  “It  will  be  the  policy  of  the  Bureau  not  to  answer  any  inquiry  except 
under  the  following  circumstances: 

2957  “The  transaction  must  be  completed  and  not  merely  proposed  or 
planned. 

2958  “The  complete  facts  relating  to  the  transaction,  together  with  ab- 
stracts from  contracts,  or  other  documents,  necessary  to  present  the 

complete  facts,  must  be  given. 

2959  “The  names  of  all  the  real  parties  interested  (not  “dummies”  used 
in  the  transaction)  must  be  stated  regardless  of  who  presents  the 

question,  whether  attorney,  accountant,  tax  service,  or  other  representative. 
(Statement  by  the  Bureau  of  Internal  Revenue,  dated  January  9,  1922.) 

29@o  Organization  Chart  of  the  Income  Tax  Unit  of  the  Bureau  of  Internal 
(Revenue.— The  subjoined  is  a transcript  in  tabular  form  of  the 
officially  prepared  Organization  Chart  of  the  Income  1 ax  Unit.  This  should 
prove  interesting  as  well  as  helpful.  The  code  symbols  on  the  right  come 
under  the  eyes  of  subscribers  frequently,  on  letters  and  other  matters  from 
the  Bureau  and  otherwise.  The  table  will  identify  and  explain  the  meaning 
of  these  symbols  IT,  of  course,  means  Income  Tax,  and  refers  to  the  In- 
come Tax  Unit.  In  the  nature  of  things,  it  is  by  no  means  certain  that 
either  the  personnel  or  the  symbols  will  remain  unchanged  indefinitely. 
However,  the  chart  presents  the  situation  as  it  is  today.  We  show  in  the 
margin,  to  facilitate  the  locating  of  any  particular  set  of  code  initials,  the 
control  initials  of  each  series.  (Nov.  29,  1921.) 


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RULES,  REGULATIONS,  ETC. 


Income  Tax  Unit — IT 

IT:E  Deputy  Commissioner:  E.  H.  Batson IT:E 

Assistant  Deputy  Commissioner:  E.  W.  Chatterton. . ,IT:E 
Executive  Staff: 

(a)  Special  Assistant:  J.  D.  Burks IT:E:SA 

(b)  Supervisor  of  Claims:  J.  0.  Burnham IT:E:SC 


Executive  Committee  (Heads  of  Divisions). 


IT:S  Staff  Division:  Head:  B.  E.  Hunsinger IT:S 

Personnel:  Chief:  E.  C.  Wilcox IT:S:P1 

Training:  Chief:  J.  W.  Beers IT:S:Tn 

Personnel  Research:  Chief:  W.  W.  Hubert IT:S:PR 

IT:Adj  Administration  Division: IT:Ad 

(a)  Head:  C.  B.  Allen 

(b)  Assistant  Head:  F.  M.  Woodward 

Proving:  Chief:  T.  F.  Langley ITAxLP 

Sorting:  Chief:  A.  B.  Niess IT:Ad:S 

Stenographic:  Chief:  F.  E.  Dodge IT:Ad:SS 

Duplicating:  Chief:  C.  P.  Hall . ,IT:Ad:Du 

Building  Equipment  and  Supply: 

Chief:  J.  K.  Utley IT:Ad:BES 

Mail:  Chief:  Miss  F.  Callahan IT:Ad:M 

Orders  & Codes:  Chief:  E.  D.  Vosbury IT:Ad:OC 

Records  Subdivision:  Chief:  W.  T.  Sherwood IT:Ad:R 

Unaudited  Returns:  Chief  E.  H.  Campbell IT:Ad:R:UR 

Claims  Control:  Chief:  J.  R.  Brelsford IT:Ad:R:CC 

Distribution:  Acting  Chief:  O.  C.  Luxford IT:Ad:R:D 

Registration:  Chief:  W.  B.  Whipple IT:Ad:R:R 

Correspondence:  Chief:  A.  L.  Duncan IT:Ad:R:C 

IT:Pa  Personal  Audit  Division:  Head:  B.  S.  Kimbrell IT:PA 

Section  1:  Chief:  W.  D.  Middlekauf IT:PA:1 

Section  2:  Chief:  G.  G.  Platt IT:PA:2 

Section  3:  Chief:  W B.  Swafford IT:PA:3 

Section  4:  Chief:  C.  C.  Marsh IT:PA:4 

Section  5:  Chief:  I.  I.  Phillips IT:PA:5 

Section  6:  Chief:  C.  M.  Sheppard IT:PA:6 

Field  Review:  Chief:  Albert  Lewis IT:PA:FR 

IT:CA  Corporation  Audit  Division: IT:CA 

(a)  Head:  F.  R.  Clute 

(b)  Assistant  Plead:  0.  Kinsel 

Manufacturers:  Chief:  J.  G.  Remey IT:CA:M 

Trading:  Chief:  F.  Guderian IT :CA:T 

Public  Utilities  & Personal  Service: 

Chief:  D.  W.  Bell IT:CA:PU 

Finance:  Chief:  L.  C.  Fountain IT:CA:F 

Miscellaneous:  Chief:  E.  B.  Cook IT:CA:Ms 

IT:F  Field  Division: ITT 

(a)  Head:  C.  M.  Justice 

(b)  Assistant  Head:  J.  L.  McGrew 

Field  Reports  Control:  Chief:  J.  Mahoney IT:F:FR 

Field  Personnel:  Chief:  E.  R.  Ballinger IT:F:FP1 

Field  Force:  Revenue  Agents. 

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IT:SA  Special  Audit  Division: IT:SA 

(a)  Head:  S.  Alexander 

(b)  Assistant  Head:  P.  F.  Cain 

Special  Assessment:  Chief:  F.  B.  Bell IT:SA:SM 

Special  Assignment:  Chief:  R.  FI.  Akers IT:SA:As 

Inventory:  Chief:  E.  B.  Wellener IT:SA:I 

Amortization:  Chief:  S.  T.  De  La  Mater IT:SA:Am 

Consolid’t’d  Returns  Subdivision:  Chief : W.P. Bird. . IT :SA:CR 

Section  A:  Chief:  M.  FI.  Wilhoite IT:SA:CR:A 

Section  B:  Chief:  F.  A.  Linzel IT:SA:CR:B 

Section  C:  Chief:  A.  F.  Elkins IT:SA:CR:C 

Section  D:  Chief:  J.  G.  Bright IT:SA:CR:D 

Section  E:  Chief:  W.  L.  Heap IT:SA:CR:E 

Affiliations:  Chief:  FI.  L.  Robinson IT:SA:CR:Af 

Administrative:  Chief:  H.  G.  McLean ,.  .IT:SA:CR:Ad 

IT:NR  Natural  Resources  Division IT.NR 

(a)  Flead : A.  H.  Fay 

(3250)  (b)  Assistant  Head:  H.  L.  Simcoe 

Audit  F (Single  Returns):  Chief:  W.  R.  King IT:NR:F 

Audit  G (Consolidated):  Chief:  Wm.  Tungate.  . . ,IT:NR:G 

Oil  and  Gas  Valuation:  Chief:  N.  R.  White IT:NR:OG 

Timber  Valuation:  Chief:  C.  M.  Stevens IT:NR:T 

Metals  Valuation:  Chief:  O.  R.  Hamilton IT:NR:M 

Non-Metals  Valuation:  Chief:  C.  C.  Griggs IT:NR:NM 

Coal  Valuation:  Chief:  A.  W.  Gaumer IT:NR:C 

ITiR  Review  Division: IT:R 

(a)  Head:  W.  R.  Campbell, 

(b)  Assistant  Head:  F.  A.  Urice 

Claims:  Chief:  A.  E.  Gottshall IT:R:C 

Audit  Review:  Chief:  C.  P.  Suman IT:R:AR 

Rules  and  Regulations:  Chief:  H.  C.  Armstrong  . IT:R:RR 
IT:St  Statistical  Division IT:St 

(a)  Head:  Edward  White 

(b)  Assistant  Head:  J.  T.  Jamison 

Compilation  and  Analysis:  Chief:  Miss  J.  C.  Stier  IT:St:CA 

Tabulation  and  Sort:  Chief:  Wilfred  Offutt IT:St:TS 

Edit  and  Code:  Chief:  T.  W.  Parks IT:St:EC 

Card  Punch:  Chief:  Mrs.  C.  Dorsey IT:St:CP 

Research:  Chief:  Guy  G.  Harper IT:St:R 


2961  Law  If 674.  Tax  Simplification  Board. — “Sec.  1327.  ( Revenue  Act 
(Sec.  1327.)  of  1921.)  fa)  That  there  is  hereby  established  in  the 

Department  of  the  Treasury  a board  to  be  known  as  the 
* Tax  Simplification  Board ’ ( hereinafter  in  this  section  called  the  ‘Board’), 
to  be  composed  as  follows:” 

2962  Law  ^[675.  “(1)  Three  members  who  shall  represent  the  public,  to 

(Sec.  1327.)  be  appointed  by  the  President;  and  ” 

2963  Law  ^[676.  “(2)  Three  members  who  shall  represent  the  Bureau 

(Sec.  1327.)  of  Internal  Revenue  and  shall  be  officers  or  employees 

of  the  United  States  serving  in  such  Bureau , to  be  ap- 
pointed by  the  Secretary.” 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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3-J7-22.  (2)  7-20-22.  (3)  9-8-22.  (4)  9-27-22. 

RULES,  REGULATIONS,  ETC. 

2964  Law  1J677.  “(b)  Any  vacancy  in  the  Board  shall  be  filled  in  the 
(Sec  1327.)  same  manner  as  the  original  appointment.  The 
members  representing  the  public  shall  serve  without 
compensation  except  reimbursement  for  traveling , subsistence , and  other 
necessary  expenses  incurred  in  the  performance  of  the  duties  vested  in 
them  by  this  section.  The  members  representing  the  Bureau  of  Internal 
Revenue  shall  serve  without  compensation  in  addition  to  that  received  for 
their  service  in  such  Bureau.” 

2966  Law  1f678.  “(c)  The  Secretary  shall  furnish  the  Board  with  such 

(Sec.  1327.)  clerical  assistance , quarters  and  stationery , furniture , 
office  equipment , and  other  supplies  as  may  be  necessary 
for  the  performance  of  the  duties  vested  in  them  by  this  section.” 

2966  Law  H679.  “(d)  It  shall  be  the  duty  of  the  Board  to  investigate 

(Sec.  1327. ) the  procedure  of  and  the  forms  used  by  the  Bureau  in  the 

administration  of  the  internal  revenue  laws , and  to  make 
recommendations  in  respect  to  the  simplification  thereof  The  Board  shall 
make  a report  to  the  Congress  on  or  before  the  first  Monday  of  December  in 
each  year.” 

2967  Law  1[680.  “(e)  The  expenditures  of  the  Board  shall  be  paid  upon 

(Sec.  1327.)  vouchers  approved  by  the  Board  and  signed  by  the  chair- 
man thereof.  For  the  expenditures  of  the  Board  for 

the  fiscal  year  ending  June  30,  1922,  there  is  authorized  to  be  appropriated , 
out  of  any  money  in  the  Treasury  not  otherwise  appropriated , the  sum  of 
$10, 000.” 

2968  Law  1(681.  “(f)  The  Board  shall  cease  to  exist  on  December  31, 

(Sec.  1327.)  1924.” — Law.  [Note:  These  provisions  are  new 

to  the  1921  Act.] 

2969  Personnel  of  the  Tax  Simplification  Board. — (February  27,  1922.) 

James  H.  Beal 
Joseph  E.  Sterrett 
William  T.  Abbott 

Appointed  by  the  President  to  represent  the  public. 
Charles  P.  Smith 
Jesse  D.  Burks 
George  W.  Skilton 

Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
resent the4  Bureau  of  Internal  Revenue. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

♦ Change  in  personnel:  Board  as  constituted  July  15,  1922.  .^3299:  as  constituted 
September  8,  1922.  .^3331:  as^constituted  September  26.  1922. 


2970  Law  H701.  Saving  Clause  in  Event  of  Unconstitutionality. — 
(Sec.  1403.)  “Sec.  1403.  That  if  any  provision  of  this  Act , or  the 
application  thereof  to  any  person  or  circumstances . is 
held  invalid , the  remainder  of  the  A i and  the  application  of  such  provision 
to  other  persons  or  circumstances , shall  not  be  affected  thereby.” — Law. 

[Note:  This  “saving  clause”  differs  con- 
siderably in  its  wording  from  that  of  the 
1918  Act.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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2-27-22.  (2)  7-20-22.  (8)  9-8-22.  (4)  9-27-22. 

SUPREME  COURT  DECISIONS. 

2971  Cases  Involving  the  Constutionality  of  the  Act  of  October  3,  1913.* 

The  casef  1'sted  below,  arising  under  the  Income  Tax  Law  of  October 
3,  1913,  have  been  decided  in  the  Supreme  Court  of  the  United  States..  (To 
February  15,  1922.) 

2972  Frank  R.  Brushaber,  Appellant,  v.  Union  Pacific  Railroad  Com- 
pany. (240  U.  S.  1.) 

[For  the  opinion  see  Supplementary  Page  125  ] 

2973  John  F.  Dodge  and  Horace  F.  Dodge,  Appellants,  v.  James  J.  Brady, 
Collector  of  Internal  Revenue.  (240  U.  S.  122.) 

[For  the  opinion  see  Supplementary  Page  132.] 

2974  Tyee  Realty  Company,  Plaintiff  in  Error,  v.  Charles  W.  Anderson, 
Collector  of  Internal  Revenue.  (240  U.  S.  115.) 

[For  the  opinion  see  Supplementary  Page  132.] 

2976  Edwin  Thorne,  Plaintiff  in  Error,  v.  Charles  W.  Anderson,  Col- 
lector of  Internal  Revenue.  (240  U.  S.  115.) 

[For  the  opinion  see  Supplementary  Page  132.] 

2976  John  R.  Stanton,  Appellant,  v.  Baltic  Mining  Company  et  al.  (240 
U.  S.  103.) 

[For  the  opinion  see  Supplementary  Page  133.] 

2977  John  F.  Dodge  and  Horace  E.  Dodge,  Appellants,  v.  William  H. 
Osborn,  Commissioner  of  Internal  Revenue.  (240  U.  S.  118.) 

2978  [Comment:  The  appellants  here  [1f2977],  sought  in  the  lower  courts 
to  enjoin  the  assessment  and  collection  of  the  additional  tax.  The 

Court  of  Appeals  of  the  District  of  Columbia  affirmed  the  decree  of  the 
Supreme  Court  of  the  District  of  Columbia  dismissing  the  bill  and  held 
that  the  constitutional  questions  could  not  be  considered  in  a proceeding 
to  enjoin  collection.  The  U.  S.  Supreme  Court  affirmed.  For  the  opinion 
see  paragraph  2873.] 

2979  Howard  Gould,  Plaintiff  in  Error,  v.  Katherine  C.  Gould.  (245 
U.  S.  151.) 

[For  the  opinion  see  Supplementary  Page  136.] 

2980  Henry  R.  Towne,  Plaintiff  in  Error,  v.  Mark  Eisner,  Collector  of 
Internal  Revenue.  (245  U.  S.  418.) 

[For  the  opinion  see  Supplementary  Page  137.] 

2981  William  E.  Peck  & Co.,  Inc.,  Plaintiff  in  Error,  v.  John  Z.  Lowe, 
^ Jr.,  Collector  of  Internal  Revenue.  (247  U.  S.  165.) 

[For  the  opinion  see  Supplementary  Page  140.] 

2982  E.  J.  Lynch,  Collector  of  Internal  Revenue,  Petitioner,  v.  H.  C. 
Hornby.  (247  U.  S.  339.) 

[For  the  opinion  see  Supplementary  141.] 

2983  E.  J.  Lynch,  Collector  of  Internal  Revenue,  Petitioner,  v.  Henry 
Turrish.^(247  U.  S.  221.)  J 

[For  the’opinion  see  Supplementary  Page  144.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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SUPREME  COURT  DECISIONS. 


2984  Charles  A.  Peabody,  Plaintiff  in  Error,  v.  Mark  Eisner,  Collector 
of  Internal  Revenue.  (247  U.  S.  347.) 

[For  the  opinion  see  Supplementary  Page  148.] 

2985  Southern  Pacific  Company,  Plaintiff  in  Error,  v.  John  Z.  Lowe, 
Jr.,  Collector  of  Internal  Revenue.  (247  U.  S.  330.) 

[For  the  opinion  see  Supplementary  Page  149.] 

2986  Gulf  Oil  Corporation,  Petitioner,  v.  C.  J.  Lewellyn,  Collector  of 
Internal  Revenue.  (248  U.  S.  71.) 

[For  the  opinion  see  Supplementary  Page  152.] 

2987  Alvah  Crocker,  et  ah.  Trustees,  Petitioners,  v.  John  F.  Malley, 
Collector  of  Internal  Revenue.  (249  U.  S.  223.) 

[For  the  opinion  see  Supplementary  Page  153.] 

2988  Emily  R.  DeGanay,  v.  Ephriam  Lederer,  Collector  of  Internal 
Revenue.  (250  U.  S.  376.) 

[For  the  opinion  see  Supplementary  Page  155.] 

2989  Maryland  Casualty  Company,  Appellant,  v.  United  States.  (251 
U.  S.  342.) 

[For  the  opinion  see  Supplementary  Page  157.] 

2990  The  Union  Pacific  Coal  Company,  Petitioner,  v.  Mark  A.  Skinner, 
Collector  of  Internal  Revenue.  (Per  curiam.)  (252  U.  S.  470.) 

[For  brief  statement  see  Supplementary  Page  161.] 

2991  The  Penn  Mutual  Life  Insurance  Company,  Petitioner,  v.  Ephriam 
Lederer,  Collector  of  Internal  Revenue.  (253  U.  S.  523.) 

[For  the  opinion  see  Supplementary  Page  161.] 

2992  United  States,  Appellant,  v.  C.  W.  Phellis.  (42  Sup.  Ct.  63.) 

[For  the  opinion  see  Supplementary  Page  167.] 

2993  John  D.  Rockefeller,  Plaintiff  in  Error,  v.  United  States.  (42  Sup. 
Ct.  68.)  and  The  New  York  Trust  Company  et  ah,  Executors,  for 

W.  L.  Harkness  Estate,  v.  William  H.  Edwards,  Collector.  (42  Sup.  Ct.  68.) 

[For  the  opinion  see  Supplementary  Page  170.] 

2994  Cases  Involving  the  Constitutionality  of  the  Revenue  Acts  of  1916 
and  1917.* — To  February  15,  1922. 

2995  Mark  Eisner,  Collector  of  Internal  Revenue,  Plaintiff  in  Error,  v. 
Myrtle  H.  Macomber.  (252  U.  S.  189.) 

[For  the  opinion  see  Supplementary  Page  173.] 

2996  Merchants’  Loan  & Trust  Company  (Estate  of  Arthur  Ryerson) 
Plaintiff  in  Error,  v.  Julius  F.  Smietanka..  Collector.  (255  U.  S.  509.) 

[For  the  opinion  see  Supplementary  Page  186.] 

2997  Eldorado  Coal  and  Mining  Company,  Plaintiff  in  Error,  v.  Harry 
W.  Mager,  Collector.  (255  U.  S.  522.) 

[For  the  opinion  see  Supplementary  Page  190.] 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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SUPREME  COURT  DECISIONS. 


2998  David  M.  Goodrich,  Plaintiff  in  Error,  v.  William  H.  Edwards, 
Collector.  (255  U.  S.  527.) 

[For  the  opinion  see  Supplementary  Page  189.] 

2999  James  J.  Walsh,  Collector,  Plaintiff  in  Error,  v.  Frederick  F.  Brew- 
ster. . (255  U.  S.  536.) 

[For  the  opinion  see  Supplementary  Page  191.] 

3000  Cases  Involving  the  Constitutionality  of  the  Revenue  Act  of  1918.* — 

(To  February  15,  1922.) 

3001  Walter  Evans,  Plaintiff  in  Error,  v.  J.  Rogers  Gore,  Acting  Col- 
lector of  Internal  Revenue.  (253  U.  S.  245.) 

[For  the  opinion  see  Supplementary  Page  193.] 

3002  Herbert  Darlington,  Plaintiff  in  Error,  v.  Harry  W.  Mager,  Col- 
lector. Per  curiam.  (41  Sup.  Ct.  533.) 

[For  brief  statement  see  Supplementary  Page  200.] 

3003  United  States,  Appellant,  v.  Alan  H.  Woodward,  et  ah,  Executors. 
(41  Sup.  Ct.  615.) 

[For  the  opinion  see  Supplementary  Page  201.] 


*For  brief  index  of  the  opinions  of  the  Supreme  Court  in  the  decisions  listed 
above,  see  Supplementary  Page  119. 

3004  Law  If 623.  General  Effection  Date  of  Title  II,  “Income  Tax.” — 

(Sec.  263.)  “Sec.  263.  That  this  title  shall  take  effect  as  of  January 
1,  1921.” — Law.  [Special  provisions  of  Title  II, 

“Income  Tax,”  are  effective  as  indicated.] 

3005  Law  ^702.  General  Effective  Date  of  the  Revenue  Act  of  1921. — 

(Sec.  1404.)  “ That  except  as  otherwise  provided,  this  Act  shall  take 
effect  upon  its  passage  [i.e.,  on  approval  by  the  President].” 

— Law. 

3006  Approved  by  the  President,  November  23,  1921,  at  3.55  P.  M. 

3007  For  ^3007  see  page  667. 


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2-27-22.  (214-10-22.  (3)  8-3-22.  (4)  10-11-22. 


Cumulative  Index  References  to  Articles  of  Regulations  45  (1918  Act)  foi 
which  there  are  no  corresponding  Articles  in  Regulations  62  (1921  Act). 


Art.  86.  Compensation  of  soldiers  and  sailors. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1918  and  subsequent  years  only  (29-19-625:  O.  D.  357) . . 1919  Cum.  Bull.  p.  98. 

1921  (Jan.  1 to  March  3)  (1921  Act)  (1-7-89:  I.  T.  1203).  .June  1922  Cum.  Bull.  p.  92. 
American  Merchant  Marine  Sea  Training  Bureau  (28-19-613:  O.  D.  329) ..  1919  Cum. 
Bull.  p.  98. 

Army  field  clerks  and  reconstruction  aides  (14-20-827:  O.  D.  435).  .June  1920  Cum. 
Bull.  p.  101. 

Army  Transport  Service  (16-20-859:  O.  D.  462).  . June  1920  Cum.  Bull.  p.  102. 
Bonus,  mileage,  ration  money  (3-20-686:  O.  D.  370) . .June  1920  Cum.  Bull.  p.  101. 
Civilian  flying  instructor  paid  by  U.  S.  (3-19-183:  O.  D.  122) . . 1919  Cum.  Bull.  p.  97. 
Civilian  under  rules  of  A.  E.  F.  ( 1-19-41 : O.  D.  29) . . 1919  Cum.  Bull.  p.  97. 

Const  and  Geodetic  Survey  (1-31-435:  I.  T.  1402).  .Bull.  I (’22) — 31,  p.  2. 

Coast  Guard  (1-5-52:  I.  T.  1 180).  .June  1922  Cum.  Bull.  p.  91. 

Commission  on  Training  Camp  Activities  (1-19-39:  O.  D.  27) . . 1919  Cum.  Bull.  p.  97. 
Knights  of  Columbus  War  Activities  (18-20-898:  O.  D.  485).  .June  1920  Cum.  Bull. 

p.  102. 

Medical  Department  at  Large  (51-20-1351:  O.  D.  752).  .Dec.  1920  Cum.  Bull.  p.  125. 
National  Guard  officer  detailed  to  General  Staff  College  (14-20-828:  O.  D.  436).  .June 
1920  Cum.  Bull.  p.  101. 

Naval  Reservists;  retainer  pay  while  on  inactive  duty  (16-20-860:  O.  D.  463).. June 
1920  Cum.  Bull.  p.  102. 

Partner  turning  over  U.  S.  pay  to  partnership  (3-19-182:  O.  D.  121)..  1919  Cum. 
Bull.  p.  97. 

Personal  specific  exemption  additional  to  $ 3,500  (3-19-184:  O.  D.  123)..  1919  Cum. 
Bull.  p.  97. 

Public  Health  Service  (19-20-915:  O.  D.  495).. June  1920  Cum.  Bull.  p.  102;  over* 
ruled  by  (19-21-1618:  O.  D.  904).. June  1921  Cum.  Bull.  p.  112:  Attorney- 
General’s  opinion  (47-21-1932:  Op.  A.  G.  3).. Dec.  1921  Cum.  Bull.  p.  114. 
Spruce  Division  (11-1 9-376:  O.  D.  214).  .1919  Cum.  Bull.  p.  98. 

“Termination  of  war”  date. . ( 1 2 ( 1 8)-2 1- 1 608 : O.  D.  900).  .June  1921  Cum.  Bull.  p. 
112 

United  States  Merchant  Marine  under  rules  of  Shipping  Board  (38-20-1202:  O.  D. 
663)..  Dec.  1920  Cum.  Bull.  p.  125. 


Art.  261.  Loss  in  inventory  and  from  rebates. 

For  explanation  of  Cumulative  Index  references  see  page  qi. 

All  items  of  all  classes  or  lines  to  be  included  in  inventory  for  determination  of  possible 
net  loss  (8-19-323:  O.  D.  186) ..  1919  Cum.  Bull.  p.  154:  also  ( 1 2-19-402:  T.  B.  M. 
52)  . 1919  Cum.  Bull.  p.  155:  also  (43-20-1260:  A.  R.  R.  291).  . Dec.  1920  Cum. 
Bull.  p.  189. 

Fiscal  year  beginning  1917  ending  1918  (3-19-193:  T.  B.  R.  10)..  1919  Cum.  Bull, 
p.  152. 

Goods  ordered  in  1918,  delivered  and  title  passing  in  1919  (5-19-251:  T.  B.  R.  15) 
. 1919  Cum.  Bull.  p.  154. 

Goods  returned  in  1919  and  sold  at  loss  then  but  not  included  in  Dec.  31,  1918  in- 
ventory (26-20-1028:  A.  R.  R.  155).  . June  1920  Cum.  Bull.  p.  155. 
Reorganization;  partnership  in  1919  was  a corporation  in  1918  (17-19-471:  O.  D. 
263)..  1919  Cum.  Bull.  p.  155. 

Copyright  1922.  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
663 


2-27-22.  (2)  4-10-22.  (3)  8-3-22.(4)  10-11-22. 


Art.  262.  Loss  from  rebates. 

For  explanation  of  Cumulative  Index  references  see  page  gi. 

1917  sales,  rebates  being  in  1918  (31-21-1754:  A.  R.  M.  136).. Dec.  1921  Cum.  Bull- 


A.  R.  M. 

p.  167. 

Defective  goods  (4-20-705:  0.  D.  382).  .June  1920  Cum.  Bull.  p.  156 
Implied  and  oral  contracts:  trade  usage:  sales  of  goods  other  than  war 
involved  (31-21-1753:  A.  R.  R.  590).. Dec.  1921  Cum.  Bull.  p.  162. 
Voluntary:  no  contract  (28-19-614:  A.  R.  M.  4) . . 1919  Cum.  Bull.  p.  155. 


materials 


Art.  263.  Loss  in  inventories. 

hor  explanation  of  Cumulative  Index  references  see  page  gx. 

All  costs  of  manufacture  considered  but  not  speculative  or  anticipated  profits  (1-19- 
64:  ().  D 47)  . 1919  Cum.  Bull.  p.  156. 

All  items  of  all  classes  or  lines  to  be  included  in  inventory  for  determination  of  possible 
net  loss  (8-19-323:  O.  D.  186).  . 1919  Cum.  Bull.  p.  154;  also  ( 1 2- 1 9-402:  T.  B.  M. 
52).  . 1919  Cum.  Bull.  p.  155;  also  (43-20-1260:  A.  R.  R.  291).  .Dec.  1920  Cum. 
Bull.  p.  189. 

“Asking  price”  inventory  because  of  no  actual  market:  loss  may  be  claimed  determined 
on  bid  or  selling  price  ( 1 8-21-1609:  A.  R.  R.  487).  .June  1921  Cum.  Bull.  p.  205. 
Liquor  (5-20-717:  O.  D.  390).  .June  1920  Cum.  Bull.  p.  156. 

Same:  (9-20-765:  A.  R.  M.  33).. June  1920  Cuin.  Bull.  p.  53. 

Noncancellable  contracts  for  future  deliveries  (30-20-1087:  T.  D.  3044).. Dec.  1920 
Cum.  Bull.  p.  83. 

“Temporary  fluctuations”  meaning  of  term  (12-19-402:  T.  B.  M.  52) . . 1919^Cum. 
Bull.  p.  155. 


Art.  266.  Claims. 

hor  explanation  of  Cumulative  Index  references  see  page  gx. 

Basis  (or  claim  (3-19  194:  T.  B.  R.  9) . . 1919  Cum.  Bull.  p.  156 

Second  installment  of  tax  affected  by  claim  (6-19-275:  O.  D.  164) ..  1919  Cum  Bull, 
p.  157. 


Art.  267.  Disposition  of  claims. 

hor  ej  p lunation  of  Cumulative  Index  references  see  page  gx. 

All  items  of  all  classes  or  lines  to  be  included  in  inventory  loss  claim^(12-19-402: 
T.  B.  VI.  52)  1919  Cum.  Bull.  p.  155. 

Same:  (43-20-1260:  A.  R.  R.  291)..  Dec.  1920  Cum.  Bull.  p.  189. 

Same:  here,  inability  to  show  that  net  loss  resulted  from  disposition  of  entire 
inventory  (30-21-1745:  A.  R.  R.  554).. Dec.  1921  Cum.  Bull.  p.  169. 


Art.  268.  Effect  of  claim  in  abatement. 

hor  explanation  of  Cumulative  Index  references  see  page  gi. 

Bond:  procedure  (21-19-525:  T.  D.  2925)  . 1919  Cum.  Bull.  p.  157 
Bond  requirement  not  a condition  precedent  to  consideration  of  claim  on  merits: 
bond  simply  stays  collection  of  tax  sought  to  be  abated  (48-20-1323:  A.  R.  R. 
331)  Dec.  1920  Cum.  Bull.  p.  190.  1 

Partnership;  each  member  to  file  claim  and  furnish  bond  (11-19-380:  O.;  DV21S) 
. . 1919  Cum.  Bull.  p.  159. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
664 


2-27-12.  (2)  4-10-22.  (8)  6-2-22.  (4)  10-11-22. 


A rt.  307.  When  nonresident  alien  individual  entitled  to  personal  exemption 

Art.  307,  amended.  .^3040.  Same  at  June  1922  Cum.  Bull.  p.  201. 

For  explanation  of  Cumulative  Index  references  see  page  91. 

1918  and  subsequent  years  only  (24-19-568;  O.  D.  301).. 1919  Cum  Bull.  p.  163. 
1918  as  well  as  1919:  claims  for  refund  due  to  belated  receipt  of  official  information 
(5-20-718:  O.  D.  391).  .June  1920  Cum.  Bull.  p.  160. 

Albania  (34-21-1783:  O.  D.  1004).  .Dec.  1921  Cum.  Bull.  p.  178. 

Armenia  (40-21-1854:  O.  D.  1054).. Dec.  1921  Cum.  Bull.  p.  179. 

Bahama  Islands  (16-20-864:  O.  D.  466).  .June  1920  Cum.  Bull.  p.  161 
Barbados  (17-21-1598:  0.  D.  895).. June  1921  Cum.  Bull.  p.  218. 

Basutoland* 

Bechuanaland  Protectorate* 

Bermuda  (14-20-831:  0.  D.  437).  .June  1920  Cum.  Bull.  p.  161 
British  Guiana* 

British  Honduras  (49-21-1962:  O.  D.  1126).  .Dec.  1921  Cum.  Bull.  p.  180;  tame  at 
(1-20-276:  I.  T.  1310).  .June  1922  Cum.  Bull.  p.  203. 

Bulgaria  (28-20-1056:  O.  D.  580)..  Dec.  1920  Cum.  Bull.  p.  195. 

Ceylon* 

Colombia  (1-12-157:  I.  T.  1248).  .June  1922  Cum.  Bull.  p.  202. 

Cyprus* 

Dutch  Guiana  (41-21-1860:  O.  D.  1059).  .Dec.  1921  Cum.  Bull.  p.  179. 

Falkland  Islands* 

Fiji  Islands  (30-21-1746:  O.  D.  981).  .Dec.  1921  Cum.  Bull.  p.  178. 

Foreign  country  imposing  income  tax  but  not  on  U.  S.  citizens  (2-19-153:  S.  969)  .1919 
Cum.  Bull.  p.  161. 

Gambia* 

Germany  (19-21-622:  O.  D.  906).. June  1921  Cum.  Bull.  p.  218. 

Gibraltar*  Gold  Coast*  Grenada* 

Hongkong* 

Hungary  (17-21-1597:  O.  D.  894).  .June  1921  Cum.  Bull.  p.  217. 

Jamaica  for  1919  and  subsequent  years  (24-20-1004:  O.  D.  547).. June  1920  Cum 
Bull,  p.  161.  Supplemented  by  (1-21-1372:  O.  D.  765).  .June  1921  C.  B.  p.  217. 
Kenya  (30-21-1746:  O.  D.  981).. Dec.  1921  Cum.  Bull.  p.  178. 

Leaving  U.  S.  during  year  (2-19-154:  O.  D.  105).  . 1919  Cum.  Bull.  p.  162. 

Lithuania  (24-20-1005:  O.  D.  548).  .June  1920  Cum.  Bull.  p.  162. 

Malta  (1-21-1373:  O.  D.  766).. June  1921  Cum.  Bull.  p.  217. 

Malay  States* 

Mauritius* 

Montserrat* 

Nigeria* 

Northern  Rhodesia* 

Nyasaland  Protectorate* 

Palestine  (40-21-1855:  O.  D.  1055).. Dec.  1921  Cum.  Bull.  p.  179. 

Poland;  Austria  and  Prussia  (30-20-1091:  O.  D.  605).  .Dec.  1920  Cum.  Bull.  p.  196: 
That  part  of  Poland  formerly  Prussian  Poland  (22-21-1664:  O.  D.  935) . .June  1921 
Cum.  Bull.  p.  218. 

Poland:  Russia  (30-19-642:  O.  D.  346).  .1919  Cum.  Bull.  p.  163. 

Porto  Rico  (2-20-675:  O.  D.  364).  .June  1920  Cum.  Bull.  p.  160. 

Proof  to  be  submitted  (15-19-446:  O.  D.  253). . 1919  Cum.  Bull.  p.  162. 

Prussia  (22-21-1664:  O.  D.  935).  .June  1921  Cum.  Bull.  p.  28. 

1 St.  Kitt-Nevls  (30-21-1746:  O.  D.  981).  .Dec.  1921  Cum.  Bull.  p.  178. 

St.  Helena* 

Sierra  Leone* 

Somaliland  Protectorate* 

Swaziland* 

Straits  Settlements  (49-21-1961:  O.  D.  1125).. Dec.  1921  Cum.  Bull.  p.  179.  Revoked 
(1-22-317:  I.  T.  1330).  .June  1922  Cum.  Bull.  p.  203. 

Switzerland  (33-20-1133:  O.  D.  630).  .Dec.  1920  Cum.  Bull.  p.  196. 

Syria  (8-21-1467:  O.  D.  820).  .June  1921  Cum.  Bull.  p.  217. 

Trinidad  (34-21-1782:  O.  D.  1003).  .Dec.  1921  Cum.  Bull.  p.  178. 

Uganda  Protectorate* 

Weihaiwei* 

Western  Pacific  Islands  (30-21-1746:  O.  D.  981).  .Dec.  1921  Cum.  Bull.  d.  178. 

Virgin  Islands  (Brit.)* 

Zanzibar  Protectorate* 

*(36-21-1804:  O.  D.  1022).. Dec.  1921  Cum.  Bull.  p.  179. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

6« 


2-27-22.  (2)  4-10-22.  (8)  0-2-22.  (4)  10-11-22. 


Art.  504.  Tax  on  transportation  companies. 

For  explanation  of  Cumulative  Index  references  see  page  gi 
Electing  to  ha/e  claims  adjusted  under  provisions  of  See.  3 of  Act  of  March  21,  1 9 1 & 
rather  than  under  Sec.  1 of  that  Act  (34-20-1151:  O.  D.  642).. Dec.  1920  Cun.. 
Bull.  p.  231. 


Art.  1073.  Return  of  information  by  partnerships,  personal  service  corpora 
tions,  and  fiduciaries. 

For  explanation  of  Cumulative  Index  references  tee  page  gi. 

Fiduciaries:  distributable  shares  of  beneficiaries  (8-21-1469:  M.  2708).. June  1921 
Cum.  Bull.  p.  348. 

Fiduciaries;  Form  1099  for  each  beneficiary  required  regardless  of  amount  or  char 
acter  of  income,  even  though  entire  income  of  estate  is  from  dividends  (27-20 
1045:  O.  D.  575).  .Dec.  1920  Cum.  Bull.  p.  312. 

Fiscal  year  partnership;  return  to  be  made  on  that  basis  (16-21-1585:  O.  D.  885) . .June 
1921  Cum.  Bull.  p.  348. 

Partnership  distributive  interests  (8-21-1469:  M.  2708).. June  1921  Cum.  Bull 
p.  348. 

Personal  service  corporation  distributive  interests  (8-21-1469:  M.  2708).  .June  1921 
Cum.  Bull.  p.  348. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
666 


1922  New  Matters 


1922  New  Matters 


3-1-22. 


fflorjmration  0r«st  Company  0 

1913-1922 

INCOME  TAX  SERVICE 


PART  II. 

CURRENT  1922  MATTERS 

Other  than  Regulations  62  which  are  embodied  in  the  compilation. 


(T.  D.  3268.) 

[Reprinted  for  record  purposes.  Superseded  by  Art.  371  (a),  Reg.  62,  ^[2198.] 

3007  Withholding  from  Partnerships. — Section  221  of  the  Revenue  Act  of 
1921  provides  for  withholding  of  a tax  equal  to  8 per  centum  from  the 
annual  or  periodical  gains,  profits  or  income  of  a partnership  composed 
in  whole  or  in  part  of  non-resident  aliens.  See  section  221.  However,  in  the 
case  of  a partnership  having  an  office  or  place  of  business  in  the  United  States, 
withholding  will  not  be  required  even  though  one  or  more  of  the  members 
thereof  is  a non-resident  alien;  the  partnership,  however,  as  agent  of  the 
non-resident  alien  member  or  members,  shall  file  a return  of  the  income  of 
such  non-resident  alien  member  or  members  in  accordance  with  the  provision 
of  article  404  of  Regulations  45,  and  the  corresponding  article  of  Regulations 
62,  to  be  promulgated  under  the  Revenue  Act  of  1921.  (T.  D.  3268,  signed 

by  Commissioner  D.  H.  Blair,  and  dated  January  5,  1922.) 


(T.  D.  3269.) 

3008  Appeals  and  Hearings  under  Section  250  (d)  of  the  Revenue  Act  of 
1921. — [This  Treasury  Decision,  dated  January  5,  1922,  now  appears 
as  Art.  1006,  Reg.  62,  1f2763.j 


(T.  D.  3272.) 

3009  Extension  of  time  in  which  to  file  fiduciary  returns,  Form  1041, 
and  partnership  and  personal  service  corporation  returns,  Form 
1065. — Under  the  authority  of  Section  227  of  the  Revenue  Act  of 
1921  a general  extension  of  time  is  hereby  granted  up  to  and  including 
May  15,  1922  in  which  to  file  fiduciary  returns,  Form  1041,  partnership  and 
personal  service  corporation  returns,  Form  1065,  and  information  returns 
covering  compensation  paid  to  employees  (Forms  1099  and  1096)  which  may 
be  required  to  be  filed  in  connection  with  the  fiduciary  and  partnership  and 
personal  service  corporation  returns.  This  extension  is  granted  with  respect 
to  the  returns  above  mentioned  which  are  required  to  be  filed  for  the  calendar 
year  1921  or  for  any  fiscal  year  ending  in  1921.  (T.  D.  3272,  signed  by 

Acting  Commissioner  C.  P.  Smith,  and  dated  January  19,  1922.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

667 


8-1-22. 


3010  Stock  dividend  received  by  trust-estate  with  life-tenant  to  whom 
such  stock  dividend  is  distributable  under  the  Pennsylvania  or 

American  rule. — In  reply  you  are  advised  that  the  taxable  gain  or 
deductible  loss  resulting  from  the  sale  of  stock  received  as  a stock  dividend 
either  by  the  fiduciary  or  beneficiary  of  an  estate  should  be  determined  in 
accordance  with  Article  1547  of  Regulations  45,  as  amended  by  Treasury 
Decision  3206  approved  July  28,  1921  and  Treasury  Decision  3238  approved 
October  22,  1921,  a copy  of  which  may  be  obtained  from  the  Collector  of 
Internal  Revenue  for  your  district.  As  will  be  noted,  the  basis  to  be  taken  is 
the  cost,  appraised  value  at  the  date  of  the  decedent’s  death,  or  fair  market 
value  as  of  March  1,  1913,  as  the  case  may  be,  of  the  old  shares  of  stock  on 
which  the  dividend  is  declared  with  such  cost  or  value  apportioned  over  the 
entire  amount,  including  both  the  old  and  new  stock.  This  is  applicable  in 
the  case  of  such  stock  received  as  a dividend  being  sold  either  by  the  fiduciary 
or  beneficiaries  of  an  estate. 

3011  If  the  income  of  the  trust  estate  is  distributable  periodically,  including 
any  profit  realized  on  the  sale  of  such  capital  assets  belonging  to  the 

estate,  any  gain  realized  from  the  sale  of  such  capital  assets  is  taxable  income 
to  the  beneficiaries  regardless  of  whether  distributed  or  not.  If  the  income 
of  the  trust  estate  is  not  distributable  or  is  distributable  in  the  discretion  of 
the  trustee,  any  profit  realized  from  the  sale  of  capital  assets  is  taxable  in  the 
hands  of  the  trustee  regardless  of  whether  distributed  or  not.  As  will  be 
noted  from  Article  1547  of  Regulations  45,  any  loss  sustained  on  the  sale  of 
capital  assets  is  available  as  a deduction  only  to  the  fiduciary  of  the  estate 
or  trust  in  determining  the  income  of  the  estate  or  trust  taxable  to  the 
fiduciary  and  such  loss  is  not  available  to  the  beneficiaries  who  are  taxed 
on  their  actual  distributable  income.  In  the  case  of  stock  received  as  a stock 
dividend  being  distributed  to  the  beneficiaries  by  the  fiduciary,  this  would 
constitute  a distribution  in  kind  of  the  property  of  the  estate  and  no  taxable 
gain  or  deductible  loss  results  to  the  beneficiaries  until  ^uch  stock  is  sold  or 
otherwise  disposed  of  by  them.  (Letter  to  the  Safe  Deposit  and  Trust 
Company,  Baltimore,  Maryland,  signed  by  E.  H.  Batson,  Deputy  Com- 
missioner, by  Wm.  R.  Campbell,  Head  of  Division,  and  dated  December  8, 
1921.) 


(T.  D.  3273.) 

[Reprinted  for  record  purposes.  Superseded  by  Arts.  1091-1094,  Reg.  62,  ^[2660.] 

3012  Inspection  of  returns. — The  provisions  of  T.  D.  2962  [beginning  at 
11-2177,  1921  Income  Tax  Service],  issued  under  date  of  January  7, 
1920,  governing  the  furnishing  of  copies  of  income  returns,  the  giving 
to  state  officials  of  access  to  income  returns  of  corporations,  associations, 
joint  stock  companies  and  insurance  companies,  and  the  examination  by  a 
stockholder  of  the  annual  income  returns  of  a corporation  made  pursuant  to 
Titles  II  and  III  and  Section  1000,  Title  X,  of  the  Revenue  Act  of  1918,  are, 
so  far  as  applicable,  hereby  extended  and  adopted  as  regulations  governing 
the  same  purposes  under  the  similar  provisions  of  Titles  II  and  III  and  Section 
1000,  Title  X,  of  the  Revenue  Act  of  1921.  (T.  D.  3273,  signed  by  Com- 

missioner D.  H.  Blair,  and  dated  January  23,  1922.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

668 


2-27-22. 


(T.  D.  3277.) 

3013  Inspection  of  returns. — [This  Treasury  Decision,  dated  January  24, 
1922,  now  appears  as  Art.  1090,  Reg.  62,  ^[2663.] 


(T.  D.  3280.) 

30 1 4  Instructions  as  to  Acceptance  of  Treasury  Certificates  of  Indebtedness 
for  Income  and  Profits  Taxes,  Calendar  Year  1922. — [This  Treasury 
Decision,  dated  February  7,  1922,  appears  as  Arts.  1731-1732,  Reg.  62, 
H2791-2792.] 


(T.  D.  32S1.) 

3015  Instructions  as  to  acceptance  of  Victory  notes  in  coupon  form  for 
income  and  profits  taxes  payable  March  15,  1922. — 1.  Collectors  of 

Internal  Revenue  are  authorized  and  directed  to  receive  at  par  Victory  notes 
of  either  the  4%  per  cent  or  the  3%  per  cent  series,  in  coupon  form,  in  pay- 
ment of  income  and  profits  taxes  payable  on  March  15,  1922.  Registered 
Victory  notes  are  not  acceptable.  Coupon  Victory  notes  tendered  in  payment 
of  income  and  profits  taxes  payable  March  15,  1922,  must  have  all  unmatured 
interest  coupons  attached  (that  is  to  say,  coupons  for  June  15  and  December 
15,  1922,  and  May  20,  1923),  but  all  matured  coupons  must  be  detached  and 
collected  in  ordinary  course  when  due.  The  amount,  at  par,  of  the  Victory 
notes  presented  by  any  taxpayer  in  payment  of  income  and  profits  taxes  must 
not  exceed  the  amount  of  the  taxes  to  be  paid  by  him,  and  collectors  shall  in 
no  case  pay  interest  on  the  notes  or  accept  them  for  an  amount  other  or 
greater  than  their  face  value.  Accrued  interest  on  the  notes  accepted,  from 
December  15,  1921,  to  March  15,  1922,  will  be  remitted  to  the  taxpayer  by 
the  Federal  Reserve  Bank  with  which  the  collector  makes  his  deposits,  on 
the  basis  of  the  schedules  furnished  by  the  collector.  Receipts  given  by  col- 
lectors to  taxpayers  should  show  the  amount  of  notes  of  each  series  received 
in  payment  of  taxes. 

3016  2.  Deposits  of  Victory  notes  received  in  payment  of  income  and  profits 
taxes  hereunder  must  be  made  by  collectors,  unless  otherwise  spec- 
ifically instructed  by  the  Secretary  of  the  Treasury,  with  the  Federal  Reserve 
Bank  of  the  district  in  which  the  collector’s  head  office  is  located,  or  in  case 
such  head  office  is  located  in  the  same  city  with  a branch  Federal  Reserve 
Bank,  with  such  branch  Federal  Reserve  Bank.  Specific  instructions  may 
be  given  to  collectors  by  the  Secretary  of  the  Treasury  in  certain  instances 
for  the  deposit  of  the  notes  with  Federal  Reserve  Banks  of  other  districts  and 
branch  Federal  Reserve  Banks.  The  term  “Federal  Reserve  Bank,”  where 
it  appears  herein,  unless  otherwise  indicated  by  the  context,  includes  branch 
Federal  Reserve  Banks.  Victory  notes  may  be  accepted  hereunder  by  the 
collector  prior  to  March  15,  1922,  and  in  that  case  should  be  forwarded  by  the 
collector  to  the  Federal  Reserve  Bank  or  branch  Federal  Reserve  Bank  to  be 
held  for  account  of  the  collector  until  March  15,  1922,  and  for  deposit  on  such 
date. 

3017  3.  Victory  notes  accepted  hereunder  should  in  all  cases  be  indelibly 
stamped  by  the  collector  on  the  face  thereof  as  follows,  and  when  so 

stamped  should  be  delivered  to  the  Federal  Reserve  Bank  in  person  if  the 

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collector  is  located  in  the  same  city,  and  in  all  other  cases  forwarded  by 
registered  mail  uninsured: 


This  note  has  been  accepted  in  payment  of  income  and  profits  taxes  and 
will  not  be  redeemed  by  the  United  States  except  for  credit  of  the  undersigned. 


Collector  of  Internal  Revenue 

for  the district  of ” 

3018  Each  unmatured  coupon  attached  to  each  such  Victory  note  must 
be  indelibly  stamped  across  the  face  by  the  collector  with  the 

word:  “Paid,”  followed  by  his  name  and  title. 

3019  4.  Collectors  should  make  in  tabular  form  a schedule  in  duplicate  of 
the  Victory  notes  to  be  forwarded  to  the  Federal  Reserve  Bank, 

showing  the  face  amount  transmitted,  the  serial  number  of  each  note,  the 
series,  the  denomination,  and  the  name  and  address  of  the  taxpayer  presenting 
the  note.  Notes  accepted  prior  to  March  15,  1922,  must  be  scheduled  sep- 
arately, and  Victory  notes  should  in  all  cases  be  scheduled  separately  from 
Treasury  certificates  of  indebtedness.  At  the  bottom  of  each  schedule  there 

should  be  written  or  stamped,  “Income  and  Profits  Taxes  $ ,” 

which  amount  must  agree  with  the  total  shown  on  the  schedule.  One  copy 
of  this  schedule  must  accompany  notes  sent  to  the  Federal  Reserve  Bank,  and 
the  other  be  retained  by  the  collector.  The  income  and  profits  tax  deposits 
resulting  from  the  deposits  of  such  notes  must  in  all  cases  be  shown  on  the 
face  of  the  certificate  of  deposit  (National  Bank  Form  15)  separate  and 
distinct  from  the  item  of  miscellaneous  internal  revenue  collections  (formerly 
called  Ordinary).  Until  certificates  of  deposit  are  received  from  the  Federal 
Reserve  Banks,  the  amounts  represented  by  the  Victory  notes  forwarded  for 
deposit  must  be  carried  by  collectors  as  cash  on  hand,  and  not  credited  as 
collections,  as  the  dates  of  certificates  of  deposit  determine  the  dates  of 
collections. 

3020  5.  For  the  purpose  of  saving  taxpayers  the  expense  of  transmitting 
such  notes  as  are  held  in  Federal  Reserve  cities  or  Federal  Reserve 

branch  bank  cities  to  the  office  of  the  collector  in  whose  district  the  taxes  are 
payable,  taxpayers  desiring  to  pay  income  and  profits  taxes  by  Victory  notes 
should  communicate  with  the  collector  of  the  district  in  which  the  taxes  are 
payable  and  request  from  him  authority  to  deposit  such  notes  with  the 
Federal  Reserve  Bank  in  the  city  in  which  the  notes  are  held.  Collectors  are 
authorized  to  permit  deposits  of  Victory  notes  in  any  Federal  Reserve  Bank 
with  the  distinct  understanding  that  the  Federal  Reserve  Bank  is  to  issue  a 
certificate  of  deposit  in  the  collector’s  name  covering  the  amount  of  the  Victory 
notes  at  par  and  to  state  on  the  face  of  the  certificate  of  deposit  that  the 
amount  represented  thereby  is  in  payment  of  income  and  profits  taxes.  The 
Federal  Reserve  Bank  should  forward  the  original  certificate  of  deposit  to 
the  Treasurer  of  the  United  States,  with  its  daily  transcript,  and  transmit  to 
the  collector  the  duplicate  and  triplicate,  accompanied  by  a statement  giving 
the  name  of  the  taxpayer  for  whom  the  payment  is  made  in  order  that  the 
collector  may  make  the  necessary  record  and  forward  the  duplicate  to  the 
office  of  the  Commissioner  of  Internal  Revenue. 

3021  6.  Victory  notes  in  registered  form  are  not  acceptable  in  payment  of 
income  and  profits  taxes  under  this  decision.  Holders  of  registered 

notes,  however,  may  exchange  them  through  the  Federal  Reserve  Banks  for 
coupon  notes  in  accordance  with  the  general  regulations  of  the  Treasury 
Department,  and  may,  in  accordance  with  this  decision,  present  the  coupon 

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notes  thus  received  in  exchange  in  payment  of  income  and  profits  taxes,  pro- 
vided, however,  that  such  exchange  is  completed  and  tender  made  on  or 
before  March  15,  1922.  (T.  D.  3281,  signed  by  Commissioner  D.  H.  Blair, 

and  dated  February  7,  1922.)  • 


3022  Obligation  and  duty  of  withholding  agents  under  the  Revenue  Act 
of  1921  in  connection  with  withholding  on  payments  made  during 

1921  to  nonresident  alien  individuals  on  account  of  personal  service 
compensation. — Returns  and  payment  of  taxes  by  the  nonresident 

aliens. — Reference  is  made  to  your  letter  dated  December  24,  1921,  to  the 
effect  that  you  will  appreciate  some  information  from  this  office  relative  to 
the  liability  of  employers  to  withhold  eight  per  cent  tax  from  the  salaries 
of  nonresident  alien  employees,  in  view  of  the  fact  that,  under  the  Revenue 
Act  of  1921,  the  personal  exemption  of  non-resident  aliens  is  lessened. 

3023  Under  the  provisions  of  Section  216  (e)  of  the  Revenue  Act  of  1921 
every  nonresident  alien  individual  in  receipt  of  income  from  sources 

within  the  United  States  is  entitled  to  a personal  exemption  of  $1,000, 
regardless  of  the  marital  status  of  such  alien,  but  is  not  entitled  to  credit 
for  dependents. 

3024  Employers  of  nonresident  aliens  will  be  held  responsible  only  for 
withholding  tax  under  the  provisions  of  the  Revenue  Act  of  1921 

from  payments  made  subsequent  to  the  passage  of  the  Act — 3:55  P.  M., 
Eastern  time,  November  23,  1921. 

3025  In  many  cases  nonresident  alien  employees  have  filed  Form  1115 
with  their  employers  claiming  the  amount  of  the  personal  exemption 

to  which  they  were  entitled  under  the  Revenue  Act  of  1918. 

3026  In  cases  where  the  amount  of  the  personal  exemption  claimed  on 
Form  1115  was  $1,000  the  liability  of  the  employers  to  withhold  on 

payments  in  excess  of  that  amount  is  the  same  under  the  Revenue  Act  of 
1918  and  the  Revenue  Act  of  1921. 

3027  In  cases  where  the  personal  exemption  claimed  on  Form  1115  was 
in  excess  of  $1,000,  and  the  payments  made  to  nonresident  alien 

employees  during  1921  prior  to  the  passage  of  the  Revenue  Act  of  1921, 
amounted  to  $1,000  or  more  but  less  than  the  exemption  claimed,  the  em- 
ployers are  liable  for  withholding  eight  per  cent  of  the  amounts  paid  sub- 
sequent to  the  passage  of  the  Act.  The  employer  is  not  liable  for  withholding 
a tax  of  eight  per  cent  on  the  amounts  in  excess  of  $1,000  but  less  than  the 
exemption  claimed  on  Form  1115,  which  were  paid  to  nonresident  alien 
employees  prior  to  the  passage  of  the  Revenue  Act  of  1921.  The  nonresident 
alien  employees  are  required  to  pay  any  tax  due  on  such  payments. 

3028  In  cases  where  the  personal  exemption  claimed  on  Form  1115  was 
in  excess  of  $1,000  and  the  payments  made  to  the  nonresident  alien 

employees  prior  to  the  passage  of  the  Revenue  Act  of  1921  were  in  excess  of 
the  exemption  claimed,  eight  per  cent  was  required  to  be  withheld  from  such 
excess  under  the  Revenue  Act  of  1918.  Under  the  Revenue  Act  of  1921 
employers  should  continue  to  withhold  eight  per  cent  of  the  amounts  paid 
subsequent  to  the  passage  of  the  Act.  In  such  cases  the  employer  will  not  be 
held  liable  for  withholding  a tax  of  eight  per  cent  on  the  amounts  in  excess 
of  $1,000  but  less  than  the  exemption  claimed  which  were  paid  to  nonresident 
alien  employees  prior  to  the  passage  of  the  Revenue  Act  of  1921  but  will  be 
held  liable  for  eight  per  cent  of  the  amounts  in  excess  of  the  exemption  claimed 
on  Form  1115,  paid  prior  to  the  passage  of  the  Revenue  Act  of  1921  and  eight 
per  cent  of  all  amounts  paid  subsequent  to  the  passage  of  that  Act.  ^The 

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nonresident  alien  employees  are  required  to  pay  any  tax  on  the  payments 
made  in  excess  of  $1,000  and  less  than  the  personal  exemption  claimed  on 
Form  1115. 

3029  In  cases  where  the  exemption  clainqgd  on  Form  1115  was  more  than 
$1,000  and  payments  in  excess  of  that  amount  but  less  than  the  exemp- 
tion claimed  were  made  prior  to  the  passage  of  the  Revenue  Act  of  1921  and 
the  nonresident  aliens  filing  such  forms  and  receiving  such  payments  left  the 
service  of  the  employer  prior  to  the  passage  of  the  Revenue  Act  of  1921,  no 
liability  on  the  part  of  the  employer  exists  for  eight  per  cent  of  the  amounts 
in  excess  of  $1,000  paid  to  the  former  employees.  The  former  employees  are 
required  to  pay  the  tax  due  on  such  income. 

3030  Employees  who  are  citizens  of  countries  which  did  not  satisfy  the 
similar  credit  requirement  of  Section  216  (e)  of  the  Revenue  Act  of 

1918,  in  connection  with  their  salary  or  other  compensation  paid  during 
1921,  may  claim  the  benefit  of  the  $1,000  allowed  by  the  Revenue  Act  of 

1921,  by  filing;Form  1115  with  their  employers  not  later  than  February  1, 

1922.  In  such 'cases  any  tax  which  was  withheld  during  1921  from  the  first 
$1,000  of  their  wages  or  other  compensation  should  be  refunded. 

3031  Nonresident  aliens  are  required  to  file  individual  returns  of  income 
from  sources  in  the  United  States  in  all  cases  in  which  the  total  tax 

on  such  income  has  not  been  paid  at  the  source.  The  entire  income  from 
sources  in  the  United  States  should  be  reported  in  such  returns  and  credit 
for  any  tax  withheld  should  be  taken  against  the  total  tax  shown  to  be  due. 
(Letter  to  The  Corporation  Trust  Company,  signed  by  Commissioner  D.  H. 
Blair,  and  dated  February  7,  1922.) 


(T.  D.  3284.) 

3032  Extension  of  time  for  filing  returns  for  1921  and  subsequent  years, 
in  the  case  of  foreign  organizations,  and  citizens  of  the  United 
States  residing  or  traveling  abroad. — An  extension  of  time  for  filing 
returns  of  income  for  1921  and  subsequent  years  and  for  paying  the  tax  is 
hereby  granted  up  to  and  including  the  fifteenth  day  of  the  sixth  month 
following  the  close  of  the  taxable  year,  in  the  case  of  (a)  foreign  partnerships 
and  foreign  corporations,  regardless  of  whether  or  not  they  maintain  an 
office  or  place  of  business  within  the  United  States;  (b)  domestic  corporations 
which  transact  their  business  and  keep  their  records  and  books  of  account 
abroad;  (c)  domestic  corporations  whose  principal  income  is  from  sources 
within  the  possessions  of  the  United  States;  and  (d)  American  citizens 
residing  or  traveling  abroad,  including  persons  in  military  or  naval  service 
on  duty  outside  the  United  States.  The  installments  of  tax  which  are  actually 
due  must  be  paid  at  the  time  of  filing  the  return,  and  the  other  installments 
shall  be  paid  as  they  fall  due.  In  all  such  cases  an  affidavit  must  be  attached 
to  the  return,  stating  the  cause  of  the  delay  in  filing.  Taxpayers  who  take 
advantage  of  this  extension  will  be  charged  with  interest  at  the  rate  of  one- 
half  of  1 per  cent  a month  on  the  first  installment  of  tax  from  the  original 
due  date  thereof.  (T.  D.  3284,  signed  by  Commissioner  D.  H.  Blair,  and 
dated  February  11,  1922.) 


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(T.  D.  3287.) 

3033  Articles  91,  92  and  1509,  Regulations  45  (1920  edition),  amended.— 

Articles  91  [If  1691,  1921  Service],  92  [If  1692,  1921  Service]  and  1509 

[If  1069  and  ^f  1699,  1921  Service],  of  Regulations  45  (1920  edition)  are  hereby 
amended  to  read  as  follows: 

3034  “Art.  91.  Gross  income  of  nonresident  alien  individuals. — In  the 

case  of  nonresident  alien  individuals  ‘gross  income’  means  only  the 
gross  income  from  sources  within  the  United  States.  This  includes  interest 
on  bonds, _ notes  or  other  interest-bearing  obligations  of  residents,  corporate 
or  otherwise,  dividends  from  resident  corporations,  amounts  received  repre- 
senting profits  on  the  manufacture  and  disposition  of  goods  within  the 
United  States,  rentals  and  royalties  from  property  and  income  from  busi- 
ness carried  on  in  the  United  States,  interest  on  deposits  in  banks  located 
within  the  United  States,  and  income  from  services  rendered  or  labor  per- 
formed within  the  United  States.  Interest  on  obligations  and  dividends 
on  stock  of  a corporation  organized  within  the  United  States  are  included 
even  though  such  corporation  owns  no  property  and  does  no  business  in  the 
United  States.  Interest  on  obligations  and  dividends  on  stock  of  resident 
foreign  corporations  are  also  included.  For  what  is  a resident  corporation, 
see  article  1509.  As  to  the  gross  income  of  foreign  corporations,  see  section 
233(b)  of  the  statute  and  article  550. 

3035  “Art  92.  Income  of  nonresident  alien  individuals  not  subject  to 
tax. — Salaries,  wages,  commissions  and  rents  paid  by  domestic 

business  enterprises  to  nonresident  alien  employees  for  services  rendered 
entirely  in  & foreign  country  or  for  property  located  in  a foreign  country 
are  not  subject  to  tax  as  income  from  a source  within  the  United  States.  The 
tax  does  not  apply  to  charter  money  or  freight  payments  received  by  a foreign 
owner  in  regard  to  a vessel  operated  between  the  United  States  and  foreign 
ports,  if  the  person  receiving  the  income  maintains  no  regular  agency  in  the 
United  States  and  is  not  doing  business  in  the  United  States.  Compensation 
received  by  nonresident  alien  munitions  inspectors  and  purchasing  agents 
from  foreign  governments  is  not  subject  to  the  tax. 

3036  “Art.  1509.  Domestic  and  foreign  persons. — A domestic  corpora- 
tion or  partnership  is  one  organized  or  created  in  the  United  States, 

including  only  the  States,  the  Territories  of  Alaska  and  Hawaii,  and  the 
District  of  Columbia,  and  a foreign  corporation  or  partnership  is  one  organ- 
ized or  created  outside  the  United  States  as  so  defined.  A domestic  cor- 
poration is  a resident  corporation  even  though  it  does  no  business  and  owns 
no  property  in  the  United  States.  The  nationality  or  residence  of  members 
of  a partnership  does  not  affect  its  status.  A partnership  created  by  articles 
entered  into  in  San  Francisco  between  residents  of  the  United  States  and 
residents  of  China  is  a domestic  partnership.  A foreign  corporation  engaged 
in  trade  or  business  within  the  United  States  or  having  an  office  or  place 
of  business  therein  is  sometimes  referred  to  in  the  regulations  as  a resident 
foreign  corporation  and  a foreign  corporation  not  engaged  in  trade  or  busi- 
ness within  the  United  States  and  not  having  any  office  or  place  of  business 
therein  as  a nonresident  foreign  corporation.  See  also  articles  4 and  312- 
315.”  (T.  D.  3287,  signed  by  Commissioner  D.  H.  Blair,  and  dated  February 

18,  1922.)  1 


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3037  On  the  computation  of  taxable  interest  on  United  States  obligations, 
for  surtax  and  excess-profits  tax  purposes. — Principle  in  Office 

Decision  227  [O.  D.  227,  1919  Cum.  Bull.,  p.  90,  quoted  below, 
^[3038]  not  applicable  in  computing  taxable  interest  on  Liberty  bonds  and 
other  obligations  of  United  States  for  year  1921.  Interest  on  amount  cer- 
tificates of  indebtedness  in  excess  $5,000  should  be  reported  as  taxable 
interest  on  obligations  of  United  States.  See  Schedule  E,  Form  1040,  for 
1921.  (Telegram  to  MacHugh,  Hill  and  Company,  San  Francisco,  Calif., 
signed  by  Deputy  Commissioner  E.  H.  Batson,  and  dated  February  20,  1922.) 

3038  Office  Decision  227  referred  to  in  ^3037  above,  reads  as  follows: 
“Where  a taxpayer  has  held  at  any  time  or  times,  within  the  tax- 
able year  Liberty  loan  bonds  (any  issues  except  the  first  unconverted), 
United  States  certificates  of  indebtedness,  or  war  savings  stamps,  the  total 
interest  received  being  equal  to  or  in  excess  of  the  interest  for  one  year  on 
an  aggregate  principal  of  $5,000,  credit  may  be  taken  to  an  amount  not 
exceeding  such  amount  of  interest  for  one  year  on  the  aggregate  principal 
of  $5,000.” 


(T.  D.  3290) 

3039  Article  307,  Regulations  45,  (1920  Edition)  amended.— Regulations 
45  (1920  Edition)  is  amended  by  changing  Article  307  [^[17 15,'- 192 1 

Service]  to  read  as  follows: 

3040  Art.  307.  When  nonresident  alien  individual  entitled  to  personal 
exemption. — (a)  The  following  is  an  incomplete  list  of  countries 

which  either  impose  no  income  tax  or  in  imposing  an  income  tax  allow  both 
a personal  exemption  and  a credit  for  dependents  which  satisfy  the  similar 
credit  requirement  of  the  statute:  Argentina,  Bahama,  Barbados,  Basutoland, 
Bechuanaland  Protectorate,  Belgium,  Bermuda,  Bolivia,  Bosnia,  Brazil, 
British  Guiana,  British  Honduras,  Bukowina,  Bulgaria,  Canada,  Carniola, 
Ceylon,  Chile,  China,  Colombia,  Cuba,  Cyprus,  Czechoslovakia,  including 
Bohemia,  Moravia,  and  Slovakia,  Dalmatia,  Denmark,  Ecuador,  Egypt, 
Falkland  Islands,  Fiji  Islands,  France,  Galicia,  Gambia,  Germany,  Gibraltar, 
Gold  Coast,  Goritz,  Gradisca,  Greece,  Grenada,  Guatemala,  Herzegovina, 
Hongkong,  Istria,  Jamaica,  Kenya,  Luxemburg,  Malay  States,  Malta, 
Mauritius,  Mexico,  Montenegro,  Montserrat,  Morocco,  Newfoundland, 
Nicaragua,  Nigeria,  Northern  Rhodesia,  Norway,  Nyasaland  Protectorate, 
Panama,  Paraguay,  Persia,  Peru,  Porto  Rico,  Portugal,  Roumania,  St. 
Kitt-Nevis,  St.  Helena,  Santo  Domingo,  Serbia,  Siam,  Sierra  Leone,  Silesia, 
Somaliland  Protectorate,  Spain,  Swaziland,  Switzerland,  Trieste,  Uganda 
Protectorate,  Union  of  South  Africa,  Venezuela,  Virgin  Islands  (British), 
Weihaiwei,  Western  Pacific  Islands,  Zanzibar  Protectorate,  (b)  The  following 
is  an  incomplete  list  of  countries  which  in  imposing  an  income  tax  allow  a 
personal  exemption  which  satisfies  the  similar  credit  requirement  of  the 
statute,  but  do  not  allow  a credit  for  dependents:  Bachka,  Banat  of  Temesvar, 
Croatia,  Finland,  India,  Italy,  Salvador,  Slavonia,  Transylvania,  (c)  The 
following  is  an  incomplete  list  of  countries  which  in  imposing  an  income  tax 
do  not  allow  to  citizens  of  the  United  States  not  residing  in  such  country 
either  a personal  exemption  or  a credit  for  dependents  and  therefore  fail 
entirely  to  satisfy  the  similar  credit  requirements  of  the  statute:  Australia, 
Austria,  including  Carinthia,  Lower  Austria,  Salzberg,  Styria,  Tyrol,  Upper 
Austria  and  Vienna,  Costa  Rica,  Dutch  Guiana,  Great  Britain  and  Ireland, 


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Japan,  The  Netherlands,  New  Zealand,  Trinidad,  Sweden.  The  former 
names  of  certain  of  these  territories  are  here  used  for  convenience,  in  spite 
of  an  actual  or  possible  change  in  name  or  sovereignty.  A nonresident  alien 
individual  who  is  a citizen  or  subject  of  any  country  in  the  first  list  is  entitled 
for  the  purpose  of  the  normal  tax  to  such  credit  for  personal  exemption  and 
for  dependents  as  his  family  status  may  warrant.  If  he  is  a citizen  or  subject 
of  any  country  in  the  second  list  he  is  entitled  to  a credit  for  personal  exemp- 
tion, but  to  none  for  dependents,  l’f  he  is  a citizen  or  subject  of  any  country 
in  the  third  list  he  is  not  entitled  to  credit  for  either  personal  exemption  or 
for  dependents.  If  he  is  a citizen  or  subject  of  a country  which  is  in  none  of 
the  lists,  then  to  secure  credit  for  either  a personal  exemption  or  for  depend- 
ents he  must  prove  to  the  satisfaction  of  the  Commissioner  that  his  country 
does  not  impose  an  income  tax  or  that  in  imposing  an  income  tax  it  grants 
the  similar  credit  required  by  the  statute.  (T.  D.  3290,  signed  by  Com- 
missioner D.  H.  Blair,  and  dated  February  21,  1922.) 


(T.  D.  3291) 

3 041  Extension  of  time  until  June  15,  1922  of  the  final  date  for  filing 
returns  of  domestic  corporations  on  Form  1120,  for  the  calendar 
year  1921,  the  fiscal  year  ended  January  31,  1922,  and  the  fiscal 
year  ending  February  28,  1922. — Under  the  authority  of  Section  227 
of  the  Revenue  Act  of  1921,  a general  extension  of  time  is  hereby  granted 
domestic  corporations  up  to  and  including  June  15,  1922,  for  completing 
returns  of  income  for  the  calendar  year  1921,  the  fiscal  year  ended  January 
31,  1922,  and  the  fiscal  year  ending  February  28,  1922,  conditional  upon  the 
filing  of  tentative  returns  with  the  proper  Collector  of  Internal  Revenue  on 
or  before  March  15,  April  15  and  May  15,  1922,  respectively,  accompanied 
with  at  least  one-fourth  of  the  estimated  amount  of  tax  due  together  with  a 
statement  setting  forth  the  reason  why  the  return  cannot  be  completed 
within  the  prescribed  time,  and  a formal  request  for  the  extension. 

3042  Tentative  returns  submitted  in  accordance  with  the  foregoing  should 
be  on  Form  1120,  on  which  should  be  written  plainly  across  the  face 

“Tentative  Return.”  Only  the  name  and  address  of  the  taxpayer  and  the 
estimated  amount,  if  any,  of  the  tax  due  need  be  stated. 

3043  Any  deficiency  in  the  first  installment  as  determined  upon  submission 
of  the  final  return  will  bear  interest  at  the  rate  of  six  per  cent  per 

annum  from  March  15,  April  15,  or  May  15,  1922,  respectively.  (T.  D.  3291, 
signed  by  Commissioner  D.  H.  Blair,  and  dated  February  21,  1922.) 


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(T.  D.  3292.) 

3044  Extension  of  time  in  which  to  file  annual  returns  of  normal  income 
tax  to  be  paid  at  the  source,  Forms  1013  and  1042. — In  view  of  the 

delay  which  has  been  occasioned  in  the  printing  of  Forms  1013  and 
1042,  annual  returns  of  normal  income  tax  to  be  paid  at  the  source,  a general 
extension  of  time  is  hereby  granted  up  to  and  including  April  1,  1922,  with 
respect  to  such  returns  for  the  calendar  year  1921.  (T.  D.  3292,  signed  by 

Commissioner  D.  H.  Blair,  and  dated  February  28,  1922.) 


3045  Responsibility  of  debtor  corporations  and  their  paying  agents  in  con- 
nection with  “domestic  and  resident  corporations  not  required  to 

execute  and  file  ownership  certificates.”— Receipt  is  acknowledged  of 
your  letter  dated  February  21,  1922,  referring  to  office  letter  dated 
February  20,  1922,  in  which  you  were  advised  that  domestic  and  resident 
corporations  are  not  required  to  execute  and  file  any  certificate  of  ownership 
when  presenting  for  payment  coupons  from  bonds  owned  by  them.  You 
inquire  as  to  what  responsibility  rests  upon  a debtor  corporation  to  determine 
that  coupons  were  detached  from  bonds  owned  by  corporations. 

3046  In  reply  you  are  advised  that  a debtor  corporation  is  responsible  for 
securing  ownership  certificates  as  required  by  the  regulations,  in  con- 
nection with  the  payment  of  interest  upon  its  bonds.  If  the  debtor  corpo- 
ration has  appointed  a withholding  agent  the  responsibility  rests  upon  the 
withholding  agent  for  securing  ownership  certificates.  A debtor  corporation, 
or  its  duly  authorized  withholding  agent,  should  exercise  ordinary  business 
care  in  determining  whether  or  not  the  owner  of  bonds  is  a domestic  or  resident 
corporation,  in  cases  where  coupons  are  presented  for  payment  unaccompanied 
by  ownership  certificates.  A debtor  corporation,  or  its  duly  authorized  with- 
holding agent,  may  rely  upon  the  information  furnished  by  a bank  or  other 
responsible  payee,  as  to  the  ownership  of  bonds  when  coupons  are  presented 
unaccompanied  by  ownership  certificates.  (Letter  to  The  Corporation  Trust 
Company,  signed  by  Commissioner  D.  H.  Blair,  and  dated  February  27,  1922.) 


3047  Old  ownership  certificates  to  be  accepted  for  a limited  period. — 

Referring  to  ownership  certificates  Forms  1000,  1001  and  1001A, 
revised  January,  1922,  which  were  made  available  to  the  public 
February  10,  1922,  you  are  advised  that  banks  and  collecting  agents  should 
accept  old  Forms  1000,  1001  and  1001A  from  bondholders  within  continental 
United  States  until  April  1st,  1922,  and  from  bondholders  outside  the  United 
States^until  May  1st,  1922.f2'(LetterJto  The  Corporation  Trust  Company, 
signed  by  Deputy  Commissioner  E.  H.  Batson,  and  dated  February  27,  1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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(Decision.) 

Liability  to  tax  of  estates  and  trusts  as  entities  under  the  Act  of  1913. 

SUPREME  COURT  OF  THE  UNITED  STATES. 


No.  540. — October  Term,  1921. 


Julius  F.  Smietanka,  as  Collector  of\ 

Internal  Revenue  for  the  First! 

District  of  Illinois,  Petitioner,  / 

vs.  Certiorari  to  the  Circuit  Court  of 

First  Trust  and  Savings  Bank  Appeals  for  the  Seventh  Circuit. 
Trustee  under  the  Last  Will  andl 
Testament  of  Otto  Young,  de-1 
ceased,  Respondent.  / 

[February  27,  1922.] 

Mr.  Chief  Justice  Taft  delivered  the  opinion  of  the  Court. 

3048  The  question  presented  for  decision  is  whether  under  the  Income 
Tax  Law  of  1913,  income  held  and  accumulated  by  a Trustee  for  the 

benefit  of  unborn  and  unascertained  persons  was  taxable.  The  accumulations 
of  income  were  $789,905.65  for  the  years  1913,  1914  and  1915,  and  the  tax 
collected  by  the  petitioner  as  Collector,  and  paid  under  protest  by  the 
Trustee,  the  respondent,  amounted  to  $36,638.69.  Respondent  brought  suit 
for  this  sum  against  the  petitioner  in  the  District  Court  for  the  Northern 
District  of  Illinois,  and  judgment  was  rendered  against  it  on  demurrer  to  the 
declaration.  The  judgment  was  reversed  by  the  Circuit  Court  of  Appeals. 
268  Fed.  Rep.  230.  As  this  case  arises  under  the  revenue  laws  and  the  judg- 
ment of  the  Circuit  Court  is  final  (Section  128  of  the  Judicial  Code),  certiorari 
issued  under  Section  240  of  the  Code. 

3049  The  income  tax  here  in  question  was  provided  for  in  “An  Act  to  reduce 
tariff  duties  and  to  provide  revenue  for  the  Government  and  for  other 

purposes,”  enacted  October  3,  1913  (38  Stat.  114)  and  is  embodied  in  Section 
II  of  that  Act  (pages  166,  et  seq.).  The  tax  is  imposed  by  Par.  A,  subd.  1. 
It  levies  a normal  tax  of  one  per  cent,  upon  the  entire  yearly  income  arising 
from  all  sources  accruing  to  every  citizen  of  the  United  States  and  to  every 
person  in  the  United  States  residing  there.  In  subd.  2,  an  additional  or 
surtax  is  levied  on  the  net  income  of  every  individual.  Under  Par.  G,  the 
normal  tax  imposed  on  individuals  is  extended  to  corporations.  Par.  B 
defines  the  net  income  of  individuals  and  specifies  the  deductions.  Par.  D 
makes  provision  for  returns  by  persons  and  then  says: 

“Guardians,  trustees,  executors,  administrators,  agents,  receivers,  con- 
servators and  all  persons,  or  associations,  acting  in  a fiduciary  capacity  shall 
make  and  render  a return  of  the  net  income  of  the  person  for  whom  they  act, 
subject  to  this  tax,  coming  into  their  custody  or  control  and  management  and 
be  subject  to  all  the  provisions  of  this  section  which  apply  to  individuals.” 

3050  Par.  E provides  that,  among  others,  all  lessees  or  mortgagors  of  real 
or  personal  property,  trustees  acting  in  any  trust  capacity,  executors, 

administrators,  agents,  receivers,  conservators,  having  control,  receipt, 
custody,  disposal  or  payment  of  annual  gains,  profits  and  income  of  another 
person,  exceeding  $3,000  for  any  taxable  year,  who  are  required  to  make  return 

Copyright  1922,  by  The  Corporation  T rust  Company. 

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in  behalf  of  another,  shall  deduct  the  normal  tax  on  the  income  and  pay  it  to 
the  United  States,  and  they  are  each  made  personally  liable  for  such  tax. 
It  is  further  declared  that  these  payments  of  the  tax  at  the  source  shall  only 
apply  to  the  normal  tax  thereinbefore  imposed  on  individuals. 

3051  It  is  obvious  from  a reading  of  the  statute,  the  relevant  provisions  of 
which  we  have  summarized,  that  Congress  was  seeking  to  require 

fiduciaries  to  make  return  and  pay  the  normal  tax  due  from  persons  subject 
to  the  tax  on  such  income  as  the  fiduciaries  were  receiving  for  such  persons. 
There  was  nowhere  in  the  Act  a payment  required  of  the  fiduciary  of  a tax 
upon  the  income  of  the  estate  or  trust  property,  the  income  from  which  he 
collects,  except  as  it  is  to  enure  to  the  benefit  of  a person  or  an  individual 
from  whose  income  he  is  authorized  and  required  to  deduct  the  normal  tax 
thereon.  There  must  have  been  a taxable  person  for  whom  the  fiduciary 
was  acting  to  make  the  provisions  relied  upon  by  the  Government  applicable. 
There  was  no  provision  for  the  payment  “at  the  source”  by  the  fiduciary  of 
anything  but  the  normal  tax.  It  was  intended  that  the  additional  or  surtax 
should  be  paid  by  the  cestui  que  trust.  Here  there  was  no  cestui  que  trust  to 
pay  a surtax. 

3052  No  language  in  the  Act  included  a tax  on  income  received  by  a trustee 
by  him  to  be  accumulated  for  unborn  or  unascertained  beneficiaries. 

There  was  indicated  in  the  taxing  Paragraph  A the  congressional  intention  to 
tax  citizens  everywhere,  and  non-citizens,  resident  in  the  United  States,  in- 
cluding persons,  natural  and  corporate,  on  income  from  every  source  less 
allowed  deductions.  But  nowhere  were  words  used  which  can  be  stretched 
to  include  unborn  beneficiaries  for  whom  income  may  be  accumulating.  It 
may  be  that  Congress  had  a general  intention  to  tax  all  incomes  whether  for 
the  benefit  of  persons  living  or  unborn,  but  a general  intention  of  this  kind 
must  be  carried  into  language  which  can  be  reasonably  construed  to  effect 
it.  Otherwise  the  intention  can  not  be  enforced  by  the  courts.  The  provis- 
ions of  such  acts  are  not  to  be  extended  by  implication.  Treat  v.  White , 
181  U.  S.  264,  267;  United  States  v.  Field , 255  U.  S.  257;  Gould  v.  Gould , 
245  U.  S.  151,  153. 

3053  The  Treasury  Department  did  not  attempt,  for  two  years,  to  collect 
tax  on  income  of  this  character.  This  was  in  accord  with  the  ruling 

of  Deputy  Commissioner  of  Internal  Revenue  Speer,  dated  February  9, 
1915,  published  by  the  Department  (Corporation  Trust  Co.  Income  ,Tax 
Service  1915,  p.  426).  He  held  that  “the  income  tax  can  be  levied  only  on 
such  income  as  is  payable  to  some  natural  or  artificial  person  subject  to  the 
provisions  of  the  law.” 

3054  Subsequently  this  ruling  was  changed  and  the  Commissioner  of 
Internal  Revenue  held  that  “when  the  beneficiary  is  not  in  essi ?kand 

the  income  of  the  estate  is  retained  by  the  fiduciary,  such  income  will  be  tax- 
able to  the  estate  as  for  an  individual , and  the  fiduciary  will  pay  the  tax  both 
normal  and  additional.” 

3055  This  seems  to  us  to  graft  something  on  the  statute  that  is  not  there. 
It  is  an  amendment  and  not  a construction,  and  such  an  amendment 

was  made  in  subsequent  income  tax  laws  as  we  shall  see. 

3056  Counsel  for  the  Government  cite  the  case  of  Merchant's  Loan  £s? 
Trust  Company  v.  Smietanka,  255  U.  S.  509,  to  support  their  conten- 
tion. It  does  not  do  so  because  it  deals  with  an  amendment  of  the  provision 
here  under  discussion.  The  issue  there  was  the  legality  of  an  income  tax 
levied  against  a trustee  tor  income  received  by  him  under  a testamentary  trust 
to  pay  the  net  income  to  the  widow  for  life  and  afterwards  to  the  children. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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3-1-22. 


It  was  held  that  the  trustee  was  a taxable  person  under  the  Act  of  October  2, 
1917,  40  Stat.  331,  which  required  trustees  to  render  a return  of  the  income 
for  the  person,  trust  or  estate  for  whom  or  which  they  act. 

3057  The  Act  of  September  8,  1916,  39  Stat.  757,  specifically  declared  that 
the  income  accumulated  in  trust  for  the  benefit  of  unborn  or  unas- 
certained persons  should  be  taxed  and  assessed  to  the  trustee.  It  is  obvious 
that  in  the  acts  subsequent  to  that  of  1913,  Congress  sought  to  make  specific 
provision  for  the  casus  omissus  in  the  earlier  Act. 

3058  This  case  is  not  unlike  that  of  United  States  v.  Field , 255  U.  o.  257. 
The  Revenue  Act  of  1916  imposed  a tax  on  the  estate  of  a decedent 

at  the  time  of  his  death.  The  Government  sought  to  tax  property  passing 
under  a decedent’s  testamentary  execution  of  a general  power  of  appointment. 
It  was  held  that  while  in  equity  property  passing  under  such  a power  might  be 
treated  as  assets  of  the  donee  for  the  use  of  his  creditors  if  executed  in  favor 
of  a volunteer,  it  was  not  subject  to  distribution  as  part  of  the  estate  of  the 
donee  and  was  not  taxable,  'in  the  later  Act,  such  property  was  expressly 
included.  This  was  thought  by  the  court  to  show  at  least  a legislative 
doubt  whether  the  earlier  Act  included  such  property.  This  Court  said 
(p.  264)  that  it  would  have  been  easy  for  Congress  to  express,  a purpose  to 
tax  such  property  but  it  had  not  done  so.  In  the  Act  of  1913,  it  would  have 
been  easy  to  require  a trustee  to  pay  an  income  tax  on  income  received  by 
him  for  unborn  beneficiaries  or  for  the  trust  or  the  estate.  But  Congress 
did  not  do  so.  In  the  next  Act,  it  did  so.  We  can  not  supply  the  omission 
in  the  earlier  Act. 

3 059  The  judgment  of  the  Circuit  Court  of  Appeals  is 

Affirmed. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
679 


.s.e-i-8 


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THE  INDEX  on  the  blue  sheets  at  the  back  of  the  book  indexes 
all  matters  on  the  foregoing  pages. 


THE  CUMULATIVE  INDEX-DIGESTS  located  in  their  proper 
places,  respectively,  throughout  the  compilation  (see  explanation 
on  page  91)  carry  index-digests  of,  and  paragraph  references  to 
all  new  matters  issued  during  the  year,  appearing  on  the  pages 
following.  Thus  the  Service,  in  its  entirety,  is  indexed  at  all 
times. 


THE  RUNNING  TABLE  OF  CONTENTS  (see  last  page  in  the 
“T.  D.  Finder”  section,  following)  lists  each  Treasury  Decision, 
special  ruling,  court  decision,  etc.,  issued  in  the  Service  during 
the  year.  This  too,  is  always  up-to-date. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

m 


THE  INDEX  on  t lie  blue  sheets  at  the  back  of  the  book  indexes 
all  matters  on  the  foregoing  pages. 


THE  CUMULATIVE  INDEX-DIGESTS  located  in  their  proper 

places,  respectively,  throughout  the  compilation  (see  explanation 
on  page  91)  carry  index-digests  of,  and  paragraph  references  to 
all  new  matters  issued  during  the  year,  appearing  on  the  pages 
following.  Thus  the  Service,  in  its  entirety,  is  indexed  at  all 
times. 


THE  RUNNING  TABLE  OF  CONTENTS  (see  last  page  in  the 
1.  D.  hinder”  section,  following)  lists  each  Treasury  Decision, 
special  ruling,  court  decision,  etc.,  issued  in  the  Service  during 
the  year.  This  too,  is  always  up-to-date. 


Copyright  1922,  \by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
682 


3-7-22. 

(T.  D.  3296.) 

[Note:  By  these  amendments  to  Arts.  1581-1588  of  Regulations  45  (1918 

Act),  they  become  identical  ivith  the  similarly  numbered  Articles  of  Regulations 
61  (1921  Act),  except  that  the  last  three  sentences  of  Article  1584,  below , beginning 
“It  is  recognized,”  are  not  in  Regulations  62.  Even  the  last  sentence  of  Article 
1585  is  the  same  in  the  two  Regulations. — The  Corporation  Trust  Company .] 

3060  Inventories. — Articles  1581-1588,  Regulations  45  (1920  Edition), 
amended. — Articles  1581-1588,  Regulations  45  (1920  Edition),  arc 

amended  to  read  as  follows: 

3061  Art.  1581.  Need  of  inventories. — In  order  to  reflect  the  net  income 
correctly,  inventories  at  the  beginning  and  end  of  each  year  arc 

necessary  in  every  case  in  which  the  production,  purchase,  or  sale  of  mer- 
chandise is  an  income-producing  factor.  The  inventory  should  include  raw 
materials  and  supplies  on  hand  that  have  been  acquired  for  sale,  consumption, 
or  use  in  productive  processes,  together  with  all  finished  or  partly  finished 
goods.  Only  merchandise  title  to  which  is  vested  in  the  taxpayer  should  be 
included  in  the  inventory.  Accordingly  the  seller  should  include  in  his  inven- 
tory goods  under  contract  for  sale  but  not  yet  segregated  and  applied  to  the 
contract  and  goods  out  upon  consignment,  but  should  exclude  from  inventory 
goods  sold,  title  to  which  has  passed  to  the  purchaser A purchaser  should 
include  in  inventory  merchandise  purchased,  title  to  which  has  passed  to  him, 
although  such  merchandise  is  in  transit  or  for  other  reasons  has  not  been 
reduced  to  physical  possession,  but  should  not  include  goods  ordered  for  future 
delivery  transfer  of  title  to  which  has  not  yet  been  effected. 

3062  Art.  1582.  Valuation  of  inventories. — The  Act  provides  two  tests  to 
which  each  inventory  must  conform:  (1)  It  must  conform  as  nearly 

as  may  be  to  the  best  accounting  practice  in  the  trade  or  business,  and  (2) 
it  must  clearly  reflect  the  income.  It  follows,  therefore,  that  inventory 
rules  can  not  be  uniform  but  must  give  effect  to  trade  customs  which  come 
within  the  scope  of  the  best  accounting  practice  in  the  particular  trade  or 
business.  In  order  to  clearly  reflect  income,  the  inventory  practice  of  a tax- 
payer should  be  consistent  from  year  to  year,  and  greater  weight  is  to  be  given 
to  consistency  than  to  any  particular  method  of  inventorying  or  basis  of  valu- 
ation so  long  as  the  method  or  basis  used  is  substantially  in  accord  with  these 
regulations.  An  inventory  that  can  be  used  under  the  best  accounting  prac- 
tice in  a balance  sheet  showing  the  financial  position  of  the  taxpayer  can,  as 
a general  rule,  be  regarded  as  clearly  reflecting  his  income. 

3063  The  basis  of  valuation  most  commonly  used  by  business"concerns  and 
which  meets  the  requirements  of  the  Revenue  Act  is  {a)  cost  or  (b) 

cost  or  market,  whichever  is  lower.  (For  inventories  by  dealers  in  securities, 
see  article  1585.)  Any  goods  in  an  inventory  which  are  unsalable  at  normal 
prices  or  unusable  in  the  normal  way  because  of  damage,  imperfections,  shop 
wear,  changes  of  style,  odd  or  broken  lots,  or  other  similar  causes,  including 
second-hand  goods  taken  in  exchange,  should  be  valued  at  bonk  fide  selling 
prices  less  cost  of  selling  whether  basis  (a)  or  ( b ) is  used,  or  if  such  goods 
consist  of  raw  materials  or  partly  finished  goods  held  for  use  or  consumption, 
they  should  be  valued  upon  a reasonable  basis,  taking  into  consideration  the 
usability  and  the  condition  of  the  goods,  but  in  no  case  shall  such  value  be  less 
than  the  scrap  value.  Bona  fide  selling  price  means  actual  offerings  of  goods 
during  a period  ending  not  later  than  30  days  after  inventory  date.  The  bur- 

C opyriglit  1922,  by  The  Corporation  Trust  Company. 

the  federal  income  tax  service 

$83 


8-7-22. 


den  of  proof  will  rest  upon  the  taxpayer  to  show  that  such  exceptional  goods  as 
are  valued  upon  such  selling  basis  come  within  the  classifications  indicated 
above,  and  he  shall  maintain  such  records  of  the  disposition  of  the  goods  as 
will  enable  a verification  of  the  inventory  to  be  made. 

3064  In  respect  to  normal  goods  whichever  basis  (a)  or  ( b ) is  adopted  must 
be  applied  with  reasonable  consistency  to  the  entire  inventory.  Tax- 
payers were  given  an  option  to  adopt  the  basis  of  either  ( a ) cost  or  ( b ) cost 
or  market,  whichever  is  lower,  for  their  1920  inventories,  and  the  basis  adopted 
for  that  year  is  controlling  and  a change  can  now  be  made  only  after  permission 
is  secured  from  the  Commissioner.  Goods  taken  in  the  inventory  which  have 
been  so  intermingled  that  they  can  not  be  identified  with  specific  invoices  will 
be  deemed  to  be  either  (a)  the  goods  most  recently  purchased  or  produced , 
and  the  cost  thereof  will  be  the  actual  cost  of  the  goods  purchased  or  produced 
during  the  period  in  which  the  quantity  of  goods  in  the  inventory  has  been 
acquired,  or  ( b ) where  the  taxpayer  maintains  book  inventories  in  accordance 
with  a sound  accounting  system  in  which  the  respective  inventory  accounts 
are  charged  with  the  actual  cost  of  the  goods  purchased  or  produced  and 
credited  with  the  value  of  goods  used,  transferred,  or  sold,  calculated  upon  the 
basis  of  the  actual  cost  of  the  goods  acquired  during  the  taxable  year  (includ- 
ing the  inventory  at  the  beginning  of  the  year)  the  net  value  as  shown  by  such 
inventory  accouncs  will  be  deemed  to  be  the  cost  of  the  goods  on  hand.  The 
balances  shown  by  such  book  inventories  should  be  verified  by  physical  inven- 
tories at  reasonable  intervals  and  adjusted  to  conform  therewith. 

3065  Inventories  should  be  recorded  in  a legible  manner,  properly  computed 
and  summarized,  and  should  be  preserved  as  a part  of  the  accounting 

record  of  the  taxpayer  The  inventories  of  taxpayers  on  whatever  basis 
taken  will  be  subject  to  investigation  by  the  Commissioner,  and  the  taxpayer 
must  satisfy  the  Commissioner  of  the  correctness  of  the  prices  adopted. 

3066  The  following  methods,  among  others,  are  sometimes  used  in  tak- 
ing or  valuing  inventories,  but  are  not  in  accord  with  these  regulations  , 

viz? 

(a)  Deducting  from  the  inventory  a reserve  for  price  changes,  or  an  esti- 
mated depreciation  in  the  value  thereof. 

( b ) Taking  work  in  process,  or  other  parts  of  the  inventory,  at  a nominal 
price  or  at  less  than  its  proper  value. 

(r)  Omitting  portions  of  the  stock  on  hand. 

(d)  Using  a constant  price  or  nominal  value  for  a so-called  normal  quantity 
of  materials  or  goods  in  stock. 

(e)  Including  stock  in  transit,  either  shipped  to  or  from  the  taxpayer,  the 
title  of  which  is  not  vested  in  the  taxpayer. 

3067  Art.  1583.  Inventories  at  cost. — Cost  means: 

(1)  In  the  case  of  merchandise  on  hand  at  the  beginning  of  the  taxable  year, 
the  inventory  price  of  such  goods. 

3068  (2)  In  the  case  of  merchandise  purchased  since  che  beginning  of  the 
taxable  year,  the  invoice  price  less  trade  or  other  discounts,  except 

strictly  cash  discounts,  approximating  a fair  interest  rate,  which  may  be 
deducted  or  not  at  the  option  of  the  taxpayer,  provided  a consistent  course 
is  followed . To  this  net  invoice  price  should  be  added  transportation  or  other 
necessary  charges  incurred  in  acquiring  possession  of  the  goods. 

3069  (3)  In  the  case  of  merchandise  produced  by  the  taxpayer  since  the 
beginning  of  the  taxable  year  (a)  the  cost  of  raw  materials  and  sup- 
plies entering  into  or  consumed  in  connection  with  the  product,  ( b ) expendi- 

C op  y right  1922,  by  The  Corporation  Trust  Company. 

— THE  FEDERAL  INCOME  TAX  SERVICE 

684 


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lures  for  direct  labor,  ( c ) indirect  expenses  incident  to  and  necessary  for  the 
production  of  the  particular  article,  including  in  such  indirect  expenses  a 
reasonable  proportion  of  management  expenses,  but  not.  including  any  cost 
of  selling  or  return  on  capital,  whether  by  way  of  interest  or  profit. 

3070  (4)  In  any  industry  in  which  the  usual  rules  for  computation  of  cost 
of  production  are  inapplicable,  costs  may  be  approximated  upon  such 

basis  as  may  be  reasonable  and  in  conformity  with  established  trade  practice 
in  the  particular  industry.  Among  such  cases  are  (a)  farmers  and  raisers  of 
live  stock  (see  article  1586),  ( b ) miners  and  manufacturers  who  by  a single 
process  or  uniform  series  of  processes  derive  a product  of  two  or  more  kinds, 
size  or  grade,  the  unit  cost  of  which  is  substantially  alike  (see  article  1587), 
and  retail  merchants  who  use  what  is  known  as  the  “retail  method”  in  ascer- 
taining approximate  cost.  See  article  1588. 

3071  Art.  1584.  Inventories  at  market. — Under  ordinary  circumstances, 
and  for  normal  goods  in  an  inventory,  “market”  means  the  current 

bid  price  prevailing  at  the  date  of  the  inventory  for  the  particular  merchandise 
in  the  volume  in  which  usually  purchased  by  the  taxpayer,  and  is  applicable 
in  the  cases  (a)  of  goods  purchased  and  on  hand,  and  (b)  of  basic  elements  of 
cost  (materials,  labor,  and  burden)  in  goods  in  process  of  manufacture  and  in 
finished  goods  on  hand;  exclusive,  however,  of  goods  on  hand  or  in  process  of 
manufacture  for  delivery  upon  firm  sales  contracts  (i.  e.,  those  not  legally 
subject  to  cancellation  by  either  party)  at  fixed  prices  entered  into  before  the 
date  of  the  inventory,  which  goods  must  be  inventoried  at  cost.  Where  no 
open  market  exists  or  where  quotations  are  nominal,  due  to  stagnant  market 
conditions,  the  taxpayer  must  use  such  evidence  of  a fair  market  price  at  the 
date  or  dates  nearest  the  inventory  as  may  be  available,  such  as  specific 
purchases  or  sales  by  the  taxpayer  or  others  in  reasonable  volume  and  made  in 
good  faith  or  compensation  paid  for  cancellation  of  contracts  for  purchase 
commitments.  Where  the  taxpayer  in  the  regular  course  of  business  has 
offered  for  sale  such  merchandise  at  prices  lower  than  the  current  price,  as 
above  defined,  the  inventory  may  be  valued  at  such  prices  less  proper  allow- 
ance for  selling  expense,  and  the  correctness  of  such  prices  will  be  determined 
by  reference  to  the  actual  sales  of  the  taxpayer  for  a reasonable  period  before 
and  after  the  date  of  the  inventory.  Prices  which  vary  materially  from  the 
actual  prices  so  ascertained  will  not  be  accepted  as  reflecting  the  market.  It 
is  recognized  that  in  the  latter  part  of  1918,  by  reason  among  other  things 
of  governmental  control  not  having  been  relinquished,  conditions  were 
abnormal  and  in  many  commodities  there  was  no  such  scale  of  trading  as  to 
establish  a free  market.  In  such  a case,  when  a market  was  established 
during  the  succeeding  year,  a claim  may  be  filed  for  any  loss  sustained  in 
accordance  with  the  provisions  of  section  214  (a)  (12)  or  section  234  (a)  (14) 
of  the  statute.  See  articles  261-268. 

3072  Art.  1585.  Inventories  by  dealers  in  securities.— A dealer  in  securi- 
ties, who  in  his  books  of  account  regularly  inventories  unsold  securities 

on  hand  either  (a)  at  cost  or  ( b ) at  cost  or  market,  whichever  is  lower,  or  ( c ) 
at  market  value,  may  make  his  return  upon  the  basis  upon  which  his  accounts 
are  kept;  provided  that  a description  of  the  method  employed  shall  be  included 
in  or  attached  to  the  return,  that  all  the  securities  must  be  inventoried  by  the 
same  method,  and  that  such  method  must  be  adhered  to  in  subsequent  years, 
unless  another  be  authorized  by  the  Commissioner.  For  the  purpose  of  this 
rule  a dealer  in  securities  is  a merchant  of  securities,  whether  an  individual, 

C opyright  1922,  by  The  Corporation  Trust  Company 

THii  FEDERAL  INCOME  TAX  SERVICE 

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partnership,  or  corporation,  with  an  established  place  of  business,  regularly 
engaged  in  the  purchase  of  securities  and  their  resale  to  customers;  that  is, 
one  who  as  a merchant  buys  securities  and  sells  them  to  customers  with  a view 
to  the  gains  and  profits  that  may  be  derived  therefrom.  If  such  business  is 
simply  a branch  of  the  activities  carried  on  by  such  person,  the  securities 
inventoried  as  here  provided  may  include  only  those  held  for  purposes  of  resale 
and  not  for  investment.  Taxpayers  who  buy  and  sell  or  hold  securities  for 
investment  or  speculation,  and  not  in  the  course  of  an  established  business, 
and  officers  of  corporations  and  members  of  partnerships,  who  in  their  indi- 
vidual capacities  buy  and  sell  securities,  are  not  dealers  in  securities  within 
the  meaning  of  this  rule.  A dealer  in  securities  is  not  entitled  to  the  benefits 
of  section  206  with  reference  to  the  gain  from  the  sale  of  securities. 

3073  Art.  1586.  Inventories  of  live-stock  raisers  and  other  farmers— (1) 

Farmers  may  change  the  basis  of  their  returns  from  that  of  receipts 
and  disbursements  to  that  of  an  inventory  basis,  which  necessitates  the  use 
of  opening  and  closing  inventories  for  the  year  in  which  the  change  is  made. 
There  should  be  included  in  the  opening  inventory  all  farm  products  (including 
live  stock),  purchased  or  raised,  which  were  on  hand  at  the  date  of  the  inven- 
tory, but  inventories  must  not  include  real  estate,  buildings,  permanent 
improvements,  or  any  other  assets  subject  to  depreciation. 

3074  (2)  Because  of  the  difficulty  of  ascertaining  actual  cost  of  live  stock 

and  other  farm  products,  farmers  who  render  their  returns  upon  an 

inventory  basis  may  at  their  option  value  their  inventories  for  the  current 
taxable  year  according  to  the  “farm-price  method”  which  provides  for  the 
valuation  of  inventories  at  market  price  less  cost  of  marketing.  If  the  use 
of  the  “farm-price  method”  of  valuing  inventories  for  any  taxable  year  involves 
a change  in  method  of  pricing  inventories  from  that  employed  in  prior  years, 
the  opening  inventory  for  the  taxable  year  in  which  the  change  is  made  should 
be  brought  in  at  the  same  value  as  the  closing  inventory  for  the  preceding 
taxable  year.  If  such  valuation  of  the  opening  inventory  for  the  taxable 
year  in  which  the  change  is  made  results  in  an  abnormally  large  income  for 
that  year,  there  may  be  submitted  with  the  return  for  such  taxable  year  an 
adjustment  statement  for  the  preceding  year  based  on  the  “farm-price 
method”  of  valuing  inventories;  upon  the  amount  of  which  adjustments  the 
tax,  if  any  be  due,  shall  be  assessed  and  paid  at  the  rate  of  tax  in  effect  for 
suck  preceding  year.  . . 

3075  (3)  Where  returns  have  been  made  in  which  the  taxable  net  income 
has  been  computed  upon  incomplete  inventories,  the  abnormality 

should  be  corrected  by  submitting  with  the  return  for  the  current  taxable  year 
a statement  for  the  preceding  year  in  which  such  adjustments  shall  be  made 
as  are  necessary  to  bring  the  closing  inventory  for  the  preceding  year  into 
agreement  with  the  opening  complete  inventory  for  the  current  taxable  year. 
If  necessary  to  reflect  the  income,  similar  adjustments  may  be  made  as  at  the 
beginning  of  the  preceding  year,  and  the  tax,Mf  any  be  due,  shall  be  assessed 
at  the  rate  of  tax  in  effect  for  such  year. 

307  6 Art.  1587.  Inventories  of  miners  and  manufacturers— A taxpayer 
engaged  in  mining  or  manufacturing  who  by  a single  process  or 
uniform  series  of  processes  derives  a product  of  two  or  more  kinds,  sizes,  or 
grades,  the  unit  cost  of  which  is  substantially  alike,  and  who  in  conformity 
to  a recognized  trade  practice  allocates  an  amount  of  cost  to  each  kind,  size, 
or  grade  of  product  which  in  the  aggregate  will  absorb  the  total  cost  of  produc- 

Copyrigfit  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
686 


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v2,'3-10-22. 


tion  may  use  such  allocated  cost  as  a basis  for  pricing  inventories,  provided 
such  allocation  bears  a reasonable  relation  to  the  respective  selling  values  of 
the  different  kinds  of  product. 

3 07  7 Art.  1588.  Inventories  of  retail  merchants. — Retail  merchants  who 
employ  what  is  known  as  the  “retail  method”  of  pricing  inventories 
may  make  their  returns  upon  that  basis,  provided  that  the  use  of  such  method 
is  designated  upon  the  return,  that  accurate  accounts  are  kept,  and  that  such 
method  is  consistently  adhered  to  unless  a change  is  authorized  by  the  Com- 
missioner. Under  this  method  the  goods  in  the  inventory  are  ordinarily 
priced  at  the  selling  prices,  and  the  total  retail  value  of  the  goods  in  each 
department  or  of  each  class  of  goods  is  reduced  to  approximate  cost  by  deduct- 
ing the  percentage  which  represents  the  difference  between  the  retail  selling 
value  and  the  purchase  price.  This  percentage  is  determined  by  departments 
of  a store  or  by  classes  of  goods,  and  should  represent  as  accurately  as  may  be 
the  amounts  added  to  the  cost  prices  of  the  goods  to  cover  selling  and  other 
expenses  of  doing  business  and  for  the  margin  of  profit.  In  computing  the 
percentage  above  mentioned,  proper  adjustment  should  be  made  for  all  mark- 
ups and  mark-downs. 

3078  A taxpayer  maintaining  more  than  one  department  in  his  store  or 
dealing  in  classes  of  goods  carrying  different  percentages  of  gross 
profit  should  not  use  a percentage  of  profit  based  upon  an  average  of  his 
entire  business,  but  should  compute  and  use  in  valuing  his  inventory  the 
proper  percentages  for  the  respective  departments  or  classes  of  goods.  (T.  D. 
3296,  signed  by  Commissioner  D.  H.  Blair,  and  dated  March  3,  1922.) 


(IT — Mimeograph  Coll.  No.  2927.) 

3079  Instructions  relative  to  request  of  taxpayers  for  change  in  account- 
1066  ing  period  and  basis  of  filing  income  tax  returns.— Applications  from 

taxpayers  requesting  permission  to  change  their  accounting  period 
must  be  addressed  to  the  Commissioner  of  Internal  Revenue,  but  should  be 
filed  with  the  collector  of  the  district  for  transmission  to  the  Commissioner. 
It  is  necessary  that  each  application  be  carefully  examined  by  Collectors  of 
Internal  Revenue  to  see  that  the  necessary  data  are  furnished  before  for- 
warding to  this  office  in  order  that  action  thereon  may  be  expedited  and  the 
necessity  for  requesting  additional  information  be  avoided. 

3080  In  order  that  this  office  may  act  upon  a request  for  a change  in 
accounting  period,  it  is  essential  that  the  following  data  be  furnished 

by  the  taxpayer: 

1.  Whether  the  business  is  conducted  by  a corporation,  a partner- 
ship, or  an  individual. 

2.  The  taxpayer,  if  other  than  an  individual  must  state  (a)  the  exact 
date  upon  which  business  was  actually  commenced,  and  (b)  if 
incorporated,  the  date  of  incorporation. 

3.  The  basis  on  which  books  have  been  kept  each  year  since  January 
1,  1918,  specifically  setting  forth  for  each  year  opening  and  closing 
dates. 

4.  The  exact  period  covered  by  each  return  filed  since  January  1, 

1918,  specifically  setting  forth  for  each  year  the  beginning  and 
ending  dates  of  the  period. 

5.  State  fully  the  reasons  why  the  change  is  desired.  As  these 
changes  are  not  lightly  to  be  considered,  the  taxpayer  should  bear 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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in  mind  that  if  a change  is  authorized  he  will  be  required  there- 
after to  make  returns  on  the  basis  of  the  new  accounting  period. 

6.  If  incorporated,  and  a member  of  a consolidated  group  under 
Section  240,  Revenue  Act  of  1921,  which  elects  to  file  a consoli- 
dated return,  state  names  of  affiliated  corporations  and  basis 
upon  which  affiliation  is  effected. 

3 081  Individuals  reporting  on  a calendar  year  basis  and  making  applica- 
tion to  change  to  a fiscal  year  basis  must  show  that  they  keep  books 
of  account  or  other  competent  records  in  which  is  accurately  reflected  all 
income  from  whatever  sources  derived,  and  that  it  is  the  intention  to  main- 
tain and  close  such  books  on  the  fiscal  year  basis  proposed. 

3082  Power  of  attorney  executed  in  due  form  must  be  furnished  by  any 
individual,  firm  or  corporation  representing  any  other  individual, 

firm  or  corporation,  in  applying  for  change  of  accounting  period.  [The  power- 
of-attorney  must  carry  a 25  <t  internal-revenue  stamp,  properly  cancelled.] 

3083  Applications  must  be  made  in  conformity  with  the  provisions  of 
Article  26  of  Regulations  62,  with  special  reference  to  the  time  in 

which  such  application  should  be  made. 

3 084  Changes  in  accounting  periods  will  be  granted  only  through  Collec- 
tors of  Internal  Revenue.  (IT.  Mim.  Coll.  No.  2927,  signed  by 
Commissioner  D.  H.  Blair,  and  dated  March  7,  1922.) 


(T.  D.  3298.) 

( Act  of  October  3,  1917  —Decision  of  Court.) 

3085  Insolvency.-  Claim  for  Taxes. — Priority  of  United  States. — Under 
2781  the  provisions  of  Section  3466,  R.  S.,  the  claim  of  the  United  States 

against  an  insolvent  corporation  for  unpaid  taxes  takes  priority  over 
claims  for  taxes  due  a state,  county  or  municipality. 

3086  (The  decision  of  the  United  States  District  Court  for  the  Northern 
District  of  Washington,  in  the  case  of  United  States  vs.  San  Juan 

County,  et  als.,  the  syllabus  of  which  appears  above  [^[3085],  is  published 
not  as  a ruling  of  the  Treasury  Department,  but  for  the  information  of 
internal  revenue  officers  and  others  concerned.  Therefore,  the  text  of  the 
decision  will  not  be  printed  here  but  will  be  printed  in  the  regular  edition  of 
the  Weekly  Treasury  Decision.)  IT.  D.  3298,  March  7,  1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

688 


8-14-22.  (2)  3-20-22. 


(T.  D.  3301.) 

3087  Tax  exemptions  of  Treasury  (War)  Savings  Certificates. — Treasury 
1577  (War)  Savings  Certificates,  hereinafter  sometimes  called  “Savings 
1579  Certificates,”  include  all  issues  and  series  of  United  States  War- 
1583  Savings  Certificates  and  United  States  Treasury  Savings  Certificates 

issued  under  the  authority  of  section  6 of  the  Second  Liberty  Bond 
Act  of  September  24,  1917,  as  amended  and  supplemented.  The  Act  pro- 
vides, in  section  7 thereof,  as  follows:  “All  such  bonds  and  certificates  shall 
be  exempt,  both  as  to  principal  and  interest,  from  all  taxation  now  or  hereafter 
imposed  by  the  United  States,  any  State,  or  any  of  the  possessions  of  the 
United  States,  or  by  any  local  taxing  authority,  except  (a)  estate  or  in- 
heritance taxes,  and  (b)  graduated  additional  income  taxes,  commonly  known 
as  surtaxes,  and  excess-profits  and  war-profits  taxes,  now  or  hereafter  imposed 
by  the  United  States,  upon  the  income  or  profits  of  individuals,  partnerships, 
associations,  or  corporations.  The  interest  on  an  amount  of  such  bonds  and 
certificates  the  principal  of  which  does  not  exceed  in  the  aggregate  $5,000, 
owned  by  any  individual,  partnership,  association,  or  corporation,  shall  be 
exempt  from  the  taxes  provided  for  in  subdivision  (b)  of  this  section.” 
Savings  Certificates  issued  under  this  statute  are  by  their  terms  entitled  to 
the  exemption  set  forth  in  this  section. 

3088  In  accordance  with  the  provisions  of  the  statute  Savings  Certificates 
are  issued  on  a discount  basis  with  interest  to  maturity  discounted 

in  advance  at  the  rate  fixed  by  the  Secretary  of  the  Treasury.  On  certificates 
of  the  Series  of  1918,  1919,  1920,  and  1921  (old  issue),  interest  was  discounted 
at  the  rate  of  about  4 per  cent,  compounded  quarterly,  if  held  to  maturity, 
and  about  3 per  cent  if  redeemed  before  maturity.  Certificates  of  these 
series  were  issued  at  a price  which  increased  from  month  to  month  during 
the  year  of  issue  and  the  certificates  mature  on  January  1,  1923,  January  1, 
1924,  January  1,  1925,  and  January  1,  1926,  respectively.  On  Savings 
Certificates  of  the  new  issue,  interest  is  discounted,  at  present  issue  prices,  at 
the  rate  of  about  4)4  per  cent  per  annum,  compounded  semi-annually,  if 
held  to  maturity,  and  about  3)4  Per  cent  if  redeemed  before  maturity. 
Certificates  of  the  new  issue  are  issued  at  a fixed  issue  price  and  mature  five 
years  from  the  date  of  issue  of  each  certificate.  Savings  Certificates  are  not 
transferable,  nor  is  it  lawful  for  any  one  person  at  any  one  time  to  hold  more 
than  $5,000,  maturity  value,  of  any  one  series  thereof. 

3089  In  the  case  of  a taxpayer  reporting  income  on  a basis  of  cash  receipts 
and  disbursements,  the  difference  between  the  issue  price  of  the 

Savings  Certificates  and  the  amount  received  upon  their  redemption  is  deemed 
to  be  income  to  the  holder  in  the  taxable  year  when  received.  The  amount 
thus  received  is  exempt  from  all  State  and  local  taxation  (except  estate  and 
inheritance  taxes)  and  from  the  normal  Federal  income  tax  and  the  corpo- 
ration income  tax.  It  is  not  exempt  from  graduated  additional  income  taxes, 
commonly  known  as  surtaxes,  nor  from  excess-profits  and  war-profits  taxes, 
except  to  the  extent  that  it  falls  within  the  above-described  exemption  in 
respect  of  the  interest  on  an  aggregate  principal  amount  of  4 and  4)4  per  cent 
Liberty  bonds,  Treasury  certificates  of  indebtedness  and  Savings  Ceritficates, 
not  exceeding  $5,000.  For  the  purpose  of  computing  this  limited  exemption, 
Savings  Certificates  are  to  be  taken  at  issue  price,  and  if  the  exemption  is 
claimed  with  respect  to  any  holdings  of  Savings  Certificates  it  will  be  deemed 
to  cover  the  period  during  which  the  taxpayer  holds  the  Savings  Certificates 
in  respect  to  which  the  exemption  is  claimed,  and  not  merely  the  taxable  year 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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in  which  the  certificates  are  redeemed.  In  other  words,  if  the  taxpayer  holds 
and  claims  exemption  upon  $4,000  (issue  price)  of  Savings  Certificates  of  the 
Series  df  1922,  for  the  full  period  of  5 years  to  maturity,  he  will  not  be  able 
to  claim  any  exemption  with  respect  to  any  other  holdings  in  excess  of  $1,000 
of  Liberty  bonds,  Treasury  certificates  of  indebtedness  or  Savings  Certificates 
under  the  $5,000  limited  exemption  abovedescribed,  for  any  part  of  the  5 
year  period.  If,  on  the  other  hand,  the  holder  of  $4,000  (issue  price)  of 
Savings  Certificates,  Series  of  1922,  has  during  the  prior  four  years  taken 
the  full  benefit  of  the  $5,000  limited  exemption  with  respect  to  other  holdings 
of  bonds  or  certificates,  he  will  not  be  able  to  claim  exemption  in  the  fifth 
year  for  more  than  the  amount  by  which  the  maturity  value  of  the  Savings 
( ertificates  exceeds  the  published  redemption  price  at  the  beginning  of  that 
year. 

3090  In  the  case  of  a taxpayer  reporting  on  an  accrual  basis,  the  interest 
to  be  reported  for  each  year  is  the  excess  of  the  published  redemption 

price  of  the  certificates  at  the  end  of  his  accounting  year,  or  of  the  amount 
received  upon  redemption,  if  redeemed  during  the  year,  over  the  corresponding 
published  price  for  the  beginning  of  that  year;  and  the  interest  exempt  from 
taxation,  if  any,  is  the  proportion  of  the  interest  accrued  that  the  portion  of 
the  issue  price  includable  in  the  exemption  for  each  year  is  of  the  total  issue 
price. 

3091  This  Treasury  Decision  supplements  the  provisions  of  Articles  79 
[1[1577],  80  [If  1579]  and  83  [^[1583]  of  Regulations  62  (1922  edition), 

relating  to  the  Income  Tax,  War  Profits  and  Excess  Profits  Tax.  (T.  D. 
3301,  signed  by  Commissioner  D.  PI.  Blair,  and  dated  March  10,  1922.) 


(T.  D.  3305.) 

3 092  Time  within  which  new  returns  under  Revenue  Act  of  1921  for  fiscal 
2529  year  ending  in  1921  are  to  be  filed. — If  any  taxpayer  has  before 

2535  November  23,  1921,  filed  a return  for  a fiscal  year  ending  in  1921,  and 
2565  paid  or  become  liable  for  a tax  computed  under  the  Revenue  Act  of 
2723  1918,  and  is  subject  to  additional  tax  for  the  same  period  under  the 

Revenue  Act  of  1921,  the  return  covering  such  additional  tax  shall 
be  filed  at  the  same  time  as  the  returns  bf  persons  making  returns  for  the 
fiscal  year  ending  February  28,  1922  are  due  under  the  law  and  regulations, 
and  payment  of  such  additional  tax  is  due  in  the  same  installments  and  at 
the  same  times  as  in  the  case  of  payments  based  on  returns  for  the  fiscal  year 
ending  February  28,  1922.  If  no  part  of  the  tax  for  the  taxpayer’s  fiscal  year 
was  due  until  after  November  22,  1921,  the  whole  amount  of  tax  due,  in- 
cluding the  tax  due  under  the  original  return  and  the  additional  tax  due  under 
the.  new  return,  will  be  payable  in  the  same  installments  and  at  the  same  times 
as  in  the  case  of  payments  based  on  returns  for  the  fiscal  year  ending  Feb- 
ruary 28,  1922.  Attention  is  directed  to  the  provisions  of  Section  214  (a) 
(9)  and  234  (a)  (8)  [amortization  of  war  facilities,  etc.,  beginning  at  1 860] 
of  the  Revenue  Act  of  1921.  (T.  D.  3305,  signed  by  Commissioner  D.  II. 

Blair,  and  dated. March  16,  1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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(T.  I).  3306.) 

3093  Extension  of  time  in  which  to  file  individual  returns  and  information 
2343  returns  on  Forms  1099  and  1096  in  the  case  of  persons  living  or 
2529  residing  in  the  Territories  of  Alaska  and  Hawaii. — Because  of  the 
2565  fact  that  it  was  impossible  to  put  into  the  hands  of  taxpayers  residing 

or  located  in  Hawaii  and  Alaska  the  individual  income  tax  forms, 
1040  and  1040-A,  in  sufficient  time  to  enable  returns  to  be  filed  at  the  time 
required  by  law,  an  extension  of  time  up  to  and  including  May  15,  1922  is 
hereby  granted  in  which  to  file  individual  returns  for  the  calendar  year  1921 
by  persons  living  or  residing  in  these  territories.  The  installments  of  tax 
will  bear  interest  from  the  due  date  thereof  at  the  rate  of  one-half  of  one  per 
cent  a month  until  paid. 

3094  Under  the  provisions  of  Treasury  Decision  3272  [^[3009]  a general 
extension  of  time  was  granted  to  partnerships  and  fiduciaries  in  which 

to  file  information  returns,  Forms  1099  and  1096.  In  all  other  cases  an  ex- 
tension of  time  in  which  to  file  these  information  returns  is  hereby  granted 
until  May  15,  1922,  for  filing  such  returns  by  persons  located  or  residing  in 
Alaska  and  Hawaii.  (T.  D.  3306,  signed  by  Commissioner  D.  H.  Blair,  and 
dated  March  17,  1922.) 


3095  On  the  responsibility  of  debtor  corporations  and  their  paying  agents, 
2265  and  on  the  limitation  to  their  authority  to  prescribe  requirements, 
2361  in  connection  with  “domestic  and  resident  corporations  not  required 
3045  to  execute  and  file  ownership  certificates,”  and  certain  foreign 

items. — Bank  cashing  coupons  should  exercise  ordinary  business 
care  in  ascertaining  owner  of  bonds  in  cases  where  coupons  are  unaccompanied 
by  ownership  certificates.  If  owner  is  unknown,  certificate  should  be  pre- 
pared as  required  by  Article  369  [^[2315].  Written  statement  in  lieu  of  owner- 
ship certificate  not  required  in  connection  with  interest  payments  on  bonds 
owned  by  domestic  or  resident  corporations.  (Telegram  to  E.  St.  Clair 
Thompson,  Manager  Tax  Department,  National  City  Company,  New  York, 
N.  Y.,  signed  by  Deputy  Commissioner  E.  H.  Batson,  and  dated  March  7, 
1922.) 

3096  Paying  agents  must  not  require  bank  cashing  coupons  to  secure 
ownership  certificates  unless  law  and  regulat:ons  require  certificates. 

Department  cannot  prescribe  definite  ruling  for  inter-banking  transactions. 
(Telegram  to  E.  St.  Clair  Thompson,  Manager  Tax  Department,  National 
City  Company,  New  York,  N.  Y.,  signed  by  Commissioner  D.  H.  Blair,  and 
dated  March  9,  1922.) 


3097  Credit  for  dependents  may  not  be  divided  between  husband  and 
2052  wife,  even  in  community  property  states. — Reference  is  . made  to 

2390  your  letter  of  February  3,  1922,  inquiring  whether  a husband  and 

wife,  residing  in  a community  property  state,  may  divide  the  $400.00 
credit  for  dependents  between  them.  In  reply  you  are  advised  that  where 
returns  are  filed  upon  a community  property  basis  and  the  husband  and  wife 
contribute  equally  toward  the  support  of  dependents,  the  $400.00  credit  for 
dependents  provided  by  Section  216(d)  of  the  Revenue  Act  of  1921  may  be 
claimed  by  either  husband  or  wife,  but  cannot  be  divided  between  them. 
(Letter  to  The  Corporation  1 rust  Company,  signed  by  Deputy  Commissioner 
E.  H.  Batson,  by  W.  R.  Campbell,  Head  of  Division,  and  dated  March  18, 
1922.) 

Copyright  1922,  by  1 lie  Corporation  I rust  Company. 

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3-22-22. 


3098  On  the  placing  of  income  on  an  annual  basis  in  the  case  of  a return 

[939  for  a period  of  less  than  twelve  months,  the  rule  applying  to  the 

2574  return  for  a decedent  for  the  taxable  year  to  the  time  of  his  death. — ■ 

Do  Section  226  subdivision  C and  Article  431  [1J2574]  Regulations  62 
apply  to  returns  of  decedent?  Instruction  2,  Form  1040  seems  to  indicate, 
apply  only  when  accounting  period  changed.  (Answer.)  Section  226  (c) 
and  Article  431  applicable  to  return  for  decedent. 

3099  If  above  apply,  should  net  income  be  placed  on  annual  basis  by 
multiplying  amount  shown  in  item  19  by  12  and  dividing  by  number 

of  months  or  should  each  item  of  income  and  deductions  be  so  placed  on 
annual  basis?  If  former,  should  not  Items  21  (dividends)  and  22  (taxable 
interest)  be  also  placed  on  annual  basis  in  figuring  normal  tax?  (Answer.) 
Net  income  should  be  placed  on  annual  basis  by  multiplying  Item  19,  Form 
1040  by  12  and  dividing  by  fractional  part  year  covered  by  return.  Items 
21  and  22  should  be  accorded  same  treatment  for  purpose  normal  tax.  (Part 
of  telegram  from  Chadwick,  McMicken,  Ramsey  & Rupp,  Seattle,  Wash- 
ington, and  the  reply  thereto  signed  by  Commissioner  D.  H.  Blair,  and  dated 
March  15,  1922.) 


(T.  D.  3308.) 

3100  Decision  of  court. — Payment  of  tax  under  protest  a necessary  step 
2884  precedent  to  the  bringing  of  suit  against  the  collector  for  the  refund 
2886  thereof. — The  following  [1[3101  to  3103]  decision  of  the  United  States 

District  Court  for  the  Southern  District  of  New  York  in  the  case  of 
Benjamin  Fox  v.  William  H.  Edwards,  Collector,  is  published  for  the  informa- 
tion of  Internal  Revenue  Officers  and  others  concerned.  (T.  D.  3308,  signed 
by  Commissioner  D.  H.  Blair,  and  dated  March  20,  1922.) 

(Decision  referred  to  above  in  ^[3 100.) 

UNITED  STATES  DISTRICT  COURT  FOR  THE 
SOUTHERN  DISTRICT  OF  NEW  YORK. 

Benjamin  Fox,  Plaintiff , v.  William  H.  Edwards,  Defendant. 

(. Memorandum  indorsed  upon  notice  of  motion  filed  November  2,  1921.) 

3101  When  the  within  motion  came  on  for  argument,  there  was  a default 
upon  behalf  of  this  plaintiff,  and  no  brief  has  been  filed  by  or  for  him. 

I am,  therefore,  deprived  of  the  benefit  of  such  views  as  he  or  his  counsel 
may  entertain  with  respect  to  the  facts  and  law  here  involved.  It  appears 
from  the  complaint,  to  which  defendant  demurred,  that  the  money  for  the 
recovery  of  which  suit  was  brought  was  paid  voluntarily  in  March,  1919, 
as  and  for  a part  of  plaintiff’s  income  tax  for  the  year  1918.  The  item  of 
loss,  upon  account  of  which  plaintiff  now  believes  himself  entitled  to  a 
refund,  was  not  called  to  the  attention  of  any  Government  official  prior  to 
March,  1921.  The  original  tax  having  been  transmitted  to  the  Treasury 
without  protest  or  complaint  upon  the  part  of  plaintiff,  it  seems  to  me  that 
as  against  the  Collector  there  could  be  no  recovery  at  common  law,  nor  under 
the  statutes  relating  to  him  or  his  office. 

31  02  It  is  possible  that  plaintiff  has  some  rights  granted  to  him  under  the 
provisions  of  Section  252  of  the  Revenue  Act  of  1918,  but  if  so,  I am 
of  opinion  that  such  right  cannot  be  asserted  in  a suit  against  the  Collector 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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who  received  plaintiff’s  voluntary  payment  in  1918.  Judgment  may  be 
entered  sustaining  the  demurrer  of  defendant  and  dismissing  the  complaint 

John  C.  Knox,  U.  S.  D.  J. 

December  12,  1921. 

(On  Rehearing.) 

3103  It  is  my  judgment  that  there  is  nothing  in  Section  252  of  the  Revenue 
Act  upon  which  plaintiff  relies  which  relieves  him  from  the  effect  of 
having  voluntarily  paid  an  amount  of  tax  against  which  he  might  have 
offset  a bad  debt.  The  tax  was  paid  by  plaintiff  with  full  knowledge  of  all 
the  facts,  and  without  any  interposition  of  the  Government  or  any  of  its 
officials,  and  to  hold  that  a taxpayer  is  entitled  for  years  after  the  payment 
of  a tax  to  harass  and  annoy  the  taxing  officials  and  the  courts  as  to  the 
unwisdom,  unpropriety  or  oversight  of  what  he  himself  did,  when  under  no 
coercion  and  compulsion  upon  the  part  of  the  Government,  is  something  I am 
unwilling  to  do.  As  to  the  purpose  and  effect  of  Section  252  of  the  Revenue 
Act  see  Holmes  Federal  Taxes  1922  Edition,  page  890.  The  order  heretofore 
mentioned  herein  will  stand. 

John  C.  Knox,  U.  S.  D.  J. 

February  24,  1922. 


(Sol.  Mimeograph.— Coll.  No.  2937.) 

3104  Powers-of-Attomey  Required  to  be  Filed  by  Taxpayers’  Represen- 
2941  tatives,  and  the  stamping  thereof. — Effective  immediately,  no  at- 
torney, agent,  or  other  person  representing  claimants  before  this 

bureau  or  any  of  the  units,  divisions,  or  other  offices  thereof,  shall  appear 
or  be  recognized  in  any  case,  matter,  claim  or  other  proceeding  or  business 
pending  in  said  bureau,  division  or  other  office  thereof  unless  said  attorney, 
agent,  or  other  person  representing  said  claimant  present  and  file  a power 
of  attorney  from  his  principal  in  proper  form,  authorizing  him  to  prosecute 
the  case,  claim,  or  matter  in  question.  Such  power  of  attorney  shall  always 
be  filed  before  such  agent,  attorney,  or  other  person  is  recognized. 

3105  Such  powers  of  attorney  are  taxable  under  Schedule  A 12,  Title 
XI,  of  the  Revenue  Act  of  1918,  and  Schedule  All,  Title  XI,  of  the 

Revenue  Act  of  1921. 

3106  Stamps  to  the  value  of  twenty-five  cents  are  required  to  be  affixed 
to  such  power  of  attorney,  and  care  should  be  taken  that  no  power  of 

attorney  be  accepted  unless  it  is  properly  stamped  as  required  by  law. 

3107  Attention  is  specifically  called  to  the  following  section  of  Revised 
Statutes  [^[2696]: 

“Sec.  3167.  (Amended  by  Sec.  1317,  act  of  February  24,  1919  (40 
Stat.,  1057)  and  reenacted  by  Sec.  1311,  Revenue  Act  of  1921.)  It  shall 
be  unlawful  for  any  collector,  deputy  collector,  agent,  clerk,  or  other 
officer  or  employee  of  the  United  States  to  divulge  or  to  make  known 
in  any  manner  whatever  not  provided  by  law  to  any  person  the  opera- 
tions, style  of  work,  or  apparatus  of  any|‘manufacturer  or  producer 
visited  by  him  in  the  discharge  of  his  official  duties,  or  the  amount  oi 
source  of  income,  profits,  losses,  expenditures,  or  any  particular  thereof, 
set  forth  or  disclosed  in  any  income  return,  or  to  permit  any  income 
return  or  copy  thereof  or  any  book  containing  any  abstract  or  particu- 
lars thereof  to  be  seen  or  examined  by  any  person  except  asfprovided  by 

Copyright  1922,  by  The  Corporation  Trust  ifpmpany. 

THI  fEDF.«At.  INCOME  TAX  SF.RVtt'E 

693 


3-30-22.  (2)  4-G-22. 


law;  and  it  shall  be  unlawful  for  any  person  to  print  or  publish  in  any 
manner  whatever  not  provided  by  law  any  income  return,  or  any  part 
thereof  or  source  of  income,  profits,  losses,  or  expenditures  appearing 
in  any  income  return;  and  any  offense  against  the  foregoing  provision 
shall  bp  a misdemeanor  and  be  punished  by  a fine  not  exceeding  $1,000 
or  by  imprisonment  not  exceeding  one  year,  or  both,  at  the  discretion 
of  the  court;  and  if  the  offender  be  an  officer  or  employee  of  the  United 
States  he  shall  be  dismissed  from  office  or  discharged  from  employment.” 
3108  Any  violation,  or  assistance  in  or  connivance  at  the  procurement  of 
any  violation,  of  the  foregoing  provision  of  the  Revised  Statutes 
or  of  the  foregoing  order  in  regard  to  the  presentation  and  filing  of  powers 
of  attorney  will  be  followed  by  immediate  investigation,  and  the  dismissal 
of  the  offending  officer  or  employee  from  the  service.  (Sol.  Mim.  Coll.  No. 
2937,  signed  by  Acting  Commissioner  C.P.  Smith,  and  dated  March  21,  1922.) 


3109  Old  ownership  certificates  acceptable  when  accompanying  coupons 

2265  maturing  on  or  before  April  1 or  May  1,  1922 —Forms  1000,  1001, 

2298  and  1001A,  revised,  January,  1922,  must  accompany  coupons 

2361  maturing  after  April  1,  1922,  if  bondholder  is  within  continental 

3047  United  States.  Bondholder  without  United  States  may  use  old 

forms  with  respect  to  coupons  maturing  prior  to  and  on  May  1,  1922. 
(Telegram  to  a subscriber,  signed  by  Deputy  Commissioner  E.  H.  Batson, 
and  dated  March  14,  1922.) 

Later.— Old  ownership  certificates  may  be  accepted  pending  issuance 
of  Treasury  Decision.  (Telegram  to  Charles  R.  Bailey,  Secretary  of  Com- 
mittee. of  Banking  Institutions  on  Taxation,  New  York,  N.  Y.,  signed  by 
Deputy  Commissioner  E.  H.  Batson,  and  dated  March  29,  1922.) 


(T.  D.  3310.) 

3110  Time  within  which  new  returns  under  Revenue  Act  of  1921  to  be 
2529  filed  in  case  of  returns  filed  prior  to  November  23,  1921,  forjfiscal 
2535  year  ending  in  1921. — T.  D.  3305  [1[3092],  approved  March  16,  1922, 
2565]  is  amended  to  read  as  follows:  jm- 

2723,  “If  any  taxpayer  has,  before  November  23,  1921,  filed  a'  return  for 
3092  a fiscal  year  ending  in  1921.  and  paid  or  become  liable  for  a tax  com- 
puted under  the  Revenue  Act  of  1918,  and  is  subject  to  additional 
tax  for  the  same  period  under  the  Revenue  Act  of  1921,  a return  covering 
such,  additional  tax  shall  be  filed  at  the  same  time  as  the  returns  of  persons 
making  returns  for  the  fiscal  year  ending  February  28,  1922,  are  due  under 
the  laws  and  regulations,  and  payment  of  such  additional  tax  will  be  due  in 
the  same  installments  and  at  the  same  times  as  in  the  case  of  payments 
based  on  returns  for  th?  fiscal  year  ending|February  28,  1922.  Attention  is 
directed  to  the  provisions  of  Sections  214(a)(9)  and  234(a)(8)  [amortization 
of  war  facilities,  etc.,  beginning  at  1[1860]  of^the  Revenue  Act  of  1921.” 
(T.  D.  3310,  signed  by  Commissioner  D.  H.  Blair,  and  dated  March  28.  1922.) 

[By  T.  D.  3310,  above,  the  next  to  the  last  sentence^of  T.  Z) .133053 113092, 
is  eliminated.) 


Copyright  1922 , by  7 lie  Corporation  Trust  Company. 
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4-6-22.  (2)  4-7-22. 

(T.  D.  3313.) 

3111  Revenue  Acts  of  1916  and  1918. — Decision  of  Court. — “Like  organiz- 
1014  ations  of  a purely  local  character,”  Sec.  231  (10). — Section  11,  Para- 
1037  graph  10  of  the  Revenue  Act  of  1916,  and  Section  231,  Paragraph  10 

of  the  Revenue  Act  of  1918,  being  exemption  provisions,  are  construed 
strictly  and  take  no  case  out  of  the  enacting  clauses  of  the  statutes  which  does 
not  fall  fairly  within  their  terms.  The  words  “of  a purely  local  character” 
in  Section  11,  Paragraph  10  of  the  Revenue  Act  of  1916  and  Section  231  (10) 
of  the  Revenue  Act  of  1918  are  words  of  limitation  upon  all  of  the  organiza- 
tions named  in  the  paragraph  and  do  not  apply  solely  to  “like  organizations.” 
A general  life,  health  and  accident  insurance  company  organized  under  a gen- 
eral law  and  doing  a general  business  throughout  an  entire  state,  is  not  “a 
like  organization  of  a purely  local  character”  and  is,  therefore,  not  an  exempt 
organization  within  the  meaning  of  Section  11,  Paragraph  10  of  the  Revenue 
Act  of  1916,  and  Section  231,  Paragraph  10  of  the  Revenue  Act  of  1918. 

3112  (The  decision  [syllabus  only]  of  United  States  District  Court,  Southern 
District  of  Illinois,  Southern  Division,  in  the  case  of  Commercial 

Health  & Accident  Company  v.  J.  L.  Pickering,  Collector,  the  syllabus  of 
which  appears  above  [^[3 111]  is  published  not  as  a ruling  of  the  Treasury 
Department,  but  for  the  information  of  internal  revenue  officers  and  others 
ncerned.)  [The  decision  appears  in  full  in  Bulletin  I (’22)-6,  p.  19.]  (T.  D. 

3313,  March  29,  1922.) 


(T.  D.  3315.) 

3113  Court  decision,  1917  Act. — Amount  of  tax  actually  paid  at  source  by 
1725  debtor  corporation  on  account  of  tax-free-covenant  bond  interest  is 

income  to  bond  holder. — Under  Title  XII,  Section  1205,  Subdivision 
(c)  of  Act  of  October  3,  1917,  amending  Subdivision  (c)  of  Section  9 of  Act 
of  September  8,  1916,  taxes  on  bonds  of  a corporation,  containing  covenants 
agreeing  to  pay  to  bond  holders  interest  at  a prescribed  rate  without  deduction 
of  taxes,  is  income  to  the  individual  to  the  extent  of  the  tax  thus  paid  by  the 
corporation.  The  normal  tax  of  two  per  cent.,  while  paid  at  the  source  by  the 
corporation,  is  not  a tax  on  the  corporation  but  a tax  on  the  individual. 
The  taxes  so  paid  by  a corporation  for  and  on  behalf  of  the  individual  bond 
holder  come  within  the  definition  of  income  as  “gains,  profits,  and  income 
derived  from  any  source  whatever”  in  Section  1200  of  the  Act  of  1917.  The 
tax  free  covenant  in  the  bonds  is  equivalent  to  an  agreement  of  the  obligors 
to  pay  the  owners  the  agreed  rate  of  interest  plus  the  taxes,  and  it  is  im- 
material whether  the  taxes  are  paid  by  the  owners  of  the  bonds  to  the  Gov- 
ernment and  the  amount  thereof  refunded  by  the  obligors  to  the  owners,  or 
whether  under  the  covenant  and  the  statute  the  taxes  are  paid  direct  to  the 
Government  by  the  obligors,  since  the  tax  is  on  the  individual  but  collectible 
from  the  corporation,  the  corporation  paying  the  tax  because  of  its  contract 
with  the  bond  holder. 

3114  (The  decision  [syllabus  only]  of  the  United  States  District  Court  for 
the  Eastern  District  of  Pennsylvania  in  the  case  of  George  V.  Massey 

vs.  Ephraim  Lederer,  the  syllabus  of  which  appears  above  [^3113]  is  pub- 
lished not  as  a ruling  of  the  Treasury  Department  but  for  the  information  of 
internal  revenue  officers  and  others  concerned.)  [(277  Fed.  123).  The 
decision  appears  in  full  in  Bulletin  I(’22)-5,  p.  8.]  (T.  D.  3315,  March  30, 
1922.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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(T.  D.  3316.) 

3116  Federal  Estate  and  State  Inheritance  Taxes:  Article  134,  Regu- 
1728  lations  45,  Amended— Article  134  of  Regulations  45  (1920  Edition) 

is  hereby  amended  to  read  as  follows: 

3116  Art.  134.  Federal  estate  and  State  Inheritance  Taxes— Federal 
estate  taxes,  paid  or  accrued  during  the  taxable  year,  are  an  allowable 

deduction  from  the  gross  income  of  the  estate  in  computing  the  net  income 
thereof  subject  to  tax.  Such  taxes  are  deemed  to  have  accrued  on  the  due 
date  thereof,  namely,  one  year  after  the  decedent’s  death,  except  in  any  case 
where  the  Commissioner  has  granted  an  extension  or  extensions  of  time  for 
payment,  such  taxes  are  then  deemed  to  have  accrued  on  the  due  date  or 
dates  of  such  extension  or  extensions. 

3117  Estate,  succession,  legacy,  or  inheritance  taxes,  imposed  by  any  State, 
Territory  or  possession  of  the  United  States,  or  foreign  country,  are 

deductible  by  the  estate,  subject  to  the  provisions  of  section  214,  where,  by 
the  laws  of  the  jurisdiction  exacting  them,  they  are  imposed  upon  the  right 
or  privilege  to  transmit  rather  than  upon  the  right  or  privilege  of  the  heir, 
devisee,  legatee,  or  distributee,  to  receive  or  to  succeed  to  the  property  of 
the  decedent  passing  to  him.  Where  such  taxes  are  imposed  upon  the  right 
or  privilege  of  the  heir,  devisee,  legatee,  or  distributee,  so  to  receive  or  to 
succeed  to  the  property,  they  constitute,  subject  to  the  provisions  of  section 
214,  an  allowable  deduction  from  his  gross  income. 

3118  Where,  in  accordance  with  a direction  contained  in  the  testator’s 
will,  the  taxes  upon  the  right  to  receive  any  particular  devise  or 

devises,  legacy  or  legacies  are  so  payable  as  to  relieve  the  particular  devisee 
or  devisees,,  legatee  or  legatees  from  the  burden  thereof,  then  the  person  or 
persons  entitled  to  the  fund  or  other  property  out  of  which  payment  is  made 
may  not  take  deduction  of  the  taxes  so  paid,  but  deduction  thereof  is  available 
only  by  such  devisee  or  devisees,  legatee  or  legatees;  each,  if  there  be  more 
then  one,  being  authorized  to  deduct  such  part  of  the  taxes  so  paid  as  he  would 
otherwise  have  been  entitled  to  do  had  there  been  no  such  testamentary 
direction. 

3119  Where  there  is  a life  estate  and  a remainder,  and,  by  the  laws  of  the 
jurisdiction  imposing  them,  and  taxes  in  respect  to  both  interests 

are  payable  out  of  the  remainder  interest,  with  no  legal  obligation  imposed 
whereby  the  remainderman  is  entitled  to  reimbursement,  then  deduction  of 
the  taxes  so  paid  may  be  taken  only  by  the  remainderman.  Where,  in  the 
case,  of  an  annuity,  the  taxes  in  respect  thereto  are,  by  the  laws  of  the  juris- 
diction imposing  them,  payable  in  the  first  instance  out  of  the  fund  set  aside 
for  creating  the  annuity,  but  are  to  be  repaid  or  restored  to  such  fund  from 
the  annuity,  then  deduction  thereof  may  be  taken  only  by  the  annuitant. 

3120  The  accrual  dates  of  such  taxes  shall  be  the  due  date  thereof  except 
as  otherwise  provided  by  the  law  of  the  jurisdiction  imposing  them. 

Where  deduction  is  claimed  of  any  such  taxes,  the  amount  thereof  and  the 
name  of  the  State,  Territory  or  possession  of  the  United  States,  or  foreign 
country,  by  which  they  have  been  imposed  shall  be  stated  in  the  return. 
(T.  D.  3316,  signed  by  Commissioner  D.  H.  Blair,  and  dated  April  5,  1922.) 

(Art.  134,  Reg.  45  (1918  Act)  as  amended  above  by  T.  D.  3316,  is  iden- 
tical with  Art.  134, .Reg.  62  (1921  Act),  ^1728.) 


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3121  No  ownership  certificates  required  in  connection  with  accrued  in- 
2265  terest  adjusted  against  accrued  dividends  on  stock  into  which  bonds 
are  converted  according  to  terms  of  the  indenture. — Receipt  is 
acknowledged  of  your  letter  dated  March  10,  1922,  referring  to  the  ruling 
contained  in  I.  T.  1206,  appearing  in  Internal  Revenue  Bulletin  No.  7,  to 
the  effect  that,  when  a corporation  purchases  its  own  bonds  in  the  open 
market  and  pays  cash  for  the  accrued  interest  from  the  end  of  the  preceding 
coupon  interest  period  to  the  time  of  purchase  and  the  bonds  and  the  coupons 
are  canceled  at  once,  no  ownership  certificates  are  required  for  the  accrued 
interest.  You  are  of  the  opinion  that  this  ruling  can  be  applied  to  interest 
on  bonds  which,  under  the  terms  of  the  indenture,  are  convertible  into  stock, 
in  which  case  the  interest  accrued  on  the  bond  is  adjusted  against  the  divi- 
dend accrued  on  the  stock.  You  state  that  heretofore,  upon  instructions 
received  from  this  office,  you  required  an  ownership  certificate  for  the  accrued 
bond  interest,  but  shall  discontinue  this  procedure  in  view  of  the  principle 
contained  in  I.  T.  1206.  You  request  to  be  advised  as  to  the  correctness  of 
your  understanding.  In  reply,  you  are  advised  that  in  cases  where,  under 
the  terms  of  the  indenture,  bonds  are  convertible  into  stock,  if  the  accrued 
interest  is  not  paid  or  credited  to  the  account  of  the  bondholder,  but  is  to 
be  adjusted  against  the  dividend  accrued  on  the  stock,  no  ownership  certifi- 
cate is  required  to  be  filed  by  the  bondholder  representing  the  accrued  in- 
terest. (Letter  to  the  Southern  Pacific  Company,  New  York,  N.  Y.,  signed 
by  Commissioner  D.  H.  Blair,  and  dated  April  6,  1922.) 


3122  Form  1001  B executed  by  husband  and  wife,  the  bond  interest  being 
2254  community  income,  is  acceptable. — Reference  is  made  to  your  letter 
of  January  17,  1922,  relative  to  the  execution  of  Forms  1001  B.  You 
advise  that  some  of  the  forms  received  in  your  office  show  that  the  income 
from  the  bonds  in  question  was  community  income,  but  that  the  ownership 
certificates  had  been  executed  in  the  name  of  husband  only  as  at  that  time 
the  owners  were  not  aware  that  in  the  case  of  such  income  separate  owner- 
ship certificates  would  have  to  be  executed.  You  state  further  that  the 
forms  referred  to  were  properly  signed  by  husband  and  wife.  You  ask  whether 
such  forms  as  executed  will  be  accepted  by  this  Department.  In  reply,  you 
are  advised  that  in  any  case  where  Form  1001  B is  signed  by  both  a husband 
and  wife,  such  form  will  be  accepted  and  separate  forms  executed  respec- 
tively by  husband  and  wife  will  not  be  required.  Only  one  exemption  of 
$1,000  may  be  claimed.  (Letter  to  the  Southern  Pacific  Company,  New 
York,  N.  Y.,  signed  by  Commissioner  D.  H.  Blair,  and  dated  April  7,  1922.) 


3123  National  banks  may  under  certain  circumstances  declare  true  tax- 
1144  free  stock  dividends. — Receipt  is  acknowledged  of  your  letter  of 

March  11,  1922,  making  inquiry  regarding  stock  dividends  declared 
by  national  banks. 

3124  You  state  that  the  Comptroller  of  the  Currency  has  held  recently 
that  national  banks  may  issue  stock  dividends  and  enclose  with  your 

letter  a copy  of  a previous  holding  of  the  Government  in  connection  therewith. 

3125  It  is  understood  that  the  “Instructions  of  the  Comptroller  of  the 
Currency  Relative  to  the  Organization  and  Powers  of  National 

Banks”  for  1919,  in  reference  to  dividends  have  not  been  formally  modified, 
nor  has  any  general  authority  been  issued  by  the  Comptroller  authorizing 
national  banks  to  increase  their  capital  stock  by  declaring  stock  dividends. 

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It  is  also  understood,  however,  that  the  Comptroller  has,  in  some  instances, 
upon  the  application  of  a national  bank  in  due  form  and  upon  complying 
with  the  requirements  prescribed  in  connection  therewith  by  the  Comptroller 
issued  his  certificate  approving  the  increase  of  the  bank’s  capital  stock,  the 
papers  submitted  in  connection  with  the  application  for  such  increase  indi- 
cating that  it  was  to  be  increased  by  the  declaration  of  stock  dividends. 
3126  You  arc  advised,  therefore,  in  reply  to  your  inquiry,  that  if  a stock 
dividend  is  declared  by  a national  bank  in  the  manner  and  form 
prescribed  by  the  Comptroller  of  the  Currency  and  his  certificate  of  approval 
issues  for  the  increase  of  the  capital  stock  of  the  bank  pursuant  to  its  appli- 
cation made  in  due  form  for  such  increase  by  the  declaration  of  a stock  divi- 
dend, such  dividend  is,  for  income  tax  purposes,  a stock  dividend  within  the 
meaning  of  Section  201  (d)  of  the  Revenue  Act  of  1921,  and  is  therefore  not 
taxable  to  the  recipient.  (Letter  to  The  Corporation  Trust  Company,  signed 
by  Commissioner  D.  II.  Blair,  and  dated  April  8,  1922.) 


{Decision.) 

(Act  of  October  3,  1913.) 

April  12,  1922. 

Dividends  declared  prior  to  but  payable  subsequent  to  March  1,  1913 
are  not  taxable. — Interest  payable  for  period  ending  February  28,  1913  due 
March  1,  1913  is  not  taxable. — Five-sixths  of  book  value  on  March  1,  1913 
of  debt  both  ascertained  to  be  valueless  and  charged  off  during  1913  is  de- 
ductible.— Losses  sustained  in  operation  of  farm  conducted  in  accord  with 
established  business  principles  though  so  conducted  by  the  taxpayer  without 
regard  to  its  profitableness  in  dollars  and  cents  because  of  the  incidental 
pleasure,  are  deductible. 

District  Court  of  the  United  States 

District  of  Connecticut 

Morton  F.  Plant 
vs. 

James  J.  Walsh,  Collector  of 
Internal  Revenue 

3127  THOMAS,  D.  J.:  This  action  was  brought  by  Morton  F.  Plant  to 
1082  recover  income  taxes  assessed  in  1916  for  the  years  1913  and  1914 

[ 1196  and  paid  under  protest  to  avoid  penalties.  Before  the  case  was  ready 

k 1272  for  trial  Mr.  Plant  died  and  the  executors  of  his  estate  have  been 

! 1810  substituted  as  plaintiffs. 

3128  One  of  the  questions  presented  is  whether  the  taxpayer  was  rightly 
assessed  on  the  sum  of  $60,455.61  representing  corporate  dividends 

declared  prior  to  March  1,  1913,  and  payable  subsequent  to  March  1,  1913,  to 
stockholders  of  record  at  dates  prior  to  that  time. 

3129  The  Act  of  October  3,  1913  provides,  Section  2-A.  Subdivision  1: 
“That  there  shall  be  levied,  assessed,  collected  and  paid  annually 

upon  the  entire  net  income  arising  or  accruing  from  all  sources  in  the 

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preceding  calendar  year  to  every  citizen  of  the  United  States  . . . 

•a  tax  of  one  per  centum  per  annum  upon  such  income.” 

3130  It  becomes  unnecessary  to  discuss  the  arguments  submitted  in  the 
able  briefs  submitted  by  counsel,  because  the  question  now  under 

consideration  has  been  answered  by  a very  recent  decision  of  the  Circuit 
Court  of  Appeals  for  the  Second  Circuit  in  United  States  vs.  Guinzburg, 
decided  December  14,  1921,  and  reported  in  . . . Fed  . . . [Bulletin 

I (’22)-7,  page  7.]  It  was  held  there  that  corporate  dividends  declared 
February  17,  1913,  payable  July  1,  1913,  to  stockholders  of  record  on 
January  30,  1913,  were  income  when  declared  and  not  when  paid.  Judge 
Manton  said: — 

“By  the  declaration  of  a dividend  the  earnings  of  the  Company 
to  the  extent  declared  were  separated  from  the  property  of  the 
corporation  and  were  appropriated  by  that  action  to  the  then 
stockholders,  who  became  creditors  of  the  corporation  for  the 
amount  of  the  dividend.  The  relation  then  created  was  that  of 
a debtor  and  creditor.  ... 

It  is  the  separation  of  the  earnings  from  the  balance  of  the 
corporate  property,  together  with  the  promise  to  pay  arising  from 
the  declaration  of  the  dividend,  that  works  this  change.  The 
holder  of  stock,  with  respect  to  the  dividends,  is  on  a par  with  the 
other  creditors  of  the  corporation.  (Staats  v.  Biograph  Co.,  236 
Fed.  454).  The  fact  that  the  dividend  is  payable  at  a future  date 
does  not  alter  the  rights  thus  created.  The  obligation  of  the  cor- 
poration as  debtor  commences  with  the  declaration  of  the  dividend, 
although  the  payment  is  postponed  for  the  convenience  of  the 
Company.  The  rights  of  the  stockholders  are  immediately  vested 
the  moment  the  dividend  is  declared.” 

3131  It  follows,  therefore,  that  the  ruling  in  the  Guinzburg  case  must 
be  followed  in  the  instant  case. 

3132  Another  question  is  whether  the  tax  payer  was  rightly  assessed  on 
the  sum  of  $95,820,  representing  interest  due  March  1,  1913  on 

certain  corporate  bonds.  This  question  was  argued  by  both  sides  on  the 
assumption  that  the  interest  was  payable  for  the  six  months’  period  ending 
February  28,  1913.  I think  that  as  to  this  question  United  States  vs.  Guinz- 
burg, supra,  is  conclusive.  The  basis  of  that  decision  was  that  money  owing 
to  the  tax  payer  is  income  accrued  from  the  time  when  the  liability  to  pay 
becomes  absolute,  though  it  is  not  yet  due.  If  the  interest  was  payable  for 
the  six  months  ending  February  28,  1913,  the  liability  to  pay  became  absolute 
before  the  commencement  of  the  taxable  period  though  payment  was  not  due 
until  the  first  day  of  that  period.  I see  no  ground  on  which  money  owing 
by  a corporation  for  interest  on  its  bonds  can  be  distinguished  from  money 
owing  by  it  for  a dividend  which  has  been  declared  on  its  stock,  and  therefore 
hold  that  on  this  item  also  the  taxpayer  was  improperly  assessed. 

3133  The  next  question  arises  in  the  following  manner:  the  taxpayer  took 
as  a deduction  on  his  return  for  the  year  1913,  the  sum  of  $43,749.16, 

alleged  to  be  five-sixths  of  the  amount  at  which  certain  corporate  bonds 
ascertained  to  be  worthless  during  the  year  1913  and  charged  off  on  December 
31st  of  that  year,  stood  on  the  taxpayer’s  books  on  March  1,  1913. 

3134  The  plaintiff  contends  that  this  deduction  was  justified  under  Section 
2-B,  Subdivision  5 of  the  Act  of  October  3,  1913,  which  provided  that 

in  computing  net  income  for  the  purpose  of  the  normal  tax,  there  should  be 
allowed  as  a deduction, — 

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“Fifth:  Debts  due  to  the  taxpayer  actually  ascertained  to  be 
worthless  and  charged  off  within  the  year.” 

3135  Section  2-D  provides  in  part  that  the  income  tax  shall  be  computed 
upon  the  remainder  of  the  net  income  of  each  person  subject  thereto 
accruing  during  each  preceding  calendar  year  ending  December  31st,  after 
making  the  deductions  allowed  by  law, 

“provided,  however,  that  for  the  year  ending  December  31,  1913, 
said  tax  shall  be  computed  on  the  net  income  accruing  from  March  1, 
to  December  31,  1913,  both  dates  inclusive,  after  deducting  five- 
sixths  only  of  the  specific  exemptions  and  deductions  herein  provided 
for.” 

3 138  The  defendant  contends  that  the  taxpayer  is  entitled  to  charge  off 
only  the  amount  of  the  actual  value  of  the  bonds  on  March  1,  1913; 
that  the  burden  is  on  the  taxpayer  to  establish  this  amount,  and  since  there 
is  no  evidence  to  show  what  the  bonds  were  actually  worth  on  that  date 
the  entire  deduction  should  be  disallowed. 

3137  The  plaintiff  contends  that  all  the  statute  requires  him  to  prove  is 
that  the  debt  was  ascertained  to  be  worthless  and  charged  off  within 

the  year  1913.  This  he  has  done  by  the  undisputed  evidence.  The  effect 
of  so  construing  the  statute  may  be  to  permit  the  taxpayer  to  deduct  five- 
sixths  of  a loss  accruing  prior  to  the  commencement  of  the  taxable  period,  so 
that  the  return  will  not  reflect  his  entire  income  for  that  period.  But  Congress 
has  the  right  to  do  this  and  has  done  it  if  the  statute  is  to  be  literally  con- 
strued. In  case  of  doubt  a tax  law  should  be  construed  in  favor  of  the  tax- 
payer. Gould  v.  Gould,  245  U.  S.  151.  Therefore,  I conclude  that  the  tax- 
payer’s contention  should  be  sustained.  But  even  if  the  burden  is  on  him  to 
prove  the  value  of  the  bonds  on  March  1,  1913,  I think  he  has  met  the  burden 
because  the  amount  at  which  the  bonds  stood  on  his  books  on  March  1,  1913 
is  at  least  prima  facie  evidence  of  their  actual  value  at  that  time. 

3138  The  plaintiff  also  complains  of  the  refusal  to  allow  as  deductions  the 
losses  sustained  by  Mr.  Plant  in  the  years  1913  and  1914  in  the 

business  of  farming.  This  deduction  is  claimed  under  the  provisions  of 
Section  2-B  of  the  Act  of  October  3,  1913,  that 

“in  computing  net  income  for  the  purpose  of  the  normal  tax  there 
shall  be  allowed  as  deductions, — 

“First,  the  necessary  expenses  actually  paid  in  carrying  on  any 
business,  not  including  personal,  living  or  family  expenses.” 

3139  The  only  question  involved  in  connection  with  this  claim  is  whether 
Mr.  Plant  was  engaged  in  farming  as  a business  or  merely  for  pleasure. 

The  evidence  shows  that  he  had  been  engaged  in  farming  since  1904  or  1905. 
He  kept  increasing  the  size  of  his  farm  until  in  1912  it  numbered  several 
hundred  acres.  He  had  not  made  any  profit  on  his  farm  prior  to  or  during 
1914,  but  in  1912  he  formed  an  organization  of  experts  for  the  purpose  of 
putting  the  farm  on  a business  basis  and  installed  an  elaborate  accounting 
system  under  the  supervision  of  a comptroller.  Large  quantities  of  farm 
produce  were  marketed  at  prevailing  prices  and  every  effort  was  made  to 
establish  the  farm’s  reputation  as  a high  class  modern  farm.  Mr.  Plant 
gave  a good  deal  of  his  time  to  bringing  about  efficiency  and  putting  the 
farm  on  a paying  basis.  Notwithstanding  these  efforts  the  operation  of  the 
farm  resulted  in  a loss  for  1913  of  $107,680.70  or  about  200  per  cent,  of  the 
receipts  and  in  1914  of  $106,431.98,  including  depreciation,  or  about  150 
per  cent,  of  the  receipts. 

3140  The  defendant  argues  that  the  great  excess  of  expenses  over  receipts 
proves  that 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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4-18-22.  (2)  4-21-22. 


“farming  was  a pleasure  or  hobby  with  Mr.  Plant  and  not  a source 
of  profit  and  that  his  farm  was  not  conducted  on  a commercial  basis,” — 
that  lie  engaged  in  farming  not  for  the  purpose  of  making  a profit,  but  because 
of  the  pleasure  he  derived  from  that  occupation,  and  that  therefore  the 
expense  of  conducting  the  farm  was  not  a business  expense,  but  a personal 
expense  and  not  deductible. 

3141  I think,  however,  that  the  evidence  establishes  clearly  that  Mr. 
Plant’s  farm  was  conducted  as  a business  enterprise  and  with  the 

expectation  that  it  would  eventually  become  profitable.  The  mere  fact  that 
a heavy  loss  was  incurred  in  the  initial  stages  of  so  large  an  enterprise  does 
not  necessarily  show  the  contrary.  But  even  though  this  is  not  so.,  I do  not 
believe  that  farming  when  engaged  in  as  a regular  occupation  and  in  accord- 
ance with  recognized  business  principles  and  practices,  is  any  the  less  a 
business  within  the  meaning  of  the  statute  because  the  person  engaging 
in  it  is  willing  to  do  so  without  regard  to  its  profitableness  because  of  the 
pleasure  derived  from  it. 

3142  The  defendant  does  not  dispute  that  taxes  for  1913  were  erroneously 
assessed  on  $507.97  supposed  to  represent  one-third  of  the  rental 

for  the  first  quarter  of  1913  of  the  taxpayer’s  residence  at  25  West  54th 
Street,  New  York  City,  and  actually  received  by  him  in  January,  1913,  and 
on  the  sum  of  $3,000,  consisting  of  two  dividends  of  lj^  per  cent,  each  on 
1,000  shares  of  N.  Y.  N.  H.  & H.  R.  R.  Co.  stock  standing  in  the  name  of 
Mr.  Plant,  but  actually  owned  by  the  Southern  Express  Company  and  paid 
over  by  him  to  said  Company. 

3143  There  may  be  a decree  for  plaintiff  in  accordance  with  this  opinion 
and  counsel  can  doubtless  compute  the  amount  due  and  later  submit 

the  decree  to  the  Court,  incorporating  in  it  the  correct  amount  for  which 
judgment  should  be  entered.  In  the  event  that  counsel,  cannot  agree  the 
settlement  of  the  decree  may  be  noticed  for  hearing,  and  it  is 

So  Ordered. 


3 1 44  Ratios  of  estimated  post-war  cost  of  replacement  for  use  in  computing 
1872  claims  for  tentative  allowance  for  amortization.— Pursuant  to  Art.  184 

of  Regulations  62,  the  Commissioner  has  determined  and  publishes 
the  following  ratios  of  estimated  post-war  cost  of  replacement  for.  use  by 
taxpayers  in  computing  claims  for  tentative  allowance  for  amortization. 

3 1 45  The  purpose  of  establishing  these  ratios  is  to  facilitate  the  preparation 
and  examination  of  claims  and  to  bring  about.,  to  such  extent  as  may 

be  practicable,  uniformity  as  to  the  basis  of  claims.  The  allowances 
based  thereon  will  be  purely  tentative  and  subject  to  redetermination  in 
accordance  with  the  provisions  of  the  law 

3146  These  ratios,  condensed  as  they  are  to  cover  sixteen  groups,  are  neces- 
sarily composite  figures,  arrived  at  by  an  examination  of  many  items 

entering  into  the  respective  groups,  and  it  is  realized  that  in  some  cases  where 
only  a limited  number  of  items  in  the  group  are  involved,  the  ratios  given  may 
not  fairly  be  applicable  to  a particular  case.  In  such  cases  the  claim  for 
amortization  should  be  made  in  accordance  with  the  ratios  published,  but 
the  taxpayer,  along  with  his  claim,  should  submit  a statement  showing  in 
detail  the  reasons  why,  and  the  extent  to  which,  such  ratio  is  not  properly 
applicable  to  his  claim,  so  that  such  cases  may  receive  special  consideration; 
in  like  manner,  there  may  be  cases  where  the  ratios  as  applied  to  the  particular 
claim  would  give  the  taxpayer  more  than  a reasonable  allowance/and  in  such 

Copyright  1922,  by  The  Corporation  7 rust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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4-21-22. 


cases  the  ratio  properly  applicable  will  be  determined  on  the  examination  of 
the  claim  and  the  taxpayer  given  notice  thereof. 

3147  All  ratios  are  expressed  in  percentages  based  on  prices  as  of  June 
30,  1916. 

3148  A.  Ratios  for  computing  estimated  postwar  cost  of  replacement  of 
buildings,  vessels,  cars,  tanks,  blast  furnaces,  open  hearth  furnaces, 

annealing  furnaces,  electric  furnaces,  coke  ovens,  and  construction  of  all 
kinds. 


1.  Lumber 

(a)  Hard 240  per  cent. 

(b)  Soft 175  “ “ 

2.  Structural  Steel 60  “ “ 

3.  Building  materials,  other  than  lumber  and  structural 

' steel 225  “ “ 

4.  Steel  (other  than  structural  steel)  and  steel  products.  90  “ “ 

5.  Building  equipment 150 

6.  Labor  (all  classes) 160  “ “ 

3149  B.  Ratios  for  computing  estimated  postwar  costs  of  replacement  of 

machinery  and  equipment. 

7.  Electrical  machinery  and  equipment 130  per  cent. 

8.  Engines,  turbines,  compressors,  and  similar  facilities . 175  “ “ 

9.  Pumps 135  “ “ 

10.  Boilers 160  “ “ 

11.  Transmission  equipment: 

(a)  Shafting,  pulley,  hangers,  etc 135 

(b)  Belting.. ’ 100  “ “ 

12.  Machine  tools  and  small  tools  (machine  tools  are  con- 

sidered as  that  class  of  metal  working 
machinery  which  can  be  used  on  both  cast 
iron  and  steel) ■ 130  “ “ 

13.  Wood  working  machinery 155 

14.  Textile  machinery 155 

15.  All  other  machinery  (including  cranes) 

(a)  Machinery,  the  cost  of  which  did  not  exceed 

10  cents  per  pound  as  of  June  30,  1916 120 

(b)  Machinery,  the  cost  of  which  did  exceed  10 

cents  per  pound  as  of  June  30,  1916 130 

16.  Office  furniture  and  equipment 125 

(Form— IT:  SA:  Ain-2634.  April,  1922.) 


(T.  D.  3321.) 


3150  U.  S.  Supreme  Court  decision:  Smietanka  vs.  First  Trust  and 

3048  Savings  Bank,  Trustee— [This  T.  D.  reproduces  the  opinion  in  this 
case  as  printed  herein,  beginning  at  ^[3048.- — -The  Corporation  1 rust 
Company.] 

(T.  D.  3322.) 

3151  Instructions  as  to  acceptance  of  Victory  notes  in  coupon  form  for 

2789  income  and  profits  taxes  payable  June  15,  September  15,  and 

3015  December  15, 1922  — 1 . Collectors  of  Internal  Revenue  are  authorized 

and  directed  to  receive  at  par,  Victory  notes  of  either  the  4%  per 
Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

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*-*1-28.  (8)  <M0-2ei  (8)10-11-82. 


cent  or  the  3%  (per  cent  series,  in  coupon  form,  in  payment  of  income  and 
profits  taxes  payable  on  June  15,  1922,  and  Victory  notes  of  the  per  cent 
series,  in  coupon  form,  in  payment  of  income  and  profits  taxes  payable  Sept- 
ember 15,  and  December  15,  1922.  Victory  notes  of  the  3%  per  cent  series 
will  not  be  acceptable  Lin  payment  of  income  and  profits  taxes  payable 
September  15  or  December  15,  1922,  and  registered  Victory' notes  are  not 
acceptable  on  any  payment.  Coupon  Victory  notes  tendered  in  payment 
of  income  and  profits  taxes  payable  JuneJ5,  September  15,  and  December 
15,  1922,  must  have  all  unmatured  interest  coupons  attached  (that  is  to  say 
notes  tendered  in  payment  of  income  and  profits  taxes  payable  June  15  and 
September  15,  1922,  coupons  attached  for  December  15,  1922,  and  May 
20,  1923;  notes  tendered  in  payment  of  income  and  profits  taxes  payable 
December  15,  1922,  coupon  attached  for  May  20,  1923),  but  all  matured 
coupons  must  be  detached  and  collected  in  ordinary  course  when  due.  The 
amount,  at  par,  of  the  Victory  notes  presented  by  any  taxpayer  in  payment 
of  income  and  profits£taxes  must  not  exceed  the  amount  of  the  taxes  to  be 
paid  by  him,  and  collectors  shall  in  no  case  pay  interest  on  the  notes  or 
accept  them  for  an  amount  other  or  greater  than  their  face  value.  Accrued 
interest  on  the  notes  accepted  inj  payment  of  income  and  profits  taxes 
payable  September  15,  1922,  from  June  15,  1922,  to  September  15,  1922  will 
be  remitted  to  the  taxpayer  by  the  Federal  Reserve  Bank  with  which  the 
collector  makes  his  deposits,  on  the  basis  of  the  schedules  furnished  by  the 
collector.  Receipts)  given  by  collectors  to  taxpayers  should  show  the 
amount  of  notes  of  each  series  received  in  payment  of  taxes. 

3152  2.  Deposits  of  Victory  notes  received  in  payment  of  income  and  profits 
taxes  hereunder  must  be  made  by  collectors,  unless  otherwise  specif- 
ically instructed  by  the  Secretary  of  the  Treasury,  with  the  Federal  Reserve 
Bank  of  the  district  in  which  the  collector’s  head  office  is  located,  or  in  case 
such  head  office  is  located  in  the  same  city  with  a branch  Federal  Reserve 
Bank,  with  such  branch  Federal  Reserve  Bank.  Specific  instructions  may 
be  given  to  collectors  by  the  Secretary  of  the  Treasury  in  certain  instances 
for  the  deposit  of  the  notes  with  Federal  Reserve  Banks  of  other  districts 
and  branch  Federal  Reserve  Banks.  The  term  “Federal  Reserve  Bank  ” 
where  it  appears  nerein,  unless  otherwise  indicated  by  the  context,  includes 
branch  Federal  Reserve  Banks.  Victory  notes  may  be  accepted  hereunder 
by  the  collector  prior  to  tax  payment  dates,  and  in  that  case  should  be 
forwarded  by  the  collector  to  the  Federal  Reserve  Bank  or  branch  Federal 
Reserve  Bank  to  be  held  for  account  of  the  collector  until  the  tax  payment 
date,  and  for  deposit  on  such  date. 

3153  3.  Victory  notes  accepted  hereunder  should  in  all  cases  be  indelibly 
stamped  by  the  collector  on  the  face  thereof  as  follows,  and  when  so 

stamped  should  be  delivered  to  the  Federal  Reserve  Bank  in  person  if  the 
collector  is  located  in  the  same  city,  and  in  all  other  cases  forwarded  by 
registered  mail  uninsured:  3 

a 

192. 

This  note  has  been  accepted  in  payment  of  income  and’  profits 
taxes  and  will  not  be  redeemed  by  the  United  States  except  for 
credit  of  the  undersigned. 

Collector  of  Internal  Revenue. 

for  the '.  district  of ” 

3 1 64  Each  unmatured  coupon  attached  to  each  such  Victoiy  note  must  be 
‘ndehhiy  stamped  across  the  face  by  the  collector  with  the  word: 
raid,  followed  by  his  name  and  title. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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4-21*23.  (2)  6-80-22.  (3)  10-11-22. 


3165  4.  Collectors  should  make  in  tabular  form  a schedule  in  duplicate  of 

the  Victory  notes  to  be  forwarded  to  the  Federal  Reserve  Bank, 
showing  the  face  amount  transmitted,  the  serial  number  of  each  note,  the 
series,  the  denomination,  and  the  name  and  address  of  the  taxpayer  presenting 
the  note.  Notes  accepted  prior  to  the  tax  payment  date  must  be  scheduled 
separately,  and  Victory  notes  should  in  all  cases  be  scheduled  separately 
from  Treasury  certificates  of  indebtedness.  At  the  bottom  of  each  schedule 

there  should  be  written  or  stamped,  “Income  and  Profits  Taxes  $ ,” 

which  amount  must  agree  with  the  total  shown  on  the  schedule.  One  copy 
of  this  schedule  must  accompany  notes  sent  to  the  Federal  Reserve  Bank,  and 
the  other  be  retained  by  the  collector.  The  income  and  profits  tax  deposits 
resulting  from  the  deposits  of  such  notes  must  in  all  cases  be  shown  on  the  face 
of  the  certificate  of  deposit  (National  Bank  Form  15)  separate  and  dis- 
tinct from  the  item  of  miscellaneous  internal  revenue  collections  (formerly 
called  Ordinary).  Until  certificates  of  deposit  are  received  from  the  Federal 
Reserve  Banks,  the  amounts  represented  by  the  Victory  notes  forwarded  for 
deposit  must  be  carried  by  collectors  as  cash  in  bank,  and  not  credited  as 
collections,  as  the  dates  of  certificates  of  deposit*determine  the  dates  of  col- 
lections. 

3156  5.  For  the  purpose  of  saving  taxpayers  the  expense  of  transmitting 
such  notes  as  are  held  in  Federal  Reserve  cities  or  Federal  Reserve 

branch  bank  cities  to  the  office  of  the  collector  in  whose  district  the  taxes  are 
payable,  taxpayers  desiring  to  pay  income  and  profits  taxes  by  Victory  notes 
should  communicate  with  the  collector  of  the  district  in  which  the  taxes  are 
payable  and  request  from  him  authority  to  deposit  such  notes  with  the 
Federal  Reserve  Bank  in  the  city  in  which  the  notes  are  held.  Collectors 
are  authorized  to  permit  deposits  of  Victory  notes  in  any  Federal  Reserve 
Bank  with  the  distinct  understanding  that  the  Federal  Reserve  Bank  is  to 
issue  a certificate  of  deposit  in  the  collector’s  name  covering  the  amount  of 
the  Victory  notes  at  par  and  to  state  on  the  face  of  the  certificate  of  deposit 
that  the  amount  represented  thereby  is  in  payment  of  income  and  profits 
taxes.  The  Federal  Reserve  Bank  should  forward  the  original  certificate  of 
deposit  to  the  Treasurer  of  the  United  States  with  its  daily  transcript,  and 
transmit  to  the  collector  the  duplicate  and  triplicate,  accompanied  by  a 
statement  giving  the  name  of  the  taxpayer  for  whom  the  payment  is  made  in 
order  that  the  collector  may  make  the  necessary  record  and  forward  the 
duplicate  to  the  office  of  the  Commissioner  of  Internal  Revenue. 

3157  6.  Victory  notes  in  registered  form  are  not  acceptable  in  payment  of 
income  and  profits  taxes  under  this  decision.  Holders  of  registered 

notes,  however,  may  exchange  them  through  the  Federal  Reserve  Banks  for 
coupon  notes  in  accordance  with  the  general  regulations  of  the  Treasury 
Department,  and  may,  in  accordance  with  this  decision,  present  the  coupon 
notes  thus  received  in  exchange  in  payment  of  income  and  profits  taxes, 
provided,  however,  that  such  exchange  is  completed  and  tender  made  on  or 
before  the  tax  payment  date.  (T.  D.  3322,  signed  bv  Commissioner  D.  H. 
Blair,  and  dated  April  18,  1922.) 

★Note. 

Victory  notes  specified  in  Treasury  Decision  3322  [beginning  at  *[3151 
above]  are  acceptable  in  payment  of  additional  assessments  only  when  they 
are  payable  June  15,  September  15,  and  December  15,  1922.  (1-26-379: 

I.  T.  1376).  .June  1922  Cum. Bull.  p.  412. 

Copyright  1922,  by  The  Corporation  Trust  Company 
T*F.  FEDERAL  INCOME  TAX  SERVICE 
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AMENDMENTS  TO  THE  REVENUE  ACT  OF  1921. 


Taxation  of  corporations  organized  under  the  China  Trade  Act,  1922,  for 
the  purpose  of  engaging  in  business  in  China,  and  the  taxation  of  dividends 
received  from  such  corporations. 


Public — No.  312 — 67th  Congress. 

Approved  by  the  President,  and  in  effect,  September  19,  1922. 

[Comment:  This  is  “an  act  to  authorize  the  creation  of  corporations  for 
the  purpose  of  engaging  in  business  within  China,”  and,  by  its  terms,  “may 
be  cited  as  the  ‘China  Trade  Act,  1922’.”  Sections  1 to  20  of  the  Act  relate 
to  incorporation  and  to  corporate  affairs  generally.  Sections  21  to  27 
amend  the  Revenue  Act  of  1921  to  provide  for  the  special  taxation  of  China 
Trade  Act  corporations,  and  for  the  treatment,  for  Federal  income  tax 
purposes,  of  dividends  received  from  such  corporations.  The  following  is  an 
excerpt  from  the  statement  of  the  conference  managers  on  the  part  of  the 
House  of  Representatives  in  connection  with  the  conference  report  on  the  bill 
(H.  R.  4810)  which  has  become  law. 

“It  is  proposed  to  allow  to  a China  trade  act  corporation  a credit  on  its  net 
income  of  an  amount  equal  to  that  proportion  of  its  net  income  from  sources 
within  China  whifch  its  capital  stock  owned  by  citizens  of  the  United  States  or 
China,  resident  in  China,  bears  to  its  entire  capital  stock.  This  exemption  is, 
however,  allowed  only  if  an  amount,  equal  to  the  saving  in  tax,  is  distributed  as  a 
special  dividend  to  such  of  its  stockholders  as  are  citizens  of  the  United  States  or 
China  and  reside  in  China.  Citizens  of  China,  resident  therein,  are  exempted  from 
tax  on  their  dividends,  but  all  other  stockholders  are  subjected  to  both  surtax  and 
normal  tax  on  all  their  dividends  from  a China  trade  act  corporation.  The 
provision  of  the  House  bill  treating  these  corporations  as  domestic  corporations 
for  the  purposes  of  the  income-tax  law  is  retained,  as  well  as  the  provision  pro- 
hibiting such  a corporation  from  making  consolidated  returns  of  net  income  with 
other'  corporations.  The  conference  bill  also  provides  that  a China  trade  act 
corporation  shall  not  be  permitted  to  avail  itself  of  the  privilege  allowed  other 
corporations  by  the  revenue  act,  namely:  to  credit  against  its  income  tax,  dollar  for 
dollar,  the  amount  paid  to  foreign  countries  as  income,  war  profits,  or  excess- 
profits  taxes.” 

Sections  21  to  27  of  the  Act  follow. — The  Corporation  Trust  Company.] 

FEDERAL  TAXATION. 

3158  Sec.  21.  Title  II  of  the  Revenue  Act  of  1921  is  amended  by  add- 
ing at  the  end  thereof  a new  section  to  read  as  follows: 

“China  Trade  Act  Corporations. 

3159  “See.  264.  (a)  That  for  the  purpose  only  of  the  tax  imposgd  by 
To  follow  section  230  there  shall  be  allowed,  in  the  case  of  a corporation  or- 

^623  ganized  under  the  China  Trade  Act,  1922,  a credit  of  an  amount  equal 
1[2066  to  the  proportion  of  the  net  income  derived  from  sources  within  China 
(determined  in  a similar  manner  to  that  provided  in  section  217) 
which  the  par  value  of  the  shares  of  stock  of  the  corporation  owned  on  the 
last  day  of  the  taxable  year  by  individual  citizens  of  the  United  States  or 
China,  resident  in  China,  bears  to  the  par  value  of  the  whole  number  of  shares 
of  stock  of  the  corporation  outstanding  on  such  date: 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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9-20-22. 


3160  u Provided,  That  in  no  case  shall  the  amount  by  which  the  tax 
imposed  by  section  230  is  diminished  by  reason  of  such  credit  exceed 

the  amount  of  the  special  dividend  certified  under  subdivision  ( b ) of 
this  section. 

3161  “(b)  Such  credit  shall  not  be  allowed  unless  the  Secretary  of 
Commerce  has  certified  to  the  Commissioner 

3162  “(1)  the  amount  which,  during  the  year  ending  on  the  date  of  filing 
the  return,  the  corporation  has  distributed  as  a special  dividend  to 

or  for  the  benefit  of  such  individuals  as  on  the  last  day  of  the  taxable  year 
were  citizens  of  the  United  States  or  China,  resident  in  China,  and  owned 
shares  of  stock  of  the  corporation, 

3163  “(2)  that  such  special  dividend  was  in  addition  to  all  other  amounts, 
payable  or  to  be  payable  to  such  individuals  or  for  their  benefit,  by 

reason  of  their  interest  in  the  corporation,  and 

3164  “(3)  that  such  distribution  has  been  made  to  or  for  the  benefit  of 
such  individuals  in  proportion  to  the  par  value  of  the  shares  of  stock 

of  the  corporation  owned  by  each; 

3 1 65  “except  that  if  the  corporation  has  more  than  one  class  of  stock, 
the  certificate  shall  contain  a statement  that  the  articles  of  in- 
corporation provide  a method  for  the  apportionment  of  such  special 
dividend  among  such  individuals,  and  that  the  amount  certified  has 
been  distributed  in  accordance  with  the  method  so  provided. 

3166  “(c)  For  the  purposes  of  this  section  shares  of  stock  of  a corpo- 
ration shall  be  considered  to  be  owned  by  the  person  in  whom  the 

equitable  right  to  the  income  from  such  shares  is  in  good  faith  vested. 

3167  “(d)  As  used  in  this  section  the  term  ‘China’  shall  have  the  same 
meaning  as  when  used  in  the  China  Trade  Act,  1922.”* 

3168  SecJ22.  Subdivision  (b)  of  section  230  of  the  Revenue  Act  of 

360  1921  is  amended  to  read  as  follows: 

974  “(b)  For  each  calendar  year  thereafter,  12)^  per  centum  of  the 

amount  of  the  net  income  in  excess  of  the  credits  provided  in  sections 
236  and  264.” 

3169  Sec.  23.  Subdivision  (f)  of  section  238  of  the  Revenue  Act  of  1921 
460  is  amended  by  adding  after  the  figures  “262”  the  word  and  figures 

1768  “or  264.” 

3170  Sec.  24.  Subdivision  (c)  of  section  240  of  the  Revenue  Act  of 
To  follow  1921  is  amended  by  adding  at  the  end  thereof  a new  sentence  to  read  as 

If 475  follows:  “A  corporation  organized  under  the  China  Trade  Act,  1922, 
If 2554  shall  not  be  deemed  to  be  affiliated  with  any  other  corporation  within 
the  meaning  of  this  section.” 

3171  Sec.  25.  That  section  2 of  the  Revenue  Act  of  1921  is  amended 
To  follow  by  adding  at  the  end  thereof  a new  paragraph  to  read  as  follows: 

If  13  “(12)  A corporation  organized  under  the  China  Trade  Act,  1922, 

If 2059  shall,  for  the  purpose  of  this  Act,  be  considered  a domestic  corpo- 
ration.” 


*Sec.  2 (b)  of  the  “China  Trade  Act,  1922”  provides: 

“The  term  ‘China’  means  (1)  China  including  Manchuria,  Thibet,  Mon- 
golia, and  any  territory  leased  by  China  to  any  foreign  government,  (2) 
The  Crown  Colony  of  Hongkong,  and  (3)  the  Province  of  Macao.” 

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3172  Sec.  26.  Subdivision  (b)  of  section  213  of  the  Revenue  Act  of 
To  follow  1921  is  amended  by  striking  out  the  period  at  the  end  of  paragraph 

138  (12)  thereof  and  inserting  in  lieu  thereof  a semi-colon,  and  by  adding 

*[2098  after  paragraph  (12)  a new  paragraph  to  read  as  follows: 

“(13)  In  the  case  of  an  individual,  amounts  distributed  as  divi- 
dends to  or  for  his  benefit  by  a corporation  organized  under  the  China 

Trade  Act,  1922,  if,  at  the  time  of  such  distribution,  he  is  a citizen  of  China 
resident  therein  and  the  equitable  right  to  the  income  of  the  shares  of  stock 
of  the  corporation  is  in  good  faith  vested  in  him.” 

3173  Sec.  27.  Subdivision  (a)  of  section  216,  paragraph  (6)  of  sub- 

196  division  (a)  of  section  234,  and  paragraph  (3)  of  subdivision  (a)  of 

408  section  245,  of  the  Revenue  Act  of  1921,  are  amended  by  inserting  in 

492  each  after  the  word  and  figures  “section  262”  a comma  and  the  words 
1321  “and  other  than  a corporation'f*’organized  under  the  China  Trade 
1825  Act,  1922.”  (Sections  21  to  27  of  the  “China  Trade  Act,  1922,” 
2040  approved  by  the  President,  and  in  effect,  September  19,  1922.) 


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Laws  and  Regulations  Governing  the  Recognition  of  Attorneys,  Agents  and 
Other  Persons  Representing  Claimants  and  Others  Before  the 
Treasury  Department  and  Offices  Thereof. 

1922 

Department  Circular  No.  230.* 


Chief  Clerk. 

Treasury  Department, 

Office  of  the  Secretary, 
Washington,  April  25,  1922. 

3174  The  following  statutes  relate  to  the  recognition  of  attorneys,  agents 
2932  and  other  persons  representing  claimants  and  others  before  the 
2937  Treasury  Department  and  offices  thereof: 

3104 

That  the  Secretary  of  the  Treasury  may  prescribe  rules  and  regulations  governing  the 
recognition  of  agents,  attorneys,  or  other  persons  representing  claimants  before  his  De- 
partment, and  may  require  of  such  persons,  agents  and  attorneys,  before  being  recognized 
as  representatives  of  claimants,  that  they  shall  show  that  they  are  of  good  character  and 
in  good  repute,  possessed  of  the  necessary  qualifications  to  enable  them  to  render  such 
claimants  valuable  service,  and  otherwise  competent  to  advise  and  assist  such  claimants 
in  the  presentation  of  their  cases.  And  such  Secretary  may  after  due  notice  and  oppor- 
tunity for  hearing  suspend,  and  disbar  from  further  practice  before  his  Department  any 
such  person,  agent,  or  attorney  shown  to  be  incompetent,  disreputable,  or  who  refuses 
to  comply  with  the  said  rules  and  regulations,  or  who  shall  with  intent  to  defraud,  in  any 
manner  willfully  and  knowingly  deceive,  mislead,  or  threaten  any  claimant  or  prospective 
claimant,  by  word,  circular,  letter,  or  by  advertisement.  (Act  of  July  7,  1884,  23  Stat., 
258.) 

Whoever,  being  an  officer  of  the  United  States,  or  a person  holding  any  place  of  trust 
or  profit,  or  discharging  any  official  function  under,  or  in  connection  with,  any  Executive 
Department  of  the  Government  of  the  United  States,  or  under  the  Senate  or  House  of 
Representatives  of  the  United  States,  shall  act  as  an  agent  or  attorney  for  prosecuting 
any  claim  against  the  United  States,  or  in  any  manner,  or  by  any  means,  otherwise  than 
in  discharge  of  his  proper  official  duties,  shall  aid  or  assist  in  the  prosecution  or  support 
of  any  such  claim,  or  receive  any  gratuity,  or  any  share  of  or  interest  in  any  claim  from 
any  claimant  against  the  LI ni ted  States,  with  intent  to  aid  or  assist,  or  in  consideration 
of  having  aided  or  assisted,  in  the  prosecution  of  such  claim,  shall  be  fined  not  more  than 
five  thousand  dollars,  or  imprisoned  not  more  than  one  year,  or  both.  (Act  of  March  4, 
1909,  sec.  109,  35  Stat.,  1 107.) 

It  shall  not  be  lawful  for  any  person  appointed  after  the  first  day  of  June,  one  thousand 
eight  hundred  and  seventy-two,  as  an  officer,  clerk,  or  employee  in  any  of  the  Departments, 
to  act  as  counsel,  attorney,  or  agent  for  prosecuting  any  claim  against  the  United  States 
which  was  pending  in  either  of  said  Departments  while  he  was  such  officer,  clerk,  or  em- 
ployee, nor  in  any  manner,  nor  by  any  means,  to  aid  in  the  prosecution  of  any  such  claim, 
within  two  years  next  after  lie  shall  have  ceased  to  be  such  officer,  clerk  or  employee. 
(Sec.  190,  Revised  Statutes.) 

That  it  shall  be  unlawful  for  any  person  who,  as  a commissioned  officer  of  the  Army, 
or  officer  or  employee  of  the  United  States,  has  at  any  time  since  April  6,  1917,  been  em- 
ployed in  any  Bureau  of  the  Government  and  in  such  employment  been  engaged  on  behalf 
of  the  United  States  in  procuring  or  assisting  to  procure  supplies  for  the  Military  Estab- 
lishment, or  who  has  been  engaged  in  the  settlement  or  adjustment  of  contracts  or  agree- 
ments for  the  procurement  of  supplies  for  the  Military  Establishment,  within  two  years 
next  after  his  discharge  or  other  separation  from  the  service  of  the  Government,  to  solicit 
employment  in  the  presentation  or  to  aid  or  assist  for  compensation  in  the  prosecution 
of  claims  against  the  United  States  arising  out  of  any  contracts  or  agreements  for  the 
procurement,  of  supplies  for  said  Bureau,  which  were  pending  or  entered  into  while  the 
said  officer  or  employee  was  associated  therewith.  A violation  of  this  provision  of  this 
chapter  shall  be  punished  by  a fine  of  not  more  than  $10,000  or  imprisonment  for  not 
more  than  one  year,  or  both.  (Act  of  July  11,  1919,  41  Stat.,  131.) 

’Effective  April  25,  1922.  This  circular  supersedes  Treasury  Department  Circular 
No.  230,  dated  l'ebruary  15,  1921,  as  amended  June  7.  1921,  July  1,  1921  and  December 
23,  1921. 

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That  section  five  hundred  and  fifty-eight  of  the  Code  of  Law  for  the  District  of  Columbia, 
relating  to  notaries  public,  be  amended  by  adding  at  the  end  of  said  section  the  following: 
“ Provided , That  the  appointment  of  any  person  as  such  notary  public,  or  the  acceptance 
of  his  commission  as  such,  or  the  performance  of  the  duties  thereunder,  shall  not  disqualify 
or  prevent  such  person  from  representing  clients  before  any  of  the  Departments  of  the 
United  States  Government  in  the  District  of  Columbia  or  elsewhere,  provided  such  person 
so  appointed  as  a notary  public  who  appears  to  practice  or  represent  clients  before  any 
such  Department  is  not  otherwise  engaged  in  Government  employ,  and  shall  be  admitted 
by  the  heads  of  such  Departments  to  practice  therein  in  accordance  with  the  rules  and 
regulations  prescribed  for  other  persons  or  attorneys  who  are  admitted  to  practice  therein: 
And  provided  further.  That  no  notary  public  shall  be  authorized  to  take  acknowledgments, 
administer  oaths,  certify  papers,  or  perform  any  official  acts  in  connection  with  matters 
in  which  lie  is  employed  as  counsel,  attorney,  or  agent  or  in  which  he  may  be  in  any  way 
interested  before  any  of  the  Departments  aforesaid.”  (Act  of  June  29,  1906,  34  Stat.,  622. 
Meld  by  26  Opinions  of  Attorney  General,  236,  to  apply  to  all  notaries  who  may  practice 
before  the  Departments.) 

The  head  of  each  Department  is  authorized  to  prescribe  regulations,  not  inconsistent 
with  law,  for  the  government  of  his  Department,  the  conduct  of  its  officers  and  clerks,  the 
distribution  and  performance  of  its  business,  and  the  custody,  use,  and  preservation  of 
the  records,  papers  and  property  appertaining  to  it.  (Sec.  161,  Revised  Statutes.) 

3 175  Pursuant  to  the  authority  contained  in  the  above-quoted  statutory 
provisions,  the  following  rules  and  regulations  are  prescribed: 

3176  1.  Committee  on  Enrollment  and  Disbafment. — (a)  A committee 
on  enrollment  and  disbarment  is  hereby  created,  consisting  of  the 

Chief  Clerk  of  the  Treasury  Department,  who  shall  be  a member  ex  officio , 
and  six  other  members,  one  of  whom  shall  be  detailed  from  the  office  of  the 
Secretary  of  the  Treasury  and  shall  act  as  chairman,  three  from  the  office 
of  the  Commissioner  of  Internal  Revenue,  and  one  each  from  the  office  of 
the  Solicitor  of  the  Treasury  and  the  Division  of  Customs.  The  Chief  Clerk 
of  the  Treasury  Department  shall  have  custody  of  all  papers,  records,  rolls, 
etc.,  belonging  to  the  committee,  and  shall,  in  the  absence  of  the  designated 
chairman,  act  as  chairman.  The  members  of  the  committee  shall  serve  for 
the  calendar  year  and  shall  perform  the  duties  herein  prescribed  in  addition 
to  their  other  duties.  The  committee  shall  meet  regularly  on  the  first  Tues- 
day of  each  month,  if  a business  day,  and  shall  meet  specially  on  other  days 
at  the  call  of  the  chairman.  Four  members  shall  constitute  a quorum. 

3177  (b)  The  committee  shall  receive  and  consider  applications  to  be 
recognized  as  attorney,  agent  or  other  representative  before  the 

Treasury  Department  or  offices  thereof;  receive  complaints  against  those 
enrolled;  conduct  hearings,  make  inquiries,  perform  other  duties  as  pre- 
scribed herein,  and  do  all  things  necessary  in  the  matter  of  proceedings  for 
the  enrollment,  discipline,  suspension  or  disbarment  of  attorneys,  agents  or 
other  representatives,  pursuant  to  these  regulations;  and  it  shall  submit 
its  recommendations  therein  to  the  Secretary  of  the  Treasury  for  approval. 

3178  2.  Applications  for  enrollment. — Applicants  for  enrollment  pur- 
suant to  these  regulations  shall  submit  to  the  Secretary  of  the  Treas- 
ury an  application,  properly  executed,  on  Form  23  attached  hereto  [Sup- 
plementary Page  283].  Applications  in  any  other  form  will  not  be  considered. 
The  statements  contained  in  the  application  must  be  verified  by  the  appli- 
cant. The  applicant  must  also  take  the  oath  of  allegiance,  and  to  support 
the  Constitution  of  the  United  States  as  required  by  section  3478,  Revised 
Statutes.  A person  who  can  not  take  the  oath  of  allegiance,  and  to  support 
the  Constitution  of  the  United  States,  can  not  be  enrolled.  Members  of 
the  bar  of  a court  of  record  will  apply  for  enrollment  as  attorneys;  all  others 
will  apply  for  enrollment  as  agents.  The  Secretary'  of  the  Treasury  may 

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in  any  case  require  other  and  further  evidence  of  qualification.  Applicants 
will  be  notified  of  the  approval  or  disapproval  of  their  applications.  All 
applications  for  enrollment  must  be  individual,  and  individuals  who  practice 
as  partners  should  apply  for  enrollment  as  individuals  and  not  in  the  part- 
nership name.  An  individual  who  has  been  enrolled  may,  however,  repre- 
sent claimants  and  others  before  the  Treasury  Department  in  the  name  of 
a partnership  of  which  he  is  a member  or  with  which  he  is  otherwise  regularlv 
connected.  Except  as  hereinafter  provided  in  paragraph  3,  a corporation 
can  not  be  enrolled  and  attorneys  or  agents  will  not  be  permitted  to  practice 
before  the  Treasury  Department  for  account  of  a corporation  which  repre- 
sents claimants  and  others  in  the  prosecution  of  business  before  the  Treasury 
Department.  Persons  applying  for  enrollment  who  propose  to  act  for  such 
a corporation  in  the  prosecution  of  claims  and  other  business  before  the 
Treasury  Department,  will  be  subject  to  rejection,  and  enrolled  attorneys 
or  agents  who  act  for  a corporation  in  representing  claimants  and  others  in 
the  prosecution  of  claims  and  other  business  will  be  subject  to  suspension 
from  practice,  as  to  such  claims  or  business. 

3179  3.  Customhouse  brokers. — ( a ) The  act  of  June  10,  1910  (36  Stat., 
464,  T.  D.  30789),  provides  in  part  that  persons,  copartnerships, 

associations,  joint-stock  associations,  and  corporations  may  be  licensed  as 
customhouse  brokers  by  the  collector  or  chief  officer  of  customs  at  any  port 
of  entry  or  delivery  to  transact  business  as  such  customhouse  broker  in  the 
collection  district  in  which  such  license  is  issued.  Customhouse  brokers 
so  licensed  require  no  further  enrollment  under  these  regulations  for  the 
transaction  of  business  within  their  respective  collection  districts,  but  for 
the  representation  of  a claimant  before  the  Treasury  Department  in  the  city 
of  Washington  application  for  enrollment  as  attorney  or  agent  must  be  made 
in  conformity  with  the  requirements  of  the  preceding  paragraph,  and  other- 
wise in  accordance  with  these  regulations,  except  that  if  a customhouse 
broker,  so  licensed  in  a collection  district,  is  a copartnership,  association, 
joint-stock  association,  or  corporation,  its  claims  or  other  business  may  be 
prosecuted  in  its  name  before  the  department  in  the  city  of  Washington  by 
an  accredited  member  or  representative,  who  must,  however,  be  first  duly 
enrolled  in  accordance  herewith. 

3180  (b)  The  provisions  of  sections  ( b ) and  ( c ) of  paragraph  6 hereof  shall 
apply  to  customhouse  brokers  only  as  to  the  application  to  themselves 

of  designations  which  might  imply  official  capacity  or  connection,  and  as  to 
solicitation  of  claims  or  business  before  the  Treasury  Department  and  sug- 
gestion of  previous  connection  with  the  Treasury  Department  or  acquaintance 
with  its  officers  or  employees. 

3181  4.  Restriction  of  right  to  be  heard  to  parties  and  enrolled  attorneys 
and  agents. — (a)  The  committee  on  enrollment  and  disbarment 

shall  maintain  in  the  office  of  the  Chief  Clerk,  Treasury  Department,  a roll 
of  attorneys  and  agents  entitled  to  practice  before  the  Treasury  Department. 
It  shall  likewise  maintain  lists  of  those  whose  applications  for  enrollment 
have  been  rejected  and  those  who  have  been  suspended  or  disbarred.  The 
Chief  Clerk  shall  furnish  copies  of  said  roll  and  lists,  with  such  additions 
thereto  or  subtractions  therefrom  as  may  be  made  from  time  to  lime,  to  the 
several  bureaus,  offices  and  divisions  of  the  Treasury  Department,  and  upon 
request  may  furnish  information  as  to  whether  or  not  any  person  is  enrolled 
as  an  attorney  or  agent  before  the  Treasury  Department. 

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3182  (b)  All  bureaus,  offices  mid  divisions  of  the  Treasury  Department 
are  hereby  prohibited  from  recognizing  or  dealing  with  anyone  ap- 
pearing as  attorney  or  agent  unless  the  name  of  such  attorney  or  agent 
appears  upon  the  list  of  those  entitled  to  practice  before  the  Treasury  De- 
partment, provided,  however,  that  the  head  of  any  bureau,  office  or  division 
may,  in  his  discretion,  temporarily  recogn'ze  such  representative  pending 
action  upon  his  application  for  enrollment,  provided  his  name  does  not 
appear  on  the  list  of  those  whose  applications  for  enrollment  have  been 
rejected  or  on  the  list  of  those  who  have  been  suspended  or  disbarred.  It 
shall  be  the  duty  of  the  several  bureaus,  offices  and  divisions  of  the  Treasury 
Department  to  ascertain  in  each  case  whether  the  name  of  one  appearing 
before  them  in  a representative  capacity  appears  on  the  roll  of  those  entitled 
to  practice,  whether  such  representative  has  been  suspended  or  disbarred, 
and  whether  he  is  ineligible  under  section  (c)  of  this  paragraph  or  under 
section  190  of  the  Revised  Statutes.  Nothing  herein  contained  shall  pre- 
c ude  individual  parties  or  members  of  firms,  or  officers  of  corporations,  or 
authorized  employees  of  firms  or  corporations,  from  appearing,  upon  proper 
identification,  as  representatives  of  their  own  interests  or  of  their  respective 
firms  or  corporations  in  any  matter  before  the  department  in  which  such 
person,  firm  or  corporation  is  concerned  as  a principal;  but  attorneys,  coun- 
sel, solicitors,  accountants  and  other  agents  for  such  persons,  firms  or  cor- 
porations must  be  enrolled. 

3183  (r)  No  attorney  or  agent  shall  be  permitted  to  appear  in  a repre- 
sentative capacity  before  the  Treasury  Department  or  any  of  the 

bureaus,  offices,  units,  divisions,  subdiv isions  or  other  agencies  thereof,  in 
regard  to  any  claim,  application  for  reaudit,  refund,  abatement  or  reduction 
in  tax  assessed,  or  any  other  matter,  to  which  he  gave  actual  personal 
consideration,  or  as  to  the  facts  of  which  he  had  actual  personal  knowledge, 
while  in  the  service  of  the  Treasury  Department. 

31  84  The  foregoing  regulation  is  in  addition  to  the  inhibition  contained  in 
section  190  of  the  Revised  Statutes  of  the  United  States,  and  does 
not  authorize  the  appearance  of  an  attorney  or  agent  in  the  prosecution  of 
any  claim  that  vvould  be  prohibited  by  that  section. 

3185  5.  Suspension  and  disbarment  proceedings. — (a)  If  any  officer  or 

employee  of  the  Treasury  Department,  whether  in  the  city  of  Wash- 
ington or  elsewhere,  has  reason  to  believe,  or  if  the  complaint  is  made  to  him, 
that  an  enrolled  attorney  or  agent  has  violated  any  provision  of  the  laws 
and  regulations  governing  practice  before  the  Treasury  Department  or  other- 
wise engaged  in  improper  practice,  he  shall  promptly  make  written  report 
thereof  through  the  proper  channels  to  the  committee  on  enrollment  and 
disbarment.  The  committee  may,  on  the  basis  of  any  such  complaint,  upon 
its  own  motion,  or  otherwise  upon  reasonable  cause,  institute  proceedings  for 
suspension  or  disbarment  against  any  enrolled  attorney  or  agent.  Notice 
thereof,  signed  by  the  Secretary  or  Undersecretary  of  the  Treasury,  shall  be 
sent  by  mail  to  such  attorney  or  agent  at  the  address  under  which  he  is 
enrolled,  and  such  notice  shall  state  the  charge  or  charges  made,  and  give 
the  place  and  lime  of  hearing,  wh'ch  shall  be  not  less  than  thirty  nor  more 
than  forty  days  from  the  date  of  mailing  the  notice.  The  respondent  may 
file  with  the  committee  an  answer  in  duplicate,  which  shall  be  verified,  at 
least  five  full  days  before  the  time  of  the  hearing,  and  the  complainant  may, 
in  the  discretion  of  the  committee,  be  furnished  with  the  duplicate  thereof. 

I lie  committee  may,  in  its  discretion,  extend  the  time  for  answer,  or  post- 

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pone  the  date  of  hearing,  or  adjourn  any  hearing  from  time  to  time  as  mav 
he  necessary.  An  enrolled  attorney  or  agent  against  whom  proceedings  for 
suspension  or  disbarment  have  been  instituted  as  herein  provided  mayj 
subject  to  the  approval  of  the  Secretary  of  the  Treasury,  be  suspended  for 
the  time  being  from  practice  before  the  Treasury  Department,  pending  the 
conclusion  of  the  proceedings. 

31  SQ  (b)  The  committee  shall  conduct  hearings  according  to  such  rules 
of  procedure  as  it  shall  determine,  and  may  receive  evidence  in  such 
form  as  it  may  deem  proper.  The  respondent  may  be  represented  by  coun- 
sel. The  testimony  of  witnesses  may,  in  the  discretion  of  the  committed 
be  required  to  be  under  oath,  and  may  be  stenographically  reported  arid 
transcribed.  Depositions  for  use  at  a hearing  may,  with  the  approval  of  the 
committee,  be  taken  by  either  party  upon  oral  or  written  interrogatories  before 
any  officer  duly  authorized  to  administer  an  oath  for  general  purposes,  upon 
ten  days’  written  notice  if  the  deposition  is  to  be  taken  within  the  District 
of  Columbia,  and  upon  twenty  days’  written  notice  if  it  is  to  be  taken  else* 
where.  When  a deposition  is  taken  upon  written  interrogatories,  any  erdss^ 
examination  shall  be  upon  written  interrogatories.  Copies  of  such  writtdii 
interrogatories  shall  be  served  with  the  notice,  and  copies  of  any  written  cross- 
interrogatories shall  be  mailed  to  the  opposing  party  or  his  counsel  at  least 
ten  days  before  the  time  of  taking  the  deposition. 

3187  (c)  The  committee  shall,  promptly  after  the  conclusion  of  the  hear- 
ing, or,  if  the  respondent  does  not  appear  in  person  for  the  hearing, 

promptly  after  the  date  set  therefor,  submit  to  the  Secretary  of  the  Treas- 
ury a copy  of  the  notice  of  hearing,  the  complaint,  answer  (if  any),  the  record 
of  the  hearing  (if  any),  and  any  written  findings  of  fact  by  a majority  of  the 
committee,  together  with  a recommendation  either  that  the  charges  be  dis- 
missed, or  that  the  respondent  be  reprimanded,  suspended  for  a given  period1 
of  time,  or  disbarred.  The  findings  and  recommendation  shall  be  signed 
by  all  members  of  the  committee  agreeing  thereto.  Members  of  the  com- 
mittee dissenting  therefrom  shall  submit  statements  of  their  reasons  there- 
for. If  any  members  of  the  committee  were  not  present  at  the  hearing  the 
fact  shall  be  stated. 

3188  ( d ) Upon  the  suspension  or  disbarment  of  an  attorney  or  agent, 
notice  thereof  shall  be  given  by  the  committee  to  the  heads  of  all 

bureaus,  offices  and  divisions  of  the  Treasury  Department  and  to  the  other 
branches  of  the  Government,  and,  unless  duly  reinstated,  such  person  shall 
not  thereafter  be  recognized  as  an  attorney  or  agent  in  any  claim  or  othflij 
matter  before  the  Treasury  Department  or  any  office  thereof.  (||. 

3189  6.  Causes  for  rejection,  suspension  or  disbarment. — (a)  The  Secre- 
tary of  the  Treasury  may,  as  herein  provided,  suspend  or  disbar  any 

enrolled  attorney  or  agent  shown  to  be  incompetent  or  disreputable,  or  who 
refuses  to  comply  with  these  rules  and  regulations,  or  who  shall  with  intent 
to  defraud,  in  any  manner  willfully  and  knowingly  deceive,  mislead,  dir 
threaten  any  claimant  or  prospective  claimant,  by  word,  circular  or  letter, mop 
by  advertisement.  It  shall  be  the  duty  of  every  attorney  and  agent  to  use 
the  utmost  diligence  in  furnishing  evidence  required  in  matters  presented  to 
the  Treasury  Department,  and  the  use  of  any  means  whereby  the  final 
settlement  of  a claim  or  other  business  pending  before  the  Treasury  Depart- 
ment is  unjustifiably  delayed  may  be  sufficient  cause  for  suspension  or  dis- 
barment. If  any  enrolled  attorney  or  agent  shall  knowingly  employ  as  com 
respondent  or  subagent  in  any  matter  pending  before  the  Treasury  Depaafth 

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meat  a person  who  is  at  the  time  denied  enrollment,  or  suspended  or  dis- 
barred from  practice  before  the  department,  such  attorney  or  agent  himself 
may  be  suspended  or  disbarred. 

3190  ( b ) Advertising  by  enrolled  attorneys  or  agents  which  describes 
their  capacity  or  ability  to  render  service  as  enrolled  attorneys  or 

agents  is  forbidden.  Letterheads,  business  cards,  and  insertions  in  direc- 
tories, newspapers,  trade  journals,  or  other  publications  should  set  forth 
only  the  name  and  address  of  the  attorney  or  agent  and  a brief  description 
of  his  practice.  The  description  should  not  do  more  than  state  the  nature 
of  the  attorney’s  or  agent’s  business,  that  is  to  say,  whether  he  practices  as 
an  attorney,  accountant  or  agent,  and,  if  desired,  any  special  field  of  service 
or  practice  covered.  The  use  by  attorneys,  agents  or  others  of  adjectives  or 
other  terms  which  might  imply  official  capacity  or  connection  with  the  Gov- 
ernment or  any  of  its  departments,  is  specifically  forbidden. 

3191  (c)  The  solicitation  of  claims  or  other  business  as  attorney  or  agent 
for  others  before  the  Treasury  Department  by  circulars,  advertise- 
ments or  other  means,  including  personal  letters,  communications  or  inter- 
views not  warranted  by  previous  business  or  personal-  relations  with  the 
persons  addressed,  is  forbidden.  Advertising  or  solicitation , which  makes  any 
suggestion  of  previous  connection  with  the  Treasury  Department  or  acquaintance 
with  its  officials  or  employees , or  any  reference  to  the  fact  of  enrollment,  is  specific- 
ally forbidden. 

3192  (d)  Statements  or  implications  to  the  effect  that  an  attorney  or 
agent  is  in  position  by  reason  of  past  experience,  past  official  connec- 
tion, or  personal  association  with  the  Treasury  Department  or  any  officials 
or  employees  thereof,  directly  or  indirectly  to  influence  the  disposition  of 
business  in  the  Treasury  Department,  and  statements  or  implications  to 
the  effect  that  the  agent  or  attorney  is  able  to  obtain  nformation  or  con- 
sideration that  is  not  available  to  the  public  in  regard  to  such  business,  are 
forbidden. 

3193  ( e ) While  contingent  fees  may  be  proper  in  some  cases  before  the 
department,  they  are  not  generally  looked  upon  with  favor  and' may 

be  made  the  ground  of  suspension  or  disbarment.  Both  their  reasonableness 
in  view  of  the  services  rendered  and  all  the  attendant  circumstances  are  a 
proper  subject  of  inquiry  by  the  department.  The  Commissioner  of  Internal 
Revenue  or  the  head  of  any  other  Treasury  bureau  or  division  of  the  Secre- 
tary’s office  may  at  any  stage  of  a pending  proceeding  require  an  attorney  or 
agent  to  make  full  disclosure  as  to  what  inducements,  if  any,  were  held  out 
by  him  to  procure  his  employment  and  whether  the  business  is  being  handled 
on  a contingent  basis,  and,  if  so,  the  arrangement  regarding  compensation. 

3194  (/)  Violation  of  any  of  the  foregoing  regulations  is  declared  cause 
for  suspension  or  disbarment  of  any  attorney  or  agent  enrolled  to 

practice  before  the  Treasury  Department,  while  violation  thereof  by  any 
person  applying  for  enrollment  as  attorney  or  agent  will  be  cause  for  rejection 
of  his  application. 

3 1 95  (g)  Upon  notification  that  an  attorney  or  agent  enrolled  in  the  Treas- 

ury Department  has  been  disbarred  from  practice  before  some  other 
branch  of  the  Government,  the  committee  shall  forthwith  send  to  such 
attorney  or  agent,  in  the  same  manner  as  prescribed  for  notice  of  hearing, 
an  order  signed  by  the  Secretary  of  the  Treasury  to  show  cause  within  thirty 
days  why  he  should  not  be  disbarred  from  practice  before  the  Treasury  De- 
partment; and  thereafter  the  committee  shall  proceed  in  such  case  in  the 
same  manner  as  if  a notice  of  hearing  had  been  sent. 

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3 196  (. h ) The  above  enumeration  of  causes  for  rejection,  disbarment  or 

suspension  shall  not  exclude  other  causes  which  the  Secretary  may 
reasonably  deem  sufficient  in  any  case. 

3197  7.  Authority  to  prosecute  claims;  delivery  of  checks,  drafts  and 
v/arrants.  («)  A power  of  attorney  from  the  principal  in  proper 

form, may  be  required  of  attorneys  or  agents  by  heads  of  bureaus,  offices  and 
divisions,  in  any  case.  In  the  prosecution  of  claims  involving  payments  to  be 
made  by  the  United  States,  proper  powers  of  attorney  shall  always  be  filed  before 
an  attorney  or  agent  is  recognized.  No  power  of  attorney  shall  be  recognized 
which  is  filed  after  settlement  made  by  the  accounting  officers,  even  though 
the  settlement  certificate  may  not  yet  have  issued,  unless  such  power  of 
attorney  recites  that  the  principal  is  fully  cognizant  of  such  settlement  and 
of  the  balance  found  due.  [For  internal-revenve  stamp  requirements,  sec^'3106.] 

3198  0)  In  all  cases  originally  filed  in  the  Treasury  Department  and 
audited  and  allowed  by  the  accounting  officers,  payable  from  ap- 
propriations thereafter  to  be  made  by  Congress,  the  drafts,  warrants  or  checks 
issued  for  the  proceeds  of  such  claims  shall  be  made  to  the  order  of  the  claim- 
ant, and  may  be  delivered  to  the  attorney  or  agent  legally  authorized  to 
prosecute  the  same,  upon  his  filing  in  the  department,  after  the  allowance 
of  the  claim,  the  ascertainment  of  the  amount  due,  and  its  submission  to 
Congress  for  an  appropriation,  written  authority  executed  in  proper  legal 
form  for  delivery  of  such  draft,  warrant  or  check.  The  authority  so  filed 
shall  describe  the  claim  by  the  number  of  certificate  of  settlement,  the  amount 
allowed,  the  title  of  appropriation  from  which  to  be  paid,  the  date  when 
submitted  to  Congress,  and  the  number  of  the  executive  document  in  which 
it  is  contained.  Drafts,  warrants  or  checks  issued  for  the  proceeds  of  other 
like  cases  audited  and  allowed  by  the  accounting  officers  but  which  are  to  be 
paid  from  appropriations  available  at  the  time  of  allowance  shall  also  be 
made  to  the  order  of  the  claimant  and  may  be  delivered  to  the  attorney  or 
agent  filing  written  authority,  executed  in  proper  legal  form,  to  receive  them. 
The  Secretary  of  the  Treasury  reserves  the  right,  however,  in  any  case  to 
send  any  draft,  warrant  or  check  to  the  claimant  direct.  (See  also  paragraph 
9 hereof.) 

3 1 99  (c)  Drafts,  warrants  or  checks  issued  in  payment  of  amounts  allowed 

by  Congress  in  favor  of  corporations  and  individuals  and  appropriated 
for  in  private  or  special  acts,  and  for  the  payment  of  all  other  claims  pre- 
sented directly  to  Congress  and  prosecuted  before  its  committees,  shall  be 
made  to  the  order  of  claimants  and  delivered  to  them  in  person  or  mailed  to 
their  actual  post-office  addresses. 

3200  (d)  Drafts,  warrants  or  checks  issued  in  payment  of  judgments 
rendered  by  the  Court  of  Claims,  United  States  courts,  or  other 

courts  shall  be  made  to  the  order  of  the  judgment  creditor  and  delivered  to 
or  sent  n care  of  the  attorney  certified  by  the  court  to  be  the  attorney  of 
record  upon  his  filing  in  the  department  written  authority,  executed  in  proper 
legal  form,  after  the  date  of  the  rendition  of  the  judgment,  for  such  disposi- 
tion of  such  draft,  warrant  or  check. 

3201  (e)  When  judgments  of  the  Court  of  Claims,  United  States  courts, 
or  other  courts  are  paid  by  the  United  States,  a notice  of  such  pay- 
ment, giving  number,  class,  and  date  of  the  draft,  warrant  or  check,  and 
amount  paid,  will  be  sent  by  the  Treasury  Department  to  the  clerk  of  the 
court  in  which  the  judgment  was  entered  in  order  that  payment  may  be 
entered  on  the  docket  of  the  court. 

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3202  8.  Substitution  of  attorneys  or  agents  and  revocation  of  authority. 

— (a)  Substitution  of  attorneys  or  agents  may  be  effected  only  on 
the  written  consent  of  the  attorney  or  agent  of  record,  his  principal,  and  the 
attorney  or  agent  whom  it  is  desired  to  substitute,  and  in  all  cases  only 
with  the  assent  of  the  head  of  the  bureau,  office  or  division  concerned; 
provided  that  where  the  power  of  attorney  under  which  an  attorney  or 
agent  of  record  is  acting  expressly  confers  the  power  of  substitution,  such 
attorney  or  agent,  if  in  good  standing  before  the  department,  may,  by  a 
duly  executed  instrument,  substitute  another  in  his  stead,  such  other,  how- 
ever, to  be  recognized  as  the  attorney  or  agent  only  with  the  assent  of  the 
head  of  the  bureau,  office  or  division  concerned. 

3203  ib)  If  a firm  dissolve,  or  those  associated  as  attorneys  or  agents  by 
virtue  of  a power  of  attorney  contest  the  right  of  either  to  receive  a 

draft,  warrant  or  check,  the  principal  only  shall  thereafter  be  recognized, 
unless  the  members  or  survivors  of  such  firm,  or  the  associates  in  such  power 
of  attorney,  file  a proper  agreement  showing  which  of  such  members,  sur- 
vivors or  associates  may  continue  to  prosecute  the  matter  and  may  receive 
a draft,  warrant  or  check;  and  in  no  case  shall  a final  settlement  of  the 
matter  or  action  toward  the  transmission  of  a draft,  warrant  or  check  to 
the  principal  be  delayed  more  than  sixty  days  by  reason  of  the  failure  to 
file  such  agreement.  # . . 

3204  (c)  The  revocation  by  a principal  or  his  legal  representatives  of 
authority  to  prosecute  a matter  will  not  be  effective,  so  far  as  the 

Treasury  Department  is  concerned,  without  the  assent  of  the  head  of  the 
bureau,  office  or  division  before  which  the  matter  is  pending.  Where  a 
matter  has  been  suspended  pending  the  furnishing  of  evidence  for  which  a 
call  has  been  made  on  an  attorney  or  agent,  failure  to  take  action  thereon 
within  three  months  from  the  date  of  suspension  may  be  deemed  by  the 
administrative  officer  before  whom  the  case  is  pending  cause  for  revocation 
of  the  authority  of  such  attorney  or  agent  without  further  notice  to  him. 

3 205  9.  In  the  settlement  of  claims  of  officers,  soldiers,  sailors  and  marines, 

or  their  representatives,  and  all  other  like  claims  for  pay  and  allow- 
ances within  the  jurisdiction  of  the  General  Accounting  Office,  the  draft, 
warrant  or  check  for  the  full  amount  found  due  shall  be  delivered  to  the 
payee  in  person  or  sent  to  his  bona  fide  post-office  address  (residence  or  place 
of  business)  in  accordance  with  the  provisions  of  the  act  of  June  6,  1900 
(31  Stat.,  637). 

3206  10.  This  circular  supersedes  the  regulations  promulgated  by  Treas- 
ury Department  Circular  No.  230  of  February  15,  1921,  as  amended 

June  7,  July  1,  and  December  23,  1921,  relating  to  the  recognition  of  attorneys, 
agents  and  others. 

3207  11.  These  regulations  shall  apply  to  attorneys,  agents  and  others 
representing  claimants  and  others  before  the  Treasury  Department 

in  the  city  of  Washington  or  elsewhere,  with  the  exception  as  to  customhouse 
brokers  set  forth  in  paragraph  3,  and  shall  be  effective  from  and  after  the 
twenty-fifth  day  of  April,  1922.  This  circular  shall  apply  to  all  unsettled 
matters  then  pending  in  this  department,  or  which  may  thereafter,  be  pre- 
sented or  referred  to  the  department  or  offices  thereof  for  adjudication,  and 
shall  be  applicable  to  all  those  now  enrolled  to  practice  before  the  Treasury 
Department  as  attorney  or  agent,  provided  that  nothing  herein  contained 

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shall  be  construed  to  abrogate  any  rules  or  orders  of  the  General  Accounting 
Office  relating  to  the  fees  of  attorneys,  agents  or  others,  or  to  require  those 
now  enrolled  again  to  apply  to  be  enrolled. 

3208  12.  The  Secretary  of  the  Treasury  may  withdraw  or  amend  at  any 

time  or  from  time  to  time  all  or  any  of  the  foregoing  rules  and  regula- 
tions, with  or  without  previous  notice,  and  may  make  such  special  orders  as 
he  may  deem  proper  in  any  case. 

A.  W.  MELLON, 

Secretary  of  the  Treasury. 

(Department  Circular  No.  230,  Revised  April  25,  1922.) 


(T.  D.  3327.) 

3209  Authorizing  debtor  corporations  and  withholding  agents  to  accept 
2265  old  forms  of  ownership  certificates  with  respect  to  income  due  on 
2298  and  prior  to  June  1,  1922,  when  received  from  continental  United 
2361  States  and  with  respect  to  income  due  on  and  prior  to  July  1,  1922, 
3047  when  received  from  abroad. — The  new  ownership  certificates,  which 
3109  were  revised  during  January,  1922,  were  placed  at  the  disposal  of 

the  public  February  10,  1922.  In  order  to  prevent  inconvenience 
to  individuals  and  organizations  required  to  use  such  forms,  old  forms  of 
ownership  certificates,  Forms  1000,  1001  and  100 1-A,  and  substitute  cer- 
tificates, Forms  1058  and  1059,  will  be  accepted  with  respect  to  income  due 
on  and  prior  to  June  1,  1922,  when  received  from  continental  United  States, 
and  with  respect  to  income  due  on  and  prior  to  July  1,  1922,  when  received 
from  abroad.  _ . 

3210  Banks  and  collecting  agents,  debtor  corporations  and  withholding 
agents  shall  refuse  to  accept  the  old  forms  in  connection  with  income 

due  after  the  respective  dates  named  herein.  In  order  that  the  fulfillment 
of  the  requirements  herein  provided  may  cause  as  little  hardship  as  possible 
to  individuals,  banks,  collecting  agents,  debtor  corporations,  etc.,  collectors 
should  satisfy  themselves  that  they  have  a sufficient  supply  of  the  revised 
forms  on  hand  to  meet  anticipated  demands  and  where  the  supply  is  not 
deemed  sufficient,  requisition  should  be  made  without  delay  for  such  ad- 
ditional quantity  as  may  be  necessary.  Collectors  are  requested  to  dis- 
seminate this  information  throughout  their  districts  as  quickly  as  possible. 
(T.  D.  3327,  signed  by  Commissioner  D.  H.  Blair,  and  dated  May  11,  1922.) 


(T.  D.  3329.) 

3211  Expeditious  disposition  of  tax  cases  in  which  an  emergency  has 
2747  been  found  to  exist.— If,  upon  application  of  any  taxpayer,  it  be 
shown  to  the  satisfaction  of  the  Commissioner  (1)  that  the  taxpayer 
is  in  the  hands  of  a receiver  and  a reorganization  is  necessary;  (2)  that  the 
taxpayer  is  in  financial  difficulties,  either  actual  or  imminent,  and  refinancing 
is  necessary;  or,  (3)  that  the  distribution  of  a fund  in  which  a large  number  of 
people  may  be  interested  is  held  up  pending  the  determination  of  the  amount 
of  income  or  profit  taxes  which  must  be  paid  out  of  the  fund  then  the 
Commissioner  will  declare  an  emergency  to  exist  with  reference  to  such  case 
and  will  direct  that  the  matter  be  given  priority  of  consideration  with  a view 
to  the  expeditious  determination  of  the  particular  tax  liability. 

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3212  Application  for  sucli  priority  of  consideration  shall  be  in  the  form  of  a 
letter  addressed  to  the  Commissioner  and  shall  be  supported  by  state- 
ments under  oath  setting  forth  in  detail  the  facts  upon  which  the  request  for 
special  consideration  is  based,  and  the  particular  reason  why  such  person 
believes  himself  entitled  to  have  the  case  expedited  as  provided  herein. 
(T.  D.  3329,  signed  by  Commissioner  D.  H.  Blair,  and  dated  May  13,  1922.) 


(T.  D.  3330.) 

3213  Decision  of  U.  S.  Circuit  Court  of  Appeals:  1918  Act— The  decision 
1703  [syllabus  only,  1(3214  and  1(3215]  of  the  United  States  Circuit  Court 

of  Appeals  for  the  Seventh  Circuit,  affirming  the  judgment  of  the 
United  States  District  Court  for  the  Western  District  of  Wisconsin  in  the  case 
of  Ed.  Schuster  & Co.,  Inc.,  v.  Williams,  Collector,  the  syllabus  of  which 
appears  below  is  published  not  as  a ruling  of  the  Treasury  Department,  but 
for  the  information  of  internal  revenue  officers  and  others  concerned.  (T.  D. 
3330,  May  13,  1922.) 

3214  1.  Income  Tax:  Deduction:  Wisconsin  Soldiers’  Bonus  Tax. — 
The  plaintiff  was  a corporation,  keeping  its  accounts  and  filing 

returns  upon  an  accrual  basis,  and  annually  set  up  upon  its  books  a ‘‘reserve 
for  income  taxes  due  the  State  of  Wisconsin  under  the  laws  of  which  it  was 
organized.  Under  the  provisions  of  Section  234  (a)  (3)  of  the  Revenue  Act 
of  1918,  the  company  deducted  from  its  Federal  income  tax  return  for  the 
year  1918,  the  “reserve”  for  income  taxes  due  the  State  at  the  rate  in  effect 
on  December  31,  1918.  On  July  30,  1919,  the  Wisconsin  legislature  passed  a 
“Soldiers’  Bonus”  Act,  which  provided  for  the  raising  of  the  money  by  a single 
tax  levy  of  one  mill  on  all  assessed  property  for  the  year  1919,  and  a surtax 
over  the  normal  tax,  on  the  incomes  of  corporations  upon  the  basis  of  the 
1918  State  income  tax  returns.  After  the  ratification  of  the  Soldiers’  Bonus 
Act  on  October  10,  1919,  the  plaintiff  filed  an  amended  Federal  income  tax 
return  for  the  year  1918  and  sought  to  deduct  therein  as  taxes  accrued  for 
the  year  1918,  the  amount  of  additional  taxes  due  the  State  under  the  Soldiers’ 
Bonus  Act.  Held , that  the  basis  of  the  levy  of  the  Soldiers’  Bonus  Tax  was 
1918  incomes  but  there  is  no  relation  between  the  basis  for  the  State  levy  and 
the  time  of  the  accrual  of  the  tax  for  Federal  tax  purposes. 

3215  2.  Deduction:  State  Taxes:  “Accrued”  Within  the  Year:  Section 
234  (a)  (3)  Revenue  Act  of  1918. — A tax  does  not  “accrue”  until  it 

becomes  a liability  of  the  taxpayer  and  a tax  cannot  be  “accrued”  and  de- 
ducted for  Federal  income  tax  purposes  in  the  year  1918  where  the  State  act 
creating  the  tax  liability  was  not  passed  until  the  year  1919.  (Syllabus 
referred  to  in  1(3213.) 


(T.  D.  3333.) 

3216  Ratios  of  estimated  post-war  costs  of  replacement  for  use  in  prepara- 
3144  tion  of  claims  for  amortization. — [This  T.  D.  reproduces  the  matter 
beginning  at  1(3144  herein. — The  Corporation  Trust  Company.] 
(T.  D.  3333,  May  19,  1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
717 


(Decision.) 

(Revenue  Act  of  1918.) 

May  29,  1922. 

The  entire  amount  received  from  the  sale  of  rights  to  subscribe  for  stock 
is  not  income.  Method  of  determining  profit  or  loss  from  the 

sale  of  rights. 


Supreme  Court  of  the  United  States 


Joshua  W.  Miles,  Collector  of  Internal 
Revenue  for  the  District  of  Maryland, 
Plaintiff  in  Error, 

vs. 

The  Safe  Deposit  and  Trust  Company  of 
Baltimore,  Guardian  of  Frank  R.  Brown. 


In  Error  to  the  District  Court 
of  the  United  States  for  the 
District  of  Maryland. 


Mr.  Justice  Pitney  delivered  the  opinion  of  the  Court. 

321  7 Defendant  in  error,  a corporation  organized  under  the  laws  of  Mary- 

1219  land  and  authorized  to  act  as  guardian,  was  on  January  30,  1919, 

1220  appointed  by  the  Orphans  Court  guardian  of  Frank  R.  Brown,  an 
infant  whose  father  had  died  intestate  about  a year  before.  The 

son  as  next  of  kin  became  entitled  to  35  shares  of  the  stock  of  the  Hartford 
Fire  Insurance  Company,  and  they  were  transferred  to  defendant  in  error 
as  such  guardian,  and  still  are  held  by  it  in  that  capacity.  At  that  time 
the  capital  stock  of  the  insurance  company  issued  and  outstanding  con- 
sisted of  20,000  shares  of  the  par  value  of  $100  each.  Later  in  the  year  that 
company,  under  statutory  authority,  increased  its  capital  stock  to  40,000 
shares  of  the  same  par  value.  The  resolution  of  the  stockholders  sanction- 
ing the  increase  provided  that  the  right  to  subscribe  to  the  new  issue  should 
be  offered  to  the  stockholders  at  the  price  of  $150  per  share,  in  the  propor- 
tion of  one  share  of  new  stock  to  each  share  of  stock  held  by  them;  sub- 
scriptions to  be  payable  in  instalments  and  the  directors  to  have  power  to 
dispose  of  shares  not  so  subscribed  and  paid  for  in  such  manner  as  they 
might  determine  to  be  for  the  best  interests  of  the  company.  In  July,  1919, 
defendant  in  error,  pursuant  to  an  order  of  the  Orphans  Court,  sold  the 
subscription  right  to  35  shares  owned  by  its  ward  for  $12,546.80,  equivalent 
to  $358.48  per  share.  The  Commissioner  of  Internal  Revenue,  holding  that 
this  entire  amount  was  income  for  the  year,  under  the  provisions  of  the  Act 
approved  February  24,  1919,  c.  18,  40  Stat.  1057,  assessed  and  plaintiff  in 
error  collected  a tax  amounting  to  $1,130.77  by  reason  of  it.  Defendant 
in  error,  having  paid  this  under  protest  and  unavailingly  appealed  to  the 
Commissioner,  claiming  that  none  of  the  amount  so  received  was  income 
within  the  meaning  either  of  the  Act  or  of  the  Sixteenth  Amendment,  brought 
this  action  against  the  collector  to  recover  the  entire  amount  of  tax  so  assessed 
and  paid.  The  case  was  tried  before  the  district  court  without  a jury  on 
stipulated  facts  and  evidence  [If  1220].  Plaintiff’s  extreme  contention  that 
the  subscription  right  to  new  stock  and  also  the  proceeds  of  the  sale  of  the 
right  were  wholly  capital  and  not  in  any  part  subject  to  be  taxed  as  income, 
was  overruled  upon  the  authority  of  Merchants'  Loan  & Trust  Company  v. 
Smietanka,  255  U.  S.  509,  then  recently  decided  [Supplementary  Page  186, 
herein].  The  trial  court,  in  the  second  place,  held  that,  of  the  proceeds  of  the 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


B-81-22 

sale  of  the  subscription  rights,  so  much  only  as  represented  a realized  profit 
over  and  above  the  cost  to  plaintiff  of  what  was  sold  was  taxable  as  income. 
In  order  to  compute  the  amount  of  the  profit,  the  court  commenced  with 
the  value  of  the  old  shares  prior  to  authorization  of  the  stock  increase,  which 
upon  the  basis  of  evidence  contained  in  the  stipulation  was  taken  to  be 
what  they  were  assessed  at  by  the  United  States  for  purposes  of  the  estate 
tax  at  the  death  of  the  ward’s  father,  viz.,  $710  per  share,  and  added  the 
$150  necessary  to  be  paid  by  a stockholder  or  his  assignee  in  order  to  obtain 
a share  of  the  new  stock,  making  the  cost  of  two  shares  (1  old  and  1 new) 
$860  and  half  of  this  the  cost  of  one  share. 

3218  The  sale  of  the  subscription  rights  at  $358.48,  the  purchaser  to  pay 
the  issuing  company  $150  per  share,  was  treated  as  equivalent  to 

a sale  of  the  fully-paid  shares  at  $508.48  each,  or  $78.48  in  excess  of  the 
$430  which  represented  their  cost  to  plaintiff;  and  this  difference  multiplied 
by  35,  the  number  of  shares  or  rights  sold,  yielded  $2,746.80  as  the  gain 
realized  out  of  the  entire  transaction.  Upon  this  the  court  held  plaintiff 
to  have  been  properly  taxable,  and  upon  nothing  more;  no  income  tax  being 
assessable  with  respect  to  the  35  shares  still  retained,  because  although  they 
were  considered  worth  more,  ex-rights,  than  the  $4o0  per  share  found  to  be 
their  cost,  the  difference  could  not  be  regarded  as  a taxable  profit  unless  or 
until  realized  by  actual  sale.  273  Fed.  Rep.  822.  To  review  the  final  judg- 
ment entered  pursuant  to  the  findings  and  opinion,  which  sustained  only  in 
part  plaintiff’s  demand  for  a refund  of  the  tax  paid,  the  collector  of  internal 
revenue  prosecuted  a direct  writ  of  error  from  this  court  under  sec.  2.i8 
| udicial  Code,  because  of  the  constitutional  questions  involved. 

3219  There  is  but  one  assignment  of  error,  based  upon  a single  exception, 
which  denied  that  plaintiff  was  entitled  to  recover  anything  what- 
ever; hence  the  correctness  of  the  particular  recovery  awarded  is  not  in  form 
raised;  but  the  trial  judge,  having  the  complete  facts  before  him,  almost  of 
necessity  passed  upon  them  in  their  entirely  in  order  to  determine,  accord- 
ing to  truth  and  substance,  how  much  of  what  plaintiff  received  was,  and 
how  much  was  not,  income  in  the  proper  sense;  as  is  proper  in  a case  invol\- 
ing  the  application  of  the  Sixteenth  Amendment  ( Eisner  v.  Macomber,  252 
U.  S.  189,  206  [Supplementary  Page  173,  herein];  United.  States  v.  Phellis , 
November  21,  1921,  257  U.  S.  — ) [Supplementary  Page  167,  herein];  and 
in  order  to  review  the  judgment,  it  will  be  proper  for  us  to  analyze  the  reason- 
ing upon  which  it  was  based. 

It  is  not  in  dispute  that  the  Hartford  Fire  Insura-nce  Company  is  a cor- 
poration of  the  State  of  Connecticut  and  that  the  stock  increase  in  question 
was  made  under  authority  of  certain  Acts  of  the  legislature  and  certain 
resolutions  of  the  stockholders,  by  which  the  right  to  subscribe,  to  the  new 
issue  was  offered  to  existing  stockholders  upon  the  terms  mentioned.  It  is 
evident,  we  think,  that  such  a distribution  in  and  of  itself  constituted  no 
division  of  any  part  of  the  accumulated  profits  or  surplus  of  the  company, 
or  even  of  its  capital;  it  was  in  effect  an  opportunity  given  to  stockholders 
to  share  in  contributing  additional  capital,  not  to  participate  in  distribution. 
It  was  a recognition  by  the  company  that  the  condition  of  its  affairs  war- 
ranted an  increase  of  its  capital  stock  to  double  the  par  value  of  that  already 
outstanding,  and  that  the  new  stock  would  have  a value  to  the  recipients  in 
excess  of  $150  per  share;  a determination  that  it  should  be  issued  pro  rata 
to  the  existing  stockholders,  or  so  many  of  them  as  would  pay  that  price. 
This  privilege  of  itself  was  not  a fruit  of  stock  ownership  in  the  nature  of  a 
profit;  nor  was  it  a division  of  any  part  of  the  assets  of  the  company. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

710 


5-31-22. 


3220  The  right  to  subscribe  to  the  new  stock  was  but  a right  to  partici- 
pate, in  preference  to  strangers  and  on  equal  terms  with  other  exist- 
ing stockholders,  in  the  privilege  of  contributing  new  capital  called  for  by 
the  corporation— an  equity  that  inheres  in  stock  ownership  under  such 
circumstances  as  a quality  inseparable  from  the  capital  interest  represented 
by  the  old  stock,  recognized  so  universally  as  to  have  become  axiomatic  in 
American  corporation  law.  Gray  v.  Portland  Bank , 3 Mass.  364;  Atkyns 
v.  Albree , 12  Allen  359,  361;  Jones  v.  Morrison , 31  Minn.  140,  152-153; 
Kidman  v.  Bowman , 58  111.  444,  447;  Humboldt  Driving  Park  Ass'n  v. 
Stevens , 34  Neb.  528,  534;  Electric  Co.  v.  Electric  Co.,  200  Pa.  516,  520-523, 
526;  Wall  v.  Utah  Copper  Co.,  70  N.  J.  Eq.  17,  28,  et  seq.-,  Stokes  v.  Con- 
tinental Trust  Co.,  186  N.  Y.  285.  Evidently  this  inherent  equity  was  recog 
nized  in  the  statute  and  the  resolution  under  which  the  new  stock  here  in 
question  was  offered  and  issued. 

322  1 The  stockholder’s  right  to  take  his  part  of  the  new  shares  therefore 
— assuming  their  intrinsic  value  to  have  exceeded  the  issuing  price 
—was  essentially  analagous  to  a stock  dividend.  So  far  as  the  issuing  price 
was  concerned,  payment  of  this  was  a condition  precedent  to  participation, 
coupled  with  an  opportunity  to  increase  his  capital  investment.  In  either 
aspect,  or  both,  the  subscription  right  of  itself  constituted  no  gain,  profit  or 
income  taxable  without  apportionment  under  the  Sixteenth  Amendment. 
Eisner  v.  Macomber,  252  U.  S.  189,  is  conclusive  to  this  effect. 

3222  But  in  that  case  it  was  recognized  p.  (212)  that  a gain  through  sale 
of  dividend  stock  at  a profit  was  taxable  as  income,  the  same  as  a 

gain  derived  through  sale  of  some  of  the  original  shares  would  be.  In  that 
as  in  other  recent  cases  this  court  has  interpreted  “income”  as  including 
gains  and  profits  derived  through  sale  or  conversion  of  capital  assets,  whether 
done  by  a dealer  or  trader,  or  casually  by  a non-trader,  as  by  a trustee  in 
the  course  of  changing  investments.  Merchants’  Loan  IA  Trust  Company  v. 
Smietanka,  255  U.  S.  509,  517-520. 

3223  Hence  the  district  court  rightly  held  defendant  in  error  liable,  to 
income  tax  as  to  so  much  of  the  proceeds  of  sale  of  the  subscription 

rights  as  represented  a realized  profit  over  and  above  the  cost  to  it  of  what 
was  sold.  How  the  gain  should  be  computed  is  a matter  of  some  contention 
by  the  Government  in  this  court;  but  it  admits  of  little  doubt.  To  treat 
the  stockholder’s  right  to  the  new  shares  as  something  new  and  independent 
of  the  old,  and  as  if  it  actually  cost  nothing,  leaving  the  entire  proceeds  of 
sale  as  gain,  would  ignore  the  essence  of  the  matter,  and  the  suggestion 
cannot  be  accepted.  The  district  court  proceeded  correctly  in  treating  the 
subscription  rights  as  an  increase  inseparable  from  the  old  shares,  not  in  the 
way  of  income  but  as  capital;  in  treating  the  new  shares  if  and  when  issued 
as  indistinguishable  legally  and  in  the  market  sense  from  the  old;  and  in 
regarding  the  sale  of  the  rights  as  a sale  of  a portion  of  a capital  interest  that 
included  the  old  shares.  What  would  have  happened  had  defendant  in 
error  decided  to  accept  the  new  shares  and  pay  the  issuing  price  instead  of 
selling  the  rights  is  of  no  consequence;  in  that  event  there  would  have  been 
no  realized  profit,  hence  no  taxable  income.  What  resulted  or  might  have 
resulted  to  defendant  in  error’s  retained  interest  in  the  company,  depending 
upon  whether  the  purchaser  exercised  his  right  to  subscribe  or  allowed  it  to 
lapse,  or  whether  in  the  latter  event  the  stock  was  sold  by  the  directors,  is 
of  speculative  interest  only.  Defendant  in  error  resorted  to  the  market  for 
the  sale  of  a part  of  its  capital  interest,  concededly  sold  at  an  advance  over 
cost,  and  what  the  profit  actually  was  is  the  sole  concern  here;  not  whether 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

720 


5-31-22.  (2)  6-3-22. 

it  might  have  been  more  or  less,  nor  whether  the  purchaser  disposed  of  the 
stock  to  advantage. 

3224  That  a comparison  of  the  cost  at  acquisition  and  the  selling  price  is 
proper  under  section  202  (a)  of  the  Act  (40  Stat.  1069),  where,  as 

here,  the  property  was  acquired  and  sold  within  the  same  taxing  year,  we 
understand  to  be  conceded.  Under  the  stipulation,  the  court  below  was 
warranted  in  finding  $710  per  share  to  have  been  the  fair  market  value  of 
the  old  stock  when  turned  over  to  the  guardian,  and  treating  this  as  its  cost 
to  the  trust.  It  was  proper  to  add  to  this  the  $150  required  to  be  paid  to  the 
company  and  treat  the  total  as  the  cost  to  plaintiff  of  each  two  shares  one  of 
which  was  to  pass  to  the  purchaser.  This  in  essence  is  the  method  adopted 
by  the  Treasury  Department  in  the  case  of  a sale  of  dividend  stock,  in  Reg- 
ulations 45,  1920  ed.,  Art.  1547,  which  reads  [see  Art.  1548,  Reg.  62  (1921 
Act),  111136]. 

“Art.  1547.  Sale  of  slock  received  as  dividend. — Stock  in  a corporation 
received  as  a dividend  does  not  constitute  taxable  income  to  a stockholder 
in  such  corporation,  but  any  profit  derived  by  the  stockholder  from  the  sale 
of  such  stock  is  taxable  income  to  him.  [Following  Eisner  v.  Macomber, 
supra.}  For  the  purpose  of  ascertaining  the  gain  or  loss  derived  from  the 
sale  of  such  stock,  or  from  the  sale  of  the  stock  with  respect  to  which  it  is 
issued,  the  cost  (used  to  include  also,  where  required,  the  fair  market  value 
as  of  March  1,  1913),  of  both  the  old  and  new  shares  is  to  be  determined  in 
accordance  with  the  following  rules: 

“(1)  Where  the  stock  issued  as  a dividend  is  all  of  substantially  the  same 
character  or  preference  as  the  stock  upon  which  the  stock  dividend  is  paid, 
the  cost  of  each  share  of  both  the  old  and  new  stock  will  be  the  quotient  of 
the  cost,  or  fair  market  value  as  of  March  1,  1913,  if  acquired  prior  to  that 
date,  of  the  old  shares  of  stock  divided  by  the  total  number  of  the  old  and  new 
shares.  . . .” 

3225  That  the  averaging  of  cost  might  present  more  administrative 
difficulty  in  a case  more  complicated  than  the  present,  as  where  the 

old  shares  were  acquired  at  different  times,  is  not  a sufficient  ground  for 
denying  the  soundness  of  the  method  itself. 

32  26  Various  suggestions,  more  or  less  ingenious,  as  to  how  the  profit 
ought  to  be  computed,  made  by  counsel  for  defendant  in  error  and 
by  an  amicus  curiae , have  been  examined  and  found  faulty  for  reasons  un- 
necessary to  be  mentioned.  Upon  the  whole,  we  are  satisfied  that  the  method 
adopted  by  the  district  court  led  to  a correct  result. 

Judgment  affirmed. 


3227  Conference  and  Practice  Requirements : Income  Tax  Unit. — 1.  Con- 
2747  ferences  will  be  accorded  taxpayers  or  their  duly  authorized  repre- 
2763  sentatives  only. 

2813 

3228  2.  No  attorney,  agent,  or  other  person  representing  claimants 
2941  before  this  bureau  or  any  of  the  units,  divisions,  or  other  offices 
3104  thereof,  shall  appear  to  be  recognized  in  any  case,  matter,  claim  or 

other  proceeding  or  business  pending  in  said  bureau,  division  or  other 
office  thereof  unless  said  attorney,  agent,  or  other  person  representing  said 
claimant  present  and  file  a power  of  attorney  from  his  principal  in  proper  form, 
authorizing  him  to  prosecute  the  case,  claim,  or  matter  in  question.  Such 
power  of  attorney  shall  always  be  filed  before  such  agent,  attorney,  or  other 
person  is  recognized.  In  the  event,  however,  that  a representative  presents 
himself  for  conference  who  is  not  familiar  with  the  above  requirements  but  is 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

721 


6-9-22. 


able  to  produce  such  evidence  as  will  reasonably  convince  the  conferee  that  he 
has  authority  to  r present  the  taxpayer,  such  representative  may  be  heard, 
with  the  understanding  that  a power  of  attorney  in  proper  form  will  be 
forwarded  to  the  Unit,  and  that  until  such  power  of  attorney  shall  have 
been  filed  the  points  raised  at  the  conference  by  such  representative  will  not 
be  considered. 

3229  3.  Any  power  of  attorney  offered  in  evidence  in  any  case  will  be 
accepted  only  provided  it  is  in  regular  form.  It  is  conskh  red  neces- 
sary in  the  case  of  an  individual  that  the  power  of  attorney  be  signed  by  the 
taxpayer,  contain  language  to  convey  his  intention,  not  ne;  ssarily  in  stri'tly 
legal  form,  and  be  attest  d before  a notary  public  or  1-  • witnessed  before 
two  disinterested  individuals.  In  the  case  of  a partn-  rship,  a power  cf 
attorney  must  be  signed  by  all  members  of  the  partnership  and  properly 
sworn  to  or  witnessed  as  above.  In  the  case  of  a corporation,  it  must  be 
signed  by  an  officer  of  the  corporation,  attested  by  the  Sc  retary  und  r the 
seal  of  the  corporation  and  executed  before  a notary  or  attested;  as  above. 
Under  no  circumstances  shall  a power  of  attorney  whi.h  docs  not  have 
attached  to  it  a revenue  stamp  in  the  amount  of  25c  be  accepted. 

3230  4.  In  addition  to  the  requirements  of  paragraph  2,  the  representative 
must  establish  compliance  with  Treasury  Department  Circular  No. 

230,  dated  April  25,  1922,  governing  the  recognition  of  attorneys  and  agents 
before  the  Treasury  Department  and  offices  thereof  [f3174  herein], 

3231  5.  No  reduction  in  taxes  proposed,  nor  increases  in  allowance  of 
claims,  shall  be  made  as  the  result  of  conferences  unless  the  evidence 

upon  which  such  action  is  taken  is  submitted  in  writing  and  over  the  sworn 
signature  of  the  taxpayer.  The  affidavit  of  an  attorney,  accountant,  or 
special  representative  will  not  be  accepted  unless  it  appears  that  such  at- 
torney, accountant,  or  special  representative  is  the  only  person  having  actual 
knowledge  of  the  facts  presented.  The  sworn  statement  of  facts  must  be 
submitted  on  or  before  the  conference  date,  except  where  the  taxpayer  or 
his  representative  is  ignorant  of  these  provisions,  in  which  case  such  statement 
must  be  promptly  forwarded  to  the  Unit;  and  a favorable  decision  will  not 
be  made  on  the  case  until  it  is  received.  Only  such  points  shall  be  considered 
as  are  raised  by  the  sworn  statement  of  facts  and  statements  made  in  briefs 
prepared  and  submitted  by  attorneys,  accountants,  or  special  representatives 
shall  not  be  considered  as  evidence  unless  set  out  in  the  taxpay  r’s  sworn 
statement  of  facts. 

3232  6.  Substitution  of  attorneys  or  agents  may  be  effected  only  on  the 
written  consent  of  the  attorney  or  agent  of  record,  his  principal,  and 

the  attorney  or  agent  whom  it  is  desired  to  substitute,  and  in  all  cases  subject 
to  the  approval  of  the  head  of  the  division  concerned  before  being  effective; 
provided,  that  where  the  power  of  attorney,  under  which  an  attorney  or 
agent  of  record  is  acting,  expressly  confers  the  power  of  substitution,  such 
attorney  or  agent,  if  in  good  standing  before  the  department  may,  by  duly 
executed  endorsement,  substitute  another  in  his  stead,  such  other,  however, 
to  be  recognized  as  the  attorney  or  agent  only  upon  the  approval  of  the  head 
of  the  division  concerned. 

3233  7.  Runners  or  mere  members  of  the  office  force  of  local  attorneys, 
agents  and  accountants  will  not  be  recognized  with  powers  of  at- 
torney running  to  that  firm  anywhere  in  the  Unit.  No  information  will  be 
furnished  them  except  on  affirmative  proof  that  they  are  enrolled  or  that 
they  made  application  for  enrollment  as  attorney  or  agent  and  that  they 
have  a substitute  power  of  attorney  running  to  them  from  the  firm  with 
which  they  are  employed. 

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3234  8.  Letters  arranging  conferences  will  apprise  the  taxpayer  or  his  rep- 
resentative of  the  requirements  as  to  powers  of  attorney,  statements 

of  facts,  and  briefs,  unless  it  is  known  that  the  requirements  are  known  to  the 
addressee.  Owing  to  the  expense  involved,  it  will  not  be  the  practice,  except 
in  rare  cases,  to  incorporate  the  above  requirements  in  telegrams.  Where 
sufficient  time  intervenes  between  the  date  of  the  telegram  and  the  con- 
ference, the  telegram  will  be  confirmed  by  letter  and  conference  requirements 
stated. 

3235  9.  These  requirements  apply  with  equal  force  to  the  field  offices  of 
the  Income  Tax  Unit.  (Official  announcement — 1185  Revised—, 

signed  by  Deputy  Commissioner  E.  H.  Batson.  Approved:  D.  H.  Blair, 
Commissioner  of  Internal  Revenue.  Dated  June  1,  1922.) 


3236  Ownership  certificates  in  the  case  of  interest  on  bonds  owned  by 
2265  foreign  exempt  organization. — You  are  advised  that  when  the  (for- 
eign charitable  institution)  has  established  its  exemption  in  accord- 
ance with  the  provisions  of  Article  511,  it  will  be  permitted  to  claim  exemp- 
tion from  having  any  tax  withheld  at  the  source  upon  interest  payments 
made  on  bonds  belonging  to  it.  Ownership  certificate,  Form  1000  Revised, 
is  the  proper  form  to  be  filed  with  such  interest  payments,  but  a notation 
should  be  made  on  the  certificate  substantially  as  follows:  “As  this  organ- 
ization has  been  declared  exempt  from  the  payment  of  income  tax. by  the 
Commissioner  of  Internal  Revenue  under  date  of  . the  interest 

entered  on  this  certificate  is  not  subject  to  withholding”  giving  the  date  of 
the  official  letter  in  which  the  organization  was  held  to  be  exempt.  (Letter 
to  the  National  Bank  of  Commerce  in  New  York,  signed  by  Commissioner 
D.  H.  Blair,  and  dated  May  26,  1922.) 


3237  Ownership  certificates  in  case  of  interest  on  bonds  owned  by  cor- 
2318  poratiorfbut  registeredfin  name  of  individual. — Where  bonds  owned 
by  domestic  or  resident  corporations  are  registered  in  name  of  indi- 
vidual, ownership  certificate  Form  1001  required  to  be  filed,  altered  to  show 
names  and  addresses  of  owner  and  nominee. — (Telegram  to  the  Philadelphia 
Association  of  Stock  Transfer  Agents,  signed  by  Deputy  Commissioner 
E.  H.  Matson,  and  dated  June  6,  1922.) 


(T.  D.  3343) 

323  8 Instructions  as  to  acceptance  of  Treasury  certificates  of  indebtedness, 
2790  Series  TD2-1922,  for  income  and  profits  taxes  payable  on  December 
15,  1922. — United  States  Treasury  certificates  of  indebtedness  of 
Series  TD2-1922,  dated  June  1,  1922,  maturing  December  15,  1922,  are 
acceptable  in  payment  of  income  and  profits  taxes  payable  on  December  15, 
1922,  and  collectors  of  internal  revenue  are  authorized  and  directed.to  receive 
them  at  par  in  accordance  with  the  provisions  of  Treasury  Decision  3280 
[^[2790],  “Instructions  as  to  acceptance  of  Treasury  certificates  of  indebtedness 
for  income  and  profits  taxes,  calendar  year  1922,”  dated  February  7,  1922. 
(T.  D.  3343,  signed  by  Commissioner  D.  H.  Blair,  and  dated  June  7,  1922.) 


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r 


{Decision.) 

(Revenue  Act  of  1921.) 

June  13,  1922. 

Pi  eliminary  injunction  restraining  the  collection  of  alleged  additional  taxes 
by  distraint  granted,  R.  S.  Sec.  3224  to  the  contrary.  The  inhibitions 
of  R.  S.  Sec.  3224  held  to  have  been  shorn  of  their  extreme  rigidity 
by  the  limitations  added  by  the  1921  Act  to  the  remedial  system 
available  to  the  taxpayer. 

DISTRICT  COURT  OF  THE  UNITED  STATES  FOR  THE  DISTRICT 

OF  DELAWARE. 


Alfred  I.  DuPont 
vs. 

IIarr^  1 . Graham,  individually  and  as  collector  of  Internal  Revenue. 

Upon  plaintiff’s  motion  for  preliminary  injunction  and  defendant’s 
motion  to  dismiss  bill. 

3239  1 hompson,  J.  From  the  allegations  of  the  bill  and  supporting 
2870  affidavit  and  the  defendant’s  affidavit,  the  following  facts  appear: 

3240  On  September  30,  1915,  the  plaintiff  was  the  owner  of  37,767  shares 
of  the  common  stock  of  the  E.  I.  duPont  de  Nemours  Powder  Com- 
pany, incorporated  in  1903  under  the  laws  of  New  Jersey,  hereinafter  called 
the  New  Jersey  Company. 

324  1 On  October  1,  1915,  the  New  Jersey  Company  transferred  its  assets 
as  an  entirety  and  as  a going  concern  to  E.  I.  duPont  de  Nemours 
and  Company,  incorporated  under  the  laws  of  Delaware  and  hereinafter 
called  the  Delaware  Company. 

3242  As  part  of  the  plan  of  reorganization,  each  stockholder  of  the  New 
Jersey  Company  received  two  shares  of  the  common  stock  of  the 

Delaware  Company  for  each  share  of  common  stock  held  by  him  in  the 
New  Jersey  Company.  The  plaintiff  received,  on  or  about  October  1,  1915, 
a total  of  75, 5o4  shares  of  the  common  stock  of  the  Delaware  Company  of 
the  par  value  of  $100  per  share. 

3243  On  February  19,  1916,  the  plaintiff  filed  his  income  tax  return  under 
the  Act  of  October  3,  1913,  and  on  March  4,  1916,  filed  an  amended 

return  of  his  income  for  1915.  The  plaintiff  did  not,  however,  return  nor 
pay  tax  upon  the  said  stock  dividend  as  part  of  his  income.  The  plaintiff 
believes,  he  attached  to  his  return  a statement  in  writing  fully  setting  forth 
the  . entire  transaction  under  which  he  received  the  stock  and  protesting 
against  its  inclusion  in  his  income  for  the  year  1915,  but  the  fact  that  he  did 
attach  such  statement  is  neither  averred  nor  proved. 

3244  On  January  1,  1920,  the  plaintiff  received  through  the  mails  a notice 
and  demand  dated  December  31,  1919,  that  he  pay  to  the  defendant 

as  Collector  of  Internal  Revenue  on  or  before  January  10,  1920  the  sum  of 
$1,576,015.86  for  income  tax  for  the  year  1915. 

3245  It  appears  that  on  November  27,  1917,  Income  Tax  Inspector  duRoss 
made  a report  to  the  Revenue  Agent  in  c targe  at  Baltimore,  Mary- 
land, in  which  he  reported  among  other  things  that  the  plaintiff  had  received 
as  income,  during  the  year  1915,  200  per  cent,  in  common  stock  dividends 
distributed  by  the  E.  I.  duPont  de  Nemours  Company  previously  omitted. 
DuRoss  made  a^further  reportAon  July  22,^1919,  as  a result  of  which,  and  of 

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other  investigations,  the  Commissioner  of  Internal  Revenue  made  an  amended 
return  upon  such  information  as  provided  for  by  Section  2 E of  the  Act  of 
October  3,  1913.  The  evidence  clearly  shows  that  this  amended  return  was 
made  not  earlier  than  July  22,  1919,  and  that  the  assessment  of  the  addi- 
tional tax  claimed  was  not.  made  until  December,  1919.  The  plaintiff  avers 
that  the  defendant  intends  to  proceed  to  collect  the  additional  taxes  referred 
to  in  the  notice  and  demand  of  December  31,  1919,  by  distress  and  sale  of  the 
plaintiff’s  lands  and  freehold  in  the  District  of  Delaware;  that  the  result 
would  be  an  irreparable  injur}-  to  the  plaintiff  and  deprive  him  of  any  remedy 
for  contesting  the  validity  of  the  assessment  or  the  amount  thereof,  and  Jie 
prays  for  an  injunction  restraining  the  defendant  from  distraining  or  attempt- 
ing to  distrain  to  collect  the  said  sum  of  $1,576,015.86. 

3246  It  is  claimed  that  under  the  provisions  of  Section  E of  the  Income 
Tax  Act  of  1913,  no  return  could  be  made  by  the  Commissioner  after 

the  expiration  of  three  years  from  March  1,  1916,  and  no  assessment  made 
thereon  after  the  expiration  of  three  years  from  June  1,  1916.  No  return 
or  assessment  was  made  within  the  prescribed  time. 

3247  Further  objections  are  that  the  alleged  return,  not  made  until  July, 
1919,  or  thereafter,  was  not  made  by  the  officials  authorized  by  the 

law,  was  not  made  according  to  the  form  prescribed  and  that  the  assessment 
was  not  based  upon  the  alleged  return. 

3248  The  stock  dividend  upon  which  it  is  attempted  to  hold  the  defendant 
liable  has  been  held  by  the  Supreme  Court  to  be  taxable  income. 

U.  S.  vs.  Phellis,  260  October  Term,  1921.  42  Sup.  Ct.  63.  [Supplementary 

Page  167,  herein.]  We  have,  therefore,  a lawful  tax  upon  income  for  the 
vear  1915  for  which  the  plaintiff  should  have  made  return  for  that  year.  But 
the  plaintiff  contends  that  the  amended  return  made  for  him  by  the  Com- 
missioner and  the  assessment  thereon  were  not  made  according  to  law,  and 
therefore,  are  invalid  and  that  no  suit  or  proceeding  may  now  be  brought 
upon  such  invalid  return  and  assessment. 

3249  Section  E of  the  Income  Tax  Act  of  1913,  38  Stat.  at  Large  169,  after 
providing  for  assessment  and  notices  before  June  1 of  each  successive 

year  and  that  assessments  shall  be  paid  on  or  before  June  30  provided  that, 
in  case  of  refusal  or  neglect  to  make  such  return  and  cases  of  false  or  fraudulent 
returns,  the  Commissioner  “shall  upon  the  discovery  thereof,  at  any  time 
within  three  years  after  the  return  is  due,  make  a return  upon  information 
obtained  as  provided  for  in  this  section  or  by  existing  law,  and  the  assess- 
ment made  by  the  Commissioner  of  Internal  Revenue  thereon  shall  be  paid 
by  such  person  or  persons  immediately  upon  notification  of  the  amount  of 
such  assessment.” 

3250  It  is  conceded  that  the  plaintiff’s  return  was  incorrect  and  was 
therefore  “false”  within  the  meaning  of  the  section  above  cited. 

Woods  vs.  Lewellyn,  252  Fed.  106.  Eliot  National  Bank  vs.  Gill,  218  led. 
600.  National  Bank  of  Commerce  vs.  Allen  223  Fed.  472. 

3251  The  plaintiff  therefore,  urges  t tat,  as  the  return  prepared  by  the 
Commissioner  was  not  made  within  three  years  after  the  plaintiff’s 

return  was  due  on  March  1,  1916,  and  the  assessment  was  not  made  within 
three  years  from  June  1,  1916,  no  suit  or  proceeding  may  be  begun  by  the 
Collector  for  recovery-  of  the  tax  based  thereon.  The  question  as  to  whether 
the  three  years  within  which  a return  may  be  made  runs  from  the  time  of  the 
discovery  or  from  the  time  when  the  return  is  due  has  been  held  against  the 
plaintiff  in  a dictum  in  Eliot  National  Bank  vs.  Gill  218  Fed.  600,  but  the 
point  was  not  expressly  before  the  court  either  in  that  case  or  in  Woods  vs. 
Lewellyn,  252  Fed.  106,  where  the  inference  is  to  the  contrary.  The  subject 

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is  discussed  in  Montgomery’s  Tax  Procedure,  Ed.  1921,  page  170,  Foot-note 
18,  and  the  opinion  of  the  author  is  that  the  punctuation  conveys  a very  clear 
meaning  that  the  discovery  and  the  assessment  must  be  made  within  three 
years  from  the  time  when  the  return  is  due. 

3252  These  considerations,  however,  all  go  to  the  question  of  the  invalidity 
of  the  return  and  assessment  and  cannot  be  raised  in  this  proceeding 

in  view  of  the  inhibition  of  Section  3224  R.  S.  providing  “no  suit  for  the 
purpose  of  restraining  the  assessment  or  collection  of  any  tax  shall  be  main- 
tained in  any  court,”  and  the  rulings  of  the  Supreme  Court  holding  that 
Congress  “has  provided  a complete  system  of  corrective  justice  in  regard  to 
ah  taxes  imposed  by  the  general  government,  including  provisions  for  re- 
covering the  tax  after  it  has  been  paid,  by  suit  against  the  Collector,  and, 
therefore,  the  taxpayer  has  no  recourse  to  the  courts  until  after  the  money  is 
paid.”  State  Railroad  Tax  Cases  92  U.  S.  575,  613. 

3253  Therefore,  it  must  be  held  that  the  remedy  by  injunction  will  not 
lie,  unless  because  the  plaintiff  through  the  threatened  action  of  the 

Collector  to  collect  through  distraint  is  deprived  of  any  redress  at  law,  the 
effect  of  Sec.  3224  upon  the  facts  of  this  case  has  been  modified  by  subse- 
quent legislation. 

3254  By  the  Revenue  Act  of  November  23,  1921,  Sec.  250(d),  Statutes  at 
Large,  page  265,  it  is  provided:  “No  suit  or  proceeding  for  the  col- 
lection of  any  such  taxes  due  under  this  Act  or  under  prior  income,  excess 
profits,  or  war-profits  tax  acts,  or  of  any  taxes  due  under  Section  38  of  such  Act 
August  5,  1909,  shall  be  begun  after  the  expiration  of  five  years  after  the 
date  when  such  return  was  filed,”  etc. 

3255  As  the  plaintiff’s  return  was  filed  in  March,  1916,  I see  no  escape 
from  the  conclusion  that  the  above  provision  of  the  Act  of  1921  in- 
terposes a limitation  upon  suits  or  proceedings  which  expires  in  1921.  More- 
over, Sec.  1320  of  the  Act  of  1921  provides:  “That  no  suit  or  proceeding 
for  the  collection  of  any  internal  revenue  tax  shall  be  begun  after  the  ex- 
piration of  five  years  from  the  time  such  tax  was  due  except  in  the  case  of 
fraud  with  intent  to  evade  tax  or  willful  attempt  in  any  manner  to  defeat 
or  evade  tax.  This  section  shall  not  apply  to  suits  or  proceedings  for  the 


begun  at  the  time  of  the  passage  of  this  Act.  ” 

3 256  The  latter  sentence  of  the  above  section  was  apparently  inserted 
because  Section  250  contains  its  own  provisions  for  limitation  of 
time  of  making  assessments,  extension  with  the  consent  of  the  taxpayer  and 
limitation  of  time  for  beginning  suits  or  proceedings. 

3257  Under  the  general  system  for  collection  of  taxes  it  would  no  doubt 
be  held  that  the  plaintiff’s  remedy  would  be  to  pay  the  tax  under 
protest  and  bring  suit  against  the  collector  to  recover  it  back.  But  the 
plaintiff  argues  that,  if  he  should  pay  the  tax  to  the  collector,  he  would  on 
several  grounds  be  debarred  from  setting  up  as  a basis  of  recovery  against 
the  collector,  either  that  the  return  made  by  the  Commissioner  or  the  assess- 
ment was  invalid  or  that  the  stock  of  the  Delaware  Company  received  by 
the  plaintiff  was  assessed  in  excess  of  its  fair  value  for  the  purpose  of  deter- 
mining the  tax.  To  sustain  this  contention  the  plaintiff  cites  Section  252 
of  the  Revenue  Act  of  1918,  re-enacted  as  Section  252  of  the  Revenue  Act  of 
1921,  as  follows:  “If  upon  examination  of  any  return  of  income  made  pur- 
suant to  * * * the  Act  of  October  3,  1913,  * * * it  appears  that 

an  amount  of  income  * * * tax  has  been  paid  in  excess  of  that  properly 

due,  then  not  withstanding  the  provisions  of  Section  3228  of  the  Revised 
Statutes,  the  amount  of  the  excess  shall  be  credited  against  any  income 


collection  of  taxes  under  Section  250  of  this  Act  nor  to  suits  or  proceedings 


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* * * taxes,  or  installment  thereof,  then  due  from  the  taxpayer  under 

any  other  return,  and  any  balance  of  such  excess  shall  be  immediately  re- 
funded to  the  taxpayer:  Provided,  That  no  such  credit  or  refund  shall  be 
allowed  or  made  after  five  years  from  the  date  when  the  return  was  due, 
unless  before  the  expiration  of  such  five  years  a claim  therefor  is  filed  by  the 
taxpayer.” 

3258  As  the  five  years  from  the  d^ite  when  the  return  was  due,  namely, 
March,  1916,  has  long  singe  expired,  the  plain  meaning  of  the  above 

section  is  that  no  credit  or  refund  could  now  be  lawfully  allowed  or  made 
because  no  claim  therefor  was  filed  by  the  plaintiff  within  the  five  years.  It 
is  evident  that  Congress  intended  by  the  provisions  of  Sec.  250(d)  of  the  Act 
of  1921  to  provide  a definite  five  year  limitation  for  the  beginning  of  suits  or 
proceedings  for  the  collection  of  the  taxes  ^numerated.  If  the  revenue 
officers  should  unduly  delay  the  assessment  of  taxes  and  the  commencement 
of  proceedings  for  collection,  Congress  has  determined  that  five  years  after 
the  due  day  the  return  is  a reasonable  time  to  bring  to  an  end  the  right  to 
collect.  . . 

3259  On  the  other  hand,  Congress  has  placed  a limitation  upon,  the  tax- 
payer by  the  provisions  of  Sec.  252  of  the  Act  of  1921  as  to  claims  for 

taxes  paid  in  excess  of  those  lawfully  due.  If  the  plaintiff  pays  the  amount 
demanded,  no  remedy  at  law  is  left  open  to  him  for  the  recovery  of  such  excess. 

3260  If  a suit  were  begun  against  the  taxpayer  after  the  running  of  the 
Statute  of  Limitations,  he  could  assert  as  a defense  the  various 

grounds  urged  in  support  of  the  present  bill.  But,  if  the  collector  should  pro- 
ceed to  seize  and  sell  the  plaintiff’s  property,  he  would  be  deprived  oi  any 
remedy  excepting  a suit  at  law  against  the  collector.  Meanwhile,  his  free- 
hold and  property  would  have  been  subject  to  seizure  and  sale  and  his  remedy 
at  law  would  not  adequately  repair  such  injury. 

3261  As  was  said  in  Ogden  City  vs.  Armstrong,  168  U.  S.  224:  “In  .Uniqn 
Pacific  Railway  vs.  Cheyenne,  113,  U.  S.  516,  525,  this,  court,  through 

Mr.  Justice  Bradley,  said:  n99d 

“But  it  is  contended  that  the  complainant  should  have  sought  a 
remedy  at  law  and  not  in  equity.  It  cannot  be  denied  that  bills  in 
equity  to  restrain  the  collection  of  taxes  illegally  imposed  have  fre- 
quently beep  sustained.  But  it  is  well  settled  that  there  .ought  to  be. 
some  equitable  ground  for  relief  besides  the  mere  illegality  of  the  tax;, 
for  it  must  be  presumed  that  the  law  furnishes  a remedy  for  illegal  taxa- 
tion. It  often  happens,  however,  that  the  case  is  such  that  the  person . 
illegally  taxed  would  suffer  irremediable  damage,  or  to  be  subjected 
to  vexatious  litigation,  if  he  were  compelled  to  resort  to  his  legal  remedy 
alone.  For  example,  if  the  legal  remedy  consisted  only  of  an  action 
to  recover  back  the  money  after  it  has  been  collected  by  distress  and 
sale  of  the  taxpayer’s  lands,  the  loss  of  his  freehold  by  means  of  a tax 
sale  would  be  a mischief  hard  to  be  remedied.  Even  the  cloud  cast 
upon  his  title  by  a tax  under  which  a sale  could  be  made,  would  be  a 
grievance  which  would  entitle  him  to  go  into  a court  of  equity  for  relief.” 

3262  The  language  of  Mr.  Justice  Bradley  applies  aptly  to  the  situation 
in  the  instant  case.  While  Section  3224  has  been  strictly  construed 

in  view  of  the  remedial  system  providing  for  remedies  of  the  taxpayer  against 
the  imposition  of  illegal  taxes  following  Mr.  Justice  Blatchford’s  compre- 
hensive discussion  of  the  subject  in  Snyder  vs.  Marks,  109  U.  S.  189,  Congress 
has  since  added  to  the  system  the  limitation  contained  in  the  Act  of  1921, 
and,  reading  these  new  provisions  in  connection  with  Section  3224,  I cannot 
conceive  that  Congress  intended  the  taxpayer  to  be  rigidly  held  to  the  in- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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hibition  of  Section  3224  if  the  effect  should  be  to  nullify  the  inhibitions 
against  the  officers  of  the  revenue  contained  in  the  later  statutes  and  thus 
to  subject  the  taxpayer  to  proceedings  by  distraint  without  leaving  him  an 
adequate  remedy  at  law,  after  the  limitation  had  run  against  the  collector’s 
right  to  begin  such  proceeding.  It  would  be  contrary  to  equity  to  hold  that, 
where  no  remedy  is  available  at  law,  equity  will  fail  to  afford  relief. 

3263  The  views  herein  expressed  are  deemed  sufficient  to  support  a pre- 
liminary injunction  without  going  into  a discussion  of  other  conten- 
tions raised  by  the  bill.  The  motion  to  dismiss  is  denied. 

3264  A preliminary  injunction  may  issue  restraining  the  defendant  from 
proceeding  by  distraint  or  attempting  to  collect  by  distraint  the 

taxes  claimed,  without,  however,  including  therein  restraint  against  collec- 
tion by  suit.  An  appropriate  decree  may  be  prepared  by  counsel. 


3265  No  ownership  certificates  required  in  connection  with  accrued 
2265  interest  on  bonds  purchased  between  interest  dates  for  sinking  fund 
2285  by  Trustee  under  corporate  deed  of  trust,  the  bonds  then  being 
cancelled. — Where  trustee  under  corporate  deed  of  trust  purchases 
outstanding  bonds  between  interest  dates  for  sinking  fund  and  by  terms  of 
sinking  fund  bonds  and  attached  coupons  are  immediately  cancelled  so  that 
interest  stops  on  date  bonds  are  delivered  to  trustee  ownership  certificates 
not  required  covering  accrued  interest  on  bonds  from  first  coupon  date  to 
purchase  date.  (Telegram  to  Morris  F.  Frey,  Assistant  Treasurer,  Guaranty 
Trust  Company  of  New  York,  New  York,  signed  by  Deputy  Commissioner 
E.  H.  Batson  and  dated  June  14,  1922.) 


3266  New  ownership  certificates  (Jan.,  1922)  need  not  be  called  for  by 
2265  debtors  in  cases  where  old  ownership  certificates  have  heretofore 
3209  been  accepted  covering  registered  bond  interest  due  after  June  1, 

1922,  if  certain  procedure  be  followed— Reference  is  made  to  your 
letter  dated  May  22,  1922,  relative  to  the  provisions  of  Treasury  Decision 
3327  [H3209]  whereunder  old  forms  of  ownership  certificates  are  permitted 
to  be  accepted  with  respect  to  income  due  on  and  prior  to  June  1,  1922, 
when  received  from  centinental  United  States.  You  state  that  it  is  the 
practice  of  many  corporations  in  paying  registered  interest  to  forward  with 
the  interest  check  a form  of  ownership  certificate  to  be  signed  and  returned 
by  the  registered  owner  for  the  next  ensuing  interest  period.  Such  corpo- 
rations have  on  file  at  this  time  ownership  certificates,  Forms  1000  and  1001 
revised  January,  1921,  covering  interest  payments  to  be  made  up  to  and 
including  the  month  of  August,  1922.  You  request  that  the  regulations  be 
amended  permitting  a paying  agent  to  accept  ownership  certificates,  Forms 
1000  and  1001  revised,  January,  1921,  up  to  and  including  September,  1922. 
You  state  that  unless  this  is  done  a number  of  corporations  will  be  liable 
to  additional  expense,  and  in  many  cases  they  will  be  unable  to  obtain  the 
new  forms  of  ownership  certificates  prior  to  the  next  interest  period. 

3267  In  reply  you  are  informed  that  it  is  deemed  inadvisable  to  amend 
the  regulations  by  granting  a further  extension  of  time  for  the  accep- 
tance of  old  forms  of  ownership  certificates.  Such  debtor  corporations  as 
come  within  the  purview  of  your  association  which  have  in  their  possession 
old  forms  of  ownership  certificates  will  not  be  required,  however,  to  return 
the  old  forms  and  obtain  new  forms  from  the  registered  owners.  These 
debtor  corporations  may  attach  a copy  of  this  letter  to  the  Forms  1012  and 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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1096 A required  to  accompany  the  ownership  certificates  in  question,  as 
authority  for  accepting  the  old  forms,  or  each  debtor  corporation  may  obtain 
a similar  authorization  by  making  a specific  request  to  this  office.  In  the 
event  that  the  latter  course  is  pursued,  consideration  will  be  expedited  by  a 
reference  to  IT:E:RR-MLM.  (Letter  to  O.  E.  Neff,  Secretary,  Philadelphia 
Association  of  Stock  Transfer  Agents,  Philadelphia,  Penn.,  signed  by  Deputy 
Commissioner  E.  H.  Batson,  and  dated  June  14,  1922.) 


(Decision.) 

R.  S.  Sec.  3176  as  amended  by  the  Revenue  Act  of  1916. 

June  6,  1922. 

On  the  50%  penalty  for  failure  to  file  return:  (1)  “Willful  neglect”  versus 
“reasonable  cause”;  (2)  filing  a “voluntary  return”  “without 
notice  from  the  collector.” 

United  States  Circuit  Court  of  Appeals, 

Sixth  Circuit. 


The  Dayton  Bronze  Bearing  Company, 

Plaintiff  in  Error , 

No.  3643  vs. 

A.  C.  Gilligan,  Collector  of  Internal  Revenue, 

Defendant  in  Error. 


A.  C.  Gilligan,  Collector  of  Internal  Revenue, 

Plaintiff  in  Error , 

No.  3644  vs. 

The  Dayton  Bronze  Bearing  Company, 

Defendant  in  Error. 


3268  Donahue,  Circuit  Judge:  No.  3643  is  an  error  proceeding  to  re- 

2625  view  in  part,  the  final  judgment  of  the  district  court  in  an  action 

at  law,  brought  by  the  Dayton  Bronze  Bearing  Company  against 
the  Collector  of  Internal  Revenue  to  recover  certain  munition  taxes  and 
penalties  alleged  to  have  been  assessed  erroneously  and  paid  under  protest. 
No.  3644  is  a cross-petition  by  the  Collector  of  Internal  Revenue  to  review 
and  reverse  in  part  the  same  judgment.  _ 

3269  It  is  agreed  by  counsel  that  the  facts  in  this  case  are  substantially 
the  same  as  in  the  Dayton  Brass  Castings  Company  v.  A.  C.  Gilligan , 

United  States  Collector  of  Internal  Revenue , No.  3533,  in  which  case  this  court 
recently  held  that  a similar  tax  was  properly  assessed.  Therefore  the  judg- 
ment of  the  district  court  in  this  case  denying  the  Dayton  Bronze  Bearing 
Company  a recovery  for  the  tax  so  paid  under  protest  is  affirmed. 

3270  The  question  presented  by  the  cross-petition  in  error  relates  to  that 
part  of  the  judgment  of  the  district  court  in  favor  of  plaintiff  and 

against  the  defendant  for  $2,430.17  with  interest  at  the  rate  of  6%  per  an- 
num from  September  22,  1917,  which  sum  represents  the  penalty  assessed 
and  collected  from  the  plaintiff  by  the  defendant  and  paid  by  the  defendant 
under  protest.  . 

3271  This  question  was  not  involved  in  Dayton  Brass  Castings  Company 
v.  A.  C.  Gilligan , Collector , supra , for  the  reason  that  the  collector 

voluntarily  returned  the  penalty  assessed  and  collected  in  that  case,  to  the 
plaintiff  before  the  commencement  of  that  action. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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Error  to  the  District 
Court  of  the  United 
States  for  the  North- 
ern District  of  Ohio,  at 
Dayton. 


6-23-22. 


3272  Section  311  of  the  Munition  Tax  Act  of  September  8,  1916,  provides 
that: 

“All  administrative,  special  and  general  provisions  of  law,  relating  to 
the  assessment  and  collection  of  taxes  not  specifically  repealed,  are  hereby 
made  to  apply  to  this  title  so  far  as  applicable  and  not  inconsistent  with  its 
provisions.” 

3273  Section  3176,  R.  S.,  as  amended  by  Section  16  of  the  Revenue  Act 
of  1916,  reads  in  part  as  follows: 

“In  case  of  any  failure  to  make  and  file  a return  or  list  within  the  time 
prescribed  by  law  or  by  the  collector,  the  Commissioner  of  Internal  Revenue 
shall  add  to  the  tax  fifty  per  centum  of  its  amount  except  that,  when  a re- 
turn is  voluntarily  and  without  notice  from  the  collector  filed  after  such 
time  and  it  is  shown  that  the  failure  to  file  it  was  due  to  a reasonable  cause 
and  not  to  wilful  neglect,  no  such  addition  shall  be  made  to  the  tax.”* 

3274  It  is  insisted  upon  the  part  of  the  Dayton  Bronze  Bearing  Company 
that  this  penalty  was  not  necessarily  imposed  under  Section  3176, 

R.  S.,  but  may  have  been  imposed  under  Section  14C  of  the  Revenue  Act  of 
1916.  While  it  is  possible  that  the  collector  could  have  imposed  a penalty 
under  this  section  of  the  Revenue  Act,  nevertheless  it  satisfactorily  appears 
from  the  record  in  this  case  that  the  penalty  was  imposed  under  Section 
3176,  R.  S.,  and  in  the  exact  amount  specified  in  that  section. 

3275  A written  waiver  of  the  jury  was  filed  by  the  parties  and  the  cause 
submitted  to  the  trial  court  upon  the  pleadings  and  the  evidence. 

The  trial  court  made  no  separate  finding  of  facts  and  therefore  there  can  be 
no  review  of  the  question  whether  the  facts  found  by  the  court  support  its 
judgment.  Nor  was  the  question  of  the  sufficiency  of  the  evidence  raised 
by  motion  for  judgment  on  the  undisputed  evidence,  nor  was  any  exception 
taken  by  the  defendant  to  the  judgment  for  this  reason.  Therefore  the  sole 
question  presented  by  this  record  is  whether  the  plaintiff,  upon  satisfactory 
proof  of  the  material  allegations  of  its  petition,  was  entitled  to  judgment. 
City  of  Cleveland  v.  Walsh  Construction  Co.,  decided  by  this  court  Feb.  7, 
1922,  and  cases  there  cited. 

3276  It  appears  from  the  allegations  of  plaintiff’s  petition  and  the  evidence 
offered  in  support  thereof,  to  which  evidence  no  objections  were 

made  by  defendant  and  no  exceptions  to  its  admissions  taken,  that  the  Day- 
ton  Bronze  Bearing  Company  entered  into  a contract  with  the  Recording 
& Computing  Machines  Company,  by  the  terms  of  which  it  agreed  to  mold 
material  furnished  and  owned  by  the  Recording  Company  into  certain  rough 
and  preliminary  form,  in  which  forms  it  was  to  be  returned  to  the  Record- 
ing Company  as  castings.  These  castings  were  in  turn  used  by  the  Record- 
ing Company  in  the  manufacture  of  the  time  fuses  to  be  attached  to  three- 
inch  shrapnel  shells  manufactured  by  other  persons  or  corporations  for  the 
use  of  the  Russian  Government. 

3277  It  further  appears  that  the  Miami  Brass  Company  had  a similar 
contract  with  the  Recording  A Computing  Machines  Company  and 

sublet  a part  of  this  contract  to  ihe  Dayton  Bronze  Bearing  Company.  No 
material  was  furnished  or  to  be  furnished  by  the  Dayton  Bronze  Bearing 
Company.  Its  contract  required  it  to  prepare'  molds,  melt  the  materials 
furnished  to  it  and  pour  the  same  into  these  molds  and  deliver  the  rough 
castings  to  the  other  contracting  party.  The  evidence  tends  to  prove  that 

*For  R.  S.  Sec.  3176  as  amended  by  the  Revenue  Act  of  1918  and  as  re-enacted  with- 
out change  by  the  Revenue  Act  of  1921,  sec.  Tf 26 12,  herein,  and  particularly  1(2618^2619. 
—The  Corporation  Trust  Company. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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I he  Dayton  Bronze  Bearing  Company  believed  in  good  faith  that  it  was  not 
manufacturing  munitions  and  not  liable  to  the  payment  of  any  tax  under 
the  Munition  Tax  Act  of  December  8,  1916, (and  for  this  reason,  and  not 
because  of  any  willful  neglect  on  its  part,  it  failed  to  make  and  file  a return 
or  list  within  the  time  prescribed  by  law. 

3278  As  further  indicating  that  it  was  acting  in  good  faith,  and  not  with 
the  intention  of  willfully  neglecting  and  refusing  to  file  such  a return 

or  with  the  intent  and  purpose  of  defrauding  the  government  out  of  this  tax, 
it  offered  evidence  tending  to  prove  that  it  was  advised  by  reputable  counsel 
that  under  the  facts  stated  it  was  not  liable  for  the  payment  of  this  tax. 

3279  About  the  2nd  day  of  July,  1917,  an  agent  of  the  internal  revenue 
department  called  at  the  office  of  the  Dayton  Bronze  Bearing  Com- 
pany and  requested  it  to  file  with  the  collector  a return  covering  the  profits 
and  earnings  made  by  it  under  its  separate  contracts  with  the  Miami  Brass 
Company  and  the  Recording  & Computing  Machines  Company.  It  ob- 
jected to  doing  this  for  the  reason  that  it  still  insisted  it  was  not  liable  for 
the  payment  of  this  tax.  Thereupon  the  collector  of  internal  revenue  ad- 
vised that  a return  be  filed  under  protest,  without  prejudice  to  the  company’s 
rights,  and  acting  upon  this  advice,  it  did,  on  the  13th  day  of  July,  1917, 
file  such  report  with  the  collector  and  thereupon  the  commissioner,  on  the 
23rd  day  of  August,  1917,  assessed  a tax  against  the  company  of  $4,860.34, 
together  with  50%  penalty  for  failing  to  file  the  same  the  1st  day  of  March, 
1917,  as  required  by  law.  This  penalty  amounted  to  $2,430.17,  and  was 
paid  under  protest. 

3280  These  facts  established  by  the  evidence  and  the  stipulations  of 
parties  would  seem  to  bring  this  case  fairly  within  the  meaning  and 

intent  of  the  provisions  found  in  Section  3176,  P..  S.,  exempting  the  taxpayer 
from  the  penalty  imposed  by  that  statute.  While  the  Dayton  Bronze  Bear- 
ing Company  disputed  its  liability  to  pay  this  tax,  nevertheless  acting  upon 
the  advice  of  the  collector  it  did  file  a voluntary  return  within  the  meaning 
of  Section  3176.  The  evidence  also  tends  to  prove  that  its  failure  to  file  a 
return  within  the  time  limited  therefor  was  no  due  to  willful  neglect  on  its 
part  but  rather  to  the  fact  that  it  believed,  in  good  faith,  it  was  not  required 
to  pay  this  tax. 

3281  It  has  been  held  by  the  Treasury  Department  that: 

“Where  the  attendant  and  surrounding  circumstances  have  a tendency 
to  cast  doubt  and  suspicion  upon  a taxpayer,  a plea  of  mere  ignorance  is  not 
sufficient  to  constitute  a reasonable  cause  for  failure  to  make  and  file  a re- 
turn within  time  prescribed  by  law  for  the  purpose  of  being  relieved  of  the 
penalty.”  O.  818.  3-19-204.  [1919  Cum.  Bull.  p.  247.] 

3282  The  attendant  and  surrounding  circumstances  of  this  case  have  no 
tendency  whatever  to  cast  a doubt  or  suspicion  upon  the  good  faith 

of  the  taxpayer.  While  the  fact  that  it  sought  and  obtained  legal  advice, 
in  and  of  itself,  might  not  be  sufficient  to  excuse  its  failure  to  file  this  return, 
nevertheless  it  tends  to  show  that  the  taxpayer  was  acting  in  good  faith  and 
availed  itself  of  the  best  means  at  its  command  to  determine,  honestly  and 
fairly,  the  question  of  its  liability.  That  counsel  was  mistaken  in  the  advice 
given  to  the  taxpayer  is  not  at  all  surprising,  especially  in  view  of  the  fact 
that  in  Steel  Co.  v.  Lezvellyn,  Collector , 251  U.  S.  466,  and  in  Worth  Bros.  Co. 
v.  Lederer , Collector , 251  U.  S.  507,  members  of  the  supreme  court  dissented 
from  the  judgments  entered  in  these  cases  by  the  majority  of  the  court  hold- 
ing that  the  petitioners,  under  substantially  similar  circumstances,  were 
required  to  pay  this  tax.  It  would  therefore  appear  that  the  officers  of  this 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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company  were  honestly  mistaken  as  to  its  liability  to  pay  this  tax  and  that 
under  the  order  of  the  Treasury  Department  above  referred  to,  in  the  ab- 
sence of  circumstances  having  a tendency  to  cast  doubt  and  suspicion  upon 
its  good  faith,  its  ignorance  of  its  liability  to  pay  this  tax  is  sufficient  to  con- 
stitute a reasonable  cause  for  failure  to  make  and  file  a return  within  the 
time  prescribed  by  law.  Whether  the  commissioner  might  have  discretion- 
ary power  to  make  a finding  upon  the  subject  of  reasonable  cause  and  will- 
ful neglect  which  would  be  conclusive  as  against  the  taxpayer,  is  a question 
not  presented  by  the  record  and  not  necessary  to  be  decided  in  this  case. 

3283  It  is  further  provided  by  Section  3176  that  the  filing  of  such  volun- 
tary return  must  be  “without  notice  from  the  collector.”  Counsel 

has  not  called  our  attention  to  any  statute  providing  for  notice  to  the  tax- 
payer to  file  a return,  nor  does  there  appear  to  be  any  statutory  provision 
for  a notice  of  this  character  except  as  found  in  Section  3173,  R.  S.,  or  in 
Section  306  of  the  Munition  Act  of  1916.  Section  3173,  R.  S.,  provides  that 
where  no  annual  list  or  return  has  been  rendered  by  the  taxpayer  as  required 
by  law  and  the  taxpayer  shall  be  absent  from  his  or  her  residence  or  place  of 
business  at  the  time  the  collector  or  the  deputy  collector  shall  call  for  the 
annual  list  or  return,  that  then  it  shall  be  the  duty  of  the  collector  or  deputy 
collector  to  notify  the  taxpayer  by  a note  or  memorandum,  either  left  at  his 
residence  or  place  of  business  or  addressed  to  such  person  and  deposited  in 
the  nearest  post-office,  requiring  him  or  her  to  render  to  such  collector  or 
deputy  collector  the  list  or  return  required  by  law  within  ten  days  from 
the  date  of  such  note  or  memorandum.  The  section  further  provides  that 
if  the  person  notified  refuse  to  render  such  list  or  return  within  the  ten  days, 
or  if  he  render  a false  return  the  collector  may  summon  such  person  and 
require  him  to  produce  his  books  and  to  give  testimony  or  answer  inter- 
rogatories under  oath  respecting  any  object  or  income  liable  to  tax  or  the 
returns  thereof.  Section  306  of  the  Munition  Act  provides  that  “If  the 
Secretary  of  the  Treasury  or  the  commissioner  of  internal  revenue  shall  have 
reason  to  be  dissatisfied  with  the  returns  made,  or  if  no  return  is  made,  the 
commissioner  is  authorized  to  make  an  investigation  and  to  determine  the 
amount  of  net  profits  and  may  assess  the  proper  tax  accordingly.  He  shall 
notify  the  person  making  or  who  should  have  made  such  return  and  shall 
proceed  to  collect,  etc.”  No  such  notice  as  provided  in  either  of  these  sec- 
tions was  given  the  Dayton  Bronze  Bearing  Company  by  the  collector  or 
deputy  collector. 

3284  While  the  petition  avers  that  the  plaintiff  was  notified  by  an  agent 
of  the  internal  revenue  department  to  file  a return  with  the  collector, 

nevertheless  the  evidence  and  stipulation  in  reference  thereto  are  to  the  effect 
that  the  agent  of  the  internal  revenue  department,  in  discharge  of  the  duties 
imposed  upon  him  by  Section  3173,  R.  S.,  called  at  the  place  of  business  of 
the  taxpayer  for  the  annual  list  or  return,  at  which  time  the  question  of  the 
company’s  liability  was  freely  and  frankly  discussed  by  the  officers  of  the 
company  and  the  agent  of  the  internal  revenue  department  with  a view  to 
the  determination  of  the  best,  quickest  and  fairest  means  of  settling  the 
question  of  the  company’s  liability.  Shortly  following  this,  the  taxpayer, 
pursuant  to  the  advice  of  the  collector,  filed  a voluntary  return. 

3285  Courts  are  reluctant  to  construe  a statute  so  as  to  impose  a penalty 
unless  there  has  been  a substantial  delinquency.  Saving  Bank  v. 

Jrchbold,  104  U.  S.  708.  As  a practical  matter  where  there  has  been  no 
substantial  delinquency  but  only  a technical  violation  of  the  statute,  and 
where  the  negligence  of  the  taxpayer  was  not  intentional,  such  cases  have 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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been  compromised  by  the  payment  of  nominal  penalties  such  as  five  dollars 
by  individuals  and  ten  dollars  by  corporations.  Letter  to  Collectors  No. 
2077,  dated  March  13,  1919.  [^[2655  herein]. 

3286  In  making  such  compromise  the  commissioner  is  authorized  not  only 
to  consider  the  pecuniary  interest  of  the  treasury  but  also  a general 

consideration  of  justice,  equity  and  public  policy.  20  Op.  Att.  Gen.  217. 
|1[2634  herein.] 

3287  The  construction  given  this  statute  by  the  collector  when  he  returned 
this  penalty  to  the  Dayton  Brass  Castings  Company  was  based 

upon  the  same  state  of  facts  established  by  the  evidence  in  this  case.  While 
the  presumption  that  the  department  charged  with  the  execution  of  a law 
has  properly  interpreted  it  may  be  strengthened  in  proportion  to  the  time 
such  construction  has  obtained;  nevertheless,  a construction  of  a statute 
by  the  department  charged  with  the  enforcement  thereof  should  be  given 
due  consideration  regardless  of  the  length  of  time  such  construction  has  been 
adopted  and  enforced  by  that  department. 

3288  For  the  reasons  above  stated  the  judgment  of  the  district  court  in 
favor  of  plaintiff  and  against  the  defendant  for  the  penalty  assessed 

and  collected  is  affirmed  with  continuing  interest  as  specified  therein.  Holmes 
Federal  Taxes,  1922  edition,  940.  No  costs  are  allowed  to  either  party  in 
this  court. 


(T.  D.  3355.) 

3289  Decision  of  U.  S.  District  Court,  1918  Act:  Building  and  loan  asso- 
1023  ciations. — The  decision  [syllabus  only,  ^[3290-3292  below]  of  the 

United  States  District  Court,  Southern  District  of  Ohio,  Eastern 
Division,  in  the  case  of  the  Dilley  Building  & Loan  Company  vs.  Newton 
M.  Miller,  Collector,  the  syllabus  of  which  appears  below  is  published  not  as 
a ruling  of  the  Treasury  Department,  but  for  the  information  of  internal 
revenue  officers  and  others  concerned.  [The  decision  is  printed  in  full  be- 
ginning on  page  17  of  Bulletin  I (’22)-20.j  (T.  D.  3355,  signed  by  Commis- 

sioner D.  H.  Blair,  and  dated  June  17,  1922.) 

3290  1.  Exemptions — Building  and  Loan  Associations— Essential  Char- 
acteristics.— Mutuality  is  the  essential  principle  of  a budding  and 

loan  association.  Its  object  is  to  raise  a fund  to  be  loaned  among  its  members 
or  such  as  may  desire  to  avail  themselves  of  the  privilege.  Its  business  is 
confined  to  its  members. 

3291  2.  Building  and  Loan  Associations — Exemption  from  Tax. — When  a 
building  and  loan  association  ceases  to  be  substantially  mutual  and 

adopts  as  its  chief  business  dealing  for  profit  with  the  general  public  by  the 
methods  of  an  ordinary  savings  bank,  it  is  no  longer  entitled  to  exemption 
under  Section  251,  Paragraph  4,  of  the  Revenue  Act  of  1918. 

3292  3.  Same — Incidental  Transactions. — The  making  of  loans  to  non- 
members or  borrowing  from  non-members,  does  not  defeat  exemption 

under  Section  231,  Paragraph  4 of  the  Revenue  Act  of  1918,  if  such  trans- 
actions are  simply  incidental  to  the  primary  business  of  operating  a building 
and  loan  association.  (Syllabus  referred  to  in  ^[3289.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
733 


7-12-22. 


(Decision.) 

June  29,  1922. 

(Act  of  Oct.  3,  1913.) 

Looking  through  form  to  substance,  a dividend  payable  in  cash  but 
paid  in  the  paying  corporation’s  stock,  the  acceptance  of  such  pay- 
ment being  a matter  of  agreement  by  a majority  of  the  stockholders  as  a 
part  of  a refinancing  arrangement,  is  held  here,  in  view  of  the  incident  facts, 
to  be  in  the  nature  of  a stock  dividend  to  those  accepting,  and  so  not  taxable. 


UNITED  STATES  CIRCUIT  COURT  OF  APPEALS:  3d  CIRCUIT. 

The  United  States,  by  Lewellyn,  Collector,  Plaintiff  in  Error. 

vs. 

W.  L.  Mellon,  Defendant  in  Error. 


3293  BUFFINGTON,  Circuit  Judge. — In  the  Court  below  [^[  1 145  herein], 
1145  the  United  States  brought  suit  against  William  Larimer  Mellon  to 

recover  some  seventy  thousand  dollars  of  alleged  income  tax.  Jury 
was  waived  and  the  case  tried  by  the  Judge,  who  found  a verdict  for  defendant. 
Thereupon  the  United  States  sued  out  this  writ  of  error.  As  the  findings  by 
the  Judge  of  the  facts  concerning  which  indeed  there  is  no  dispute,  are  final 
and  cannot  be  retried  here,  it  follows  that  if  such  proofs  afforded  ground  from 
which  it  could  be  inferred  the  seventy  thousand  dollars  involved  was  not 
income  received  by  the  defendant,  the  judgment  must  stand  affirmed. 

3294  Turning  then  to  the  findings,  we  note  that  the  defendant  owned 
12,655  shares  of  the  Gulf  Oil  Corporation,  the  scope  and  nature  of 

which  company’s  business  we  avoid  here  reciting  by  reference  to  the  various 
phases  of  the  case  of  Gulf  Oil  Corporation  v.  Lewellyn,  as  found  in  Judge 
Orr’s  opinion  in  the  District  Court,  242  Fed.  Rep.  709;  to  Judge  McPherson’s 
opinion  in  the  Circuit  Court  of  Appeals,  245  Fed.  Rep.  1 ; and  to  Mr.  Justice 
Holmes’s  opinion  in  the  Supreme  Court,  248  U.  S.  71. 

3295  While  the  earnings  of  the  company  had  been  large,  the  facts  found 
show  it  had  never  declared,  or  indeed  had  been  in  financial  position 

to  declare  a dividend;  that  its  earnings  had  been  used  in  extension  and 
development,  and  that  it  was  heavily  in  debt,  its  loans  being  carried  on  the 
credit  and  endorsement  of  some  of  its  large  stockholders.  At  .the  close  of 
the  year  1912,  its  affairs  called  for  re-financing,  as  will  appear  from  the  proofs, 
which  show  that  on  December  31,  1912,  the  corporation  had  outstanding 
$11,208,200  capital  stock.  Its  indebtedness  was  in  round  numbers  fifteen 
millions,  of  which  two  and  three-quarter  millions  were  in  accounts  payable, 
and  four  and  three-quarter  millions  in  bills  payable.  Against  this  indebt- 
edness, the  company  had  quick  assets  of  twelve  and  a half  millions;  made 
up  of:  oil,  seven  and  a half  millions;  supplies,  one  and  a quarter  millions; 
accounts  receivable,  two  and  three-quarter  millions;  and  cash,  some  six 
hundred  thousand  dollars.  The  situation  at  that  time  is  thus  summed  up 
by  the  Court  below: 

“While  the  corporation,  through  its  subsidiaries,  had,  through  the 
period  of  its  history,  earned  a large  amount  of  money,  these  earnings  were 
all  put  back  into  and  were  used  in  extending,  enlarging  and  carrying  on 
the  business  of  the  corporation,  they  were  represented  largely  by  fixed 
assets,  such  as  additions  to  the  oil  producing  territory  of  the  corpo- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

734 


7-12-22. 


ration,  the  equipment  used  in  the  exploration  for  and  the  production  of 
crude  oil;  in  stocks  of  crude  oil  and  of  manufactured  oils;  extension  of 
pipe  lines  and  gathering  lines;  tanks  for  the  storage  of  oil,  increased 
capacity  of  the  refiners  of  the  corporation,  the  purchase  of  additional 
vessels  for  the  transportation  of  oil,  and  other  like  matters;  and  there- 
fore, in  the  opinion  of  the  Directors,  the  said  earnings  did  not  exist  in  such 
shape  that  a dividend  thereof  payable  in  cash  could  be  made  to  the  stock- 
holders. In  addition  thereto,  in  the  judgment  of  the  Directors  and 
officers  of  the  corporation,  the  successful  carrying  on  of  the  business  of 
the  corporation,  required  a large  amount  of  additional  capital.” 

As  to  the  necessity  for  refinancing,  that  Court  said: 

“While  the  corporation  had  been  prosperous,  it  was  without  sufficient 
working  capital,  save  as  it  was  able  to  borrow  money  for  this  purpose, 
which  it  had  been  unable  to  do  by  reason  of  the  credit  extended  to  it 
through  its  larger  stockholders;  but  owing  to  the  steadily  increasing  bus- 
iness done  by  the  corporation,  additional  capital  was  required,  and  in  the 
opinion  of  its  officers  and  Directors,  the  corporation  was  without  credit 
to  obtain  such  additional  capital,  save  as  the  same  was  provided  by  its 
stockholders,  and  some  plan  of  re-financing  was  necessary.” 

To  meet  this  situation,  the  following  plan  was  agreed  on  and  carried  out: 
The  capital  stock  of  fifteen  million  dollars  was  increased  to  sixty  millions, 
and  it  was  determined  that  out  of  this  increase  of  stock,  which  was  warranted 
by  the  past  earnings  of  the  company,  an  amount  equal  to  one  hundred  per 
cent  of  the  then  outstanding  stock,  namely:  $11,280,200,  was  to  be  sold  at 
par  for  cash,  in  order  to  provide  the  corporation  with  the  funds  needed  to 
pay  existing  indebtedness  and  to  conduct  its  business.  To  induce  the 
stockholders  to  buy  this  $11,280,200  of  stock,  every  purchaser  was  to  receive, 
in  addition  to  the  stock  which  he  bought  at  par,  one  hundred  per  cent  of 
extra  stock.  It  was  expected  that  substantially  all  of  the  stockholders  would 
purchase  their  pro  rata  of  stock  and  would  receive  this  additional  one  hundred 
per  cent  of  issued  stock,  but  in  order  to  ensure  the  plan,  all  of  the  directors 
of  the  company,  including  W.  L.  Mellon,  the  defendant,  who  were  large 
stockholders,  agreed  in  advance  to  so  accept  and  pay  for  their  proportionate 
amount  of  stock,  and  at  the  same  time  A.  W.  Mellon  and  R.  B.  Mellon,  who 
were  large  stockholders,  who  had  endorsed  the  outstanding  paper  of  the 
company  in  procuring  its  credit,  .agreed  that  in  case  any  stockholders 
should  decline  to  take  their  proportionate  amount  in  stock,  that  they  would 
take  and  pay  to  the  corporation  par  for  all  such  declined  shares.  It  will  be 
seen  that  by  this  arrangement,  the  success  of  the  plan  was  ensured  in  advance 
and  any  stockholder  outside  of  the  persons  above  named,  who  declined  to 
subscribe  for  stock,  could  receive  the  stock,  which  he  would  otherwise  have 
received,  in  cash.  The  Court  found  that: 

“Without  such  understanding  and  agreement  the  said  dividend  of  one 
hundred  per  cent  could  not  and  would  not  have  been  declared.” 
and  it  further  found  that: 

“At  the  time  of  the  declaration  of  said  dividend  and  the  payment 
thereof,  the  corporation  did  not  have  cash  with  which  to  pay  the  same 
or  any  substantial  part  thereof,  and  all  of  the  cash  which  it  did  have  at 
March  31,  1913,  and  at  April  15,  1913,  (with  the  exception  of  less  than 
three  thousand  dollars)  was  the  proceeds  of  the  sale  of  the  newly  issued 
stock.” 

The  net  result  of  the  transaction  was  thus  found  by  the  Court: 

“After  the  transaction  the  defendant  had  two  shares  to  represent  the 
interest  in  the  same  property  which  prior  thereto  was  represented  by  one. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
735 


7-12-22. 


After  the  transaction,  there  were,  twice  as  many  shares  of  the  corporation 
ui  the  hands  of  the  stockholders  as  there  were  before.  The  corporate 
issets  had.  not  been  diminished  by  the  transaction.  Therefore,  for  two 
shares  which  defendant  possessed  at' the  close,  there  was  for  him  the 
same  value  as  for  one  share  represented  at  the  beginning.” 
it  will  thus  be  seen  that  the  whole  transaction  was  a means  not  of  paying  out 
money  to  shareholders,  for  the  company  had  none  to  pay  out,  but  was  a 
means  of  obtaining  from  the  shareholders  the  paying  in  of  new  money  which 
the  company  needed  to  meet  its  existing  indebtedness  and  provide  it  with 
proper  working  capital.  And,  so  far  as  any  cash  was  paid  to  stockholders, 
W.  L.  Mellon,  the  defendant,  had  bound  himself  by  agreement  not  to  receive 
any,  but  on  the  contrary,  to  pay  additional  cash  into  the  company,  and  such 
payments  as  were  made  to  the  smaller  stockholders  were  simply  an  equitable 
and  fair  way  of  allowing  those  who  did  not  desire  to  put  further  money  into 
the  company,  to  get  the  value  of  their  stock  not  from  the  corporation  itself 
but  through  the  medium  of  the  underwritten  money  furnished  by  1’.  Mellon 
& Sons,  who  in  effect  took  their  place  and  paid  the  needed  money  into  the 
company'. 

3286  From  all  of  this,  it  is  quite  evident  that  all  of  the  acts  of  the  company, 
whether  called  issues  of  stocks  or  declarations  of  dividend,  were  in 
fact  and  reality  a refinancing  of  the  corporation,  in  which  this  defendant 
and  other  large  stockholders  bound  themselves  to  pay,  and  in  fact  did  pay, 
into  the  Company’s  treasury,  the  additional  capital  which  it  required.  Their 
position  was  not  that  of  having  an  option  to  take  stock  or  to  take  money, 
but  it  was  an  obligation  to  take  stock  for  which  they  agreed  to  pay.  The 
common  understanding  of  “income”  is  something  coming  to  a man,  and  is 
not  aptly  described  by  a transaction  where  he  is  forced  to  pay  and  does  pay 
money  to  a company  which  did  not,  and  was  not  able  to,  pay  dividends,  and 
which,  therefore,  was  not  able  to  increase  his  income. 

3297  We  are  of  opinion  the  Court  below  was  justified  under  the  facts  in 
finding  the  defendant  received  no  income  from  the  Gulf  Oil  Company 
and  was  therefore  not  liable  to  the  Government  to  pay^  the  alleged  income 
tax  for  which  this  suit  was  brought. 

The  judgment  below  [*[1150]  is  therefore  affirmed. 


(T.  D.  3365.) 

3298  Sale  of  “rights”  decision,  U.  S.  Supreme  Court. — [This  T.  D.  con- 
3217  sists,  merelyq  of  the  text  of  the  decision  in  Aides  vs.  The  Safe  Deposit 
and  Trust  Company  of  Baltimore,  appearing  beginning  at  ^[32 1 7 
herein.- — The  Corporation  Trust  Company.] 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

736 


7-20-22.  (2)  7-27-22.  (3)  8-24-22.  (4)  8-28-22. 

3299  Personnel  of  the  Tax  Simplification  Board.— (July  12,  1922.) 

2969  James  H.  Beal,  Chairman 

Joseph  E.  Sterrett 

l .’ (vacancy) 

Appointed  by  the  President  to  represent  the  public. 
Charles  P.  Smith 
George  W.  Ski! ton 
E.  H.  Chatterton 

Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
resent the  Bureau  of  Internal  Revenue. 


3300  On  powers-of-attorney  required  to  be  filed  by  taxpayers’  represent- 

2941  atives.— The  Bureau  desires  to  inform  you  that  it  has  been  unable  to 

3104  develop  any  form  for  power  of  attorney  which  is  sufficiently  broad  to 

3229  conform  to  the  many  varied  purposes  for  which  instruments  of  this 

character  are  presented  to  the  Income  Tax  Unit.  Consequently,  it 
is  requested  that  your  service  publish  no  set  form.  Publication  of  forms  of 
this  character  in  established  services  very  often  leads  to  a wrong  assumption 
on  the  part  of  taxpayers,  attorneys  and  agents  that  these  forms  are  official. 

3301  Further,  the  attention  of  all  attorneys  and  agents  should  be  invited 
to  the  fact  that,  unless  the  original  power  of  attorney  granted  by 

the  taxpayer  contains  a power  of  substitution  or  revocation,  the  right  of  the 
out-of-town  attorney  to  have  a man  in  Washington  represent  him  in  following 
up  cases  is  lost.  No  substitution  power  of  attorney  will  be  recognized  in 
any  case  where  the  original  document  docs  not  contain  a proper  power  of 
substitution. 

3302  It  is  also  suggested  that,  as  far  as  practicable,  powers  of  attorney  sub- 
• mitted  by  attorneys  and  agents,  be  confined  to  a single  matter  at 

issue  or  the  tax  liability  for  a single  year.  For  example,  if  a power  of  attorney 
be  granted  covering  the  prosecution  of  a claim,  that  the  power  of  attorney 
distinctly  stat-e  that  and  nothing  more  or,  if  it  is  desired  that  it  cover  a single 
year,  that  the  year  be  specified.  The  practice  of  furnishing  a general  power 
of  attorney  covering  all  years,  including  the  future  years  on  which  returns  are 
not  yet  due,  is  being  discouraged  by  the  Bureau.  In  no  case  will  a power  of 
attorney  covering  a year  on  which  returns  are  not  yet  due  be  accepted. 

3303  So  much  of  this  letter  as  you  may  desire  to  use  may  be  quoted  in 
your  service.  (Letter  to  The  Corporation  Trust  Company,  signed 

by  Deputy  Commissioner  E.  H.  Batson,  and  dated  July  17,  1922.) 


3304  No  ownership  certificates  required  in  connection  with  accrued 
2265  interest  on  bonds  surrendered  between  interest  dates  for  cancella- 

2284  tion,  for  conversion  into  stock,  or  for  payment  prior  to  maturity  at 

2285  a fixed  price  and  accrued  interest.— Your  letter  of  June  30,  1922,  was 

3265  not  received  in  this  office  in  time  to  telegraph  a reply  as  requested. 

In  your  letter  you  quote  from  a ruling  contained  in  office  telegram 
[^13265]  of  June  14,  addressed  to  the  Guaranty  Trust  Company,  New  York, 
with  respect  to  ownership  certificates  covering  accrued  interest  on  bonds 
where  the  trustee  under  a corporate  deed  of  trust  purchases  outstanding 
bonds  between  interest  dates  for  a sinking  fund  and  by  the  terms  of  the 
sinking  fund,  the  bonds  and  attached  coupons  are  immediately  cancelled,  so 
that  interest  stops  on  the  date  the  bonds  are  delivered  to  the  trustee. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

737 


(1)  7-27-22.  (2)  8-24-22.  (3)  8-28-22. 


IfYou  inquire  whether  the  Department  holds  that  when,  under  the  terms  of 
the  deed  of  trust  the  bonds  are  redeemed  by  the  corporation  or  by  the  trustee 
for  the  corporation  at  a fixed  price  and  accrued  interest,  no  ownership  certi- 
ficates are  required  for  the  amount  of  interest' so  accrued  between  interest 
dates.  1[You  are  advised  that  ownership  certificates  to  cover  accrued  interest 
are  not  required  to  accompany  bonds  delivered  between  interest  dates  either 
for  cancellation,  for  conversion  into  stock,  or  for  payment  prior  to  maturity 
at  a fixed  price  and  accrued  interest.  (Letter  to  The  Equitable  Trust  Com- 
pany, attention  Franklin  Carter,  jr.,  New  York,  N.  Y.,  signed  by  Deputy 
Commissioner  E.  H.  Batson,  and  dated  July  22,  1922.) 


3305  Income  of  deceased  partner,  who  made  returns  on  a cash  basis,  in- 
875  eludes  his  share  of  fees  collected  to  day  of  death;  his  interest  in 
939  uncollected  fees  to  be  capitalized  by  estate. — Decedent  was  partner 
in  law  firm  reporting  on  cash  basis.  Query:  May  decedent’s  interest 
in  accrued  and  contingent  fees  at  date  of  death  be  capitalized  so  that  sub- 
sequent collections  represent  return  of  capital  to  estate  or  must  such  receipts 
be  regarded  as  income?  If  former,  must  amount  of  such  uncollected  fees  be 
returned  as  income  for  period  prior  to  decedent’s  death?  Refer  I.  T.  1383 
[Bull.  I (’22)-28,  p.  8].  Please  wire  reply.  ( Answer ) Value  of  deceased 

partner’s  interest  in  uncollected  fees  of  partnership  may  be  capitalized  and 
only  receipts  in  excess  of  such  value  reported  as  income  by  estate.  In  com- 
puting deceased  partner’s  income  there  should  be  included  total  amount  of 
his  share  of  fees  collected  by  partnership  to  but  not  including  day  of  death. 
(Telegram  of  inquiry  from  McLaren,  Goode  & Co.,  San  Francisco,  Calif., 
and  the  reply  thereto  signed  by  Acting  Deputy  Commissioner  E.  W.  Chatter- 
ton  and  dated  August  9,  1922.) 


(T.  D.  3386.) 

[Note:  By  this  amendment  Art.  170,  of  Regulations  33  (1916  Act ),  is 

revised  to  correspond , as  closely  as  the  1916  Act  will  permit , to  the  like  regulations 
under  subsequent  acts. — The  Corporation  Trust  Company .] 


3306  [1916  Act]  Depletion — Oil  and  gas  properties:  Sections  5 and  12 

1893  of  Revenue  Act  of  1916:  Article  170,  Regulations  33  (Revised) 

amended.— Article  170,  of  Regulations  33  (revised)  is  hereby  amended 
to  read  as  follows: 

Depletion. — Oil  and  gas  properties. 

3307  Art.  170  [^[497].  Sections  5 and  12  of  the  act  of  September  8,  1916, 
as  amended  by  the  act  of  October  3,  1917,  authorize: 

3208  [498]  “A  reasonable  allowance  * * * for  actual  reduction  in 

_ flow  and  production  * * * provided  that  when  the  allowance 

authorized  * * * shall  equal  the  capital  originally  invested,  or  in  case  of 

purchase  made  prior  to  March  1,  1913,  the  fair  market  value  as  of  that  date, 
no  further  allowance  shall  be  made.” 

3309  [499]  The  essence  of  this  provision  of  law  is  that  the  owner  or 

operator  of  this  character  of  properties  shall  secure  through  an 
aggregate  of  annual  depletion  deductions,  the  return  of  the  amount  of  capital 
actually  invested,  or  an  amount  not  in  excess  of  the  fair  market  value  as  of 
March  1,  1913,  of  the  properties  owned  prior  to  that  date. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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3310  [500]  For  the  purpose  of  determining  the  amount  of  capital  to  be 

returned  through  annual  deductions,  operators  may  be  divided  into 
two  classes,  fa)  operators  who  own  the  fee,  and  fb)  operators  who  own  a lease 
or  leases. 

331  1 [501]  In  the  case  of  the  operating  fee  owner,  the  amount  returnable 

through  depletion  deductions  is  the  fair  market  value  of  the  property 
(exclusive  of  the  cost  of  physical  property)  as  of  March  1,  1913,  if  acquired 
prior  to  that  date,  or  the  actual  cost  of  the  property  if  acquired  on  or  after  that 
date,  plus,  in  either  case,  the  cost  of  development  (other  than  the  cost  of 
physical  property  incident  to  such  development)  up  to  the  point  at  which  the 
income  from  the  developed  territory  equals  or  exceeds  the  deductible  expenses. 
3312  [502]  In  the  case  of  a less-e,  the  capital  thus  to  be  returned  is  the 

fair  market  value  of  the  lessee’s  interest  as  of  March  1,  1913,  if 
acquired  prior  to  that  date,  or  the  amount  paid  in  cash  or  its  equivalent  as 
a bonus  or  otherwise  by  the  lessee  for  the  lease  if  acquired  on  or  after  that  date, 
plus,  in  either  case,  all  expenses  incurred  in  developing  the  property  (exclusive 
of  physical  property)  prior  to  the  receipt  of  income  therefrom  sufficient  to 
meet  all  deductible  expenses,  after  which  time  as  to  both  owner  and  lessee, 
such  incidental  expenses  as  are  paid  for  wages,  fuel,  repairs,  hauling,  etc., 
in  connection  with  the  drilling  of  wells  and  further  development  of  the 
property,  may,  at  the  option  of  the  operator,  be  deducted  as  an  operating 
expense  or  charged  to  capital  account.  The  value  of  the  equities  of  lessor  and 
lessee  shall  be  computed  separately,  but  when  determined  as  of  the  same 
basic  date,  shall  together  never  exceed  the  value  at  that  date  of  the  property 
in  fee  simple.  By  “basic  date”  is  meant  March  1,  1913  in  case  of  acquisition 
prior  to  that  date,  or  the  date  of  acquisition  where  it  occurred  on  or  after 
that  date. 

33 1 3 [503]  If,  in  exercising  the  option  mentioned  in  the  preceding  paragraph, 

the  individual  or  corporation  charges  the  expense  of  drilling  wells  or 
further  development  to  capital  account,  the  same,  in  so  far  as  such  expense  is 
represented  by  physical  property,  may  be  taken  into  account  in  determining 
a reasonable  allowance  for  depreciation  during  each  year  until  the  property 
account  thus  augmented  has  been  extinguished  through  annual  depreciation 
deductions,  after  which  no  further  deduction  on  this  account  will  be  allowed. 
In  the  case  of  a going  or  producing  business,  the  cost  of  drilling  nonproduc- 
tive wells  may  be  deducted  from  gross  income  as  an  operating  expense. 

Estimate  of  probable  resources. 

3314  [504]  In  the  case  of  either  an  owner  or  lessee  it  will  be  required  that 

an  estimate,  subject  to  the  approval  of  the  Commissioner  of  Internal 
Revenue,  shall  be  made  of  the  probable  quantity  of  oil  or  gas  contained  in  or 
to  be  recovered  from  the  territory  with  respect  to  which  the  investment  is 
made.  The  invested  capital  (value  as  of  March  1,  1913,  or  cost,  if  acquired 
on  or  after  that  date,  plus  the  cost  of  development,  other  than  cost  of  physical 
property,  up  to  the  point  of  expense-paying  production),  will  be  divided 
by  the  number  of  units  of  oil  or  gas  so  estimated  to  be  contained  in  or  to  be 
recovered  from  the  territory,  and  the  quotient  will  be  the  per  unit  cost  or 
amount  of  capital  invested  in  each  unit  recoverable.  This  quotient,  or  per 
unit  cost,  when  multiplied  by  the  number  of  units  removed  from  the  territory 
during  any  one  year,  will  determine  the  amount  which  may  be  allowably 
deducted  from  the  gross  income  of  that  year  on  account  of  depletion  of  assets 
or  as  a return  of  invested  capital  until  the  total  of  such  deductions  shall  equal 
the  capital  invested.  ■> 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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3315  [ 505]  Kvery  individual  or  corporation  entitled  to  a deduction  on 

account  of  the  depletion  of  the  property  under  operation  or  for  a 
return  of  the  capital  invested  with  respect  to  the  same  shall  keep  an  accurate 
ledger  account,  in  which,  in  the  case  of  fee  owner,  shall  be  charged  the  fair 
market  value  as  of  March  1,  1913,  or  the  cost,  if  acquired  on  or  after  that  date, 
of  the  oil  or  gas  property,  plus  cost  of  development  as  hereinbefore  defined, 
or,  in  the  case  of  a lessee,  the  fair  market  value  as  of  March  1,  1913,  or  the 
cost,  if  acquired  on  or  after  that  date,  of  the  lessee’s  interest,  plus  cost  of 
development.  This  account  shall  be  credited  with  the  amount  claimed  and 
allowed  each  year  as  a deduction  on  account  of  depletion  or  as  a return  of 
capital,  to  the  end  that  when  the  credits  to  the  account  equal  the  debits  no 
further  deduction  on  either  account,  with  respect  to  this  property  and  the 
capital  invested  therein,  will  be  allowed.  Or,  in  lieu  of  a direct  credit  to 
property  account,  the  amount  so  claimed  and  allowed  as  a deduction  may  be 
credited  to  a depiction  reserve  account. 

Where  Resources  Are  Uncertain. 

331  6 [506]  If  for  any  reason  the  quantity  of  oil  or  gas  in  the  property  can 

not  be  determined  with  any  degree  of  certainty,  the  depletion  de- 
duction will  be  computed  in  accordance  with  the  rule  set  out  in  Treasury 
Decision  2447  [^] 2032,  1917  Income  Tax  Service],  except  that  lessees  may 
compute  their  deduction  for  return  of  capital  in  the  same  manner  as  owners 
in  fee;  that  is,  they  may  extinguish  their  capital  on  the  basis  of  the  reduction 
in  flow  and  production  as  compared  with  the  preceding  year,  or,  in  the  case 
of  leasehold  properties  brought  in  or  developed  during  the  year,  the  depletion 
deduction  may  be  computed  on  the  basis  of  the  decline  in  settled  flow  and 
production,  as  evidenced  by  tests  and  guages  made  at  the  end  of  the  year  as 
compared  with  similar  tests  and  guages  made  at  the  time  the  settled  flow 
was  determined. 

33  1 7 [507]  For  the  purpose  of  computing  the  depletion  the  territory  com- 

prehended in  a given  lease  will  be  considered  the  unit  with  respect  to 
which  the  depletion  deduction  may  be  claimed  and  allowed. 

3318  [508]  During  the  continuance  of  the  ownership  under  which  the 
value  was  fixed  or  by  which  the  investment  was  made,  there  can  be 

no  revaluation  for  the  purpose  of  this  deduction  if  it  should  be  found  that  the 
quantity  of  oil  or  gas  in  the  property  was  underestimated  [at  the  time  the 
value  was  fixed  or  the  property  was  acquired,  or  at  the  time  the  lease  contract 
was  entered  into  or  purchased. 

3319  [509]  This  rule  will  not,  however,  be  so  construed  as  to  forbid  an 
operator  from  redistributing  the  invested  capital  over  the  estimated 

number  of  units  remaining  in  the  territory  under  operation  if  a subsequent 
increase  of  invested  capital  should  render  this  necessary  in  order  to  de- 
termine the  amount  of  such  capital  applicable  to  each  unit,  provided,  that 
when  such  redistribution  is  made  the  total  capital  invested  will  be  reduced 
by  the  amount  previously  charged  off  and  deducted  on  account  of  depiction 
or  as  a,  return  of  capital. 

Additional  Depreciation  for  Machinery,  etc. 

3320  [510]  Both  owners  and  lessees  operating  oil  or  gas  properties  will,  in 
addition  to  and  separate  from  the  deduction  allowable  for  the  de- 
pletion or  return  of  capital  as  hereinbefore  provided  for,  be  permitted  to  deduct 
a reasonable  allowance  for  depreciation  of  physical  property,  such  as 
machinery,  tools,  equipment,  pipes,  etc.,  the  amount  deductible  upon  this 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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account  to  be  such  an  amount,  based  upon  its  capitalized  value  (cost)  equit- 
ably distributed  over  its  useful  life,  as  will  bring  it  to  its  true  salvage  value 
when  no  longer  useful  for  the  purpose  for  which  such  property  was  acquired. 

3321  [511]  As  to  both  fee  owner  and  lessee,  the  capital  invested  in  physical 
property,  upon  which  the  depreciation  deduction  is  computed,  should 

be  segregated  in  the  books  of  account  from  that  invested  in  the  oil  or  gas 
territory  or  in  the  lease  or  leases,  with  respect  to  which  the  deduction  for 
depletion  or  return  of  capital  is  claimed,  and  credits  for  depreciation  may  be 
made  in  the  same  manner  as  hereinbefore  provided  for  depletion. 

Statement  Required. 

3322  [512]  To  each  return  made  by  an  individual  or  corporation  owning, 
or  holding  Under  lease,  oil  or  gas  properties  there  should  be  attached 

a statement  showing — 

[513]  (1)  (a)  The  fair  market  value  of  the  property  or  interest 
therein  (exclusive  of  machinery,  equipment,  etc.)  as  of  March  1,  1913,  if 
acquired  prior  to  that  date,  or  (b)  the  actual  cost  thereof  if  acquired  on  or 
after  that  date; 

[514]  (2)  How  the  fair  market  value  as  of  March  1,  1913,  was  as- 
certained; 

[515]  (3)  The  estimated  quantity  of  oil  or  gas  in  the  sand  at  the  time 
the  value  or  cost  was  determined; 

[516]  (4)  Amount  of  capital  applicable  to  each  unit; 

[517]  (5)  The  quantity  of  oil  or  gas  produced  during  the  year  for  which 
the  return  is  made; 

[518]  (6)  Any  other  data  which  would  be  helpful  in  determining  the 
reasonableness  of  the  depletion  deduction.  T.  D.  3386,  signed  by  Com- 
missioner D.  H.  Blair,  and  dated  August  22,  1922.) 


(T.  D.  3387.) 

3323  Income  from  sources  within  the  United  States  [foreign  corporation 
2144  transportation  service  between  U.  S.  and  foreign  points]. — Regu- 
2099  lations  62  is  hereby  amended  by  adding  thereto  Article  327(a)  to 

read  as  follows: 

3324  Art.  327(a).  Transportation  services. — A foreign  corporation  carrying 
on  the  business  of  transportation  service  between  points  in  the  United 

States  and  points  outside  the  United  States  derives  income  partly  from  sources 
within  and  partly  from  sources  without  the  United  States. 

3325  (1)  The  gross  income  from  sources  within  the  United  States  derived 
from  such  services  shall  be  determined  by  taking  such  a portion  of 

the  total  gross  revenues  therefrom  as  (a)  the  sum  of  the  costs  or  expenses  of 
such  transportation  business  carried  on  by  the  taxpayer  within  the  United 
States  and  a reasonable  return  upon  the  property  used  in  its  transportation 
business  while  within  the  United  States  bears  to  (b)  the  sum  of  the  total 
costs  or  expenses  of  such  transportation  business  carried  on  by  the  taxpayer 
and  a reasonable  return  upon  the  total  property  used  in  such  transportation 
business.  Revenues  from  operations  incidental  to  transportation  services 
(such  as  the  sale  of  money  orders)  shall  be  apportioned  on  the  same  basis 
as  direct  revenues  from  transportation  services. 

3326  In  allocating  the  total  costs  or  expenses  incurred  in  such  transportation 
business,  costs  or  expenses  incurred  in  connection  with  such  part  of  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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services  as  were  wholly  rendered  in  the  United  States  should  be  assigned  to  the 
cost  of  transportation  business  within  the  United  States.  For  example,  ex- 
penses of  loading  and  unloading  in  the  United  States,  rentals,  office  expenses, 
salaries  and  wages  wholly  incurred  for  services  rendered  to  the  taxpayer  in 
the  United  States  belong  to  this  class.  Costs  and  expenses  incurred  in  con- 
nection with  services  rendered  partly  within  and  partly  without  the  United 
States  may  be  prorated  on  a reasonable  basis  between  such  services.  For 
example,  ship  wages,  charter  money,  insurance  and  supplies  chargeable  to 
voyage  expenses  should  ordinarily  be  prorated  for  each  voyage  on  the  basis 
of  the  proportion  which  the  number  of  days  the  ship  was  within  the  territorial 
limits  of  the  United  States  bears  to  the  total  number  of  days  on  the  voyage, 
and  fuel  consumed  on  each  voyage  may  be  prorated  on  the  basis  of  the  pro- 
portion which  the  number  of  miles  sailed  within  the  territorial  limits  of  the 
United  States  bears  to  the  total  number  of  miles  sailed  on  the  voyage.  Income, 
war-profits  and  excess-profits  taxes  should  not  be  regarded  as  costs  or  expenses 
for  the  purpose  of  determining  the  proportion  of  gross  income  from  sources 
within  the  United  States;  and  for  such  purpose,  interest  and  other  expenses 
for  the  use  of  borrowed  capital  should  not  be  taken  into  the  cost  of  services 
rendered,  for  the  reason  that  the  return  upon  the  property  used  measures, 
the  extent  to  which  such  borrowed  capital  is  the  source  of  the  income,  h or 
other  expenses  entering  into  the  cost  of  services,  only  such  expenses  as  are 
allowable  deductions  under  the  Revenue  Act  of  1921  should  be  taken. 

33  2 7 The  value  of  the  property  used  should  be  determined  upon  the  basis  of 
cost  less  depreciation.  Eight  per  cent  may  ordinarily  be  taken  as  a 
reasonable  rate  of  return  to  apply  to  such  property.  The  property,  taken 
should  be  the  average  property  employed  in  the  transportation  service  be- 
tween points  in  the  United  States  and  points  outside  the  United  States  during 
the  taxable  year.  For  ship's  the  average  should  be  determined  upon  a daily 
basis  for  each  ship  and  the  amount  to  be  apportioned  for  each  ship  as  assets 
employed  within  the  United  States  should  be  computed  upon  the  proportion 
which  the  number  of  days  the  ship  was  within  the  territorial  limits  of  the 
United  States  bears  to  the  total  number  of  days  the  ship  was  in  service  during 
the  taxable  period.  For  other  assets  employed  in  the  transportation  business, 
the  average  of  the  assets  at  the  beginning  and  end  of  the  taxable  period  ordi- 
narily may  be  taken,  but  if  the  average  so  obtained  does  not,  by  reason  of 
material  changes  during  the  taxable  year,  fairly  represent  the  average  for  such 
year  either  for  the  assets  employed  in  the  transportation  business  in  the 
United  States  or  in  total,  the  average  must  be  determined  upon  a monthly  or 

daily  basis.  . . , . 

3328  (2)  Interest  and  income,  war-profits  and  excess-profits  taxes  should  be 
excluded  from  the  apportionment  process,  as  explained  in  (1)  above; 

but  for  the  purpose  of  computing  net  income,  there  may  be  deducted  from  the 
gross  income  from  sources  within  the  United  States,  after. the  amount  of  such 
gross  income  has  been  determined,  a ratable  part  (a)  of  all  interest  (deductible 
under  Section  214  (a)  (2)  [If  1684]  or  Section  234  (a)  (2)  [If  1686]  and  (b)  of  all 
income,  war-profits  and  excess-profits  taxes  (deductible  under  Sections  214  (a) 
(3)  f^f  1697]  and  234  (a)  (3) [If  1700]),  paid  or  accrued  in  respect  of  the  business 
of  transportation  service  between  points  in  the  United  States  and  points  out- 
side the  United  States.  Such  ratable  part  should  ordinarily  be  based  upon 
the  ratio  of  gross  income  from  sources  within  the  United  States  to  the  total 
gross  income  from  such  transportation  service. 

3329  (3)  If  a foreign  corporation  subject  to  this  article  is  also  engaged  in  a 
business  other  than  that  of  providing  transportation  service  between 

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points  in  the  United  States  and  points  outside  the  United  States,  the  costs  and 
expenses  (including  taxes)  properly  apportioned  or  allocated  to  such  other 
business  should  be  excluded  both  from  the  deductions  and  from  the  apportion- 
ment process  prescribed  in  (1)  above;  but,  for  the  purpose  of  determining  net 
income,  a ratable  part  of  any  general  expenses,  losses  or  deductions  which 
cannot  definitely  be  allocated  to  some  item  or  class  of  gross  income,  may  be 
deducted  from  the  gross  income  from  sources  within  the  United  States,  after 
the  amount  of  such  gross  income  has  been  determined.  Such  ratable  part 
should  ordinarily  be  based  upon  the  ratio  of  gross  income  from  sources  within 
the  United  States  to  the  total  gross  income. 

3330  (4)  Application  for  permission  to  base  the  return  upon  the  taxpayer’s 

books  of  account  will  be  considered  by  the  commissioner  in  the  case  of 
any  taxpayer  subject  to  this  article,  who,  in  good  faith  and  unaffected  by  con- 
siderations of  tax  liability,  regularly  employs  in  his  books  of  account  a de- 
tailed^allocation  of  receipts  and  expenditures  which  reflects  more  clearly  than 
the  process  prescribed  in  (1)  and  (2)  above,  the  income  derived  from  sources 
within  the  United  States.  (T.  D.  3387,  signed  by  Commissioner  D.  H.  Blair, 
and  dated  August  23,  1922.) 


3331  Personnel  of  the  Tax  Simplification  Board. — (September  8,  1922.) 


2969  Joseph  E.  Sterrett 

3299  (vacancy) 


(vacancy) 

Appointed  by  the  President  to  represent  the  public. 
Charles  P.  Smith 
George  W.  Skilton 
E.  H.  Chatterton 

Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
resent the  Bureau  of  Internal  Revenue. 


(T.  D.  3393.) 

3332  Basis  for  determining  taxable  gain  or  deductible  loss  in  the  case  of 
1438  property  acquired  prior  to  March  1,  1913,  and  sold  or  disposed  of 
subsequent  thereto. — Opinion  of  the  Attorney  General. — 1916, 
1917,  and  1918  Acts. — The  following  opinion  [beginning  at  ^[3333  below] 
rendered  by  the  Attorney  General  under  date  of  August  23,  1922,  respecting 
the  basis  to  be  used  for  determining  taxable  gain  or  deductible  loss  in  the  case 
of  property  acquired  prior  to  March  1,  1913,  and  sold  or  disposed  of  subse- 
quent thereto  is  published  in  full  for  your  information  and  guidance.  (T.  D. 
3393,  signed  by  Commissioner  D.  H.  Blair,  and  dated  September  12,  1922.) 


{Opinion  of  the  Attorney-General  referred  to  in  ^[3332  above.) 

DEPARTMENT  OF  JUSTICE, 
WASHINGTON, 

August  23,  1922. 

The  Honorable, 

The  Secretary  of  the  Treasury, 

Sir: 

3333  I have  the  honor  to  acknowledge  receipt  of  your  letter  of  June  26, 
1922,  in  which  you  request  my  opinion  as  to  the  proper  basis  to  be 
used,  under  the  Revenue  Acts  of  1916,  1917  and  1918,  in  computing  the  taxable 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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gain  or  deductible  loss  in  the  case  where  property,  acquired  prior  to  March 
1,1913,  is  sold  or  disposed  of  thereafter.  Accompanying  your  letter  was  a 
brief  submitted  by  the  M Company,  in  which  the  validity  of  the  Regulations 
of  the  Internal  Revenue  and  the  procedure  thereunder  are  questioned  by  the 
Company  specifically  as  to  the  following  cases: 

“Where  property  acquired  prior  to  March  1,  1913,  is  sold  subsequent 
thereto  at  a price  which  is — 

(a)  Greater  than  the  value  thereof  on  March  1,  1913,  which  was 
higher  than  cost,  or 

(b)  Greater  than  the  cost  thereof,  which  was  higher  than  the  value 
on  March  1,  1913,  or 

(c)  Greater  than  the  value  thereof  on  March  1,  1913,  but  less  than 
cost,  or 

(d)  Less  than  the  value  thereof  on  March  1,  1913,  which  was  less 
than  cost,  or 

(e)  Less  than  the  value  thereof  on  March  1,  1913,  but  greater  than 
cost,  or 

(f)  Less  than  the  cost  thereof,  which  was  less  than  the  value  on 
March  1,  1913.” 

3334  The  provisions  of  the  Revenue  Act  of  1916  material  to  the  subject 
under  consideration,  and  not  changed  in  any  way  by  the  Act  of  1917, 

are: 

“Sec.  2.  (a)  That,  subject  to  such  exemptions  and  deductions  as 

are  hereinafter  allowed,  the  net  income  of  a taxable  person  shall  include 
gains,  profits,  and  income  derived  from  * * * businesses,  trade, 

commerce,  or  sales,  or  dealings  in  property,  whether  real  or  personal, 
growing  out  of  the  ownership  or  use  of  or  interest  in  real  or  personal 
property,  also  from  interest,  rent,  dividends,  securities,  or  the  transaction 
of  any  business  carried  on  for  gain  or  profit,  or  gains  or  profits  and  income 
derived  from  any  source  whatever: 

****** 

“(c)  For  the  purpose  of  ascertaining  the  gain  derived  from  the  sale 
or  other  disposition  of  property,  real,  personal,  or  mixed,  acquired  before 
March  first,  nineteen  hundred  and  thirteen,  the  fair  market  price  or  value 
of  such  property  as  of  March  first,  nineteen  hundred  and  thirteen,  shall 
be  the  basis  for  determining  the  amount  of  such  gain  derived. 

“Sec.  5.  * * * 

“(a)  For  the  purpose  of  the  tax  there  shall  be  allowed  as  deductions — 

“Fourth.  Losses  actually  sustained  during  the  year,  incurred  in  his 
business  or  trade,  * * * Provided , That  for  the  purpose  of  ascertain- 

ing the  loss  sustained  from  the  sale  or  other  disposition  of  property, 
real,  personal,  or  mixed,  acquired  before  March  first,  nineteen  hundred 
and  thirteen,  the  fair  market  price  or  value  of  such  property  as  of  March 
first,  nineteen  hundred  and  thirteen,  shall  be  the  basis  for  determining 
the  amount  of  such  loss  sustained; 

“Fifth.  In  transactions  entered  into  for  profit  but  not  connected 
with  his  business  or  trade,  the  losses  actually  sustained  therein  during 
the  year  to  an  amount  not  exceeding  the  profits  arising  therefrom; 

****** 

“Sec.  10.  * * * For  the  purpose  of  ascertaining  the  gain 

derived  or  loss  sustained  from  the  sale  or  other  disposition  by  a corpora- 
tion, joint-stock  company  or  association,  or  insurance  company,  of 
property,  real,  personal,  or  mixed,  acquired  before  March  first,  nineteen - 
hundred  and  thirteen,  the  fair  market  price  or  value  of  such  property  as 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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of  March  first,  nineteen  hundred  and  thirteen,  shall  be  the  basis  for 
determining  the  amount  of  such  gain  derived  or  loss  sustained.” 

3335  The  Act  of  1918,  dealing  with  the  questions  propounded,  arc: 

“See.  202(a).  That  for  the  purpose  of  ascertaining  the  gain 

derived  or  loss  sustained  from  the  sale  or  other  disposition  of  property, 
real,  personal,  or  mixed,  the  basis  shall  be — 

“(1)  In  the  case  of  property  acquired  before  March  1,  1913,  the  fair 
market  price  or  value  of  such  property  as  of  that  date;  and 

“(2)  In  the  case  of  property  acquired  on  or  after  that  date,  the  cost 
thereof;  or  the  inventory  value,  if  the  inventory  is  made  in  accordance 
with  section  203.” 

“Sec.  213.  That  for  the  purpose  of  this  title  * * * the  term 

‘gross  income’ — 

“(a)  Includes  gains,  profits,  and  income  derived  from  * * trades, 

businesses,  commerce,  or  sales,  or  dealings  in  property,  whether  real  or 
personal,  growing  out  of  the  ownership  or  use  of  or  interest  in  such 
property;  also  from  interest,  rent,  dividends,  securities,  or  the  transaction 
of  any  business  carried  on  for  gain  or  profit,  or  gains  or  profits  and 
income  derived  from  any  source  whatever  * * * .” 

3336  Treasury  Decision  3206  reads,  in  part,  as  follows: 

“Regulations  45  (1920  Edition)  are  hereby  amended  in  order  that 

the  rule  announced  by  the  Supreme  Court  in  the  cases  of  Goodrich  v. 
Edwards,  and  Brewster  v.  Walsh,  respecting  the  basis  for  the  determina- 
tion of  taxable  gain  or  deductible  loss  in  the  case  of  property  acquired 
prior  to  March  1,  1913,  and  sold  or  disposed  of  subsequent  thereto,  may 
be  incorporated  therein.  * * * 

“Art.  1561.  Basis  for  determining  gain  or  loss  from  sale. — For  the 
purpose  of  ascertaining  the  gain  or  loss  from  the  sale  or  exchange  of 
property  the  basis  is  the  cost  of  such  property,  or  if  acquired  on  or  after 
March  1,  1913,  its  cost  or  its  approved  inventory  value.  But  in  the  case 
of  property  acquired  before  March  1,  1913,  when  its  fair  market  value  as 
of  that  date  is  in  excess  of  its  cost,  the  gain  which  is  taxable  is  the  excess 
of  the  amount  realized  therefor  over  such  fair  market  value.  Also  in  the 
case  of  property  acquired  before  March  1,  1913,  when  its  fair  market 
value  as  of  that  date  is  lower  than  its  cost,  the  deductible  loss  is  the 
excess  of  such  fair  market  value  over  the  amount  realized  therefor.  No 
gain  or  loss  is  recognized  in  the  case  of  property  sold  or  exchanged  (a)  at 
more  than  cost  but  at  less  than  its  fair  market  value  as  of  March  1,  1913, 
or  (b)  at  less  than  cost  but  at  more  than  its  fair  market  value  as  of 
March  1,  1913  * * * .” 

3337  In  the  case  of  Goodrich  v.  Edwards,  255  U.  S.  527,  the  question  of 
what  constituted  gain  within  the  meaning  of  the  Revenue  Act  of  1916 

was  passed  upon  by  the  United  States  Supreme  Court,  which  adopted  a con- 
cession made  by  the  Solicitor  General  to  the  effect  that  where  no  gain  was 
realized  by  the  taxpayer  on  a'  complete  transaction,  notwithstanding  that  the 
selling  price  was  higher  than  the  value  on  March  1,  1913,  no  tax  should  have 
been  assessed  against  him,  holding  that  Section  2(c)  was  applicable  only 
where  a gain  over  the  original  capital  investment  had  been  realized  after 
March  1,  1913,  from  a sale  or  other  disposition  of  property,  establishing  the 
rule  that  increases  in  value  occurring  prior  to  March  1,  1913,  should  be 
excluded  in  computing  taxable  gain,  and  that  only  increases  occurring  subse- 
quent to  such  date  should  be  taxed. 

3338  Taxable  gain  having  been  thus  construed  by  the  Supreme  Court,  it 
follows  that  “deductible  loss”  should  have  the  same  construction,  the 

Copyright  1922,  by  The  Corporation  7 rust  Company. 

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provisions  relating  to  losses  being  practically  identical  with  those  relating  to 
gain.  In  making  the  concession  as  to  taxable  gains,  the  Solicitor  General, 
in  his  brief  in  the  Goodrich  cases,  cited  above,  made  the  further  concession 
that  a loss  on  the  complete  transaction  must  have  been  sustained  in  order  to 
make  it  a deductible  loss,  and  that  only  the  loss  occurring  subsequent  to 
March  1,  1913,  should  be  allowed  as  a deduction. 

3339  The  provisions  of  the  Revenue  Act  of  1918  which  deal  with  the  subject 
of  taxable  gains  and  deductible  losses  are: 

“Sec.  202(a).  That  for  the  purpose  of  ascertaining  the  gain  derived 
or  loss  sustained  from  the  sale  or  other  disposition  of  property,  real, 
personal  or  mixed,  the  basis  shall  be — 

“(1)  In  the  case  of  property  acquired  before  March  1,  1913,  the  fair 
market  price  or  value  of  such  property  as  of  that  date;  and 

“(2)  In  the  case  of  property  acquired  on  or  after  that  date,  the  cost 
thereof;  or  the  inventory  value,  if  the  inventory  is  made  in  accordance 
with  section  203.” 

“Sec.  213.  That  for  the  purpose  of  this  title  * * * the  term 

‘gross  income’ — 

“(a)  Includes  gains,  profits,  and  income  derived  from  * * * 

trades,  businesses,  commerce,  or  sales,  or  dealings  in  property,  whether 
real  or  personal,  growing  out  of  the  ownership  or  use  of  or  interest  in  such 
property;  also  from  interest,  rent,  dividends,  securities,  or  the  trans- 
action of  any  business  carried  on  for  gain  or  profit,  or  gains  or  profits 
and  income  derived  from  any  source  whatever.  * * * ” 

3340  No  substantial  changes  having  been  made  in  the  corresponding 
sections  of  the  two  Acts,  it  is  assumed  that  both  Acts  were  intended 

by  Congress  to  have  the  same  construction,  and  the  same  basis  should  be 
employed  in  arriving  at  taxable  gains  and  deductible  losses  upon  the  sale  or 
other  disposition  of  property. 

3341  I am  of  the  opinion  that  the  date  March  1,  1913,  was  intended  to  be 
used  as  a guide  in  ascertaining  gains  derived  or  losses  sustained,  but 

that  the  original  cost  should  be  taken  into  consideration,  so  that  if  there  was 
no  gain  on  the  entire  transaction  there  was  no  taxable  gain,  and  if  there  was 
no  loss  on  the  entire  transaction  there  was  no  deductible  loss.  It  follows, 
therefore,  that  in  limiting  the  M Company,  to  the  loss  sustained  by  it  on  the 
sale  of  shares  of  stock  of  the  O Company,  that  is,  the  difference  between  cost 
and  selling  price,  instead  of  to  the  difference  between  March  1,  1913,  value 
and  selling  price,  the  Internal  Revenue  Bureau  acted  in  accordance  with  law. 
In  other  words,  the  basis  to  be  employed,  under  the  Acts  of  1916,  1917  and 
1918,  for  the  purpose  of  ascertaining  the  gain  or  loss  from  the  sale  or  other 
disposition  of  property  is  the  cost;  and  that  in  the  case  of  property  acquired 
prior  to  March  1,  1913,  when  its  fair  market  value  as  of  that  date  is  in  excess 
of  its  cost,  the  taxable  gain  is  the  excess  of  the  amount  realized  over  such 
fair  market  value;  that  when  its  fair  market  value  as  of  March  1,  1913,  is 
lower  than  its  cost,  the  deductible  loss  is  the  excess  of  such  fair  market  value 
over  the  amount  realized  therefor;  and  that  when  the  property  is  sold  or 
otherwise  disposed  of  at  more  than  cost  but  at  less  than  March  1,  1913,  value, 
or  at  less  than  cost  but  at  more  than  March  1,  1913,  value,  neither  taxable 
gain  nor  deductible  loss  results. 

3342  Replying  specifically  to  the  inquiry,  I am  of  the  opinion  that  where 
property  acquired  prior  to  March  1,  1913,  is  sold  or  disposed  of  there- 
after— 

(a)  Taxable  gain  resulted  if  the  selling  price  was  higher  than  the  value 
on  March  1,  1913,  and  if  that  value  was  higher  than  the  cost  thereof,  to  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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extent  that  the  selling  price  exceeded  the  value  on  March  1,  1913; 

(b)  Taxable  gain  resulted  if  the  selling  price  was  greater  than  the  cost  and 
if  the  cost  was  greater  than  the  value  on  March  1,  1913,  to  the  extent  that  the 
selling  price  exceeded  the  cost  of  the  property  sold  or  disposed  of; 

(c)  No  taxable  gain  or  allowable  loss  resulted  if  the  selling  price  was  greater 
than  the  value  of  the  property  on  March  1,  1913,  but  less  than  the  cost 
thereof; 

(d)  An  allowable  loss  resulted  if  the  selling  price  was  less  than  the  value 
on  March  1,  1913,  and  if  that  value  was  less  than  the  cost  to  the  extent  of  the 
difference  between  the  value  on  March  1,  1913,  and  the  selling  price; 

(e)  No  taxable  gain  or  deductible  loss  resulted  if  the  selling  price  was  less 
than  the  value  thereof  on  March  1,  1913,  but  greater  than  the  cost;  or 

(f)  An  allowable  loss  resulted  if  the  selling  price  was  less  than  the  cost  and 
if  the  cost  was  less  than  the  value  on  March  1,  1913,  to  the  extent  that  the 
cost  of  the  property  disposed  of  exceeded  the  selling  price  thereof. 

Respectfully, 

H.  M.  DAUGHERTY,  Attorney  General. 

(Opinion  of  the  Attorney  General  appended  to  and  made  a part  of  T.  D. 
3393,  H3332.) 


3343  Personnel  of  the  Tax  Simplification  Board. — (September  26,  1922.) 
2969  Joseph  E.  Sterrett 

3299  Henry  H.  Hilton 

3331  Wm.  S.  Moorhead 

Appointed  by  the  President  to  represent  the  public. 
Charles  P.  Smith 
George  W.  Skilton 
E.  H.  Chatterton 

Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
resent the  Bureau  of  Internal  Revenue. 


(T.  D.  3399.) 

( The  change  is  in  (1),  wherein  alternative  methods  are  prescribed.) 

3344  Inventories  of  live  stock  raisers  and  other  farmers. — Articles  1586  of 

1192  Regulations  45  (1920  edition)  and  62  amended. — Treasury  Decision 
3073  3296  modified. — Article  1586  of  Regulations  45  (1920  edition) 

[1[3037]  and . Article  1586  of  Regulations  62  [U 1 192]  are  hereby 
amended  to  read  as  follows: 

3345  Art.  1586.  Inventories  of  live  stock  raisers  and  other  farmers. — 

(1)  Farmers  may  change  the  basis  of  their  returns  from  that  of 
receipts  and  disbursements  to  that  of  an  inventory  basis  provided  adjust- 
ments are  made  in  accordance  with  one  of  the  two  methods  outlined  in  (A) 
and  (B)  below.  It  is  optional  with  the  taxpayer  which  method  is  used  but 
having  elected  one  method  the  option  so  exercised  will  be  binding  upon  the 
taxpayer  and  he  will  be  precluded  from  filing  amended  returns  upon  the  basis 
of  the  other  method. 

3346  (A)  Opening  and  closing  inventories  shall  be  used  for  the  year  in 
which  the  change  is  made.  There  should  be  included  in  the  opening 

inventory  all  farm  products  (including  live  stock)  purchased  or  raised  which 
were  on  hand  at  the  date  of  the  inventory  and  there  must  be  submitted  with 
the  return  for  the  current  taxable  year  an  adjustment  sheet  for  the  preceding 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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taxable  year  based  on  the  inventory  method,  upon  the  amount  of  which  ad- 
justment the  tax  shall  be  assessed  and  paid  (if  any  be  due)  at  the  rate  of  tax 
in  effect  for  that  year.  Ordinarily  an  adjustment  sheet  for  the  preceding 
year  will  be  sufficient  but  if,  in  the  opinion  of  the  commissioner,  such  ad- 
justment is  not  sufficient  to  clearly  reflect  income,  adjustments  for  earlier 
years  may  be  accepted  or  required.  Where  it  is  impossible  to  render  complete 
inventories  for  the  preceding  year  or  years,  the  Department  will  accept 
estimates  which,  in  its  opinion,  substantially  reflect  the  income  on  the  in- 
ventory basis,  for  such  preceding  year  or  years;  but  inventories  must  not 
include  real  estate,  buildings,  permanent  improvements  or  any  other  assets 
subject  to  depreciation. 

334  7 (B)  No  adjustment  sheets  will  be  required,  but  the  net  income  for 
the  taxable  year  in  which  the  change  is  made  must  be  computed 
without  deducting  from  the  sum  of  the  closing  inventory  and  the  sales  and 
other  receipts,  the  inventory  of  live  stock,  crops  and  products  at  the  beginning 
of  the  year;  provided,  however, — 

3348  (a)  That  if  any  live  stock,  grain,  or  other  property  on  hand  at  the 
beginning  of  the  taxable  year  has  been  purchased  and  the  cost  thereof 

not  charged  to  expense,  only  the  difference  between  the  cost  and  the  selling 
price  should  be  reported  as  income  for  the  year  in  which  sold; 

3349  (b)  But  if  the  cost  of  such  property  has  been  charged  to  expense  for 
a previous  year,  the  entire  amount  received  must  be  reported  as 

income  for  the  year  in  which  sold. 

3350  (2)  Because  of  the  difficulty  of  ascertaining  actual  cost  of  live  stock 
and  other  farm  products,  farmers  who  render  their  returns  upon  an 

inventory  basis  may  at  their  option  value  their  inventories  for  the  current 
taxable  year  according  to  the  “farm-price  method”  which  provides  for  the 
valuation  of  inventories  at  market  price  less  cost  of  marketing.  If  the  use 
of  the  “farm-price  method”  of  valuing  inventories  for  any  taxable  year 
involves  a change  in  method  of  pricing  inventories  from  that  employed  in 
prior  years,  the  opening  inventory  for  the  taxable  year  in  which  the  change  is 
made  should  be  brought  in  at  the  same  value  as  the  closing  inventory  for 
the  preceding  taxable  year.  If  such  valuation  of  the  opening  inventory  for  the 
taxable  year  in  which  the  change  is  made  results  in  an  abnormally  large  in- 
come for  that  year,  there  may  be  submitted  with  the  return  for  such  taxable 
year  an  adjustment  statement  for  the  preceding  year  based  on  the  “farm-price 
method”  of  valuing  inventories,  upon  the  amount  of  which  adjustments  the 
tax,  if  any  be  due,  shall  be  assessed  and  paid  at  the  rate  of  tax  in  effect  for 
such  preceding  year.  If  an  adjustment  for  the  preceding  year  is  not,  in  the 
opinion  of  the  commissioner,  sufficient  to  clearly  reflect  income,  adjustment 
sheets  for  prior  years  may  be  accepted  or  required. 

3351  Where  returns  have  been  made  in  which  the  taxable  net  income  has 
been  computed  upon  incomplete  inventories,  the  abnormality 

should  be  corrected  by  submitting  with  the  return  for  the  current  taxable 
year  a statement  for  the  preceding  year  in  which  such  adjustments  shall  be 
made  as  are  necessary  to  bring  the  closing  inventory  for  the  preceding  year 
into  agreement  with  the  opening  complete  inventory  for  the  current  taxable 
year.  If  necessary  to  clearly  reflect  income,  similar  adjustments  may  be 
made  as  at  the  beginning  of  the  preceding  year  or  years  and  the  tax,  if  any 
be  due,  shall  be  assessed  at  the  rate  of  tax  in  effect  for  such  year  or  years. 

3352  Treasury  Decision  3296  [^[3060]  is  hereby  superseded  in  so  far  as^it 
is  inconsistent  with  the  provisions  of  this  Treasury  Decision.  (T.  D. 

3399,  signed  by  Commissioner  D.  H.  Blair,  and  dated  October  7,  1922.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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10-17-22.  (8)  10-18-22. 


(T.  D.  3400.) 

(Only  change  is  elimination  of  reference  to  Section  1000  of  the  Revenue  Act  of 

1921 — Capital  Stock  Tax.) 

3353  Tax  on  insurance  companies. — Article  691  of  Regulations  62 
1369  amended. — Article  691  of  Regulations  62  is  hereby  amended  to  read 

as  follows: 

3354  Art.  691.  Tax  on  insurance  companies. — For  the  calendar  year  1921 
all  insurance  companies  (other  than  life)  are  subject  to  taxes  imposed 

by  section  230  (corporation  income  tax)  and  Title  III  (war  profits  and  excess 
profits  tax),  f'or  the  calendar  year  1922  and  thereafter,  however,  in  lieu  of 
such  taxes,  insurance  companies,  except  life  and  mutual  companies,  are  subject 
to  the  tax  imposed  by  section  246.  Mutual  insurance  companies  (other  than 
life)  remain  subject  to  the  tax  imposed  by  section  230.  In  articles  691-693 
the  term  “insurance  companies”  means  only  those  companies  subject  to  the 
tax  imposed  by  section  246.  The  rate  of  the  tax  imposed  by  section  246  is 
the  same  as  the  rate  imposed  by  section  230  (12^  per  cent),  but  the  net 
income  upon  which  the  tax  is  imposed,  as  defined  in  sections  246  and  247, 
differs  from  the  net  income  of  other  corporations.  Insurance  companies  are 
entitled  to  the  benefit  of  section  204  (net  losses  [^[1546])  but  not  of  section 
206  (capital  net  gain).  All  provisions  of  the  statute  and  of  these  regulations 
not  inconsistent  with  the  specific  provisions  of  sections  246  and  247  are 
applicable  to  the  assessment  and  collection  of  this  tax,  and  insurance  com- 
panies are  subject  to  the  same  penalties  as  provided  in  the  case  of  returns  and 
payment  of  income  tax  by  other  corporations.  Since  section  246  provides 
that  the  underwriting  and  investment  exhibit  of  the  annual  statement 
approved  by  the  National  Convention  of  Insurance  Commissioners  shall  be 
the  basis  for  computing  gross  income  and  since  the  annual  statement  is 
rendered  on  the  calendar  year  basis,  the  first  returns  under  section  246  will 
be  for  the  taxable  year  ending  December  31,  1922,  and  will  be  made  on  or 
before  March  15,  1923.  (T.  D.  3400,  signed  by  Commissioner  D.  H.  Blair, 

and  dated  October  10,  1922.) 


( Decision ) 

Revenue  Acts  of  1916-1917. 

In  effect:  When  the  ultimate  beneficiary,  as  residuary  legatee,  of  a 

trust-estate  subject  to  tax  as  an  entity  is  a person  exempt  from  tax,  the 
otherwise  taxable  income  of  the  trust  is  exempt. 

SUPREME  COURT  OF  THE  UNITED  STATES 

Ephriam  Lederer,  Collector  of  Internal 
Revenue  for  the  first  District  of  Penn- 
sylvania, Petitioner, 
vs. 

Alexander  D.  Stockton,  sole  surviving 
Trustee  under  the  will  of  Alexander  J. 

Derbyshire,  deceased. 

(October  16,  1922.) 

Mr.  Chief  Justice  Taft  delivered  the  opinion  of  the  Court. 

3355  The  question  in  this  case  is  whether  the  Income  Tax  Law  of  September 
880  8,  1916  (39  Stat.  756),  as  amended  by  the  Act  of  October  3,  1917 

(40  Stat.  300),  requires  the  Contributors  to  the  Pennsylvania 
Hospital,  a corporation  of  Pennsylvania,  created  for  charitable  uses  and 

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749 


On  Writ  of  Certiorari  to  the 
United  States  Circuit  Court 
of  Appeals  for  the  Third 
Circuit. 


10-18-22. 


purposes,  no  part  of  whose  net  income  is  for  the  benefit  of  any  private  stock- 
holder or  individual,  to  pay  a tax  on  the  income  of  a residuary  estate  devised 
to  it  by  the  will  of  Alexander  J.  Derbyshire  in  1879  and  inuring  to  its  benefit 
under  the  following  circumstances.  The  devise  was  subject  to  the  payment 
of  certain  annuities.  All  of  the  annuitants  are  dead  save  one.  Under  a statute 
of  Pennsylvania,  the  Supreme  Court  of  that  State  decided  that  the  income 
could  not  be  paid  outright  to  the  Hospital  until  the  death  of  all  the  an- 
nuitants and  until  then,  must  remain  in  control  of  the  trustee  appointed 
under  the  will.  (Biddle’s  Appeal,  99  Pa.  St.  525;  Derbyshire’s  Estate,  239 
Pa.  389.)  The  trustee  transferred  the  whole  residuary  fund  as  a loan  for 
fifteen  years  to  the  hospital,  and  secured  himself  by  mortgage  on  property 
of  the  hospital.  Under  the  terms  of  the  loan  and  mortgage,  the  hospital 
only  pays  interest  enough  to  satisfy  the  administrative  charges  and  the 
annuity.  It  uses  the  remainder  of  the  income  from  the  fund  for  its  expenses, 
it  is  thus  actually  receiving  the  full  benefit  of  the  income  of  $15,000  from  the 
residuary  fund,  reduced  only  by  the  annuity  of  $800. 

33 SG  Section  2b  of  the  Income  Tax  Law  of  1916  (supra),  is  as  follows: 

“Income  received  by  estates  of  deceased  persons  during  the  period 
of  administration  or  settlement  of  the  estate,  shall  be  subject  to  the  normal 
and  additional  tax  and  taxed  to  their  estates,  and  also  such  income  of  estates 
or  any  kind  of  property  held  in  trust,  including  such  income  accumulated  in 
trust  for  the  benefit  of  unborn  or  unascertained  persons,  or  persons  with 
contingent  interests,  and  income  held  for  future  distribution  under  the  terms 
of  the  will  or  trust  shall  be  likewise  taxed,  the  tax  in  each  instance,  except 
when  the  income  is  returned  for  the  purpose  of  the  tax  by  the  beneficiary,  to 
be  assessed'  to  the  executor,  administrator,  or  trustee,  as  the  case  may  be; 
Provided,  That  where  the  income  is  to  be  distributed  annually  or  regularly 
between  existing  heirs  or  legatees,  or  beneficiaries  the  rate  of  tax  and  method 
of  computing  the  same  shall  be  based  in  each  case  upon  the  amount  of  the 
individual  share  to  be  distributed.” 

3357  Section  11  (a)  of  the  same  Act  provides: 

“That  there  shall  not  be  taxed  under  this  title  any  income  received  by 
any  . . . corporation  or  association  organized  and  operated  exclusively 

for  religious,  charitable,  scientific,  or  educational  purposes,  no  part  of  the 
net  income  of  which  inures  to  the  benefit  of  any  private  stockholder  or 
individual.” 

3358  Upon  these  facts,  Lederer,  the  internal  revenue  collector,  assessed 
Stockton,  the  trustee,  on  the  income  from  the  residuary  estate  for 

the  years  1916  and  1917,  under  section  2b,  and  collected  the  same.  The 
trustee  brought  suit  in  the  United  States  District  Court  against  the  collector 
to  recover  the  sums  so  paid  as  illegally  collected.  The  District  Court  gave 
judgment  for  the  trustee  and  this  w*as  affirmed  by  the  Circuit  Court  of 
Appeals  for  the  Third  Circuit  (266  Fed.  Rep.  676)  Hf880], 

3359  This  residuary  fund  was  vested  in  the  hospital.  The  death  of  the 
annuitant  w^ould  completely  end  the  trust.  For  this  reason,  the 

trustee  was  able  safely  to  make  the  arrangement  by  which  the  hospital  has 
really  received  the  benefit  of  the  income  subject  to  the  annuity.  As  the 
hospital  is  admitted  to  be  a corporation,  whose  income  when  received  is 
exempted  from  taxation  under  section  11  (a),  we  see  no  reason  why  the 
exemption  should  not  be  given  effect  under  the  circumstances.  To  allow  the 
technical  formality  of  the  trust  which  does  not  prevent  the  hospital  from 
really  enjoying  the  income  vrould  be  to  defeat  the  beneficient  purpose  of 
Congress. 

3360  The  judgment  of  the  Circuit  Court  of  Appeals  is  Affirmed. 

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750 


10-18-22. 


( Decision.) 

Revenue  Act  of  1913. 

April  3,  1922. 

Legacies  which  are  not  conditioned  on  the  rendering  of  service  though  stated 
to  be  in  lieu  of  executors’  or  trustees’  commissions  having  been 
paid,  are  in  fact  acquired  by  bequest,  wi  hin  the  meaning 
of  the  law,  and  so  are  not  taxable  as  income. 


UNITED  STATES  CIRCUIT  COURT  OF  APPEALS, 
FOR  THE  SECOND  CIRCUIT. 


FREDERICK  L.  MERRIAM, 

Plaintiff-in-error  (Defendant  below), 
against 

UNITED  STATES  OF  AMERICA, 

Defendant-in-error  (Plaintiff  below), 


HENRY  B.  ANDERSON, 

Plaintiff-in-error  (Defendant  below), 
against 

UNITED  STATES  OF  AMERICA, 

Defendant-in-error  (Plaintiff  below). 


Writ  of  error  to  the  District  Court  for  the  Southern  District  of  New  York 
[275  Fed.  109].  Actions  by  the  United  States  of  America  against  Frederick 
L.  Merriam,  defendant,  and  Henry  B.  Anderson,  defendant,  to  recover  an 
income  tax  under  the  Income  Tax  Act  of  1913  (38  Stat.  114,  116). 

ROY  C.  GASSER,  Esq., 

for  Plaintiffs-in-error. 

Roy  C.  Gasser,  Esq., 

William  H.  Hayes,  Esq., 
of  Counsel. 

WILLIAM  HAYWARD,  Esq., 

U.  S.  Attorney  for  the  Southern 
District  of  New  York,  for  Defendant- 
in-error. 

Thomas  J.  Crawford,  Esq., 

Asst.  U.  S.  Attorney.  . 

P.  C.  Alexander,  Esq., 

Special  Attorney,  Bureau  of 
Internal  Revenue, 
of  Counsel. 


3361  MANTON,  Circuit  Judge. — We  shall  refer  to  the  parties  herein  as 
1156  plaintiff  and  defendants,  as  below. 

1559 

3362  Plaintiff  sued  to  recover  an  income  tax  claimed  to  be  owing  by  each 
of  the  defendants,  arising  out  of  moneys  received  by  them  from  the 

estate  of  Alfred  G.  Vanderbilt.  After  the  service  of  an  amended  complaint, 
a demurrer  was  interposed  and  motions  were  made  for  judgments  which 
resulted  in  judgment  for  the  plaintiff  in  each  of  these  actions. 

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THE  FEDERAL  INCOME  TAX  SERVICE 

751 


10-18-22. 


33G3  Alfred  G.  Vanderbilt  died  May  7,  1915,  leaving  a will  which  was  duly 
admitted  to  probate  on  June  16,  1915.  In  that  will  he  made  a bequest 
to  each  of  the  defendants.  This  article  of  his  will  reads  as  follows: 

“ELEVENTH:  I give  and  bequeath  to  my  brother,  Reginald  C. 

Vanderbilt,  Five  hundred  thousand  dollars  ($500,000);  to  my  uncle, 
Frederick  W.  Vanderbilt,  Two  hundred  thousand  dollars  ($200,000); 
to  Frederick  M.  Davies,  Five  hundred  thousand  dollars  ($500,000); 
to  Henry  B.  Anderson,  Two  hundred  thousand  dollars  ($200,000); 
to  Frederick  L.  Merriam,  Two  hundred  and  fifty  thousand  dollars 
($250,000);  to  Charles  E.  Crocker,  Ten  thousand  dollars  ($10,000), 
and  to  Howard  Lockwood,  One  thousand  dollars  ($1,000). 

I give  and  bequeath  to  each  of  those  persons  who  may  be  in  my  employ 
at  my  farm  known  as  ‘Oakland  Farm,’  at  Portsmouth,  Rhode  Island, 
or  in  my  properties  known  as  ‘Sagamore  Lodge,’  Camp  ‘Kill-Rare,’  or 
‘Moose  River  Tract,’  or  on  any  of  my  other  property  in  Hamilton 
County,  New  York,  or  in  my  stable  or  garage  in  the  City  of  New  York, 
or  in  my  apartment  in  Gloucester  House  in  London,  England,  at  the 
time  of  my  decease,  and  who  at  that  time  shall  have  been  in  my  employ 
for  a period  of  five  years  consecutively,  an  amount  equivalent  to  his  or 
her  wages  for  the  last  year  of  such  period.” 

3364  Article  Sixteenth  thereof  provides  as  follows: 

“The  bequests  herein  made  to  my  said  Executors  are  in  lieu  of  all 
compensation  or  commissions  to  which  they  would  otherwise  be  entitled 
as  Executors  or  Trustees.” 

3365  These  bequests  were  paid  to  the  defendants  in  1915  in  the  due  ad- 
ministration of  the  estate.  The  amended  complaint  recites  that  each 

bequest  was  received  “as  given  to  him  by  said  will.”  Each  of  the  defendants 
made  a return  of  his  income  for  taxation  prior  to  March  15,  1916  and  neither 
included  in  said  return  this  legacy  so  received.  Their  positions  rests  upon 
the  Act  of  Congress  then  in  force  providing  that  “income  of  a taxable  nature 
shall  not  include  the  value  of  property  * * * acquired  by  bequest.” 

3366  The  statute  provides  in  § 1 1 B for  exemptions  and  deductions  and  that 
“net  income  of  a taxable  person  shall  include  gains,  profits  and  income 

derived  from  salaries,  wages  or  compensation  for  personal  services  of  whatever 
kind  and  whatever  form  * * * or  the  transaction  of  any  lawful  business 

carried  on  for  gain  or  profit  or  gains  or  profits  or  anything  derived  from  any 
source  whatever  including  the  income  from  but  not  the  value  of  property 
acquired  by  gift,  bequest,  devise  or  descent.” 

3367  Both  of  the  defendants  qualified  as  executors,  as  did  the  others 
named,  excepting  Mr.  Davies,  who  died  five  days  before  the  death 

of  the  testator  and  his  legacy  consequently  lapsed.  The  Commissioner  of 
Internal  Revenue  made  these  legacies  taxable  as  income,  and  the  refusal  to 
pay  the  assessment  gave  rise  to  these  actions.  The  defendants  contend  that 
the  bequests  to  them  were  legacies  in  the  universally  accepted  and  legal 
meaning  of  the  term  and  as  it  is  used  in  the  Income  Tax  Act.  Further,  that 
what  was  received  is  not  taxable  income  because  it  was  not  given  as  con- 
sideration for  services  and  was  not  derived  from  labor.  (Merchants  Trust  Co. 
vs  Smietanka,  255  U.  S.  509)  Income  has  been  frequently  described  “as  a 
gain  derived  from  capital,  from  labor  or  from  both  combined.”  (Stratton’s 
Independence  vs  Howbert,  231  U.  S.  399).  And  later,  using  the  same  defin- 
ition, the  Supreme  Court  has  said  that  income  can  be  defined  as  a gain  derived 
from  capital,  from  labor  or  from  both  combined  provided  it  be  understood  to 
include  profit  gained  through  a sale  or  conversion  of  capital  assets.  (Eisner 
vs  Macomber,  252  U.  S.  189).  The  conditional  or  unconditional  voluntary 

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752 


10-18-22. 


disposition  of  personal  property  by  will  is  a bequest.  (Jessup’s  Redfield, 
lf917,  p.  1 138).  A bequest  in  lieu  of  dower  which  is  a legacy  given  conditional 
upon  the  surrender  by  the  legatee  of  a right  of  dower,  has  been  held  to  be  a 
bequest.  (Orton  vs  Orton,  3 Keyes,  486).  In  the  cited  case,  the  legacy  was 
given  in  lieu  of  dower  and  a provision  was  made  that  should  there  be  a surplus 
in  the  estate  after  the  payment  of  the  legacies,  the  legatee  should  share  pro- 
portionately therein.  The  executors  assumed  the  position  that  the  widow 
was  not  entitled  to  any  part  of  the  surplus  on  the  ground  that  a bequest  in 
lieu  of  dower  was  not  a legacy  and  that  therefore  she  was  not  a legatee,  but 
the  court  held  that  notwithstanding  the  bequest  to  the  wife  was  declared  to 
be  in  lieu  of  dower,  it  was  still  a legacy.  “Such  it  was  in  legal  as  well  as 
common  parlance  and  it  was  constantly  called  by  that  name  in  the  books.” 
Direction  by  the  testator  that  his  debts  should  be  paid  negatives  the  pre- 
sumption that  a bequest  to  a creditor  is  conditional  upon  a waiver  of  his  claim 
and  makes  his  legacy  absolute.  (Boughton  vs  Flint,  74  N.  Y.  476).  Bequests 
to  executors  or  trustees  in  lieu  of  compensation  for  their  services  or  “for  their 
care  and  pain,”  have  been  held  to  be  bequests  in  every  acceptation  of  that 
term.  And  a legacy  to  an  executor,  even  expressed  to  be  “for  care  and  pains,” 
is  not  to  be  regarded  in  the  light  of  a debt  or  as  founded  in  contract  or  to  be 
governed  by  principles  applicable  to  contracts,  for  to  do  so  would  make  the 
executor  who  undertook  the  discharge  of  his  duties  entitled  to  his  legacy  in 
preference  to  all  other  legacies,  even  if  there  were  a deficiency  of  assets  to 
satisfy  all  of  them,  and  a legatee  of  this  description  must  abate  equally  with 
other  legatees.  (Morris  vs  Kent,  2 Edwards  Chancery,  179).  A will  pro- 
viding a bequest  of  $700  over  and  above  any  and  all  commissions  to  an 
executor  entitles  him  to  receive  it  (upon  condition  that  the  executor  should 
accept  and  qualify)  not  as  compensation  for  services  and  it  was  held  not  to 
abate  with  the  general  legacies.  It  was  said  to  be  a general  legacy  and 
subject  to  abatement.  (Waters  vs  Collins,  3 Dem.  374).  Lord  Hardwicke 
in  Heron  vs  Heron  (2  Atk.  [English  Reports,  Vol.  26,  p.  507]  171)  says  that 
bequests  to  executors  “even  though  given  expressly  for  care  and  pains,  do 
not  differ  from  general  legacies  so  as  to  take  them  out  of  the  ordinary  rule 
in  respect  to  abatement  for  deficiency  of  assets.”  Clayton  vs  Akin  (38  Ga. 
320)  held  that  one  thousand  dollars  given  and  bequeathed  “for  extra  trouble 
he  may  have  had  in  executing  this,  my  will”  was  a legacy  to  the  executor  in 
every  aspect  of  it,  a general  legacy  and  as  to  abatement  in  case  of  a deficiency 
of  assets,  must  take  its  fate  as  such. 

3368  Bequests  are  either  absolute  or  conditional,  vested  or  contingent.  It 
was  not  essential  for  the  legatees  named  to  qualify  in  order  to  become 
entitled  to  their  legacies.  A bequest  to  one  in  lieu  of  compensation  for  his 
services  which  is  conditional  only  upon  his  willingness  to  qualify  and  serve 
if  circumstances  permit  him  to  do  so,  is  nevertheless  a legacy.  We  must 
assume  that  Congress  had  in  mind,  by  using  the  term  “bequest’  in  the 
income  tax  law,  to  give  to  it  that  settled  rule  of  construction  well  known  and 
sanctioned  by  judicial  decision.  (Kepner  vs  U.  S.,  195  U.  S.  100).  ‘Ghat 
presumption  is  resistless  except  against  an  intention  imperatively  clear.” 
(Lynch  vs  Turrish,  247  U.  S.  221).  In  interpreting  statutes,  levying  taxes, 
it  is  the  rule  “not  to  extend  their  provisions  by  implication  beyond  the  clear 
import  of  the  language  used  or  to  enlarge  their  operations  so  as  to  embrace 
matters  not  specifically  pointed  out.”  (Gould  vs  Gould,  245  U.  S.  151). 
The  case  differs  from  one  where  there  is  a provision  in  a will  to  pay  a con- 
tractual obligation,  a debt,  which  would  be  collectible  even  if  the  obligor  did 
not  provide  for  its  payment  by  will,  for  there  the  money  agreed  to  be  paid 
would  be  acquired  by  contract  and  not  by  bequest.  (In  re  Baker,  178 

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N.  Y.  575;  Matter  of  Vanderbilt,  184  App.  Div.  661;  In  re  Alfred  G.  Van- 
derbilt, 226  N.  Y.  638).  Everything  that  comes  in  is  not  income  taxable 
under  the  statute.  (So.  Pac.  Co.  vs  Lowe  &c.  247  U.  S.  330).  It  is  clear 
that  Congress  intended  the  words  “acquired  by  gift,  bequest,  devise  or 
descent”  to  be  words  of  exception  and  not  of  exemption.  The  word  “bequest” 
is  used  in  the  exemption  clause  of  the  act,  and  the  act  provides  that  income 
shall  include  all  gains  derived  from  compensation  for  personal  services  except 
property  acquired  by  bequest.  It  is  clear  that  it  was  the  intent  of  the  testator 
to  give  the  legacy  and  not  to  permit  the  executors  to  work  for  it. 

33G3  It  is  contended  by  the  Government  that  Article  Sixteenth  of  the  will 
is  in  effect  a testamentary  fixing  by  the  testator,  of  the  compensation 
to  be  paid  for  services  to  be  rendered  by  his  executors,  but  bequests  are  not 
compensatory,  they  are  donative.  The  taxing  statute  intended  something 
different.  The  compensation  for  personal  services  of  whatever  kind  and  in 
whatever  form  immediately  follows  and  supplements  the  term  “salaries”  in 
the  statute,  which  indicates  a periodical  payment  made  as  compensation  for 
regular  employment,  (Benedict  vs  U.  S.,  176  U.  S.  357)  and  wages  which  are 
generally  applied  for  manual  labor.  (Matter  of  Stryker,  158  N.  Y.  526). 
We  think  Congress  contemplated  and  intended  to  cover  payments  under 
contracts  of  employment  expressed  or  implied  and  intended  the  taxing 
statute  to  reach  all  forms  of  payment  for  services  rendered.  But  this  does 
not  affect  the  intention  of  Congress  that  the  essential  factor  be  present  that 
Whatever  is  sought  to  be  taxed  under  the  phrase  must  be  a consideration  for 
work  performed  or  to  be  performed,  and  that  it  must  be  compensation  derived 
from  or  flowing  from  labor.  The  income  within  the  purview  of  the  Con- 
stitution is  defined  to  be  a gain  derived  from  capital,  from  labor  or  from  both 
combined,  provided  it  be  understood  to  include  profit  gained  through  a sale 
or  conversion  of  capital  assets.  (Eisner  vs  McDonald;  Straton’s  Independ- 
ence, supra;  Doyle  vs  Mitchel  Bros.  Co.,  247  U.  S.  179).  A legacy  acquired 
by  bequest  does  not  proceed  from  labor.  The  question  must  be  determined, 
not  by  the  phrase  “in  lieu  of  commissions”  but  upon  the  question  of  whether 
the  bequest  was  in  fact  a consideration  for  services  to  be  rendered.  The 
bequests  were  not  stipulated  as  a condition  for  service.  As  a general  prin- 
ciple, if  an  executor  unequivocally  manifests  an  intention  to  act  in  the 
executorship,  that  will  be  a performance  of  the  condition  upon  which  his 
legacy  depends,  although  he  be  prevented  by  circumstances  from  actually 
serving.  (Williams  on  Executors,  Sixth  Am.  Ed.  Vol.  II,  1394;  Morris  vs 
Kent,  supra;  Scofield  vs  St.  John,  65  How.  Pr.  292).  In  the  case  of  Brydges 
vs  Wotten  (1  Ves.  & Beam,  134)  a legatee  named  as  trustee  and  to  whom  the 
legacy  was  given  as  a token  of  regard  and  recompense  for  his  trouble,  died 
nineteen  months  after  the  death  of  the  testator,  without  having  acted  at  all, 
and  he  was  held  to  have  become  entitled  to  his  legacy  in  the  absence  of  any 
refusal  or  neglect  to  act.  The  rule  of  law  is  well  settled  that  bequests  made 
conditional  only  upon  being  ready  and  willing  to  assume  the  executory  office 
provided  circumstances  permit  them  to  do  so  and  to  entitle  them  to  legacies, 
it  is  not  required  of  them  that  they  should  render  services  for  which  they 
would  have  a legal  claim  for  compensation  in  the  form  of  commissions. 
Inability  of  a legatee  to  enter  upon  performance  of  service  as  executor  would 
not  prevent  the  absolute  vesting  of  a bequest  in  him  in  lieu  of  commissions. 
(Bean  vs  Carlton,  12  N.  Y.  Supp.  519,  affd.  126  N.  Y.  642;  Wheeler  v Board, 
12  Johns,  363). 

3370  Assuming  that  the  executors  named  had  all  died  in  a common  disaster 
before  the  formalities  of  the  probate  of  the  will  had  been  completed, 
could  not  their  representatives  respectively  insist  upon  payment  of  the 

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respective  legacies?  There  is  little  doubt  that  the  legacies  would  then  hare 
been  acquired  by  bequest  within  the  meaning  of  the  law.  We  think  the  whole 
of  each  legacy  was  payable  independent  of  services.  It  was  an  acquisition 
to  each  legatee  by  bequest"within  the  meaning  of  the  taxing  act  and  was 
therefore  not  taxable  as  income. 

Judgments  reversed  * 

337 1 *The  cases  reported  above  are  in  the  United  States  Supreme  Court.— 

A petition  for  a writ  of  certiorari  to  the  Second  Circuit  Court  of 
Appeals  was  granted  by  the  United  States  Supreme  Court  on  October  16, 
1922  in  each  of  the  two  cases  reported  above.  On  the  Supreme  Court  docket 
these  cases  are  respectively  Nos.  457  and  458,  October  1922  Term. — The 
Corporation  Trust  Company. 


(T.  D.  3402) 

{All  relative  to  rights  is  substituted  for  last  sentence  of  old  Article  39.) 

3372  Sale  of  the  right  to  subscribe  to  stock:  Article  39  of  Regulations  45 

1219  amended. — Article  39  of  Regulations  45,  as  amended  by  T.  D.  3206, 

3217  is  amended  to  read  as  follows: 

3373  Art.  39.  Sale  of  stock  and  rights. — When  shares  of  stock  in  a cor- 
poration are  sold  from  lots  purchased  at  different  dates  and  at  different 

prices  and  the  identity  of  the  lots  can  not  be  determined,  the  stock  sold  shall 
be  charged  against  the  earliest  purchases  of  such  stock.  The  excess  of  the 
amount  realized  on  the  sale  over  the  cost  of  the  stock  will  constitute  gain. 
However,  the  gain  which  is  taxable  in  the  case  where  the  stock  was  acquired 
before  March  1,  1913,  when  its  fair  market  value  as  of  that  date  is  in  excesrs 
of  its  cost,  is  the  excess  of  the  amount  realized  by  the  sale  over  such  value-. 
No  gain  is  recognized  when  stock  is  sold  at  more  than  its  cost  but  at  less  than 
its  fair  market  value  as  of  March  1,  1913.  In  the  case  of  stock  in  respeet  of 
which  any.  stock  dividend  was  paid,  the  cost  of  each  share  of  such  stock  shall 
be  ascertained  as  specified  in  article  1547.  Where  common  stock  is  received 
as  a bonus  with  the  purchase  of  preferred  stock  or  bonds,  the  total  purchase 
price  shall  be  fairly  apportioned  between  such  common  stock  and  the  securi- 
ties purchased,  for  the  purpose  of  determining  the  portion  of  the  cost  attri- 
butable to  each  class  of  stock  or  securities,  but  if  that  should  be  impracticable 
in  any  case,  no  profit  on  any  subsequent  sale  of  any  part  of  the  stock. pr 
securities  will  be  realized  until  out  of  the  proceeds  of  sales  shall  have  been 
recovered,  the  total  cost.  See  article  1565  as  amended.  Where  a corporation 
issues  to  its  stockholders  the  right  to  subscribe  to  its  stock,  the  value  of  the 
right  does  not  constitute  taxable  income  to  the  stockholder,  but  gain  may  be 
derived  or  loss  sustained  by  the  stockholder  from  the  sale  of  such  right. 
The  amount  of  taxable  gain  derived  or  deductible  loss  sustained  from  the 
sale  by  a stockholder  of  the  right  to  subscribe  or  from  the  sale  of  the  stock 
with  respect  to  which  the  right  is  issued  shall  be  determined  as  provided  in 
.article  1561  as  amended,  after  the  cost  or  both  the  cost  and  fair  market  value 
as  of  March  1,  1913  if  acquired  prior  thereto  of  both  the  old  shares  and  the 
right  is  determined  in  accordance  with  the  following  rule: 

3374  Where  the  right  issued  relates  to  new  stock  of  substantially  the  same 
character  or  preference  as  the  stock  with  respect  to  which  the  right 

is  issued,  the  cost  of  each  share  of  the  old  stock  and  the  right  to  subscribe 
to  each  share  of  the  new  (or,  if  acquired  prior  to  March  1,  1913,  the  fair 
-market  value  as  of  that  date)  will  be  the  quotient  of  the  cost  (ojr  such  fair 

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market  value)  ol  the  old  shares  of  stock,  plus  the  subscription  price  of  the 
new  shares  of  stock,  divided  by  the  sum  of  the  number  of  the  old  shares  and 
the  number  of  new  shares  covered  by  the  right.  In  computing  the  gain 
from  the  sale  of  the  right  in  accordance  with  article  1561  the  price  for  which 
sold  shall  be  considered  the  sum  of  the  subscription  price  of  the  new  shares 
and  the  selling  price  of  the  right.  The  above  rule- for  computing  the  gain 
from  the  sale  of  the  right  to  subscribe  to  stock  is  subject  to  the  limitation 
that  the  gain  so  computed  shall  not  exceed  the  amount  for  which  the  right  is 
spld;  in  any  case  in  which  this  limitation  is  applied,  the  gain  or  loss  from  the 
subsequent  sale  of  the  stock  with  respect  to  which  the  right  was  issued  shall 
b.e  determined  as  if  po  right  to  subscribe  had  been  issued  with  respect  to  it 
Where  the  stockholder  exercises  his  right  to  subscribe  to  new  stock  of  sub- 
stantially the  same  character  or  preference  as  the  stock  with  respect  .to  which 
the  right  is  issued,  the  cost  of  the  old  and  new  shares  (or,  if  acquired  prior 
to  March  1,  1913,  the  fair  market  value  as  of  that  date)  will  be  the  quotient 
of  the  cost  of  the  old  shares,  plus  the  subscription  price  of  the  new  shares, 
divided  by  the  total  number  of  the  old  and  new  shares.  Where  the  right  issued 
deals  with  stock  in  whole  or  in  part  of  a character  or  preference  materially 
different  from  the  stock  with  respect  to  which  the  right  is  issued,  or  where  the 
stock  with  respect  to  which  the  right  is  issued  was  purchased  at  different 
times  and  at  different  prices,  and  the  identity  of  the  lots  can  not  be  deter- 
mined, or  where  the  stock  with  respect  to  which  the  right  is  issued  was  pur- 
chased at  different  times  and  at  different  prices  and  the  stock  right  issued 
with  respect  to  such  stock  cannot  be  identified  as  having  been  issued  with 
respect  to  any  particular  lot  of  such  stock,  the  computation  of  the  gain  from 
the  sale  of  the  old  shares  or  the  right  in  cases  where  the  right  is  sold  or  from 
the  sale  of  the  old  or  new  shares  in  cases  where  the  right  is  exercised  shall 
be  based  upon  and  shall  be  in  accordance  with  the  principles  laid  down  in 
article  1547  as  amended  with  respect  to  the  computation  of  the  gain  or  loss 
from  the  sale  of  stock  received  as  a stock  dividend.  (T.  D.  3402,  signed  by 
Commissioner  D.  H.  Blair,  and  dated  October  18,  1922.) 


(T.  D.  3403.) 

( All  relative  to  rights  is  substituted  for  last  sentence  of  old  Article  39.) 

3376  Sale  of  the  right  to  subscribe  to  stock:  Articlej39  of  Regulations  62 
1219  amended. — Article  39  of  Regulations  62  is  amended  to  read  as 
321?  follows: 

337®  Art.  39.  Sale^of  Stockland  ^rights. — When  shares  of  stock  in  a cor- 
poration are  sold  from  lots  purchased  at  different  dates  and  at  dif- 
ferent prices  and  the  indentity  of  the  lots  can  not  be  determined  the  stock 
sold  shall  be  charged  against  the  earliest  purchases  of  such  stock.  The 
excess  of  the  amount  realized  on  the  sale  over  the  cost  of  the  stock  will  con- 
stitute gain.  However,  the  gain  to  be  included  in  gross  income  in  the  case 
where  the  stock  was  acquired  before  March  1,  1913,  when  its  fair  market 
value  as  of  that  date  is  in  excess  of  its  cost,  is  the  excess  of  the  amount  real- 
ized by  the  sale  over  such  value.  No  gain  is  recognized  when  stock  is  -sold 
at  more  than  its  cost,  but  at  less  than  its  fair  market  value  as  of  March  1, 
■1913.  In  the  case  of  stock  in  respect  of  which  any  stock  dividend  was  paid, 
the  cost  of  each  share  of  such  stock  shall  be  ascertained  as  specified  in  article 
1548  ' Hi  1136].  Where  common  stock  is  received  as  a bonus  with  the  pur- 
chase of  preferred  stock  or  bonds,  the  total  purchase  price  shall  be  fairly 
apportioned  between  such  common  stock  and  the  securities  purchased  for 

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10-21-22.  (2)  10-30-22. 

the  purpose  of  determining  the  portion  of  the  cost  attributable  to  each  class 
of  stock  or  securities,  but  if  that  should  be  impracticable  in  a try-  case,  no 
profit  on  any  subsequent  sale  of  any  part  of  the  stock  or  securities  will  be 
realized  until  out  of  the  proceeds  of  sales  shall  have  been  recovered  the 
total  cost.  See  article  1567  [If  1477].  Where  a corporation  issues  to  its  stock- 
holders the  right  to  subscribe  to  its  stock,  the  value  of  the  right  does  not 
constitute  taxable  income  to  the  stockholder,  but  gain  may  be  derived  or 
loss  sustained  by  the  stockholder  from  the  sale  of  such  right.  The  amount 
of  taxable  gain  derived  or  deductible  loss  sustained  from  the  sale  by  a stock- 
holder of  the  right  to  subscribe  or  from  the  sale  of  the  stock  with  respect 
to  which  the  right  is  issued  shall  be  determined  as  provided  in  article  1561 
[1[1437],  after  the  cost  or  both  the  cost  and  fair  market  value  as  of  March 
1,  1913’  if  acquired  prior  thereto  of  both  the  old  shares  and  the  right  is 
determined  in  accordance  with  the  following  rule: 

3377  Where  the  right  issued  relates  to  new  stock  of  substantially  the 
same  character  or  preference  as  the  stock  with  respect  to  which  the 
right  is  issued,  the  cost  of  each  share  of  the  old  stock  and  the  right  to  sub- 
scribe to  each  share  of  the  new  (or,  if  acquired  prior  to  March  1,  1913,  the 
fair  market  value  as  of  that  date)  will  be  the  quotient  of  the  cost  (or  such 
fair  market  value)  of  the  old  shares  of  stock,  plus  the  subscription  price  of 
the  new  shares  of  stock,  divided  by  the  sum  of  the  number  of  the  old  shares 
and  the  number  of  new  shares  covered  by  the  right.  In  computing  the  gam 
from  the  sale  of  the  right  in  accordance  with  article  1561  the  price  for  which 
sold  shall  be  considered  the  sum  of  the  subscription  price  of  the  new  shares 
and  the  selling  price  of  the  right.  The  above  rule  for  computing  the  gain 
from  the  sale  of  the  right  to  subscribe  to  stock  is  subject  to  the  limitation 
that  the  gain  so  computed  shall  not  exceed  the  amount  for  which  the  right 
is  sold;  in  any  case  in  which  this  limitation  is  applied,  the  gain  or  loss  from 
the  subsequent  sale  of  the  stock  with  respect  to  which  the  right  was  issued 
shall  be  determined  as  if  no  right  to  subscribe  had  been  issued  with  respect 
to  it.  Where  the  stockholder  exercises  his  right  to  subscribe  to  new  stock 
of  substantially  the  same  character  or  preference  as  the  stock  with  respect 
to  which  the  right  is  issued,  the  cost  of  the  old  and  new  shares  (or,  if  acquired 
prior  to  March  1,  1913,  the  fair  market  value  as  of  that  date)  will  be  the 
quotient  of  the  cost  of  the  old  shares,  plus  the  subscription  price  of  the  new 
shares,  divided  by  the  total  number  of  the  old  and  new  shares.  Where  the 
right  issued  deals  with  stock  in  whole  or  in  part  of  a character  or  preference 
materially  different  from  the  stock  with  respect  to  which  the  right  is  issued, 
or  where  the  stock  with  respect  to  which  the  right  is  issued  was  purchased 
at  different  times  and  at  different  prices,  and  the  identity  of  the  lots,  can  not 
be  determined,  or  where  the  stock  with  respect  to  which  the  right  is  issued 
was  purchased  at  different  times  and  at  different  prices  and  the  stock,  right 
issued  with  respect  to  such  stock  can  not  be  identified  as  having  been  issued 
with  respect  to  any  particular  lot  of  such  stock,  the  computation  of  . the 
gain  from  the  sale  of  the  old  shares  or  the  right  in  cases  where  the  right 
is  sold  or  from  the  sale  of  the  old  or  new  shares  in  cases  where  the  right  is 
exercised  shall  be  based  upon  and  shall  be  in  accordance  with  the  principles 
laid  down  in>rticle  1548  [If  1136]  with  respect  to  the  computation  of  the  gain 
or  loss  from  the  sale  of  stock  received  as  a*^stock  dividend.  |(r.  D.  3403, 
signed  by  Commissioner  D.  H.  Blair,  and  dated  October  18,51922.) 


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3378  Placing  of  income  for  taxable  period  of  less  than  12  months  on  an 
2574  4 annual  basis:  (1)  in  general,  decedent  dying  during  year  and  estates 
3008  of  decedents;  and  (2)  special,  calendar  year  decedent-member  of 

fiscal  year  partnership.— ( 1).  Reference  is  made  to  your  letter  of 
May  25,  1922,  in  which  you  request  a reconsideration  of  the  ruling  of  this  office 
holding  that  Section  226  (c)  of  the  Revenue  Act  of  1921  applies  to  the  returns 
of  decedents  and  estates  of  decedents  covering  a period  of  less  than  twelve 
months.  In  reply  you  are  advised  that  careful  consideration  has  been  given 
to  this  question  and  the  office  finds  nothing  which  would  cause  it  to  recede 
from  or  modify  its  former  ruling.  Accordingly,  the  income  of  decedents  or  of 
the  estates  of  decedents  covering  a period  of  less  than  twelve  months  must  be 
placed  on  an  annual  basis  and  the  tax  computed  in  accordance  with  Section 
226  (c)  of  the  Revenue  Act  of  1921.  (Letter  to  Brower,  Brower  and  BtoWer, 
Brooklyn,  New  York,  signed  by  Deputyr  Commissioner  E.  H.  Batson,  and 
dated  October  22,  1922.) 

3379  (2).  Reference  is  made  to  your  letter  of  April  21,  1922,  presenting 
a proposed  method  for  computing  the  income  tax  liability  of  a de- 
cedent who  kept  his  books  on  a calendar  year  basis  and  was  a member  of  a 
partnership  which  reported  on  the  basis  of  a fiscal year  ending  July  31.  In 
the  case  presented  by  you,  the  decedent  died  on  January  31,  1922.  You 
submit  a method  of  computing  his  income  tax  liability  whereby  his  distribu- 
tive share  of  the  net  income  of  the  partnership  for  the  six  months  from 
August  1,  1921,  to  January  31,  1922,  the  date  of  decedent’s  death,  and  con- 
sequently the  end  of  an  accounting  period  of  the  partnership,  is  put  on  an 
annual  basis  by  multiplying  by  12  and  dividing  by  6.  The  decedent’s  income 
from  other  sources  is  put  on  an  annual  basis  by  multiplying  by  12  and  divid- 
ing by  1. 

3380  Section  226  (c)  of  the  Revenue  Act  of  1921  provides  as  follovys: 

“In  the  case  of  a return  for  a period  of  less,  than  one  year  the  net 

income  shall  be  placed  on  an  annual  basis  by  multiplying  the  amount 
thereof  byr  twelve  and  dividing  by  the  number  of  months:  included  in 
such  period;  and  the  tax  shall  be  such  part  of  a tax  computed  on  such 
annual  basis  as.  the  number  of  months  in  such  period  is  of  twelyg  months.” 

3381  In  the  case  under  consideration  the  net  income  of  the  decedent 
for  the  taxable  period  from  January'  1 to  January  31,  1922,  must  be 

computed  from  gross  income  that  includes  his  distributive  share  of  the  net 
income  of  the  partnership  for  the  accounting  period  from  August  1,  1921, 
to  January  31,  1922,  in  accordance  with  the  provisions  of  Section  218  (a)  of 
the  1921  Act. 

3382  Section  226  (c)  of  the  statute  lays  down  a specific  method  of  placing 
all  the  net  income  of  a decedent  on  an  annual  basis  and  makes  no 

provision  for  segregating  any  part  of  that  income  and  using  a different  basis 
with  respect  to  that  part  of  the  income.  It  is,  therefore,  held  that  in.  the 
instant  case  the  method  proposed  by  you  of  putting  the  decedent’s  distribu- 
tive share  of  the  net  income  of  the  partnership  on  an  annual  basis  is  not  in 
accordance  with  the  statute.  (Letter  to  The  Corporation  Trust  Company, 
signed  by  Commissioner  D.  LI.  Blair,  and  dated  October  21,  1922.) 


(T.  D.  3405.) 

3383  Under  the  provisions  of  the  Bankruptcy  Act  taxes  due  the  United 
2747  States  take  priority  over  claims  against  the  estate  of  a bankrupt  for 
wages.  [U.  S.  District  Court,  S.  D.  of  N.  Y.,  so  holds  in  The  Matter 
of  Morris  Kittenplan,  Bankrupt,  decided  July  20,  1922.]  (T.  D.  3405, 

signed  by  Commissioner  D.  H.  Blair,  and  dated  October  25,  1922.) 

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(T.  D.  3406.) 


3384  An  Act  relative  to  the  naturalization  and  citizenship  of  married 

748  women. — The  appended  Act  [beginning  at  ^[3385],  approved  Scp- 

749  tember  22,  1922,  while  not  an  internal  revenue  measure,  is  published 
for  the  information  and  guidance  of  revenue  officers  and  others  con- 
cerned in  determining  the  citizenship  of  American-born  women  whojiave 
married  aliens  and  of  foreign-born  women  who, have  married  American  citi- 
zens, under  the  Federal  income  tax  Act  and  Article  4 [1[748],  Regulations  62. 
(T.  D.  3406,  signed  by  Commissioner  D.  H.  Blair,  and  dated  October  28, 
1922.) 

(Public — No.  346 — 67th  Congress.) 

(H.  R.  12022.) 

An  Act  relative  to  the  naturalization  and  citizenship  of  married  women. 

3385  Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled , That  the  right  of  any  woman 

to  become  a naturalized  citizen  of  the  United  States  shall  not  be  denied  or 
abridged  because  of  her  sex  or  because  she  is  a married  woman. 

3386  Sec.  2.  That  any  woman  who  marries  a citizen  of  the  United  States 
after  the  passage  of  this  Act,  or  any  woman  whose  husband  is  natural- 
ized after  the  passage  of  this  Act,  shall  not  become  a citizen  of  the  United 
States  by  reason  of  such  marriage  or  naturalization;  but,  if  eligible  to  citi- 
zenship, she  may  be  naturalized  upon  full  and  complete  compliance  with 
all  requirements  of  the  naturalization  laws,  with  the  following  exceptions: 

(a)  No  declaration  of  intention  shall  be  required; 

(b)  In  lieu  of  the  five-year  period  of  residence  within  the  United  States 
and  the  one-year  period  of  residence  within  the  State  or  Territory  where 
the  naturalization  court  is  held,  she  shall  have  resided  continuously  in  the 
United  States,  Hawaii,  Alaska,  or  Porto  Rico  for  at  least  one  year  immedi- 
ately preceding  the  filing  of  the  petition. 

3387  Sec.  3.  That  a woman  citizen  of  the  United  States  shall  not  cease 
to  be  a citizen  of  the  United  States  by  reason  of  her  marriage  after 

the  passage  of  this  Act,  unless  she  makes  a formal  renunciation  of  her  citizen- 
ship before  a court  having  jurisdiction  over  naturalization  of  aliens:  Pro- 
vided, That  any  woman  citizen  who  marries  an  alien  ineligible  to  citizen- 
ship shall  cease  to  be  a citizen  of  the  United  States.  If  at  the  termination 
of  the  marital  status  she  is  a citizen  of  the  United  States  she  shall  retain 
her  citizenship  regardless  of  her  residence.  If  during  the  continuance  of  the 
marital  status  she  resides  continuously  for  two  years  in  a foreign  State  of 
which  her  husband  is  a citizen  or  subject,  or  for  five  years  continuously  out- 
side the  United  States,  she  shall  thereafter  be  subject  to  the  same  presump- 
tion as  is  a naturalized  citizen  of  the  United  States  under  the  second  para- 
graph of  section  2 of  the  Act  entitled  “An  Act  in  reference  to  the  expatria- 
tion of  citizens  and  their  protection  abroad,”  approved  March  2,  1907. 
Nothing  herein  shall  be  construed  to  repeal  or  amend  the  provisions  of 
Revised  Statutes  1999  or  of  section  2 of  the  Expatriation  Act  of  1907  with 
reference  to  expatriation. 

3388  Sec.  4.  That  a woman  who,  before  the  passage  of  this  Act,  has  lost 
her  United  States  citizenship  by  reason  of  her  marriage  to  an  alien 

eligible  for  citizenship,  may  be  naturalized  as  provided  by  section  2 of  this 
Act:  Provided,  That  no  certificate  of  arrival  shall  be  required  to  be  filed  with 
her  petition  if  during  the  continuance  of  the  marital  status  she  shall  have 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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resided  within  the  United  States.  After  her  naturalization  she  shall  have 
the  same  citizenship  status  as  if  her  marriage  had  taken  place  after  the 
passage  of  this  Act. 

3389  Sec.  5.  1 hat  no  woman  whose  husband  is  not  eligible  to  citizenship 

shall  be  naturalized  during  the  continuance  of  the  marital  status 

3390  Sec.  6.  That  section  1994  of  the  Revised  Statutes  and  section  4 
. of  the  Expatriation  Act  of  1907  are  repealed.  Such  repeal  shall  not 

terminate  citizenship  acquired  or  retained  under  either  of  such  sections  nor 
restore  citizenship  lost  under  section  4 of  the  Expatriation  Act  of  1907. 

3391  Sec.  7.  That  section  3 of  the  Expatriation  Act  of  1907  is  repealed, 
ouch  repeal  shall  not  restore  citizenship  lost  under  such  section  nor 

terminate  citizenship  resumed  under  such  section.  A woman  who  has  re- 
sumed under  such  section  citizenship  lost  by  marriage  shall,  upon  the  pas- 
sage  of  this  Act,  have  for  all  purposes  the  same  citizenship  status  as  imme- 
diately preceding  her  marriage. 

Approved,  September  22,  1922. 

(Act  appended  to  and  referred  to  in  T.  D.  3406,  ^[3384  above.) 

3392  Expenses  in  connection  with  the  breeding  of  blooded  horses  and  the 
1 195  incidental  racing  thereof  held  to  be  deductible,  in  a particular  case  — 
3127  [In  Wilson  vs.  Eisner  (282  Fed.  38),  an  action  to  recover  taxes  paid 

by  Mr.  Wilson  on  additional  assessment  under  the  1913  Act  by 
virtue  of  the  disallowance  of  expenses  incident  to  his  stock  farm  and  to  the 
participation  of  certain  of  his  horses  in  race  meets  in  competition  for  money 
pnzes,  wind h expenses  were  deducted  on  his  return  for  1913,  the  Court 
0 „ in  deciding  against  the  Government,  says,  after  noting  that 
..  Wilson  since  1905,  was  engaged  in  the  business  of  breeding  horses  and 
raising  stock  as  a business,  for  the  purpose  of  profit  and  gain,  and,  as  he  says, 
to  improve  the  standard  breed  of  horses”: 

3393  “All  the  essentials  of  business  were  present  in  the  enterprise  under- 
ta  , by  the  plaintiff  He  had  a place  of  business,  a large  farm  of 

500  acres,  cultivated  feed  for  the  horses,  raised  young  horses,  and  had  a force 
ot.men  to  care  for  them  and  for  the  farm.  He  did  not  reside  there.  He  re- 
ceived income  from  the  business  by  way  of  prizes  at  fairs,  purses  at  race 
tracks,  and  sales  of  his  stock.  He  kept  books  showing  a record  of  his  business 
transactions.  The  farm  was  in  charge  of  his  personal  business  agent.  He 
spent  considerable  time  watching  his  horses  at  the  race  track  and  aiso  in 
shows.  He  gave  personal  attention  to  the  enterprise.  The  years  1909  1916 
1919,  and  1920  showed  a profit,  and  he  gave  the  benefit  of  this  to  the  govern- 
ment by  paying  taxes  therefor.  The  years  1910,  1911,  1912,  1913,  1914  1915 
1917,  and  1918  showed  a loss.  The  amount  of  his  losses  for  the  years  ques- 
tioned  here  are  not  disputed.  Raising  and  breeding  horses  may  well  be  an 
enterprise  entered  into  as  a business  for  profit.” 

3394  “We  can  see  no  difference  between  the  plaintiff’s  position  and  that 
of  the  ordinary  ranchman,  who  raises  horses  for  the  market  to  be 

sold  for  trucking  or  draying  purposes.  If  it  be  a fact,  as  it  is  earnestly  urged 
by  the  defendant,  that  the  plaintiff  was  a sportsman  in  the  sense  that  he  is 
fond  of  racing  horses,  it  cannot  change  the  character  of  this  undertaking. 
Success  in  business  is  largely  obtained  by  pleasurable  interest  therein. 
Frofessional  baseball  playing  has  become  a business,  as  well  as  an  amusement 
tor  the  public.  And  so  with  numerous  other  business  enterprises,  such  as 
theatres,  circus,  and  motion  picture  industry.  We  think  the  evidence  here 
requires  the  conclusion  that  the  plaintiff  was  engaged  in  a business.”  (282 
Fed.  38).] 

Copyright  1922,  by  The  Corporation  Trust  Company . 

THE  FEDERAL  INCOME  TAX  SERVICE 
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1 1-8-22.  (2)  11-9-22.  (3)  11-15-22. 

(T.  D.  3407.) 

3395  U.  S.  Supreme  Court  decision:  Lederer  vs.  Stockton. — [This  T.  D. 
3355  reproduces,  merely,  the  opinion  in  Lederer  vs.  Stockton,  appearing 
in  full,  herein,  at  TJ3355. — The  Corporation  Trust  Company.] 


(T.  D.  3408.) 

3396  On  the  keeping  and  production  of  permanent  books  of  account. — 
1053  Every  taxpayer  carrying  on  the  business  of  producing,  manufactur- 
2711  ing,  purchasing  or  selling  any  commodities  or  merchandise,  except 
the  business  of  growing  and  selling  products  of  the  soil,  shall  for  the 
purpose  of  determining  the  amount  of  income  under  the  Revenue  Act  of 
1921,  keep  such  permanent  books  of  account  or  records,  including  inven- 
tories, as  are  necessary  to  establish  the  amount  of  gross  income  and  deduc- 
tions, credits  and  other  information  required  by  an  income  tax  return.  (Sec- 
tions 1300  [^[2709]  and  1303  H[2942]  of  the  Revenue  Act  of  1921.)  The 
taxpayer  shall  produce  such  books  of  account  or  records  for  the  inspection 
of  revenue  officers  duly  authorized  by  law  to  inspect  the  same,  at  such  time 
and  in  the  manner  provided  by  law.  (Sections  253  [^[2627]  and  1308  [^[2593] 
of  the  Revenue  Act  of  1921.)  (T.  D.  3408,  signed  by  Commissioner  D.  H. 
Blair,  and  dated  November  2,  1922.) 


3397  Appeals  and  hearings  on  1917  tax  cases  specifically:  Committee  on 

2763  Appeals  and  Review  enlarged:  special  Committee  on  Appeals  and 
2868  Review. — In  view  of  the  emergency  existing  at  the  present  time  with 

2923  respect  to  the  disposition  of  1917  income  and  profits  tax  cases,  it 

has  been  necessary  to  formulate  a plan  to  enable  the  Bureau  to  dispose 
of  such  cases  prior  to  March,  1923. 

3398  Under  this  plan  of  reorganization  the  Committee  on  Appeals  and 
Review  will  be  composed  of  twelve  (12)  members  beside  the  chairman.* 

The  membership  of  the  Committee  will  be  divided  into  four  groups  of  three 
members.  These  groups  of  three  will  hear  and  determine  cases  as  they  are 
received  from  the  Income  Tax  Unit  after  disposing  of  the  1917  cases  which 
have  heretofore  been  assigned. 

3399  In  addition  to  the  increase  of  the  personnel  of  the  Committee  on 
Appeals  and  Review  the  emergency  makes  it  necessary  to  take  further 

steps  to  dispose  of  the  accumulation  of  1917  cases  prior  to  March,  1923. 
With  this  end  in  view  a Special  Committee  on  Appeals  and  Review  has  been 
created.  This  Committee  will  devote  its  time  exclusively  to  the  hearing 
and  determination  of  the  1917  accumulated  appeals.  It  will  start  work  on 
the  larger  cases  and  dispose  of  them  in  the  order  of  their  size.  It  will  be 
composed  of  five  members  selected  from  the  personnel  of  the  Bureau,  will 
function  in  the  same  manner  as  the  Committee  on  Appeals  and  Review,  will 
report  directly  to  me  as  does  the  Committee  on  Appeals  and  Review,  will 
follow  the  same  procedure,  and  will  have  the  same  jurisdiction  as  the  Com- 
mittee on  Appeals  and  Review.  When  cases  have  been  heard  and  decided 
by  this  committee,  the  decision  will  be  final. 


*The  three  additional  members  of  the  Committee  on  Appeals  and  Review  are  C.  P. 
Smith,  W.  R.  King  and  Le  Roy  Russell.- — The  Corporation  Trust  Company. 

Copyright  19ZS,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

701 


11-9-22.  (2)11-15-1.. 

3400  The  personnel  of  the  Special  Committee  on  Appeals  and  Review  is  as 
follows: 

Mr.  A.  W.  Gregg,  Chairman 
Mr.  B.  M.  Price,  Member 
Mr.  C.  D.  Hamel,  Member 
Mr.  F.  B.  Bell,  Member 
Mr.  A.  C.  Muddiman,  Member 

3401  Hearings  will  be  granted  in  all  cases  where  the  taxpayer  so  requests 
and  after  considering  all  the  facts  submitted,  together  with  the  oral 

arguments  and  the  facts  in  the  record,  the  findings  of  the  Committee  will  be 
reduced  to  writing.  It  is  necessary  to  dispense  with  lengthy  written  opinions 
containing  complete  statements  of  facts,  authorities  and  arguments,  except 
in  those  cases  where  the  Chairman  of  either  committee  deems  it  advisable. 
The  findings  setting  forth  the  conclusion  reached  by  the  committee  will  be 
signed  by  the  Chairman  and  will  be  accepted  for  the  guidance  of  the  Income 
Tax  Unit. 

3402  All  cases  involving  questions  of  law  will  be  referred  to  the  Solicitor 
for  consideration  before  the  appeal  is  disposed  of  by  the  committee. 

3403  Cases  once  closed  after  consideration  by  either  committee  can  only 
be  reopened  upon  the  strictest  compliance  with  the  provisions  of  T.  D. 

3240  [lf2868].  (Bureau  Memo.  224,  signed  by  Commissioner  D.  H.  Blair, 
and  dated  November  7,  1922.) 


3404  In  a “cost  or  market  whichever  is  lower”  inventory  the  “cost”  of 
1516  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the 

inventory  price  of  such  goods. — Reference  is  made  to  office  letter 
dated  October  12,  1922,  in  reply  to  your  inquiry  of  September  25,  1922,  in 
regard  to  the  interpretation  of  the  first  paragraph  of  Article  1583  [^[15 16]  of 
Regulations  62  as  applied  to  the  valuation  of  an  inventory  on  the  basis  of 
cost  or  market  whichever  is  lower. 

3405  The  paragraph  in  question  states  that  cost  means  “in  the  case  of 
merchandise  on  hand  at  the  beginning  of  the  taxable  year,  the  inventory 

price  of  such  goods.”  Upon  further  consideration  of  the  question  presented 
by  you,  it  is  the  opinion  of  this  office  that  cost,  for  the  purpose  of  valuing  an 
inventory,  is  to  be  determined  in  accordance  with  Article  1583,  regardless  of 
whether  the  basis  of  cost  or  cost  or  market  value  whichever  is  lower,  is  used. 
Therefore,  where  an  inventory  of  goods  at  the  close  of  a taxable  year  includes 
merchandise  which  was  on  hand  at  the  beginning  of  the  year,  the  cost  thereof, 
to  be  compared  with  market  in  applying  the  basis  of  cost  or  market  whichever 
is  lower,  should  be  the  price  at  which  such  goods  were  included  in  the  opening 
inventory.  (Letter  to  Patterson,  Teele  and  Dennis,  attention  of  Mr.  Frank 
Lowson,  Washington,  D.  C.,  signed  by  Commissioner  D.  H.  Blair,  and  dated 
November  4,  1922.) 


(T.  D.  3409.) 

3406  Appeals  and  hearings:  Article  1006,  Regulations  62,  amended. — 

2763  Article  1006,  Regulations  62,  is  hereby  amended  to  read  as  follows: 

3397 

3407  Appeals  and  hearings. — -Section  250  (d)  of  the  Revenue  Act  of  1921 
provides  that  if  upon  examination  of  a return  made  under  the  Revenue 

Act  of  1916,  1917,  1918,  or  1921,  an  income  or  excess  profits  tax  or  a de- 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOM'C  TAX  SERVICE 

762 


11-15-22. 


ficicncy  therein  (which  deficiency  is  defined  in  Section  250  (b)  as  meaning 
the  difference,  to  the  extent  not  covered  by  any  credit  due  to  the  taxpayer 
under  Section  252,  between  the  amount  of  the  tax  already  paid  and  that 
which  should  have  been  paid)  is  discovered  the  taxpayer  shall  be  notified 
thereof  and  shall  have  the  right  of  an  appeal  and  a hearing  before  an  assess- 
ment is  made.  As  soon  as  practicable,  therefore,  after  a return  is  filed, 
whether  by  the  taxpayer  or  as  provided  in  section  3176  Revised  Statutes, 
as  amended,  it  is  examined  and  if  a tax  or  a deficiency  in  tax  is  discovered, 
the  taxpayer  shall  be  notified  thereof  by  registered  mail  and  a period  of  not 
less  than  30  days  given  the  taxpayer  in  which  to  file  an  appeal  to  the  Commis- 
sioner and  show  cause  or  reason  why  such  tax  or  deficiency  should  not  be 
paid.  Full  30  days  from  the  mailing  (not  the  receipt)  of  such  notice  to  file 
an  appeal  shall  be  given  the  taxpayer.  The  appeal  must  be  filed  in  the  office 
of  the  Commissioner  in  Washington  within  31  days  from  the  mailing  of  the 
notice,  but  if  it  is  mailed  in  time  to  be  received  by  the  Commissioner  within 
such  period  in  the  ordinary  course  of  the  mails  it  will  be  considered  as  having 
been  filed  within  such  period.  No  particular  form  of  appeal  is  required,  but 
the  appeal  must  set  forth  specifically  the  exceptions  upon  which  it  is  taken. 
The  appeal  shall  be  under  oath  and  must  contain  a statement  that  it  is  not 
taken  for  the  purpose  of  delay.  The  facts  and  grounds  upon  which  the  tax- 
payer relies  in  connection  with  his  appeal  must  be  fully  stated. 

3408  Upon  the  receipt  of  the  appeal  and  before  it  is  made  the  subject  of 
a hearing  by  the  agency  designated  by  the  Commissioner  to  hear  such 

appeal,  the  appeal  will  be  referred  to  the  income  tax  unit  in  Washington, 
or,  to  the  division  thereof  where  such  proposed  assessment  is  being  considered. 
The  taxpayer  may  request  a conference  before  the  income  tax  unit  to  be  held 
within  a period  prior  to  the  expiration  of  five  days  after  the  time  for  the 
filing  of  an  appeal.  Five  days  prior  to  the  expiration  of  the  time  allowed 
for  a conference  the  taxpayer  shall  submit  all  data  and  briefs  upon  which  he 
relies  in  connection  with  his  appeal.  If  the  income  tax  unit  and  the  taxpayer 
are  unable  to  reach  an  agreement  respecting  the  amount  of  the  proposed 
assessment,  the  appeal  shall  be  transmitted  to  such  agency  as  the  Com- 
missioner may  designate  for  consideration  and  hearing.  Opportunity  for  a 
hearing  before  the  appeal  agency  shall  be  granted  if  requested  within  a 
reasonable  time  in  accordance  with  the  practice  and  procedure  of  such  agency. 
The  taxpayer  in  his  appeal  may  rely  upon  data  previously  submitted,  or  he 
may  obtain  a reasonable  extension  of  time,  if  cause  therefor  is  shown,  in  which 
to  file  additional  data,  evidence  or  argument. 

3409  Such  request  shall  be  under  oath  and  must  state  specifically  the 
reasons  for  additional  time. 

3410  In  the  case  of  a return  which  is  examined  in  the  collector’s  office 
where  a tax  or  deficiency  therein  is  discovered,  the  taxpayer  will  be 

notified  thereof  by  registered  mail  and  the  same  period  given  the  taxpayer 
in  which  to  file  an  appeal  to  the  Commissioner  and  show  cause  or  reason  why 
such  tax  or  deficiency  should  not  be  paid.  Such  appeal  shall  be  filed  in  the 
manner  prescribed  above.  The  appeal  will  be  referred  to  the  collector’s 
office  where  such  proposed  assessment  is  being  considered.  The  procedure 
in  connection  with  such  appeal  shall  be  the  same  as  hereinbefore  provided  in 
the  case  of  appeals  from  the  decision  of  the  income  tax  unit. 

341  1 No  assessment  under  section  250  (d)  shall  be  made  without  notifica- 
tion to  the  taxpayer  of  his  right  to  appeal  and  show  cause,  except  that 
in  any  case  where  the  Commissioner^ believes  that' the  collection  of  the 
amount  due  will  be  jeopardized  by  delay,  he  may  make  the  assessment  without 
giving  such  notice  or  awaiting  the  conclusion  of  a hearing. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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11-15-22. 


412  Where  a taxpayer  has  been  given  an  opportunity  to  appeal  and  has 
not  done  so,  as  above  set  forth,  and  an  assessment  has  been  made,  or 

'here  a taxpayer  lias  appealed  and  an  assessment  in  accordance  with  the 
nal  decision  on  such  appeal  has  been  made,  no  claim  in  abatement  of  the 
ssessment  shall  be  entertained. 

413  Where  an  assessment  has  been  made  without  giving  the  taxpayer  an 
opportunity  to  appeal  or  without  awaiting  a decision  on  an  appeal 

hat  has  been  perfected,  a bona  fide  claim  in  abatement  of  the  assessment, 
led  within  ten  days  after  notice  and  demand  by  the  collector,  may  be  enter- 
ained.  (T.  D.  3409,  signed  by  Commissioner  D.  H.  Blair,  and  dated  Novem- 
er  13,  1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
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11-27-22.  (2)  11-29-22.  (8)  12-6-22. 


(T.  D.  3411.) 


3414j  Period^as  of  which  Federal  Estate  Tax  is  deductible:  Article  134, 
1728  Regulations  No.  45  (1920  Edition),  and  Article  134,  Regulations 
3116  No.  62,  amended. — Article  134,  Regulations  No.  45  (1920'Edition), 
as  amended  by  T.  D.  3316  [^[3115]  and  Regulations  No.  62,  Article 
134,  are  hereby  amended  by  substituting  for  the  first  paragraph  thereof  the 
following: 

Federal  estate  taxes,  paid  or  accrued  during  the  taxable  year,  are  an 
allowable  deduction  from  the  gross  income  of  the  estate  in  computing 
the  net  income  thereof,  subject  to  tax.  The  whole  amount  of  such 
taxes,  irrespective  of  when  paid,  is  deemed  to  have  accrued  on  the  due 
date  thereof,  namely,  one  year  after  the  decedent’s  death  (Sec.  406, 
Title  IV,  Revenue  Act  of  1921  [Federal  Estate  Tax  Law,  17449,  1922 
War  Tax  Service]),  and,  if  the  accounts  of  the  estate  are  kept  on  an 
accrual  basis,  are  deductible  from  gross  income  of  the  taxable  year  in 
which  such  due  date  falls,  or  for  the  taxable  year  in  which  paid,  if  paid 
before  the  due  date.  If  the  accounts  are  kept  on  the  basis  of  cash 
receipts  and  disbursements,  deduction  may  be  taken  from  gross  income 
of  the  taxable  year  or  years  in  which  the  payment  or  payments  may 
have  been  made.  (T.  D.  3411,  signed  by  Commissioner  D.  H.  Blair, 
and  dated  November  24,  1922.) 


(T.  D.  3414.) 

34 1 5 Depreciation  of  leaseholds. — A lessee  is  not  entitled  under  the  Rev- 
1683  enue  Acts  of  1916,  1917,  1918  or  1921,  to  an  allowance  for  depreciation 
1840  based  on  the  value  of  his  lease  as  of  March  1,  1913,  if  acquired  prior 
thereto,  but  where  a leasehold  is  acquired  for  business  purposes  for  a 
specified  sum,  the  purchaser  may  take  as  a deduction  in  his  return  an  aliquot 
part  of  such  sum  each  year,  based  on  the  number  of  years  the  lease  has  to  run. 
(T.  D.  3414,  signed  by  Commissioner  D.  H.  Blair,  and  dated  November  25, 
1922.) 


3416 

2969 

3299 

3331 

3343 


Copyrizht  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
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Personnel  of  the  Tax  Simplification  Board. — (November  29,  1922.) 
Wm.  S.  Moorhead,  Chairman 
Joseph  E.  Sterrett 
Henry  H.  Hilton 

Appointed  by  the  President  to  represent  the  public. 
Charles  P.  Smith 
E.  M.  Chatterton 
C.  A.  Mapes 

Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
resent the  Bureau  of  Internal  Revenue. 


I2-G-23. 

December  2,  1922. 

First  Annual  Report  of  Tax  Simplification  Board. 

The  Speaker  of  the  House 
of  Representatives. 

Sir: 

3417  In  accordance  with  Section  1327  of  the  Revenue  Act  of  1921,  the 
2966  Tax  Simplification  Board  makes  the  following  report: 

3418  The  Tax  Simplification  Board  was  created  by  the  Revenue  Act  of 
1921,  Section  1327,  and  was  organized  on  December  2,  1921.  The 

work  of  the  Board  during  the  first  year  has  been  seriously  interrupted  by 
the  deaths  of  Mr.  W.  T.  Abbott  on  May  29,  1922,  and  Mr.  J.  H.  Beal  on 
August  18,  1922,  two  of  its  members  representing  the  public.  Their  suc- 
cessors were  appointed  on  September  26,  1922. 

3419  The  Board  found  it  necessary  to  be  in  almost  continuous  session  for 
several  months  after  its  appointment,  much  of  this  time  being  taken 

up  with  the  revision  of  the  regulations  made  necessary  by  the  passage  of 
the  Revenue  Act  of  1921  and  the  revision  of  the  forms  of  returns  to  be  made 
by  taxpayers  under  that  law. 

3420  Before  discussing  the  various  matters  considered  by  the  Board  and 
its  recommendations,  it  may  be  helpful  to  review  some  of  the  prob- 
lems inherent  in  the  present  method  of  taxation,  with  which  the  Bureau  of 
Internal  Revenue  has  been  confronted. 

3421  The  Bureau  of  Internal  Revenue  is  charged  with  the  duty  of  ad- 
ministering all  laws  relating  to  Internal  taxation  and  the  collection 

of  the  revenues  arising  thereunder.  Prior  to  1909  it  was  engaged  in  the  col- 
lection of  stamp  and  excise  taxes  almost  exclusively.  With  the  passage  of 
the  Excise  Law  of  1909  imposing  a tax  of  1%  upon  the  net  income  of  cor- 
porations, the  Bureau  began  to  develop  along  the  lines  of  income  taxation, 
but  the  amount  of  the  tax  so  collected  was  relatively  small  prior  to  the  pas- 
sage of  the  Revenue  Act  of  1917. 

3422  The  Revenue  Act  of  1917  was  the  first  to  make  provision  for  an 
excess  profits  tax  which  was  imposed  upon  individuals,  partnerships 

and  corporations  engaged  in  business.  The  Revenue  Act  of  1918  revised 
the  income  and  excess  profits  taxes  and  limited  the  latter  to  a tax  on  profits 
of  corporations.  It  also  extended  the  list  of  other  taxes.  The  Revenue  Act 
of  1921  again  made  substantial  changes  in  the  forms  of  taxation  as  well 
as  in  the  rates,  many  of  the  miscellaneous  taxes  were  reduced  or  repealed, 
and  the  excess  profits  tax  law  was  repealed  as  of  the  end  of  1921. 

3423  The  frequent  and  radical  changes  in  the  tax  laws  have  added  mate- 
rially to  the  administrative  difficulties  of  the  Bureau  and  have  caused 

a substantial  increase  in  the  volume  of  its  work.  This  increase  came  at  a 
time  when  the  country  was  in  the  midst  of  its  war  activities  and  it  was  im- 
possible to  secure  a personnel  adequate  to  cope  with  the  situation.  As  a 
result,  there  have  been  inevitable  delays  in  the  settlement  of  the  taxes  and 
a large  accumulation  of  unfinished  work.  The  opportunities  of  other  and 
more  remunerative  employment  that  came  to  men  having  some  knowledge 
of  tax  law  and  its  administration  have  resulted  in  a high  percentage  of 
personnel  turn-over,  thereby  causing  a further  retardation  of  the  work. 

3424  While  much  thought  and  consideration  have  been  given  in  this 
country  to  tax  legislation,  comparatively  little  attention  has  been 

paid  to  the  equally  important  and  difficult  subject  of  tax  administration. 
Countries  having  larger  experience  in  income  taxation  have  made  more 

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adequate  provision  for  administration,  and  it  is  the  opinion  of  this  Board 
that  it  is  important  that  study  and  thought  be  given  to  this  subject. 

3425  A brief  discussion  of  some  of  the  major  problems  arising  in  the  ad- 
ministration of  the  tax  laws  which  have  been  imposed  by  the  Revenue 

laws  of  1917  and  later  years  will  serve  to  illustrate  the  need  for  a more  ade- 
quate administration. 

3426  The  excess  profits  tax  introduced  the  factor  of  invested  capital  which 
had  to  be  used  in  measuring  tax  liability.  In  theory  this  factor  looks 

simple,  but  in  practice  it  has  proved  to  be  complex  with  resulting  discrimina- 
tions between  taxpayers  who  are  situated  substantially  alike.  I he  business 
development  in  the  United  States  during  the  past  half  century  has  been 
unparalleled  in  history.  Business  is  no  longer  conducted  in  small  units 
under  individual  ownership,  but  is  carried  on  in  large  and  constantly  grow- 
ing units,  and  there  are  thousands  of  corporations  which  in  size  have  now 
far  outgrown  anything  that  was  formerly  deemed  possible.  Many  of  them 
have  grown  from  small  beginnings  and  have  been  conservatively  managed, 
writing  off  items  against  current  earnings  which,  under  management  less 
conservative,  would  have  been  added  to  the  property  account  and  thus 
have  swollen  the  surplus.  Other  companies  have  been  organized  and  con- 
ducted on  the  opposite  theory,  developing  large  surpluses  through  the  addi- 
tion to  property  accounts  of  items  which  should  have  been  written  off.  Still 
others  have  gone  through  one  or  more  reorganizations  under  which  property 
values  have  been  shifted  about  and  lost  sight  of  or  ruled  out  under  the  terms 
of  the  law.  With  few  exceptions  among  important  businesses,  the  deter- 
mination of  true  invested  capital  calls  for  extended  examination  and  is 
subject  to  many  adjustments.  Even  after  such  an  examination,  there  is  no 
certainty  of  resulting  accuracy.  Quite  aside,  then,  from  the  tendency  of 
the  excess  profits  tax  law  to  put  upon  the  smaller  and  more  conservatively 
managed  corporations  an  onerous  and  discriminatory  burden,  the  difficulties 
to  be  found  in  the  determination  of  invested  capital  are  almost  insurmount- 

able.  _ . . . 

3427  Another  factor  involving  exceptional  difficulty  is  found  in  the  ad- 
ministration of  the  provisions  of  the  revenue  acts  which  allow  a. 

deduction  for  the  depletion  of  minerals  and  other  natural  resources.  This, 
also,  has  the  appearance  of  justice  and  comparative  simplicity.  What  is 
actually  involved,  however,  is  the  valuation  as  of  March  1,  1913,  or  other 
basic  date,  of  all  the  natural  resources  of  the  country  which  are  under  opera- 
tion for  profit.  Most  of  this  property  is  under  the  ground  and  hidden  from 
sight.  It  must  be  brought  to  the  surface  at  varying  and  uncertain  dates  in 
the  future,  at  varying  and  uncertain  costs,  and  sold  on  the  basis  of  the  market 
as  it  exists  from  time  to  time  in  the  future.  The  quantity  of  property  can 
in  but  few  cases  be  measured.  It  can  only  be  approximated,  and  its  value, 
based  upon  these  uncertain  factors,  must  be  reduced  to  a present  sum  which, 
in  theory,  will  be  paid  by  a willing  purchaser  to  a willing  seller.  The  valua- 
tion of  the  railroad  properties  of  the  country  has  been  under  way  for  years 
and  that  problem  is  easy  as  compared  with  the  valuation  problems  incident 
to  the  calculation  of  the  allowance  for  depletion.  In  view  of  the  time  that 
has  been  consumed  in  the  valuation  of  the  railroads,  and  in  further  view  of 
the  much  greater  difficulty  encountered  in  valuation  of  natural  resources, 
it  is  apparent  that  in  the  time  at  its  command  the  Bureau  of  Internal  Revenue 
can  not  do  better  than  make  a very  rough  approximation  of  the  value  of  nat- 
ural resources.  Either  the  taxpayer  is  deprived  of  a part  of  a deduction 
contemplated  under  the  law  or  the  Government  fails  to  receive  revenue  to 
which  it  is  entitled.  Mistakes  are  inevitable  and  may  run  into  large  figures, 

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and  inequalities  in  the  taxing  of  different  individuals  and  companies  arc 
bound  to  occur. 

3428  The  considerations  applying  to  depiction  which  have  just  been  par- 
tially outlined  apply  to  a degree  to  the  allowance  of  a deduction  for 

depreciation.  Property  acquired  prior  to  March  1,  1913,  is  depreciable  upon 
the  basis  of  its  value  at  that  date  and  not  upon  cost,  and  thus  the  uncer- 
tainties attaching  to  a valuation  at  a past  date  are  encountered  in  connection 
with  a large  amount  of  property. 

3429  The  allowance  of  a deduction  for  amortization  of  war  facilities  in- 
volves such  questions  as  the  determination  of  what  is  to  be  classed 

as  a war  facility  and,  in  the  case  of  property  undisposed  of,  its  value  to  the 
taxpayer  under  the  terms  of  the  Act.  Where  property  has  been  sold  or 
demolished,  the  determination  of  the  allowance  is  relatively  simple,  but  in 
many  cases  the  property  has  not  been  disposed  of  and  remains  in  the  hands 
of  the  taxpayer  and  to  some  extent  will  be  useful  in  his  business.  The 
amortization  problem  is  unique,  and  the  aggregate  of  the  amounts  involved 
makes  it  a problem  of  the  first  magnitude.  By  Section  214  (a)  (9)  of  the 
Revenue  Act  of  1921,  it  is  provided  that  the  Commissioner  may,  and  at  the 
request  of  the  taxpayer  shall,  re-examine  the  returns,  and  if  he  then  finds 
as  the  result  of  an  appraisal  or  from  other  evidence  that  the  deduction  orig- 
inality allowed  was  incorrect,  there  shall  be  a redetermination  of  the  taxes. 
It  is  important,  therefore,  that  settlement  of  amortization  claims  be  made 
with  justice,  in  order  that  the  taxpayer  may  have  no  disposition  to  avail 
himself  of  this  provision  for  redetermination. 

3430  Other  serious  problems  confronting  the  Bureau  of  Internal  Revenue 
are  found  in  the  returns  of  taxpayers,  particularly  corporate  tax- 
payers, where  a large  amount  of  tax  is  involved.  Every  question  in  a large 
tax  case  becomes  one  of  importance  and  the  contentions  of  the  taxpayer 
are  strenuously  insisted  upon,  requiring  extended  consideration.  The  im- 
portance of  these  large  tax  cases  is  demonstrated  by  the  fact  that,  in  the 
case  of  corporate  returns,  ten  per  cent,  of  the  total  number  covers  something 
like  eighty  per  cent  of  the  total  tax  from  this  source. 

3431  It  is  evident  from  the  foregoing  that  the  Bureau  has  been  confronted 
with  problems  difficult  of  prompt  solution.  It  was  inevitable  under 

all  the  circumstances  that  there  would  be  delays  irritating  to  taxpayers  and 
resulting  in  a large  accumulation  of  work,  particularly  in  connection  with 
the  more  complicated  and  difficult  corporate  returns  and  in  the  larger  claims 
for  refund,  credit  and  abatement  filed  by  taxpayers  as  the  result  of  additional 
assessments.  The  delay  in  the  audit  of  the  individual  and  smaller  corpora- 
tion returns  has  been  much  less  serious,  as  is  indicated  by  the  statistics  pub- 
lished by  the  Bureau  from  time  to  time. 

3432  The  situation,  however,  is  not  altogether  discouraging.  The  excess 
profits  tax  law.  has  been  repealed  and  when  the  returns  subject  to 

this  tax  have  been  audited  and  settled  one  of  the  troublesome  problems  will 
disappear.  The  allowance  for  amortization  of  war  facilities  is  another  tem- 
porary problem  which  will  soon  be  eliminated. 

3433  'The  Board  has  been,  and  still  is,  giving  careful  consideration  to  the 
difficult  problem  of  simplifying  and  rendering  more  certain  and  easy 

of  calculation  the  reasonable  allowance  for  depletion  of  natural  deposits 
which  has  been  permitted  as  a deduction  from  gross  income  by  all  the  revenue 
acts  since  1913. 

3434  The  Board  has  kept  before  it  as  its  chief  objective  the  simplification 
of  the  procedure,  particularly  in  the  Income  Tax  Unit.  A number 

of  forma]  recommendations  have  been  made  to  the  Secretary  of  the  Treasury 

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and  numerous  suggestions  have  been  made  to  the  Commissioner  of  Internal 
Revenue  and  to  the  responsible  heads  of  sections  and  divisions  to  the  end 
that  formalities,  delays  and  duplication  of  work  might  be  eliminated.  Prac- 
tically all  of  these  recommendations  and  suggestions  have  been  adopted 
and  put  into  effect.  Some  of  the  more  basic  recommendations  have  required 
time  to  work  out  and  are  in  process  of  being  made  effective.  The  more  im- 
portant changes  inaugurated  in  the  Bureau  in  pursuance  of  those  recom- 
mendations and  suggestions  are,  as  follows.  [Except  as  reproduced _ below 
the  recommendations  referred  to  have  to  do  with  Bureau  organization 
matters.] 

Forms 

3435  A careful  study  has  been  made  of  the  various  printed  forms  adopted 
by  the  Bureau  and  used  in  the  administration  of  the  Revenue  Act, 

particularly  of  the  forms  of  return  upon  which  a taxpayer  is  required  to  report 
his  income.  It  is  desirable  on  the  one  hand  to  make  forms  of  return  at 
simple  and  clear  as  possible,  so  that  they  may  be  understood  and  made  ous 
by  the  ordinary  taxpayer  without  the  services  of  an  expert;  on  the  other 
hand,  the  forms  should  clearly  outline  the  requirements  for  information 
fully  enough  to  make  possible  an  accurate  audit  of  the  return  without  the 
necessity  of  requesting  further  facts  from  the  taxpayer.  The  itemization 
of  income  and  deductions  contained  in  the  forms  of  return  follows  a similar 
itemization  thereof  in  the  Revenue  Act  of  1921.  Endeavor  has  been  made 
to  simplify  and  clarify  the  forms  to  as  great  an  extent  as  possible  consistent 
with  the  considerations  above  mentioned  and  with  this  in  view  numerous 
taxpayers  and  their  representatives  were  consulted.  The  forms  now  in  the 
hands  of  the  printer  for  use  in  the  year  1923  are  the  result  of  the  combined 
judgment  of  the  Board  working  in  consultation  with  the  representatives  of 
the  Bureau  having  charge  of  the  drafting  of  the  forms  of  return. 

Expediting  of  Work 

3436  The  Board  has  given  particular  attention  to  the  completion  of  the 
audits  of  income  tax  returns.  The  importance  of  this  work  with 

respect  to  such  of  the  audits  of  1917  returns  as  remain  unfinished  is  especially 
pressing  on  account  of  the  running  of  the  statute  of  limitations.  In  this 
emergency  everything  possible,  consistent  with  fairness  to  the  taxpayer, 
should  be  done  to  expedite  the  audit  of  these  returns.  They  are  now  being 
given  the  right  of  way.  This  course,  coupled  with  the  elimination  of  a number 
of  sources  of  delay,  has  resulted  in  a marked  increase  in  the  dispatch  of 
business.  The  determination  of  invested  capital  under  the  excess  profits 
tax  law  and  the  valuation  of  natural  resources  have  been  the  chief  obstacles 
in  the  way  of  completing  the  audits  of  1917  returns.  With  these  elements 
established  for  the  year  1917,  the  work  of  auditing  the  returns  of  subsequent 
years  will  be  greatly  facilitated.  Generally  speaking,  the  audit  of  a 1917 
return  and  the  audits  of  the  returns  of  the  same  taxpayer  for  later  years 
are  made  concurrently.  When  the  difficult,  but  temporary,  problems  arising 
under  former  revenue  acts  have  been  disposed  of,  there  is  every  reason  to 
believe  that  the  Bureau  can  keep  practically  current  with  the  audit  of  re- 
turns and  the  decision  of  claims.  This  is  a consummation  devoutly  to  be 
wished  and  earnestly  to  be  sought. 

Decentralization 

3437  Suggestions  have  come  from  various  sources  regarding  decentraliza- 
tion of  the  administration  of  the  revenue  acts.  After  a careful  con- 
sideration of  these  suggestions  and  of  the  proposition  generally,  the  Board 

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if  of  the  opinion  that  any  general  plan  of  decentralization  is  open  to  serious 
objections  which  makes  the  adoption  of  such  a plan  of  doubtful  expediency. 
Upon  the  recommendation  of  the  Board,  however,  the  Bureau  is  about  to  adopt 
the  experiment  of  transferring  a committee  to  some  central  point  at  a dis- 
tance from  Washington  to  hear  and  determine  cases  arising  in  that  locality 
and  now  pending  or  which  would  come  before  the  Committee  on  Appeals 
and  Review.  Many  taxpayers  find  it  necessary  or  desirable  to  come  to 
Washington  or  send  their  representatives  here  to  attend  the  hearings  on 
their  appeals.  If  these  hearings  were  conducted  at  or  near  the  residence 
of  the  taxpayer,  this  necessity  would  be  eliminated.  If  the  experiment  is 
successful,  the  plan  will  be  gradually  enlarged. 

3438  The  Board  takes  satisfaction  in  reporting  that  the  spirit  of  the 
Bureau  is  admirable.  There  is  an  evident  desire  on  the  part  of  all 
concerned  that  the  accumulation  of  work  be  disposed  of  at  the  earliest  pos- 
sible date  and  that  the  Bureau  should  be  so  conducted  as  to  win  and  main- 
tain the  confidence  of  the  taxpayers.  All  suggestions  of  the  Board  have  been 
cheerfully  received,  duly  considered  and  made  operative  sympathetically  by 
the  Bureau  of  Internal  Revenue. 

Respectfully  submitted, 

Wm.  S.  Moorhead, 

J.  E.  Sterrett, 

Henry  H.  Hilton, 

Representing  the  Public. 

Charles  P.  Smith, 

E.  W.  Chatterton, 

Carl  A.  Mapes, 

Representing  the  Bureau. 

(First  annual  report  of  the  Tax  Sim 
plification  Board,  December  2,  1922.) 


3439  1%  per  month  “interest”  on  amount  of  delinquent  taxes  held  to  be 

[2727  a penalty  within  meaning  of  the  Bankruptcy  Act. — Judge  Hand  holds 
that  the  1%  per  month  interest  to  be  added  to  delinquent  taxes 
(Revenue  Acts  of  1916-1917)  is  within  the  meaning  of  “penalty”  as  used  in 
Section  57-j  of  the  Bankruptcy  Act,  and  sustains  the  referee  who  decided 
that  “six  per  cent,  was  a fair  measure  of  damages  for  the  failure  to  pay 
taxes.”  (In  the  matter  of  J.  Menist  Co.,  Inc.,  Bankrupt,  Ex  parte:  Claim 
of  the  United  States  for  additional  income  tax  for  the  year  1917  (1920  insol- 
vency), with  5%  penalty  (claim  for  penalty  dropped  by  the  Government), 
and  1%  interest  per  month. — U.  S.  District  Court,  Southern  District  of 
New  York,  December  5,  1922.  Not  yet  reported.) — The  Corporation  Trust 
Company. 


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Excerpt  from  the  repoit  of  the  Secretary  of  the  Treasury  for  the  fiscal  year 

ended  June  30,  1922. 

Taxation  and  Revenue. 

3440  The  revenue  act  of  1921  was  approved  November  23,  1921,  and  did 
not  become  effective  as  to  its  most  important  changes  until  January  1, 

1922.  It  repealed  the  old  excess-profits  tax  as  of  that  date  and  as  a sub- 
stitute imposed  a 2J/2  per  cent  additional  tax  on  the  net  income  of  corpora- 
tions. It  likewise  repealed  most  of  the  transportation  tax  and  some  of  the 
nuisance  taxes,  and  made  some  adjustments  in  the  income  tax,  including 
revisions  of  the  rates  and  of  the  exemptions.  These  changes  have  been 
operating  during  the  calendar  year  1922,  and  the  Treasury  is  able  now  to 
form  some  judgment  as  to  their  reaction  upon  the  revenues  and  their  relations 
to  the  Federal  tax  system  as  a whole.  The  changes  are  still  so  recent, 
however,  that  their  full  effect  will  not  be  apparent  until  the  income-tax 
returns  based  on  the  business  of  the  present  calendar  year  are  filed  and 
examined,  and  in  these  circumstances  the  Treasury  is  not  prepared  at  the 
present  time  to  recommend  any  general  revision  of  the  internal-revenue  laws. 
Nor  will  be  be  necessary  at  this  time  to  consider  any  additional  taxes,  for 
the  Treasury  hopes  to  overcome  any  deficiencies  in  the  revenue  without 
recourse  to  new  taxes. 

3441  The  Treasury  has  already  expressed  its  views,  in  the  annual  report 
for  1921,  as  to  the  direction  which  further  tax  revision  should  take, 

and  in  line  with  those  general  recommendations  and  in  the  light  of  its  ex- 
perience up  to  date  with  the  revenue  act  of  1921,  has  some  specific  recom- 
mendations for  revision  to  make  at  this  time,  particularly  as  to  changes 
designed  to  close  gaps  in  existing  law  which  are  causing  substantial  loss  of 
revenue  to  the  Government.  These  recommendations  relate  chiefly  to  the 
rates  of  surtax  and  the  avenues  of  escape  now  open  under  the  law.  The 
higher  surtax  rates,  which  still  run  to  50  per  cent,  or  a combined  58  per  cent 
after  including  the  normal  tax,  put  such  heavy  pressure  on  the  larger  tax- 
payers to  reduce  their  taxable  income  that  these  taxpayers  inevitably  seek 
every  permissible  means  of  avoiding  the  realization  of  income  subject  to 
surtax.  The  result  is  to  create  an  artificial  situation,  which  is  not  wholesome 
from  the  point  of  view  of  business  or  industrial  development.  At  the  same 
time  it  is  impairing  the  revenues  of  the  Government,  for  under  existing  con- 
ditions the  higher  surtax  rates  are  undoubtedly  operating  to  reduce  rather 
than  increase  the  revenues.  This  presents  a problem  which  calls  for  solution, 
and  I believe  it  can  be  solved  only  by  relieving  on  the  one  hand  the  pressure 
for  reducing  taxable  income,  by  making  further  readjustments  of  the  surtax 
rates,  and  on  the  other  hand  by  closing,  so  far  as  possible,  the  existing  avenues 
of  escape.  To  attempt  to  close  the  gaps  alone  will  not  be  enough,  for  the 
existing  rates  of  surtax  cause  such  heavy  pressure  for  avoidance  that  new 
gaps  would  surely  be  found.  The  high  rates  sound  productive,  but  the  fact 
remains  that  they  are  becoming  increasingly  ineffective  and  are  yielding 
less  and  less  revenue  every  year.  The  time  has  come  to  face  the  facts  squarely 
and  to  correct  the  artificial  conditions  which  now  prevail. 

Revision  of  the  surtaxes. 

3442  The  higher  rates  of  income  surtaxes,  as  I have  previously  stated  in 
the  letter  of  April  30,  1921,  to  the  chairman  of  the  Committee  on 

Ways  and  Means,  “put  constant  pressure  on  taxpayers  to  reduce  their 

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taxable  income,  interfere  with  the  transaction  of  business  and  the  free  flow 
of  capital  into  productive  enterprise,  and  are  rapidly  becoming  unproductive.” 
Developments  since  that  time  have  more  than  confirmed  these  statements. 
Under  the  revenue  act  of  1921  the  surtaxes  rise  to  a maximum  of  50  per 
cent,  which  applies  to  all  net  incomes  over  $200,000,  with  rates  on  inter- 
mediate incomes  graduated  on  this  basis.  According  to  the  best  estimates 
available,  the  total  yield  of  all  surtaxes  in  respect  to  the  business  of  the 
taxable  year  1922  will  not  exceed  $350,000,000,  and  the  returns  for  several 
years  have  been  steadily  declining,  from  about  $800,000,000  for  1919,  to 
about  $590,000,000  for  1920,  and  about  $450,000,000  for  1921  (estimated). 
The  statistics  of  income  for  recent  years  likewise  show  that  there  has  been  a 
remarkable  decline  in  the  larger  taxable  incomes,  at  the  very  time  that  net 
incomes  generally  have  been  increasing.  This  appears  most  clearly  from  the 
following  table: 


Year. 

Number  of  returns. 

Net  income. 

Dividends  and  interest 
on  investments. 

All 

classes. 

Incomes 

over 

$300,000. 

All  classes. 

Incomes 

over 

$300,000. 

All  classes. 

Incomes 

over 

$300,000. 

191 G 

437,036 

1,296 

$6,298,577,620 

$992,972,986 

$3,217,348,030 

$706,945,738 

1917 

3,472,890 

1,015 

13,652,383,207 

731,372,153 

3,785,557,955 

616,119,892 

1918 

4,425,114 

627 

15,924,639,355 

401,107,868 

3,872,234,935 

344,111,461 

1919 

5,332,760 

679 

19,859,491,4-18 

440,011,589 

3,954,553,925 

314,984,884 

1920 

7,259,044 

395 

23,735,629,183 

246,354,585 

4,445,145,223 

229,052,039 

3443  These  figures  show  that  while  net  incomes  of  all  classes  during  the 
period  from  1916  to  1920  increased  from  $6,298,577,620  in  1916,  to 

$23,735,629,183  in  1920,  and  the  number  of  returns  from  437,036  in  1916  to 
7,259,944  in  1920,  the  number  of  returns  of  incomes  over  $300,000  decreased 
during  the  same  period  from  1,296  in  1916,  to  395  in  1920,  and  the  amount 
of  incomes  over  $300,000  from  $992,972,986  in  1916  to  $246,354,585  in  1920. 
During  this  same  period  investment  income  of  all  classes  increased,  while  in 
incomes  over  $300,000  investment  income  shrank  from  $706,945,738  in  1916 
to  $229,052,039  in  1920.  This  indicates  an  astounding  decline  in  taxable 
incomes  over  $300,000  and  clearly  reflects  the  tendency  of  the  high  surtaxes 
to  reduce  taxable  income.  In  this  way  the  surtaxes  are  gradually  defeating 
their  own  purpose  and  the  high  rates  are  becoming  ineffective  because  of  the 
steady  disappearance  of  the  taxable  incomes  to  which  they  were  intended  to 
apply.  The  pressure  operates  in  different  ways,  but  among  the  means 
frequently  used  to  reduce  the  amounts  of  income  subject  to  taxation  are  the 
following: 

1.  Deductions  of  losses  on  sales  of  capital  assets,  with  the  failure  to 
realize  on  capital  gains; 

2.  Exchanges  of  property  and  securities  so  as  to  avoid  taxable  gains; 

3.  Tax-exempt  securities;  and 

4.  Other  avenues  of  escape,  such  as  the  division  of  property,  the  creation 
of  trusts,  and  the  like. 

3444  Not  all  these  things  can  be  controlled  by  law  or  by  regulation,  and 
most  of  them  lead  to  unnatural  and  frequently  harmful  economic 

results.  To  reach  the  evil  the  thing  most  necessary  is  the  reduction  of  the 
surtax  rates  themselves,  in  order  to  reduce  the  pressure  for  avoidance  and 
maintain  the  revenues  derived  from  the  surtax.  I believe,  therefore,  that 
it  would  be  sound  policy,  and  at  the  same  time  most  helpful  to  the  general 

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situation,  to  reduce  the  surtaxes  to  a maximum  of  not  over  25  per  cent,  which 
would  mean  a combined  maximum,  including  normal  tax  and  surtax,  of  not 
over  33  per  cent.  Readjusted  to  this  basis,  the  surtax  rates  would,  in  my 
judgment,  accomplish  their  purpose  and  yield  as  large,  or  larger,  revenues  to 
the  Government  without  the  unwholesome  consequences  of  the  existing 
rates.  The  lower  rates  would  at  the  same  time  broaden  the  market  for 
Government  Securities,  and  otherwise  encourage  the  development  of  pro- 
ductive enterprise. 

3445  Until  some  such  readjustment  is  made  the  yield  of  the  higher  surtaxes 
will  tend,  in  the  ordinary  course  of  events,  to  drop  toward  the 

vanishing  point.  The  wise  course  is  to  reform  the  surtaxes  now  while  the 
system  still  functions  and  at  the  same  time  to  close,  so  far  as  possible,  the 
gaps  which  now  exist.  On  this  basis  the  revision  can  be  made  without  loss 
of  revenue,  and,  in  the  long  run,  with  material  benefit  to  the  revenues, 

Capital  gains  and  losses. 

3446  A most  serious  gap  in  the  existing  revenue  laws  arises  from  the 
treatment  of  capital  transactions.  The  law  taxes,  capital  gains  and 

recognizes  capital  losses,  but  the  taxpayer  retains  the  initiative  and  refrains 
from  realizing  taxable  gains  while  taking  deductible  losses.  The  situation  is 
particularly  serious  under  the  revenue  act  of  1921,  which  limits  the  tax. on 
capital  gains  to  \2]fi  per  cent  but  puts  no  limit  on  the  deduction  of  capital 
losses.  This  means  that  capital  losses  may  entirely  cancel  real  income,  while 
capital  gains  will  not  be  realized  at  all,  or,  if  realized,  are  taxed  at  only  12^2 
per  cent.  Under  the  present  system  the  Government  is.  being  whipsawed, 
and  the  Treasury  therefore  strongly  urges  that  the. existing  provision  as  to 
capital  gains  be  made  to  apply  conversely  to  capital  losses  and  that  the 
amount  by  which  the  tax  may  be  reduced  on  account  of  losses  from  the  sale 
of  capital  assets  should  not  exceed  12^  per  cent  of  the  amount  of  the  loss. 
This  would,  to  a large  extent,  check  one  of  the  methods  widely  used  by  tax- 
payers at  the  present  time  for  decreasing  their  yearly  income.  The  alternative 
is  to  refuse  to  recognize  either  capital  gains  or  capital  losses  for  income-tax 
purposes,  and  if  the  present  situation  were  allowed  to  continue  there  is  no 
doubt  that  it  would  save  revenue  to  adopt  this  course.  This  is,  in  fact,  the 
practice  which  has  been  followed  in  England  for  many  years. 

Exchanges  of  securities. 

3447  The  revenue  act  of  1921  provides,  in  section  202,  for.  the  exchange  of 
property  held  for  investment  for  other  property  of  a like  kind  without 

the  realization  of  taxable  income.  Under  this  section  a taxpayer  who  pur- 
chases a bond  of  $1,000  which  appreciates  in  value  may  exchange  that  bond 
for  another  bond  of  the  value  of  $1,000,  together  with  $100  in  cash  (the  $100 
in  cash  representing  the  increase  in  the  value  of  the  bond. while  held  by  the 
taxpayer),  without  the  realization  of  taxable  income.  This  provision  of  the 
act  is  being  widely  abused.  Many  brokers,  investment  houses,  and  bond 
houses  have  established  exchange  departments  and  are  advertising  that  they 
will  exchange  securities  for  their  customers  in  such  a manner  as  to  result  . in 
no  taxable  gain.  Under  this  section,  therefore,  taxpayers  owning  securities 
which  have  appreciated  in  value  are  exchanging  them  for  other  securities 
and  at  the  same  time  receiving  a cash  consideration,  without  the  realization 
of  taxable  income,  but  if  the  securities  have  fallen  in  value  since  acquisition 
will  sell  them  and  in  computing  net  income  deduct  the  amount  of  the  loss  on 
the  sale.  This  result  is  manifestly  unfair  and  destructive  of  the  revenues. 
The  Treasury  accordingly  urges  that  the  law  be  amended  so  as  to  limit  the 

Copyright  1922,  by  The  Corporation  Trust  Company. 

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cases  in  which  securities  may  be  exchanged  for  other  securities,  without  the 
realization  of  taxable  income,  to  those  cases  where  the  exchange  is  in  con- 
nection with  t lie  reorganization,  consolidation,  or  merger  of  one  or  more 
corporations. 

Tax-exempt  securities. 

3448  The  most  outstanding  avenue  of  escape  from  the  surtax  exists  in 
the  form  of  tax-exempt  securities,  which  under  our  constitutional 

system  may  be  issued  without  restriction  by  the  States  and  their  political 
subdivisions  and  agencies.  The  Federal  Government  may  likewise  issue 
securities  wholly  exempt  from  taxation,  State  and  Federal,  but  since  the  first 
Liberty  loan  has  followed  the  policy  of  issuing  its  bonds,  notes,  and  certificates 
without  exemptions  from  Federal  surtaxes,  except  in  minor  amounts  and  for 
limited  periods.  Under  the  provisions  of  the  Federal  farm  loan  act,  however, 
the  Federal  land  banks  and  joint  stock  land  banks  are  still  authorized  to 
issue,  and  are  issuing  in  large  blocks,  bonds  exempt  from  all  Federal,  State, 
and  local  taxation,  and  the  State  and  municipal  governments  arc  constantly 
adding  to  the  outstanding  volume  of  their  securities,  all  on  a tax-exempt 
basis.  The  exemption  which  gives  value  to  these  securities  is,  of  course,  the 
exemption  from  the  Federal  income  surtax,  and  as  matters  now  stand,  the 
Federal  Government,  while  denying  itself  the  advantage  of  the'  exemption 
from  the  surtaxes  in  selling  its  own  securities,  in  effect  provides  a subsidy, 
at  its  own  expense,  to  the  State  and  municipal  governments,  the  Federal  and 
joint  stock  land  banks  and  other  agencies  issuing  tax-exempt  securities, 
through  the  exemption  from  Federal  income  surtaxes  which  these  tax-exempt 
securities  enjoy.  For  this  exemption  the  Federal  Government  gets  no  com- 
pensating advantage,  and  the  effect  of  the  exemption  is  to  provide  a perfect 
means  of  escape  from  Federal  surtaxes  which  is  naturally  most  valuable  to 
the  wealthiest  investor,  and  especially  to  one  who  is  not  engaged  in  business 
and  is,  therefore,  free  to  convert  his  investments  into  tax-exempt  securities 
and  thus  avoid  paying  income  tax. 

3449  The  volume  of  fully  tax-exempt  securities,  according  to  the  best 
estimates  available,  is  now  approaching  $11,000,000,000  and  has 

recently  been  increasing  at  the  rate  of  about  $1,000,000  000  a year.  With 
these  securities  available  for  investment,  fully  exempt  as  they  are  from  Federal 
income  surtaxes,  investors  who  would  normally  put  their  surplus  funds  into 
productive  enterprises,  are  automatically  driven  under  the  pressure  of  high 
surtax  rates  into  investment  in  tax-exempt  securities,  with  the  result  that  the 
Federal  Government  loses  the  revenue,  business  and  industry  lose  the  capital, 
and  funds  badly  needed  for  productive  purposes  are  diverted  into  unpro- 
ductive and  frequently  wasteful  public  expenditure.  This  is  a situation 
which  can  not  be  permitted  to  continue  without  grave  danger  to  our  economic 
structure,  as  well  as  to  our  system  of  taxation,  and  the  Treasury  has  accord- 
ingly been  urging  for  some  time  the  adoption  of  a constitutional  amendment 
restricting  further  issues  of  tax-exempt  securities  as  the  only  practicable 
means  of  correcting  the  evil.  Even  a constitutional  amendment  would 
apply  only  to  future  issues  of  securities,  but  once  the  amendment  is  adopted 
outstanding  issues  of  tax-exempt  securities  will  gradually  eliminate  them- 
selves, and  as  they  become  scarcer  should  so  increase  in  market  value  as  to 
destroy  or  at  least  impair  their  value  for  tax-exempt  purposes.  An  analysis 
of  outstanding  issues  of  State  and  municipal  bonds  indicates  that  50  per 
cent,  or  thereabouts,  will  mature  within  the  next  20  years,  so  that  within  a 
measurable  period  after  the  adoption  of  a constitutional  amendment  re- 

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striding  further  issues  of  tax-exempt  securities  the  situation  would,  to  a 
large  extent,  be  under  control. 

3450  A constitutional  amendment,  satisfactory  to  the  Treasury  and  .ap- 
proved by  the  Attorney  General,  has  already  been  proposed  by  joint 

resolution  favorably  reported  to  the  last  session  of  Congress  by  the  Com- 
mittee on  Ways  and  Means.  This  amendment  would  apply  equally,  and 
without  discrimination,  to  the  Federal  Government,  on  the  one  hand,  and  the 
State  and  municipal  governments,  on  the  other  hand,  and  would  in  effect 
put  an  end  to  future  issues  of  tax-exempt  securities,  making  it  possible  for 
the  Federal  Government,  to  tax  income  from  future  issues  by  or  under 
authority  of  the  several  States  if,  as,  and  to  the  extent  that  it  taxes  future 
issues  of  Federal  securities,  and  for  the  State  governments,  to  tax  income  from 
future  issues  of  Federal  securities  if,  as,  and  to  the  extent  that  they  tax 
future  issues  of  their  own  securities.  The  amendment,  which  appears  in 
H.  J.  Res.  314,  reads  as  follows; 

Article  — . 

Section  1.  The  United  States  shall  have  power  to  lay  and  collect  taxes  on  income 
derived  from  securities  issued,  after  the  ratification  of  this  article,  by  or  under  the  authority 
of  any  State,  but  without  discrimination  against  income  derived  from  such  securities  and 
in  favor  of  income  derived  from  securities  issued,  after  the  ratification  of  this  article,  by 
or  under  the  authority  of  the  United  States  or  any  other  State. 

Sec.  2.  Each  State  shall  have  power  to  lay  and  collect  taxes  on  income  derived  by 
its  residents  from  securities  issued,  after  the  ratification  of  this  article,  by  or  under  the 
authority  of  the  United  States;  but  without  discrimination  against  income  derived  front 
such  securities  and  in  favor  of  income  derived  from  securities  issued,  after  the  ratification 
of  this  article,  by  or  under  the  authority  of  such  State. 

3451  The  Treasury  most  earnestly  urges  that  this  amendment  be  promptly 
adopted  and  submitted  to  the  States  for  their  approval. 

Administrative  changes. 

3452  Other  administrative  changes  should  be  made  in  the  law  with  a 
view  to  closing  up  miscellaneous  avenues  of  escape  and  improving 

the  collection  of  the  revenues.  There  should  also  be  an  indefinite  appro- 
priation for  refunds  of  taxes  illegally  or  erroneously  collected,  in  order  to 
facilitate  the  adjustment  and  payment  of  claims.  Appropriations  of  this 
character  already  exist  for  the  payment  of  customs  refunds  and  drawbacks 
and  similar  provisions  for  internal  revenue  would  avoid  the  necessity  for 
frequent  deficiency  appropriations,  and  incidentally  save  the  interest  which 
now  accumulates  from  the  allowance  of  the  refunds  in  cases  where  no  appro- 
priation is. available  for  payment. 

No  additional  taxes. 

3453  The  changes  herein  recommended  will  not  decrease  the  revenues,  and 
in  the  long  run  should  being  larger  returns  to  the  Treasury.  No 

additional  taxes,  therefore,  are  necessary  on  this  account,  and  the  Treasury 
is  not  recommending  any  new  taxes  at  this  time  to  meet  indicated  deficiencies 
in  the  revenue.  It  is  still  impossible  to  tell  with  certainty  whether  the  present 
year  will  close  without  a deficit,  but  enough  has  already  been  accomplished 
to  reduce  materially  the  deficit  appearing  from  the  estimates  presented  at 
the  beginning  of  the  year.  The  latest  figures  show  increased  receipts  from 
all  sources,  including  particularly  customs  and  internal  taxes,  aggregating 
about  $350,000,000,  and,  on  the  other  hand,  decreased  expenditures  of  about 
$200,000,000,  making  a net  gain  for  Budget  purposes  of  about  $550,000,000. 
The  present  year,  moreover,  presents  extraordinary  circumstances,  including, 
as  i-t  does,  many  overhanging  items,  both  of  receipts  and  expenditures,  which 

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arc  not  subject  to  administrative  control  and,  since  they  depend  upon  ex- 
traneous conditions,  are  difficult,  and  sometimes  almost  impossible,  to  forecast. 
Under  such  conditions  and  with  the  progress  that  has  already  been  made  in 
bringing  the  Budget  for  the  year  into  balance,  the  Treasury  does  not  believe 
it  necessary  to  impose  at  this  time  any  additional  taxes  for  the  purpose  of 
supplementing  the  revenues. 

3454  The  probabilities  are  that  reductions  in  expenditure  will  not  over- 
come all  of  the  deficit  indicated  by  the  estimates.  The  Treasury 
believes,  however,  that  given  relatively  stable  conditions  in  the  markets  and 
in  the  business  world  it  will  be  possible  to  meet  the  rest  of  the  deficit  by  in- 
creased receipts,  arising,  on  the  one  hand,  from  further  realization  on  securities 
and  other  surplus  assets  of  the  Government  and,  on  the  other,  from  increased 
collections  of  income  and  profits  taxes  in  respect  to  prior  years.  To  this 
end  the  Treasury  is  making  exceptional  efforts  this  year  to  dispose  of  the 
accumulation  of  income  and  profits  tax  returns  covering  1917  and  sub- 
sequent years,  in  the  hope  that  by  this  means  it  will  be  able  to  make  sub- 
stantial further  collections  of  back  taxes.  There  are  also  indications,  which 
have  so  far  as  possible  been  taken  into  account  in  the  estimates  already 
submitted,  of  increased  collections  of  income  taxes  as  a result  of  the  im- 
provement in  business  during  the  calendar  year  1922.  The  extent  of  this 
improvement,  and  its  effect  on  the  revenues,  will  not,  of  course,  be  disclosed 
until  March  15,  1923,  when  the  first  installment  of  income  taxes  for  the 
taxable  year  1922  becomes  payable,  but  any  additional  receipts  on  that 
account  will  help  to  reduce  any  deficit  that  may  still  remain  in  the  current 
revenues.  (Excerpt  from  the  annual  report  of  the  Secretary  of  the  Treasury, 
dated  Nov.  30,  1922,  and  submitted  to  the  Speaker  of  the  House  of  Rep- 
resentatives, Dec.  4,  1922.) 


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12-9-22. 


(Decision.) 

November  29,  1922. 

Revenue  Act  of  1917. 

Dividends  paid  by  corporations  in  1917  (except  as  to  distributions  made 
prior  to  August  6 from  profits  accrued  prior  to  March  1,  1913)  are  conclusively 
presumed,  for  purposes  of  determining  the  rates  at  which  taxable  to  the 
stockholders,  to  have  been  paid  from  the  most  recently  accumulated  profits 
including  the  profits  of  1917  to  date  of  declaration. 

United  States  District  Court 

Northern  District  of  New  York. 

FANNIE  E.  HARDER, 

Plaintiff, 

vs. 

ROSCOE  IRWIN,  Collector  of  Internal  Revenue  for  the  FourteenthDistrict 

of  the  State  of  New  York, 

Defendant. 


3455  COOPER,  J. — This  is  an  action  brought  by  plaintiff  to  recover  the 
1107  sum  of  $29,958.88  income  tax  for  the  year  1917,  which  she  alleges  was 

illegally  exacted  from  her  by  the  defendant  as  Internal  Revenue 
Collector. 

3456  The  facts  are  substantially  undisputed  and  are  as  follows:  In  1917  and 
for  some  years  prior  thereto,  the  High  Rock  Knitting  Company 

(hereinafter  referred  to  as  the  company  or  corporation),  was  a manufacturing 
concern  having  its  principal  office  and  place  of  business  at  Philmont,  N.  Y. 
The  plaintiff  was  a stockholder,  owning  1,200  shares  of  a total  of  3,500  shares 
of  common  stock  of  the  corporation  of  the  par  value  of  $100  each.  The 
principal  source  of  plaintiff’s  income  was  from  this  stock. 

3457  On  December  12,  1917,  the  Board  of  Directors  of  said  corporation 
adopted  the  following  resolution: 

“Motions  were  then  passed  to  declare  and  pay  on  December  15th  to 
common  stockholders  of  record  bf  that  date,  the  following  dividends: 
20%  from  cash  surplus  accumulated  during  1916; 

60%  from  cash  surplus  accumulated  during  1915; 

120%  from  cash  surplus  accumulated  prior  to  December  31,  1913.” 

3458  On  December  20,  1917,  the  corporation,  pursuant  to  said  resolution, 
distributed  in  dividends  the  sum  of  $700,000,  of  which  the  plaintiff 

received  $240,000,  and  in  her  income  tax  return  for  the  year  1917  plaintiff 
reported  the  amount  received  by  her  from  the  High  Rock  Knitting  Company 
and  allocated  20%  thereof  as  taxable  under  the  1916  rates,  60%  as  taxable 
under  the  1915  rates,  and  120%  thereof  as  non-taxable,  because  declared  by 
the  resolution  as  payable  out  of  profits  accrued  before  March  1,  1913. 

3459  When  the  books  for  the  year  1917  were  audited  by  Price,  Waterhouse 
and  Company  some  time  after  the  close  of  the  calendar  year,  it  was 

shown  that  the  profits  of  the  company  for  the  year  1917  were  $424,958.53, 
after  allowing  $250,000  for  corporate  income  tax  for  that  year. 

3460  The  Internal  Revenue  Department,  on  auditing  plaintiff’s  return  for 
the  year  1917,  made  the  claim  that  the  first  $400,000  of  the  $700,000  dis- 
tributed by  the  company  must  be  taken  out  of  the  earnings  for  the  year  1917 
and  taxable  to  the  stockholders  at  the  rate  in  force  at  that  year.  The 

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Department  therefore  imposed  an  additional  assessment  on  the  plaintiff  in 
the  sum  of  $30,611.12,  which  she  paid  under  protest.  The  plaintiff,  upon  a 
re-audit  of  her  account,  conceded  that  all  of  the  1916  surplus  had  to  be 
exhausted  before  resorting  to  the  accumulation  prior  to  March  1,  1913  and 
so  claims  only  the  sum  of  $29,958.88  as  having  been  erroneously  assessed. 

3461  The  case  turns  upon  the  construction  to  be  given  Section  31  B of 
the  Revenue  Act  of  1916  as  amended  by  the  Act  of  October  3,  1917 

(40  Statute  300). 

3462  The  language  of  the  section,  so  far  as  applicable  to  this  case,  is  as 
follows : 

“Any  distribution  made  * * * in  the  year  1917  * * * shall 

be  deemed  to  have  been  made  from  the  most  recently  accumulated  un- 
divided profits  or  surplus,  and  shall  constitute  a part  of  the  annual  income 
of  the  distributee  for  the  year  in  which  received  and  shall  be  taxed,  to 
the  distributee  at  the  rates  prescribed  by  law  for  the  years  in  which 
such  profits  or  surplus  were  accumulated  by  the  corporation.” 

34  63  Two  questions  are  presented: 

(1)  Whether  the  word  “deemed”  in  section  31  B means  a conclusive 
presumption,  or  merely  a rebuttable  presumption; 

(2)  Assuming  that  the  word  “deemed”  is  to  be  construed  as  an  absolute 
requirement  or  conclusive  presumption,  must  corporate  profits  earned  in  the 
year  1917  be  included  in  the  corporation’s  “most  recently  accumulated  un- 
divided profits  or  surplus”  within  the  meaning  of  section  31  B? 

3464  To  ascertain  the  intention  of  Congress,  it  is  necessary  to  refer  briefly 
to  each  income  tax  act  since  the  adoption  of  the  16th  amendment 

with  reference  to  its  application  to  the  distribution  of  the  earnings  of  corpo- 
rations to  the  shareholders  thereof.  Acts  relating  to  income  tax  were  passed 
in  1913,  1916  and  1917. 

3465  Under  the  income  tax  act  of  1913,  retroactive  to  March  1,  1913, 
dividends  distributed  during  the  taxable  period  of  1913  and  the  years 

of  1914,  1915  were  taxable  to  the  recipients  under  the  “surtax”  provision, 
at  the  rates  current  during  those  years,  whether  the  profits  out  of  which 
such  dividends  were  declared  were  accumulated  before  or  after  March  1, 
1913.  (Lynch  v Hornby,  247  U.  S.  339;  Southern  Pacific  v Lowe,  247 
U.  S.  330). 

3466  The  1916  act,  however,  permitted  the  declaration  of  dividends  tax 
free  out  of  surplus  created  prior  to  March  1,  1913,  even  though 

profits  earned  subsequent  to  March  1,  1913  remained  undistributed;  leaving 
dividends  declared  from  profits  earned  since  March  1,  1913  taxable  at  the  rate 
in  existence  at  the  time  such  dividends  were  received  by  the  stockholders,  as 
in  the  act  of  1913. 

3467  Under  the  amendments  of  1917  passed  October  3,  1917,  profits  ac- 
cumulated prior  to  March  1,  1913  might  still  be  distributed  tax  free, 

“after  the  distribution  of  earnings  and  profits  accumulated  since  March  1, 
1913  has  been  made,”  and  dividends  paid  from  earnings  accumulated  since 
March  1,  1913  were  made  taxable  at  the  rates  in  effect  during  the  years  when 
the  profits  out  of  which  the  dividends  were  made  were  accumulated,  instead 
of  at  the  rates  of  the  year  in  which  they  were  distributed  with  a new  provision 
added  that  any  distribution  made  during  the  year  1917  or  any  subsequent 
year  “shall  be  deemed  to  have  been  made  from  the  most  recently  accumulated 
undivided  profits  or  surplus.”  ; 

3468  The  act  of  October  3,  1917  was  passed  almost  six  months  after  The 
United  States  had  entered  the  World  War,  and  was  entitled,  “An  act 

to  provide  revenue  to  defray  waUexpenses  and  for  other  purposes.” 

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3469  Taxes  and  sur-taxes  were  increased  generally  by  this  statute  and  it 
is  evident  that  the  object  of  the  statute  was  to  raise  large  revenues  needed  in 
emergency  to  successfully  carry  on  the  war. 

3470  The  word  “deemed,”  as  used  in  the  amendment  of  1917,  is  a transitive 
verb  defined  in 'Webster’s  new  unabridged  dictionary  as — “to  set  in 

judgment  over  or  upon;  to  judge;  also  to  pronounce  judgment  upon;  to 
decide — to  regard.” 

3471  The  word  “deemed”  has  been  judicially  defined.  In  Leonard  vs. 
Grant,  5 Fed.  11,  16,  it  is  stated  that: 

“ ‘deemed’  is  the  equivalent  of  ‘considered’  or  ‘adjudged’  and  therefore, 
whatever  an  act  requires  to  be  ‘deemed’  or  ‘taken’  as  true  of  any  person 
or  thing,  must,  in  law,  be  considered  as  having  been  duly  adjudged  or 
established  concerning  such  person  or  thing,  and  have  full  force  and 
effect  accordingly.”  ^ ■ , ? 

3472  In  U.  S.  v.  Doherty,  27  Fed.  730,  it  was  thus  defined: 

“ ‘deemed’  means  ‘judge,’  ‘determine,’  or  ‘consider.’  The  primary 
meaning  of  the  word  is  to  form  a judgment;  to  conclude  on  consider- 
ation.” 

34  73  There  are  several  other  judicial  expressions  of  the  word  “deemed,” 
among  them  being  in  Walton  v.  Gavin,  16  Q.  B.  48,  81,  where  it  was 
stated  that  where  a person  was  “deemed”  to  be  a soldier  it  must  be  under- 
stood to  mean  that  he  was  thereafter  to  be  taken  in  that  capacity. 

3474  Also,  in  Cardinel  v.  Smith,  5 Fed.  Cases,  45,  47;  the  statute  provided 
that  dealers  in  canned  goods  under  certain  circumstances  shall  be 

deemed  to  be  manufacturers  and  the  court  stated  that  they  were  to  be  held 
liable  as  manufacturers,  notwithstanding  that  they  were  not  such  in  fact. 

3475  Other  cases  to  the  same  effect  are- — 

Lawrence  & Co.  v.  Seyburn,  202  Fed.  913; 

Michael  v.  Nunn,  101  Fed.  423. 

3476  It  is  evident  from  the  general  scheme  of  the  statute  that  it  was  the 
intention  of  Congress  in  the  Amendment  of  1917,  to  require  not  only 

distribution  of  the  earnings  and  profits  accruing  since  March  1,  1913,  which 
distribution  is  subject  to  tax,  before  there  could  be  a tax  free  distribution  of 
earnings  and  profits  accruing  prior  to  that  date,  but  also  a distribution  of 
the  most  recent  and  most  highly  taxable  profits  or  earnings  before  resort  could 
be  had  to  the  earlier  profits  even  though  earned  since  March  1,  1913,  and 
therefore  also  taxable,  but  at  a less  rate.  Section  31B  of  the  1917  Amend- 
ment was  enacted  to  express  such  purpose. 

347  7 To  permit  the  distributing  corporation  or  the  taxpayer  to  determine 
out  of  what  profits  the  dividends  are  distributed  is  out  of  harmony 
with  both  the  language  of  the  section  and  the  intent  of  the  act. 

3478  The  same  section  further  provides  that  “this  subdivision  shall  not 
apply  to  any  distribution  made  prior  to  August  6,  1917  out  of  earnings 

or  profits  accrued  to  March  1,  1913.” 

3479  If  the  provision  of  section  31B  merely  created  a rebuttable  presump- 
tion enabling  the  corporation  to  elect  out  of  what  years  accumulated 

distributions  are  made,  then  there  would  have  been  no  need  for  inserting  the 
provision  exempting  distributions  made  before  August  6,  1917  out  of  earn- 
ings or  profits  accrued  prior  to  March  1,  1913. 

3480  The  corporation  may  not,  therefore,  by  its  act  declare  that  its  dis- 
tribution of  dividends  at  any  time  after  the  act  of  October,  1917,  is 

out  of  profits  accumulated  in  earlier  years  if  there  are  profits  of  later  years 
untouched.  To  do  so  is  void  because  in  conflict  with  the  statute.  The 
statute  means  that  regardless  of  the  form  of  the  declaration,  it  is  conclusively 

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presumed  that  the  distribution  is  out  of  the  most  recently  accumulated  un- 
divided profits  or  surplus. 

3481  The  second  and  more  important  question  to  be  decided  with  reference 
to  dividends  declared  and  paid  in  1917,  is — must  corporate  profits 

earned  in  the  year  1917  be  included  in  the  corporation’s  “most  recently  accum- 
ulated undivided  profits  or  surplus”  within  the  meaning  of  the  statute? 

3482  Do  these  terms  mean  and  include  the  current  earnings  of  the  calendar 
or  corporate  fiscal  year  in  which  the  distribution  is  made,  or  do  they 

mean  only  those  accumulated  prior  to  such  calendar  or  fiscal  year? 

34  83  The  plaintiff  has  shown  that  its  books  are  fully  audited  and  inventor}" 
taken  and  profit  and  loss  statement  made  up  only  once  a year  and  at 
the  close  of  the  calendar  year. 

3484  The  plaintiff  has  cited  the  works  of  accountants  and  others  upon 
authority  of  which  counsel  contends  that  the  words  of  the  statute 

cannot  apply  to  and  include  the  current  earnings  or  profits  down  to  the  date 
of  the  distribution  because  to  do  so  is  contrary  to  the  practice  of  accounting 
and  bookkeeping  and  because  actual  profits  cannot  be  definitely  known  with- 
out audit  and  inventory  and  appraisal,  which  is  customarily  done  once  a year, 
and  directors  cannot  be  presumed  to  have  voted  or  intended  to  vote  to  declare 
dividends  payable  out  of  earnings  up  to  the  minute,  for  at  best  they  can  but 
guess  before  an  audit  and  inventory,  and  a wrong  guess  subjects  them  to 
personal  liability.  Counsel  for  plaintiff  insists  Congress  must  be  deemed 
to  have  known  the  principles  and  practice  of  corporate  accounting,  and  that 
Congress  must  be  presumed  to  have  framed  its  act  of  1917  in  the  light  of 
such  knowledge. 

3485  There  is  undoubtedly  much  force  to  that  contention. 

3486  But  Congress  must  also  be  presumed  to  know  that  few  corporations 
pay  dividends  annually  only;  that  the  great  majority  of  dividend- 
paying corporation  declare  dividends  quarterly  or  semi-annually  and  pay 
them  out  of  earnings  or  profits  very  recently  earned,  whatever  be  the  form 
of  bookkeeping  entry;  sometimes,  wdten  none  are  earned,  resorting  to  the 
surplus  of  previous  years. 

3487  Congress  also  knew  that  the  war  upon  which  the  nation  has  just 
embarked  might,  and  probably  would,  be  a great  disturbance  to 

some  kinds  of  business.  To  some  corporations  or  persons  manufacturing 
things  needed  for  the  prosecution  of  the  war,  great  profits  would  accrue. 
The  business  of  others  might  be  greatly  injured,  if  not  destroyed,  by  the 
restrictions  upon  transportation,  use  of  material,  labor  supply  and  perhaps 
in  other  ways.  Such  latter  corporations  might  have  considerable  losses 
instead  of  profits  and  would  have  to  draw  on  the  surplus  and  undivided 
profits  of  more  prosperous  times  to  pay  any  dividends  at  all. 

3488  To  have  declared  by  statute  that  any  dividends  declared  after  the 
act  of  1917  must  be  conclusively  presumed  to  be  distribution  of  current 
earnings  and  taxable  at  the  war  rates  of  the  1917  act,  and  counsel  for  plaintiff 
contends  Congress  could  and  would  have  said  so  if  it  meant  to  include  such 
earnings,  would  have  worked  much  hardship  and  defeated  to  some  extent 
the  purpose  of  the  act  of  1917.  That  act  was  intended  to  greatly  increase 
the  revenue  from  the  income  tax.  To  have  declared  that  all  dividends  must 
be  conclusively  presumed  to  have  been  distributed  out  of  current  profits  or 
earnings  in  cases  when  there  were  none,  would  have  interfered  with  Congress’s 
purpose  in  at  least  these  respects: 

1.  The  Government  would  not  be  able  to  collect  any  taxes  upon  dividends 
of  loss-making  corporations,  no  matter  how  great  their  previous  surplus, 
because  loss-making  corporations  could  not  be  compelled  to,  and  would  not, 

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declare  any  such  highly  taxable  dividends  in  the  losing  years  out  of  previous 
profits  and,  therefore,  there  would  be  nothing  to  tax. 

2.  The  stockholders  would  suffer  because  instead  of  getting  dividends 
regularly  in  lean  years  from  the  accumulations  of  the  fat  years,  as  in  the  case 
of  most  stable  corporations,  he  would  get  no  dividends  at  all. 

3.  The  stock  upon  cessation  of  dividends  would  materially  depreciate  in 
value,  causing  loss  to  the  owner  and  possibly  tending  to  unsettle  the  value 
of  other  stocks. 

34  89  Confronted  with  the  necessity  of  raising  more  revenue  for  war  purposes 
and  not  wishing  to  defeat  its  purpose  or  penalize  any  loss-making 
corporation,  and  deter  it  from  declaring  dividends  out  of  former  profits, 
Congress  could  not  well  enact  that  distributions  in  1917  and  subsequent 
years  shall  be  deemed  or  conclusively  presumed  to  have  been  made  from  the 
earnings  or  profits  of  the  time  of  the  distribution,  when  in  fact  there  might 
be  loss  instead  of  profit,  and,  therefore,  had  to  resort  to  language  which 
would  permit  the  loss-making  corporation  to  declare  dividends,  though  not 
earned  in  that  year  out  of  previous  profits  and  have  them  taxed  at  the  rate 
prevailing  in  the  year  in  which  earned  and  at  the  same  time  tax  the  profit- 
making corporation  at  the  war  rate  on  the  distribution  of  the  current  war 

profits.  ■ 

3490  Accordingly  Congress  enacted  in  1917  that  distributions  after  August 
6,  1917  “shall  be  deemed  to  have  been  made  from  the  most  recently  accum- 
ulated undivided  profits  or  surplus”  and  “shall  be  taxed  to  the  distributee 
at  the  rates  prescribed  by  law  for  the  years  in  which  such  profits  or  surplus 
were  accumulated.” 

3491  By  this  language  a loss-making  corporation  could  declare  dividends 
after  the  act  out  of  the  most  recently  accumulated  profits  or  surplus 

and  the  stockholder  would  be  taxed  at  the  rate  of  the  year  in  which  the 
profits  were  earned,  and  a profit-making  corporation’s  dividend  distributions 
would  be  taxed  at  the  war  rate. 

3492  To  compel  distribution  of  the  war  profits,  section  10B  was  inserted 
in  the  1917  Amendment,  providing  for  a tax  on  corporations,  in 

addition  to  all  other  taxes,  of  10%  on  earnings  not  distributed  within  six 
months  after  the  end  of  the  calendar  year  in  which  earned,  except  such  part 
thereof  as  might  actually  be  invested  or  employed  in  the  business,  and  in 
case  of  fraud  in  the  amount  of  profits  claimed  to  have  been  invested  in  the 
business  the  tax  was  15%  instead  of  10%. 

3493  Under  all  the  previous  income  tax  laws,  dividends  were  taxable  in  the 
year  when  received.  The  1916  act  did  not  change  the  law  in  this 

respect  but  permitted  dividends  declared  from  earnings  accrued  previous  to 
March  1,  1913  to  be  distributed  tax  free.  There  was  no  question,  then, 
under  the  acts  of  1913  and  1916  whether  the  distributions  of  the  current  year 
were  taxable  or  not,  as  such  distributions  were  expressly  made  subject  to 
tax  at  the  rate  of  the  year  when  received,  except,  of  course,  distributions  from 
earnings  accumulated  prior  to  March  1,  1913. 

3494  Is  it  conceivable  that  in  1917,  with  the  country  engaged  in  the 
greatest  war  in  history,  when  more  money  was  needed  than  ever 

before,  Congress  would  deliberately  change  the  income  tax  law  and  instead 
of  having  income  taxes  coming  in  yearly  on  dividends  distributed  each  year, 
regardless  of  when  earned,  except  when  earned  before  March  1,  1913,  would 
provide  for  an  interval  of  a whole  year  when  no  taxes  could  be  levied  on 
# dividend  distributions  in  1917  unless  distributed  from  the  accumulated 
earnings  of  previous  years?  The  answer  must  be  evident. 


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3495  The  later  act  passed  in  1919,  containing  an  additional  provision  that 
any  distribution  made  after  the  first  sixty  days  of  a taxable  year  shall 

be  “deemed  to  have  been  made  from  the  earnings  or  profits  accumulated 
between  the  close  of  the  preceding  taxable  year  and  the  date  of  distribution, 
to  the  extent  of  such  eanrings  or  profits.” 

3496  Had  this  language  been  used  in  the  statute  of  1917,  this  case  would 
probably  not  have  arisen. 

3497  The  Amendment  enacted  in  1919  was  evidently  not  to  change  the 
statute  but  to  clarify  it. 

3498  So  considered  it  supports  the  views  above  set  forth. 

3499  The  plaintiff  relies  upon  the  definition  given  the  words  “accumulated 
undivided  profits  or  surplus”  by  works  on  accounting.  While  it  is 

undoubtedly  true  these  works  are  recognized  as  authorities  for  bookkeepers 
and  accountants,  and  might  have  been  known  by  some  members  of  Congress 
when  the  legislation  in  question  was  enacted,  nevertheless  it  is  apparent 
that  this  statute  was  prepared  for  the  general  public  and  the  ordinary  interpre- 
tation of  the  words  must  be  taken  rather  than  any  technical  limitation  which 
may  be  placed  upon  them  by  experts.  In  a technical  sense,  no  profits  become 
undivided  profits  or  surplus  until  they  have  been  set  aside  at  the  end  of  an 
accounting  period  and  allocated  to  certain  funds  known  to  accountants  and 
bookkeepers  as  “undivided  profits  or  surplus. 

3500  Montgomery  on  Auditing , Theory  and  Practice,  pages  199-205,  recog- 
nizes the  distinction  between  the  common  significance  and  the  technical 

understanding  of  the  word,  “surplus.’ 

3501  In  Lezvis-Southerland  Statutory  Construction , Vol.  2,  2nd  Ed.  page  753, 
it  is  stated: 

“Words  in  common  use,  and  also  having  a technical  sense,  will,  in  acts 
intended  for  general  expression  and  not  dealing  especially  with  the  subject 
to  which  such  words  in  a technical  sense  apply,  be  understood  primarily 
in  their  public  sense,  unless  they  are  defined  in  the  act  or  a contrary 
intention  is  otherwise  manifest.”  _ . 

3502  In  common  phraseology,  “surplus  is  that  which  remains  when  use  or 
need  is  satisfied;  it  is  the  excess  or  overplus. 

3503  The  word  “surplus”  has  been  judicially  defined  as  “that  which  remains 
after  expenses  and  dividends.  (Words  and  Phrases,  Vol.  4,  p.  607). 

3504  “Profits”  has  ordinarily  been  designated  as  the  gain  made  in  any 
business  or  investment,  both  receipts  and  payments  taken  into 

consideration. 

Burdett  v.  Estey,  3 Fed.  566,  569; 

Providence  Rubber  Co.  v.  Goodyear,  76  U.  S.  788. 

3505  The  Treasury  Department  Regulation,  known  as  Article  107,  Regu- 
lation 33  Revised,  has  stated  the  Department’s  construction  of  Section 

31 B of  the  Act  of  1917,  in  the  following  language: 

“If  a corporation  distributed  dividends  in  1917,  such  dividends  will  be 
deemed  to  have  been  paid  from  the  earnings  of  1917,  and  the  recipient, 
if  an  individual,  will  be  liable  to  additional  tax,  if  any,  and  if  a corporation 
to  income  tax,  at  the  rates  for  the  year  1917,  unless  it  is  shown  to  the 
satisfaction  of  the  Commissioner  of  Internal  Revenue  that  at  the  tune 
such  dividends  were  paid  the  earnings  up  to  that  time  were  not  sufficient 
to  cover  the  distribution,  in  which  case  the  excess  over  the  earnings  oi  the 
taxable  year  will  be  deemed  to  have  been  paid  from  the  most  recently  ac- 
cumulated surplus  of  prior  years  and  will  be  taxed  at  the  rate  or  rates 
for  the  year  or  years  in  which  earned.” 


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3506  This  construction  is  in  entire  harmony  with  the  views  herein  set 
forth. 

3607  When  the  meaning  of  a statute  is  doubtful,  great  weight  should  be 
given  to  the  construction  placed  upon  it  by  the  department  charged 

with  its  execution. 

U.  S.  v.  Herman,  209  U.  S.,  339. 

3608  It  is  not  necessary,  however,  in  this  case  to  resort  to  the  construction 
by  the  Department. 

3609  Any  other  construction  would  make  great  confusion  in  respect  to  all 
the  quarterly  and  semi-annual  dividends  paid  in  1917  and  intended  to 

be  distributed  from  the  earnings  of  that  year,  upon  which  tax  at  the  war  rate 
of  1917  has  undoubtedly  been  paid  by  multitudes  of  taxpayers  for  the 
year  1917. 

3610  Despite  the  inhibition  contained  in  the  statute  against  distribution 
of  profits  accrued  before  March  1,  1913,  until  the  most  recently 

accumulated  undivided  profits  or  surplus  were  disposed  of,  the  corporation 
allocated  $366,189.19  of  the  earnings  and  profits  accrued  prior  to  March  1, 
1913  to  the  payment  of  the  $700,000  dividend  declared  and  distributed  in 
December,  1917.  The  plaintiff  taxpayer  made  a like  proportionate  allo- 
cation. The  pro-rated  earnings  of  1917  to  December  20th,  the  date  of  the 
distribution  of  the  aforesaid  dividend,  were  $410,987.29,  and  yet  the  claim 
is  that  no  part  of  these  earnings  were  used  in  the  payment  of  the  dividend. 
It  cannot  under  a fair  construction  of  the  statute  be  denied  that  the  earnings 
and  profits  for  the  year  1917  were  undivided  profits,  nor  can  it  be  disputed 
that  they  were  the  most  recently  accumulated  earnings  and  profits  which  had 
accrued  since  March  1,  1913.  The  dividend  must  be  conclusively  presumed 
to  have  been  paid  from  these  profits  of  the  year  1917  to  the  extent  thereof, 
up  to  the  date  of  declaration  of  dividend,  regardless  of  the  language  of  the 
resolution  or  the  intent  of  the  company. 

3611  The  assessment  was  properly  levied  against  the  plaintiff  and  her 
complaint  must  be  dismissed.  (Harder  vs.  Irwin,  U.  S.  D.  C.,  N.  D. 

of  N.  Y.,  Nov.  29,  1922.  Not  yet  reported.) 


3612  Chairman  of  Committee  on  Appeals  and  Review. — Effective  Decem- 
2923  ber  15,  1922,  Mr.  Kingman  Brewster  succeeds  Mr.  N.  T.  Johnson, 
3397  as  Chairman  of  the  Committee  on  Appeals  and  Review. — The 
Corporation  Trust  Company. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

783 


12-18-23. 


(IT — Mimeograph:  Coll.  No.  3036 : R.  A.  No.  239.) 
Deductibility  from  gross  income  of  state  inheritance  taxes. 


[For  the  rule  as  to  the  deductibility  of  the  “ inheritance  tax ” of  any  State  or 
other  jurisdiction  not  listed  below  see  the  alphabetically  arranged  list  under 
Art.  134  on  Supplementary  Page  38  herein,  following  the  “T.  D.  Finder ” guide 
card  where  such  State  or  other  jurisdiction  will  be  found  if  the  Government  has 
stated  the  rule  by  subsequent  official  pronouncement. — The  Corporation  Trust 
Company .] 

3513  The  following  is  an  incomplete  list  of  those  states  or  jurisdictions  in 
1728  _ which  the  state  inheritance  tax,  by  whatever  name  known,  is  imposed 
3414  . upon  the  right  to  receive  property  and  is  an  allowable  deduction  from 
gross  income  of  the  beneficiary  in  computing  his  net  income: 


Alaska 
Arizona 
Arkansas 
California 
Colorado 
Connecticut 
Delaware 
Georgia 
Idaho 
Illinois 
3' 


Indiana 
Iowa 
Kansas 
Kentucky 
Louisiana 
Maine 

Massachusetts 

Michigan 

Minnesota 


Missouri 
Montana 
New  Hampshire 
New  Jersey 
New  York 
North  Carolina 
Ohio 

Oklahoma 
Ontario  (Canada) 


Oregon 
*Rhode  Island 
South  Carolina 
Tennessee 
Texas 
Vermont 
Virginia 
Washington 
Wisconsin 
Wyoming 


14  The  following  is  an  incomplete  list  of  those  states  in  which  the  state 
inheritance  tax  is  imposed  upon  the  right  to  transmit  property  and 
is  an  allowable  deduction  from  gross  income  of  the  estate  in  determining  its 
net  income: 


Utah  *Rhode  Island  Pennsylvania 

3516  It  is  provided  in  Section  214  (a)(3)  of  the  Revenue  Act  of  1921,  that, 
“For  the  purpose  of  this  paragraph  estate,  inheritance,  legacy,  and 
succession  taxes  accrue  on  the  due  date  thereof  except  as  otherwise  provided 
by  the  law  of  the  jurisdiction  imposing  such  taxes;  * * *.”  (To  the  same 

effect,  see  Art.  134  of  Regulations  62,  and  Art.  134  of  Regulations  45,  both  as 
amended.)  Due  to  the  variety  of  provisions  embodied  in  the  local  statutes 
respecting  the  accrual  and  due  dates,  the  subject  cannot  here  be  treated  in 
extenso,  but  information  as  to  any  particular  jurisdiction  may  be  had  upon 
inquiry  addressed  to  a collector  of  Internal  Revenue  whose  district  lies  within 
or  embraces  the  taxing  State,  or  to  the  Commissioner  of  Internal  Revenue 
at  Washington  D.  C. 

3516  If  the  books  of  a taxpayer  claiming  a deduction  on  account  of 
estate,  succession,  legacy  or  inheritance  taxes  imposed  by  a State, 
Territory  or  possession  of  the  United  States,  or  by  a foreign  country,  are 
kept  on  a cash  receipts  and  disbursements  basis,  such  taxes  are  deductible 
from  gross  income  for  the  taxable  period  in  which  they  are  paid;  if  kept  on 
an  accrual  basis,  the  taxes  are  deductible  for  the  taxable  year  in  which  they 
accrue. 


3517  *The  RhodeMsland  law,  which  became  effective  February  22,  1916, 
imposes  two  separate  and  distinct  taxes;  one  an  estate  tax,  “as  a 
tax  upon  the  right  to  transfer”  (Sec.  1),  which  is  hence  deductible  from  the 
gross  income  of  the  estate,  and  the  other  a legacy  or  succession  tax,  “as  a 
tax  upon  the  right  to  receive”  (Sec.  5),  and  which  is  deductible  from  the  gross 
income  of  the  beneficiary.  (IT — Mim;  Coll.  No.  3036;  R.  A.  No.  239, 
signed  by  Commissioner  D.  H.  Blair,  and  dated  December  14,  1922.) 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

784 


12-18-28.  (2)  12-21-22. 

(T.  D.  3416.) 

38 1 8 Credit  or  refund  claims  filed  within  four  years  after  payment  of  tax 
2813  may  be  allowed  though  not  filed  until  after  expiration  of  five  years 
from  date  return  was  due. — A claim  for  credit  or  refund  of  an  amount 
of  income,  war-profits  or  excess-profits  tax,  erroneously  or  illegally  collected, 
may  be  allowed  after  five  years  from  the  date  when  the  return  was  due, 
even  though  such  claim  is  not  filed  by  the  taxpayer  until  after  the  expiration 
of  the  five  years,  if  such  claim  is  presented  to  the  Commissioner  of  Internal 
Revenue  within  four  years  next  after  payment  of  the  tax.  (T.  D.  3416, 
signed  by  Commissioner  D.  H.  Blair,  and  dated  December  16,  1922.) 


(Decision.) 

December  18,  1922. 

Revenue  Act  of  1917. 

Dividends  paid  by  corporations  in  1917  (except  as  to  distributions  made  prior 
to  August  6 from  profits  accrued  prior  to  March  1,  1913)  are  conclusively 
presumed  to  have  been  paid  from  the  most  recently  accumulated 
profits  including  the  profits  of  1917  to  date  of  distribution,  even 
though  declared  to  be  from  depletion  reserve,  at  least 
when  there  was  no  concurrent  and  corresponding  re- 
duction of  capital  or  of  capital  stock  liability. 

United  States  District  Court. 

Southern  District  of  New  York. 

Archibald  Douglas,  George  Notman  and  Edmund  Coffin,  as  Executors  of 
the  Estate  of  James  Douglas,  deceased, 

Plaintiffs, 

against 

William  H.  Edwards,  Collector  of  United  States  Internal  Revenue  for  the 
Second  District  of  the  State  of  New  York, 

Defendant. 

MEMORANDUM  OPINION 

3519  Mack,  Circuit  Judge. — This  suit  is  brought  by  the  executors  of 
1107  James  Douglas,  deceased,  to  recover  the  sum  of  $173,579.72  assessed 
as  income  tax  against  funds  received  by  the  decedent  as  part  of  so-called 
“depletion  distributions”  made  by  the  Phelps  Dodge  Corporation  to  its 
shareholders  in  September  and  December,  1917.  It  is  the  contention  of  the 
plaintiffs  that  these  distributions  were  not  dividends  in  the  ordinary  course 
of  the  business,  but  were  liquidating  dividends  specifically  made  from  a 
depletion  reserve  set  up  by  the  corporation  under  the  direction  of,  and  in 
accordance  with,  the  Regulations  of  the  Treasury  Department,  and,  there- 
fore, constituted  return  of  capital  to  its  stockholders.  The  solicitor  for  the 
Commissioner  of  Internal  Revenue  rejected  this  contention  on  the  ground 
that  under  Section  31(b)  of  the  Revenue  Act  of  1916,  added  by  Section  1211 
of  the  Act  of  October  3,  1917,  a corporation  could  not  declare  a dividend  out 
of  profits  earned  prior  to  March  1,  1913,  or  from  a depletion  reserve— and 
thereby  enable  the  recipients  to  escape  the  tax  thereon — at  a time  when  the 
company  had  earnings  in  its  surplus  fund  which  accrued  to  it  on  or  after 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
785 


12-21-28. 


March  1,  1913,  from  which  the  dividend  or  dividends  could  have  been  paid, 
in  any  event  not  without  a reduction  of  its  capital  stock. 

3620  Plaintiff’s  Exhibit  D,  which  is  [not]  annexed  hereto  as  Schedule  I, 
gives  a summary  of  the  changes  in  the  financial  condition  of  the 

Phelps  Dodge  Corporation  during  the  period  1912-1917. 

3621  It  appears  therefrom  that  on  March  1,  1913,  the  Phelps  Dodge 
Corporation  (*)  had  net  assets  aggregating  $153,275,606.69;  it 

had  capital  stock  outstanding  of  a par  value  of  $45,000,000.00  and  surplus 
of  $108,275,606.69,  of  which  it  is  agreed  $45,000,000.00  represented  a paid-in 
surplus,  leaving  an  earned  surplus  of  $63,275,606.69. 

3622  The  dividends  distributed  to  the  stockholders  in  1913  exceeded  the 
net  profits  of  the  corporation  for  that  year  by  $1,051,883.14;  in  1914, 

by  $2,653,541.90;  and  in  1915,  by  $3,376,476.11.  In  1916,  however,  the 
net  profits  exceeded  the  dividends  by  $3,125,621.67,  and  in  1917  the  net 
profits  exceeded  the  dividends,  including  the  so-called  depletion  dividends, 
by  $2,342,487.06. 

3623  It  is  the  contention  of  the  plaintiffs  that  the  directors  in  each  of  these 
years  believed  they  were  paying  dividends  out  of  the  company’s 

net  income  inasmuch  as  the  depletion  was  taken  on  the  books  of  the  company 
at  a considerably  less  amount  than  that  ultimately  allowed  by  the  Govern- 
ment on  March  2,  1920.  Plaintiffs  also  point  out  that  the  total  distributions 
to  the  stockholders  during  the  years  1913  to  1917  exceeded  the  net  income  for 
those  years  on  the  basis  of  the  depletion  reserves  allowed  by  the  Government, 
by  $1,616,000.00. 

3524  The  dividends  or  distributions  declared  on  September  13,  1917,  and 
December  13,  1917,  and  payable  on  the  28th  of  these  months,  pur- 
ported to  be  made  from  a depletion  account.  The  resolutions  authorizing 
the  September  distribution  read  as  follows: 

‘‘WHEREAS,  this  company  in  accordance  with  the  Income  Tax 
Section  of  the  Tariff  Act  of  1913  and  with  the  Income  Tax  Law  of  Sep- 
tember 8,  1916,  has  yearly,  in  computing  its  income,  deducted  there- 
from a reasonable  allowance  for  depletion  of  its  mines,  based  upon  the 
fair  market  value  thereof  as  of  March  1,  1913;  and 

WHEREAS,  the  Income  Tax  Law  and  the  rulings  of  the  Department 
of  Internal  Revenue  provide  for  a separation  of  said  deductions  from 
income  and  provide  further  that  payments  to  stockholders  from  said 
depletion  account  will  be  a return  of  capital  invested,  and  are  not  subject 
to  income  tax  in  the  hands  of  the  shareholders; 

THEREFORE  RESOLVED  that  this  company  distribute  among  its 
stockholders  from  said  depletion  account,  three  dollars  a share,  to  be  paid 
on  September  28,  1917,  to  stockholders  of  record  on  September  24,  1917, 
the  total  amount  so  paid  to  be  deducted  from  said  depletion  account.” 
3625  The  December  resolution  was  identical  in  form. 

3526  These  depletion  dividends,  when  declared,  were  credited  on  the  books 
_ of  the  corporation  to  a new  account  which  was  opened,  entitled 
“Distribution  from  Reserve  for  Depletion,”  and  when  the  dividends  were 
paid,  the  cash  account  was  credited  and  the  account  entitled  “Distribution 
from. Reserve  for  Depletion”  was  debited.  Although  the  corporation  had  at 
the  time  two  depletion  accounts,  one  called  the  “Depletion  Reserve”  and  the 
other  “Ore  Reserve,”  neither  the  regular  “Depletion  Reserve”  account  nor 

(*)  I refer  to  the  Phelps  Dodge  Corporation  throughout  this  opinion,  disregarding 
change  in  name  and  corporate  readjustments  and  consolidations  not  material  for  the  dis- 
position of  this  case. 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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12-21-28. 


the  “Ore  Reserve”  account  was  charged  with  the  amount  of  the  depletion 
dividends;  no  part  thereof  was  deducted  from  either  of  these  accounts  upon 
the  books  of  the  company,  and  the  invested  capital  of  the  corporation  was 
not  reduced  in  the  excess  tax  return  filed  by  it,  by  the  amount  of  any 
depletion  dividends  declared  and  paid  in  1917;  naturally  no  reduction  in  the 
capital  stock  of  the  corporation  was  thereby  effected. 

3527  The  so-called  depletion  dividend  of  September  amounted  to  $1,- 
350,000,  and  the  plaintiffs’  testator,  Dr.  James  Douglas,  received  in 

respect  of  the  41,050  shares  of  the  capital  stock  of  the  corporation  held  by 
him  $123,150.  The  December  dividend  amounted  to  $2,250,000,  and  Dr. 
Douglas  received  $205,250. 

3528  Dr.  Douglas,  in  his  1917  income  tax  return,  included  in  his  taxable 
income  all  dividends  received  from  the  corporation,  except  the  two 

depletion  dividends  with  reference  to  which  he  inserted  the  following  note: 
“NOTE:  In  addition  to  the  monies  received  during  the  year  1917  as 
reported  in  the  foregoing  individual  income  tax  return  for  1917,  I have 


received  the  following  amounts: 

1917 

Sept.  28 — Received  as  a stockholder  from  the  Phelps  Dodge 
Corporation,  99  John  Street,  New  York,  N.  Y.,  a 

distribution  from  reserve  from  depletion $123,150 

Dec.  28 — Received  as  a stockholder  from  the  Phelps  Dodge 
Corporation,  99  John  Street,  New  York,  N.  Y.,  a 
distribution  from  reserve  from  depletion 205,250 


Total $328,400” 


3529  (1)  Plaintiffs,  pointing  out  that  the  total  earnings  of  the  company 
from  March  1,  1913,  to  December  31,  1917,  were  $50,133,207.58; 

that  the  distributions  made  during  the  same  period  were  $51,750,000,  leaving 
an  excess  of  distributions  over  earnings  of  $1,616,000,  contend  that  in  no 
circumstances  can  Dr.  Douglas’  share  of  $1,616,000  of  the  amount  distributed 
as  depletion  dividends  in  1917  be  regarded  as  taxable  income  accruing  sub- 
sequent to  March  1,  1913.  The  contention  when  analyzed,  however,  is 
clearly  untenable.  Although  the  directors  may  have  distributed  in  dividends 
in  1913,  1914  and  1915  sums  in  excess  of  the  net  earnings  for  those  years, 
the  earned  surplus  accumulated  by  the  corporation  readily  enabled  them  to  do 
so.  Under  the  Income  Tax  Act  of  1913  even  these  excess  distributions  from 
earnings  accumulated  prior  to  March  1,  1913,  were  subject  to  tax.  Lynch  v. 
Hornby , 247  U.  S.,  339.  The  law  was  changed  in  1916  and  dividends  from 
surplus  accumulated  prior  to  March  1,  1913,  were  exempted  from  tax. 
Consequently,  if  in  1916  and  1917  the  corporation  had  distributed  as  dividends 
sums  in  excess  of  their  net  earnings  in  those  years,  such  excess  would  have 
been  exempt.  But,  as  has  been  indicated,  the  net  earnings  in  both  1916  and 
1917  exceeded  all  the  distributions  made  in  those  years. 

3530  Inasmuch  as  the  net  income  for  1913  to  1915  was  less  than  the  div- 
idends of  those  years,  the  excess  must  have  been  paid  from  the  surplus 

on  hand  March  1,  1913.  It  was,  therefore,  part  of  the  dividends  of  these 
years  and  not  the  dividends  of  1916  and  1917,  that  came  from  this  surplus. 

3531  It  follows  that  before  December  31,  1915,  there  had  been  expended  in 
dividends  during  1913,  1914  and  1915  the  entire  net  earnings  for  those 

years  and,  in  addition  thereto,  a part  of  the  surplus  accumulated  prior  to 
March  1,  1913. 

3532  If  the  dividends  paid  in  the  year  1916  are  to  be  charged  against  the 
surplus  theretofore  accumulated  and  not  against  the  current  earnings 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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12-21-28. 


of  that  year,  the  entire  net  earnings  of  that  year,  $17,750,621.67,  would  form 
part  of  the  surplus  as  of  December  31,  1916,  an  amount  more  than  sufficient 
to  pay  both  the  dividend  and  depletion  distributions  made  in  1917. 

3533  If,  however,  the  dividends  of  1916  are  properly  chargeable,  to  the 
current  net  earnings  of  that  year,  then  only  $3,125,621.67  of  the 

surplus  as  of  December  31,  1916,  would  have  come  from  the  net  earnings  of 
1916  or  of  the  period  subsequent  to  February  28,  1913.  In  that  case,  if  the 
dividends  paid  in  1917  are  not  properly  chargeable  against  the  net  earnings 
of  that  year,  the  ordinary  dividends,  of  1917,  paid  prior  to  the  depletion  dis- 
tributions, would  more  than  .have  exhausted  this  $3,125,621.67,  an$l  in  that 
event  plaintiffs’  contention  that  the  depletion  distribution  necessarily  came 
from  surplus  accumulated  prior  to  March  1,  1913,  would  be  sound. 

3534  (?)  It  is  necessary,  therefore,  to  consider  next  the  interpretation  of 
the  Act  in  question.  And  as  to  that  (a)  whether  ordinary  dividends 

are  to  be  deemed  payable  only  out  of  accumulated  profits  and  surplus  as 
shown  by  the  last  bookkeeping  determination,  or  also,  and  in  the  first  instance, 
either  in  whole  or  in  part  out  of  current  net  earnings  of  the  year-  in  which 
they  are  paid,  regardless  of  whether  at  the  time  of  payment  it  shall  have  been 
actually  and  finally  determined  by  inventory  and  balancing  of  books  that 
sufficient  net  profits  therefor  have  been  earned;  (b)  even  if  ordinary  dividends 
are  chargeable  first  to  current  undetermined  net  earning?,,  whether  depletion 
distributions,  unlike  such  ordinary  dividends^  may  nevertheless  be  paid  out 
of  a depletion  reserve  or  out  of  surplus  earned  prior  to  March  1,  1913,  as 
capital  distributions,  without  reduction  of  the  capital  stock. 

3535  (a)  Section  31  of  the  Revenue  Act  of  1916,  as  supplemented  by  the 
Revenue  Act  of  1917,  reads  as  follows: 

“Sec.  31(a)  That  the  term  ‘dividends’  as  used  in  this  title  shall  be 
held  to  mean  any  distribution  made  or  ordered  to  be  made  by  a corpo- 
ration, joint-stock  company,  association,  or  insurance  company,  out  of 
its  earnings  or  profits  accrued  since  March  first,  nineteen  hundred  and 
thirteen,  and  payable  to  its  shareholders,  whether  in  cash  or  in  stock  of 
the  corporation,  joint-stock  company,  association,  or  insurance  company 
which  stock  dividend  shall  be  considered  income,  to  the  amount  of  the 
earnings  or  profits  so  distributed. 

(b)  Any  distribution  made  to  the  shareholders  or  members  of  a 
corporation,  joint-stock  company,  or  association,  or  insurance  company, 
in  the  year  nineteen  hundred  and  seventeen,  or  subsequent  tax  years, 
shall  be  deemed  to  have  been  made  from  the  most  recently  accumulated 
undivided  profits  or  surplus,  and  shall  constitute  a part  of  the,  annual 
income  of  the  distributee  for  the  year  in  which  received,  and  shall  be 
taxed  to  the  distributee  at  the  rates  prescribed  by  law  for  the  years  in 
which  such  profits  or  surplus  were  accumulated  by  the  corporation, 
joint-stock  company,  association,  or  insurance  company,  but  nothing 
herein  shall  be  construed  as  taxing  any  earnings  or  profits  accrued  prior 
to  March  first,  nineteen  hundred  and  thirteen,  but  such  earnings  or 
profits  may  be  distributed  in  stock  dividends  or  otherwise,  exempt  from 
the  tax,  after  the  distribution  of  earnings  and  profits  accrued  since 
March  first,  nineteen  hundred  and  thirteen,  has  been  made.  This  sub- 
division shall  not  apply  to  any  distribution  made  prior  to  August  sixth, 
nineteen  hundred  and  seventeen,  out  of  earnings  or  profits  accrued  prior 
to  March  first,  nineteen  hundred  and  thirteen.” 

3536  It  seems  to  me  that  the  Congressional  intent  is  clear.  Distributions 
to  shareholders  are  to  be  regarded  as  made  from  current  earnings 

and  the  most  recently  accumulated  surplus.  Congress,  in  my  judgment, 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
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12-21-28. 


did  not  intend  to  lay  down  a narrow  rule  to  be  whittled  away  by  technical 
definitions  of  the  terms  surplus,  undivided  profits,  dividends  and  distributions. 
Nor  did  it  intend  to  recite  a mere  prima  facie  rule  which  could  be  arbitrarily 
set  aside  by  the  form  of  the  bookkeeping  entries.  It  is  to  be  assumed  that 
Congress  desired  that,  so  far  as  possible,  the  tax  should  be  regulated  by  the 
substance  of  things  and  not  their  form,  and  that  taxation  should  not  fall(morc 
lightly  upon  one  man  than  upon  another  because  of  ingenuity  in  bookkeeping 
methods. 

363  7 If  plaintiffs’  contention  that  “the  most  recently  accumulated  un- 
divided profits  or  surplus”  is  necessarily  limited  to  such  profits  and 
surplus  as  are  definitely  ascertained  by  closing  the  books,  gross  inequality 
might  result  dependent  upon  the  number  of  times  in  a fiscal  year  that  the 
books  are  closed.  Furthermore,  if  the  contention  were  sound  not  merely 
as  a construction  of  the  Act  but — and  plaintiffs  so  urge  as  the  proper 
relation  of  dividend  distributions  to  earnings  from  the  standpoint  of  sound 
accounting  principles  and  usual  business  practice,  it  would  be  applicable  also 
to  the  1916  dividends.  The  result,  as  heretofore  stated,  would  be  that  the 
entire  large  earnings  of  1916  would  be  applicable  to  the  1917  distributions, 
both  ordinary  and  depletion.  True,  in  that  case,  there  would  be  a recovery 
because  the  tax  would  have  been  assessable  at  1916  instead  of  1917  rates. 

3538  The  practice,  however,  of  this  very  corporation  and  of  the  deceased 
stockholder  indicates  what,  in  my  judgment,  is  the  sounder  view. 

The  company,  in  its  annual  report,  while  stating  that  the  earliest  dividends, 
paid  in  March,  1917,  were  paid  out  of  profits  accrued  during  the  year  1916, 
declared  that  the  regular  ordinary  and  extra  dividends — these  do  not  include 
the  depletion  distributions— paid  in  June,  September  and  December,  1917, 
were  paid  out  of  earnings  for  the  year  1917.  And  Dr.  Douglas,  as  here- 
tofore stated,  so  returned  them  in  his  income  tax  report  for  the  year  1917. 

3539  Though  the  books  were  not  balanced  and  net  profits  carried  into  the 
undivided  profits  and  surplus  account  at  the  time  of  the  payment  of 

any  of  these  dividends,  it  was  obvious— as  it  ordinarily  would  be — that  large 
current  profits  were  being  made  and  distributed  from  time  to  time  throughout 
1917. 

3540  In  my  judgment,  Congress  did  not  intend,  and  there  is  nothing  in  the 
legislative  history  of  the  enactment  of  Section  31(b)  reasonably 

considered  that  would  indicate  that  Congress  intended  to  use  the  terms 
undivided  profits  or  surplus  in  a strict  technical  sense  which  would  exclude 
from  their  embrace  current  profits.  If  Congress  had  so  intended,  it  would 
have  resulted  in  nearly  all  corporate  dividends  declared  in  the  war  year  1917 
being  taxed  at  the  lower  rates  prescribed  for  1916,  or  not  being  taxed  at 
all. 

3541  Subsequent  legislation  indicates  not  a change  but  a clarification  of 
that  legislative  intent.  Section  201(b)  of  the  Revenue  Act  of  1918 

provided: 

“Any  distribution  shall  be  deemed  to  have  been  made  from  earnings 
or  profits  unless  all  earnings  and  profits  have  first  been  distributed.” 

3542  And  the  same  numbered  section  of  the  Revenue  Act  of  1921  is 
expressive  of  the  same  intent: 

“For  the  purposes  of  this  Act  every  distribution  is  made  out  of  earn- 
ings or  profits,  and  from  the  most  recently  accumulated  earnings  or 
profits,  to  the  extent  of  such  earnings  or  profits  accumulated  since  Feb- 
ruary 28,  1913;  but  any  earnings  or  profits  accumulated  or  increase 
in  value  of  property  accrued  prior  to  March  1,  1913,  may  be  distributed 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
789 


12-21-28. 


exempt  from  the  tax,  after  the  earnings  and  profits  accumulated  since 
I'ebruary  28,  1913,  have  been  distributed.  If  any  such  tax-free  dis- 
tribution has  been  made  the  distributee  shall  not  be  allowed  as  a de- 
duction from  gross  income  any  loss  sustained  from  the  sale  or  other 
disposition  of  his  stock  or  shares,  unless,  and  then  only  to  the  extent  that 
the  basis  provided  in  Section  202  exceeds  the  sum  of  (1)  the  amount  re- 
alized from  the  sale  or  other  disposition  of  such  stock  or  shares,  and  (2) 
the  aggregate  amount  of  such  distributions  received  by  him  thereon.” 
3543  That  undivided  profits  as  used  in  Section  31(b)  was  intended  to 
include  current  profit  earned  during  the  current  year,  was  certainly  the 
contemporaneous  construction  placed  upon  it  not  only  by  Dr.  Douglas  but 
by  taxpayers  generally.  Furthermore,  Article  107  of  Treasury  Regulations 
33,  Revised,  provided: 

“Any  distribution  made  to  shareholders  in  the  year  1917  or  subse- 
quent years  (except  any  distribution  of  dividends  made  prior  to  Aug.  6, 
1917,  out  of  earnings  or  profits  accrued  prior  to  Mar.  1,  1913)  shall  be 
deemed  to  have  been  made  from  the  most  recently  accumulated  undi- 
vided surplus  or  profits,  and  shall  constitute  income  of  the  distributee 
for  the  year  in  which  received,  and  shall  be  taxed  to  such  distributee  at 
the  rates  prescribed  by  law  for  the  years  in  which  such  surplus  or  profits 
were  earned  by  the  distributing  corporation. 

“Thus,  if  a corporation  distributed  dividends  in  1917,  such  dividends 
will  be  deemed  to  have  been  paid  from  the  earnings  of  1917,  and  the  recipi- 
ent, if  an  individual,  will  be  liable  to  additional  tax,  if  any,  and  if  a cor- 
poration, to  income  tax,  at  the  rates  for  the  year  1917,  unless  it  is  shown 
to  the  satisfaction  of  the  Commissioner  of  Internal  Revenue  that  at  the  time 
such  dividends  were  paid,  the  earnings  up  to  that  time  were  not  sufficient 
to  cover  the  distribution,  in  which  case  the  excess  over  the  earnings  of  the 
taxable  year  will  be  deemed  to  have  been  paid  from  the  most  recently 
accumulated  surplus  of  prior  years,  and  will  be  taxed  at  the  rate  or  rates 
for  the  year  or  years  in  which  earned. 

“A  corporation  declaring  and  paying  dividends  out  of  a surplus  or 
earnings  accumulated  over  a period  of  years,  should  make  a record  in  its 
books  of  the  amount  of  dividends  paid  out  of  each  year’s  undistributed 
surplus  or  profits,  and  advise  the  stockholders  accordingly,  in  order  that 
the  dividends  received  by  them  may  be  taxed  at  the  respective  rates 
prevailing  during  the  years  in  which  the  surplus  or  profits  so  distributed 
were  earned.  * * *” 

3544  The  Commissioner  of  Internal  Revenue  was  not  satisfied  that  at 
the  time  these  so-called  depletion  dividends  were  paid,  the  earnings 

up  to  that  time  were  not  sufficient  to  cover  such  distribution.  The  audit 
of  the  1917  books  indeed  proves  that  the  net  earnings  of  1917  were  more  than 
sufficient  to  pay  all  the  distributions  made,  and  there  is  nothing  to  indicate 
that  a pro  rata  apportionment  thereof  is  not  in  accordance  with  the  facts. 
Under  such  apportionment  the  net  earnings  were  sufficient  at  the  respective 
times  for  all  of  the  distributions. 

3545  (b)  Depletion  distributions  without  reduction  of  capital  stock  are  not 
1°  be  differentiated  in  the  matters  here  under  consideration  from 

ordinary  dividends.  Depletion  reserves  are  a mere  bookkeeping  account: 
the  distribution  comes  from  the  general  assets  of  the  company:  it  results  in 
a reduction  thereof.  If  a similar  reduction  were  made  in  the  capital  stock 
habffity  by  some  method  permissible  under  the  laws  of  the  state  of  its  creation, 
a different  situation  might  be  presented.  But  this  was  not  done  in  the  instant 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
790 


1 2-2 1-24.  (2)  1-4-23. 

case.  Calling  the  distribution  of  corporate  assets  a distribution  of  depletion 
reserve  does  not  make  it  a payment  of  capital  instead  of  income  when  there 
are  net  earnings  or  accumulated  surplus  sufficient  to  meet  it.  And  in  my 
judgment,  the  Act  is  correctly  interpreted  in  paragraph  26  of  Regulation  33 
of  the  Treasury,  issued  thereunder  in  January  1918,  reading  as  follows: 

“ Dividends  from  depletion  reserve.  A reserve  set  up  out  of  gross 
receipts  and  maintained  by  a corporation  for  the  purpose  of  making 
good  any  loss  or  wasting  of  capital  assets  on  account  of  depletion  is  not  to 
be  considered  a part  of  the  earned  surplus  of  the  company,  but  a reserve 
for  the  return  or  liquidation  of  capital.  A dividend  paid  from  such 
reserve  will  be  considered  a liquidating  dividend  and  will  not  constitute 
taxable  income  to  the  stockholder  except  to  the  extent  that  the  amount 
so  received  is  in  excess  of  the  capital  actually  invested  by  the  stockholder 
in  the  shares  of  stock  held  by  him,  and  with  respect  to  which  the  dis- 
tribution was  made.  No  dividend  will , however , be  deemed  to  have  been 
paid  from  such  reserve  except  to  the  extent  that  such  dividend  exceeds  the 
surplus  and  undivided  profits  of  the  corporation  at  the  time  of  such  payment , 
and  unless  the  books , records , published  statements , etc.,  of  the  corporation 
clearly  indicate  a corresponding  reduction  of  capital  assets  resulting  from 
such  payment.” 

3546  Inasmuch  as  the  net  earnings  for  1917  were  at  the  time  of  these 
distributions,  as  heretofore  stated,  more  than  sufficient  to  meet  them, 

the  claim  for  refund  was  properly  rejected.  A verdict  for  defendant  will 
therefore  be  directed. 

3547  Since  this  opinion  was  prepared,  my  attention  has  been  called  by  the 
defendant’s  counsel  to  the  opinion  of  Judge  Cooper  in  Harder  v. 

Irwin,  [^[3455  herein]  not  yet  reported,  an  opinion  in  which  I entirely  concur. 
(Douglas  vs.  Edwards,  U.  S.  D.  C.,  S.  D.  of  N.  Y.,  Dec.  18,  1922.  Not  yet 
reported.) 


3548  Retroactive  effect  of  amendments  to  the  Articles  of  the  Regulations 
1219  under  the  1918  and  1921  Acts  prescribing  the  method  of  determin- 
3372  ing  profit  or  loss  on  the  sale  of  rights  to  subscribe  to  stock  and  of 
3375  the  stock  with  respect  to  which  the  rights  are  issued. — Reference 
is  made  to  your  letter  of  December  8,  1922,  in  which  you  inquire 
as  to  the  effective  date  of  Treasury  Decision  3403  [^[3375]  relating  to  the  sale  of 
stock  and  rights,  and  inquiring  particularly  as  to  an  actual  sale  having  taken 
place  prior  to  October  18,  1922  (the  date  of  the  Treasury  Decision);  you  also 
inquire  whether  or  not  sales  of  stock  involving  rights  made  during  the  year 
1922  are  to  be  reported  under  the  new  regulation.  In  reply  you  are  advised 
that  by  Treasury  Decision  3402  [TJ3372],  dated  October  18,  1922,  Article 
39  of  Regulations  45  (applicable  to  the  Revenue  Act  of  1918)  was  amended 
to  conform  to  the  decision  of  the  United  States  Supreme  Court  in  the  case 
of  Miles  vs.  Safe  Deposit  and  Trust  Company  [^[3217].  By  Treasury  De- 
cision 3403  [^[3375],  Article  39  of  Regulations  62  (applicable  to  the  Revene 
Act  of  1921)  was  similarly  amended.  These  regulations,  as  amended,  are 
applicable  to  all  transactions  which  took  place  during  the  entire  period  in 
which  either  of  the  Revenue  Acts  in  question  was  in  force.  (Letter  to  The 
Corporation  Trust  Company,  signed  by  Commissioner  D.  H.  Blair,  and 
dated  December  19,  1922.) 

END  OF  THE  1922  SERVICE 

Copyright  1928,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
791 


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8-7-22. 


T.  D.  FINDER 

A Means  of  Reference  to  Treasury  Decisions,  since  October  3, 1913,  as  Published 
in  The  Federal  Tax  Services, 
and 

A Running  Table  of  Contents  for  The  Federal  Tax  Services  of  1922. 

Explanation : — The  references  opposite  the  Treasury  Decision  numbers  are  to  The 
Federal  Income  Tax  Service  or  The  War  Tax  Service  and  the  page  or  paragraph 
numbers  at  which  the  Treasury  Decisions  so  designated  were  published  therein.  It 
has  been  the  rule  to  reproduce  in  The  Federal  Tax  Services  the  full  text  of  every 
relevant  Treasury  Decision  at  the  time  of  its  issue,  and  to  continue  the  publication 
thereof,  in  whole  or  in  part,  in  the  Services  of  subsequent  years,  to  the  extent  that  such 
Treasury  Decision  provisions  remain  in  force  and  effect  and  are  applicable  under 
the  existing  law.  In  using  this  T.  D.  Finder  it  will  be  found  best  to  refer  always 
to  the  first  Service  to  which  reference  is  given  and  which  is  available  to  the  subscriber. 
Treasury  Decisions  which  do  not  pertain  to  matters  reported  in  The  Federal  Tax 
Services,  and  therefore  have  not  been  published  therein,  are  designated  by  subject  in 


lieu  of  Service  reference. 

T.  D.  Reference 

1913  T.  D’s. 

1882.  . 1913  Inc.  T.  S.,  p.  5 

1914  Inc.  T.  S.,  p.  5 

1883.  .(Personnel  of  Bureau.) 

1 884 . . (Tariff.) 

1885.  . (1909  Excise  Tax.) 

1886.  .(Liquor  dealers.) 

1887.  . 1913  Inc.  T.  S.,  p.  33 

1914  Inc.  T.  S.,  p.  33 

1915  Inc.  T.  S.,  p.  468 

1916  Inc.  T.  S.,  1f763 

1888.  .(Deputy  Collectors.) 

1889.  .(Distilled  spirits.) 

1890.  . 1913  Inc.  T.  S.,  p.  44 

1914  Inc.  T.  S.,  p.  44 

1915  Inc.  T.  S.,  p.  113,  117 

1916  Inc.  T.  S.,  H572,  574,  580, 
600 

1917  Inc.  T.  S.,  1f738,  745 

1918  Inc.  T.  S.,  11169,  173 

1919  Inc.  T.  S.,  1f564 

1891 . . 1913  Inc.  T.  S.,  p.  51 

1914  Inc.  T.  S.,  p.  51 

1915  Inc.  T.  S.,  p.  113 

1916  Inc.  T.  S.,  11568 

1917  Inc.  T.  S.,  H734 

1918  Inc.  T.  S.,  If  165 

1892.  . 1913  Inc.  T.  S.,  p.  53 

1914  Inc.  T.  S.,  p.  53 

1915  Inc.  T.  S.,  p.  75 

1916  Inc.  T.  S.,  H288 

1917  Inc.  T.  S.,  H318 

1918  Inc.  T.  S.,  H450 

1919  Inc.  T.  S.,  H993 

1893.  . 1913  Inc.  T.  S.,  p.  54 

1914  Inc.  T.  S.,  p.  54 

1894.  . 1913  Inc.  T.  S.,  p.  55 

1914  Inc.  T.  S.,  p.  55 

1895 . . (Tobacco.) 

1896.  .(1909  Excise  tax.) 

1897.  . 1913  Inc.  T.  S.,  p.  56 

1914  Inc.  T.  S.,  p.  56 

1898.  . (Denatured  alcohol.) 

1899.  . (Denatured  alcohol.) 

1900.  .(Denatured  alcohol.) 


T.  D.  Reference. 

1901.  .1913  Inc.  T.  S.,  p.  59 
1914  Inc.  T.  S.,  p.  59 

1902..  1913  Inc.  T.  S.,  p.  60 
1914  Inc.  T.  S.,  p.  60 

1903.  . 1913  Inc.  T.  S.,  p.  61 

1914  Inc.  T.  S.,  p.  61 

1915  Inc.  T.  S.,  p.  163-164 

1916  Inc.  T.  S.,  1J843,  845-846 

1917  Inc.  T.  S.,  11917,  919-920 

1918  Inc.  T.  S.,  H943,  945-946 

1919  Inc.  T.  S.,  11634,  636 

1920  Inc.  T.  S.,  U1701-1702 

1921  Inc.  T.  S.,  1(1858 

1922  Inc.  T.  S.,  1f2313 

1904. . 1913  Inc.  T.  S.,  p.  64 
1914  Inc.  T.  S.,  p.  64 

1905. . 1913  Inc.  T.  S.,  p.  65 
1914  Inc.  T.  S.,  p.  65 

1906. . 1913  Inc.  T.  S.,  p.  68 

1914  Inc.  T.  S.,  p.  68 

1915  Inc.  T.  S.,  p.  136 

1916  Inc.  T.  S.,  H704 

1917  Inc.  T.  S.,  1f650 

1907.  . 1913  Inc.  T.  S.,  p.  71 

1914  Inc.  T.  S.,  p.  71 

1908.  . 1913  Inc.  T.  S.,  p.  72 

1914  Inc.  T.  S.,  p.  72 

1909.  .1913  Inc.  T.  S.,  p.  73 

1914  Inc.  T.  S.,  p.  73 

1915  Inc.  T.  S.,  p.  180-182 

1916  Inc.  T.  S.,  U921,  925,  928, 

1917°in9c3T.  S„  1f996,  1000, 
1003,  1005,  1008 

1918  Inc.  T.  S.,  H1039,  1046, 
1049,  1051,  1054 

1919  Inc.  T.  S.,  1fl386 

1910.  . 1913  Inc.  T.  S.,  p.  77 

1914  Inc.  T.  S.,  p.  77 

1911.  .1913  Inc.  T.  S.,  p.  80 

1914  Inc.  T.  S.,  p.  80 

1915  Inc.  T.  S.,  p.  127 

1916  Inc.  T.  S.,  H681 

1917  Inc.  T.  S.,  H612 

1918  Inc.  T.  S.,  1fl34 


THE  FEDERAL  INCOME  TAX  SERVICE 
SupplementarylPage'  1. 


T.  D.  FINDER. 


T.  D.  Reference. 

1912.  . 1913  Inc.  T.  S.,  p.  82 

1914  Inc.  T.  S.,  p.  82 

1913.  . (1909  Excise  tax.) 

1914.  . 1913  Inc.  T.  S.,  p.  83 

1914  Inc.  T.  S.,  p.  83 

1915  Inc.  T.  S.,  p.  1 19 

1916  Inc.  T.  S.,  11639 

1917  Inc.  T.  S.,  1[804 

1918  Inc.  T.  S.,  1[212 

1915.  . 1913  Inc.  T.  S.,  p.  89 

1914  Inc.  T.  S.,  p.  89 

1916.  . 1913  Inc.  T.  S.,  p.  95 

1914  Inc.  T.  S.,  p.  95 

1917.  . 1913  Inc.  T.  S.,  p.  96 

1914  Inc.  T.  S.,  p.  95 

1918.  . (1909  Excise  Tax.) 

1919.  . (Cigars.) 

1920.  . 1913  Inc.  T.  S.,  p.  97 

1914  Inc.  T.  S.,  p.  97 

1921 . . (Instructions  to  collectors.) 

1922.  . 1913  Inc.  T.  S.,  p.  98 

1914  Inc.  T.  S.,  p.  98 

1923.  . 1913  Inc.  T.  S.,  p.  100 

1914  Inc.  T.  S.,  p.  100 

1924.  .(Denatured  alcohol.) 

1925 . . (Tobacco.) 

1926.  . 1913  Inc.  T.  S.,  p.  102 

1914  Inc.  T.  S.,  p.  102 

1915  Inc.  T.  S.,  p.  159 

1916  Inc.  T.  S.,  1)823 

1917  Inc.  T.  S.,  1(107 

1918  Inc.  T.  S.,  If  1760 

1919  Inc.  T.  S.,  H695 

1920  Inc.  T.  S.,  H 1688 

1921  Inc.  T.  S.,  1)  1 839 

1922  Inc.  T.  S.,  112295 

1914  T.  D’s. 

1927.  . 1913  Inc.  T.  S.,  p.  103 

1914  Inc.  T.  S.,  p.  103 

1928.  . 1913  Inc.  T.  S.,  p.  104 

1914  Inc.  T.  S.,  p.  104 

1915  Inc.  T.  S.,  p.  262 

1916  Inc.  T.  S.,  If  1504 

1917  Inc.  T.  S.,  H 1575 

1918  Inc.  T.  S.,  If  1 760 

1929.  . 1913  Inc.  T.  S.,  p.  105 

1914  Inc.  T.  S.,  p.  105 

1930.  . (Tobacco.) 

1931.  . (Tobacco.) 

1932.  . 1913  Inc.  T.  S.,  p.  131 

1914  Inc.  T.  S.,  p.  131 

1915  Inc.  T.  S.,  p.  292 

1916  Inc.  T.  S.,  f 1731 

1917  Inc.  T.  S.,  If  185 1 

1918  Inc.  T.  S.,  112086 

1919  Inc.  T.  S.,  H 1622 

1920  Inc.  T.  S.,  1(1868 

1921  Inc.  T.  S.,  1f2088 

1922  Inc.  T.  S.,  12584 

1933.  . 1913  Inc.  T.  S.,  p.  133 

1914  Inc.  T.  S.,  p.  133 

1915  Inc.  T.  S.(  p.  202 

1916  Inc.  T.  S.,  1fl014 


T.  D.  Reference. 

1934.  . 1913  Inc.  T.  S.,  p.  130 
1914  Inc.  T.  S.,  p.  130 
1935 ..  (Denatured  alcohol.) 

1936.  . (1909  Excise  tax.) 

1937.  . 1913  Inc.  T.  S.,  p.  136 

1914  Inc.  T.  S.,  p.  136 

1938.  . 1913  Inc.  T.  S.,  p.  137 

1914  Inc.  T.  S.,  p.  137 

1939.  . 1913  Inc.  T.  S.,  p.  139 

1914  Inc.  T.  S.,  p.  139 

1915  Inc.  T.  S.,  p.  149,  295 

1916  Inc.  T.  S.,  1)783  & Sup.  p.  2 

1917  Inc.  T.  S.,  1|846 

1918  Inc.  T.  S.,  1)857 

1940.  . (Narcotics.) 

1941.  . (1909  Excise  Tax.) 


1942.  . 1913 

Inc. 

T. 

S.,  p.  139 

1914 

Inc. 

T. 

S.,  p.  139 

1943.  . 1913 

Inc. 

T. 

S.,  p.  140 

1914 

Inc. 

T. 

S.,  p.  140 

1915 

Inc. 

T. 

S.,  p.  129-132,  135 

1917 

Inc. 

T. 

S.,  1)574 

1944.  . 1913 

Inc. 

T.  S.,  p.  145 

1914 

Inc. 

T. 

S.,  p.  145 

1915 

Inc. 

T. 

S.,  p.  371 

1916 

Inc. 

T. 

S.,  Sup.  p.  79 

1917 

Inc. 

T. 

S.,  Sup.  p.  82 

1918 

Inc. 

T. 

S.,  Sup.  p.  90 

1919 

Inc. 

T. 

S.,  Sup.  p.  108 

1920 

Inc. 

T. 

S.,  Finder  p.  7 

1921 

Inc. 

T. 

S.,  Finder  p.  3 

1945.  . 1913 

Inc. 

T. 

S.,  p.  144 

1914 

Inc. 

T. 

S.,  p.  144 

1915 

Inc. 

T. 

S.,  p.  97 

1916 

Inc. 

T. 

S.,  1(432,  438 

1946.  . 1913 

Inc. 

T. 

S.,  p.  209 

1914 

Inc. 

T. 

S.,  p.  209 

1915 

1 nc. 

T. 

S.,  p.  75 

1916 

Inc. 

T. 

S.,  1,291 

1917 

Inc. 

T. 

S.,  1321 

1918 

Inc. 

T. 

S.,  1453 

1919 

Inc. 

T. 

S.,  1971 

1947.  . 1913 

Inc. 

T. 

S.,  p.  218 

1914 

Inc. 

T. 

S.,  p.  218 

1915 

Inc. 

T. 

S.,  p.  135 

1916 

Inc. 

T. 

S.,  1735 

1948.  . 1913 

Inc. 

T. 

S.,  p.  219 

1914 

Inc. 

T. 

S.,  p.  219 

1915 

Inc. 

T. 

S.,  p.  88,  143,  248 

1916 

Inc. 

T. 

S.,  1373,  748,  1415 

1917 

Inc. 

T. 

S.,  1453,  814,  1480 

1918 

Inc. 

T. 

S.,  1825,  1657 

1921 

Inc. 

T. 

S.,  12016 

1949.  . 1913 

Inc. 

T. 

S.,  p.  220 

1914 

Inc. 

T. 

S.,  p.  220 

1915 

Inc. 

T.  S.,  p.  89 

1916 

Inc. 

T.  S.,  1f376 

1917 

Inc. 

T.  S.,  11456 

1918 

Inc. 

T. 

S.,  1607 

1919 

Inc. 

T. 

S.,  11500 

1920 

Inc. 

T. 

S.,  11805 

1921 

Inc. 

T. 

S.,  1(2016 

1922 

Inc. 

T. 

S.,  12521 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  2. 


3-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

1950.  . 1913  Inc.  T.  S.,  p.  221 

1914  Inc.  T.  S.,  p.  221 

1915  Inc.  T.  S.,  p.  86,  90,  261, 
279,  285 

1916  Inc.  T.  S.,  1? 62,  384,  1493, 
1664-1665,  1690,  1697 

1917  Inc.  T.  S.,  1[439,  464,  1565, 
1712,  1714,  1739,  1744-1745, 
1749-1750 

1918  Inc.  T.  S.,  1f589,  617,  1747, 
1907-1908,  1934,  1939-1940, 
1948-1949 

1951.  .(Collectors’  records.) 

1952.  . (Reports  of  Collectors.) 

1953.  . 1913  Inc.  T.  S.,  p.  223 

1914  Inc.  T.  S.,  p.  223 

1915  Inc.  T.  S.,  p.  356 

1954.  .(Denatured  alcohol.) 

1955.  . 1913  Inc.  T.  S.,  p.  224 

1914  Inc.  T.  S.,  p.  224 

1956.  . 1913  Inc.  T.  S.,  p.  224 

1914  Inc.  T.  S.,  p.  224 

1915  Inc.  T.  S.,  p.  89 

1916  Inc.  T.  S.,  1f376 

1917  Inc.  T.  S.,  1[456 

1918  Inc.  T.  S.,  H6b7 

1919  Inc.  T.  S.,  If  1500 

1920  Inc.  T.  S.,  111805 

1921  Inc.  T.  S.,  1(2016 

1957.  . 1913  Inc.  T.  S.,  p.  225 

1914  Inc.  T.  S.,  p.  225 

1915  Inc.  T.  S.,  p.  95-96,  190 

1916  Inc.  T.  S , 1(422,  424,  974 

1917  Inc.  T.  S.,  1(537,  539 

1918  Inc.  T.  S.,  1(684,  690 

1958.  .(Special  employees  diaries.) 

1959.  .(Distilled  spirits.) 

1960.  . 1913  Inc.  T.  S.,  p.  226 

1914  Inc.  T.  S.,  p.  226 

1915  Inc.  T.  S.,  p.  243 

1916  Inc.  T.  S.,  1(1377 

1917  Inc.  T.  S.,  1(1456 

1918  Inc.  T.  S.,  1(1633 

1961.  . 1913  Inc.  T.  S.,  p.  228 

1914  Inc.  T.  S.,  p.  228 

1962.  . 1913  Inc.  T.  S.,  p.  229 

1914  Inc.  T.  S.,  p.  229 

1915  Inc.  T.  S.,  p.  281 

1916  Inc.  T.  S.,  1(1674 

1917  Inc.  T.  S.,  1(1722 

1918  Inc.  T.  S.,  1(1917 

1919  Inc.  T.  S.,  1(2646 

1920  Inc.  T.  S.,  1(1977 

1921  Inc.  T.  S.,  K2234 

1922  Inc.  T.  S.,  1(2697 

1963.  . (Acceptance  of  certified  checks.) 

1964.  .(Searches  and  seizures.) 

1965.  . 1913  Inc.  T.  S.,  p.  230 

1914  Inc.  T.  S.,  p.  230 

1915  Inc.  T.  S.,  p.  169 

1916  Inc.  T.  S.,  K640,  871 

1917  Inc.  T.  S.,  1(805,  953 

1918  Inc.  T.  S.,  1(983 

1919  Inc.  T.  S.,  K723 


T.  D.  Reference. 

1966.  .(Raisin  and  pomace  wine.) 

1967.  . 1913  Inc.  T.  S.,  p.  233 

1914  Inc.  T.  S.,  p.  233 

1915  Inc.  T.  S.,  p.  207 

1916  Inc.  T.  S.,  1(553,  1055 

1968.  .(Rectified  alcohol.) 

1969.  .(Denatured  alcohol.) 

1970.  .(Adulterated  butter.) 

1971.  .(Alcohol — scientific  needs.) 

1972.  .(Raisin  and  pomace  wines.) 

1973.  . 1913  Inc.  T.  S.,  p.  239 

1914  Inc.  T.  S.,  p.  239 

1915  Inc.  T.  S.,  p.  173 

1916  Inc.  T.  S.,  1(889 

1917  Inc.  T.  S.,  1(97 1 

1974.  . 1913  Inc.  T.  S.,  p.  241 

1914  Inc.  T.  S.,  p.  241 

1915  Inc.  T.  S.,  p.  165-166 

1916  Inc.  T.  S.,  1(848,  854,  856- 
857 

1917  Inc.  T.  S.,  1(922,  926,  929 

1918  Inc.  T.  S.,  11948-949,  952- 
955 

1919  Inc.  T.  S.,  K645-649 

1975.  .(Denatured  alcohol.) 

1976.  . 1913  Inc.  T.  S.,  p.  243 

1914  Inc.  T.  S.,  p.  243 

1915  Inc.  T.  S.,  p.  149,  295 

1916  Inc.  T.  S.,  1(776  & Sup.  p.  2 

1917  Inc.  T.  S.,  1(839 

1918  Inc.  T.  S.,  1(850 

1919  Inc.  T.  S.,  11689 

1920  Inc.  T.  S.,  1(1682 

1921  Inc.  T.  S.,  *(1833 

1977.  . 1913  Inc.  T.  S.,  p.  257 

1914  Inc.  T.  S.,  p.  257 

1915  Inc.  T.  S.,  p.  160 

1916  Inc.  T.  S.,  1(826 

1978.  .(Denatured  alcohol.) 

1979.  . (Claims.) 

1980.  .(Gauging  instruments.) 

1981.  .(Denatured  alcohol.) 

1982.  .(Narcotics — Opium.) 

1983.  . 1913  Inc.  T.  S.,  p.  265 

1914  Inc.  T.  S.,  p.  265 

1984.  . (Brandy.) 

1985.  . 1913  Inc.  T.  S.,  p.  266 

1914  Inc.  T.  S.,  p.  266 

1986.  . 1913  Inc.  T.  S.,  p.  267 

1914  Inc.  T.  S.,  p.  267 

1915  Inc.  T.  S.,  p.  164 

1916  Inc.  T.  S.,  1(847 
1917. Inc.  T.  S.,  1(921 

1918  Inc.  T.  S.,  1(947 

1919  Inc.  T.  S.,  1(637 

1920  Inc.  T.  S.,  1(1703 

1921  Inc.  T.  S.,  1(1859 

1922  Inc.  T.  S.,  1(2314 

1987.  . 1913  Inc.  T.  S.,  p.  268 

1914  Inc.  T.  S.,  p.  268 

1915  Inc.  T.  S.,  p.  128 

1916  Inc.  T.  S.,  K694 

1917  Inc.  T.  S.,  1(620 

1918  Inc.  T.  S.,  1(137 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  3. 


T.  D.  FINDER. 


T.  D.  Reference. 

1988.  .1913  Inc.  T.  Si  p.  269 

1914  Inc.  T.  S.,  p.  269 

1915  Inc.  T.  S.,  p.  160 

1916  Inc.  T.  S.,  1J833 

1989.  . 1913  Inc.  T.  S.,  p.  270 

1914  Inc.  T.  S.,  p.  270 

1915  Inc.  T.  S.,  p.  66 

1916  Inc.  T.  S.,  11229 

1917  Inc.  T.  S.,  1[360 

1918  Inc.  T.  S.,  11493 

1919  Inc.  T.  S.,  111067,  1087 

1990.  . 1913  Inc.  T.  S.(  p.  271 

1914  Inc.  T.  S.,  p.  271 

1915  Inc.  T.  S.,  p.  100,  270 

1916  Inc.  T.  S.,  11476,  1582 

1917  Inc.  T.  S.,  1[495,  1645 

1918  Inc.  T.  S.,  H648,  1835 

1991.  .(1909  Excise  tax.) 

1992.  . 1913  Inc.  T.  S.,  p.  272 

1914  Inc.  T.  S.,  p.  272 

1915  Inc.  T.  S.,  p.  178,  180 

1916  Inc.  T.  S.,  H910,  919 

1917  Inc.  T.  S.,  H986,  994 

1918  Inc.  T.  S.,  H 1 03 1 , 1037 

1993.  . 1913  Inc.  T.  S.,  p.  273 

1914  Inc.  T.  S.,  p.  273 

1915  Inc.  T.  S.,  p.  246 

1916  Inc.  T.  S.,  H 1391 

1917  Inc.  T.  S.,  1(1469 

1918  Inc.  T.  S.,  1(1646 

1994.  . (Alcohol.) 

1995.  . 1913  Inc.  T.  S.,  p.  275 

1914  Inc.  T.  S.,  p.  275 

1915  Inc.  T.  S.,  p.  102,  272 

1916  Inc.  T.  S.,  H468,  1572 

1917  Inc.  T.  S.,  1(487,  1634 

1918  Inc.  T.  S.,  1(639,  1819 

1919  Inc.  T.  S.,  H2401 

1919  War  T.  S.,  H8107 

1920  Inc.  T.  S.,  H2022 

1921  Inc.  T.  S.,  1(2274 

1922  Inc.  T.  S.,  1(2735 

1996.  . 1913  Inc.  T.  S.,  p.  276 

1914  Inc.  T.  S.,  p.  276 

1915  Inc.  T.  S.,  p.  202 

1916  Inc.  T.  S.,  K1007 

1917  Inc.  T.  S.,  K 1075 

1918  Inc.  T.  S.,  Hi  1 14 

1997.  . 1913  Inc.  T.  S.,  p.  277 

1914  Inc.  T.  S.,  p.  277 

1915  Inc.  T.  S.,  p.  167,  170,  187 

1916  Inc.  T.  S.,  K862,  878,  956, 
959 

1917  Inc.  T.  S.,  H940,  950,  1028, 
1031 

1918  Inc.  T.  S.,  H970,  980,  1067, 
1070 

1998.  . 1913  Inc.  T.  S.,  p.  278 

1914  Inc.  T.  S.,  p.  278 

1915  Inc.  T.  S.  p.  95,  117,  126, 
189 


T.  D.  Reference. 

1998.  . 1916  Inc.  T.  S.,  H423,  601,  609, 

677,  968 

1917  Inc.  T.  S.,  K538,  608,  766, 
769 

1918  Inc.  T.  S.,  1(130 

1999.  . (1909  Excise  tax.) 

2000.  . (1909  Excise  tax.) 

2001.  . 1913  Inc.  T.  S.,  p.  282 

1914  Inc.  T.  S.,  p.  282 

1915  Inc.  T.  S.,  p.  255 

1916  Inc.  T.  S.,  1(1459 

1917  Inc.  T.  S.,  1(1537 

1918  Inc.  T.  S.,  1(1714 

2002.  . (Raisin  wine.) 

2003.  . 1913  Inc.  T.  S.,  p.  284 

1914  Inc.  T.  S.,  p.  284 

1915  Inc.  T.  S.,  p.  272 

1916  Inc.  T.  S.,  K 1578 

1917  Inc.  T.  S.,  K 1640 

1918  Inc.  T.  S.,  1(1826. 

2004.  .(Oleomargarine.) 

2005.  . 1913  Inc.  T.  S.,  p.  287 

1914  Inc.  T.  S.,  p.  287 

1915  Inc.  T.  S.,  p.  69,  228,  229, 
234 

1916  Inc.  T.  S.,  1(241,  247,  250, 
1256,  1278,  1317 

1917  Inc.  T.  S.,  K368,  374,  376, 
379,  381,  1322,  1337,  1339, 
1391 

1918  Inc.  T.  S.,  1(507,  513,  515, 
518,  520,  1433,  1449,  1451, 
1511 

1919  Inc.  T.  S.,  1(1074,  1879, 
2065,  2069,  2125 

1920  Inc.  T.  S.,  K 1064,  1343 

1921  Inc.  T.  S.,  1(1124,  1471 

1922  Inc.  T.  S.,  1(1835 

2006.  . 1913  Inc.  T.  S.,  p.  290 

1914  Inc.  T.  S.,  p.  290 

1915  Inc.  T.  S.,  p.  69,  228,  229, 
234 

1916  Inc.  T.  S.,  1(914 

1917  Inc.  T.  S.,  1(989 

1918  Inc.  T.  S.,  1(1032 

2007.  . (Spirits.) 

2008.  . (Spirits.) 

2009.  .(Stamp  tax  on  marine  insurance 

policies — Act  of  1898.) 

2010.  . (Alcoholic  medicinal  prepara- 

tions.) 

2011. . 1913  Inc.  T.  S.,  p.  291 

1914  Inc.  T.  S.,  p.  291 

1915  Inc.  T.  S.,  p.  52 

1916  Inc.  T.  S.,  1(102 

1917  Inc.  T.  S.,  1(208 

1918  Inc.  T.  S.,  K337 

2012..  1913  Inc.  T.  S.,  p.  292 

1914  Inc.  T.  S.,  p.  292 

1915  Inc.  T.  S.,  p.  43,  185 

1916  Inc.  T.  S.,  K18,  946 

1917  Inc.  T.  S.,  H66,  1021 

1918  Inc.  T.  S.,  K59,  1056 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  4. 


3-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

1915  T.  D’s. 

2013.  . 1913  Inc.  T.  S.,  p.  294 

1914  Inc.  T.  S.,  p.  294 

1915  Inc.  T.  S.,  p.  44,  122 

1916  Inc.  T.  S.,  1[15,  37,  660 

2014.  . (Wholesale  liquor  dealers.) 

2015.  . 1914  Inc.  T.  S.,  p.  293 

1915  Inc.  T.  S.,  p.  365 

2016. . 1913  Inc.  T.  S.,  p.  301 

1914  Inc.  T.  S.,  p.  301 

1915  Inc.  T.  S.,  p.  278 

1916  Inc.  T.  S.,  If  1627 

1917  Inc.  T.  S.,  111693 

1918  Inc.  T.  S.,  If  1884 

1919  Inc.  T.  S.,  If  1647 

2017.  . 1913  Inc.  T.  S.,  p.  306 

1914  Inc.  T.  S.,  p.  306 

1915  Inc.*  T.  S.,  p.  43,  155 

2018.  .(Distilled  spirits.) 

2019..  (Use  of  tank  cars  to  transfer 

brandy.) 

2020.  . 1913  Inc.  T.  S.,  p.  310 

1914  Inc.  T.  S.,  p.  310. 

202 1 . . (Oleomargarine.) 

2022. . 1913  Inc.  T.  S.,  p.  311 

1914  Inc.  T.  S.,  p.  31 1 

1915  Inc.  T.  S.,  p.  147 

1916  Inc.  T.  S.,  If 767 

1917  Inc.  T.  S.,  If 832 

1918  Inc.  T.  S.,  If 843 

1919  Inc.  T.  S.,  1f663 

1920  Inc.  T.  S.,  If  1661 

1921  Inc.  T.  S.,  If  1815 

1922  Inc.  T.  S.,  112270 

2023. . 1913  Inc.  T.  S.,  p.  312 

1914  Inc.  T.  S.,  p.  312 

1915  Inc.  T.  S.,  p.  183 

1916  Inc.  T.  S.,  1(935 

1917  Inc.  T.  S.,  If  1010 

1918  Inc.  T.  S.,  If  1061 

2024..  1913  Inc.  T.  S.,  p.  313 

1914  Inc.  T.  S.,  p.  313 

1915  Inc.  T.  S.,  p.  288 

1916  Inc.  T.  S.,  If  1714 

1917  Inc.  T.  S.,  if  1840 

1918  Inc.  T.  S.,  1(2085 

1919  Inc.  T.  S.,  If  1 635 

2025 . . (Tobacco.) 

2026.  .(Fermented  liquors.) 

2027.  .(Wines,  liquors,  etc.) 

2028. . 1913  Inc.  T.  S.,  p.  314 

1914  Inc.  T.  S.,  p.  314 

1915  Inc.  T.  S.,  p.  102 

1916  Inc.  T.  S.,  1f474 

1917  Inc.  T.  S.,  1(493 

1918  Inc.  T.  S.,  1f646 

2029..  1913  Inc.  T.  S.,  p.  315 

1914  Inc.  T.  S.,  p.  315 

1915  Inc.  T.  S.,  p.  256 

1916  Inc.  T.  S.,  If  1466 

1917  Inc.  T.  S.,  If  1544 

1918  Inc.  T.  S.,  H1721 


T.  D.  Reference. 

2030. . 1913  Inc.  T.  S.,  p.  317 

1914  Inc.  T.  S.,  p.  317 

1915  Inc.  T.  S.,  p.  185 

1916  Inc.  T.  S.,  1f947 

1917  Inc.  T.  S.,  1(67,  121,  1023 

1918  Inc.  T.  S.,  1(60,  201,  1058 

203 1 . . (Distilled  spirits.) 

2032.  . 1915  War  T.  S.,  p.  31. 

1916  War  T.  S.,  p.  31 

2033. . 1915  War  T.  S.,  p.  32 
1916  War  T.  S.,  p.  32 

2034.  . (Case  and  strip  stamps— Spirits.) 

2035.  . 1915  War  T.  S.,  p.  32 

1916  War  T.  S.,  p.  32 

2036.  . 1915  War  T.  S.,  p.  38 

1916  War  T.  S.,  p.  38 

2037.  . 1915  War  T.  S.,  p.  3S 

1916  War  T.  S.,  p.  38 

2038.  . 1915  War  T.  S.,  p.  39 

1916  War  T.  S.,  p.  39 

2039. . 1915  War  T.  S.,  p.  39 
1916  War  T.  S.,  p.  39 

2040.  . 1915  War  T.  S.,  p.  40 

1916  War  T.  S.,  p.  40 

1917  War  T.  S.,  1f4091 

1918  War  T.  S.,  1f6091 

1919  War  T.  S.,  1f7104 

2041 . .1915  War  T.  S.,  p.  41 

1916  War  T.  S.,  p.  41 

2042.  . 1915  War  T.  S.,  p.  42 

1916  War  T.  S.,  p.  42 

2043. . 1915  War  T.  S.,  p.  43 
1916  War  T.  S.,  p.  43 

2044.  . 1915  War  T.  S.,  p.  43 

1916  War  T.  S.,  p.  43 

2045.  . 1915  War  T.  S.,  p.  44 

1916  War  T.  S.,  p.  44 

2046. . 1915  War  T.  S.,  p.  44 

1916  War  T.  S.,  p.  44 

1917  War  T.  S.,  K4031 

1918  War  T.  S.,  1(6031 

1919  War  T.  S.,  H7045,  7085, 
7088,  7100,  7121,  7127,  7158 

1920  War  T.  S.,  1(7544 

2047. . 1915  War  T.  S.,  p.  56 
1916  War  T.  S.,  p.  56 

2048.  .1913  Inc.  T.  S.,  p.  322 

1914  Inc.  T.  S.,  p.  322 

1915  Inc.  T.  S.,  p.  48,  215 

2049.  . 1913  Inc.  T.  S.,  p.  323 

1914  Inc.  T.  S.,  p.  323 

1915  Inc.  T.  S.,  p.  148 

1916  Inc.  T.  S.,  1f770 

2050.  .1915  War  T.  S.,  p.  57 

1916  War  T.  S.,  p.  57 

2051.  .1915  War  T.  S.,  p.  58 

1916  War  T.  S.,  p.  58 

2052.  . 1915  War  T.  S.,  p.  70 

1916  War  T.  S.,  p.  70 

2053..  1915  War  T.  S.,  p.  71 
1916  War  T.  S.,  p.  71 

2054.  .1915  War  T.  S.,  p.  72 
1916  War  T.  S.,  p.  72 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  5. 


T.  D.  FINDER. 

T.  D. 

Reference. 

T.  D. 

2055. 

. 1915  War  T.  S.,  p.  73 

2079 . . 

. 1919 

1916  War  T.  S'.,  p.  73 

1920 

2056. 

. 1915  War  T.  S.,  p.  73 

1921 

1916  War  T.  S.,  p.  73 

1922 

2057. 

. (Tobacco.) 

2080. . 

1915 

2058. 

. 1915  War  T.  S.,  p.  74 

1916 

1916  War  T.  S.,  p.  74 

2081. . 

1915 

2059. 

. 1915  War  T.  S.,  p.  75 

1916 

1916  War  T.  S.,  p.  75 

2082. . 

1915 

2060. 

. 1915  War  T.  S.,  p.  76 

1916 

1916  War  T.  S.,  p.  76 

2083.  . 

1915 

2061. 

. 1915  War  T.  S.,  p.  77 

1916 

1916  War  T.  S.,  p.  77 

1917 

1917  War  T.  S.,  1f4145 

1918  War  T.  S.,  1(6145 

1919  War  T.  S.,  1f7173,  7185 
. 1915  War  T.  S.,  p.  80 

1916  War  T.  S.,  p.  80 
. 1915  War  T.  S.,  p.  81 
1916  War  T.  S.,  p.  81 
. 1915  War  T.  S.,  p.  88 
1916  War  T.  S.,  p.  88 
. 1915  War  T.  S.,  p.  89 
1916  War  T.  S.,  p.  89 
. 1915  War  T.  S.,  p.  89 
1916  War  T.  S.,  p.  89 
. 1915  War  T.  S.,  p.  89 
1916  War  T.  S.,  p.  89 
. 1915  War  T.  S.,  p.  95 
1916  War  T.  S.,  p.  95 
. 1915  War  T.  S.,  p.  96 
1916  War  T.  S.,  p.  96 
. 1915  War  T.  S.,  p.  96 
1916  War  T.  S.,  p. '96 
. 1915  War  T.  S.,  p.  98 
1916  War  T.  S.,  p.  98 
. 1915  War  T.  S.,  p.  98 
1916  War  T.  S.,  p.  98 
. 1915  War  T.  S.,  p.  100 
1916  War  T.  S.,  p.  100 
. 1915  War  T.  S.,  p.  102 
1916  War  T.  S.,  p.  102 
. 1915  War  T.  S.,  p.  102 
1916  War  T.  S.,  p.  102 
. 1915  War  T.  S.,  p.  103 
1916  War  T.  S.,  p.  103 
. 1913  Inc.  T.  S.,  p.  333 

1914  Inc.  T.  S.,  p.  333 

1915  Inc.  T.  S.,  p.  218,  234 

1916  Inc.  T.  S.,  If  1 132,  1319 

1917  Inc.  T.  S.,  1fl392 

1918  Inc.  T.  S.,  H1512 

1919  Inc.  T.  S.,  H2126 

1920  Inc.  T.  S.,  If  1344 

1921  Inc.  T.  S.,  If  1472 

1922  Inc.  T.  S.,  1fl836 

. 1915  War  T.  S.,  p.  109 
1916  War  T.  S.,  p.  109 
. 1913  Inc.  T.  S.,  p.  334 

1914  Inc.  T.  S.,  p.  334 

1915  Inc.  T.  S.,  p.  53,  115 

1916  Inc.  T.  S.,  1f86,  584 

1917  Inc.  T.  S.,  If  192,  749 

1918  Inc.  T.  S.,  1fI79,  321 


Reference. 

Inc.  T.  S.,  1f570,  { 
Inc.  T.  S.,  1f879 
Inc.  T.  S.,  1(922 
Inc.  T.  S.,  If  1169 


S.,  p.  113 

S.,  p.  113 

S.,  p.  114 

S.,  p.  114 


1918  War  T.  S.,  1f6062 

1919  War  T.  S.,  1f7077 
.1915  War  T.  S.,  p.  1 16 

1916  War  T.  S.,  p.  1 16 
. 1915  War  T.  S.,  p.  117 
1916  War  T.  S.,  p.  117 
. 1915  War  T.  S.,  p.  118 
1916  War  T.  S.,  p.  118 
. 1915  War  T.  S.,  p.  121 
1916  War  T.  S.,  p.  121 
1916  Inc.  T.  S.,  If 35  1 
. 1915  War  T.  S.,  p.  124 
1916  War  T.  S.,  p.  124 
. 1915  War  T.  S.,  p.  126 
1916  War  T.  S.,  p.  126 
. 1913  Inc.  T.  S.,  p.  345 

1914  Inc.  T.  S.,  p.  345 

1915  Inc.  T.  S.,  p.  370 

1916  Inc.  T.  S.,  Sup.  p.  78 

1917  Inc.  T.  S.,  Sup.  p.  81 

1918  Inc.  T.  S.,  Sup.  p.  89 

1919  Inc.  T.  S.,  Sup.  p.  107 

1920  Inc.  T.  S.,  Finder  p.  6 

1921  Inc.  T.  S.,  Finder  p.  2 

1922  Inc.  T.  S.,  1f716,718,  1165, 
1644,  1671,  1672,  2283,  2284, 
2289,  2515,  2536 

. 1915  War  T.  S.,  p.  127 
1916  War  T.  S.,  p.  127 
. 1915  War  T.  S.,  p.  128 
1916  War  T.  S.,  p.  128 
. 1915  War  T.  S.,  p.  129 
1916  War  T.  S.,  p.  129 
. 1915  War  T.  S.,  p.  130 
1916  War  T.  S.,  p.  130 
. 1915  War  T.  S.,  p.  134 
1916  War  T.  S.,  p.  134 
. 1915  War  T.  S.,  p.  137 
1916  War  T.  S.,  p.  137 
. 1915  War  T.  S.,  p.  139 
1916  War  T.  S.,  p.  139 
. 1915  War  T.  S.,  p.  140 
1916  War  T.  S.,  p.  140 
. 1915  War  T.  S.,  p.  142 
1916  War  T.  S.,  p.  142 
. 1915  War  T.  S.,  p.  146 
1916  War  T.  S.,  p.  146 
. 1915  War  T.  S.,  p.  147 
1916  War  T.  S.,  p.  147 
.(Opium,  coca  leaves,  etc.) 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  6. 


3-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

2103.  .(Distilled  spirits.) 

2104.  . 1915  War  T.  S.,  p.  150 

1916  War  T.  S.,  p.  150 

2105.  . 1915  War  T.  S.,  p.  151 

1916  War  T.  S.,  p.  151 

2106.  . 1915  War  T.  S.,  p.  153 

1916  War  T.  S.,  p.  153 

2107.  . 1915  War  T.  S.,  p.  157 

1916  War  T.  S.,  p.  157 

2108.  . 1915  War  T.  S.,  p.  160 

1916  War  T.  S.,  p.  160 

2109.  . 1915  Inc.  T.  S.,  p.  373 

1916  Inc.  T.  S.,  i[  15,  20,  22,  37, 
49,  347,  603,  660 

1917  Inc.  T.  S.,  1(40,  78,  96,  125 

1918  Inc.  T.  S.,  *[30,  97,  149,226 

1919  Inc.  T.  S.,  H595 

2110.  . 1915  War  T.  S.,  p.  165 

1916  War  T.  S.,  p.  165 

21 1 1.  . 1915  War  T.  S.,  p.  167  ^ 

1916  War  T.  S.,  p.  167 

21 12.  .1915  War  T.  S.,  p.  168 

1916  War  T.  S.,  p.  168 

2113.  .1915  War  T.  S.,  p.  172 

1916  War  T.  S.,  p.  172 

2114.  . 1915  War  T.  S.,  p.  176 

1916  War  T.  S.,  p.  176 

2115.  . 1915  War  T.  S.,  p.  177 

1916  War  T.  S.,  p.  177 

2116.  . 1915  War  T.  S.,  p.  188 

1916  War  T.  S.,  p.  188 

2117.  . 1915  War  T.  S.,  p.  189 

1916  War  T.  S.,  p.  189 

2118.  . 1915  War  T.  S.,  p.  190 

1916  War  T.  S.,  p.  190 

2119.  .1915  War  T.  S.,  p.  191 

1916  War  T.  S.,  p.  191 

2120.  . 1915  War  T.  S.,  p.  193 

1916  War  T.  S.,  p.  193 

2121.  . (1909  Excise  tax.) 

2122.  . 1915  War  T.  S.,  p.  194 

1916  War  T.  S.,  p.  194 

2123.  . 1915  War  T.  S.,  p.  195 

1916  War  T.  S.,  p.  195 

2124.  . 1915  Inc.  T.  S.,  p.  377 

1916  Inc.  T.  S.,  if 95 

1917  Inc.  T.  S.,  1(201 

1918  Inc.  T.  S.,  11330 

1919  Inc.  T.  S.,  1[872 

2125.  . 1915  War  T.  S.,  p.  197 

1916  War  T.  S.,  p.  197 

2126.  . (Opium  or  coca  leaves.) 

2127.  .(Distilled  spirits.) 

2128.  . (Opium,  etc.) 

2129.  . 1915  War  T.  S.,  p.  203 

1916  War  T.  S.,  p.  203 

2130.  . 1915  Inc.  T.  S.,  p.  383 

1916  Inc.  T.  S.,  ',11159,  1285 

1917  Inc.  T.  S.,  1(1254 

1918  Inc.  T.  S.,  H1351 

2131.  . 1915  Inc.  T.  S.,  p.  381 

1916  Inc.  T.  S.,  1(355,  625,  644, 
874 


T.  D.  Reference. 

2131 . . 1917  Inc.  T.  S.,  1(435,  788,  809, 

956 

1918  Inc.  T.  S.,  1(2 1 7,  985 

1919  Inc.  T.  S.,  1(726 

2132.  .(Oleomargarine.) 

2133.  . 1915  War  T.  S.,  p.  207 

1916  War  T.  S.,  p.  207 

2134.  . 1915  War  T.  S.,  p.  209 

1916  War  T.  S.,  p.  209 

2135.  . 1915  Inc.  T.  S.,  p.  385 

1916  Inc.  T.  S.,  Sup.  p.  73 

1917  Inc.  T.  S.,  Sup.  p.  81 

1918  Inc.  T.  S.,  Sup.  p.  89 

1919  Inc.  T.  S.,  Sup.  p.  107 

1920  Inc.  T.  S.,  Finder  p.  7 

1921  Inc.  T.  S.,  Under  p.  2 

1922  Inc.  T.  S.,  1(739,  750,  1161, 
2263 

2136.  . 1915  War  T.  S.,  p.  215 

1916  War  T.  S.,  p.  215 

2137.  . 1915  Inc.  T.  S.,  p.  394 

1916  Inc.  T.  S.,  Sup.  p.  73 

1917  Inc.  T.  S.,  Sup.  p.  SI 

1918  Inc.  T.  S.,  Sup.  p.  89 

1919  Inc.  T.  S.,  Sup.  p.  108 

1920  Inc.  T.  S.,  Finder  p.  7 

1921  Inc.  T.  S.,  Finder  p.  2 

1922  Inc.  T.  S.,  1(982,  983,  1100, 
1167,  1185 

2138.  .(Legacy  taxes — Act  of  1898.) 

2139.  . (U.  S.  cotton  futures  act.) 

2140.  .(Opium  preparations.) 

2141.  .(Internal  Revenue  Bonds.) 

2142.  . 1915  Inc.  T.  S.,  p.  409 

1916  Inc.  T.  S.,  1,486 

2143.  . (U.  S.  cotton  futures  act.) 

2144.  .(Opium — Penalties.) 

2145.  . 1915  War  T.  S.,  p.  217 

1916  War  T.  S.,  p.  217 

2146.  . 1915  Inc.  T.  S.,  p.  415 

2147.  . 1915  Inc.  T.  S.,  p.  415 

2148.  .(Opium,  coca  leaves,  etc.) 

2149.  . 1915  War  T.  S.,  p.  226 

1916  War  T.  S.,  p.  226 

2150.  . 1915  War  T.  S.,  p.  227 

1916  War  T.  S.,  p.  227 

2151.  .(Antinarcotic  drug  act.) 

2152.  . 1915  Inc.  T.  S.,  p.  416 

1916  Inc.  T.  S.,  Sup.  p.  73 

1917  Inc.  T.  S.,  Sup.  p.  81 

1918  Inc.  T.  S.,  Sup.  p.  89 

1919  Inc.  T.  S.,  Sup.  p.  108 

1920  Inc.  T.  S.,  Finder  p.  7 

1921  Inc.  T.  S.,  Finder  p.  2 

1922  Inc.  T.  S.,  1(709,  979,  1098 
1163,  1837 

2153.  . 1915  Inc.  T.  S.,  p.  422 

1916  Inc.  T.  S.,  1(120 

1917  Inc.  T.  S.,  1i2 15 

1918  Inc.  T.  S.,  11344 

2154.  .(Molasses  spirits.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  7. 


T.  D.  FINDER. 


1 

'.  D. 

Reference. 

T.  D. 

2 

155.  . 

. 1915 

War 

T. 

S., 

p.  228 

2182. 

. 1916 

1916 

War 

T. 

s., 

p.  228 

2183. 

. 1915 

2 

156.  , 

. 1915 

War 

T. 

s., 

p.  229 

1916 

1916 

War 

T. 

s., 

p.  229 

1917 

2 

157.  , 

. 1915 

War 

T. 

s., 

p.  230 

1918 

1916 

War 

T. 

s., 

p.  230 

1919 

2 

158.  . 

1915 

Inc. 

T. 

s., 

p.  428 

2184. 

. 1915 

1916 

Inc. 

T. 

s„ 

111586 

1916 

1917 

Inc. 

T. 

§., 

11649 

2185.  , 

. 1915 

1918 

Inc. 

T. 

s., 

1)1839 

1916 

2 

159. 

. 1915 

War 

T. 

S., 

p.  232 

1917 

1916 

War 

T. 

s„ 

p.  232 

1918 

2 

160. 

. 1915 

War 

T. 

S., 

p.  234 

1919 

1916 

War 

T. 

s„ 

p.  234 

1920 

2 

161. 

. 1915 

Inc. 

T. 

s„ 

p.  430 

1921 

1916 

Inc. 

T. 

s., 

Sup.  p. 

73 

1922 

1917 

Inc. 

T. 

s., 

Sup.  p. 

81 

2186. 

. 1915 

1918 

Inc. 

T. 

s., 

Sup.  p. 

89 

1916 

1919 

Inc. 

T 

: s 

1)1712,  1941, 

2187. 

. 1915 

2292 

1916 

1920 

Inc. 

T. 

s., 

111021 

2188. 

. 1915 

1921 

Inc. 

T. 

s., 

11 1 OSO 

2189. 

. 1915 

2 

162.  . 

. 1915 

Inc. 

T. 

s., 

p.  434 

1916 

1916 

Inc. 

T. 

s., 

1)19,  807 

21 9Q. 

. 1915 

2 

163.  . 

. 1915 

I nc. 

T. 

s., 

p.  435 

1916 

Reference. 


2164.  .1915  War  T.  S.,  p.  233  2191. 

1916  War  T.  S.,  p.  233  2192. 

2165.  . 1915  War  T.  S.,  p.  237 

1916  War  T.  S.,  p.  237  2193. 

2166.  . 1915  Inc.  T.  S.,  p.  451 

1916  Inc.  T.  S.,  1 1600  2194. 

1917  Inc.  T.  S.,  1;1665  2195. 

1918  Inc.  T.  S.,  111858 

1919  Inc.  T.  S.,  112372  2196. 

1920  Inc.  T.  S.,  12043 

1921  Inc.  T.  S.,  12295  2197. 

2167.  .(Expenses  of  U.  S.  marshals.) 

2168.  . (Liability  as  liquor  dealer.)  2198. 

2169.  . 1915  War  T.  S.,  p.  239 

1916  War  T.  b.,  p.  239 

2170.  . 1915  War  T.  S.,  p.  240 

1916  War  T.  S.,  p.  240 

2171.  . (Legacy  taxes- — Act  of  1898.) 

2172.  .(Narcotic  law.) 

2173.  . (Compensation  of  I.  R.  Agents.)  2199. 

2174.  . 1915  Inc.  T.  S.,  p.  454 

1916  Inc.  T.  S.,  11462  2200. 

1917  Inc.  T.  S.,  1)1828  2201. 

1918  Inc.  T.  S.,  1)2079  2202. 

1919  Inc.  T.  S.,  1)1469  2203. 

1920  Inc.  T.  S.,  1)1801  2204. 

1921  Inc.  T.  S.,  1)2012  2205. 

1922  Inc.  T.  S.,  1)2517 

2175.  . 1915  Inc.  T.  S.,  p.  455 

1916  Inc.  T.  S.,  1)1658 

2176.  . (Distilled  spirits.) 

2177.  . (U.  S.  cotton  futures  act.) 

2178.  . 1915  War  T.  S.,  p.  254 

1916  War  T.  S.,  p.  254 

2179.  . (Spirituous  liquors.)  2206. 

2180.  . 1915  War  T.  S.,  p.  256  2207. 

1916  War  T.  S.,  p.  256  2208. 

2181.  .(Expenses  of  I.  R.  Agents.) 

2182.  . 1915  War  T.  S.,  p.  257  2209. 


r T.  S.,  p.  254 
. T.  S.,  p.  463 
T.  S.,  1)1153,  1271 
, T.  S.,  1)1253,  1336 
T.  S.,  1(1350,  1447 
, T.  S.,  1)2078 
. T.  S.,  1(960 
. T.  S.,  1)1023 


T.  S.,  p.  467 
- T.  S.,  p.  270 
• T.  S.,  p.  270 
T.  S.,  p.  467 
T.  S.,  1)762 
. (Seizures.) 

. (U.  S.  gaugers  at  rectifying 
houses.) 

. 1915  Ire.  T.  S.,  P.  469 
1916  Inc.  T.  S.,  1)1646 
. (Narcotic  law.) 

. 1915  War  T.  S.,  p.  270 
1916  War  T.  S.,  p.  270 
. 1915  War  T.  S.,  p.  274 
1916  War  T.  S.,  p.  274 
. 1915  War  T.  S.,  p.  275 
1916  War  T.  S.,  p.  275 
. 1915  Inc.  T.  S.,  p.  475 

1916  Inc.  T.  S.,  1)1432 

1917  Inc.  T.  S.,  1)1500 

1918  Inc.  T.  S.,  1)1677 

1919  Inc.  T.  S.,  1)2057 

1920  Inc.  T.  S.,  1)1258 

1921  Inc.  T.  S.,  1)1367 

. (Consolidation  of  R.  R.  known 
as  N.  Y.  Central  R.  R.  Co.) 

. (Narcotic  law.) 

. 1915  Inc.  T.  S.,  p.  473 
. (Narcotic  law.) 

.(Customs  inspections.) 

. (Narcotic  law.) 

. 1915  Inc.  T.  S.,  p.  476 

1915  War  T.  S.,  p.  279 

1916  Inc.  T.  S.,  1)480,  1591 

1916  War  T.  S.,  p.  279 

1917  Inc.  T.  S.,  1)499,  1654 

1918  Inc.  T.  S.,  11652,  1850 

1919  Inc.  T.  S.,  1)2458 
1919  War  T.  S.,  181 14 

. (Narcotic  law.) 

. (Distilled  spirits.) 

. 1915  War  T.  S.,  p.  283 
1916  War  T.  S.,  p.  283 
. (Oleomargarine.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  8. 


3-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

2210.  . 1915  Inc.  T.  S.,  p.  479 

1916  Inc.  T.  S.,  111222 

1917  Inc.  T.  S.,  m 1315 

1918  Inc.  T.  S.,  1(1424 

1919  Inc.  T.  S.,  1(2025 

1920  Inc.  T.  S.,  TT 1 206 

1921  Inc.  T.  S.,  1[2718 

1922  Inc.  T.  S.,  K1633 

2211.  . (Opium.) 

2212.  .(Dealers  in  leaf  tobasco.) 

2213.  . (Narcotic  law.) 

2214.  . (Narcotic  law.) 

2215.  . (Narcotic  law.) 

2216.  . (U.  S.  cotton  futures  act.) 

2217.  . 1915  War  T.  S.,  p.  280 

1916  War  T.  S.,  p.  280 

1917  War  T.  S.,  1)4092 

1918  War  T.  S.,  1[6092 

1919  War  T.  S.,  H7105 

2218.  . (Narcotic  law.) 

2219.  .(Gauging  at  rectifying  houses.) 

2220.  . 1915  War  T.  S.,  p.  282 

1916  War  T.  S.,  p.  282 

2221.  . (Rectifiers.) 

2222.  . (List  of  alcoholic  medicinal  pre- 

parations.) 

2223.  . 1915  War  T.  S.,  p.  284 

1916  WarT.  S.,  p.  284 

1917  War  T.  S.,  114099 

1918  War  T.  S.,  116099 

1919  War  T.  S.,  1171 14 

2224.  . 1915  Inc.  T.  S.,  p.  490 

1916  Inc.  T.  S.,  H263 

1917  Inc.  T.  S.,  H391 

1918  Inc.  T.  S.,  H530 

1919  Inc.  T.  S.,  1)2100 

2225.  . (Correction  of  errors  in  Collec- 

tors’ deposits.) 

2226.  . 1915  Inc.  T.  S.,  p.  491 

1916  Inc.  T.  S.,  111703 

1917  Inc.  T.  S.,  H 1 754 

1918  Inc.  T.  S.,  1(1953 

1919  Inc.  T.  S.,  1f2466 

1920  Inc.  T.  S.,  1(2109 

1921  Inc.  T.  S.,  K2363 

1922  Inc.  T.  S.,  K2805 

2227.  . (Corrupt  practices,  I.  R.  Agents) 

2228. . (Narcotic  law.) 

2229.  .(Fees  to  informers.) 

2230..  (Lost  narcotic  order  forms.) 

2231.  .1915  Inc.  T.  S.,  p.  493 

1916  Inc.  T.  S.,  1(667,  676,  679, 
698,  702,  71  1,  713,  733,  976 

1917  Inc.  T.  S.,  1(579,  595,  607, 
610,  644,  652,  667 

1918  Inc.  T.  S.,  K127,  129,  132, 
731,  755,  787 

1919  Inc.  T.  S.,  1(585,  1233, 
1165,  1178 

2232.  .(Narcotic  law.) 

2233.  .(Oleomargarine.) 

2234. . (Denatured  alcohol.) 


T.  D.  Reference. 

2235. . 1916  Inc.  T.  S.,  1(453 

1917  Inc.  T.  S.,  1(1816 

1918  Inc.  T.  S.,  1(2067 

1919  Inc.  T.  S.,  1(1453 

1920  Inc.  T.  S.,  1(1791 

2236.  .(I.  R.  Agents  collection  visits.) 

2237. . (Denatured  alcohol.) 

2238.  . 1916  Inc.  T.  S.,  1(456 

1917  Inc.  T.  S.,  K 1 8 1 9 

1918  Inc.  T.  S.,  K2070 

1919  Inc.  T.  S.,  K 1456 

1920  Inc.  T.  S.,  1(1794 

2239.  .(Opium.) 

2240.  .(Distilled  spirits.) 

2241 . . (Denatured  alcohol.) 

2242. . 1915  Inc.  T.  S.,  p.  495 

1916  Inc.  T.  S.,  1(9,  13,  39,  605, 
622 

1917  Inc.  T.  S.,  1(8,  10,  14 

1918  Inc.  T.  S.,  1(8,  10,  18 

1919  Inc.  T.  S.,  K489,  491,  493 

2243.  . (Gaugers  as  deputy  collectors.) 

2244.  .(Narcotic  law.) 

2245. . (Guides  and  posse  men.) 

2246.  .(Denatured  alcohol.) 

2247.  . (Collection  by  division  deputy 

collectors.) 

2248.  . 1915  War  T.  S.,  p.  286 

1916  War  T.  S.,  p.  286 

2249.  .1915  War  T.  S.,  p.  287 

1916  War  T.  S.,  p.  287 

2250. . 1915  War  T.  S.,  p.  289 
1916  War  T.  S.,  p.  289 

2251 . . (Appointments  in  Internal  Rev- 

enue service.) 

2252.  .(Denatured  alcohol.) 

2253.  . 1915  War  T.  S.,  p.  290 

1916  War  T.  S.,  p.  290 

2254.  .(Narcotic  law.) 

2255.  . (Vending  machines  for  cigar- 

ettes.) 

2256. . (Cotton  futures  act.) 

2257.  .1915  War  T.  S.,  p.  292 

1916  War  T.  S.,  p.  292 

1918  WarT.  S.,  1(3716 

1919  War  T.  S.,  H3558 

2258. . 1915  Inc.  T.  S.,  p.  503 

1916  Inc.  T.  S.,  1(838 

1917  Inc.  T.  S.,  1(863 

1918  Inc.  T.  S.,  1(874 

1919  Inc.  T.  S.,  1(666 

1920  Inc.  T.  S.,  K1664 

1921  Inc.  T.  S.,  K 1 8 1 8 

1922  Inc.  T.  S.,  K2273 

2259.  . (Tobacco.) 

2260.  . 1915  War  T.  S.,  p.  294 

1916  War  T.  S.,  p.  294 

1917  WarT.  S.,  1(4024 

1918  War  T.  S.,  K863 

1919  War  T.  S.,  K666 

1920  War  T.  S.,  K1664 

1921  War  T.  S.,  K1818 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary|Page'9. 


T.  D.  FINDER. 


T.  D.  Reference. 

2261.  . 1915  Inc.  T.  S.,  p.  509 

1916  Inc.  T.  S.,  Hi 403 

2262.  . 1915  Inc.  T.  S.,  p.  509 

1916  Inc.  T.  S.,  HI  193 

1917  Inc.  T.  S.,  H 1288 

1918  Inc.  T.  S.,  HI 393 

1919  Inc.  T.  S.,  H2000 

1920  Inc.  T.  S.,  1(1218 

1921  Inc.  T.  S.,  HI  1320 

2263.  . 1915  War  T.  S.,  p.  296 

1916  War  T.  S.,  p.  296 

1917  War  T.  S.,  H4063 

1918  War  T.  S.,  1(6063 

1919  War  T.  S.,  1(7078 

2264.  . 1915  War  T.  S.,  p.  296 

1916  War  T.  S.,  p.  296 

2265.  . 1915  War  T.  S.,  p.  297 

1916  War  T.  S.,  p.  297 

2266.  . 1915  War  T.  S.,  p.  299 

1916  War  T.  S.,  p.  299 

1917  War  T.  S.,  1(5037 

1918  War  T.  S.,  1(7038 

1919  War  T.  S.,  1(8097 

1920  War  T.  S.,  1(8077 

1921  War  T.  S.,  H8077 

2267.  . 1915  Inc.  T.  S.,  p.  523 

1916  Inc.  T.  S.,  H699,  720 

1917  Inc.  T.  S.,  H658 

1918  Inc.  T.  S.,  1(790 

1919  Inc.  T.  S.,  H 1 253 

2268.  . (Denatured  alcohol.) 

2269.  . 1915  War  T.  S.,  p.  302 

1916  War  T.  S.,  p.  302 

2270.  . 1915  War  T.  S.,  p.  303 

1916  War  T.  S.,  p.  303 

2271.  . 1915  War  T.  S.,  p.  303 

1916  War  T.  S.,  p.  303 

2272.  . (Narcotic  law.) 

2273.  .(Tobacco,  etc.) 

2274.  . 1915  Inc.  T.  S.,  p.  524 

1916  Inc.  T.  S.,  H59,  67,  1111 

1917  Inc.  T.  S.,  1(163,  1205 

1918  Inc.  T.  S.,  1(254 

2275.  . 1915  War  T.  S.,  p.  305 

1916  War  T.  S.,  P.  305 

2276.  .(Narcotic  law.) 

1916  T.  D’s. 

2277.  . 1916  War  T.  S.,  p.  306 

2278.  . 1916  War  T.  S.,  p.  307 

2279.  . 1916  War  T.  S.,  p.  308 

2280.  .(Narcotic  law.) 

2281.  . 1916  War  T.  S.,  p.  309 

2282.  . 1916  War  T.  S.,  p.  312 

2283.  . 1916  War  T.  S.,  p.  313 

2284.  .(Tobacco — Form  685.) 

2285.  .(1909  Excise  tax.) 

2286.  . 1916  War  T.  S.,  p.  314 

2287.  . 1916  War  T.  S.,  p.  316 

2288.  .(Liquor  dealers.) 

2289.  . 1916  Inc.  T.  S.,  H1837 

1917  Inc.  T.  S.,  H252,  633,  649 

1918  Inc.  T.  S.,  H208,  376,  780 

1919  Inc.  T.  S.,  1(1203 


T.  D.  Reference. 

2290.  . 1916  Inc.  T.  S.,  H 1854 

1917  Inc.  T.  S.,  1(1901 

1918  Inc.  T.  S.,  H2137 

1919  Inc.  T.  S.,  1(2685 

1920  Inc.  T.  S.,  1(2260 

1921  Inc.  T.  S.,  Sup.  p.  125 

2291.  . 1916  Inc.  T.  S.,  H1855 

2292.  .(Narcotic  law.) 

2293.  . 1916  Inc.  T.  S.,  H1864 

1917  Inc.  T.  S.,  H 1 82 1 

1918  Inc.  T.  S.,  1(2072 

1919  Inc.  T.  S.,  H1458 

1920  Inc.  T.  S.,  1(1796 

2294.  .(Denatured  alcohol.) 

2295.  . 1916  War  T.  S.,  p.  318 

2296.  . 1916  War  T.  S.,  p.  319 

2297.  . 1916  War  T.  S.,  p.  320 

2298.  .(Narcotic  law.) 

2299.  . (Narcotic  law.) 

2300.  . 1916  Inc.  T.  S.,  H1908 

1917  Inc.  T.  S.,  H 1 932 

1918  Inc.  T.  S.,  H2167 

1919  Inc.  T.  S.,  1(2715 

1920  Inc.  T.  S.,  H2290 

1921  Inc.  T.  S.,  Sup.  p.  132 

2301.  . 1916  Inc.  T.  S.,Hl909 

1917  Inc.  T.  S.,  H 1 79 1 

1918  Inc.  T.  S.,  H2021 

1919  Inc.  T.  S.,  H2580 

1920  Inc.  T.  S.,  H2 166 

1921  Inc.  T.  S.,  H2411 

1922  Inc.  T.  S.,  H2872 

2302.  . 1916  Inc.  T.  S.,  1(1910 

1917  Inc.  T.  S.,  1(1936 

1918  Inc.  T.  S.,  H2171 

1919  Inc.  T.  S.,  H27 19 

1920  Inc.  T.  S.,  H2295 

1921  Inc.  T.  S.,  Sup.  p.  132 

2303.  . 1916  Inc.  T.  S.,  H1911 

1917  Inc.  T.  S.,  HI 939 

1918  Inc.  T.  S.,  H2174 

1919  Inc.  T.  S.,  H2722 

1920  Inc.  T.  S.,  1(2297 

1921  Inc.  T.  S.,  Sup.  p.  133 

2304.  .(Narcotic  law.) 

2305.  .(Denatured  alcohol.) 

2306.  . 1916  War  T.  S.,  p.  328 

2307.  .(Warehousing  bonds.) 

2308.  . 1916  War  T.  S.,  p.  328 

2309.  .(Narcotic  law.) 

2310.  . 1916  War  T.  S.,  p.  330 

2311.  . 1916  Inc.  T.  S.,  H1933 

1917  Inc.  T.  S.,  H 1 767 

2312.  .(Denatured  alcohol.) 

2313.  . 1916  Inc.  T.  S.,  1(1940 

1917  Inc.  T.  S.,  H 19,  68,  77,  88, 
95,  97,  99,  113,  1767 

1918  Inc.  T.  S.,  H23,  61,  90,  92, 
97,  109,  149,  183 

1919  Inc.  T.  S.  H496,  506,  54C 

2314.  . 1916  War  T.  S.,  p.  337 

1917  War  T.  S.,  H4103 

1918  War  T.  S.,  H6103 

1919  War  T.  S.,  H7118 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page(10. 


8-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

2315.  .(Distilled  spirits.) 

2316..  1916  Inc.  T.  S.,  If  1952 
1917  Inc.  T.  S.,  If  1836 

2317.  . 1916  Inc.  T.  S.,  If  1955 

1917  Inc.  T.  S.,  1(18 

1918  Inc.  T.  S.,  If 22 

1919  Inc.  T.  S.,  1f507 

2318. . 1916  War  T.  S.,  p.  340 
2319.  .(Coupons,  etc.,  in  tobacco.) 

2320. . 1916  Inc.  T.  S.,  If  1 969 

1917  Inc.  T.  S.,  If  1482 

1918  Inc.  T.  S.,  If  1659 

2321. . 1916  War  T.  S.,  p.  341 

1917  War  T.  S.,  1(4080 

1918  War  T.  S.,  1[6080 

1919  War  T.  S.,  If 7095 

2322. .  (Medicinal  preparations.) 

2323.  .(Narcotic  law.) 

2324..  1916  Inc.  T.  S.,  If  1971 

2325. . 1916  Inc.  T.  S.,  If  1972 

1917  Inc.  T.  S.,  1f70,  101,  103, 
121,  1024 

1918  Inc.  T.  S.,  1(63,  185,  187, 
201,  1059 

1919  Inc.  T.  S.,  If  1362 

2326. . (Denatured  alcohol.) 

2327.  .(Narcotic  law.) 

2328..  1916  War  T.  S.,  p.  342 

2329..  1916  WarT.  S.,  p.  343 
2330.  .(Tobacco,  etc.) 

2331 ..  (Extracting  alcohol.) 

2332..  1916  Inc.  T.  S.,  If  1982 

1916  War  T.  S.,  p.  344 

1917  Inc.  T.  S.,  1f503,  1658 

1917  War  T.  S.,  K5059 

1918  Inc.  T.  S.,  1[656,  1851 

1918  War  T.  S.,  1f7061 

1919  Inc.  T.  S.,  If 2462 
1919  War  T.  S.,  1f81 18 

2333.  .(Medicinal  preparations.) 

2334.  .(Sampling  butter.) 

2335.  .(Distilled  spirits.) 

2336. . (Fusel  oil.) 

2337..  1916  Inc.  T.  S.,  If  1992 

2338. . 1916  War  T.  S.,  p.  349 

2339. . (Medicinal  preparations.) 

2340.  .(Narcotic  law.) 

2341. . 1916  Inc.  T.  S.,  1(2244 

1916  War  T.  S.,  p.  352 

1917  Inc.  T.  S.,  If  1756 

1917  War  T.  S.,  1[5052 

1918  Inc.  T.  S.,  111955 

1918  War  T.  S.,  1(7054 

1919  Inc.  T.  S.,  K2468 

1919  War  T.  S.,  1f8119 

1920  Inc.  T.  S.,  1(2111 

1921  Inc.  T.  S.,  1(2365 

1922  Inc.  T.  S.,  K2807 
2342.  .(Spirits.) 

2343..  1916  Inc.  T.  S.,  1(2027 

1917  Inc.  T.  S.,  1(1386 

1918  Inc.  T.  S.,  If  1501 

1919  Inc.  T.  S.,  K2141 

1920  Inc.  T.  S.,  If  1355 


T.  D.  Reference. 

2343.  . 1921  Inc.  T.  S.,  1(1483 

1922  Inc.  T.  S.,  1fl845,  1846 

2344. . 1916  Inc.  T.  S.,  1f2041 
2345.  .(1909  Excise  tax.) 

2346..  1916  Inc.  T.  S.,  1(2048 

2347.  .(Adulterated  butter.) 

2348.  .(Loss  of  alcohol.) 

2349.  .1916  Inc.  T.  S.,  1(2063 

1917  Inc.  T.  S.,  If  1773 

2350.  .(Distilled  spirits.) 

2351.  .(Alcohol.) 

2352. . 1916  War  T.  S.,  p.  355 

2353. . 1916  Inc.  T.  S.,  1(2067 

2354.  .(Temperance  beer.) 

2355.  .(Narcotic  law.) 

2356.  .(Denatured  alcohol.) 

2357.  . (Loss  of  registered  mail.) 

2358.  . (U.  S.  cotton  futures  act.) 

2359.  .(Temperance  beer.) 

2360. . 1916  Inc.  T.  S.,  1(2351 
2361.  .1916  War  T.  S.,  p.  357  . 

1917  War  T.  S.,  1f31 

2362. . 1916  War  T.  S.,  p.  363 
1917  War  T.  S.,  H1025 

2363.  .1916  War  T.  S.,  p.  366 

2364. . 1916  War  T.  S.,  p.  385 

1917  War  T.  S.,  H3005,  4018, 
5001 

1918  War  T.  S.,  1f3005,  6018 

2365..  1916  War  T.  S.,  p.  385 
2366.  .(1909  Excise  tax.) 

2367. . 1916  Inc.  T.  S.,  1(2352 

1917  Inc.  T.  S.,  1f3 

1918  Inc.  T.  S.,  Sup.  p.  1 

2368. . 1916  War  T.  S.,  p.  386 
1917  War  T.  S.,  1(414 

2369. . 1916  Inc.  T.  S.,  1(2369 

1916  War  T.  S.,  p.  389 

1917  Inc.  T.  S.,  1(1859 

1917  War  T.  S.,  K5061 

1918  Inc.  T.  S.,  1(2094 

1918  War  T.  S.,  K7063 

1919  Inc.  T.  S.,  K2658 
1919  War  T.  S.,  1(8001 

2370.  .(Temperance  beer.) 

2371..  1916  War  T.  S.,  p.  391 

2372..  1916  War  T.  S.,  p.  392 

1917  War  T.  S.,  K32 

1918  War  T.  S.,  K137 

1919  War  T.  S.,  1(139 

1920  War  T.  S.,  1(195 

1921  War  T.  S.,  K197 

1922  War  T.  S.,  H197 

2373..  1916  War  T.  S.,  p.  393 
1917  War  T.  S.,  K2060 

2374. . 1916  Inc.  T.  S.,  K2385 

1917  Inc.  T.  S.,  U540,  544,  867, 
878,  891 

1918  Inc.  T.  S.,  K878,  891,  906 

1919  Inc.  T.  S.,  K576 

2375.  .(1909  Excise  Tax.) 

2376.  .(Tobacco.) 

2377..  1916  Inc.  T.  S.,  U2396 
1917  Inc.  T.  S.,  ^866 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  11. 


T.  D.  FINDER. 


T.  D.  Reference. 

2378.  . 1916  War  T.  S.,  p.  396 

1917  War  T.  S.,  1133 

1918  War  T.  S.,  1(78 

2379.  . (Alcohol.) 

2380.  . 1916  War  T.  S.,  p.  416 

1917  War  T.  S.,  112071 
2381  (Denatured  alcohol.) 

2382.  .1916  Inc.  T.  S.,  1[2411 

1917  Inc.  T.  S.,  1(48,  897,  938 

1918  Inc.  T.  S.,  1(37 

2383.  . 1916  War  T.  S.,  p.  429 

1917  War  T.  S.,  1f3006 

1918  War  T.  S.,  1(3006 

2384.  . 1916  War  T.  S.,  p.  418 

1917  War  T.  S.,  1(1026 

2385 . . 1916  War  T.  S.,  p.  428 

1917  War  T.  S.,  1(91 

1918  War  T.  S.,  1(138 

1919  War  T.  S.,  K140 

2386.  . 1916  Inc.  T.  S.,  1(2419 

.1917  Inc.  T.  S.,  1(53,  908 
1918  Inc.  T.  S.,  1(46,  931 

2387. . 1916  War  T.  S.,  p.  442 
1917  War  T.  S.,  K2084 

2388.  . 1916  Inc.  T.  S.,  K2430 

1917  Inc.  T.  S.,  1(895,  934 

1918  Inc.  T.  S.,  f910,  966 

2389.  .(Wantage  rod.) 

2390.  . (Tobacco.) 

2391 . . 1916  War  T.  S.,  p.  448 

1917  War  T.  S.,  1(2158 

2392.  .(Narcotic  law.) 

2393  ■ . (Distilleries.) 

2394.  . 1916  Inc.  T.  S.,  K2444 

1917  Inc.  T.  S.,  1(1809 

1918  Inc.  T.  S.,  1(2052 

1919  Inc.  T.  S.,  1(2633 

1920  Inc.  T.  S.,  1(2201 

1921  Inc.  T.  S.,  1(2448 

1922  Inc.  T.  S.,  1(2902 

2395 . . 1916  War  T.  S.,  p.  449 

1917  War  T.  S.,  1(93 

1918  War  T.  S.,  K218 

2396..  1916  Inc.  T.  S.,  K2445 

1917  Inc.  T.  S.,  1(1811 

1918  Inc.  T.  S.,  1(2062 

1919  Inc.  T.  S.,  1(2490 

1920  Inc.  T.  S.,  1(2127 

1921  Inc.  T.  S.,  1(2382 

2397.  .(Distilled  spirits.) 

2398.  .(Forms — Revenue  agents,  etc.) 

2399. . 1916  Inc.  T.  S.,  1(2449 

1917  Inc.  T.  S.,  1(102,  104,  543, 
624,  882 

1918  Inc.  T.  S.,  K186,  189,  693, 
895 

2400..  1917  War  T.  S.,  1(2183 

2401..  1916  Inc.  T.  S.,  1(2457 

1917  Inc.  T.  S.,  1(47,  49,  51,  550, 
888,  896,  898,  900,  903 

1918  Inc.  T.  S.,  1(37,  40,  694 
903,  914,  916,  919 


T.  D.  Reference. 

2402.  . 1916  Inc.  T.  S.,  K2467 

1917  Inc.  T.  S.,  1(81,  905 

1918  Inc.  T.  S.,  If  100,  924 

2403.  . 1917  War  T.  S.,  1(2165 

2404.  . 1917  War  T.  S.,  1(2185 

2405.  . 1917  War  T.  S.,  1(2189 

2406.  . 1917  War  T.  S.,  1(95 

1918  War  T.  S.,  1(141 

1919  War  T.  S.,  1(143 

2407.  . 1916  Inc.  T.  S.,  K2453 

1917  Inc.  T.  S.,  1(1147 

1918  Inc.  T.  S.,  1(1195 

2408.  . 1917  War  T.  S.  1(2197 

2409.  . 1917  War  T.  S.,  K2204 

2410.  . 1917  War  T.  S.,  1(2199 

2411..  (Cigars,  etc.) 

2412.  . 1916  Inc.  T.  S.,  K2480 

1917  Inc.  T.  S.,  H 7 82a 

2413.  . (Denatured  alcohol.) 

2414.  . 1917  War  T.  S.,  K2210 

2415.  .1917  War  T.  S.,  1(96 

1918  War  T.  S.,  1(60 

1919  War  T.  S.,  K62 

2416.  . 1917  War  T.  S.,  K2213 

2417.  . 1917  War  T.  S.,  K3085 

1918  War  T.  S.,  1(3085 

2418.  .1917  War  T.  S.,  K3094 

1918  War  T.  S.,  1(3094 

2419.  . (Spirits.) 

2420.  .(Leaf  tobacco.) 

2421.  .1917  War  T.  S.,  1(101 

1918  War  T.  S.,  1(148 

1919  War  T.  S.,  1(150 

2422.  . (Tobacco.) 

2423.  . 1917  War  T.  S.,  K3102 

1918  War  T.  S.,  K3102 

2424.  .1917  War  T.  S.,  K3115 

1918  War  T.  S.,  1(3115 

2425.  . 1917  Inc.  T.  S.,  1(1957 

2426.  . 1917  War  T.  S.,  1(3117 

1918  War  T.  S.,  K3117 

2427..  1917  Inc.  T.  S.,  K1961 
1918  Inc.  T.  S.,  K553 

2428.  . 1917  Inc.  T.  S.,  1(1975 

1917  T.  D’s. 

2429..  1917  War  T.  S.,  K3119 
1918  War  T.  S.,  1(3119 

2430. . (Denatured  alcohol.) 

2431.  .(Distillery  warehouses.) 

2432.  . (Whisky.) 

2433.  .1917  Inc.  T.  S.,  1(1984 

1918  Inc.  T.  S.,  K 1 7 89 

1919  Inc.  T.  S.,  1(1928 

2434. . (Denaturants.) 

2435..  1917  War  T.  S.,  1(2221 
2436.  . 1917  Inc.  T.  S.,  1(1979 

1917  War  T.  S.,  1(3132 

1918  Inc.  T.  S.,  1(1266 
1918  War  T.  S.,  1(3132 

2437 . . (Alcoholic  liquors.) 

2438. . (Storekeeper — Gaugers.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  12. 


3-7-22. 


T.  D.  FINDER 


T.  D.  Reference. 

2439.  . 1917  War  T.  S.,  1(4174 

1918  War  T.  S.,  1(61 74 

1919  War  T.  S.,  1(7172 

2440.  . 1917  War  T.  S.,  K2224 

2441.  . 1917  Inc.  T.  S.,  K2052 

1918  Inc.  T.  S.,  K 1255 

2442.  . 1917  Inc.  T.  S.,  1|2004 

1918  Inc.  T.  S.,  If  1382 

1919  Inc.  T.  S.,  1(1968 

2443.  . 1917  Inc.  T.  S.,  1(2055 

1917  War  T.  S.,  1(5071 

1918  Inc.  T.  S.,  K 20 1 3 

1918  War  T.  S.,  K7073 

1919  Inc.  T.  S.,  K2575 

1919  War  T.  S.,  1(8045 

1920  War  T.  S.,  1(8034 

1921  War  T.  S.,  K8034 

2444. . 1917  War  T.  S.,  K2228 

2445.  . 1917  Inc.  T.  S.,  1(2010 

2446.  .1917  Inc.  T.  S.,  1(2015 

1918  Inc.  T.  S.,  K 1553 

2447.  .1917  Inc.  T.  S.,  K2032 

1918  Inc.  T.  S.,  1(1571 

2448.  .1917  War  T.  S.,  K4175 

1918  War  T.  S.,  1(6175 

1919  War  T.  S.,  K7141 

2449.  . 1917  War  T.  S.,  1(1101 

1918  War  T.  S.,  1(196 

1919  War  T.  S.,  K207 

1920  War  T.  S.,  1(1 74 

1921  War  T.  S.,  K 173 

1922  War  T.  S.,  K173 

2450.  . 1917  War  T.  S.,  1(113 

1918  War  T.  S.,  1(202 

1919  War  T.  S.,  1(213 

2451.  .1917  Inc.  T.  S.,  K2080 

1918  Inc.  T.  S.,  K1223 

1919  Inc.  T.  S.,  1(2253 

2452.  . 1917  Inc.  T.  S.,  1(2105 

1918  Inc.  T.  S.,  1(42,  698,  927 

2453.  . 1917  War  T.  S.,  K121 

1918  War  T.  S.,  K224 

1919  War  T.  S.,  1(234 

2454.  . 1917  War  T.  S.,  1(124 

1918  War  T.  S.,  1(158 

1919  War  T.  S.,  1(160 

2455 ..  (Distilled  spirits.) 

2456.  .(Storekeeper — Gaugers.) 

2457.  . 1917  War  T.  S.,  K3157 

1918  War  T.  S.,  K3157 

2458..  1917  War  T.  S.,  1(1100 

2459.  .1917  War  T.  S.,  1(2229 

2460.  .(1914  Tax  on  bankers.) 

2461 . . (Distilled  spirits.) 

2462. . 1917  War  T.  S.,  K4177 

1918  War  T.  S.,  K6177 

1919  War  T.  S.,  1(7167 

2463.  .(Islands  acquired  from  Den- 

mark.) 

2464.  . (Spirit'guaging  report.) 

2465 ..  (Denatured  alcohol.) 

2466.  .(Alcoholic  liquors — Alaska.) 

2467..  1917  War  T.  S.,  1(3162 
1918  War  T.  S.,  K3162 


T.  D.  Reference. 

2468.  . 1917  Inc.  T.  S.,  K2175 

1918  Inc.  T.  S.,  1(958 

1919  Inc.  T.  S.,  11706 

2469.  .1917  War  T.  S.,  1(2233 

2470.  . 1917  War  T.  S.,  1(2235 

2471.  .(Fermented  liquors.) 

2472.  .(Distilled  spirits.) 

2473.  .(Distilled  spirits.) 

2474.  .(Domestic  wines.) 

2475.  . 1917  Inc.  T.  S.,  1(2186 

1918  Inc.  T.  S.,  1(1133,  1426 

1919  Inc.  T.  S.,  1(1727,  2024 

1920  Inc.  T.  S.,  1(727,  1205 

1921  Inc.  T.  S.,  K738,  1286 

1922  Inc.  T.  S.,  1f985,  1632 

2476. . 1917  War  T.  S.,  K2183 

2477.  . 1917  War  T.  S.,  1(144 

1918  War  T.  S.,  1(195 

1919  War  T.  S.,  1(206 

2478.  .(Tobacco,  etc.) 

2479.  .(Narcotic  law.) 

2480.  .(Distilled  spirits.) 

2481.  .1917  Inc.  T.  S.,  K2189 

1918  Inc.  T.  S.,  K 1 5 1 9 

1919  Inc.  T.  S.,  1(2154 

2482.  .(Porto  Rican  products.) 

2483. . 1917  War  T.  S.,  1(145 

1918  War  T.  S.,  1(142 

1919  War  T.  S.,  K144 

2484.  .(Denatured  alcohol.) 

2485 . . (Tobacco.) 

2486.  .(Distilled  spirits.) 

2487.  . (Narcotic  law.) 

2488.  . (Spirits.) 

2489.  .(Narcotic  law.) 

2490.  . 1917  War  T.  S.,  1(150 

1918  War  T.  S.,  1(180 

1919  War  T.  S.,  1(185 

2491 . . (Distilleries.) 

2492.  .(Spirits.) 

2493.  . 1917  War  T.  S.,  1(3163 

1918  War  T.  S.,  1(3163 

2494.  . 1917  Inc.  T.  S.,  K2216 

1918  Inc.  T.  S.,  1(715 

1919  Inc.  T.  S.,  K 1 184 

1920  Inc.  T.  S.,  1(687 

1921  Inc.  T.  S.,  1(698 

1922  Inc.  T.  S.,  *(942 

2495.  .(Distilled  spirits.) 

2496.  . (Alcohol.) 

2497.  .1917  War  T.  S.,  1(206 

1918  War  T.  S.,  K65 

1919  War  T.  S.,  1(67 

2498.  . (Spirits.) 

2499.  . 1917  Inc.  T.  S.,  K2252 

1918  Inc.  T.  S.,  K 1 365 

1919  Inc.  T.  S.,  K 1945 

2500.  . (Tobacco.) 

2501.  . 1917  Inc.  T.  S.,  1(2255 

1918  Inc.  T.  S.,  1(1605 

1919  Inc.  T.  S.,  1(2252 

2502. . (Oleomargarine.) 

2503. . 1917  War  T.  S.,  K3167 
1918  War  T.  S.,  U3167 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  13. 


T.  D.  FINDER. 


T.  D.  Reference. 

2504.  .(Delivery  of  stamps.) 

2505.  .(Domestic  wines.) 

2506.  . 1917  Inc.  T.  S.,  1(2259 

2507.  . 1917  Inc.  T.  S.,  1(2260 

1918  Inc.  T.  S.,  1(2054 

1919  Inc.  T.  S.,  1f2635 

1920  Inc.  T.  S.,  II 2203 

1921  Inc.  T.  S.,  1[2450 

1922  Inc.  T.S.,  1(2904 

2508.  .(Distilled  spirits.) 

2509. . 1917  War  T.  S.,  K3180 
1918  War  T.  S.,  1(3180 

2510.  . (Exports.) 

25 11..  (Bonds  for  release  of  seized 

property.) 

2512.  . 1917  Inc.  T.  S.,  1(2279 

1918  Inc.  T.  S.,  1(286 

1919  Inc.  T.  S.,  1(774 

1920  Inc.  T.  S.,  1(829 

1921  Inc.  T.  S.,  1(864 

1922  Inc.  T.  S.,  1(1085 

2513.  .1917  War  T.  S.,  K236 

1918  War  T.  S.,  1(42 

1919  War  T.  S.,  1(44 

2514..  (Distilleries.) 

2515.  .(Distilled  spirits.) 

2516.  .(Wine  bonds.) 

2517. . (Tobacco.) 

2518..  1917  Inc.  T.  S.,  K2283 
1918  Inc.  T.  S.,  U592 

2519. . 1917  Inc.  T.  S.,  1(2284 

2520.  .(Food  control  act.) 

2521 . . (To  b a c c o — F o r m for  with- 

drawal.) 

2522.  . (Spirits.) 

2523.  .(Food  control  act.) 

2524.  . 1917  War  T.  S.,  1(242 

1918  War  T.  S.,  1(218 

1919  War  T.  S.,  1(228 

2525 . . (Wine  bonds.) 

2526.  .(Food  control  act.) 

2527.  .(Tincture  of  iodine.) 

2528.  .(Denatured  alcohol.) 

2529.  .1917  War  T.  S.,  K273 

1918  War  T.  S.,  1(207 

1919  War  T.  S.,  1(217 

1920  War  T.  S.,  1(89 

1921  War  T.  S.,  K89 

1922  War  T.  S.,  1(89 

2530..  1917  War  T.  S.,  K263 

1918  War  T.  S.,  1(197 

1919  War  T.  S.,  K208 

1920  War  T.  S.,  1(175 

1921  War  T.  S.,  1(177 

1922  War  T.  S.,  K177 

2531..  1917  War  T.  S.,  1(268 

1918  War  T.  S.(  1(227 

1919  War  T.  S.,  1(237 

1920  War  T.  S.,  K955 
2532.  .1917  Inc.  T.  S.,  1(2434 

1917  War  T.  S.,  1(247 

2533..  1917  War  T.  S.,  K8517 

1918  War  T.  S.,  K6517 


T.  D.  Reference. 

2534.  . 1917  Inc.  T.  S.,  K2436 

1918  Inc.  T.  S.,  1(2077 

1919  Inc.  T.  S.,  1(1463 

2535.  .1917  War  T.  S.,  1(279 

1918  War  T.  S.,  1(38 

1919  War  T.  S.,  1(41 

2536.  .(Alcoholic  beverages.) 

2537.  . 1917  War  T.  S.,  1(8520 

1918  War  T.  S.,  1(6520 

2538.  . 1917  War  T.  S.,  1(7553 

1918  War  T.  S.,  1(3553 

1919  War  T.  S.,  1(3726 

2539.  .(Distilled  spirits.) 

2540.  . 1917  Inc.  T.  S.,  K2444 

1918  Inc.  T.  S.,  1(297 

2541.  . 1917  Inc.  T.  S.,  1(2448 

1917  War  T.  S.,  1(4603 

1918  Inc.  T.  S.,  K482 

1918  War  T.  S.,  1(603 

1919  War  T.  S.,  K852 

2542.  . 1917  Inc.  T.  S.,  1(2454 

2543..  1917  War  T.  S.,  K7564 

1918  War  T.  S.,  K3564 

1919  War  T.  S.,  1(3737 

2544.  .(Alcoholic  medicinal  prepara- 

tions.) 

2545 . . (Wines.) 

2546.  .(Liquor  dealers.) 

2547..  1917  Inc.  T.  S.,  1(2451 

1917  War  T.  S.,  1(6518,  7011 

1918  Inc.  T.  S.,  K561,  889 
1918  War  T.  S.,  1(4518,  5511 

2548.  .(Distilled  spirits.) 

2549.  . 1917  Inc.  T.  S.,  K2475 

2550.  . 1917  War  T.  S.,  K4610 

1918  War  T.  S.,  K610 

2551..  1917  WarT.  S.,  1(6017 

1918  War  T.  S.,  1(5017 

1919  War  T.  S.,  K5703 
2552.  .(Cigarette  papers  and  tubes.) 

2553. . 1917  War  T.  S.,  K6529 
1918  War  T.  S.,  1(4529 

2554.  .1917  War  T.  S.,  K8523 

1918  War  T.  S.,  K6523 

2555.  . (Wine.) 

2556.  . (Tobacco.) 

2557. . 1917  War  T.  S.,  K8530 
1918  War  T.  S.,  1(6530 

2558. . (Articles  and  occupations  sub- 

ject to  tax.) 

2559.  .(Distilled  spirits.) 

2560.  .(Distilled  spirits.) 

2561.  . 1917  Inc.  T.  S.,  1(2472 

1917  War  T.  S.,  1(4607 

1918  Inc.  T.  S.,  1(607 
1918  War  T.  S.,  1(1742 

2562.  .(Distilled  spirits.) 

2563.  .1917  War  T.  S.,  1(6028 

1918  War  T.  S.,  1(5029 

1919  War  T.  S.,  1(5723 

2564. . (Fermented  malt  liquor.) 

2565.  .(Distilled  spirits.) 

2566.  .(Distilled  spirits.) 

2567.  .(Distilled  spirits.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  14. 


3-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

2568.  .1917  War  T.  S.,  1(6537 

1918  WarT.  S.,  1(4537 

2569.  .(Tobacco,  etc.) 

2570. . 1917  Inc.  T.  S.,  K2476 

1917  War  T.  S.,  1(292,  6034, 
6553,  7016 

1918  Inc.  T.  S.,  1(370,  388,  1903 

1918  War  T.  S.,  1(76,  4553,  5034, 
5516 

1919  Inc.  T.  S.,  1(936 

1919  War  T.  S.,  1(78,  79,  4579, 
7220 

2571 ..  (Distilled  spirits.) 

2572. . (Domestic  alcohol.) 

2573..  1917  War  T.  S.,  f6541 
1918  War  T.  S.,  1(4541 

2574..  1917  War  T.  S.,  1(8536 
1918  War  T.  S.,  1(6536 

2575.  .(Denatured  alcohol.) 

2576. . (Distilled  spirits.) 

2577. . 1917  War  T.  S.,  1(6563,  7024 
1918  War  T.  S.,  1(4563,  5044, 

5524 

2578.  .(Distilleries.) 

2579.  .(Distilled  spirits.) 

2580..  1917  WarT.  S.,  K6055 
1918  War  T.  S.,  K5055 

2581.  .1917  Inc.  T.  S.,  1(2494 

1918  Inc.  T.  S.,  K 1752 

1919  Inc.  T.  S.,  K1510 
1919  War  T.  S.,  1(833 

2582. . (Distilled  spirits.) 

2583.  .(Tobacco,  etc.) 

2584..  1917  Inc.  T.  S.,  1(2512 

1917  War  T.  S.,  1(6064,  6572, 
7028,  7569,  8546 

1918  Inc.  T.  S.,  1(1946 

1918  War  T.  S.,  1(3569,  4569, 
5064,  5528,  6546 

1919  Inc.  T.  S.,  IT  1568 

1919  War  T.  S.,  1J3586,  4578; 
4611 

2585..  1917  Inc.  T.  S.,  K2515 

1917  War  T.  S.,  K4615 

1918  Inc.  T.  S.,  K445 

1918  War  T.  S.,  K615 

1919  Inc.  T.  S.,  K976 
1919  War  T.  S.,  1(847 

2586..  1917  War  T.  S.,  K7031 
1918  War  T.  S.,  1(5531 

2587.  .(Wood  alcohol.) 

2588. . 1917  War  T.  S.,  1(6069 

1918  War  T.  S.,  1(5069 

1919  War  T.  S.,  K5710 
2589.  .1917  Inc.  T.  S.,  K2523 

1918  Inc.  T.  S.,  1(940 

2590..  1917  War  T.  S.,  K7034 
1918  War  T.  S.,  K5530 

2591 . . 1917  War  T.  S.,  K6576 

1918  War  T.  S.,  1(4573 

1919  War  T.  S.,  K4582,  4588, 
4598,  4602,  4612,  7218 

2592..  1917  WarT.  S.,  K7050 
1918  War  T.  S.,  H5554 


T.  D.  Reference. 

2593.  .(Distilled  spirits.) 

2594.  . 1917  War  T.  S.,  K7586 

1918  War  T.  S.,  1(3586 

1919  War  T.  S.,  1(3603 

2595 . . (Cigars.) 

2596.  . 1917  War  T.  S.,  f6082 

1918  War  T.  S.,  K5082 

2597. . 1917  War  T.  S.,  1(6086 
1918  War  T.  S.,  K5086 

2598..  (Title  3— Act  of  Oct.  3,  1917 — 

Beverages.) 

2599.  . 1917  War  T.  S.,  1(7593 

1918  War  T.  S.,  1(3593 

1919  War  T.  S.,  1(3585,  3591, 
3695,  3713,  3715,  3739 

2600. . 1917  War  T.  S.,  K6089 

1918  War  T.  S.,  1(5089 

1919  War  T.  S.,  K5704,  5708 

2601..  1917  War  T.  S.,  K6610 

1918  War  T.  S.,  K4607 

1919  War  T.  S.,  K4585 

2602..  1917  War  T.  S.,  1(4617 
1918  War  T.  S.,  K617 

2603. . 1917  War  T.  S.,  1(7054 
1918  War  T.  S.,  K5554 

2604.  . (Cigars,  etc.) 

2605. . 1917  War  T.  S.,  1(7059 
1918  War  T.  S.,  K5559 

2606. . 1917  War  T.  S.,  K8549 
1918  War  T.  S.,  K6549 

2607 ..  (Distilled  spirits.) 

2608. . 1917  War  T.  S.,  1(7604 

1918  War  T.  S.,  K3604 

1919  War  T.  S.,  K3610 
2609.  .1917  Inc.  T.  S.,  K2547 

1918  Inc.  T.  S.,  K2235 

1919  Inc.  T.  S.,  K 1862 

2610..  1917  War  T.  S.,  1(4621 
1918  War  T.  S.,  1(621 

2611..  1917  WarT.  S.,  1(4623 
1918  War  T.  S.,  K623 

2612.  . 1917  War  T.  S.,  K4630 
1918  War  T.  S.,  1(630 

2613. . 1917  War  T.  S.,  K4631 
1918  War  T.  S.,  K631 

2614..  1917  WarT.  S.,  1(4632 
1918  War  T.  S.,  1(632 

2615.  .1917  Inc.  T.  S.,  K2557 

1917  War  T.  S.,  K4634 

1918  Inc.  T.  S.,  1(2240 
1918  War  T.  S.,  1(634 

2616.  . 1917  Inc.  T.  S.,  1(2558 

1918  Inc.  T.  S.,  1(2241 

2617.  .(Distilled  spirits.) 

2618.  .(Fermented  malt  liquors.) 

2619. . 1917  War  T.  S.,  K6110 

1918  War  T.  S.,  K5110 

1919  War  T.  S.,  K5707 

2620..  1917  Inc.  T.  S.,  K2568 

1918  Inc.  T.  S.,  K 1 130 

1919  Inc.  T.  S.,  1(1726 
2621 . . (Munitions.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  15. 


T.  D.  FINDER. 


T.  D.  Reference. 

2622.  . 1917  Inc.  T.  S.,  1(2577 

1917  War  T.  S.,  11938 

1918  Inc.  T.  S.,  K2250 
1918  War  T.  S.,  1(635 

2623.  . 1917  Inc.  T.  S.,  1(2567 

1918  Inc.  T.  S.,  1(2267 

1919  Inc.  T.  S.,  1(598 

2624.  . 1917  War  T.  S.,  1(1442 

1918  War  T.  S.,  1(3681 

1919  War  T.  S.,  1(3563 

2625.  . 1917  Inc.  T.  S.,  1|2569 

1918  Inc.  T.  S.,  1(2268 

2626.  .1917  War  T.  S.,  1(294 

1918  War  T.  S.,  1(239 

1919  War  T.  S.,  1(249 

2627.  . 1917  Inc.  T.  S.,  1(2572 

1918  Inc.  T.  S.,  1(2271 

1919  Inc.  T.  S.,  1(2429 

1918  T.  D’s. 

2628.  . 1918  War  T.  S.,  1(5568 

2629.  .(Fortified  wines.) 

2630.  .(Alcohol.) 

2631.  . 1918  Inc.  T.  S.,  1(3067 

1919  Inc.  T.  S.,  1(2073 

1920  Inc.  T.  S.,  1(955 

1921  Inc.  T.  S.,  1(1018 

1922  Inc.  T.  S.,  1(1283 

2632.  .1918  War  T.  S.,  1(658 

2633.  . 1918  Inc.  T.  S.,  K2283 

1918  War  T.  S.,  1(659 

2634.  . 1918  Inc.  T.  S.,  1(3075 

1919  Inc.  T.  S.,  1(2738 

1920  Inc.  T.  S.,  1(2313 

1921  Inc.  T.  S.,  Sup.  p.  137 

2635.  . 1918  Inc.  T.  S.,  1(3060 

2636.  . (Distilled  spirits.) 

2637.  . 1918  War  T.  S.,  1(241 

1919  War  T.  S.,  1(251 

2638.  . 1918  War  T.  S.,  114613 

2639.  .1918  Inc.  T.  S.,  1(3062 

1918  War  T.  S.,  1(847 

2640.  . (Wantage  rod.) 

2641.  . (Denatured  alcohol.) 

2642.  . (Distilled  spirits.) 

2643.  . (Distilled  spirits.) 

2644.  . (Distilled  spirits.) 

2645.  . (Cigars.) 

2646.  . 1918  War  T.  S.,  1(5571 

2647.  . 1918  War  T.  S.,  1(3684 

1919  War  T.  S.,  1(3576 

2648.  . (Distilled  spirits.) 

2649.  . 1918  Inc.  T.  S.,  1(3083 

1919  Inc.  T.  S.,  1(1867 

2650.  . 1918  Inc.  T.  S.,  1(3076 

1918  War  T.  S.,  1(85 

2651.  . 1918  War  T.  S.,  1(4618 

2652.  . 1918  Inc.  T.  S.,  1(3077 

1919  Inc.  T.  S.,  1(599 

2653.  . (Distilled  spirits.) 

2654.  . 1918  Inc.  T.  S.,  1(3087 

1918  War  T.  S.,  1(7077 

1919  Inc.  T.  S.,  U255S 
1919  War  T.  S.,  1(8049 


T.  D.  Reference. 

2655.  . (Distilled  spirits.) 

2656.  . 1918  Inc.  T.  S.,  ^3110 

1918  War  T.  S.,  1(856 

2657.  . (Munitions.) 

2658.  .(Sulphuric  acid.) 

2659.  .1918  Inc.  T.  S.,  1(3113 

1919  Inc.  T.  S.,  1(834 

2660.  .1918  Inc.  T.  S.,  1(3 1 19 

1919  Inc.  T.  S.,  1(2007 

2661.  . 1918  Inc.  T.  S.,  1(3121 

1919  Inc.  T.  S.,  1(2594 

2662.  . 1918  War  T.  S.,  H861 

1919  War  T.  S.,  1(819 

2663.  . 1918  Inc.  T.  S.,  1(3131 

2664.  . (Munitions.) 

2665.  . 1918  Inc.  T.  S.,  1(3134 

1919  Inc.  T.  S.,  1(890 

2666.  . 1918  Inc.  T.  S.,  1(3149 

1918  War  T.  S.,  1(870 

1919  Inc.  T.  S.,  K2434 
1919  War  T.  S.,  1(8024 

2667.  . (Wines.) 

2668.  . 1918  Inc.  T.  S.,  1(3167 

1919  Inc.  T.  S.,  1(1015 

2669.  . 1918  Inc.  T.  S.,  13191 

2670.  . 1918  Inc.  T.  S.,  1(3171 

1919  Inc.  T.  S.,  K1320,  1324, 
1326,  1328,  1344,  1347,  1375 

2671.  . (1909  Excise  Tax.) 

2672.  . 1918  Inc.  T.  S.,  1(3203 

1918  War  T.  S.,  1(888 

1919  Inc.  T.  S.,  1(1512 
1919  War  T.  S.,  1(831 

2673.  . 1918  Inc.  T.  S.,  «[3206 

1919  Inc.  T.  S.,  1(1514 

2674.  . 1918  Inc.  T.  S.,  1(3207 

2675.  . (Cider.) 

2676.  . 1918  War  T.  S.,  1(5111 

1919  War  T.  S.,  1(5526 

2677.  . 1918  War  T.  S.,  1(895 

2678.  . 1918  Inc.  T.  S.,  K321 1 

1919  Inc.  T.  S.,  1(840 

2679.  . 1918  Inc.  T.  S.,  1|3212 

1918  War  T.  S.,  1(900 

1919  Inc.  T.  S.,  1(2408 

2680.  . 1918  Inc.  T.  S.,  1(3218 

1918  War  T1  S.,  1(906 

2681.  . 1918  War  T.  S.,  1(5573 

1919  War  T.  S.,  1(6512 

2682.  . 1918  War  T.  S.,  1(3690 

1919  War  T.  S.,  1(3699 

2683.  . 1918  War  T.  S.,  1(897 

1919  War  T.  S.,  1(758 

2684.  . 1918  War  T.  S.,  1(6182 

1919  War  T.  S.,  1(7143 

2685.  . 1918  War  T.  S.,  1(3701 

1919  War  T.  S.,  ^3602 

2686.  . 1918  Inc.  T.  S.,  1(3241 

1919  Inc.  T.  S.,  1(1819 

1920  Inc.  T.  S.,  1(905 

1921  Inc.  T.  S.,  1(947 

2687.  . 1918  Inc.  T.  S.,  1(3238 

1919  Inc.  T.  S.,  K703 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  16. 


8-7-21. 


T.  D.  FINDER. 


T.  D.  Reference. 

2688.  . 1918  inc.  T.  S„  13238 

1919  Inc.  T.  S.,  12472 

1920  Inc.  T.  S.,  12136 

2689.  . 1918  War  T.  S.,  1918 

2690.  . 1918  Inc.  T.  S.,  12284 

2691.  1918  War  T.  S.,  1247 
1919  War  T.  S.,  1257 

2692.  . 1918  Inc.  T.  S.,  13262 

1919  Inc.  T.  S.,  If  1 1 3 1 

2693.  . 1918  Inc.  T.  S.,  13268 

1919  Inc.  T.  S.,  11325,  1754 

1920  Inc.  T.  S.,  11737 

1921  Inc.  T.  S.,  11906 

1922  Inc.  T.  S.,  12344 

2694.  . 1918  War  T.  S.,  1660 

1919  War  T.  S.,  1597 

2695.  . 1918  Inc.  T.  S.,  13272 

1918  War  T.  S.,  1927 

1919  Inc.  T.  S.,  11823 

2696.  . 1918  Inc.  T.  S.,  13273 

1919  Inc.  T.  S.,  11979 

2697.  . 1918  Inc.  T.  S.,  13312 

1919  Inc.  T.  S.,  12379 

1920  Inc.  T.  S.,  12050 

1921  Inc.  T.  S.,  12302 

2698.  . 1918  Inc.  T.  S.,  13298 

1919  Inc.  T.  S.,  12570 

2699.  . (Distilled  spirits.) 

2700.  . 1918  Inc.  T.  13302 

1919  Inc.  T.  S.,  1806 

2701.  . 1918  War  T.  S.,  13703 

1919  War  T.  S.,  13691 

2702.  . 1918  Inc.  T.  S.,  13307 

2703.  . 1918  Inc.  T.  S.,  13320 

2704.  . 1918  War  T.  S.,  13708 

2705.  . 1918  War  T.  S.,  1248 

1919  War  T.  S.,  1257 

1920  War  T.  S.,  1224 

1921  War  T.  S.,  1231 

1922  War  T.  S.,  1231 

2706.  . 1918  Inc.  T.  S.,  13326 

1919  Inc.  T.  S.,  11840 

2707.  . 1918  Inc.  T.  S.,  13333 

1919  Inc.  T.  S.,  11894 

2708.  . 1918  War  T.  S.,  1251 

1919  War  T S.,  1195 

2709.  . 1918  Inc.  T.  S.,  13340 

1919  Inc.  T.  S.,  1661 

2710.  .(1909  Excise  tax.) 

2711.  . 1918  Inc.  T.  S.,  13356 

1918  War  T.  S.,  1938 

1919  Inc.  T.  S.,  11274 
1919  War  T.  S.,  1745 

2712.  .(Narcotic  law.) 

2713.  . 1918  War  T.  S.,  13709 

1919  War  T.  S.,  13551 

2714.  . (Munitions.) 

2715.  . 1918  Inc.  T.  S.,  13372 

1919  Inc.  T.  S.,  1968 

2716.  . 1918  Inc.  T.  S.,  13440 

2717.  . (Fermented  malt  liquors.) 

2718.  . 1918  Inc.  T.  S.,  13450 

2719.  . 1918  War  T.  S.,  14222 

1919  War  T.  S.,  14569 


T.  D.  Reference. 

2720.  . 1918  Inc.  T.  S.,  13510 

1919  Inc.  T.  S.,  11689 

2721.  .1918  Inc.  T.  S.,  13511 

2722.  . 1918  Inc.  T.  S.,  13512 

2723.  . 1918  Inc.  T.  S.,  13513 

2724.  . 1918  Inc.  T.  S.,  13514 

2725.  . 1918  Inc.  T.  S.,  13515 

2726.  . 1918  Inc.  T.  S.,  13516 

1919  Inc.  T.  S.,  12754 

1920  Inc.  T.  S.,  12329 

1921  Inc.  T.  S.,  Sup.  p.  140 

2727.  . 1918  War  T.  S.,  15259 

1919  War  T.  S.,  15564 

2728.  . (Distilled  spirits.) 

2729.  . 1918  Inc.  T.  S.,  13521 

1919  Inc.  T.  S.,  12776 

1920  Inc.  T.  S.,  12351 

1921  Inc.  T.  S.,  Sup.  p.  144 

2730.  . 1918  Inc.  T.  S.,  13522 

1919  Inc.  T.  S.,  12804 

1920  Inc.  T.  S.,  12380 

1921  Inc.  T.  S.,  Sup.  p.  149 

2731.  . 1918  Inc.  T.  S.,  ,j3523 

1919  Inc.  T.  S.,  12763 

1920  Inc.  T.  S.,  12337 

1921  Inc.  T.  S.,  Sup.  p,  141 

2732.  . 1918  Inc.  T.  S.,  13524 

1919  Inc.  T.  S.,  12802 

1920  Inc.  T.  S.,  12378 

1921  Inc.  T.  S.,  Sup.  p.  148 

2733.  . 1918  Inc.  T.  S.,  13535 

1919  Inc.  T.  S.,  11847 

2734.  . 1918  Inc.  T.  S.,  13542 

1919  Inc.  T.  S.,  11875 

2735.  . 1918  War  T.  S.,  1256 

1919  War  T.  S.,  1261 

2736.  . 1918  Inc.  T.  S.,  13552 

2737.  . 1918  Inc.  T.  S.,  13572 

1919  Inc.  T.  S.,  11780 

2738.  . (Wines.) 

2739.  . 1918  War  T.  S.,  14671 

2740.  . 1918  Inc.  T.  S.,  13576 

1919  Inc.  T.  S.,  12742 

1920  Inc.  T.  S.,  12317 

1921  Inc.  T.  S.,  Sup.  p.  138 

2741.  . 1918  War  T.  S.,  13733 

1919  War  T.  S.,  3647,  3684 

2742.  . 1918  War  T.  S.,  15273 

1919  War  T.  S.,  15578 

2743.  . 1918  War  T.  S.,  15282 

1919  War  T.  S.,  15728 

2744.  . 1918  Inc.  T.  S.,  13589 

1919  Inc.  T.  S.,  11871 

2745.  . (Alcohol.) 

2746.  . (Alcohol.) 

2747.  . 1918  Inc.  T.  S.,  13605 

1919  Inc.  T.  S.,  1999 

2748.  . (Distilled  spirits.) 

2749.  . (Spirits.) 

2750.  . 1918  War  T.  S.,  13186 

1919  War  T.  S.,  13009 

2751.  .(Denatured  alcohol.) 

2752.  . 1918  War  T.  S.,  13744 

1919  War  T.  S.,  13577 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  17. 


T.  D.  FINDER. 


T D.  Reference. 

2753.  . 1918  War  T.  S.,  1(4684 

1919  War  T.  S.,  1(7210 

2754.  . 1918  Inc.  T.  S.,  1(3621 

1919  Inc.  T.  S.,  1(2106 

2755.  . 1918  Inc.  T.  S.,  1(3624 

1919  Inc.  T.  S.,  1(1853 

2756.  . 1918  War  T.  S.,  1(257 

1919  War  T.  S.,  1(262 

2757.  . (Spirits.) 

2758.  . (Denatured  alcohol.) 

2759.  . 1918  Inc.  T.  S.,  K3631 

1919  Inc.  T.  S.,  1(655,  1351, 
1353,  1359,  1361,  1379,  1384 

2760.  . (Alcoholic  medicinal  prepara- 

tions.) 

2761.  .(Mixed  flour.) 

2762.  . 1918  Inc.  T.  S.,  K3644 

1918  War  T.  S.,  1(982 

1919  Inc.  T.  S.,  1(981 

1919  War  T.  S.,  1(849 

1920  Inc.  T.  S.,  1(1159 

1920  War  T.  S.,  1(729 

1921  Inc.  T.  S.,  1(1247 

1921  War  T.  S.,  1(729 

1922  War  T.  S.,  1|729 

2763.  . 1918  Inc.  T.  Si,  1(3653 

2764.  . (Oleomargarine.) 

2765.  . (Wine.) 

2766.  . (Narcotic  law.) 

2767.  . (Alcoholic  medicinal  com- 

pounds.) 

2768.  . (Food-control  act.) 

2769.  . (Denatured  alcohol.) 

2770.  . 1918  War  T.  S.,  1(267 

1919  War  T.  S.,  1(272 

2771.  . 1918  War  T.  S.,  1(270 

1919  War  T.  S.,  1(275 

2772.  . 1918  War  T.  S.,  1(274 

1919  War  T.  S.,  1l  1 8 1 

2773.  . 1918  Inc.  T.  S.,  1(3688 

2774.  . (Oleomargarine.) 

2775.  . 1918  War  T.  S.,  1(6196 

1919  War  T.  S.,  1(7111 

2776.  . (Distilled  spirits.) 

2777.  . (Tobacco,  etc.) 

2778.  . 1918  Inc.  T.  S.,  1(3702 

1918  War  T.  S.,  1(992 

1919  Inc.  T.  S.,  1(245  1 
1919  War  T.  S.,  1(8018 

2779.  . (Denatured  alcohol.) 

2780.  . (Spirits.) 

2781.  . 1918  War  T.  S.,  1(4692 

1919  War  T.  S.,  1(4630 

2782.  . 1918  War  T.  S.,  1(4699 

1919  War  T.  S.,  1(3565,  3712, 
4585,  4605,  5588,  5596,  5635, 
6563,  7081 

1920  War  T.  S.,  1(8079 

1921  War  T.  S.,  1(8069 

1919  T.  D’s. 

2783.  . 1918  Inc.  T.  S.,  1(3710 

1919  Inc.  T.  S.,  1(2819 


T.  D.  Reference. 

2783.  . 1920  Inc.  T.  S.,  f2395 

1921  Inc.  T.  S.,  Sup.  p.  152 

2784.  . (Distilled  spirits.) 

2785.  . 1918  War  T.  S.,  1(4709 

1919  War  T.  S.,  1(4577,  4595, 
4604,  4615,  4624,  4643,  5587, 
5727,  7076,  7219 

2786.  . 1918  War  T.  S.,  1(3757 

1919  War  T.  S.,  1(3607 

2787.  . (1909  Excise  tax.) 

2788.  . (Distilled  spirits.) 

2789.  . (Forfeiture  proceedings.) 

2790.  . (Distilled  spirits.) 

2791.  . 1918  War  T.  S.,  1(998 

1919  War  T.  S.,  1(858 

2792.  . 1918  Inc.  T.  S.,  1(3729 

1919  Inc.  T.  S.,  1(3146 

2793.  . (Denatured  alcohol.) 

2794.  . 1919  Inc.  T.  S.,  1(3147 

2795.  .1919  War  T.  S.,  1(3741,  4644, 

5738,  6571,  8153 

2796.  . 1919  Inc.  T.  S.,  1(3165 

2797.  . 1919  Inc.  T.  SI,  1(3246 

2798.  . (Distilled  spirits.) 

2799.  . (Tobacco,  etc.) 

2800.  . 1919  War  T.  S.,  1|3060 

2801.  .(Distilled  spirits.) 

2802.  . 1919  War  T.  S.,  1(279 

1920  War  T.  S.,  1(227 

1921  War  T.  S.,  1(234 

2803.  . (Adulterated  butter.) 

2804.  . 1919  Inc.  T.  S.,  1(3254 

2805.  . 1919  Inc.  T.  S.,  113256 

2806.  . (Distilled  spirits.) 

2807.  . (Cigarette  papers,  etc.) 

2808.  . (Salaries  of  collectors.) 

2809.  . (Narcotic  law.) 

2810.  . 1919  Inc.  T.  S.,  1(3272 

2811.  . 1919  Inc.  T.  S.,  1(3273 

2812.  . 1919  Inc.  T.  S.,  1(3281 

1919  War  T.  S.,  1(1015 

2813.  . (Cigars,  etc.) 

2814.  .(Leaf  tobacco.) 

2815.  . 1919  Inc.  T.  S.,  1(3286 

2816.  . 1919  Inc.  T.  S.,  1(3290 

1920  Inc.  T.  S.,  1(2399 

1921  Inc.  T.  S.,  Sup.  p.  153 

2817.  . 1919  War  T.  S.,  1(3748 

1920  War  T.  S.,  1(3916 

1921  War  T.  S.,  1(3920 

2818.  . (Leaf  tobacco.) 

2819.  .(Denatured  alcohol.) 

2820.  . (Denatured  alcohol.) 

2821.  .(Distilled  spirits.) 

2822.  . (Distilled  spirits.) 

2823.  . (Child  labor.) 

2824.  . (Denatured  alcohol.) 

2825.  . 1919  War  T.  S.,  1(377 1 

2826.  . (Distilled  spirits.) 

2827.  . (Distilled  spirits.) 

2828.  . (Monthly  reports.) 

2829.  . (Distilled  spirits.) 

2830.  . 1919  War  1'.  S.,  1(6576 

2831.  . 1919  Inc.  T.  S.,  p.  301-41 1 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  18. 


T.  D.  FINDER. 


T D.  Reference 

2832.  . 1919  War.  T.  S.,  1(4673 

2833.  . 1919  War  T.  S.,  1(4728 

2834.  . 1919  War  T.  S.,  1(5741 

2835.  . 1919  War  T.  S.,  1(3073 

2836.  . 1919  Inc.  T.  S.,  1(3325 

Cum.  Bull.  No.  1 (1919),  p.  85 
1920  Inc.  T.  S.,  If  1 152 

1920  War  T.  S.,  1(727 

1921  Inc.  T.  S.,  K1238 

1921  War  T.  S.,  K727 

1922  War  T.  S.,  1(727 

2837.  . 1919  War  T.  S.,  1(4776 

2838.  . (Soft  drinks.) 

2839.  . (Soft  drinks.) 

2840.  . 1919  Inc.  T.  S.,  1(3331 

2841.  .(Fermented  liquors.) 

2842.  . (Cigars,  etc.) 

2843.  . 1919  Inc.  T.  S.,  1(3334 

1920  Inc.  T.  S.,  1(1168 

Cum.  Bull.  No.  1 (1919),  p.  93 

1921  Inc.  T.  S.,  *11 1256 

1922  Inc.  T.  S.,  1(1600 

2844.  . 1919  Inc.  T.  S.,  1(3336 

Cum.  Bull.  No.  1 (1919),  p.  191 
1920  Inc.  T.  S.,  1(1852 

2845.  . (Distilled  spirits.) 

2846.  . (Checks  in  payment  for  taxes.) 

2847.  . 1919  Inc.  T.  S.,  K3345,  3385 

Cum.  Bull.  No.  1 (1919),  p.  222 

1920  Inc.  T.  S.,  1(1460 

1921  Inc.  T.  S.,  1(1603 

1922  Inc.  T.  S.,  1(2015 

2848.  . (Distilled  spirits.) 

2849.  . 1919  Inc.  T.  S.,  1(3352 

1920  Inc.  T.  S.,  1(1435 

1921  Inc.  T.  S.,  K 1572 

1922  Inc.  T.  S.,  K1982 

2850.  . 1919  Inc.  T.  S.,  1(3371 

1919  War  T.  S.,  1(8154 

2851.  . 1919  Inc.  T.  S.,  1(3380 

1919  War  T.  S.,  1(8163 

1920  War  T.  S.,  1(8017 

1921  War  T.  S.,  1(8017 

2852.  . 1919  War  T.  S.,  114913 

2853.  . (Denatured  alcohol.) 

2854.  . (Distilled  spirits.) 

2855.  . (Denatured  alcohol.) 

2856.  . 1919  Inc.  T.  S.,  1(3386,  3388 

2857.  . 1919  Inc.  T.  S.,  1(3389 

1919  War  T.  S.,  1(1048 

1920  Inc.  T.  S.,  1(1149 

1920  War  T.  S.,  1(730 

1921  Inc.  T.  S.,  1(1235 

1921  War  T.  S.,  1(730 

1922  War  T.  S.,  1(730 

2858.  . 1919  Inc.  T.  S.,  1(3409 

Cum.  Bull.  No.  1 (1919),  p.  166 

2859.  . 1919  Inc.  T.  S.,  1(3390 

Cum.  Bull.  No.  1 (1919),  p.  140 
1920  Inc.  T.  S.,  1(1388 

2860.  . 1919  War  T.  S.,  1|4956 

1920  War  T.  S.,  1(4629 

2861.  . (Wineries.) 


T.  D.  Reference. 

2862.  .(Gifts  to  Treasury  officials.) 

2863.  .(Denatured  alcohol.) 

2864.  . (Distilled  spirits.) 

2865.  . 1919  Inc.  T.  S.,  1(3429 

1919  War  T.  S.,  1(1049 

Cum.  Bull.  No.  1 (1919),  p.  87 

1920  Inc.  T.  S.,  1(1150 

1920  War  T.  S.,  1(731 

1921  Inc.  T.  S.,  K 1236 
1921  War  T.  S.,  1(731 

2866.  . 1919  War  T.  S.,  1(4822 

2867.  . 1919  War  T.  S.,  1(3779 

2868.  . 1919  War  T.  S.,  1(4923 

2869.  . 1919  Inc.  T.  S.,  1(3434 

Cum.  Bull.  No.  1 (1919),  p.  164, 
(In  part.) 

1920  Inc.  T.  S.,  1(519,  1547 

2870.  . 1919  Inc.  T.  S.,  1(3432 

2871.  . 1919  Inc.  T.  S.,  1(3439 

Cum.  Bull.  No.  1 (1919),  p.  258 
1920  Inc.  T.  S.,  1(2133,  2153 

2872.  . (Administrative  accounting.) 

2873.  . 1919  Inc.  T.  S.,  1(3450 

Cum.  Bull.  No.  1 (1919),  p.  58 
1920  Inc.  T.  S.,  1(783 

2874.  . 1919  Inc.  T.  S.,  1(3465 

Cum.  Bull.  No.  1 (1919),  p.  255 

1920  Inc.  T.  S.,  1(2104 

1921  Inc.  T.  S.,  1(2358 

1922  Inc.  T.  S.,  1(2800 

2875.  . (Munitions.) 

2876.  . 1919  Inc.  T.  S.,  H3456,  3472 

Cum.  Bull.  No.  1 (1919),  p.  98 

1920  Inc.  T.  S.,  1(2408 

1921  Inc.  T.  S.,  Sup.  p.  155 

2877.  . (Distilled  spirits.) 

2878.  . 1919  War  T.  S.,  1|1303 

1920  War  T.  S.,  1(249 

1921  War  T.  S.,  1(256 

2879.  . (Narcotic  law.) 

2880.  . (1909  Excise  tax.) 

2881.  .(Distilled  spirits.) 

2882.  . (1909  Excise  tax.) 

2883.  . 1919  Inc.  T.  S.,  1(3475 

2884.  . (Traveling  expenses  of  field  col- 

lectors.) 

2885.  . (Legacy  Taxes. — Act  of  1898.) 

2886.  . (Legacy  Taxes. — Act  of  1898.) 

2887.  . (Narcotics.) 

2888.  . (Wines.) 

2889.  . 1919  War  T.  S.,  1(5976 

2890.  . 1919  War  T.  S.,  1(5905 

2891.  . 1919  War  T.  S.,  1(3975 

1920  War  T.  S.,  1(3942 

2892.  . 1919  Inc.  T.  S.,  1|3495 

2893.  . 1919  War  T.  S.,  1(4971,  7239 

1920  War  T.  S.,  Sup.  p.  14 

1921  War  T.  S.,  1(4643,  4645, 
4672,  4683,  4798,  4800,  4808, 
4811 

2894.  . (Distilled  spirits.) 

2895.  . (1914  tax  on  bankers.) 

2896.  . (1909  Excise  tax.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  19, 


T.  D.  FINDER. 


T.  D.  Reference. 

2897.  . 1919  War  T.  S.,  1(5004 

1920  War  T.  S.,  Sup.  p.  14 
192!  War  T.  S.,  1(4586 

2898.  . 1919  War  'I'.  S.,  1)304 

1920  War  T.  S.,  1(250 

1921  War  T.  S.,  1(257 

2899.  . 1919  Inc.  T.  S.,  1(3514 

Cum.  Bull.  No.  1 (1919),  p.  213 
1920  Inc.  T.  S.,  1(988 

2900.  . 1919  War  T.  S.,  1(4005 

1920  War  T.  S.,  1(3778 

2901.  . 1919  Inc.  T.  S.,  1(1050 

Cum.  Bull.  No.  1 (1919),  p.  302 

2902.  . (Salaries  of  collectors.) 

2903.  . 1919  Inc.  T.  S.,  H3508 

Cum.  Bull.  No.  1 (1919),  p.  265 

1920  Inc.  T.  S.,  1(1980 

1921  Inc.  T.  S.,  1(2237 

1922  Inc.  T.  S.,  1(2700 

2904.  . 1919  War  T.  S.,  1(305 

1920  War  T.  S.,  1(251 

1921  War  T.  S.,  1(258 

2905.  . 1919  War  T.  S.,  1(306 

1920  War  T.  S.,  1(252 

2906.  . 1919  Inc.  T.  S.,  1| 35  17 

2907.  . 1919  Inc.  T.  S.,  1(3518 

1920  Inc.  T.  S.,  K2094 

2908.  . (Beverages.) 

2909.  . 1919  War  T.  S.,  1(5008 

2910.  . 1919  War  T.  S.,  1[313 

2911.  .(Leaf  tobacco.) 

2912.  . (Wines.) 

2913.  . 1919  War  T.  S.,  1(4508 

1920  War  T.  S.,  1(3773,  3913 

2914.  .(Denatured  alcohol.) 

2915.  . 1919  War  T.  S.,  1(5009 

1920  War  T.  S.,  1(4592 

2916.  . 1919  Inc.  T.  S.,  1(3548 

Cum.  Bull.  No.  1 (1919),  p.  144 
1920  Inc.  T.  S.,  1(1445 

2917.  . 1919  War  T.  S.,  1(6007 

2918.  . 1919  Inc.  T.  S.,  1(3565 

2919.  . 1919  War  T.  S.,  1(4011 

1920  War  T.  S.,  )|3758 

2920.  . 1919  Inc.  T.  S.,  1(3566 

Cum.  Bull.  No.  1 (1919),  p.  184 
1920  Inc.  T.  S.,  1(1650 

2921.  .(Cereal  beverages.) 

2922.  . 1919  Inc.  T.  S.,  1(3568 

Cum.  Bull.  No.  1 (1919),  p.  160 
1920  Inc.  T.  S.,  1(1572 

2923.  . 1919  Inc.  T.  S.,  1(3573 

Cum.  Bull.  No.  1 (1919),  p.  185 

1920  Inc.  T.  S.,  1(1691 

1921  Inc.  T.  S.,  1(1842 

1922  Inc.  T.  S.,  1(2298 

2924.  . 1919  Inc.  T.  S.,  1(3577 

Cum.  Bull.  No.  1 (1919),  p.  44 
1920  Inc.  T.  S.,  K1080,  1085 

2925.  . 1919  Inc.  T.  S.,  1(3579 

Cum.  Bull.  No.  1 (1919),  p.  157 

1920  Inc.  T.  S.,  1(1505 

1921  Inc.  T.  S.,  1(1649 

2926.  . (Liquors.) 


T.  D.  Reference. 

2927.  .(1909  Excise  tax.) 

2928.  . 1919  War  T.  S.,  1(6072 

2929.  . 1919  Inc.  T.  S.,  1(3594 

Cum.  Bull.  No.  1 (1919),  p.  133 
1920  Inc.  T.  S.,  1(1332,  2351 

2930.  . 1919  War  T.  S.,  1(5015 

1920  War  T.  S.,  1(4588 

2931.  . 1919  War  T.  S.,  1(1055 

Cum.  Bull.  No.  1 (1919),  p.  294 
1920  War  T.  S.,  1| 783 

2932.  . (Beverages.) 

2933.  . i 9 1 9 Inc.  T.  S.,  1(3595 

Cum.  Bull.  No.  1 (1919),  p.  113 
1920  Inc.  T.  S.,  1(1265 

2934.  . (Distilled  spirits.) 

2935.  . 1919  Inc.  T.  S.,  1(3629 

Cum.  Bull.  No.  1 (1919),  p.  191 
1920  Inc.  T.  S.,  1(1849 

2936.  . 1919  War  T.  S.,  1(5016 

1920  War  T.  S.,  1(4665 

1921  War  T.  S.,  1|4661 

2937.  . 1919  Inc.  T.  S.,  1(3631 

Cum.  Bull.  No.  1 (1919),  p.  112 
1920  Inc.  T.  S.,  1(1262 

2938.  . 1919  War  T.  S.,  1(6078 

1920  War  T.  S.,  1(5602 

2939.  . 1919  War  T.  S.,  1|6078 

1920  War  T.  S.,  1(5602 

2940.  . (Distilled  spirits.) 

2941.  . 1919  War  T.  S.,  1(4197 

1920  War  T.  S.,  1(3814 

2942.  . 1919  War  T.  S.,  1(5018 

1920  War  T.  S.,  1(4743 

2943.  . 1919  Inc.  T.  S.,  1|3634 

Cum.  Bull.  No.  1 (1919),  p.  9 
1920  Inc.  T.  S.,  1(735 
1920  War  T.  S.,  1(601 

2944.  . 1919  Inc.  T.  S.,  1|3639 

Cum.  Bull.  No.  1 (1919),  p.  216 

2945.  . 1919  War  T.  S.,  1(5021 

1920  War  T.  S.,  1(4659 

1921  War  T.  S.,  1(4655 

2946.  . (Distilled  spirits.) 

2947.  . (Leaf  tobacco.) 

2948.  . 1919  War  T.  S.,  1(5022 

1920  War  T.  S.,  1|4580 

2949.  . 1919  War  T.  S.,  1(6912 

2950.  . 1919  War  T.  S.,  1(5026 

1920  War  T.  S.,  1(6679 

1921  War  T.  S.,  1(4786 

2951.  . 1919  Inc.  T.  S.,  1(3645 

Cum.  Bull.  No.  1 (1919),  p.  189 
1920  Inc.  T.  S.,  1(1789 

2952.  . 1919  Inc.  T.  S.,  1(3646 

2953.  . (Distilled  spirits.) 

2954.  . 1919  War  T.  S.,  1(4200 

1920  War  T.  S.,  1|3804 

2955.  . (Tobacco.) 

2956.  . 1919  Inc.  T.  S.,  K3655 

Cum.  Bull.  No.  1 (1919),  p.  142 
1920  Inc.  T.  S.,  1(1427 

2957.  . (Tobacco.) 

2958.  . 1919  War  T.  S.,  1(5027 

1920  War  T.  S.,  1(4703 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  20. 


8-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

2959.  . (Distilled  spirits.) 

2960.  . 1920  Inc.  T.  S.,  112421 
Gum.  Bull.  No.  2,  p.  80 
1921  Inc.  T.  S.,  If 9 94 

2961.  . 1920  Inc.  '1'.  S.,  1)2427 

Cum.  Bull.  No.  2,  p.  250 

2962.  . 1920  Inc.  T.  S.,  1)2450 

Cum.  Bull.  No.  2,  p.  253 
1921  Inc.  T.  S.,  112232 

2963.  . 1920  Inc.  T.  S.,  1)2479 

Cum.  Bull.  No.  2,  p.  43 

2964.  . 1920  War  T.  S.,  1)6912 

2965.  . 1920  War  T.  S.,  1)4875 

1921  War  T.  S.,  1)4823 

2966.  . 1920  Inc.  T.  S.,  1)25 16 

2967.  . 1920  Inc.  T.  S.,  1)2500 

Cum.  Bull.  No.  2,  p.  193 

2968.  . (Oleomargarine.) 

2969.  . 1920  Inc.  T.  S.,  D2503 

Cum.  Bull.  No.  2,  p.  195 

2970.  . 1920  Inc.  T.  S.,  1(2505 

Cum.  Bull.  No.  2,  p.  160 

2971.  . 1920  Inc.  T.  S.,  1)2506 

Cum.  Bull.  No.  2,  p.  38 

2972.  . 1920  Inc.  T.  S.,  1)2507 

Cum.  Bull.  No.  2,  p.  128 

2973.  . 1920  Inc.  T.  S.,  1)2508 

Cum.  Bull.  No.  2,  p.  317 

2974.  . 1920  War  T.  S.,  1)6918 

2975.  . 1920  War  T.  S.,  1)6924 

2976.  . 1920  War  T.  S.,  1)300 

2977.  . 1920  Inc.  T.  S.,  1|2516 

2978.  . 1920  War  T.  S.,  1)5866 

1921  War  T.  S.,  D5673 

2979.  . 1920  War  T.  S.,  113105 

2980.  . (Storekeeper— Gaugers.) 

2981.  . 1920  War  T.  S.,  1)7663 

2982.  .(Oleomargarine.) 

2983.  . 1920  War  T.  S.,  1)7545 

2984.  .(Unlawful  searches,  etc.) 

2985.  . (Liquors.) 

2986.  . (Denatured  alcohol.) 

2987.  . 1920  Inc.  T.  S.,  1)2563 

Cum.  Bull.  No.  2,  p.  180 

2988.  . 1920  Inc.  T.  S.,  1)2569 

Cum.  Bull.  No.  2,  p.  199 

2989.  . 1920  War  T.  S.,  1)4885 

2990.  . (Soft  drinks.) 

2991.  . (Office  procedure  in  connection 

with  sales  taxes.) 

2992.  . 1920  Inc.  T.  S.,  1)2650 

Cum.  Bull.  No.  2,  p.  76 

2993.  . (Stills.) 

2994.  . 1920  War  T.  S.,  1)4894 

2995.  . 1920  War  T.  S.,  1)5873 

1921  War  T.  S.,  1)5756 

2996.  . (Administrative  accounting.) 

2997.  . 1920  War  T.  S.,  114895 

2998.  . 1920  Inc.  T.  S.,  1)2666 

Cum.  Bull.  No.  2,  p.  151 

2999.  . 1920  War  T.  S.,  1|4896 

1921  War  T.  S.,  1)4847 

3000.  . (Priority  of  Federal  taxes.) 

3001.  . 1920  Inc.  T.  S.,  1)2668 


T.  D.  Reference. 

3002.  . 1920  War  T.  S.,  1)3999 

3003.  . (Munitions.) 

3004  . (1909  Excise  tax.) 

3005.  . 1920  War  T.  S.,  1)5874 

1921  War  T.  S.,  1)5673 

3006.  .(1909  Excise  tax.) 

3007.  .(Legacy  taxes. — Act  of  1898.) 

3008.  . (Legacy  taxes. — Act  of  1898.) 

3009.  1920  War  T.  S.,  1)3101 

3010.  . P'20  Inc.  T.  S.,  1)2691 
Cum.  Bull.  No.  3,  p.  25 
1921  Inc.  T.  S.,  Sup.  p.  167 

1920  T.  D’s. 

3011.  . 1920  Inc.  T.  S.,  D2692 

Cum.  Bull.  No.  2,  p.  57 

3012.  .(Industrial  alcohol.) 

3013.  . 1920  Inc.  T.  S.,  1)2694 

1921  Inc.  T.  S.,  Sup.  p.  157 

3014.  . 1920  War  T.  S.,  1)4000 

1921  War  T.  S.,  1)3584 

1922  War  T.  S.,  1|3595 

3015.  . 1920  War  T.  S.,  1)4899 

3016.  .(Office  procedure  in  connection 

with  sales  taxes.) 

3017.  . 1920  War  T.  S.,  1)879 

Cum.  Bull.  No.  2,  p.  305 

3018.  . 1920  Inc.  T.  S.,  1|2703 

Cum.  Bull.  No.  2,  p.  194 

3019.  . 1920  Inc.  T.  S.,  1)2704 
Cum.  Bull.  No.  2,  p.  158 

3020.  . (Narcotic  law.) 

3021.  .(Oleomargarine.) 

3022.  . 1920  War  T.  S.,  1)5879 

3023.  . (Liquor.) 

3024.  . 1920  Inc.  T.  S.,  D2706 

Cum.  Bull.  No.  2,  p.  57 

3025.  . (Oleomargarine.) 

3026.  . (Alcohol.) 

3027.  . 1920  War  T.  S.,  1)299,  313 

3028.  . 1920  War  T.  S.,  1)2711 

3029.  . 1920  Inc.  T.  S.,  1)2754 

Cum.  Bull.  No.  2,  p.  131 

3030.  . 1920  Inc.  T.  S.,  1)2751 

Cum.  Bull.  No.  2,  p.  250 

3031.  . 1920  Inc.  T.  S.,  1)2750 

Cum.  Bull.  No.  2,  p.  249 

3032.  . 1920  Inc.  T.  S.,  1)2763 

Cum.  Bull.  No.  2,  p.  68 

3033.  . (Liquor.) 

3034.  . (Narcotic  law.) 

3035.  .(Industrial  alcohol.) 

3036.  . 1920  War  T.  S.,  1)7664 

3037.  . 1920  Inc.  T.  S.,  1)2766 

Cum.  Bull.  No.  3,  p.  93 
1921  Inc.  T.  S.,  Sup.  p.  181 

3038.  . (Narcotic  law.) 

3039.  . 1920  War  T.  S.,  1)3009 

3040.  . 1920  War  T.  S.,  1)4903 

3041.  . (Liquor.) 

3042.  . 1920  Inc.  T.  S.,  1)2767 

Cum.  Bull.  No.  3,  p.  300 
1921  Inc.  T.  S.,  1)2266 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  2L 


T.  D.  FINDER. 


T.  D.  Reference. 

3043.  . 1920  Inc.  T.  S.,  1)2770 

Cum.  Bull.  No.  3,  p.  283 

1921  Inc.  T.  S.,  Hi 990 

1922  Inc.  T.  S.,  1)2493 

3044.  . 1920  Inc.  T.  S.,  1f2784 

Cum.  Bull.  No.  3,  p.  83 
1921  Inc.  T.  S.,  1817 

3045.  . (Liquor.) 

3046.  . 1920  Inc.  T.  S.,  12815 

Cum.  Bull.  No.  3,  p.  249 
1921  Inc.  T.  S.,  Sup.  p.  161 

3047.  . 1920  Inc.  T.  S.,  Hf2834 

Cum.  Bull.  No.  3,  p.  71 

3048.  . (1909  Excise  tax.) 

3049.  . 1920  Inc.  T.  S.,  1)2835 

Cum.  Bull.  No.  3,  p.  103 

1921  Inc.  T.  S.,  1)910 

1922  Inc.  T.  S.,  1)1157,  1159 

3050.  . 1920  Inc.  T.  S.,  12848 

Cum.  Bull.  No.  3,  p.  150 
1921  Inc.  T.  S.,  1 37 1 

3051.  . 1920  War  T.  S.,  1)892 

Cum.  Bull.  No.  3,  p.  359 
1921  War  T.  S.,  H187 1 

3052.  . 1920  Inc.  T.  S.,  H12841 

Cum.  Bull.  No.  3,  p.  38 

1921  Inc.  T.  S.,  1890 

1922  Inc.  T.  S.,  1)1128,  1141 

3053.  . 1920  Inc.  T.  S.,  12873 

Cum.  Bull.  No.  3,  p.  256 

3054.  . 1920  War  T.  S.,  H5525 

3055.  . 1920  Inc.  T.  S.,  12874 
Cum.  Bull.  No.  3,  p.  178 

3056.  . 1920  Inc.  T.  S.,  1)2876 
Cum.  Bull.  No.  3,  p.  246 

3057.  .(1909  Excise  tax.) 

Cum.  Bull.  No.  3,  p.  257 

3058.  . 1920  Inc.  T.  S.,  12877 

Cum.  Bull.  No.  3,  p.  72 

3059.  . 1920  Inc.  T.  S.,  12884 
Cum.  Bull.  No.  3,  p.  38 
1921  Inc.  T.  S.,  1)888 

3060.  . 1920  Inc.  T.  S.,  1)2892 
Cum.  Bull.  No.  3,  p.  221 

3061.  . 1920  Inc.  T.  S.,  12894 

Cum.  Bull.  No.  3,  p.  171 

3062.  . 1920  Inc.  T.  S.,  12898 

Cum.  Bull.  No.  3,  p.  109,  144, 
171 

3063.  . 1920  War  T.  S.,  1)5596 

3064.  . 1920  Inc.  T.  S.,  12902 

Cum.  Bull.  No.  3,  p.  77 

3065.  . 1920  War  T.  S.,  14957 

1921  War  T.  S.,  HI 4644 

3066.  . 1920  War  T.  S.,  1)4958 

1921  War  T.  S.,  14768 

3067.  . (Beverages.) 

3068.  . (Federal  prohibition.) 

3069.  . (Federal  prohibition.) 

3070.  . 1920  War  T.  S.,  14842 

3071.  . 1920  Inc.  T.  S.,  1)2903 

Cum.  Bull.  No.  3,  p.  221 

1921  Inc.  T.  S.,  1)1950 

1922  Inc.  T.  S.,  1)2391 


T.  D.  Reference. 

3072.  . (Distillery  warehouses.) 

3073.  . (Tobacco.) 

3074.  . (Tobacco.) 

3075.  . 1920  War  T.  S.,  1)7668 

3076.  . 1920  Inc.  T.  S.,  1)2944 

Cum.  Bull.  No.  3,  p.  178-187 

3077.  . (Cider.) 

3078.  . 1920  Inc.  T.  S.,  1)2960 

Cum.  Bull.  No.  3,  p.  247 

3079.  . (Federal  prohibition.) 

3080.  . 1920  War  T.  S.,  1)900 

Cum.  Bull.  No.  3,  p.  337 

3081.  .(Denatured  alcohol.) 

3082.  . 1920  Inc.  T.  S.,  1)2965 

Cum.  Bull.  No.  3,  p.  107 

3083.  . (Federal  prohibition.) 

3084.  .(Federal  prohibition.) 

3085.  . (Narcotic  law.) 

3086.  . (Federal  prohibition.) 

3087.  . 1920  War  T.  S.,  1)4962 

3088.  . 1920  War  T.  S.,  1)324 

3089.  . 1920  Inc.  T.  S.,  1)2972 

Cum.  Bull.  No.  3,  p.  175 

1921  Inc.  T.  S.,  1)1534 

1922  Inc.  T.  S.,  1)1918 

3090.  . (Federal  prohibition.) 

3091.  . 1920  War  T.  S.,  H4002 

1921  War  T.  S.,  13734 

1922  War  T.  S.,  13734 

3092.  . (Liquor.) 

3093.  . 1920  War  T.  S.,  14005 

1921  War  T.  S.,  1)3629 

1922  War  T.  S.,  13629 

3094.  . 1920  War  T.  S.,  1)3743 

3095.  . (Denaturing  plants.) 

3096.  . 1920  War  T.  S.,  15886 

3097.  . (Industrial  alcohol.) 

3098.  . (National  prohibition.) 

3099.  . (Tobacco.) 

3100.  . 1920  War  T.  S.,  14007 

1921  War  T.  S.,  1)3803 

1922  War  T.  S.,  13803 

3101.  . 1920  Inc.  T.  S.,  1|3019 

Cum.  Bull.  No.  3,  p.  191 
1921  Inc.  T.  S.,  12535 

3102.  . 1920  Inc.  T.  S.,  1|3066 

1921  Inc.  T.  S.,  112582 

3103.  . 1921  War  T.  S.,  13994 

1922  War  T.  S.,  13636 

3104.  . 1920  Inc.  T.  S.,  13068 

Cum.  Bull.  No.  4,  p.  52 
1921  Inc.  T.  S.,  12584 

3105.  . 1920  Inc.  T.  S.,  113069 

Cum.  Bull.  No.  4,  p.  291 
1921  Inc.  T.  S.,  1)2588 

3106.  .(National  prohibition.) 

3107.  . 1921  Inc.  T.  S.,  12593 

Cum.  Bull.  No.  4,  p.  186-200 

3108.  . 1920  Inc.  T.  S.,  13072 

Cum.  Bull.  No.  4,  p.  49 
1921  Inc.  T.  S.,  12591 

3109.  . 1920  Inc.  T.  S.,  113073 

Cum.  Bull.  No.  4,  p.  51 
1921  Inc.  T.  S.,  12592 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page_22. 


3-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

1921  T.  D’s. 

3110.  . 1921  Inc.  T.  S.,  12649 

Cum.  Bull.  No.  4,  p.  255 

3111.  . 1921  Inc.  T.  S.,  ^1 2656 

Cum.  Bull.  No.  4,  p.  280 

3112.  . 1921  Inc.  T.  S:,  12657 

Cum.  Bull.  No.  4,  p.  76 
1922  Inc.  T.  S.,  If  1152 

3113.  . (Narcotic  law.) 

3114.  . 1921  War  T.  S.,  1f3997 

1922  War  T.  S.,  |3576,  3591 

3115.  . 1921  Inc.  T.  S.,  12659 

Cum.  Bull.  No.  4,  p.  415 

3116.  . 1921  War  T.  S.,  H4871 

3117.  .(Oleomargarine.) 

3118.  . 1921  War  T.  S.,  1f3998 

1922  War  T.  S.,  1f3553a,  3584, 
3687 

3119.  . 1921  War  T.  S.,  1J311 

3120.  .(Adulterated  butter.) 

3121.  . (Liquor.) 

3122.  . (Adulterated  butter.) 

3123.  . 1921  Inc.  T.  S.,  12689 

Cum.  Bull.  No.  4,  p.  183-185 

3124.  .(Distilled  spirits.) 

3125.  . 1921  Inc.  T.  S.,  12709 

Cum.  Bull.  No.  4,  p.  174 

3126.  . 1921  Inc.  T.  S.,  12715 

Cum.  Bull.  No.  4,  p.  324 

3127.  .(Narcotic  law.) 

3128.  .(Adulterated  butter.) 

3129.  .(Intoxicating  liquor.) 

3130.  . (Intoxicating  liquor.) 

3131.  . 1921  War  T.  S.,  11307 

3132.  . 1921  War  T.  S.,  14569 

3133.  . 1921  Inc.  T.  S.,  12742 

Cum.  Bull.  No.  4,  p.  286 

3134.  . 1921  War  T.  S.,  16643 

3135.  . 1921  War  T.  S.,  17537 

3136.  . 1921  Inc.  T.  S.,  12745 

Cum.  Bull.  No.  4,  p.  316 

3137.  . 1921  War  T.  S.,  1891 

Cum.  Bull.  No.  4,  p.  357 

3138.  . 1921  Inc.  T.  S.,  12746 

1921  War  T.  S.,  1402 
Cum.  Bull.  No.  4,  p.  238 

1922  Inc.  T.  S.,  12423 
1922  War  T.  S.,  1356 

3139.  .(Narcotic  law.) 

3140.  .(Narcotic  law.) 

3141.  . (Intoxicating  liquor.) 

3142.  .(National  prohibition.) 

3143.  . 1921  Inc.  T.  S.,  12810 

Cum.  Bull.  No.  4,  p.  417 

3144.  . 1921  War  T.  S.,  1436 

1922  War  T.  S.,  1265 

3145.  . 1921  War  T.  S.,  p.  33 

3146.  . 1921  Inc.  T.  S.,  p.  60 

3147.  . 1921  Inc.  T.  S.,  1(2838 

Cum.  Bull.  No.  4,  p.  277 

3148.  .(Adulterated  butter.) 


T.  D.  Reference. 

3149.  .(Denatured  alcohol.) 

3150.  .1921  War  T.  S.,  1382 
'3151  . 1921  War  T.  S.,  1 439 

3152.  .(Denatured  alcohol.) 

3153.  . 1921  Inc.  T.  S.,  12976 

1921  War  T.  S.,  1896 

Cum.  Bull.  No.  4,  p.  280,  298 

1922  War  T.  S.,  1829 

3154.  . 1921  Inc.  T.  S.,  12977 

Cum.  Bull.  No.  4,  p.  338 

3155.  . 1921  Inc.  T.  S.,  12983 

Cum.  Bull.  No.  4,  p.  219-220 

3156.  . 1921  War  T.  S.,  13102 

3157.  . 1921  War  T.  S.,  14875 

3158.  .(Adulterated  butter.) 

3159.  . 1921  Inc.  T.,  S.  12989 

Cum.  Bull.  No.  4,  p.  96 

3160.  . 1921  War  T.  S.,  13105 

1922  War  T.  S.,  13105 

3161.  . 1921  Inc.  T.  S.,  12991 

Cum.  Bull.  No.  4,  p.  98 

3162.  .(National  prohibition.) 

3163.  . 1921  War  T.  S.,  14882 

3164.  . 1921  Inc.  T.  S.,  12996 

Cum.  Bull.  No.  4,  p.  266 

3165.  . 1921  War  T.  S.,  1r458 

1922  War  T.  S.,  1107 

3166.  . 1921  Inc.  T.  S.,  12997 

Cum.  Bull.  No.  4,  p.  343 

3167.  .(Adulterated  butter.) 

3168.  .(Oleomargarine.) 

3169.  . (Distilled  spirits.) 

3170.  . 1921  Inc.  T.  S.,  13016 

Cum.  Bull.  No.  4,  p.  25 

3171.  . 1921  Inc.  T.  S.,  13048 

Cum.  Bull.  No.  4,  p.  124 

3172.  . 1921  War  T.  S.,  14886 

3173.  . 1921  Inc.  T.  S.,  13049 

Cum.  Bull.  No.  4,  p.  34 

3174.  . 1921  Inc.  T.  S.,  13050 

Cum.  Bull.  No.  4,  p.  40 

3175.  . 1921  Inc.  T.  S.,  13051 

Cum.  Bull.  No.  4,  p.  38 

3176.  . 1921  Inc.  T.  S.,  13052 

Cum.  Bull.  No.  4,  p.  41 

3177.  . (National  prohibition.) 

3178.  . i 92 1 Inc.  T.  S.,  13059 

Cum.  Bull.  No.  4,  p.  55 
1922  Inc.  T.  S.,  1747 

3179.  . 1921  Inc.  T.  S.,  13062 

Cum.  Bull.  No.  5,  p.  200 

3180.  .(Distilled  spirits.) 

3181.  . 1921  War  T.  S.,  1899. 

Cum.  Bull.  No.  4,  p.  37 3 
1922  War  T.  S.,  1889 

3182.  .(National  prohibition.) 

3183.  . 1921  War  T.  S.,  1925 

Cum.  Bull.  No.  5,  p.  281 
1922  War  T.  S.,  1926 

3184.  . 1921  War  T.  S.,  17660 

1922  War  T.  S.,  17619 

3185.  .(Oleomargarine.) 

3186.  .(Child  labor.) 

3187.  .(Adulterated  butter.) 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  23. 


T.  D.  FINDER. 


T.  D.  Reference. 

3188.  . 1921  Inc.  T.  S.,  1)3077 

Cum.  Bull.  No.  5,  p.  253 

3189.  . 1921  War  T.  S.,  1)4044 

3190.  .1921  Inc.  T.  S.,  1)3079 

Cum.  Bull.  No.  5,  p.  100 

3191.  .1921  War  T.  S.,  1)4896 

3192.  .1921  War  T.  S.,  1)4898 

3193.  . 1921  Inc.  T.  S.,  1)3080 

Cum.  Bull.  No.  5,  p.  12 

3194.  . 1921  War  T.  S.,  1)6912 

3195.  . 1921  Inc.  T.  S.,  113097 

Cum.  Bull.  No.  4,  p.  153 

3196.  . 1921  War  T.  S.,  1)6918 

3197.  . 1921  War  T.  S.,  115872 

3198.  . 1921  War  T.  S.,  H7664 

3199.  .(Industrial  alcohol.) 

3200.  . 1921  War  1’.  S.,  H956 

Cum.  Bull.  No.  5,  p.  270 

3201.  . (Narcotic  law.) 

3202.  . 1921  War  T.  S.,  1|4908 

3203.  . 1921  Inc.  T.  S.,  1)3101 

Cum.  Bull.  No.  5,  p.  219 

3204.  .(Adulterated  butter.) 

3205.  .(National  prohibition.) 

3206.  . 1921  Inc.  T.  S.,  H3109 

C.  B.  5,  p.  29,  51,  87,  142,  217 

3207.  . 1921  War  T.  S.,  114915 

3208.  . (National  prohibition.) 

3209.  . 1921  Inc.  T.  S.,  1)3164 

Cum.  Bull.  No.  5,  p.  137 

3210.  . 1921  Inc.  T.  S.,  1|3166 

Cum.  Bull.  No.  5,  p.  253 

3211.  .(Distilled  spirits.) 

3212.  .(National  prohibition.) 

3213.  .(Adulterated  butter.) 

3214.  .(National  prohibition.) 

3215.  . 1921  Inc.  T.  S.,  1)3171 

Cum.  Bull.  No.  5,  p.  222 

3216.  . 1921  Inc.  T.  S.,  1)3175 

Cum.  Bull.  No.  5,  p.  241 

3217.  .(National  prohibition.) 

3218.  . (Narcotic  law.) 

3219.  . 1921  War  T.  S.,  1)4060 

1922  War  T.  S.,  1(3998 

3220.  . 1921  War  T.  S.,  11962 

Cum.  Bull.  No.  5,  p.  285 
1922  War  T.  S.,  1(865 

3221.  . 1921  Inc.  T.  S.,  H3188 

Cum.  Bull.  No.  5,  p.  249 
1922  Inc.,  T.  S.,  1)2721 

3222.  . 1921  War  T.  S.,  H473 

3223.  . 1921  War  T.  S.,  1)8123 

3224.  . 1921  War  T.  S.,  1)4062 

3225.  . 1921  War  T.  S.,  1(474 

3226.  . (Beverages.) 

3227.  . 1921  War  T.  S.,  5)475 

1922  War  T.  S.,  1)234 

3228.  .(National  prohibition.) 

3229.  . 1921  Inc.  T.,  S.,  113189 

Cum.  Bull.  No.  5,  p.  242 

3230.  . (National  prohibition.) 

3231.  .(Sacramental  wines.) 

3232.  . 1921  Inc.  T.  S.,  1)3191 

3233.  .1921  War  T.  S.,  1)4063 

1922  War  T.  S.,  1)4010 


T.  D.  Reference. 

3234.  . (Mixed  flour.) 

3235.  . 1921  War  T.  S.,  1)981 

Cum.  Bull.  No.  5,  p.  307 
1922  War  T.  S.,  1)833,  834 

3236.  . (Soft  drinks.) 

3237.  . 1921  War  T.  S.,  116928 

3238.  . 1921  Inc.  T.  S.,  1)3193 

Cum.  Bull.  No.  5,  p.  43 

3239.  .(National  prohibition.) 

3240.  . 1921  Inc.  T.  S.,  H3198 

Cum.  Bull.  No.  5,  p.  313 
1922  Inc.  T.  S.,  1)2868 

3241.  . 1921  War  T.  S.,  1(477 

1922  War  T.  S.,  1)164 

3242.  . 1921  Inc.  T.  S.,  1(3200 

Cum.  Bull.  No.  5,  p.  114 

3243.  . 1921  War  T.  S.,  II 1003 

Cum.  Bull.  No.  5,  p.  289 
1922  War  T.  S.,  1)875 

3244.  . 1921  War  T.  S.,  1[7666 

3245.  . 1921  War  T.  S.,  1)1005 

Cum.  Bull.  No.  5,  p.  268 
1922  War  T.  S.,  1(643,  644 

3246.  . 1921  War  T.  S.,  1)6938 

3247.  . 1921  Inc.  T.  S.,  113221 

Cum.  Bull.  No.  5,  p.  98 

3248.  . 1921  War  T.  S.,  1|5877 

3249.  . 1921  War  T.  S.,  1)4068 

3250.  . 1921  Inc.  T.  S.,  113224 

1921  War  T.  S.,  1)8124 
Cum.  Bull.  No.  5,  p.  314 

3251.  . 1921  Inc.  T.  S.,  1)3251 

Cum.  Bull.  No.  5,  p.  245 

1922  Inc.  T.  S.,  1)2823 
1922  War  T.  S.,  1)8035 

3252.  . 1921  Inc.  T.  S.,  113252 

Cum.  Bull.  No.  5,  p.  43 
1922  Inc.  T.  S.,  1[7_21 

3253.  .(National  prohibition.) 

3254.  .(National  prohibition.) 

3255.  . 1921  War  T.  S.,  1)5878 

1922  War  T.  S.,  1)5596 

3256.  . 1921  War  T.  S.,  1)5881 

1922  War  T.  S.,  1)3256 

3257.  .(National  prohibition.) 

3258.  .(Revenue  Act — 1921.) 

3259.  . 1921  War  T.  S.,  1|1048 

Cum.  Bull.  No.  5,  p.  313 
1922  War  T.  S.,  1)841 

3260.  . 1921  Inc.  T.  S.,  1)3259 

Cum.  Bull.  No.  5,  p.  243 

3261 . . 1921  Inc.  T.  S.,  1)3265 

Bull  I (’22)-l,  p.  12 

3262.  . 1921  Inc.  T.  S.,  1)3267 

Bull.  I (’22)-l,  p.  13 

3263.  1921  Inc.  T.  S.,  1)3275 
Bull.  I (’22)- 1 , p.  19 

3264.  . 1921  Inc.  T.  S.,  1)3279 

Bull.  I (’22)- 1 , p.  15 

3265.  . 1921  Inc.  T.  S.,  1)3278 

Bull.  I (’22)-l,  P.  15 

3266.  . 1921  Inc.  T.  S.,  1)3280 

Bull.  I (’22)- 1 , p.  11 

3267.  . 1921  War  T.  S.,  1)452 

1922  War  T.  S.,  1)390 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  24. 


8-7-22. 


T.  D.  FINDER. 


T.  D.  Reference. 

1921  T.  D’s. 

3110.  . 1921  Inc.  T.  S.,  12649 

Cum.  Hull.  No.  4,  p.  255 

3111.  . 1921  Inc.  T.  S.,  12656 

Cum.  Hull.  No.  4,  p.  280 

3112.  . 1921  Inc.  T.  S.,  12657 

Cum.  Hull.  No.  4,  p.  76 
1922  Inc.  T.  S.,  11152 

3113.  .(Narcotic  law.) 

3114.  . 1921  War  T.  S.,  13997 

1922  War  T.  S.,  13576,  3591 

3115.  . 1921  Inc.  T.  S.,  12659 

Cum.  Bull.  No.  4,  p.  415 

3116.  . 1921  War  T.  S.,  14871 

3117.  .(Oleomargarine.) 

3118.  . 1921  War  T.  S.,  13998 

1922  War  T.  S.,  13553a,  3584, 
3687 

3119.  . 1921  War  T.  S.,  1311 

3120.  .(Adulterated  butter.) 

3121.  . (Liquor.) 

3122.  . (Adulterated  butter.) 

3123.  . 1921  Inc.  T.  S.,  12689 

Cum.  Bull.  No.  4,  p.  183-185 

3124.  .(Distilled  spirits.) 

3125.  . 1921  Inc.  T.  S.,  12709 

Cum.  Bull.  No.  4,  p.  174 

3126.  . 1921  Inc.  T.  S.,  12715 

Cum.  Bull.  No.  4,  p.  324 

3127.  .(Narcotic  law.) 

3128.  . (Adulterated  butter.) 

3129.  . (Intoxicating  liquor.) 

3130.  .(Intoxicating  liquor.) 

3131.  . 1921  War  T.  S.,  11307 

3132.  . 1921  War  T.  S.,  14569 

3133.  . 1921  Inc.  T.  S.,  12742 

Cum.  Bull.  No.  4,  p.  286 

3134.  . 1921  War  T.  S.,  16643 

3135.  . 1921  War  T.  S.,  17537 

3136.  . 1921  Inc.  T.  S.,  12745 

Cum.  Bull.  No.  4,  p.  316 

3137.  . 1921  War  T.  S.,  1891 

Cum.  Bull.  No.  4,  p.  357 

3138.  . 1921  Inc.  T.  S.,  12746 

1921  War  T.  S.,  1402 
Cum.  Bull.  No.  4,  p.  238 

1922  Inc.  T.  S.,  12423 
1922  War  T.  S.,  1356 

3139.  . (Narcotic  law.) 

3140.  . (Narcotic  law.) 

3141.  . (Intoxicating  liquor.) 

3142.  .(National  prohibition.) 

3143.  . 1921  Inc.  T.  S.,  12810 

Cum.  Bull.  No.  4,  p.  417 

3144.  . 1921  War  T.  S.,  1436 

1922  War  T.  S.,  1265 

3145.  . 1921  War  T.  S.,  p.  33 

3146.  . 1921  Inc.  T.  S.,  p.  60 

3147.  . 1921  Inc.  T.  S.,  12838 

Cum.  Bull.  No.  4,  p.  277 

3148.  .(Adulterated  butter.) 


T.  D.  Reference. 

3149.  .(Denatured  alcohol.) 

3150.  .1921  War  T.  S.,  1382 

3151.  . 1921  War  T.  S.,  1439 

3152.  .(Denatured  alcohol.) 

3153.  . 1921  Inc.  T.  S.,  12976 

1921  War  T.  S.,  1896 

Cum.  Bull.  No.  4,  p.  280,  298 

1922  War  T.  S.,  1829 

3154.  . 1921  Inc.  T.  S.,  12977 

Cum.  Bull.  No.  4,  p.  338 

3155.  . 1921  Inc.  T.  S.,  12983 

Cum.  Bull.  No.  4,  p.  219-220 

3156.  . 1921  War  T.  S.,  13102 

3157.  . 1921  War  T.  S.,  14875 

3158.  .(Adulterated  butter.) 

3159.  . 1921  Inc.  T.,  S.  12989 

Cum.  Bull.  No.  4,  p.  96 

3160.  . 1921  War  T.  S.,  13105 

1922  War  T.'  S.,  13105 

3161.  . 1921  Inc.  T.  S.,  12991 

Cum.  Bull.  No.  4,  p.  98 

3162.  .(National  prohibition.) 

3163.  . 1921  War  T.  S.,  14882 

3164.  . 1921  Inc.  T.  S.,  12996 

Cum.  Bull.  No.  4,  p.  266 

3165.  . 1921  War  T.  S.,  1458 

1922  War  T.  S.,  1107 

3166.  . 1921  Inc.  T.  S.,  12997 

Cum.  Bull.  No.  4,  p.  343 

3167.  .(Adulterated  butter.) 

3168.  .(Oleomargarine.) 

3169.  .(Distilled  spirits.) 

3170.  . 1921  Inc.  T.  S.,  13016 

Cum.  Bull.  No.  4,  p.  25 

3171.  . 1921  Inc.  T.  S.,  13048 

Cum.  Bull.  No.  4,  p.  124 

3172.  . 1921  War  T.  S.,  14886 

3173.  . 1921  Inc.  T.  S.,  13049 

Cum.  Bull.  No.  4,  p.  34 

3174.  . 1921  Inc.  T.  S.,  13050 

Cum.  Bull.  No.  4,  p.  40 

3175.  . 1921  Inc.  T.  S.,  13051 

Cum.  Bull.  No.  4,  p.  38 

3176.  . 1921  Inc.  T.  S.,  13052 

Cum.  Bull.  No.  4,  p.  41 

3177.  .(National  prohibition.) 

3178.  . 1921  Inc.  T.  S.,  13059 

Cum.  Bull.  No.  4,  p.  55 
1922  Inc.  T.  S.,  1747 

3179.  . 1921  Inc.  T.  S.,  13062 

Cum.  Bull.  No.  5,  p.  200 

3180.  . (Distilled  spirits.) 

3181.  . 1921  War  T.  S.,  1899. 

Cum.  Bull.  No.  4,  p.  373 
1922  War  T.  S.,  1889 

3182.  . (National  prohibition.) 

3183.  . 1921  War  T.  S.,  1925 

Cum.  Bull.  No.  5,  p.  281 
1922  War  T.  S.,  1926 

3184.  . 1921  War  T.  S.,  17660 

1922  War  T.  S.,  17619 

3185.  .(Oleomargarine.) 

3186.  .(Child  labor.) 

3187.  .(Adulterated  butter.) 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  23. 


T.  D.  FINDER. 


T.  D.  Reference. 

3188.  . 1921  Inc.  T.  S.,  13077 

Cum.  Bull.  No.  5,  p.  253 

3189.  .1921  War  T.  S'.,  1(4044 

3190.  .1921  Inc.  T.  S.,  13079 

Cum.  Bull.  No.  5,  p.  100 

3191.  . 1921  War  T.  S.,  1(4896 

3192.  .1921  War  T.  S.,  1(4898 

3193.  .1921  Inc.  T.  S.,  If 3080 

Cum.  Bull.  No.  5,  p.  12 

3194.  . 1921  War  T.  S.,  1(6912 

3195.  . 1921  Inc.  T.  S.,  13097 

Cum.  Bull.  No.  4,  p.  153 

3196.  . 1921  War  T.  S.,  1(6918 

3197.  . 1921  War  T.  S.,  15872 

3198.  . 1921  War  T.  S.,  17664 

3199.  .(Industrial  alcohol.) 

3200.  . 1921  War  T.  S.,  1956 

Cum.  Bull.  No.  5,  p.  270 

3201.  . (Narcotic  law.) 

3202.  . 1921  War  T.  S.,  1(4908 

3203.  . 1921  Inc.  T.  S.,  1(3101 

Cum.  Bull.  No.  5,  p.  219 

3204.  . (Adulterated  butter.) 

3205.  .(National  prohibition.) 

3206.  . 1921  Inc.  T.  S.,  1(3109 

C.  B.  5,  p.  29,  51,  87,  142,  217 

3207.  . 1921  War  T.  S.,  1(4915 

3208.  .(National  prohibition.) 

3209.  . 1921  Inc.  T.  S.,  1[3164 

Cum.  Bull.  No.  5,  p.  137 

3210.  . 1921  Inc.  T.  S.,  1(3166 

Cum.  Bull.  No.  5,  p.  253 

3211.  .(Distilled  spirits.) 

3212.  .(National  prohibition.) 

3213.  . (Adulterated  butter.) 

3214.  .(National  prohibition.) 

3215.  . 1921  Inc.  T.  S.,  1f3171 

Cum.  Bull.  No.  5,  p.  222 

3216.  . 1921  Inc.  T.  S.,  1(3175 

Cum.  Bull.  No.  5,  p.  241 

3217.  .(National  prohibition.) 

3218.  . (Narcotic  law.) 

3219.  . 1921  War  T.  S.,  1(4060 

1922  War  T.  SI,  K399S 

3220.  . 1921  War  T.  S.,  1(962 

Cum.  Bull.  No.  5,  p.  285 
1922  War  T.  S.,  1(865 

3221.  . 1921  Inc.  T.  S.,  K3188 

Cum.  Bull.  No.  5,  p.  249 
1922  Inc.,  T.  S.,  12721 

3222.  . 1921  War  T.  S.,  1473 

3223.  . 1921  War  T.  S.,  1(8123 

3224.  . 1921  War  T.  S.,  1f4062 

3225.  . 1921  War  T.  S.,  1(474 

3226.  . (Beverages.) 

3227.  . 1921  War  T.  S.,  1(475 

1922  War  T.  S.,  1234 

3228.  .(National  prohibition.) 

3229.  . 1921  Inc.  T.,  S.,  13189 

Cum.  Bull.  No.  5,  p.  242 

3230.  .(National  prohibition.) 

3231.  .(Sacramental  wines.) 

3232.  . 1921  Inc.  T.  S.,  13191 

3233.  . 1921  War  T.  S.,  14063 

1922  War  T.  S.,  14010 


T.  D.  Reference. 

3234.  . (Mixed  flour.) 

3235.  . 1921  War  T.  S.,  1981 

Cum.  Bull.  No.  5,  p.  307 
1922  War  T.  S.,  1(833,  834 

3236.  . (Soft  drinks.) 

3237.  . 1921  War  T.  S.,  1|6928 

3238.  . 1921  Inc.  T.  S.,  1(3193 

Cum.  Bull.  No.  5,  p.  43 

3239.  .(National  prohibition.) 

3240.  .1921  Inc.  T.  S.,  1(3198 

Cum.  Bull.  No.  5,  p.  313 
1922  Inc.  T.  S.,  1(2868 

3241.  . 1921  War  T.  S.,  1477 

1922  War  T.  S.,  1(164 

3242.  . 1921  Inc.  T.  S.,  13200 

Cum.  Bull.  No.  5,  p.  114 

3243.  . 1921  War  T.  S.,  1(1003 

Cum.  Bull.  No.  5,  p.  289 
1922  War  T.  S-,  1(875 

3244.  . 1921  War  T.  S.,  17666 

3245.  . 1921  War  T.  S.,  11005 

Cum.  Bull.  No.  5,  p.  268 
1922  War  T.  S.,  1(643,  644 

3246.  . 1921  War  T.  S.,  1(6938 

3247.  . 1921  Inc.  T.  S.,  13221 

Cum.  Bull.  No.  5,  p.  98 

3248.  . 1921  War  T.  S.,  1(5877 

3249.  . 1921  War  T.  S.,  14068 

3250.  . 1921  Inc.  T.  S.,  1(3224 

1921  War  T.  S„  18124 
Cum.  Bull.  No.  5,  p.  314 

3251.  . 1921  Inc.  T.  S.,  1.3251 

Cum.  Bull.  No.  5,  p.  245 

1922  Inc.  T.  S.,  12823 
1922  War  T.  S.,  18035 

3252.  . 1921  Inc.  T.  S.,  1(3252 

Cum.  Bull.  No.  5,  p.  43 
1922  Inc.  T.  S.,  1721 

3253.  .(National  prohibition.) 

3254.  .(National  prohibition.) 

3255.  . 1921  War  T.  S.,  1(5878 

1922  War  T.  S.,  15596 

3256.  . 1921  War  T.  S.,  1(5881 

1922  War  T.  S.,  1(3256 

3257.  . (National  prohibition.) 

3258.  . (Revenue  Act — 1921.) 

3259.  . 1921  War  T.  S.,  1|1048 

Cum.  Bull.  No.  5,  p.  313 
1922  War  T.  S.,  1841 

3260.  . 1921  Inc.  T.  S.,  13259 

Cum.  Bull.  No.  5,  p.  243 
3261  . 1921  Inc.  T.  S.,  13265 
Bull  I (’22)-l,  p.  12 

3262.  . 1921  Inc.  T.  S.,  13267 

Bull.  I (’22)-l,  p.  13 

3263.  . 1921  Inc.  T.  S.,  13275 

Bull.  I (’22)- 1 , p.  19 

3264.  . 1921  Inc.  T.  S.,  13279 

Bull.  I (’22)- 1 , p.  15 

3265.  . 1921  Inc.  T.  S.,  1(3278 

Bull.  1 (’22)-l , p.  15 

3266.  . 1921  Inc.  T.  S.,  13280 

Bull.  I (’22)- 1 , p.  11 

3267.  . 1921  War  T.  S.,  1(452 

1922  War  T.  S.,  1390 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  24. 


8-30-2*. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS. 


PARI  11  -1922. 


Regulations,  Special  Rulings,  Decisions,  etc.,  Issued  since  January  1,  1922. 


r d 

Date 

3268 

Jan.  5,  1922 

3269 

“ 5,  “ 

3270 

“ 12,  “ 

3271 

“ 12,  44 

3272 

• 4 

19,  44 

Special 

Dec. 

1,  1921 

3273 

Jan. 

23,  1922 

3274 

M 

24,  •• 

3275 

44 

6,  “ 

3276 

<4 

11,  44 

3277 

44 

24,  “ 

3278 

44 

6,  44 

3279 

u 

12,  ** 

3280 

Feb. 

7,  14 

3281 

ti 

h “ 

Special 

U 

7,  " 

3282 

44 

11,  “ 

3283 

<3 

11,  44 

3284 

U 

11.  44 

3285 

44 

11,  44 

3286 

M 

15,  « 

3287 

44 

18,  44 

3288 

44 

17, 

•4 

Special 

14 

20, 

44 

3289 

44 

21, 

<4 

3290 

«< 

21, 

44 

3291 

*4 

21, 

44 

J292 

44 

28, 

44 

Special 

44 

27, 

44 

Subject  Paragraph 

Withholding  from  partnership* 3007 

Appeal*  and  hearings  under  Section  250(d)  of  the 

Revenue  Act  of  1921 3289 

Reproduces  U.  S.  Supreme  Court  decision  in 
U.  S.  vs.  Phelli*,  as  printed  hereinafter  on  Sup 
pie  mentary  Page  167. 

Reproduces  U.  S.  Supreme  Court  decision  ic 
Rockefeller  vs.  U.  S.,  and  The  N Y.  Trust  Co., 
et  al.,  vs.  Edwards,  as  printed  hereinafter  oa 
Supplementary  Page  170. 

Extension  of  time  in  which  to  file  Forma  1041  and 


1065 ....  3009 

Stock  dividend  received  by  trust-estate  with 
life-tenant  to  whom  such  stock  dividend  is 

distributable 3010 

Inspection  of  returns 3012 

(Munition  Manufacturer’s  Tax.  Court  Decision 


affirming  267  Fed.  872 — Dayton  Braes  Cast- 
ings Co.  vs.  Gilligan.) 

(Reg.  52,  Rev.,  Soft  drinks.) 

(Reg.  43,  Part  II,  Rev.,  Dues. — 1922  War  Tax 
Service  ^[6513.) 

Inspection  of  returns 3011 

(Reg.  47,  Manufacturer’s  Sales  Taxes. — Wai 
Tax  Service,  f4540.) 

(Reg.  48,  Works  of  Art  and  Jewelry  Taxes. — War 
Tax  Service,  ?4700.) 

Instructions  as  to  acceptance  of  Treasury  cer- 
tificates of  indebtedness  in  payment  of  income 


and  profits  taxes 3014 

Instructions  as  to  acceptance  of  Victory  notes  in 
coupon  form  in  payment  of  income  and  profits 

taxes 3013 

Withholding  on  wages  and  salaries  paid  to  non- 
resident aliens  during  1921 3022 

(Dues  (5918  Act). — War  Tax  Service,  f6583.) 
(Rational  Prohibition.) 

Extension  of  time  for  filng  returns  by  foreign 

organizations  and  U.  S.  citizens  abroad 3032 

(Dues  (1921  Act). — War  Tax  Service,  ^6584.) 

(Stamp  Taxes. — War  Tax  Service,  ^4021.) 


Arts.  91,  92  and  1509,  Reg.  45,  emended. — 

Gross  income  of  nonresident  alien  individuals. 

— Income  of  nonresident  alien  individuals  not 
subject  to  tax. — Domestic  and  foreign  persons  3033 
(Federal  prohibition.) 

On  the  computation  of  taxable  interest  on  United 
States  obligations,  for  surtax  and  excess-profit* 


tax  purposes 3037 

(Stamp  Taxes. — War  Tax  Service,  .^4025.) 

Art.  307,  Reg.  45,  amended. — Personal  exemption 
and  credit  for  dependents  in  the  case  of  non- 
resident aliens  (1918  Act) 303^ 

Extension  of  time  for  the  filing  of  returns  by 

domestic  corporations 3041 

Extension  of  time  for  filing  returns  of  amounts 
withheld  at  source — Forms  1013  and  1042.  . . 304* 
Responsibility  of  debtor  corporations  and  their 
paying  agents  in  connection  with  “domestic 
and  resident  corporations  not  required  to  ex- 
acute and  file  ownership  certificates” 3043 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  23. 


T.  D.  FINDERjAND  RUNNING  TABLE  OF  CONTENTS— (Continued). 


T.  D. 
Special 

Feb. 

Date 
27,  1922 

Decision 

27,  “ 

3293 

44 

15,  “ 

3294 

44 

15,  “ 

3295 

44 

15,  “ 

3311 


Subject  Paragraph 

Old  ownership  certificates  to  be  accepted  for  a 

limited  period 3047 

U.  S.  Supreme  Court.  1913  Act.  Smietanka  vs. 

First  Trust  and  Savings  Bank,  Trustee. 
Estates  and  trusts  not  taxable  as  entities 

under  the  1913  Act 3048 

(Reg.  43,  Pt.  1,  Admissions. — War  Tax  Service, 
K6589.) 

(Reg.  57,  Tel.  and  Tel. — War  Tax  Service, 

Tf55 10.) 

Reg.  62,  Income  Tax.  Embodied  in  the  com- 
pilation. 

The  matters  listed  above 

other  than  the  amendments  to  Reg.  45,  are  indexed  in  the  general  index. 

The  matters  listed  below  are  not  indexed  in  the  general  index. 

See  explanation  on  page  91  of  Cumulative  Index  references. 

Subject  Paragraph 

Arts.  1531-1588,  Reg.  45,  amended. — Inventories.  3060 
(Federal  Prohibition.) 

Instructions  relative  to  request  of  taxpayers  for 
change  in  accounting  period  and  basis  of  filing 

income  tax  returns 3079 

Court  decision,  1917  Act. — Priority  of  claim  of 
United  States  for  taxes  in  case  of  insolvency..  3085 
(Federal  Prohibition.) 

(Federal  Prohibition.) 

Arts.  79,  80,  and  83,  Reg.  62,  Supplemented. — 

,Tax  exemptions  of  Treasury  (War)  Savings 

(£•  Certificates 3087 

(Federal  Prohibition.) 

(Federal  Prohibition.) 

(Corporation  Excise  Tax. — U.  S.  Supreme  Court 
decision. — Smietanka  vs.  Indiana  Steel  Com- 
pany.— As  reported  beginning  at  29 11.) 

Time  within  which  new  returns  under  1921  Act 
for  fiscal  years  ended  in  1921  are  to  be  filed.  . . 3092 
Extension  of  time  for  Alaska  and  Hawaii  for  filing 
individual  income  returns,  and  returns  of  in- 
formation on  Forms  1099  and  1096 3093 

On  ownership  certificates  not  required  from 
domestic  and  resident  corporations,  and  in  the 
case  of  certain  foreign  items;  debtors,  paying 

agents  and  banks 3095 

Credit  for  dependents  may  not  be  divided  be- 
tween husband  and  wife,  even  in  community 

property  states 3097 

Placing  income  on  an  annual  basis:  decedent’s 
income  to  time  of  death:  dividends  and  tax- 

free  interest  for  normal  tax  purposes 3098 

(Excise-sales-taxes. — War  Tax  Service,  ^4758.) 

Court  decision. — Payment  of  tax  under  protest 
a necessary  step  precedent  to  the  bringing  of 
suit  against  the  collector  for  the  refund  thereof  3100 
(Occupations  Taxes. — War  Tax  Service.) 
Powers-of-attorney  to  be  filed  by  taxpayers’ 

representatives,  and  the  stamping  thereof 3104 

Old  ownership  certificates  acceptable  when  ac- 
companying coupons  maturing  on  or  before 

April  1 or  May  1,  1922 3109 

Time  within  which  new  returns  under  1921  Act 
are  to  be  filed  in  case  of  returns  filed  prior  to 
November  23,  1921,  for  fiscal  year  ending  in 

1921:  Amends  T.  D.  3305  above 3110 

28,  ,,  (Legacy  Taxes,  1898  Act.) 


T.  D. 

3296  Mar. 

Date 

3, 

1922 

3297 

44 

3, 

44 

I.T.Mim. 

44 

7, 

44 

2927 

3298 

44 

7, 

“ 

3299 

44 

6, 

44 

3300 

44 

10, 

44 

3301 

44 

10, 

44 

3302 

44 

16, 

44 

3303 

44 

16, 

44 

3304 

44 

16, 

44 

3305 

44 

16, 

44 

3306 

44 

17, 

44 

Special 

44 

9, 

44 

Special 

44 

18, 

44 

Special 

44 

15, 

44 

3307 

44 

20, 

44 

3308 

44 

20, 

44 

3309 

44 

20, 

44 

Sol.  Mim. 

“ 

21, 

44 

2937 

Special 

44 

14, 

3310 

44 

28, 

44 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  26. 


6-9-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D.  Date 


3312 

Mar.  28,  1922 

3313 

“ 28,  “ 

3314 

“ 31 

3315 

“ 31 

Special 

tt 

29,  “ 

3316 

Apr. 

5,  “ 

3317 

U 

5,  “ 

3318 

tt 

5,  “ 

3319 

tt 

5,  “ 

Special 

it 

6,  “ 

Special 

tt 

7,  “ 

Special 

it 

8,  “ 

Decision 

tt 

12,  “ 

3320 

“ 13,  “ 

Special 

t 

3321 

“ 18,  “ 

3322 

“ 18,  “ 

Circular  “ 25,  “ 

No.  230 


Subject  Paragraph 

(Excise  taxes. — War  Tax  Service,  1[4766. ) 

Court  decision,  1916  and  1918  Acts.  “Like 
organizations  of  a purely  local  character,” 

Sec.  231  (10) 3111 

(Court  decision,  1909  Act.) 

Court  Decision,  1917  Act.  Amount  of  tax  ac- 


tually paid  at  source  by  debtor  corporation 
on  account  of  tax-free-covenant  bond  interest 

is  income  to  bond  holder 3113 

Old  ownership  certificates  may  be  accepted 

pending  issuance  of  Treasury  Decision 3109 

Art.  134,  Reg.  45  (1918  Act)  amended. — Federal 

estate  and  state  inheritance  taxes 3115 

(Federal  Prohibition.) 

(Insurance  Tax,  1917  Act. — Court  Decision.) 

(Estate  Tax. — War  Tax  Service,  1f495.) 


Ownership  certificates:  on  exercise  of  conversion 


privilege  (bonds  to  stock) 3121 

Form  1001B  executed  by  husband  and  wife 

acceptable 3122 

National  banks  may  under  certain  circumstances 

declare  true  tax-free  stock  dividends 3123 

Court  decision,  1913  Act. — Dividends  declared 
prior  to,  but  payable  subsequent  to  March  1, 


1913;  interest  payable  for  period  prior  to,  but 
due  March  1,  1913;  book  value  vs.  actual 
value  on  March  1,  1913  of  debts  found  to  be 
worthless  and  charged  off  during  1913;  losses 

of  “gentlemen  farmers” 3127 

(Federal  prohibition.) 

Report  No.  30,  April  21,  1922. 

Ratios  of  estimated  post-war  cost  of  replacement' 
for  use  in  computing  claims  for  tentative  allow- 


ance for  amortization 3144 

Reproduces  opinion  in  Smietanka  vs.  First  Trust 
and  Savings  Bank,  Trustee  (U.  S.  Supreme 

Court,  1f3048) 3150 

Instructions  as  to  acceptance  of  Victory  notes  in 
payment  of  income  and  profits  taxes 3151 


Report  No.  31,  April  28,  1922. 

[Forms  1120A  and  1078;  pages  for  substitution 
on  account  index-digest  references  to  rulings 
in  Internal  Revenue  Bulletin  No.  17  of  the 
1922  Series.  No  new  current  matters.] 

Report  No.  32,  May  3,  1922. 

Laws  and  regulations  governing  the  recognition 
of  attorneys,  agents  and  other  persons  repre- 
senting claimants  and  others  before  the  Treas- 
ury Department  and  offices  thereof 3174 

Report  No.  33,  May  8,  1922. 

[Form  1065 B ; pages  for  substitution  on  account 
index-digest  references  to  rulings  in  Internal 
Revenue  Bulletin  No.  18  of  the  1922  Series. 

No  new  current  matters.  The  weekly  Internal 
Revenue  Bulletins  will  hereafter  (beginning 
with  Bulletin  No.  19)  go  to  you  unpunched .] 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  27. 


C-9-22. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D.  Date 


3323  May  6,  1922 

3324  “ 8,  “ 


3325 

May 

11, 

3326 

11, 

3327 

1 1, 

3328 

“ 

12. 

3329 

ft 

13, 

3330 

ft 

13, 

3331 

ft 

13 

3332  May  18,  1922 

3333  “ 19,  “ 


3334  May  25,  1922 

3335  “ 25,  “ 

3336  “ 25,  “ 

Decision  “ 29,  “ 


3337  May  29,  1922 

3338  “ 29,  “ 

3339  “ 29,  “ 


Special  June  1,  1922 

Special  May  26,  “ 

Special  June  6,  “ 


Subject  Paragraph 

Report  No.  34,  May  10,  1922. 

(Tobacco  regulations.) 

(Estate  Tax. — War  Tax  Service,  ^562.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Interna!  Revenue  Bul- 
letin No.  19  of  the  1922  Series.  No  new  current 
matters.] 

Report  No.  35,  May  19,  1922. 

(Estate  Tax.— War  Tax  Service,  1[567.) 

(Estate  Tax. — War  Tax  Service,  ^[568.) 

Time  limitation  for  use  of  old  ownership  cer- 


tificates  3209 

(War  Excess-Profits  Tax  (1917  Act). — War  Tax 
Service,  If  1266.) 

Expeditious  disposition  of  tax  cases  in  which  an 

emergency  has  been  found  to  exist 3211 

Court  decision,  1918  Act. — Wisconsin  Soldiers’ 

Bonus  Tax 3213 

(Occupations  Taxes. — War  Tax  Service,  ^7696.) 
[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  20  of  the  1922  Series.] 


Report  No.  36,  May  26,  1922. 

(Bottling  of  distilled  spirits  in  bond.) 

Ratios  of  estimated  post-war  cost  of  replacement 
for  use  in  computing  claims  for  tentative  allow- 
ance for  amortization.  (Same  as  matter  be- 
ginning at  f3144.) 3216 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bulle- 
tin No.  21  of  the  1922  Series;  Forms  1065A  and 
1087.] 

Report  No.  37,  May  31,  1922. 

(Excess-Profits  Tax.- — AVar  Tax  Service,  1[1270.) 

(National  Prohibition.) 

(National  Prohibition.) 

U.  S.  Supreme  Court.  Miles  vs.  The  Safe  De- 
posit and  Trust  Company  of  Baltimore. — The 
entire  amount  received  from  the  sale  of  rights 
to  subscribe  for  stock  is  not  income 3217 

Report  No.  38,  June  2,  1922. 

(National  Prohibition.) 

(Estate  Tax.- — War  Tax  Service,  1)577.) 

(Estate  Tax.- — -War  Tax  Service,  1[578.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue 
Bulletin  No.  22  of  the  1922  Series.  No  new 
current  matters.] 

Report  No.  39,  June  9,  1922. 

Conference  and  practice  requirements 3227 

Ownership  certificates  in  the  case  of  interest  on 

bonds  owned  by  foreign  exempt  organization  3236 

Ownership  certificates  in  case  of  interest  on  bonds 
owned  by  corporation  but  registered  in  name  of 
individual 3237 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  23  of  the  1922  Series;  Form  1040E.] 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  28. 


8-8-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— -(Continued.) 


T.  D. 

Date 

3340 

June 

6, 

1922 

3341 

ti 

5, 

<< 

3342 

ii 

7, 

ii 

3343 

7, 

it 

3344 

<( 

10, 

It 

3345 

it 

10, 

it 

3346 

ii 

10, 

it 

3347 

ti 

10, 

it 

3348 

ii 

10, 

it 

Decision 

it 

13, 

li 

Special 

ii 

14, 

i t 

mil 

3 no 

3349 

June  12,  1922 

CU  >.  * 

3350 

“ 15,  “ 

Special 

“ 14,  “ 

Decision 

“ 6,  “ 

3351 

(( 

16, 

U 

3352 

ii 

17, 

it 

3353 

ii 

17, 

U 

3354 

ii 

17, 

ii 

3355 

ii 

17, 

ii 

3356 

« 

20, 

it 

3357 

ti 

22, 

ii 

3358 

« 

22, 

ii 

3359 

ii 

23, 

ti 

3360 

.« 

23, 

ii 

Subject  Paragraph 

Report  No.  40,  June  16,  1922. 

(Prohibition.) 

(Prohibition.) 

(Narcotics.) 

Instructions  as  to  acceptance  of  Treasury  certifi- 
cates of  indebtedness  for  income  and  profits 
taxes  payable  on  Dec.  15,  1922 3258 

(Excise  Taxes.  Malley  vs.  Walter  Baker  & Co. 
decision — War  Tax  Service,  U4768.) 

(Future  Trading  Act  of  Aug.  24,  1921.) 

(Child  Labor  Tax.) 

(Child  Labor  Tax.) 

(Estate  Tax.  Page  vs.  Polk  decision.  War  Tax 
Service,  11569.) 

Granting  a preliminary  injunction  restraining  col- 
lection of  additional  taxes  by  distraint.  ..  ..  ..  3239 

No  ownership  certificates  required  in  connection 
with  accrued  interest  on  bonds  purchased 
between  interest  dates  for  sinking  fund  by 
trustee  under  corporate  deed  of  trust,  the 
bonds  then  being  cancelled ..  . 326S 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue 
Bulletin  No.  24  of  the  1922  Series.) 

Report  No.  41,  June  26,  1922. 

(Administrative. — Acceptance  ofU.  S.  bonds  and 
notes  as  security  in  lieu  of  sureties  on  penal 
bonds.) 

(Prohibition.) 

Qualified  further  extension  of  time  for  the  use  of 
old  ownership  certificates  in  connection  with 
interest  on  registered  bonds  under  certain  con- 


ditions  3266 

On  the  50%  penalty  for  failure  to  file  return:  (1) 
“willful  neglect”  vs.  “reasonable  cause;”  (2) 
filing  a “voluntary  return”  “without  notice 
from  the  collector” 3268 


(Concentration  of  bonded  spirits.) 

(Distilled  spirits.) 

(Special  tax  on  bankers,  1898  Act.) 

(Prohibition.) 

Court  decision,  1918  Act. — Building  and  loan 

associations 3289 

(Special  tax  on  bankers,  1898  Act.) 

(Prohibition.) 

(Excise  Taxes. — War  Tax  Service,  1)4793.) 

(Capital  Stock  Tax.  Central  Union  Trust  Co. 
vs.  Edwards  decision. — War  Tax  Service, 
D3161.) 

(Administrative. — Record  of  uncollectible  taxes.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue 
Bulletin  No.  25  of  the  1922  Series.) 

Report  No.  42,  June  30,  1922. 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  Jin  Internal  Revenue 
Bulletin  No.  26  of  the  1922  Series. — No  uevr 
current  matters.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  29. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS— (Continued.) 


T.  D.  Date 


Subject 


Paragraph 


Report  No.  43,  July  7,  1922. 

3361  June  15,  1922  (T.  D.  designation  for  Regulations  64,  Capital 

Stock  Tax. — War  Tax  Service,  page  609.) 

3362  “ 30,  “ (Narcotics.) 

3363  “ 30,  “ (Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue 
Bulletin  No.  27  of  the  1922  Series. — No  new 
current  matters.] 


Report  No.  44,  July  12,  1922. 


Decision 

June  29,  1922 

C.  C.  of  A.  affirms  decision  of  District  Court  in 
U.  S.,  by  Lewellyn  vs.  Mellon:  Opinion 

3364 

“ 12,  “ 

(T.  D.  designation  for  Reg.  55,  Stamp  Taxes. — 
War  Tax  Service,  page  737.) 

3365 

July  6,  “ 

Text  of  U.  S.  Supreme  Court  “rights”  decision 
in  Miles  vs.  The  Safe  Deposit  and  Trust  Com- 
pany of  Baltimore  (1J32 1 7) 

3366 

“ 8, 

(Distilled  spirits.) 

3367 

“ 10, 

(Excess-Profits  Taxes. — War  Tax  Service, 1 288.) 
[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue 
Bulletin  No.  28  of  the  1922  Series.) 

3293 


Special 

July  1 2. 

3368 

“ 12, 

3369 

“ 12, 

3370 

“ 14, 

3371 

“ 15. 

Special 

“ 17 

3372 

July 

19, 

1922 

3373 

<< 

19, 

a 

3374 

it 

19, 

ii 

3375 

it 

22, 

a 

3376 

a 

22, 

a 

3377 

a 

22, 

a 

3378 

a 

22, 

a 

3379 

a 

22, 

a 

Special 

a 

22, 

U 

Report  No.  45,  July  20,  1922. 

Personnel  of  Tax  Simplification  Board 3299 

(Capital  Stock  Tax.— War  Tax  Service,  ^3172.) 

(Telegraph  and  Telephone. — War  Tax  Service, 
1J5588.) 

(Distilled  spirits.) 

(Distilled  spirits.) 

On  powers-of -attorney  required  to  be  filed  by 

taxpayers’  representatives  3300 

[Pages  for  substitution  on  account  index-digest 
references  to  new  matters  and  to  rulings  in 
Internal  Revenue  Bulletin  No.  29,  of  the  1922 
Series.] 

Report  No.  46,  July  27 , 1922 . 

(Narcotics.) 

(Narcotics.) 

(Prohibition.) 

(Narcotics.) 

(Narcotics.) 

(Transportation  Taxes. — War  Tax  Service,  ^[5591.) 

(Prohibition.) 

(Prohibition.) 

No  ownership  certificate  required  in  connection 
with  accrued  interest  on  bonds  surrendered 
between  interest  dates  for  redemption  at  a 
fixed  price  and  accrued  interest,  etc 330+ 

[Pages  for  substitution  on  account  index-digest 
references  to  new  matters  and  to  rulings  in 
Internal  Revenue  Bulletin  No.  30,  of  the 
1922  Series.] 

Report  No.  47,  August  3,  1922. 

|Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  31,  of  the  1922  Series.] 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  30. 


10-18-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 

3380 

3381 

3382 

3383 

3384 
Special 

3385 

3386 

3387 

3388 
3380 

3390 

3391 


Special 


Date 


Subject 


Paragraph 


Report  No.  48,  August  10,  1922. 

July  8,  1922  (T.  D.  designation  for  Regulations  40  (1922 

Edition),  Stamp  Taxes  on  Issues,  Sales,  and 
Transfers  of  Stock,  and  Sales  of  Products  for 
Future  Delivery. — War  Tax  Service,  page 
709.) 

Aug.  4,  “ (Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  32,  of  the  1922  Series.] 


Report  No.  49,  August  17,  1922. 

July  20,  “ (T.  D.  designation  for  Regulations  59  (1922 

Edition),  Special  Taxes  on  Businesses  and 
Occupations  and  on  the  Use  of  Boats. — War 
Tax  Service,  Page  1513.) 

Aug.  9,  “ (Estate  Taxes. — War  Tax  Service,  H787.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  33,  of  the  1922  Series.] 


July  27,  “ 
Aug.  9,  “ 

“ 17,  “ 


Report  No.  50,  August  24,  1922. 

(T.  D.  designation  for  Regulations  63  (1922 
Edition),  Estate  Tax. — War  Tax  Service,  Page 
158.) 

Income  of  deceased  partner,  who  made  returns  on 
a cash  basis,  includes  his  share  of  fees  collected 
to  day  of  death;  his  interest  in  uncollected  fees 
to  be  capitalized  by  estate 3305 

(Narcotics.) 

[Pages  for  substitution  on  account  index-digest 
references  .to  new  matters  and  rulings  in 
Internal  Revenue  Bulletin  No.  34,  of  the 
1922  Series.] 


Report  No.  51,  August  28,  1922. 

Aug.  22,  1922  Art.  170,  Reg.  33  (1916  Act),  amended. — De- 


pletion of  oil  and  gas  properties 3306 

“ 23,  “ Art.  327(a)  added,  Reg.  62,  Transportation 

services  by  foreign  corporations  between  U.  S. 

and  foreign  points 3323 

“ 23,  “ (Prohibition.) 

24.  “ (Excess-profits  tax. — War  Tax  Service,  ^1289.) 

[Pages  for  substitution  on  account  index-divest 


references  to  foregoing  new  matters.] 


Report  No.  52,  September  1,  1922. 

Aug.  25,  1922  (Prohibition.) 

“ 25,  “ (Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue 
Bulletin  No.  35,  of  the  1922  Series.] 

Report  No.  53,  September  8,  1922. 

Sept.  8,  1922  Personnel  of  the  Tax  Simplification  Board 3331 

[Pages  for  substitution  on  account  index-digest 
references  to  new  matters  and  to  rulings  in 
Internal  Revenue  Bulletin  No.  36,  of  the 
1922  Series.] 

the  federal  income  tax  service 
Supplementary  Page  31. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS— (Continued.) 


T.  D. 
3392 


3393 


Law 


3394 

3395 
Special 


3396 

3397 


3398 

3399 

3400 


Decision 


Decision 


Sept.  7,  1922 


Sept.  12,  1922 


Sept.  19,  1922 


Sept.  21,  1922 

“ 21,  “ 

“ 26,  “ 


Sept.  21,  1922 
“ 27,  “ 


Oct. 


3,  1922 
7,  “ 


Oct.  10,  1922 


Oct.  16,  1922 


Apr.  3,  “ 


Subject  Paragraph 

Report  No.  54,  September  13,  1922. 

(Prohibition.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  37,  of  the  1922  Series.) 

Report  No.  55,  September  15,  1922. 

Basis  for  determining  taxable  gain  or  deductible 
loss  in  the  case  of  property  acquired  pr'or  to 
March  1,  1913,  and  sold  or  disposed  of  subse- 
quent thereto. — Attorney-General’s  opinion. — 


1916,  1917,  and  1918  Acts 3332 

Report  No.  56,  September  20,  1922. 
Amendments  to  the  Revenue  Act  of  1921  effected 
by  the  China  Trade  Act 3158 


[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  38,  of  the  1922  Series,  and  on  account 
of  forward  references  to  the  amendments  to  the 
law  effected  by  the  China  Trade  Act.) 

Report  No.  57,  September  27,  1922. 

(Admissions  and  Dues. — War  Tax  Service, 
U6837.) 

(Prohibition.) 

Personnel  of  Tax  Simplification  Board 3343 

[Pages  for  substitution  on  account  index-digest 
references  to  new  matters  and  to  rulings  in 
Internal  Revenue  Bulletin  No.  39,  of  the  1922 
Series.) 

Report  No.  58,  October  4,  1922. 

(Prohibition.) 

(Narcotic  Law.) 

[Pages  for  substitution  on  account  index-digest 
references  to  rulings  in  Internal  Revenue  Bul- 
letin No.  40,  of  the  1922  Series.) 

Report  No.  59,  October  11,  1922. 

(Prohibition.) 

Art.  1586,  Reg.  62  (and  Reg.  45)  amended. — In- 
ventories of  live  stock  raisers  and  other  farmers  3344 

Report  No.  60,  October  17,  1922. 

Art.  691,  Reg.  62,  amended. — Tax  on  insurance 
companies 3353 

Report  No.  61,  October  18,  1922. 

U.  S.  Supreme  Court. — In  effect:  When  the 

ultimate  beneficiary,  as  residuary  legatee,  of  a 
trust-estate  subject  to  tax  as  an  entity  is  a 
person  exempt  from  tax,  the  otherwise  taxable 
income  of  the  trust  is  exempt 3355 

2d  Circuit  Court  of  Appeals. — Legacies  which  are 
not  conditioned  on  the  rendering  of  service 
though  stated  to  be  in  lieu  of  executors’  or 
trustees’  commissions,  having  been  paid  are  in 
fact  acquired  by  bequest,  within  the  meaning 
of  the  law,  and  so  are  not  taxable  as  income. . 3361 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary' Page  32. 


12-18-22. 


T.  D. 

FINDER  AND 

T.  D. 

Date 

3401 

Oct.  18,  1922 

3402 

“ 18,  “ 

3403 

“ 18,  “ 

Subject 


Paragraph 


Special  Oct.  21-21,  1922 


3404 

3405 

“ 25, 

“ 25, 

3406 

“ 28, 

Memo. 

Nov/^2, 

1407 

“ 2, 

>408 

“ 2, 

Special 

“ 7, 

Special 

“ 4, 

3409 

Nov.  13, 

Report  No.  62,  October  21,  1922. 

(Excise  Taxes. — War  Tax  Scries,  ^4795.) 

Art.  39,  Reg.  45,  amended. — Sale  of  the  right  to 

subscribe  to  stock . 3372 

Art.  39,  Reg.  62,  amended. — Sale  of  the  right  to 
subscribe  to  stock 3375 

Report  No.  63,  November  6,  1922. 

[Pages  for  substitution  on  account  change  of 
all  index-digest  references  from  page  numbers  in 
weekly  Internal  Revenue  Bulletins  1 to  26  of  the 
1922  Scries  to  page  numbers  in  Cumulative  Bul- 
letin 1-1  (January-June,  1922),  and  on  account 
index-digest  references  to  new  matters  and  the 
rulings  in  weekly  Bulletins  Nos.  41  to  44.] 

Report  No.  64,  November  6,  1922. 

Placing  of  income  for  taxable  period  of  less 
than  12  months  on  an  annual  basis:  (1)  in 
general,  decedent  dying  during  year  and  estates 
of  decedents;  and  (2)  special,  calendar  year 
decedent-member  of  fiscal  year  partnership. . . 3378 
(Prohibition.) 

Decision  of  court:  Bankruptcy  Act. — Taxes  due 
the  United  States  take  priority  over  claims 
against  the  estate  of  a bankrupt  for  wages.  ..  3383 
An  Act  relative  to  the  naturalization  and  citizen- 
ship of  married  women 3384 

Decision  of  Court,  1913  Act. — Expenses  in  con- 
nection with  the  breeding  of  blooded  horses 
and  the  incidental  racing  thereof,  in  a par- 
ticular case 3392 

T.  D.  designation  for  U.  S.  Supreme  Court  de- 
cision: Lederer  vs.  Stockton  (^3355) 3395 

On  the  keeping  and  production  of  permanent 
books  of  account 3396 

Report  No.f65,  November  9,  1922 . 

Appeals  and  hearings  on  1917  tax  cases  specif- 
ically: special  Committee  on  Appeals  and 

Review 3397 

In  a “cost  or  market  whichever  is  lower”  in- 
ventory the  “cost”  of  merchandise  on  hand  at 
the  beginning  of  the  taxable  year  is  the  in- 
ventory price  of  such  goods 3404 

[Supplementary  Pages  (“T.  D.  Finder”  div- 
ision) showing  index-digest  references  to  rulings 
in  Internal  Revenue  Bulletin  No.  45,  of  the  1922 
Series,  and  to  new  matters  in  the  Service.] 

Report  No.  66,  November  15,  1922. 

Art.  1006,  Reg.  62,  amended. — Appeals  and 

hearings 3406 

[Supplementary  Pages  (“T.D.Finder”division) 
showing  index-digest  references  to  rulings  in 
Internal  Revenue  Bulletin  No.  46,  of  the  1922 
Series,  and  to  new  matters  in  the  Service.] 

Report  No.  67,  November  22,  1922. 
[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  47, 
of  the  1922  Series.] 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33, 


12-1 K-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D.  Date 


3410  Nov.  22,  1922 

3411  “ 24,  “ 


3412  Nov.  24,  1922 

3413  “ 24,  “ 

3414  “ 25,  “ 

Special  “ 29,  “ 


Special  Dec.  2,  1922 

tel 

3415  “ 2,  “ 


Decision  Dec.  5,  1922 


Special  “ 4, 


Decision  Nov.  29,  “ 


Special  Dec.  13,  1922 


Mini.  Dec.  14,  1922 

3416  “ 16,  “ 


3417  “ 16,  11 


Subject 


Paragraph 


Report  No.  68,  November  27,  1922. 
(Prohibition.) 

Art.  134,  Reg.  62,  amended. — Period  as  of  which 

Federal  Estate  Tax  is  deductible 3414 

Art.  134,  Reg.  45  (1918  Act),  amended. — Period 
as  of  which  Federal  Estate  Tax  is  deductible..  3414 


Report  No.  69,  November  29,  1922, 

(Excise  Taxes. — War  Tax  Service,  D4796.) 
(Occupations  Tax. — War  Tax  Service,  H7674.) 

Depreciation  of  leaseholds 3415 

Personnel  of  the  Tax  Simplification  Board 3416 

[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  48, 
of  the  1922  Series.) 


Report  No.  70,  December  6,  1922. 

First  annual  report  of  the  Tax  Simplification 

Board 3417 

(Excise  Taxes. — War  Tax  Service,  1)4800.) 

[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  49  of 
the  1922  Series,  and  to  new  matters  in  the 
Service.) 


Report  No.  71,  December  9,  1922. 

U.  S.  District  Court. — 1%  per  month  “interest” 
on  amount  of  delinquent  taxes  held  to  be  a 
penalty  within  meaning  of  the  Bankruptcy  Act  3439 
Excerpt  from  the  report  of  the  Secretary  of  the 
Treasury  for  the  fiscal  year  ended  June  30, 

1922. — Taxation  and  revenue 3440 

U.  S.  District  Court. — Dividends  paid  by  corpo- 
rations in  1917  are  conclusively  presumed  to 
have  been  paid  from  the  most  recently  accumu- 
lated profits  including  the  1917  profits  to  date 
of  declaration 3455 


Report  No.  72,  December  13,  1922. 

New  chairman  of  Committee  on  Appeals  and 

Review 3512 

[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  50  of  the 
1922  Series,  and  to  new  matters  in  the  Service.) 

Report  No.  73,  December  18,  1922. 
Deductibility  from  gross  income  of  State  in- 


heritance t axes:  Summary  to  date 3513 

Credit  or  refund  claims  filed  within  four  years 
after  payment  of  tax  may  be  allowed  though 
not  filed  until  after  expiration  of  five  years 

from  date  return  was  due 3518 

(StampTaxes. — VS  ar  Tax  Set  vice.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Fag:s  34. 


1-4-23. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS— (Concluded). 


T.  D.  Date  Subject  Paragraph 

Report  No.  74,  December  21,  1922. 

Decision  Dec.  18,  1922  U.  S.  District  Court.  Dividends  paid  by  cor- 
poration in  1917  are  conclusively  presumed  to 
have  been  paid  from  the  most  recently  accumu- 
lated profits,  including  the  1917  profits  to 
date  of  distribution,  even  though  declared  to 


be  from  depletion  reserve 3519 

[Supplementary  Pages  (“T.  D.  Finder” 


division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  51  of  the 
1922  Series,  and  to  new  matters  in  the  Service.] 


Report  No.  75,  January  4,  1923- 

Special  Dec.  19,  1922  Retroactive  effect  of  T.  D.  3402  and  T.  D.  3403 

(sale  of  stock  and  rights) 3548 

3418  “ 22,  “ (Prohibition.) 

3419  “ 28,  “ (Oleomargarine.) 

3420  “ 28,  “ This  Treasury  Decision  reproduces,  merely,  the 

Harder  vs.  Irwin  decision,  reported  in  full 
beginning  at  ^[3455. 

[Supplementary  Pages  (“T.  D.  Finder”  divi- 
sion) showing  index-digest  references  to  rulings 
in  Internal  Revenue  Bulletin  No.  52  of  the  1922 
Series  (No.  52  completes  the  1922  Series),  and 
to  new  matters  in  the  Service.] 


END  OF  THE  1922  SERVICE. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  35. 


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1-4-23. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  .31,  1922. 


CUMULATIVE  INDEX-DIGESTS 

of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922. 


Art.  4. — Who  is  a citizen  Hf748). 

Military  deserter,  convicted  by  court-martial  and  findings  approved,  forfeits  citizen- 
ship: 1921  Act  (1-47-599:  I.  T.  1502).  .Bull.  I (’22)-47,  p.  2. 

Art.  22. — Computation  of  net  income  (If  1046). 

Foreign  exchange  rates: 

England;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:1.  T.  1495).. Bull.  I (’22)-46, 

p.  4. 

France;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)-46, 
p.  4. 

Germany;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)- 
46,  p.  4. 

Art.  24. — Methods  of  accounting  (If  1053). 

Permanent  books  of  account;  the  keeping  and  production  of:  1921  Act.. 1(^396. 

Art.  39. — Sale  of  stock  and  rights  C^f  1219). 

* Retroactive  effect  of  amended  Article  (1[3376)  and  of  corresponding  Article  H[3373) 
of  Regulations  45  (1918  Act)  as  amended:  1918  and  1921  Acts.  .^[3548. 

Art.  42. — Sale  of  personal  property  on  installment  plan  (ffl237). 

¥■  Expenses  not  to  be  allocated  (1-52-653:  A.  R.  R.  1216) . .Bull.  I (’22)-52,  p.  1. 

Art.  51. — When  included  in  gross  income  (^f  1260)- 

Government  contract  canceled;  satisfaction  of  claim:  last  sentence  of  Art.  51,  Reg. 

62,  equally  applicable  to  1918  Act  (1-45-579:  I.  T.  1489).  .Bull.  I (’22)-45,  p.  7. 
Lease  held  to  be  a sale  under  very  special  circumstances;  option  to  purchase;  loan 
(non-interest  bearing  note)  assignment  of  lease  as  collateral;  etc.:  1918  Act  (1-47- 
600:  A.  R.  M.  189).. Bull.  I (’22)-47,  p.  2. 

On  approval  or  on  trial  “sales;”  when  is  sale  consummated  and  when  does  gross  income 
arise:  1921  Act  (1-48-613:  I.  T.  1510).  .Bull.  1 (’22)-48,  p.  3. 

Art.  89. — Additional  exclusions  from  gross  income  under  the  Revenue  Act 
of  1921  (f 1606,  f 1725,  1f2099). 

Foreign  countries  which  do  not  satisfy  equivalent  exemption  provision  (1921  Act): 
Costa  Rica*  (1-44-569:  I.  T.  1485).  .Bull.  1 (’22)-44,  p.  2. 

Finland  (1-47-601:  I.  T.  1503).  .Bull.  1 (’22)-47,  p.  5. 

Great  Britain  (1-46-589:  I.  T.  1496).. Bull.  I (’22)-46,  p.  5. 

New  Zealand  (1-50-634:  I.T.1525) . . Bull.  I (’22)-50,  p.  1. 

Peru*  (1-39-516:  I.  T.  1452).  .Bull.  I (’22)-39,  p.  1. 

*See  list  following  1[2099.  Costa  Rica  and  Peru  should  be  listed  specifically,  as 
here,  as  countries  “which  do  not  satisfy,”  etc. 

Art.  94. — Income  of  nonresident  aliens  from  United  States  bonds  (1f2100). 
4M%  1947-52  Treasury  bonds  beneficially  owned  by  a nonresident  alien  individual, 
or  by  a foreign  corporation,  partnership  or  association  not  engaged  in  business  in  the 
U.  S.;  interest  is  exempt:  1921  Act  (1-50-635:  1.T.1526).  .Bull.  I (’22)-50,  p.  1. 

Art.  101. — Business  expenses  (^f  1640). 

Insurance  on  life  of  debtor  (not  an  officer,  etc.),  policy  assigned  to  creditor  who  pays 
premiums  to  protect  loan;  premiums  are  deductible:  1921  Act  (1-48-614:  I.  T. 
1511).  .Bull.  I (’22)-48,  p.  4. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  37. 


CUMULATIVE  INDEX-DIGESTS —NOV.  6 TO  DEC.  31,  1922 


Art.  101(a). — Traveling  expenses  (H1678). 

“Home”;  single  traveling  salesmen  on  the  road  365  days  in  the  year:  1921  Act 
(1-45-580:  l.T.  1490).. Bull.  I (’22)-45,  p.  7.  See  O.  D.  905,  June  1921  Cum. 
Bull.  p.  212. 

Naval  officers;  subsistence  of  single  man  while  afloat  deductible  if  he  has  a “home,” 
otherwise  not;  but  expense  incident  to  visits  to  home  not  deductible:  1921  Act 
(1-46-590:  I.  T.  1497).  Bull.  I (’22)-46,  p.  5. 

State  Department  foreign  service  officers;  monetary  allowances  and  transportation 
orders  in  lieu  thereof:  1921  Act  (1-49-622:  I.  T.  1518).  .Bull.  I (’22)-49,  p.  4. 

Art.  109.— Rentals  (1[1683). 

Annual  deduction  on  account  of  amortization  of  leasehold  acquired  prior  to  March 
1,  1913  to  be  determined  without  consideration  of  value  as  of  that  date  (T.  D. 
3414)  . . U 34 1 5. 

Art.  111. — When  charges  deductible  (H1057). 

Carrying  charges  on  property  purchased  and  held  for  profit;  O.  D.  398,  June  1920 
Cum.  Bull.  p.  112,  overruled:  1921  Act  (1-49-621:  I.  T.  1517).. Bull.  I (’22)-49, 
P-  1- 

Price  reduction  guarantees:  deduction  allowed  for  year  contingent  credit  becomes 
an  actuality  though  covering  goods  sold  in  prior  year:  1921  Act  (1-51-644:  I.  T. 
1533).  .Bull.  I (’22)-51,  p.  2. 

South  Carolina  income  tax  (law  passed  March  13.  1922,  retroactive  for  1921):  1921 
Act  (1-46-591:  1 T.  1498)  .Bull.  1 (’22)-46,  p.  6. 

•¥■  Installment  sales:  expenses  of  one  year  not  to  be  allocated  to  income  of  future  years: 
1918  Act  (1-52-653:  A.  R.  R.  1216).. Bull.  I (’22)-52,  p.  1.  See  “Expenses  nqt 
.to  be  allocated”  in  index-digests  following  If  1239. 

Art.  131— Taxes  (Hi 703). 

¥ Capital  stock  tax  (Federal)  deductible  in  entirety  as  an  accrual  for  the  taxable  year 
in  which  the  tax  is  due:  1921  Act  (1-5-2-654:  I.  T.  T.  1538).  .Bull.  I (’22)-52,  p.  2. 

New  York  franchise  tax:  1917-1918  Acts  (1-43-558:  A.  R.  R.  1153.. Bull.  1 (’22)  43, 
p.  3. 

Art.  134.— Federal  estate  and  inheritance  taxes  (H1728). 

Art.  134,  amended.  .^[3414. 


Complete  list  to  Dec.  14,  1922  stating  the  rule  as  to  the  deductibility  of  estate  and 
inheritance  taxes  of  the  States  and  other  jurisdictions:  1921  Act.  .13513. 


Accrual  and  due  dates  of  State  estate  and  inheritance  taxes  in  the  respective  juris- 
dictions: 1921  Act..  TJ35 1 5 . 

Date  as  of  which  deductible;  State  estate  and  inheritance  taxes;  cash  and  accrual 
basis:  1921  Act..  13516. 

Due  date  of  Federal  estate  tax  is  one  year  after  decedent’s  death  regardless  of  any 
extension  of  time  for  . payment  (the  regulations  have  been  amended  to  accord 
with  this  opinion,  13414):  1918  and  1921  Acts  (1-51-645:  Sol.  Op.  148).. Bull. 
I (’22)-51,  p.  3. 

Federal  estate  tax  paid  subsequent  to  settlement  of  estate  out  of  residue  of  estate 
placed  in  trust,  not  deductible  by  trustees  in  determining  net  income  of  trust: 
1918  Act  (1-46-592:  A.  R.  R.  1020).. Bull,  I (’22)-46,  p.  7. 

Reg.  45,  Art.  134  amended  (1918  Act).  13414. 

Remainderman  and  life  tenant;  California,  Kansas,  New  Jersey,  New  York,  and  Ohio 
inheritance  taxes  are  deductible  by  beneficiaries  only  but,  in  all  but  Kansas, 
those  imposed  in  respect  to  the  life  interest  being  payable  from  corpus  without 
reimbursement  to  the  remaindermen  are  not  deductible  by  the  life  tenant  (the 
Kansas  tax  is),  nor  by  any  person  now  in  being  with  contingent  remainder  interest: 
1921  Act  (1-49-624:  I.  T.  1519).. Bull.  I (’22)-49,  p.  5. 

Art.  141. — Losses  (Hi 783). 

Expense  incident  to  establishing  a business  by  one  not  in  business,  the  venture  being 
abandoned,  is  a deductible  loss  in  a transaction  entered  into  for  profit:  1921  Act 
(1-47-603:  I.  T.  1505)..  Bull.  I (’22)-47,  p.  6. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  38. 


1-4-23. 


CUMULATIVE  INDEX-DIGESTS.-NOV.  6 TO  DEC.  31,  1922. 


Art.  151. — Bad  debts  (^[  1810). 

Heir  pays  oft  incumbrance  existing  on  property  when  inherited:  no  reimbursement 
from  estate:  payment  may  not  be  charged  off  as  bad  debt:  1918  Act  (1-51-646: 
I.  T.  1534) . .Bull.  1 (’22)-51,  p.  6.  , . ..  . 

Russian  bonds:  no  general  rule  on  all  classes  may  be  laid  down;  no  loss  may  be  claimed 
on  5 Yi%  dated  Dec.  1,  1916,  due  Dec.  1,  1921,  nor  on  6Vg%  3-year  due  June  18, 
1919,  until  sold  or  otherwise  disposed  of:  1 9 1 S Act  (1-50-638:  1.T.1528).  .Bull.  1 
(’22)-50,  p.  2. 

Art,  164. — Capital  surn  recoverable  through  depreciation  allowances  (H1840). 

Leasehold  acquired  prior  to  March  1,  1913  (T.  D.  3414).  .^3415. 

Art.  223. — Charges  to  capital  and  to  expense  in  the  case  of  oil  and  gas  wells 
(IT  1972). 

Cost  of  drilling  well  not  deductible  as  expense  on  any  basis  of  bookkeeping  when 
lump  payment  (in  the  instant  case,  in  stock)  is  made  for  completed  well  which 
included  the  drilling:  1918  Act  (1-51-647:  A.  R.  R.  1234).. Bull.  I (’22)-51,  p.  7. 

Art.  291. — Personal  and  family  expenses  (*f[  1623). 

Naval  officers;  expenses  incident  to  visits  home  from  port  and  subsistence  afloat  of 
single  man  having  no  home  are  not  deductible:  1921  Act  (1-46-590:  I.  T.  1497) 

. .Bull.  1 (’22)-46,  p.  5.  . 

Teacher’s  special  research  work  (to  better  fit  for  life  work);  expenses  incident  to 
printing  results,  books  and  instruments  purchased  (depreciation),  traveling 
(meetings  of  scientific  societies)  are  personal  and  so  not  deductible:  1921  Act 
(1-49-625:  I.  T.  1520).  .Bull.  I (’22)-49,  p.  8. 

Art.  294. — Premiums  on  business  insurance  (1T1639). 

Life,  policy  assigned  to  creditor  as  security  for  loan;  premiums  paid  by  creditor  to 
protect  loan  are  deductible  the  debtor  not  being  an  officer,  employee,  etc.:  1921 
Act  (1-48-615:  I.  T.  15 12).. Bull.  I (’22)-48,  p.  4. 

Art.  316.— Income  from  sources  within  the  United  States  (1f2094). 

Spain  community  property;  wife’s  interest  is  expectancy  merely,  hence  husband  should 
return  income  in  its  entirety  from  U.  S.  partnership:  1921  Act  (1-48-616:  I.  T. 
1513).  .Bull.  1 (’22)-48,  p.  5. 

Art.  327(a). — Transportation  services  (^3324). 

Art.  327(a)  applies  under  1921  Act  only  (1-45-582:  I.  T.  1492).  .Bull.  I (’22)-45,  p.  8. 

Art.  342. — Estates  and  trusts  to  fiduciary  (1J879). 

Stock  dividends  (See  “Stock  dividends”  under  Art.  347  below.). 

Art.  345. — Estates  and  trusts  taxed  to  beneficiaries  (1[894). 

Federal  estate  tax  paid  by  trustee  out  of  residuary  trust  funds,  all  distributable  to 
beneficiaries,  because  not  paid  and  no  provision  made  for  paying  prior  to  clos- 
ing of  administration  is  not  deductible  in  determining  income  of  the  trust  (1-46- 
592:  A.  R.  R.  1020) . .Bull.  I (’22)-46,  p.  7.  , 

Self  beneficiary  of  income  of  trust  to  extent  demanded  is  taxable  on  amount  actually 
received  only.  This  ruling  which  revokes  S.  1344,  June  1920  Cum.  Bull.  p.  176, 
is  confined  strictly  to  the  1916-17  Act.  (1-46-593:  Sol.  Op.  146).. Bull.  I (22)- 
46,  p.  9. 

Stock  dividends.  (See  “Stock  dividends”  under  Art.  347  below.) 

Art.  346. — Credits  to  trust  or  beneficiary  (f920). 

Dividends  received  by  tru st-e state : No  allocation  of  a proportionate  part  thereof 
to  shares  distributable  to  beneficiaries:  1916-1917  Acts  (1-51-648:  I.  T.  1535).. 
Bull.  I (’22)-51,  p.  9. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  39. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  347. — Estates  and  trusts  with  income  which  is  distributed  periodically 
and  other  income  (^[9 13) . 

Stock  dividends  distributable  to  life  tenant:  profit  or  loss  on  sale  of  stock  received 
and  of  that  (held  by  fiduciary)  in  respect  of  which  received;  1918  Act  (1-47-604: 
I.  T.  1506)  . Bull.  I (’22)-47,  p.  6.  Again,  1918  and  1921  Act  (1-47-605:  I.  T. 
1507).  .Bull.  I (’22)-47,  p.  8. 

[Note  that  the  ruling  at  H3010  is  revoked  by  above.) 

Art.  361. — Withholding  tax  as  source  (^[2 197). 

Tax-free  covenant  bond  interest;  tax  (1917)  withheld  and  paid  to  Government 
though  creditor  not  liable  to  normal  tax:  refund  or  credit  to  creditor.  0.  D. 
1103,  Dec.  1921  Cum.  Bull.  p.  248,  overruled.  Here,  creditor  is  a corporation, 
against  which  there  had  also  been  withholding  on  account  of  dividends  (1-45- 
585:  L.  O.  1107).. Bull.  I (’22)-45,  p.  11. 

Art.  364. — Exemption  certificate  of  nonresident  aliens  (][2254-T[2255). 

Members  of  a nonresident  alien  partnership  and  beneficiaries  of  an  estate  or  trust 
having  a nonresident  alien  fiduciary  may  not  use  Forms  1001  B and  1001C  in 
connection  with  payments  made  to  the  partnership  or  estate  or  trust  (though 
the  estate  or  trust  may) : 1921  Act  (1-45-584:  I.  T.  1493) . . Bull.  I (’22)-45,  p.  10. 

Art.  365. — Ownership  certificates  for  interest  coupons  (^[2265). 

4 Corporate  promissory  note  coupons;  ownership  certificates  are  required:  1921  Act 
(1-52-655:  I.  T.  1539) . .Bull.  I (’22)-  52,  p.  2. 

Interrogatories  to  be  answered  fully:  1921  Act  (1-50-639:  I. T.  1529).  .Bull.  I (’22)-50, 
p.  3.  See  U2269. 

Art.  401. — Individual  returns  (^2390). 

Community  property:  failure  to  compute  surtax  on  joint  return  is  not  sufficient  evidence 
to  disclose  intent  to  file  on  community  basis:  when  such  intent  is  disclosed  on 
joint  return  or  by  evidence  subsequently  submitted  taxpayers  should  be  requested 
to  file  amended  separate  returns:  192 1 Act  (1-50-640:  I.  T.  1530) . . Bull.  I (’22)-50, 
p.  3.  . 

Joint  returns  by  husband  and  wife,  one  on  calendar  year  the  other  on  fiscal  year  basis 
not  permitted:  here,  effort  was  to  apply  net  loss  of  one  against  income  of  other: 
1921  Act  (1-48-617:  I.  T.  1514).  .Bull.  I (’22)-48,  p.  5. 

Art.  421. — Fiduciary  returns  (^939). 

Life  tenant  (subject  to  annuity  payments)  dies  in  1922,  the  annuitants  surviving 
property  vests  in  trustee:  executor  not  trustee  makes  fiduciary  return  for  1921 
1921  Act  (1-48-618:  I.  T.  1515).  .Bull.  I (’22)-48,  p.  6. 

Transfers  in  contemplation  of  death  (so  determined  for  hederal  estate  tax  purposes): 
here  Florida  and  property  being  real  estate;  income  therefrom  is  income  of  the 
transferees  and  not  that  of  the  estate:  1918  and  1921  Acts  (1-50-641:  I.T.  1531) 

. .Bull.  I (’22)-50,  p.  4. 

* Trust  created  and  trustor  brought  into  involuntary  bankruptcy  m same  year,  one  of 

the  receivers  being  the  trustee:  income  of  trust  and  of  bankrupt  not  to  be  com- 
bined: 1921  Act  (1-52-656:  I.  T.  1540) . .Bull.  I (’22)-52,  p.  3. 

Art.  514. — Fraternal  beneficiary  societies  (IT  1022). 

Definition;  full  discussion;  O.  D.  690  overruled:  1918  and  1921  Acts  (1-48-619: 
I.  T.  1516).  .Bull.  I (’22)-48,  p.  6. 

Art.  516. — Cemetery  companies  (^[1029). 

¥ A particular  company  held  to  be  exempt:  last  phrase  of  second  clause  does  not  limit 
the  first  clause  (^[1009):  1921  Act  (1-52-657 : I.  1.  1541). .Bull.  I (22) -5 2,  p.  3. 

Art.  522. — Cooperative  Associations  (^[1038). 

Buying  and  selling  on  own  account;  deductibility  of  so-called  rebates;  necessity  for 
making  return  through  no  tax  due:  1917  and  1918  Acts  (1-46-594:  I.  T.  1499) 

. .Bull.  I (’22)-46,  p.  10. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  40. 


1-4-23. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  601. — Withholding  in  case  of  nonresident  foreign  corporations  (1(2225). 

Royalties  accrued  over  period  of  years;  withholding  is  at  rate  prevailing  for  year 
paid:  1921  Act  (1-49-626:  I.  T.  1521).. Bull.  I (’22)-49,  p.  8. 

Art.  611. — Credit  for  foreign  taxes  (1(1758). 

Cuba;  8%  tax  imposed  by  Act  of  July  31,  1917  may  be  credited:  1918  and  1921 
Acts  (1-49-627:  I.  T.  1522).  .Bull.  I (’22)-49,  p.  8. 

Art.  633. — When  corporations  are  affiliated  (1(2555). 

* “Controls  through  closely  affiliated  interests”:  direct  control  (62.79%)  plus  indirect 

control  (23.54%  of  the  remaining  37.21%)  through  control  (63%)  of  an  inter- 
mediate company,  sufficiently  meets  the  test;  owning  but  51%  of  stock  in  July, 
1917  (the  rest  widely  scattered)  and  not  till  end  of  1917  owning  as  much  as  92% 
does  not  warrant  consolidated  returns  for  1917:  1918  and  1921  Acts  (1-52-658: 
A.  R.  R.  1232).. Bull.  I (’22)-52,  p.  5. 

Art.  1003. — Nonpayment  of  tax — Interest  and  penalty  (1(2727). 

Abatement  claims  rejected  when  claims  based  on  inventory  losses  under  1918  Act; 
1%  per  month  rate  still  applies:  1918  and  1921  Acts  (1-46-595:  I.  T.  1500).. 
Bull.  I (’22)-46,  p.  12. 

Bankrupt:  1%  per  month  “interest”  on  delinquent  taxes  for  period  prior  to  insolvency 
held  to  be  a “penalty”  within  meaning  of  Bankruptcy  Act:  U.  S.  District  Court 
decision  under  1916-1917  Acts.  .^[3439. 

Art.  1005. — Deficiency  in  payment. — Interest  and  penalty  (1(2603). 

Interest  begins  to  run  from  what  date  (on  failure  to  pay  within  10  days  after  notice 
and  demand):  (1)  regular  tax  installment  as  shown  by  return,  from  date  install- 
ment becomes  due,  and  on  amount  demanded  only;  (2)  additional  assessments, 
on  amount  demanded  (which  includes  interest  under  Sec.  250  (b))  from  time 
demand  is  made:  1921  Act  (1-50-642:  Sol.  Op.  147).  .Bull  I (’22)-50,  p.  4. 

Art.  1006. — Appeals  and  hearings  (1(2763). 

Art.  1006  amended.  . 3406. 

Special  in  1917  tax  cases  to  meet  emergency.  .^3397. 

Art.  1012. — Assessment  of  tax  (1(2747). 

Practicing  before  the  Bureau:  power  of  attorney  to  represent  taxpayer  should  con- 
tain specific  request  of  the  attorney  that  the  correspondence  be  directed  to  him 
(1-51-651:  I.  T.  1537).. Bull.  I (’22)-51,  p.  15. 

Art.  1031. — Authority  for  refund,  credit,  and  abatement  of  tax  (1(2813). 

* Claims  may  be  allowed  if  filed  within  four  years  after  payment  of  tax,  though  not 

filed  until  after  expiration  of  five  years  from  date  return  was  due:  1921  Act 
(T.  D.  3416).  43518. 

Art.  1034. — Claims  for  credit  of  taxes  erroneously  collected  (1(2829). 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (1917  Act):  O.  D.  1103,  Dec.  1921  Cum.  Bull.  p.  248 
overruled.  Here,  foreign  corporation  and  amounts  withheld  on  dividends  also 
involved  (1-45-585:  L.  O.  1107).. Bull.  I (’22)-45,  p.  11. 

Art.  1036. — Claims  for  refund  of  taxes  erroneously  collected  (1(2835). 

See  “Claims  may  be  allowed”  under  Art.  1031  above. 

Tax  withheld  and  paid  to  Government  in  excess  of  liability  (See  “Tax  withheld,  etc.,” 
under  Art.  1034  above.) 

Art.  1503. — Association  distinguished  from  partnership  (1(989). 

Unincorporated  bank  under  Indiana  law;  special:  1917  and  1918  Acts  (1-47-598:  I.  T. 
1501).  .Bull.  I (’22)-47,  p.  1. 

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Supplementary  Page  41. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  1541. — Dividends  (If  1080). 

Crediting  capital  stock  account  (debiting  profit  and  loss)  with  an  amount  sufficient 
to  make  total  credit  to  capital  stock  equal  to  aggregate  of  par,  thus  rendering 
stock  fully  paid  that  was  theretofore  partially  paid  and  subject  to  call,  is  in 
effect  a cash  distribution  and  not  a stock  dividend:  1916-1917  Acts  (I-4S-575: 
A.  R.  R.  1127).  .Bull.  I (’ 22)-45,  p.  1. 

Incorporation  of  individual’s  business  “within  4 months”  after  Nov.  23,  1921  (Sec. 
229);  treatment  of  withdrawals  by  individual,  particularly  amount  withdrawn 
to  pay  his  income  tax  for  1920:  1921  Act  (1-51-643:  I.  T.  1532).. Bull.  I (’22)- 
51,  p.  1. 

Art.  1542. — Source  of  distribution  (If  1107). 

Dividends  paid  by  corporations  in  1917  (except  as  to  distributions  made  prior  to 
August  6 from  profits  accrued  prior  to  March  1,  1913)  are  conclusively  presumed, 
for  purposes  of  determining  rates  at  which  taxable  to  the  stockholders,  to  have 
been  paid  from  the  most  recently  accumulated  profits  including  the  profits  of 
1917  to  date  of  declaration:  U.  S.  District  Court  decision  under  the  1917  Act 
(Nov.  29,  1922).  . 1f3455.  See  also,  court  decision  at  If 35 1 9. 

Art.  1546. — Distribution  from  depletion  and  depreciation  reserve  (If  1126). 

Dividends  paid  by  a corporation  in  1917  (except  as  to  distributions  made  prior  to 
August  6 from  profits  accrued  prior  to  March  1,  1913)  are  conclusively  pre- 
sumed to  have  been  paid  from  the  most  recently  accumulated  profits,  including 
those  of  1917  to  date  of  distribution,  even  though  declared  to  be  from  depletion 
reserve,  at  least  when  there  was  no  concurrent  and  corresponding  reduction  of 
capital  or  of  capital  stock  liability:  U.  S.  District  Court  decision  under  1917 
Act  (Dec.  18,  1922).  43519. 

Art.  1548. — Sale  of  stock  received  as  dividend  (^f  1 136). 

Trust  estate  with  life-tenant  to  whom  stock  dividend  is  distributable  under  the  Penn- 
sylvania or  American  rule:  1918  Act  (1-47-604:  I.  T.  1506).. Bull.  I (’22)-47, 
p.  6.  Again,  1918  and  1921  Acts  (1-47-605:  I.  T.  1507).. Bull.  I (’22)-47,  p.  8. 

[Note  that  the  ruling  at  H3010  is  revoked  by  the  above.] 

Art.  1561. — Basis  for  determining  gain  or  loss  from  sale  (If  1437). 

Depreciation  to  be  given  full  weight  in  establishing  both  “cost”  and  “March  1,  1913, 
value,”  for  purposes  of  joint  comparison  with  selling  price  of  depreciable  prop- 
erty acquired  prior  to  March  1,  1913:  1917  Act  (1-46-586:  I.  T.  1494).. Bull. 
I (’22)-46,  p.  1.  . 

Real  estate;  benefit  of  deduction  for  taxes,  interest,  etc.  (carrying  charges)  paid, 
lost  over  period  of  years  as  insufficient  income;  not  to  be  added  to  cost  (sustaining 
conclusions  stated  in  I.  T.  1188,  June  1922  Cum.  Bull.  p.  28,  and  overruling 

0 D.  398,  June  1920  Cum.  Bull.  p.  112):  1921  Act  (1-49-621:  I.  T.  1517).  .Bull. 

1 (’22)-49,  p.  1. 


Art.  1563. — Sale  of  property  acquired  by  gift  on  or  before  December  31,  1920, 
or  by  bequest,  devise,  or  inheritance  (If  1455). 

Life  tenant  sells  trust-estate’s  stock-dividend  stock  distributable  to  him,  the 
surplus  out  of  which  the  stock  dividend  was  declared  being  earned  prior  to  March 
1,  1913:  1918  and  1921  Acts  (1-47-605:  I.  T.  1507).. Bull.  I (’22)-47,  p.  8. 

Art.  1566. — Exchange  of  property  which  results  in  no  gain  or  loss  Of  1466). 

95%  of  stock  of  one  corporation  having  been  turned  in  by  stockholders  within  a short 
time  to  another  corporation  for  its  stock  of  equal  par  value  in  acceptance  of 
offer  made  by  latter,  the  exchange  is  in  connection  with  a reorganization  and 
hence  no  profit  or  loss  results  to  exchanging  stockholders:  1921  Act  (1-48-611: 
I.  T.  1508) . .Bull.  I (’22)-48,  p.  1. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  42. 


1-4-28. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  1583. — Inventories  at  cost  (If  15 16). 

“Cost”  of  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the  inventory 
price  of  such  goods  in  a “cost  or  market  whichever  is  lower”  inventory.  .^[4004. 


Art.  1601. — Net  losses,  definition  and  computation  (If  1535). 

Capital  assets;  losses  from  sale  of,  by  corporation  in  liquidation  are  not  within  the 
law  provisions:  1918  Act  (1-45-576:  A.  R.  M.  185).  .Bull.  I (’22)-45,  p.  3. 

Art.  1602. — Claim  for  allowance  of  net  loss  (^f  1 545) . 

New  corporation  (Nov.,  1918)  sustains  net  loss  during  first  two  months  of  operation, 
and  during  calendar  year  1919;  adopts  basis  of  fiscal  year  beginning  Sept.  1, 
1920:  how  to  apply  net  loss  (1921  Act)  (1-48-612:  I.  T.  1509).. Bull.  I (’22)- 
48,  p.  1. 

Art.  1711. — Aids  to  collection  of  tax  (Tf27 11). 

Permament  books  of  account:  the  maintaining  and  production  of..1[3396. 


Miscellaneous. 

Committee  on  Appeals  and  Review:  new  chairman  (Dec.  15,  1922).  .^[35 12. 

Committee  on  Appeals  and  Review:  personnel  increased  to  13  members;  organiza- 
tion of  a Special  Committee  on  Appeals  and  Review  to  meet  emergency  on  account 
1917  tax  cases.  .^3397. 

Continuing  effect  of  1918  Act  for  assessment  and  collection  of  taxes  accrued  there- 
under (see  1f2776):  here,  rate  of  interest  chargeable  on  rejected  claims  for  abate- 
ment for  inventory  losses  (1-46-595:  I.  T.  1500).  .Bull.  I (’22)-46,  p.  12. 

Power  of  attorney  to  represent  taxpayer  should  contain  the  specific  request  of  the 
attorney  that  the  correspondence  be  directed  to  him  (1-51-651:  I.  T.  1537).. 
Bull.  I (’22)-51,  p.  15. 

Sec.  229. — Incorporation  of  individual  business  and  limited  election  to  be  taxed  as 
a corporation:  Treatment  of  withdrawals  by  individual,  particularly  amount 
withdrawn  to  pay  his  1920  income  tax:  1921  Act  (1-51-643:  I.  T.  1532).. Bull 
I (’22)-5 1,  p.  1. 

Secretary  of  Treasury’s  annual  report:  excerpt  of  matter  relating  to  taxation  and 
revenue  (Dec.  4,  1922).  .^[3440. 

Tax  Simplification  Board;  personnnel  (Nov.  29,  1922).  .1f3416. 

Tax  Simplification  Board;  first  annual  report  to  Congress  (Dec.  2,  1922).  .1f3417. 


END  OF  THE  1922  SERVICE. 


There  are  no  Supplementary  Pages  44  to  114. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  43. 


Court  Decisions 


Court  Decisions 


COURT  DECISIONS 
CASES 

intcfeTreTatiLthrn  V/lited  p**8  Dis/riCt  C°Urt  decision  of  almost  universal 
interest  relating  to  the  application  of  tax  rates  to  dividends  under  the  1917 

Act,  beginning  at  1(3455  ,n  the  matter  sent  herewith,  and  which  opinion 
t0  as.sert>  Is  not  uow  generally  available  to  others  than  our  sub- 
scribers (though  it  will  be  undoubtedly  very  soon  after  our  print  is  in  hand  to 

tT:^7riCenPdr0  * ^ t0  S°me  We  make  the  foLwii 

yea^ndeH^f^TQ^r^f31  ft  his  annual  rePort  the  fiscal 

to  made  pubhc)  has  this  ‘°  i"  part,  relative 


“Civil  Division,  Office  of  Solicitor  of  Internal  Revenue.” 

IT  TheCivU  Division,  in  cooperation  with  the  Department  of  Tustice  and 
United  States  attorneys’  offices,  handles  all  civil  internal-revenue  cases 
pending  in  the  various  Federal  courts.  The  cases  include  the  prosecution  of 
suits  by  the  United  States  to  recover  unpaid  taxes,  where  the  period  for  as 
sessment  has  expired  and  the  defense  of  suits  brought  by  taxpayers  against 
collectors  of  internal  revenue  or  the  United  States  to  recover  toes  oaid 
under  protest  and  duress.”  er  raxes  Paid 

“On  July  1,  1921,  there  were  pending  in  the  Federal  courts  91 S civil 
inernal-revenue  cases  (including  bankruptcy  and  receiverships)  During  the 

rlniriyeTL°Vef  2’00,°  °eW  Were  received  and  841  pending  cases  were 

Ho  K1  A 1^re^or^’  during  the  fiscal  year  the  work  of  the  division  more  than 

follows:  ’ ^ivil* case^'l^l^^b^il^u^tcy^8!^^^3  r °(L^erffii^^dlTf.’’:aSeS, 

for  assessment  having  expired,  67;  eases  pending  in  the  district  courts  531 
cTaimsedJsn8  m C'T'  c?ur?  of  aPP“t  35;  cases  pending  in  the  Court  of 

in  which  i5shriemen^l7beetee«d(r;,m;e  »7i„Cases  P“*"S  » -„rt 

“Suits  and  Prosecutions.” 

prohibition  cases)  handfedSbJethrd\stLtnc"urt^  of'the  Unfttd  Stat'U^ d™' 
thefisca.  pear  ended  June  3of.922,  as  furnished' tht  offic^he  ^rtenf 


Cases  pending  July  1,  1921 

Cases  commenced  during  fiscal  year  ended  June  30  1922 
Lases  terminated  during  same  period. 

Cases  pending  at  close  of  business  on  June  30,  1922 


Civil 

1,238 

1,232 

709 

1,761 


Criminal 

4,841 

275 

1,866 

3,250” 


We  are  sure  that  you  do  not  expect  us  to 
service,  the  outcome  of  all  those  cases. 


report  to  you,  in 


our  present 


We  do  not  pretend  to  print  all  court  decisions  on  tax  cases.  We  do  not 
try  to.  We  receive  many  from  clerks  of  Federal  courts  which  we  do  not 
print. 

Knowing  the  force  of  a Supreme  Court  decision  we  report  all  such,  printing 
in  full — and  with  the  utmost  promptness — all  Supreme  Court  opinions. 

We  know  further  that  if  the  Secretary  of  the  Treasury  sees  fit  to  amend 
his  regulations  in  any  regard  because  of  an  adverse  lower  court  decision  he 
will  do  so  (and  we  will  report  without  delay  the  amendatory  ruling);  and  we 
know  that  if  he  does  not  see  fit  so  to  do  but  elects  to  hold  to  his  interpretation 
pending  an  adverse  nationally  controlling  determination  of  the  United  States 
Supreme  Court,  his  interpretation  governs,  for  taxpayers  generally,  in  the 
meantime. 

We  have  given  the  decisions  of  lower  Federal  courts  in  many  cases, 
usually  printing  the  accompanying  opinions  in  full — and  not  infrequently  our 
print  has  been  the  first  to  be  generally  available.  We  believe  that  we  have 
printed  every  such  decision  of  general  interest,  which,  had  it  been  the  voice 
of  the  Supreme  Court,  would  have  concerned  practically  all  taxpayers,  or  all 
of  a class  of  taxpayers,  directly  or  indirectly,  because  of  the  issue  decided. 
We  shall  continue  this  policy.  It  is  the  policy  of  real  service,  as  we  see  it. 

We  do  not  print  opinions  in  lower  court  cases  where  the  facts  involved 
are  such  that  no  general  application  of  the  decision  would  be  possible;  we  do 
not  report  cases  that  have  been  decided  on  a technicality — that  reach  no 
conclusion  on  any  provision  of  the  tax  laws  or  of  the  regulations  bearing 
thereon;  we  do  not  print  decisions  supporting  the  Bureau  (unless  later  in- 
corporated in  Treasury  Decisions)  in  cases  that,  manifestly,  were  no  more 
than  “flyers”  when  suit  was  instituted;  we  do  not  report  cases  brought  under 
other  laws  that  may  seem  to  have  advertising  possibilities  but  no  application 
whatsoever  to  the  recent  tax  laws;  we  do  not  overload  the  Service  with  lower 
court  cases  that  are  of  no  possible  interest  to  any  one  other  than  the  immediate 
parties  thereto. 

It  may  be  well  to  mention  the  now  famous  decision  in  the  Brewster  case 
(we  printed  the  opinion  within  twenty-four  hours  or  so  after  the  decision  was 
handed  down — long  before  any  one  else  printed  it).  The  decision  of  the 
District  Court  here  was  that  any  realized  increase  in  the  value  of  capital 
assets  was  not  “income.”  But  the  case  was  promptly  taken  to  the  Supreme 
Court,  and  that  court,  in  due  time,  reversing  the  lower  court,  held  to  the 
contrary.  Now,  did  we  really  serve  our  subscribers  well  by  printing  that 
lower  court  decision?  We  rather  seriously  doubt  that  we  did.  We  reported 
it  because  of  its  news  value,  because  it  was  sure  to  be  of  universal  interest, 
and  because  it  was  inevitable  that  it  would  become,  as  it  did,  the  subject  of 
nation  wide  discussion.  So  have  we  reported  other  cases — many  of  them. 
Such  cases  shall  we  continue  to  report — all  that  are  at  all  worthy  of  a place 
in  a Service — rest  assured  of  that. 


— The  Corporation  Trust  Company. 


COURT  DECISIONS 
CASES 


Apropos  of  the  United  States  District  Court  decision  of  almost  universal 
interest  relating  to  the  application  of  tax  rates  to  dividends  under  the  1917 
Act,  beginning  at  ]f3455  in  the  matter  sent  herewith,  and  which  opinion, 
we  venture  to  assert,  is  not  now  generally  available  to  others  than  our  sub- 
scribers (though  it  will  be  undoubtedly  very  soon  after  our  print  is  in  hand  to 
serve  as  copy  to  be  sent  to  some  printer),  we  make  the  following  statement 
to  our  friends. 

The  Commissioner  of  Internal  Revenue  in  his  annual  report  for  the  fiscal 
year  ended  June  30,  1922  (just  made  public)  has  this  to  say,  in  part,  relative 
to  “suits  and  prosecutions.” 

“Civil  Division,  Office  of  Solicitior  of  Internal  Revenue.” 

“The  Civil  Division,  in  cooperation  with  the  Department  of  Justice  and 
United  States  attorneys’  offices,  handles  all  civil  internal-revenue  cases 
pending  in  the  various  Federal  courts.  The  cases  include  the  prosecution  of 
suits  by  the  United  States  to  recover  unpaid  taxes,  where  the  period  for  as- 
sessment has  expired,  and  the  defense  of  suits  brought  by  taxpayers  against 
collectors  of  internal  revenue  or  the  United  States  to  recover  taxes  paid 
under  protest  and  duress.” 

“On  July  1,  1921,  there  were  pending  in  the  Federal  courts  915  civil 
internal-revenue  cases  (including  bankruptcy  and  receiverships).  During  the 
fiscal  year  over  2,000  new  cases  were  received  and  841  pending  cases  were 
closed.  Therefore,  during  the  fiscal  year  the  work  of  the  division  more  than 
doubled,  and  on  June  30,  1922,  there  was  a total  of  2,400  pending  cases,  as 
follows:  Civil  cases,  1,014;  bankruptcy,  1,249;  receiverships,  137.” 

“The  civil  cases,  numbering  1,014,  were  divided  as  follows:  Suits  to  be 

instituted  by  the  United  States  for  the  recovery  of  unpaid  taxes,  the  period 
for  assessment  having  expired,  67;  cases  pending  in  the  district  courts,  531; 
cases  pending  in  the  circuit  courts  of  appeal,  35;  cases  pending  in  the  Court  of 
Claims,  215;  cases  pending  in  the  Supreme  Court,  7;  cases  pending  in  court 
in  which  a settlement  may  be  effected,  99;  * * *.” 

“Suits  and  Prosecutions.” 

“The  following  is  a statement  of  internal-revenue  cases  [exclusive  of 
prohibition  cases]  handled  by  the  district  courts  of  the  United  States  during 
the  fiscal  year  ended  June  30,  1922,  as  furnished  this  office  by  the  Department 
of  Justice: 


Civil  Criminal 

Cases  pending  July  1,  1921 1,238  4,841 

Cases  commenced  during  fiscal  year  ended  June  30,  1922  1,232  275 

Cases  terminated  during  same  period 709  1,866 

Cases  pending  at  close  of  business  on  June  30,  1922 . . . 1,761  3,250” 


We  are  sure  that  you  do  not  expect  us  to  report  to  you,  in  our  present 
Service,  the  outcome  of  all  those  cases. 


We  do  not  pretend  to  print  all  court  decisions  on  tax  cases.  We  do  not 
try  to.  We  receive  many  from  clerks  of  Federal  courts  which  we  do  not 
print. 

Knowing  the  force  of  a Supreme  Court  decision  we  report  all  such,  printing 
in  full — and  with  the  utmost  promptness — all  Supreme  Court  opinions. 

We  know  further  that  if  the  Secretary  of  the  Treasury  sees  fit  to  amend 
his  regulations  in  any  regard  because  of  an  adverse  lower  court  decision  he 
will  do  so  (and  we  will  report  without  delay  the  amendatory  ruling);  and  we 
know  that  if  he  does  not  see  fit  so  to  do  but  elects  to  hold  to  his  interpretation 
pending  an  adverse  nationally  controlling  determination  of  the  United  States 
Supreme  Court,  his  interpretation  governs,  for  taxpayers  generally,  in  the 
meantime. 

We  have  given  the  decisions  of  lower  Federal  courts  in  many  cases, 
usually  printing  the  accompanying  opinions  in  full — and  not  infrequently  our 
print  has  been  the  first  to  be  generally  available.  We  believe  that  we  have 
printed  every  such  decision  of  general  interest,  which,  had  it  been  the  voice 
of  the  Supreme  Court,  would  have  concerned  practically  all  taxpayers,  or  all 
of  a class  of  taxpayers,  directly  or  indirectly,  because  of  the  issue  decided. 
We  shall  continue  this  policy.  It  is  the  policy  of  real  service,  as  we  see  it. 

We  do  not  print  opinions  in  lower  court  cases  where  the  facts  involved 
are  such  that  no  general  application  of  the  decision  would  be  possible;  we  do 
not  report  cases  that  have  been  decided  on  a technicality— that  reach  no 
conclusion  on  any  provision  of  the  tax  laws  or  of  the  regulations  bearing 
thereon;  we  do  not  print  decisions  supporting  the  Bureau  (unless  later  in- 
corporated in  Treasury  Decisions)  in  cases  that,  manifestly,  were  no  more 
than  “flyers”  when  suit  was  instituted;  we  do  not  report  cases  brought  under 
other  laws  that  may  seem  to  have  advertising  possibilities  but  no  application 
whatsoever  to  the  recent  tax  laws;  we  do  not  overload  the  Service  with  lower 
court  cases  that  are  of  no  possible  interest  to  any  one  other  than  the  immediate 
parties  thereto. 

It  may  be  well  to  mention  the  now  famous  decision  in  the  Brewster  case 
(we  printed  the  opinion  within  twenty-four  hours  or  so  after  the  decision  was 
handed  down — long  before  any  one  else  printed  it).  The  decision  of  the 
District  Court  here  was  that  any  realized  increase  in  the  value  of  capital 
assets  was  not  “income.”  But  the  case  was  promptly  taken  to  the  Supreme 
Court,  and  that  court,  in  due  time,  reversing  the  lower  court,  held  to  the 
contrary.  Now,  did  we  really  serve  our  subscribers  well  by  printing  that 
lower  court  decision?  We  rather  seriously  doubt  that  we  did.  We  reported 
it  because  of  its  news  value,  because  it  was  sure  to  be  of  universal  interest, 
and  because  it  was  inevitable  that  it  would  become,  as  it  did,  the  subject  of 
nation  wide  discussion.  So  have  we  reported  other  cases  many  of  them. 
Such  cases  shall  we  continue  to  report — all  that  are  at  all  worthy  of  a place 
in  a Service— rest  assured  of  that. 


—The  Corporation  Trust  Company. 


1-4-23. 


TABLE  OF  CASES. 


# 

# 


Paragraph 

Allen:  Altheimer  & Rawlings  Investment  Co  vs.  (248  Fed.  688) 1213 

Altheimer  & Rawlings  Investment  Co.  vs.  Allen  (248  ted.  688) lll-i 

Anderson:  Brady  vs.  (240  Fed.  665) , 

Anderson:  Jacobs  and  Davies  (Inc.)  vs.  (228  Fed.  505) • ■ 1^66 

Anderson:  Thorne  vs.  (240  U.  S.  115)  Sup.  Page  32.  JS3 

Anderson:  Tyee  Realty  Company  vs.  (240  U.  S.  115) Sup.  Page  132,  TfS31 

Anderson  vs.  U.  S.  (282  Fed.  851). ... . . . . • • • • • ■ ■ ■ • • p.. 

Baldwin  Locomotive  Works  vs.  McCoach  (221  Fed.  59). ............ ....  • 

Baltic  Mining  Co.:  Stanton  vs.  (240  U.  S.  103) Sup.  Page  133,  TfS38 

Brady:  Dodge  vs.  (240  U.  S.  122) Sup  Page  132,  |S35 

Brewster  vs.  Walsh  (255  U.  S.  536) Sup.  Page  19  , JS364 

Brushaber  vs.  U.  P.  Railroad  Company  (240  U S 1)  . . . . .Sup.  Page  125,  JS1 

Carter:  Union  Hollywood  Water  Company  vs.  (238  Fed.  329) 985,  1632 

Chapin  vs.  Irwin  (U.  S.  D.  C„  July  29,  1921). ..  .. .. 203 

Chicago  & Alton  Railroad  Co.  vs.  U.  S.  (53  C.  of  C.  41) • • -1283 

Commercial  Health  and  Accident  Co.  vs.  Pickering  (281  Fed.  53  ) . . ....  • • 

Crocker,  et  al.,  Trustees:  Malley  vs  (249  U.  S.  223) Sup.  Page  153,  JS140 

Darlington  vs.  Mager  (256  U.  S.  682). .....  .. . . . . • - Sup.  Page  200,  HS412 

Dayton  Bronze  Bearing  Co.:  Gilligan  vs.  (281  Fed.  709)........ ••• 

DeGanay  vs.  Lederer  (250  U.  S.  376)  ..Sup  Page  155,  US  149 

De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  Iredell  (268  Fed,  377)  . ...  835 
Digest  of  Recent  Decisions  of  the  Supreme  Court  (Acts  of  1909  and  1913) 

(The  opinions  in  the  cases  involving  the  1909  Act  are  not  included, 
herein.  But  see  Digest,  Sup.  Page  138,  US58.) 

Dodge  vs.  Brady  (240  U.  S.  122) Sup.  Page  132,  ^S35 

Dodge  vs.  Osborn  (240  U.  S.  118) .,.Q 

Douglas  vs.  Edwards  (U.  S.  D.  C.,  Dec.  18,  W22) ,R- 

Doyle:  Grand  Rapids  and  Indiana  Railway  Co.  vs.  (245  Fed.  792) 1683 

DuPont  vs.  Graham  (283  Fed.  300)... • • • • • 3239 

Edwards:  Douglas  vs.  (U.  S.  D.  C.,  Dec.  18,  1922) , , 

Edwards:  Fox  vs.  (280  Fed.  413) • • • • • • • • • •• ••  Vcta.fi 

Edwards:  Goodrich  vs.  (255  U.  S.  527) —Sup.  Page  189,  ?S346 

EdW,*fT  Y°rt  T'““  C°'’  Sup.  Page  170, 1S237 

Eisner:  Macoinber  Vs.  (252  U.  S.  189 Sup.  Page  173,  J|S244 

Eisner:  Peabody  vs.  (247  U.  S.  347) Sup.  Page  148 , HS1  9 

Eisner:  Towne  vs.  (245  U.  S.  418) Sup.  Page  137,  ^S54 

Eisner:  Wilson  vs.  (282  Fed.  38).  ..........  ■ ■ • • • ■ • • • • • ••••••••■  ‘ • W VctfiO 

Eldorado  Coal  & Mining  Co.  vs.  Mager  (255  U.  S.  522).. Sup.  Page  90,  JS360 

Evans  vs.  Gore  (253  U.  S.  245) ■•■.••••• v-Sup.  Page  193,  HS375 

First  Trust  and  Savings  Bank,  Trustee:  Smietanka  vs.  (257  U.  S.  602) 3048 

Fish  vs.  Irwin  (U.  S.  D.  C.,  July  29,  1921) 1 98 

Fox  vs.  Edwards  (280  Fed.  413) 3100 

General  Inspection  & Loading  Co.:  U.  S.  vs.  (192  Fed.  223).  • • • • 

General  Inspection  & Loading  Company:  U.  S.  vs.  (204  Fed.  637) 2740 

Gilligan:  Park  vs.  (U.  S.  Dist.  Ct„  June  11,  1921)..... 1261 

Gilligan  vs.  Dayton  Bronze  Bearing  Co.  (281  Fed.  709) ■ • • -3268 

Goodrich  vs.  Edwards  (255  U.  S.  527) Sup.  Page  89,  JS346 

Gore:  Evans  vs.  (253  U.  S.  245) Sup.  Page  193  HS375 

Gould  vs.  Gould  (245  U.  S.  151) Sup.  Page  136,  ^S47 

Graham:  DuPont  vs.  (283  Fed.  300) • • • ••  •;  • • • •;  -ii  v ^239 

Grand  Rapids  & Indiana  Railway  Company  vs.  Doyle  (245  Fed.  792) 1213 

Greenport  Basin  and  Construction  Co.  vs.  U.  S.  (269  Fed.  58) 2847 

Gulf  Oil  Corporation  vs.  LewellynTExample  of  procedure. . .......  • • • • • -2890 

• ' U.  S.  Supreme  Court  Decision  (248  U.  S.  71).  Sup.  Page  152,  ITS  136 

Haiku  Sugar  Co.  et  al.  vs.  Johnstone  (249  Fed.  103) 783 

Harder  vs.  Irwin  (U.  S.  D.  C.,  Nov  29,  1922) 3455 

Heller,  Hirsh  & Co.:  In  re  (258  Fed.  208).;* .1296 

Hornby:  Lynch  vs.  (247  U.  S.  339) Sup.  Page  141,  1^78 

Hurst” vs.  Lederer  (273  Fed.  J74). ■ ■ ••  • ^72 

Indiana  Steel  Company:  Smietanka  vs.  (257  U.  S.  1).. 

Iredell:  De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  (268  Fed.  377).  . . 835 
Irwin:  Chapin  vs.  (U.  S.  D.  C.,  July  29,  1921) 1203 


THE  FEDERAL  INCOME  TAX  SERVICE 
Suoolementarv  Page  115. 


TABLE  OF  CASES— Continued 


Paragraph 

Irwin:  Fish  vs.  (U.  S.  D.  C.,  July  29,  1921) 1198 

Irwin:  Harder  vs.  (U.  S.  D.  C.,  Nov.  29,  1922) 3455 

Jacobs  and  Davies  (Inc.)  vs.  Anderson  (228  Fed.  505) 1666 

J.  Menist  Co.,  Inc.  (U.  S.  D.  C.,  Dec.  5,  1922) 3439 

Johnstone:  Haiku  Sugar  Co.  et  al.  vs.  (249  Fed.  103) 783 

Kirkendall:  Markle  et  al.  vs.  (267  Fed.  498) 2780 

Kohlhamer  vs.  Smietanka  (239  Fed.  408) 2880 

Lawrence  vs.  Wardell  (T.  D.  3102)  (T.  D.  3178—273  Fed.  405) 747 

Lederer:  De  Ganay  vs.  (250  U.  S.  376) Sup.  Page  155,  HS149 

Lederer:  Hurst  vs.  (273  Fed.  174) 2721 

Lederer:  Massey  vs.  (277  Fed.  123) 3113 

Lederer:  Penn  Mutual  Life  Ins.  Co.  vs.  (252  U.  S.  523)...  Sup.  Page  161,  TIS201 
Lederer:  Philadelphia,  Harrisburg  8c  Pittsburgh  R.  R.  Co.  vs.  (242  Fed.  492)  . 2904 

Lederer  vs.  Stockton  (266  Fed.  676) 880 

Affirmed  U.  S.  Supreme  Court  (43  Sup.  Ct.  5) 3355 

Levy:  U.  S.  vs.  (271  Fed.  942) 2582 

Lewellyn:  Gulf  Oil  Corporation  vs.  (Example  of  procedure) 2890 

U.  S.  Supreme  Court  Decision  (248  U.  S.  71) Sup.  Page  152,  ^JS 1 36 

Lilley  Building  & Loan  Co.  vs.  Miller  (T.  D.  3355) 3289 

Lowe:  Cohen  vs.  (234  Fed.  474) 720,  1845 

Lowe:  Peck  vs.  (247  U.  S.  165) Sup.  Page  140,  HS70 

Lowe:  Roberts  vs.  (236  Fed.  604) 2902 

Lowe:  Southern  Pacific  Company  vs.  (247  U.  S.  330) Sup.  Page  149,  1JS121 

Lynch  vs.  Hornby  (247  U.  S.  339) Sup.  Page  141,  1fS78 

Lynch  vs.  Turrish  (247  U.  S.  22l) Sup.  Page  144,  ^IS92 

McCoach:  Baldwin  Locomotive  Works  vs.  (221  Fed.  59) 1288 

McElligott:  Towne  vs.  (274  Fed.  960) 721,  1141 

Macomber  vs.  Eisner  (252  U.  S.  189) Sup.  Page  173,  TJS244 

McHatton:  U.  S.  vs.  (266  Fed.  602) 2493 

Mager:  Darlington  vs.  (256  U.  S.  682) Sup.  Page  200,  1JS412 

Mager:  Eldorado  Coal  and  Mining  Co.  vs.:  (255  U.  S.  522)  Sup.  Page  190,  HS360 
Malley  vs.  Alvah  Crocker,  et  al.,  Trustees  (249  U.  S.  223) . .Sup.  Page  153,  ^[S 140 

Marion  Hotel  Company:  Urquhart  vs.  (194  S.  W.  1) 2258 

Markle  et  al.  vs.  Kirkendall  (267  Fed.  498) 2780 

Maryland  Casualty  Company  vs.  U.  S.  (251  U.  S.  342) ....  Sup.  Page  157,  ^JS 1 59 

Massey  vs.  Lederer  (277  Fed.  123) 3113 

Mellon:  U.  S.  vs.  (279  Fed.  910) 1145 

Affirmed  C.  C.  of  A.  (281  Fed.  645) 3293 

Merchants’  Loan  8c  Trust  Co.,  Trustee,  etc.,  vs.  Smietanka,  former  Collec- 
tor (255  U.  S.  509) Sup.  Page  186,  1[S313 

Merriam  vs.  U.  S.  (282  Fed.  851) 3361 

Miles,  Collector:  Safe  Deposit  8c  Trust  vs.  Co.  (273  Fed.  822) 1220 

U.  S.  Supreme  Court  (42  Sup.  Ct.  483) 3217 

Miller:  Lilley  Building  and  Loan  Co.  vs.  (T.  D.  3355) 3289 

New  York  Trust  Co.,  Executors,  etc.,  vs.  Edwards  (257  U. 

S.  176) Sup.  Page  170,  HS237 

Oregon-Washington  R.  8c  Nav.  Co.:  U.  S.  vs.  (251  Fed.  211) 1259 

Osborn:  Dodge  vs.  (240  U.  S.  118) 2872 

Park  vs.  Gilligan  (U.  S.  Dist.  Ct.,  June  11,  1921) 1261 

Peabody  vs.  Eisner  (247  U.  S.  347) Sup.  Page  148,  TJS 1 19 

Peck  vs.  Lowe  (247  U.  S.  165) Sup.  Page  140,  1JS70 

Penn  Mutual  Life  Insurance  Co.  vs.  Lederer  (252  U.  S.  523).  Sup.  Page  161,  1JS201 

Phellis  vs.  United  States  (257  U.  S.  156) Sup.  Page  167,  US219 

Philadelphia,  Harrisburg  8c  Pittsburgh  R.  R.  Co.  vs.  Lederer  (242  Fed.  492).  .2904 
Pickering:  Commercial  Health  and  Accident  Company  vs.  (281  Fed.  539)... 3111 

Pittaro:  U.  S.  vs.  (U.  S.  District  Court).  (T.  D.  2874) 2800 

Plant  vs.  Walsh  (280  Fed.  722) 3127 

Roberts  vs.  Lowe  (236  Fed.  604) 2902 

Rockefeller:  U.  S.  vs.  (257  U.  S.  176) Sup.  Page  170,  1JS237 

R.  I.  A.  and  L.  R.  R.  Co.  vs.  U.  S.  (254  U.  S.  141) 2887 

Safe  Deposit  and  Trust  Co.  vs.  Miles,  Collector  (273  Fed.  822) 1220 

U.  S.  Supreme  Court  (42  Sup.  Ct.  483) 3217 

San  Juan  County:  U.  S.  vs.  (280  (280  Fed.  120) 3085 

Schuster  8c  Co.,  Inc.  vs.  Williams  (283  Fed.  115) 3213 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  116. 


1-4-28. 


TABLE  OF  CASES— Concluded. 


Paragraph 

Skinner:  U.  P.  Coal  Co.  vs.  {252  U.  S.  470) Sup.  Page  161,  S200 

Smietanka  vs.  First  Trust  and  Savings  Bank,  Trustee  (257  U.  S.  602) 3048 

Smietanka  vs.  Indiana  Steel  Company  (257  U.  S.  1) 2911 

Smietanka:  Kohlhamer  vs.  (239  Fed.  408) 2880 

Smietanka:  Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs. 

(255  U.  S.  509) Sup.  Page  186,  HS313 

Southern  Pacific  Company  vs.  Lowe  (247  U.  S.  330) Sup.  Page  149,  HS121 

Stanton  vs.  Baltic  Mining  Co.  (240  U.  S.  103) Sup.  Page  133,  1fS38 

Stockton:  Lederer  vs.  (266  Fed.  676) 880 

Affirmed  U.  S.  Supreme  Court  (43  Sup.  Ct.  5) 3355 

Thorne  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  ^ S3 1 

Towne  vs.  Eisner  (245  U.  S.  418) Sup.  Page  137,  ^S54 

Towne  vs.  McElligott  (274  Fed.  960) 721,  1141 

Turrish:  Lynch  vs.  (247  U.  S.  221) Sup.  Page  144,  ^S92 

Tyee  Realty  Company  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  ^ S3 1 

Union  Hollywood  Water  Company  vs.  Carter  (238  Fed.  329) 985,  1632 

U.  P.  Coal  Co.  vs.  Skinner  (252  U.  S.  470) Sup.  Page  161,  i[S200 

U.  P.  Railroad  Company:  Brushaber  vs.  (240  U.  S.  1) Sup.  Page  125,  HSl 

U.  S.:  Anderson  vs.  (282  Fed.  851) 3361 

U.  S.:  Chicago  & Alton  Railroad  Co.  vs.  (53  C.  of  C.  41) 1283 

U.  S.  vs.  General  Inspection  & Loading  Co.  (192  Fed.  223) 2490 

U.  S.  vs.  General  Inspection  & Loading  Company  (204  Fed.  657) 2740 

U.  S.:  Greenport  Basin  & Construction  Co.  vs.  (269  Fed.  58) 2847 

U.  S.  vs.  Levy  (27 1 Fed.  942) 2582 

U.  S.  vs.  McHatton  (266  Fed.  602) 2493 

U.  S.:  Maryland  Casualty  Company  vs.  (251  U.  S.  342).  ..Sup.  Page  157,  1fSl59 

U.  S.  vs.  Mellon  (279  Fed.  910) 1145 

Affirmed  C.  C.  of  A.  (281  Fed.  645) 3293 

U.  S.:  Merriam  vs.  (282  Fed.  851) 3361 

U.  S.  vs.  Oregon-Washington  R.  & Nav.  Co.  (251  Fed.  211) 1259 

U.  S.:  Phellis  vs.  (257  U.  S.  156) Sup.  Page  167,  HS219 

U.  S.  vs.  Pittaro  (U.  S.  District  Court)  (T.  D.  2874) 2800 

U.  S.  vs.  Rockefeller  (257  U.  S.  196) Sup.  Page  170,  HS237 

U.  S.:  R.  I.  A.  and  L.  R.  R.  Co.  vs.  (254  U.  S.  141) 2887 

U.  S.  vs.  San  Juan  County  (280  Fed.  120) 3085 

U.  S.:  Woodward,  et  al.  vs.  (256  U.  S.  632) Sup.  Page  201,  1[S413 

U.  S.:  Young  vs.  (269  Fed.  58) 2847 

Urquhart  vs.  Marion  Hotel  Company  (194  S.  W.  1) 2258 

Walsh:  Brewster  vs.  (255  U.  S.  536) Sup.  Page  191,  HS364 

Walsh:  Plant  vs.  (280  Fed.  722) 3127 

Wardell:  Lawrence  vs.  (T.  D.  3102)  (T.  D.  3178 — 273  Fed.  405) 747 

Williams:  Schuster  & Co.,  Inc.  (283  Fed.  115) 3213 

Wilson  v».  Eisner  (282  Fed.  38) 3392 

Woodward,  et  al.  vs.  U.  S.  (256  U.  S.  632) Sup.  Page  201,  HS413 

Young  vs.  U.  S.  (269  Fed.  58) 2847 


END  OF  THE  1922  SERVICE. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Suoplementarv  Pages  117  and  118. 


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3-20-22. 


INDEX  TO  SUPREME  COURT  DECISIONS 

1913,  1916,  1917,  and  1918  Acts. 

The  reference,  in  parentheses,  to  a specific  Act,  indicates  no  more  than  that  the 
decision,  to  which  reference  is  made,  is  in  an  action  under  the  Act  thus  noted. 

References  are  to  paragraph  numbers  within  the  “Court  Decisions”  section. 


Accumulations  of  a subsidiary  prior  to  Jan.  1,  1913  are  capital  to  the  parent 
corporation  as  of  that  date  and  hence  not  income  to  it  when  transferred 
to  it  subsequent  to  Jan.  1,  1913.  (Decision  based  on  exceptional  and 
special  facts,  under  the  1913  Act.).  . S 12 1 . 

Agent’s  receipts  as  receipts  of  principal  (1913  Act).  . S 1 59 
Alimony  is  not  a deductible  item  (1913  Act) . .S52 
Alimony  is  not  income  (1913  Act).  .S47 

Amended  returns  and  the  Statute  of  Limitations  on  suit  for  refund  (1913 
Act).  .S192 

Amendment  of  a law  provision  by  a later  Act;  weight  of  amendment  and  its 
legislative  history  in  construing  original  provision  (1913  Act).  .S87 
Amendment:  the  16th  (See  “Sixteenth  Amendment.”) 

Appeal  (claim  for  refund)  to  Commissioner  essential  (1913  Act).  .S193  (See 
^[2875  in  body  of  book.) 

Appreciation  in  value  of  capital  assets  back  of  stock,  over  a period  of  years 
prior  to  March  1,  1913  realized  on  distribution  of  liquidating  dividend 
thereafter.  (Decision  based  on  exceptional  and  special  facts,  1913 
Act.) . . S93 

Appreciation  in  value  of  capital  assets  realized  on  disposition  by  one  not  a 
dealer  therein  (1916,  1917,  and  1918  Acts) . .S313,  S346,  S360,  S364,  S412 
Basis  for  determining  gain  or  loss;  March  1,  1913  value  versus  cost  (1916 
Act) . . S346,  S364 

Bondholders  discriminated  against  (?)  on  account  of  the  withholding  pro- 
visions (1913  Act).  .Beginning  at  Sl5 

Bonds,  domestic;  physically  here,  as  “property  within  the  United  States”: 
Nonresident  alien  individuals  and  foreign  corporations  (1913  Act) . ,Sl49 
Bookkeeping  entries  not  controlling  necessarily.  .S133 

Capital  assets;  appreciation  in  value  realized  on  disposition  by  one  not  a 
dealer  therein  (1916,  1917,  and  1918  Acts)..S313,  S346,  S360,  S364, 
S412 

Claim  for  refund  a condition  precedent  to  suit  for  recovery  equally  under 
income  tax  law  as  under  general  law  (1913  Act) . .^[2875  in  body  of  book. 
(Note  S193.) 

Construction  of  an  Act  as  well  as  its  constitutionality  is  open  to  decision  of 
Supreme  Court  if  case  is  properly  before  it  (1913  Act).  . S57 
Corporation  vs.  stockholders  thereof: 

Are  separate  entities  in  ordinary  case  (1913  Act).  .S85 
Interests  in  common  partially  dispelling  separate  entity  theory  (1913 
Act:  special) . .S93 

One  corporation  owning  another  (1913  Act)..Sl37.  Also,  the  latter 
being  no  more  than  the  agent  of  the  former  (1913  Act) . .S133 
Corporations  discriminated  against  (?)  (See  “Discrimination  against  cor- 
porations.”) 

Deduction  of  tax  at  source  (1913  Act).  .Beginning  at  Sl5 
Delegation  of  legislative  authority  to  administrative  officer  (1913  Act).  .S30 
Depletion  of  mines;  discrimination  (?)  because  of  limited  allowance  for  (1913 
Act) . . S39 

THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  119. 


INDEX  TO  SUPREME  COURT  DECISIONS. 


References  are  to  paragraph  numbers  within  the  “Court  Decisions”  section. 

Direct  vs.  indirect  tax;  apportionment;  XVI  Amendment:  general  discussion 
(1913  Act).  .Beginning  at  S5;  S45 

Discrimination  and  want  of  due  process:  general  discussion  (1913  Act).. 
S28-29 

Discrimination  and  want  of  due  process  (?):  against  corporations: 

Dividends  received  by  (1913  Act).  .S24,  S28-29 
Interest  deduction;  limitation  (1913  Act).  .S23,  S28-29 
Mining  corporation  (1913  Act).  .S39 
Withholding  on  bond  interest  (1913  Act).  . S17-19,  S28-29 
Discrimination  and  want  of  due  process  (?):  against  individuals: 

Bondholders  vs.  nonbondholders:  withholding  at  source  (1913  Act).. 
S20-22,  S28-29 

Dividends  not  deductible  for  supertax  purposes  (1913  Act) . . S25, 28-29 
Married  and  living  together  vs.  married  and  not  living  together:  specific 
exemption  (1913  Act).  .S26,  S28-29 
Single  vs.  married:  specific  exemption  (1913  Act) . .S26,  S28-29 
Tenant  vs.  owner  of  residence:  rent  paid  by  tenant  is  not  deductible 
though  rental  value  to  owner-resident  is  not  income  (1913  Act).. 
S27-29 

Urbanites  vs.  farmers:  family  expenses  not  being  deductible  though 
value  of  farm  products  consumed  by  family  is  not  income  to  farmer 
(1913  Act).  .S27-29 

Dividend  distribution  of  stock  of  another  corporation  is  not  a stock  dividend 
(1913  Act).  .S120 

Of  stock  of  another  corporation  received  in  exchange  for  assets  of  dis- 
tributing corporation  (1913  Act).  . S2 1 9,  S237 
Dividend,  extraordinary  in  character,  being  a single  and  final  dividend  in 
liquidation,  and  yielding  no  more  than  intrinsic  value  of  stock  as  of  March 
1,  1913  (1913  Act).  .S93 

Dividend;  subsidiary  to  parent  by  book  entry  merely,  parent  at  all  times 
having  full  control  of  funds,  and  funds  involved  in  book  entry  all  ac- 
cumulated prior  to  January  1,  1913  (1913  Act) . . S122 
Dividend;  subsidiary  to  parent,  in  effect  by  book  entry  merely,  parent  being 
in  full  control  and  funds  involved  all  acquired  prior  to  January  1,  1913 
(1913  Act).  .S137  (See  S200) 

Dividends  declared  from  surplus  acquired  prior  to  March  1,  1913  (1913  Act) 
S200 

Extraordinary  in  character  (1913  Act).  .S93,  S 122,  S 137 
Ordinary  distributions  though  extraordinary  in  amount  (1913  Act) 

. .S79,  S120 

Dividends:  meaning  of  term  as  employed  in  Act  (1913  Act) . .S86 

Effect  of  change  in  later  Acts  on  interpretation  of  earlier  Act  (1913  Act) 
..S87 

Dividends  paid  by  Mutual  Insurance  Companies  (1913  Act).  .S201 
Dividends  paid  in  stock  of  a corporation  organized  to  take  over  assets  of  the 
dividend  paying  corporation  (1913  Act).  .S219,  S237 
The  vendee’s  stock  going  directly  to  the  vendor’s  stockholders  (1913 
Act).  . S237 

Dividends  received  being  taxable  to  corporations  but  not  to  individuals:  on 
want  of  due  process  (1913  Act).  . S24.  S29 
Dividends  received  being  taxable  to  individuals  for  supertax  though  not  for 
normal  tax:  on  want  of  due  process  (1913  Act).  .S25,  S29 

THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  120. 


3-20-22. 


INDEX  TO  SUPREME  COURT  DECISIONS. 


References  are  to  paragraph  numbers  within  the  “ Court  Decisions ” section. 

Dividends,  stock:  are  not  income  (1913  Act) ..  S55 ..  1916  (1917,  1918)  Act 
. .S244 

Distribution  of  stock  of  another  corporation  is  not  a stock  dividend 
(1913  Act).  . S120 

Due  process  clause  of  5th  Amendment  to  the  Constitution;  full  discussion  as 
to  want  of  due  process  in  the  Income  Tax  Law  (1913  Act) . . S29 
“Duties,  imposts  and  excises”:  claim  that  income  tax  is  direct  tax,  and 
therefore  not  within  classification  of  “duties,  imposts  and  excises”  (1913 
Act) . . Beginning  at  S5 

“Duties,  imposts  and  excises”:  claim  that  there  is  lack  of  uniformity  in  tax 
imposed  by  the  income  tax  law  (1913  Act).  .Beginning  at  S5,  S28 
Enjoining  assessment  and  collection  of  tax  (1913  Act) . AI2873  in  body  of  book. 
Estate  tax,  Federal;  as  a deductible  item  (1918  Act).  .S413 
Excises  (See  “Duties,  imposts  and  excises”.) 

Exemption  of  specific  amounts  (specific  exemption)  from  normal  tax  and 
Stated  amount  from  supertax:  due  process  clause  (1913  Act).  . S 1 6,  S28 
Exports:  to  include  income  from  exports  in  gross  income  subject  to  income 
tax,  is  not  to  tax  exports  (1913  Act) . . S70 
Farmers  do  not  include  value  of  farm  product  consumed  by  families  as  income: 
urbanite  discriminated  against  (?)  bv  no  allowance  for  family  expenses 
(1913  Act).  .S27-S29 

Foreign  corporations;  domestic  stocks  and  bonds  physically  in  U.  S.  as 
“property  owned  in  the  United  States”  (1913  Act).  . S149 
Form  to  substance;  looking  through  (1913  and  1916  Acts).. Sill,  S133, 
S 139,  S223,  S257 

Fraudulent  accumulation  of  profits  by  corporation  to  relieve  stockholders  of 
supertax  burden  relates  to  profits  permitted  to  accumulate  after  effective 
date  of  Act  only  (1913  Act) . .S85 

“From  whatever  source  derived”  does  not  preclude  exempting  certain  income 
of  designated  persons  and  classes  (1913  Act).  . S5,  S14,  S28 
History  of  income  tax  legislation  in  the  United  States  (1913  Act) . .S8 
Imposts  (See  “Duties,  imposts  and  excises.”) 

“Income”  defined  (1916-1917  Acts).  .S257,  S328 

As  defined  in  1913  Act  involves  obscurity  (1913  Act) . .S50 
Does  not  include  “everything  that  comes  in”  (1913  Act).  .S130 
Does  not  of  necessity  mean  same  thing  in  the  Constitution  and  the  Act 
(1913  Act).  . S56 

Subject  to  tax  is  limited  to  such  receipts  as  are  embraced  within  the 
statutory  definition  (1913  Act).  . S49 
That  which  is  not  income  is  not  taxable,  (by  the  Act  under  authority  of 
the  XVI  Amendment),  though  it  be  called  income  by  the  taxing 
statute  (1916  Act).  .S257 

Income  taxes;  power  of  Congress  to  impose  prior  to  adoption  of  XVI  Amend- 
ment ( 1913  Act) . . S8 

Effect  of  amendment  is  to  obviate  giving  consideration  to  the  source  of 
the  income,  and  thus  of  necessity  of  apportionment  where  tax  on 
income  from  real  estate  and  invested  personal  property  might  be 
considered  direct  as  being  on  the  property  rather  than  on  the  income 
therefrom  (1913  Act).  . Si  1 , S45 

Income  taxes  classed  as  coming  within  “duties,  imposts  and  excises”  rather 
than  “direct  taxes”  (1913  Act).  ,S8 

Later  held  to  be  “direct”  in  constitutional  sense  to  extent  imposed  on 
income  from  real  estate  and  invested  personalty  (1913  Act).  . S9 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  121. 


INDEX  TO  SUPREME  COURT  DECISIONS. 


References  are  to  paragraph  numbers  within  the  “Court  Decisions”  section. 

Income  taxes  classed  as  “duties,  imports  and  excises.”- — Concluded. 

Amendment  stipulating  “without  apportionment”  still  leaves  such 
taxes  within  classification  of  “duties,  imposts  and  excises” 
(1913  Act).  .Si  1,  S45 

Injunction  to  stay  assessment  and  collection  of  tax  (1913  Act)..^[2873  in 
body  of  book. 

Insurance  companies  specifically: 

Agents’  premium  collections  as  collections  by  the  company  (1913  Act) 

. . S159 

Dividends  (mutual  life)  (1913  Act).  . S20 1 
Released  reserves  (1913  Act).  .S184 

Reserves  required  by  law, — or  by  administrative  regulation  (1913  Act) 

. .S174 

Insurance  premiums;  agents’  receipts  and  receipts  by  company  (1913  Act) 

. .S159 

Interest  deduction;  limitation  in  case  of  corporations  (1913  Act) . .S23,  S29 
Interest  on  investment  as  part  of  cost  (underwriting  syndicate  arrangement 
under  which  no  interest  accrued  on  initial  payments  pending  allotment 
of  bonds)  (1916  Act).  .S364 

January  1,  1913:  accumulations  accrued  to  a corporation  prior  to,  are  con- 
sidered capital  not  income,  on  realization  (1913  Act).  .S130 
Joint-stock  company  or  association  vs.  trust  (Massachusetts)  (1913  Act) 

. . S140 

Judges  of  United  States  courts;  diminishing  salary  by  subjecting  the  amount 
thereof  to  tax  (1918  Act).  .S375 

Legislative  authority  delegated  to  administrative  officer  (1913  Act).  .S30 
Legislative  history  of  a statutory  provision:  its  weight  (1913  Act).  . S2 1 7 
Of  no  aid  in  construing  a like  provision  in  a prior  Act  (1913  Act)  . .S217 
Weight  of  legislative  history  of  a subsequent  amendment,  in  construing 
the  original  provision  (1913  Act).  .S87 
March  1,  1913  (Jan.  1,  1913):  accumulations  of  a subsidiary  prior  to  Jan.  1, 
1913  are  capital  to  the  parent  corporation  as  of  that  date  and  hence  are 
not  income  to  it  when  transferred  to  it  subsequent  thereto  (Special  state 
of  facts  under  the  1913  Act).  . S 1 2 1 
See  also  (1913  Act).  . S137  (See  S200) 

March  1,  1913:  extraordinary  dividend,  being  a single  and  final  dividend  in 
liquidation,  and  yielding  no  more  than  intrinsic  value  of  stock  as  of 
March  1,  1913  (Act  of  1913).. S93 

March  1,  1913:  ordinary  (recurring)  dividend  from  surplus  acquired  prior 
thereto  (1913  Act).  .S79,  S120.  (See  S200) 

March  1,  1913  value  versus  cost;  basis  for  determining  gain  or  loss  (1916- 
1917  Acts).  .S346,  S364 

Married  persons  allowed  greater  specific  exemption  than  single  persons  who 
are  thus  discriminated  against  (?)  (1913  Act).  .S26,  S29 
Married  persons  living  apart  discriminated  against  (?)  on  account  of  specific 
exemption  (1913  Act).  .S26,  S29 
Massachusetts  Trusts  (1913  Act).  . S140 

Mining  corporations:  discrimination  against  (?)  on  account  of  depletion  pro- 
vision (1913  Act) . .S39 

Mining  corporations:  income  tax  on  product  of,  irrespective  of  depletion 
allowance,  held  not  to  be  a tax  on  property  but  a true  excise  (1913  Act) 
. .S45 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  122, 


3-20-22. 


INDEX  TO  SUPREME  COURT  DECISIONS. 


References  are  to  ■paragraph  numbers  withinjlie  “Court  Decisions”  section. 

Mutual  life  insurance  company  dividend  payments  (1913  Act).  .S201 
Nonresident  aliens:  domestic  stocks  and  bonds  with  physical  situs  here  as 
“property  owned  in  the  United  States”  (1913  Act) . . S149 
Owner  of  residence  in  which  he  lives  does  not  include  rental  value  thereof  as 
income:  tenant  discriminated  against  (?)  because  not  allowed  to  deduct 
rental  paid  by  him  (1913  Act).  .S  27,  S29 
Progressive  tax  rates  as  being  violative  of  the  due  process  clause  (1913 
Act) . .S29 

“Property  owned  in  the  United  States”:  domestic  stocks  and  bonds  physically 
here;  non-resident  alien  individuals  and  foreign  corporations  (1913  Act) 
..S149 

Refund  claim  as  condition  precedent  to  suit  for  recovery  as  provided  by 
general  law  applies  to  income  tax  law  (1913  Act).. ^2875  in  body  of 
book. 

Regulations  promulgated  by  administrative  officer  (state  or  national)  in  the 
exercise  of  an  appropriate  power  conferred  by  statute  have  force  and 
effect  of  law  (1913  Act) . . Si 78 

Rent  paid  for  residence  not  deductible  though  rental  value  of  residence  in 
which  the  owner  lives  is  not  income;  discrimination  is  alleged  (1913  Act) 

. . S27,  S29 

Reserves  required  by  law  (or  by  administrative  regulation);  insurance  com- 
panies (1913  Act).  . S 1 74 
Released  reserves  (1913  Act).  .S184 
Retroactivity  (1913  Act).  . S 13 

Sale  of  assets  by  a corporation,  for  stock  in  a corporation  formed  to  take  them 
over,  the  stock  thus  acquired  being  distributed  to  the  stockholders  of  the 
selling  corporation  (1913  Act).  .S219,  S237 

The  stock  going  directly  from  the  vendee  corporation  to  the  vendor’s 
stockholders  (1913  Act).  .S237 

Sale  of  capital  assets  by  one  not  a dealer  therein  (1916,  1917,  and  1918  Acts) 

. . S313,  S346,  S360,  S364,  S412 

Single  persons  discriminated  against  (?)  on  account  of  specific  exemption  (1913 
Act) . . S26,  S29 

Sixteenth  Amendment:  text  of.  .SlO 

Assumption  that  power  is  thereby  given  to  lay  an  entirely  new  kind  of 
tax  (1913  Act) . . S5 

Conditions  leading  to  adoption  and  purpose  intended  to  be  accomplished 
(1913  Act).  ,S7 

Income  does  not  of  necessity  mean  same  thing  in  the  Act  as  in  the  Con- 
stitution (1913  Act).  .S56 

Income  taxes:  power  of  Congress  to  impose,  prior  to  adoption  (1913  Act) 

. . S8 

What  is  income  as  the  term  is  used  in  the  amendment?  (1916-1917  Acts) 

. . S257,  S328 

Appreciation  in  value  of  capital  assets  (1916,  1917,  and  1918  Acts) 
. .S313,  S346,  S360,  S364,  S412. 

(See  S 1 1 7 then  S341.) 

Specific  exemption;  normal  tax  (1913  Act).  .S16,  S29 

Differing  for  single  and  married  persons  (1913  Act).  .S26,  S29 
Differing  in  case  of  married  persons  dependent  on  whether  living  to- 
gether or  not  (1913  Act).  .S26,  S29 
Not  being  again  allowed  for  supertax  (1913  Act).  .S25,  S29 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  123. 


INDEX  TO  SUPREME  COURT  DECISIONS. 


References  are  to  paragraph  numbers  within  the  “Court  Decisions”  section. 

Statute  of  limitations  on  suit  for  refund  and  the  effect  of  amended  returns 
(1913  Act).  .S192 
Stock  dividends  are  not  income: 

1913  Act.  .S55 
1916  Act. .S244 

Distribution  of  stock  of  another  corporation  is  not  a stock  dividend 
(1913  Act).  . S120 

Stock,  domestic:  physically  here,  as  “property  owned  within  the  United 
States”;  nonresident  alien  individuals  and  foreign  corporations  (1913 
Act) . .S149 

Stockholder’s  right  to  bring  suit  to  restrain  corporation  from  voluntarily 
paying  tax  (1913  Act) . . S3 
Stockholders  vs.  corporation: 

Are  separate  entities  in  ordinary  case  (1913  Act).  .S85 
One  corporation  owned  by  another  (1913  Act).  .S137;  and  acting  as  its 
agent  merely  (1913  Act).  .S133 
(Note  decision  at  S93,  particularly  S106  and  Si  12.) 

Substance  rather  than  form  (1913  and  1916  Acts).  .Sill,  S133,  S139,  S223, 
S257 

Suits  for  refund  of  taxes:  general  provisions  of  law  relating  to  conditions 
precedent  to  bringing,  are  applicable  to  income  tax  law  (1913  Act).. 
1|2875  in  body  of  book. 

Amended  returns  and  the  Statute  of  Limitations  (1913  Act).  .S192 
Claim  for  refund  essential  (1913  Act).  .S193 
Suits  to  restrain  assessment  and  collection  of  tax  (1913  Act).  .^[2873  in  body 
of  book. 

Supertax;  due  process  and  discrimination: 

Dividends  being  subject  to  (1913  Act).  .S25,  S29 
Progressive  rates  (1913  Act).  .S29 
Specific  exemption  not  granted  (1913  Act).  .S25,  S29 
Tax  not  imposed  on  first  $20,000  (1913  Act).  . S 16,  S29 
Tax  laws  to  be  strictly  construed  and  in  cases  of  doubt,  in  favor  of  taxpayer 
(1913  Act).  .S49 

Tax  rates;  progressive  (1913  Act).  .S29 

Tax-free  covenant  bond  interest;  withholding  (1913  Act).  .Sl9,  S22,  S28,  S29 
Tenants  discriminated  against  (?)  as  rent  is  not  deductible  though  rental  value 
of  owner’s  residence  is  not  income  (1913  Act).  .S27,  S29 
Trust-estates  as  taxable  entities  (1916-1917  Acts).  . S314 
Undistributed  profits  of  corporation  taxable  to  stockholders  if  permitted  to 
accumulate  to  relieve  stockholders  of  burden  of  supertax;  relates  to 
profits  permitted  to  accumulate  after  effective  date  of  Act,  only  (1913 
Act) . . S85 

Uniformity  clause:  claim  that  there  is  lack  of  uniformity  in  tax  imposed  by 
income  tax  law  (1913  Act).  .S5,  Si  1,  S28,  S45 
United  States  judges;  diminishing  salary  by  subjecting  to  income  tax  the 
amount  thereof  (1918  Act).  .S375 
Withholding  at  the  source  (1913  Act)..Sl7,  S28,  S29 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  124. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


[Comment:  Below  are  given  in  full  all  decisions  of  the  United  States 
Supreme  Court  in  cases  brought  under  the  recent  Income  Tax  Laws,  i.e., 
under  the  Revenue  Acts  of  1913,  1916,  1917,  and  1918  to  January  1,  1922. 
Note  on  Supplementary  Page  138,  beginning  at  ][S58,  the  digest  of  “recent 
decisions”  including  those  involving  the  Corporation  Excise  Tax  Act  of 
1909.] 


Brushaber  v.  U.  P.  Railroad  Company. 

(240  U.  S.  1.) 

51  (T.  D.  2290,  Jan.  31,  1916.) 

Mr.  Chief  Justice  White  delivered  the  opinon  of  the  Court. 

52  As  a stockholder  of  the  Union  Pacific  Railroad  Company  the  appellant 
filed  his  bill  to  enjoin  the  corporation  from  complying  with  the  income 

tax  provisions  of  the  Tariff  Act  of  October  3,  1913  (Section  II,  ch.  16,  38  Statutes 
166).  Because  of  constitutional  questions  duly  arising  the  case  is  here  on  direct 
appeal  from  a decree  sustaining  a motion  to  dismiss  because  no  ground  for 
relief  was  stated. 

S8  The  right  to  prevent  the  corporation  from  returning  and  paying  the 
tax  was  based  upon  many  averments  as  to  the  repugnancy  of  the  statute 
to  the  Constitution  of  the  United  States,  of  the  peculiar  relation  of  the  cor- 
poration to  the  stockholders  and  their  particular  interests  resulting  from  many 
of  the  administrative  provisions  of  the  assailed  act,  of  the  confusion,  wrong  and 
multiplicity  of  suits  and  the  absence  of  all  means  of  redress  which  would  result 
if  the  corporation  paid  the  tax  and  complied  with  the  act  in  other  respects 
without  protest,  as  it  was  alleged  it  was  its  intention  to  do.  To  put  out  of  the 
way  a question  of  jurisdiction  we  at  once  say  that  in  view  of  these  averments 
and  the  ruling  in  Pollock  v.  Farmers’  Loan  & Trust  Co.,  157  U.  S.  429,  sustaining 
the  right  of  a stockholder  to  sue  to  restrain  a corporation  under  proper  averments 
from  voluntarily  paying  a tax  charged  to  be  unconstitutional  on  the  ground  that 
to  permit  such  a suit  did  not  violate  the  prohibitions  of  Section  3224,  Revised 
Statutes,  against  enjoining  the  enforcement  of  taxes,  we  are  of  opinion  that  the 
contention  here  made  that  there  was  no  jurisdiction  of  the  cause  since  to  enter- 
tain it  would  violate  the  provisions  of  the  Revised  Statutes  referred  to  is  without 
merit.  Before  coming  to  dispose  of  the  case  on  the  merits,  however,  we  observe 
that  the  defendant  corporation  having  called  the  attention  of  the  government  to 
the  pendency  of  the  cause  and  the  nature  of  the  controversy  and  its  unwilling- 
ness to  voluntarily  refuse  to  comply  with  the  act  assailed,  the  United  States 
as  amicus  curiae  has  at  bar  been  heard  both  orally  and  by  brief  for  the  purpose 
of  sustaining  the  decree. 

54  Aside  from  the  averments  as  to  citizenship  and  residence,  recitals  as  to 
the  provisions  of  the  statute  and  statements  as  to  the  business  of  the 

corporation  contained  in  the  first  ten  paragraphs  of  the  bill  advanced  to  sustain 
jurisdiction,  the  bill  alleged  twenty-one  constitutional  objections  specified  in  that 
number  of  paragraphs  or  subdivisions.  As  all  the  grounds  assert  a violation 
of  the  Constitution,  it  follows  that  in  a wide  sense  they  all  charge  a repugnancy 
of  the  statute  to  the  Sixteenth  Amendment  under  the  more  immediate  sanction 
of  which  the  statute  was  adoped. 

55  The  various  propositions  are  so  intermingled  as  to  cause  it  to  be  difficult 
to  classify  them.  We  are  of  opinion,  however,  that  the  confusion  is  not 

inherent,  but  rather  arises  from  the  conclusion  that  the  Sixteenth  Amendment 
provides  for  a hitherto  unknown  power  of  taxation,  that  is,  a power  to  levy 
an  income  tax  which  although  direct  should  not  be  subject  to  the  regulation  of 
apportionment  applicable  to  all  other  direct  taxes.  And  the  far-reaching  effect 
of  this  erroneous  assumption  will  be  made  clear  by  generalizing  the  many  conten- 
tions advanced  in  argument  to  support  it,  as  follows:  (a)  The  Amendment  author- 
izes only  a particular  character  of  direct  tax  without  apportionment,  and  there- 
fore if  a tax  is  levied  under  its  assumed  authority  which  does  not  partake  of  the 
characteristics  exacted  by  the  Amendment,  it  is  outside  of  the  Amendment  and 
is  void  as  a direct  tax  in  the  general  constitutional  sense  because  not  appor- 


Income  Tax 

Supplementary  Page  125. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


tioncd.  (b)  As  the  Amendment  authorizes  a tax  only  upon  incomes  “from 
whatever  source  derived,”  the  exclusion  from  taxation  of  some  income  of  desig- 
nated persons  and  classes  is  not  authorized  and  hence  the  constitutionality  of  the 
law  must  be  tested  by  the  general  provisions  of  the  Constitution  as  to  taxation, 
and  thus  again  the  tax  is  void  for  want  of  apportionment,  (c)  As  the  right  to 
tax  incomes  from  whatever  source  derived”  for  which  the  Amendment  pro- 
vides must  be  considered  as  exacting  intrinsic  uniformity,  therefore  no  tax  comes 
under  the  authority  of  the  Amendment  not  conforming  to  such  standard,  and 
hence  all  the  provisions  of  the  assailed  statute  must  once  more  be  tested  solely 
under  the  general  and  pre-existing  provisions  of  the  Constitution,  causing  the 
statute  again  to  be  void  in  the  absence  of  apportionment,  (d)  As  the  power 
conferred  by  the  Amendment  is  new  and  prospective,  the  attempt  in  the  statute 
to  make  its  provisions  retroactively  apply  is  void  because  so  far  as  the  retro- 
active period  is  concerned,  it  is  governed  by  the  pre-existing  constitutional  re- 
quirement as  to  apportionment. 

56  But  it  clearly  results  that  the  propositions  and  the  contentions  under  it, 
if  acceded  to,  would  cause  one  provision  of  the  Constitution  to  destroy 

another;  that  is,  they  would  result  in  bringing  the  provisions  of  the  Amendment 
exempting  a direct  tax  from  apportionment  into  irreconcilable  conflict  with  the 
general  requirements  that  all  direct  taxes  be  apportioned.  Moreover,  the  tax 
authorized  by  the  Amendment,  being  direct,  would  not  come  under  the  rule 
of  uniformity  applicable  under  the  Constitution  to  other  than  direct  taxes,  and 
thus  it  would  come  to  pass  that  the  result  of  the  Amendment  would  be  to 
authorize  a particular  direct  tax  not  subject  either  to  apportionment  or  to  the 
rule  of  geographical  uniformity,  thus  giving  power  to  impose  a different  tax 
in  one  state  or  states  than  was  levied  in  another  state  or  states.  This  result 
instead  of  simplifying  the  situation  and  making  clear  the  limitations  on  the 
taxing  power,  which  obviously  the  Amendment  must  have  been  intended  to 
accomplish,  would  create  radical  and  destructive  changes  in  our  constitutional 
system  and  multiply  confusion. 

57  But  let  us  by  a demonstration  of  the  error  of  the  fundamental  proposition 
as  to  the  significance  of  the  Amendment  dispel  the  confusion  necessarily 

arising  from  the  argumuents  deduced  from  it.  Before  coming,  however,  to  the 
text  of  the  Amendment,  to  the  end  that  its  significance  may  be  determined  in 
the  light  of  the  previous  legislative  and  judicial  history  of  the  subject  with  which 
the  Amendment  is  concerned  and  with  a knowledge  of  the  conditions  which  pre- 
sumptively led  up  to  its  adoption  and  hence  of  the  purpose  it  was  intended  to 
accomplish,  we  make  a brief  statement  on  those  subjects. 

S®  That  the  authority  conferred  upon  Congress  by  section  8 of  Article  I 
“to  lay  and  collect  taxes,  duties,  imposts  and  excises”  is  exhaustive  and 
embraces  every  conceivable  power  of  taxation  has  never  been  questioned,  or,  if 
it  has,  has  been  so  often  authoritatively  declared  as  to  render  it  necessary  only 
to  state  the  doctrine.  And  it  has  also  never  been  questioned  from  the  founda- 
tion, without  stopping  presently  to  determine  under  which  of  tlje  separate  head- 
ings the  power  was  properly  to  be  classed,  that  there  was  authority  given  as 
the  part  was  included  in  the  whole,  to  lay  and  collect  income  taxes.  Again, 
it  has  never  moreover  been  questioned  that  the  conceded  complete  and  all- 
embracing  taxing  power  was  subject,  so  far  as  they  were  respectively  applicable, 
to  limitations  resulting  from  the  requirements  of  Art.  I,  sec.  8,  cl.  1,  that  “all 
duties,  imposts  and  excises  shall  be  uniform  throughout  the  United  States,”  and 
to  the  limitations  of  Art.  I,  sec.  2,  cl.  3,  that  “direct  taxes  shall  be  apportioned 
among  the  several  states”  and  of  Art.  I,  sec.  9,  cl.  4,  that  “no  capitation,  or 
other  direct,  tax  shall  be  laid,  unless  in  proportion  to  the  census  or  enumeration 
hereinbefore  directed  to  be  taken.”  In  fact  the  two  great  subdivisions  embracing 
the  complete  and  perfect  delegation  of  the  power  to  tax  and  the  two  correlated 
limitations  as  to  such  power  were  thus  aptly  stated  by  Mr.  Chief  Justice  Fuller 
in  Pollock  v.  Farmers’  Loan  & Trust  Company,  supra,  at  page  557.  “In  the 
matter  of  taxation,  the  Constitution  recognizes  the  two  great  classes  of  direct 
and  indirect  taxes,  and  lays  down  two  rules  by  which  their  imposition  must 
be  governed,  namely:  The  rule  of  apportionment  as  to  direct  taxes,  and  the 

rule  of  uniformity  as  to  duties,  imposts  and  excises.”  It  is  to  be  observed,  how- 
ever, as  long  ago  pointed  out  in  Veazie  Bank.  v.  Fenno,  8 Wall,  533,  541,  that  the 
requirement  of  apportionment  as  to  one  of  the  great  classes  and  of  uniformity 
as  to  the  other  class  were  not  so  much  a limitation  upon  the  complete  and  all 
embracing  authority  to  tax,  but  in  their  essence  were  simply  regulations  con- 
cerning the  mode  in  which  the  plenary  power  was  to  be  exerted.  In  the  whole 
history  of  the  Government  down  to  the  time  of  the  adoption  of  the  Sixteenth 

Income  Tax 

Supplementary  Page  126. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


Amendment,  leaving  aside  some  conjectures  expressed  to  the  possibility  of  • 
tax  lying  intermediate  between  the  two  great  classes  and  embraced  by  neither, 
no  question  has  been  anywhere  made  as  to  the  correctness  of  these  propositions. 
At  the  very  beginning,  however,  there  arose  differences  of  opinion  concerning,  the 
criteria  to  be  applied  in  determining  in  which  of  the  two  great  subdivisions 
a tax  would  fall.  Without  pausing  to  state  at  length  the  basis  of  the** 
differences  and  the  consequences  which  arose  from  them,  as  the  whole 
subject  was  elaborately  reviewed  in  Pollock  v.  Farmers’  Loan  & Trust 
Company,  157  U.  S.  429;  158  U.  S.  601,  we  make  a condensed  statement  which 
is  in  substance  taken  from  what  was  said  in  that  case.  Early  the  differences 
were  manifested  in  pressing  on  the  one  hand  and  opposing  on  the  other,  the 
passage  of  an  act  levying  a tax  without  apportionment  on  carriages  “for  the 
conveyance  of  persons,”  and  when  such  a tax  was  enacted  the  question  of  its 
repugnancy  to  the  Constitution  soon  came  to  this  court  for  determination. 
(Hylton  v.  United  States,  3 Dali.  171.)  It  was  held  that  the  tax  came  within 
the  class  of  excises,  duties  and  imposts  and  therefore  did  not  require  apportion- 
ment, and  while  this  conclusion  was  agreed  to  by  all  the  members  of  the  court 
who  took  part  in  the  decision  of  the  case,  there  was  not  an  exact  coincidence 
in  the  reasoning  by  which  the  conclusion  was  sustained.  Without  stating  the 
minor  differences,  it  may  be  said  with  substantial  accuracy  that  the  divergent 
reasoning  was  this:  On  the  one  hand,  that  the  lax  was  not  in  the  class  of 

direct  taxes  requiring  apportionment  because  it  was  not  levied  directly  OH 
property  because  of  its  ownership  but  rather  on  its  use  and  was  therefore  an 
excise,  duty  or  impost;  and  on  the  other,  that  in  any  event  the  class  of  direct 
taxes  included  only  taxes  directly  levied  on  real  estate  because  of  its  owner- 
ship. Putting  out  of  view  the  difference  of  reasoning  which  led  to  the  concurrent 
conclusion  in  the  Hylton  case,  it  is  undoubted  that  it  came  to  pass  in  legislative 
practice  that  the  line  of  demarcation  between  the  two  great  classes  of  direct 
taxes  on  the  one  hand  and  excises,  duties  and  imposts  on  the  other  which  was 
exemplified  by  the  ruling  in  that  case,  was  accepted  and  acted  upon.  In  the 
first  place  this  is  shown  by  the  fact  that  wherever  (and  there  were  a number  of 
cases  of  that  kind)  a tax  levied  directly  on  real  estate  or  slaves  because  of 
ownership,  it  was  treated  as  coming  within  the  direct  class  and  apportionment 
was  provided  for,  while  no  instance  of  apportionment  as  to  any  other  kind  of 
tax  is  afforded.  Again  the  situation  is  aptly  illustrated  by  the  various  acts 
taxing  incomes  derived  from  property  of  every  kind  and  nature  which  were 
enacted  beginning  in  1861  and  lasting  during  what  may  be  termed  the  Civil 
War  period.  It  is  not  disputable  that  these  latter  taxing  laws  were  classed  under 
the  head  of  excises,  duties  and  imposts  because  it  was  assumed  that  they  were 
of  that  character  inasmuch  as,  although  putting  a tax  burden  on  income  of 
every  kind,  including  that  derived  from  property  real  or  personal,  they  were 
not  taxes  directly  on  property  because  of  its  ownership.  And  this  practical  con- 
struction came  in  theory  to  be  the  accepted  one  since  it  was  adopted  without 
dissent  by  the  most  eminent  of  the  text-writers.  1 Kent.  Com.  254,  256;  1 Story 
Const.,  Sect.  995;  Cooley  Const.  Lim.  (5th  ed.)  480;  Miller  on  the  Constitution, 
237;  Pomeroy’s  Constitutional  Law,  Section  281;  Hare  Const.  Law,  Vol.  1,  249, 
250;  Burroughs  on  Taxation,  502;  Ordronaux,  Constitutional  Legislation,  225. 

S9  Upon  the  lapsing  of  a considerable  period  after  the  repeal  of  the  income 
tax  laws  referred  to,  in  1894  an  act  was  passed  laying  a tax  on  incomes 
from  all  classes  of  property  and  other  sources  of  revenue  which  was  not  appor- 
tioned, and  which  therefore  was  of  course  assumed  to  come  within  the  classifi- 
cation of  excises,  duties  and  imposts  which  were  subject  to  the  rule  of  uniformity 
but  not  to  the  rule  of  apportionment.  The  constitutional  validity  of  this  law 
vas  challenged  on  the  ground  that  it  did  not  fall  within  the  class  of  excises, 
duties  and  imposts,  but  was  direct  in  the  constitutional  sense  and  was  therefore 
void  for  want  of  apportionment,  and  that  question  came  to  this  court  and  was 
passed  upon  in  Pollock  v.  Farmers’  Loan  & Trust. Co.,  157  U.  S.  429;  158  U.  S. 
601  The  court,  fully  recognizing  in  the  passage  which  we  have  pseviously  quoted 
the  all-embracing  character  of  the  two  great  classifications  including  on  the  one 
hand,  direct  taxes  subject  to  apportionment,  and  on  the  other,  excises,  duties  and 
imposts  subject  to  uniformity,  held  the  law  to  be  unconstitutional  in  substance 
for  these  reasons.  Concluding  that  the  classification  of  direct  was  adopted  for 
the  purpose  of  rendering  it  impossible  to  burden  by  taxation  accumulations  of 
property,  real  or  personal,  except  subject  to  the  regulation  of  apportionment, 
it  was  held  that  the  duty  existed  to  fix  what  was  a direct  tax  in  the  constitutional 
sense  so  as  to  accomplish  this  purpose  contemplated  by  the  Constitution  (157  U. 
S.  581).  Coming  to  consider  the  validity  of  the  tax  from  this  point  of  view,  while 

Income  Tax 

Supplementary  Page  127. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


not  questioning  at  all  that  in  common  understanding  it  was  direct  merely  on  in- 
come and  only  indirect  on  property,  it  was  held  that  considering  the  substance  of 
things  it  was  direct  on  property  in  a constitutional  sense  since  to  burden  an  in- 
come by  a tax  was  from  the  point  of  substance  to  burden  the  property  from 
which  the  income  was  derived  and  thus  accomplish  the  very  thing  which  the 
provision  as  to  apportionment  of  direct  taxes  was  adopted  to  prevent.  As  this 
conclusion  but  enforced  a regulation  as  to  the  mode  of  exercising  power  under 
particular  circumstances,  it  did  not  in  any  way  dispute  the  all  embracing  taxing 
authority  possessed  by  Congress,  including  necessarily  therein  the  power  to  im- 
pose income  taxes  if  only  they  conformed  to  the  constitutional  regulations  which 
were  applicable  to  them.  Moreover  in  addition  the  conclusion  reached  in  the 
Pollock  case  did  not  in  any  degree  involve  holding  that  income  taxes  generically 
and  necessarily  came  within  the  class  of  direct  taxes  on  property,  but  on  the 
contrary  recognized  the  fact  that  taxation  on  income  was  in  its  nature  an  excise 
entitled  to  be  enforced  as  such  unless  and  until  it  was  concluded  that  to  enforce 
it  would  amount  to  accomplishing  the  result  which  the  requirement  as  to  appor- 
tionment of  direct  taxation  was  adopted,  in  which  case  the  duty  would  arise  to 
disregard  form  and  consider  substance  alone  and  hence  subject  the  tax  to  the 
regulation  as  to  apportionment  which  otherwise  as  an  excise  would  not  apply 
to  it.  Nothing  could  serve  to  make  this  clearer  than  to  recall  that  in  the  Pollock 
case  in  so  far  as  the  law  taxes  incomes  from  other  classes  of  property  than  real 
estate  and  invested  personal  property,  that  is,  income  from  “professions,  trades 
employments,  or  vocations”  (158  U.  S.  637),  its  validity  was  recognized;  indeed 
it  was  expressly  declared  that  no  dispute  was  made  upon  that  subject  and  atten- 
tion was  called  to  the  fact  that  taxes  on  such  income  had  been  sustained  as 
excise  taxes  in  the  past.  Ib.  p.  635.  The  whole  law  was,  however,  declared  un- 
constitutional on  the  ground  that  to  permit  it  to  thus  operate  would  relieve  real 
estate  and  invested  personal  property  from  taxation  and  “would  leave  the  burden 
of  the  tax  to  be  borne  by  professions,  trades,  employments,  or  vocations;  and  in 
that  way  what  was  intended  as  a tax  on  capital  would  remain,  in  substance,  a 
tax  on  occupations  and  labor”  (Ib.  p.  637),  a result  which  it  was  held  could  not 
have  been  contemplated  by  Congress. 

510  This  is  the  text  of  the  Amendment: 

“That  Congress  shall  have  power  to  lay  and  collect  taxes  on  incomes 
from  whatever  source  derived,  without  apportionment  among  the  several  States, 
and  without  regard  to  any  census  or  enumeration.” 

511  It  is  clear  on  the  face  of  this  text  that  it  does  not  purport  to  confer  power 

to  levy  income  taxes  in  a generic  sense — an  authority  already  possessed 

and  never  questioned — or  to  limit  and  distinguish  between  one  kind  of  income 
taxes  and  another,  but  that  the  whole  purpose  of  the  Amendment  was  to  relieve 
all  income  taxes  when  imposed  from  apportionment  from  a consideration  of  the 
source  whence  the  income  was  derived.  Indeed,  in  the  light  of  the  history  which 
we  have  given  and  of  the  decision  in  the  Pollock  case  and  the  ground  upon  which 
the  ruling  in  that  case  was  based,  there  is  no  escape  from  the  conclusion  that 
the  Amendment  was  drawn  for  the  purpose  of  doing  away  for  the  future  with 
the  principle  upon  which  the  Pollock  case  was  decided,  that  is,  of  determining 
whether  a tax  on  income  was  direct  not  by  a consideration  of  the  burden  placed 
on  the  taxed  income  upon  which  it  directly  operated,  but  by  taking  into  view 
the  burden  which  resulted  on  the  property  from  which  the  income  was  derived, 
since  in  express  terms  the  Amendment  provides  that  income  taxes,  from  what- 
ever source  the  income  may  be  derived,  shall  not  be  subject  to  the  regulations 
of  apportionment.  From  this  in  substance  it  indisputably  arises,  first,  that  all 
the  contentions  which  we  have  previously  noticed  concernnig  the  assumed  lim- 
itations to  be  implied  from  the  language  of  the  Amendment  as  to  the  nature  and 
character  of  the  income  taxes  which  it  authorized  find  no  support  in  the  text 
and  are  in  irreconcilable  conflict  with  the  very  purpose  which  the  Amendment 
was  adopted  to  accomplish.  Second,  that  the  contention  that  the  Amendment 
treats  a tax  on  income  as  a direct  tax  although  it  is  relieved  from  apportionment 
and  is  necessarily  therefore  not  subject  to  the  rule  of  uniformity  as  such  rule 
only  applies  to  taxes  which  are  not  direct,  thus  destroying  the  two  great  classi- 
fications which  have  been  recognized  and  enforced  from  the  beginning,  is  also 
wholly  without  foundation  since  the  command  of  the  Amendment  that  all  income 
taxes  shall  not  be  subject  to  apportionment  by  a consideration  of  the  sources 
from  which  the  taxed  income  may  be  derived,  forbids  the  application  to  such 
taxes  of  the  rule  applied  in  the  Pollock  case  by  which  alone  such  taxes  were 
removed  from  the  great  class  of  excises,  duties  and  imposts  subject  to  the  rule  of 
uniformity  and  were  placed  under  the  other  or  direct  class.  This  must  be  unless 

Income  Tax 

Supplementary  Page  128. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


it  can  be  said  that  although  the  Constitution  as  a result  of  the  Amendment  in 
express  terms  excludes  the  criterion  of  source  of  income,  that  criterion  yet  re- 
mains for  the  purpose  of  destroying  the  classifications  of  the  constitution  by 
taking,  an  excise  out  of  the  class  to  which  it  belongs  and  transferring  it  to  a 
class  in  which  it  cannot  be  placed  consistently  with  the  requirements  of  the 
Constitution.  Indeed,  from  another  point  of  view,  the  Amendment  demonstrates 
that  no  such  purpose  was  intended  and  on  the  contrary  shows  that  it  was 
drawn  with  the  object  of  maintaining  the  limitations  of  the  Constitution  and 
harmonizing  their  operation.  We  say  this  because  it  is  to  be  observed  that 
although  from  the  date  of  the  Hylton  case  because  of  statements  made  in  the 
opinions  in  that  case  it  had  come  to  be  accepted  that  direct  taxes  in  the  constitu- 
tional sense  were  confined  to  taxes  levied  directly  on  real  estate  because  of  its 
ownership,  the  Amendment  contains  nothing  repudiating  or  challenging  the  ruling 
in  the  Pollock  case  that  the  word  direct  had  a broader  significance  since  it  em- 
braced also  taxes  levied  directly  on  personal  property  because  of  its  ownership, 
and  therefore  the  amendment  at  least  impliedly  makes  such  wider  significance  a 
part  of  the  constitution — a condition  which  clearly  demonstrates  that  the  purpose 
was  not  to  change  the  existing  interpretation  except  to  the  extent  necessary  to 
accomplish  the  result  intended,  that  is,  the  prevention  of  the  resort  to  the 
sources  from  which  a taxed  income  was  derived  in  order  to  cause  a direct  tax 
on  the  income  to  be  a direct  tax  on  the  source  itself  and  thereby  to  take  an 
income  tax  out  of  the  class  of  excises,  duties  and  imports  and  place  it  in  the 
class  of  direct  taxes. 

SIS  We  come  then  to  ascertain  the  merits  of  the  many  contentions  made  in 
the  light  of  the  Constitution  as  it  now  stands,  that  is  to  say  including 
within  its  terms  the  provisions  of  the  Sixteenth  Amendment  as  correctly  inter- 
preted. We  first  dispose  of  two  propositions  assailing  the  validity  of  the  statute 
on  the  one  hand  because  of  its  repugnancy  to  the  Constitution  in  other  respects, 
and  especially  because  its  enactment  was  not  authorized  by  the  Sixteenth  Amend- 
ment. 

S13  The  statute  was  enacted  October  3,  1913,  and  provided  for  a general  yearly 
income  tax  from  December  to  December  of  each  year.  Exceptionally, 
however,  it  fixed  a first  period  embracing  only  the  time  from  March  1,  to  Decem- 
ber 31,  1913,  and  this  limited  retroactivity  is  assailed  as  repugnant  to  the  due 
process  clause  of  the  Fifth  Amendment  and  as  inconsistent  with  the  Sixteenth 
Amendment  itself.  But  the  date  of  the  retroactivity  did  not  extend  beyond  the 
time  when  the  Amendment  was  operative,  and  there  can  be  no  dispute  that 
there  was  power  by  virtue  of  the  Amendment  during  that  period  to  levy  the 
tax,  without  apportionment,  and  so  far  as  the  limitations  of  the  Constitution  in 
other  respects  are  concerned,  the  contention  is  not  open,  since  in  Stockdale 
vs.  Insurance  Companies,  20  Wall  323,  331,  in  sustaining  a provision  in  a prior 
income  tax  law  which  was  assailed  because  of  its  retroactive  character,  it  was 
said: 


“The  right  of  Congress  to  have  imposed  this  tax  by  a new  statute,  although 
the  measure  of  it  was  governed  by  the  income  of  the  past  year,  cannot  be 
doubted,  much  less  can  it  be  doubted  that  it  could  impose  such  a tax  on  the 
income  of  the  current  year,  though  part  of  that  year  had  elapsed  when  the  statute 
was  passed.  The  joint  resolution  of  July  4,  1864,  imposed  a tax  of  five  per 
cent,  upon  all  income  of  the  previous  year,  although  one  tax  on  it  had  already 
been  paid,  and  no  one  doubted  the  validity  of  the  tax  or  attempted  to  resist  it” 

514  .The  statute  provides  that  the  tax  should  not  apply  to  enumerated  organ- 
izations or  corporations,  such  as  labor,  agricultural  or  horticultural  organ- 
izations, mutual  savings  banks,  etc.,  and  the  argument  is  that  as  the  Amendment 
authorized  a tax  on  incomes  “from  whatever  source  derived,”  by  implication  it 
excluded  the  power  to  make  these  exemptions.  But  this  is  only  a form  of  ex- 
pressing the  erroneous  contention  as  to  the  meaning  of  the  Amendment,  which 
we  have  already  disposed  of.  And  so  far  as  this  alleged  illegality  is  based  on 
other  provisions  of  the  Constitution,  the  contention  is  also  not  open,  since  it 
was  expressly  considered  and  disposed  of  in  Flint  v.  Stone  Tracy  Co.,  220  U.  S. 
108,  173. 

515  Without  expressly  stating  all  the  other  contentions,  we  summarize  them 
to  a degree  adequate  to  enable  us  to  typify  and  dispose  of  all  of  them. 

SIC  1.  The  statute  levies  one  tax  called  a normal  tax  on  all  incomes  of  in- 
dividuals up  to  $20,000  and  from  that  amount  up  by  gradations,  a pro- 
gressively increasing  tax  called  an  additional  tax,  is  imposed.  No  tax,  however, 
is  levied  upon  incomes  of  unmarried  individuals  amounting  to  $3,000  or  less  nor 
upon  incomes  of  married  persons  amounting  to  $4,000  or  less.  The  progressive 


Income  Tax 

Supplementary  Page  129. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


tax  and  the  exempted  amounts,  it  is  said,  are  based  on  wealth  alone  and  the 
tax  is  therefore  repugnant  to  the  due  process  clause  of  the  Fifth  Amendment. 
BIT  2.  The  act  provides  for  collecting  the  tax  at  the  source,  that  is,  makes 
it  the  duty  of  corporations,  etc.,  to  retain  and  pay  the  sum  of  the  tax 
on  interest  due  on  bonds  and  mortgages,  unless  the  owner  to  whom  the  interest 
is  payable  gives  a notice  that  he  claims  an  exemption.  This  duty  cast  upon  cor- 
porations, because  of  the  cost  to  which  they  are  subjected,  is  asserted  to  be 
repugnant  to  due  process  of  law  as  a taking  of  their  property  without  compen- 
sation, and  we  recapitulate  various  contentions  as  to  discrimination  against 
corporations  and  against  individuals  predicated  on  provisions  of  the  act  dealing 
with  the  subject: 

S18  (a)  Corporations  indebted  upon  coupon  and.  registered  bonds  are  dis- 

criminated against,  since  corporations  not  so  indebted  are  relieved  of  any 
labor  or  expense  involved  in  deducting  and  paying  the  taxes  of  individuals  on 
the  income  derived  from  bonds. 

B19  (b)  Of  the  class  of  corporations  indebted  as  above  stated,  the  law  further 

discriminates  against  those  which  have  assumed  the  payment  of  taxes 
on  their  bonds,  since,  although  some  or  all  of  their  bondholders  may  be  exempt 
from  taxation,  the  corporations  have  no  means  of  ascertaining  such  fact,  and  it 
would  therefore  result  that  taxes  would  often  be  paid  by  such  corporations  when 
no  taxes  were  owing  by  the  individuals  to  the  Government. 

520  (c)  The  law  discriminates  against  owners  of  corporate  bonds  in  favor 
of  individuals,  none  of  whose  income  is  derived  from  such  property,  since 

bondholders  are,  during  the  interval  between  the  deducting  and  the  paying  of 
the  tax  on  their  bonds,  deprived  of  the  use  of  the  money  so  withheld. 

521  (d)  Again  corporate  bondholders  are  discriminated  against  because  the  law 
does  not  release  them  from  payment  of  taxes  on  their  bonds  even  after 

the  taxes  have  been  deducted  by  the  corporation,  and  therefore  if  after  deduc- 
tion the  corporation  should  fail,  the  bondholders  would  be  compelled  to  pay  the 


teix  a second  time. 

522  (e)  Owners  of  bonds  the  taxes  on  which  have  been  assumed  by  the  cor- 
porations are  discriminated  against  because  the  payment  of  the  taxes  by 

the  corporation  does  not  relieve  the  bondholders  of  their  duty  to  include  the 
income  from  such  bonds  in  making  a return  of  all  income,  the  result  being  a 
double  payment  of  the  taxes,  labor  and  expense  in  applying  for  a refund,  and 
a deprivation  of  the  use  of  the  sum  of  the  taxes  during  the  interval  which  elapses 
before  thev  are  refunded.  . . . . 

523  3.  The  provision  limiting  the  amount  of  interest  paid  which  may  be  de- 
ducted from  gross  income  of  corporations  for  the  purpose  of  fixing  the 

taxable  income  to  interest  on  indebtedness  not  exceeding  one-half  the  sum_  of 
bonded  indebtedness  and  paid-up  capital  stock,  is  also  charged  to  be  wanting 
in  due  process  because  discriminating  between  different  classes  of  corporations 
and  individuals.  .... 

524  4.  It  is  urged  that  want  of  due  process  results  from  the  provision  allow- 
ing individuals  to  deduct  from  their  gross  income  dividends  paid  them  by 

corporations  whose  incomes  are  taxed  and  not  giving  such  rights  of  deduction 

to  corporations.  , , . ..  . 

525  5 Want  of  due  process  is  also  asserted  to  result  from  the  fact  that  the 
act  allows  a deduction  of  $3,000  or  $4,000  to  those  who  pay  the  normal 

tax  that  is,  whose  incomes  are  $20,000  or  less,  and  does  allow  the  deduction  to 
those  whose  incomes  are  greater  than  $20,000;  that  is,  such  persons  are  not 
allowed  for  the  purpose  of  the  additional  or  progressive  tax  a second  right  to 
deduct  the  $3,000  or  $4,000  which  they  have  already  enjoyed.  And  a further 
violation  of  due  process  is  based  on  the  fact  that  for  the  purpose  of  the  addi- 
tional tax  no  second  right  to  deduct  dividends  received  from  corporations  is 

permitted.  , . . . 

S2G  In  various  forms  of  statement,  want  of  due  process,  it  is  moreover  in- 
sisted, arises  from  the  provisions  of  the  act  allowing  a deduction  for  the 
purpose  of  ascertaining  the  taxable  income  of  stated  amounts  on  the  ground 
that  the  provisions  discriminate  between  married  and  single  people  and  dis- 
criminate  between  husbands  and  wives  who  are  living  together  and  those  who 


S27  n°  7.  Discrimination  and  want  of  due  process  results,  it  is  said,  from  the 
fact  that  the  owners  of  houses  in  which  they  live  are  not  compelled  to 
estimate  the  rental  value  in  making  up  their  incomes,  while  those  who  are 
living  in  rented  houses  and  pay  rent  are  not  allowed,  in  making  up  their  taxable 
income,  to  deduct  rent  which  they  have  paid,  and  that  want  of  due  process  also 


Income  Tax 

Supplementary  Page  130. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


# 

# 

# 

# 


results  from  the  fact  that  although  family  expenses  are  not  as  a rule  permitted 
to  be  deducted  from  gross,  to  arrive  at  taxable  income,  farmers  are  permitted 
to  omit  from  their  income  return,  certain  products  of  the  farm  which  are  sus- 
ceptible of  use  by  them  for  sustaining  their  families  during  the  year. 

828  So  far  as  these  numerous  and  minute,  not  to  say  in  many  respects  hyper- 
critical contentions,  are  based  upon  an  assumed  violation  of  the  uni- 
formity clause,  their  want  of  legal  merit  is  at  once  apparent,  since  it  is  settled 
that  that  clause  exacts  only  a geographical  uniformity  and  there  is  not  a sem- 
blance of  ground  in  any  of  the  propositions  for  assuming  that  a violation  of  such 
uniformity  is  complained  of.  Knowlton  v.  Moore,  178  U.  S.  41;  Patron  v. 
Brady,  184  U.  S.  608,  622;  Flint  v.  Stone  Tracy  Co.  220  U.  S.  107,  158;  Billings 
v.  United  States,  232  U.  S.  608,  622. 

529  So  far  as  the  due  process  clause  of  the  Fifth  Amendment  is  relied  upon, 
it  suffices  to  say  that  there  is  no  basis  for  such  reliance  since  it  is  equally 

well  settled  that  such  clause  is  not  a limitation  upon  the  taxing  power  conferred 
upon  Congress  by  the  Constitution;  in  other  words,  that  the  Constitution  does 
not  conflict  with  itself  by  conferring  upon  the  one  hand  a taxing  power  and 
taking  the  same  power  away  on  the  other  by  the  limitations  of  the  due  process 
clause.  Treat  v.  White,  181  U.  S.  264;  Patton  v.  Brady,  184  U.  S.  608;  McCray 
v.  United  States,  195  U.  S.  27,  61;  Flint  v.  Stone  Tracy  Co.,  supra;  Billings  v. 
United  States,  232  U.  S.  261,  282.  And  no  change  in  the  situation  here  would 
arise  even  if  it  be  conceded,  as  we  think  it  must  be,  that  this  doctrine  would 
have  no  application  in  a case  where  although  there  was  a seeming  exercise  of 
the  taxing  power,  the  act  complained  of  was  so  arbitrary  as  to  constrain  to  the 
conclusion  that  is  was  not  the  exertion  of  taxation  but  a confiscation  of  property, 
that  is,  a taking  of  the  same  in  violation  of  the  Fifth  Amendment,  or,  what  is 
equivalent  thereto,  was  so  wanting  in  basis  for  classification  as  to  produce  such 
a gross  and  patent  inequality  as  to  inevitably  lead  to  the  same  conclusion. 
We  say  this  because  none  of  the  propositions  relied  upon  in  the  remotest  degree 
present  such  questions.  It  is  true  that  it  is  elaborately  insisted  that  although 
there  be  no  express  constitutional  provision  prohibiting  it,  the  progressive  feature 
of  the  tax  causes  it  to  transcend  the  conception  of  all  taxation  and  to  be  a mere 
arbitrary  abuse  of  power  which  must  be  treated  as  wanting  in  due  process. 
But  the  proposition  disregards  the  fact  that  in  the  very  early  history  of  the 
Government  a progressive  tax  was  imposed  by  Congress  and  that  such  authority 
was  exerted  in  some  if  not  all  of  the  various  income  taxes  enacted  prior  to  1894 
to  which  we  have  previously  adverted.  And  over  and  above  all  this  the  con- 
tention but  disregards,  the  further  fact  that  its  absolute  want  of  foundation  in 
reason  was  plainly  pointed  out  in  Knowlton  v.  Moore,  supra,  and  the  right  to 
urge  it  was  necessarily  foreclosed  by  the  ruling  in  that  case  made.  In  this 
situation,  it  is,  of  course,  superfluous  to  say  that  arguments  as  to  the  expediency 
of  levying  such  taxes  or  of  the  economic  mistake  or  wrong  involved  in  their 
imposition  are  beyond  judicial  cognizance.  Besides  this  demonstration  of  the 
want  of  merit  in  the  contention  based  upon  the  progressive  feature  of  the  tax, 
the  error  in  the  others  is  equally  well  established  either  by  prior  decisions  or 
by  the  adequate  bases  for  classification  which  are  apparent  on  the  face  of  the 
assailed  provisions,  that  is,  the  distinction  between  individuals  and  corporations, 
the  difference  between  various  kinds  of  corporations,  etc.,  Knowlton  v.  Moore, 
supra  Flint  v.  Stone  Tracy  Co.,  supra;  Billings  v.  United  States,  supra;  National 
Bank  v.  Commonwealth,  9 Wall  353;  National  Safe  Deposit  Co.  v.  Illinois,  232 
U.  S.  58,  70v  In  fact,  comprehensively  surveying  all  the  contentions  relied  upon, 
aside  from  the  erroneous  construction  of  the  Amendment  which  we  have  pre- 
viously disposed  of,  we  cannot  escape  the  conclusion  that  they  all  rest  upon 
the  mistaken  theory  that  although  there  be  differences  between  the  subjects 
taxed,  to  differently  tax  them  transcends  the  limit  of  taxation  and  amounts  to  a 
want  of  due  process,  and  that  where  a tax  levied  is  believed  by  one  who  resists 
its  enforcement  to  be  wanting  in  wisdom  and  to  operate  injustice,  from  that  fact 
in  the  nature  of  things  there  arises  a want  of  due  process  of  law  and  a resulting 
authority  in  the  judiciary  to  exceed  its  powers  and  correct  what  is  assumed 
to  be  mistaken  or  unwise  exertions  by  the  legislative  authority  of  its  lawful 
powers,  even  although  there  be  no  semblance  of  warrant  in  the  Constitution  for 
so  doing. 

530  We  have  not  referred  to  a contention  that  because  certain  administrative 
powers  to  enforce  the  act  were  conferred  by  the  statute  upon  the  Secre- 
tary of  the  Treasury,  therefore  it  was  void  as  unwarrantedly  delegating  legislative 
authority,  because  we  think  to  state  the  proposition  is  to  answer  it.  Flint  v 


Income  Tax 

Supplementary  Page  131. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


Clark,  143  U.  S.  649;  Buttfield  v.  Stranahan,  192  U.  S.  470,  496;  Oceanic  Steam 
Navigation  Co.  v.  Stranahan,  214  U.  S.  320. 

Affirmed. 

Mr.  Justice  McReynoIds  took  no  part  in  the  consideration  and  decision  of 
this  case. 


S31 


Tyee  Realty  Company  vs.  Anderson 
and 

Edwin  Thorne  vs.  Anderson. 
(240  U.  S.  115.) 

(T.  D.  2300,  March  3,  1916.) 


Mr.  Chief  Justice  White  delivered  the  opinion  of  the  Court. 

532  Both  the  plaintiffs  in  error,  the  one  in  393  a corporation,  and  the  other 
in  394  an  individual,  paid  under  protest  to  the  Collector  of  Internal 

Revenue,  taxes  assessed  under  the  Income  Tax  section  of  the  Tariff  Act  of 
October  3,  1913  (Sec.  II,  ch.  16,  38  Stat.  166).  After  an  adverse  ruling  by  the 
Commissioner  of  Internal  Revenue  on  appeals  which  were  prosecuted  con- 
formably to  the  statute  (Rev.  Stat.  Sections  3220,  3226)  by  both  the  parties 
for  a refunding  to  them  of  the  taxes  paid,  these  suits  were  commenced  to  recover 
the  amounts  paid  on  the  ground  of  the  repugnance  to  the  Constitution  of  the 
Section  of  the  Statute  under  which  the  taxes  had  been  collected,  and  the  cases  are 
here  on  direct  writs  of  error  to  the  judgments  of  the  court  below  sustaining 
demurrers  to  both  complaints  on  the  ground  that  they  stated  no  cause  of  action. 

533  Every  contention  relied  upon  for  reversal  in  the  two  cases  is  embraced 
within  the  following  proposition:  (a)  that  the  tax  imposed  by  the  statute 

was  not  sanctioned  by  the  Sixteenth  Amendment  because  the  statute  exceeded 
the  exceptional  and  limited  power  of  direct  income  taxation  for  the  first  time 
conferred  upon  Congress  by  that  Amendment  and,  being  outside  of  the  Amend- 
ment and  governed  solely  therefore  by  the  general  taxing  authority  conferred 
upon  Congress  by  the  Constitution,  the  tax  was  void  as  an  attempt  to  levy 
a direct  tax  without  apportionment  under  the  rule  established  by  Pollock  v. 
Farmers’  Loan  & Trust  Company,  157  U.  S.  429;  158  U.  S.  601.  (b)  That  the 

statute  is  moreover  repugnant  to  the  Constitution  because  of  the  provision  therein 
contained  for  its  retroactive  operation  for  a designated  time  and  because  of  the 
illegal  discrimination  and  inequalities  which  it  creates,  including  the  provision 
for  a progressive  tax  on  the  income  of  individuals  and  the  method  provided  in 
the  statute  for  computing  the  taxable  income  of  corporations. 

534  But  we  need  not  now  enter  into  an  original  consideration  of  the  merits 
of  these  contentions,  because  each  and  all  of  them  were  considered  and 

adversely  disposed  of  in  Brushaber  v.  Union  Pacific  Railroad  Company. 
That  case,  therefore,  is  here  absolutely  controlling  and  decisive.  It  follows 
that  for  the  reasons  stated  in  the  opinion  in  the  Brushaber  case  the  judgments 
in  these  cases  must  be  and  they  are 

Affirmed. 


Dodge  vs.  Brady. 

(240  U.  S.  122.) 

535  (T.  D.  2302,  March  3,  1916.) 

Mr.  Chief  Justice  White  delivered  the  opinion  of  the  Court. 

536  The  appellants  are  the  same  persons  who  sued  in  Dodge  v.  Osborn  just 

decided  . After  the  dismissal  of  that  suit  by  the  Supreme  Court 

of  the  District  of  Columbia  for  want  of  jurisdiction  the  parties,  on  June  10, 
1914  filed  their  bill  in  the  court  below  against  the  Collector  of  Internal  Revenue 
to  enjoin  the  collection  of  the  surtaxes  assessed  against  them  which  were  dis- 
puted in  the  previous  case  on  substantially  the  same  grounds  alleged  in  the 
complaint  in  that  case.  The  bill  alleged,  however,  that  plaintiffs  had  filed  with 
the  Collector  “an  appeal  or  claim  for  the  remission  ana  abatement  oi  the  sur- 
taxes”  because  of  the  unconstitutionality  of  the  statute  imposing  them  and  that 
the  Commissioner  of  Internal  Revenue  to  whom  the  claim  had  been  forwarded 

Income  Tax 

Supplementary  Page  132. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


appeal  because  of  the  constitutional  questions.  . . ,.  . 

S37  The  Government  insists  that  the  court  below  was  without  jurisdiction  to 
decide  the  merits  and  we  come  first  to  that  quesetion  It  is  apparent  it 
the  original  bill  alone  is  taken  into  view  that  the  suit  was  brought  to  enjoin 
the  collection  of  a tax  and  the  court  was  without  jurisdiction  by  the  reasons 
stated  in  the  previous  case.  And  it  is  argued  by  the  Government  that  there 
was  no  jurisdiction  under  the  supplemental  bill  since  it  fails  to  allege  that  an 
appeal  was  taken  to  the  Commissioner  of  Internal  Revenue  after  the  payment 
of  the  taxes  and  that  he  refused  to  refund  them  and  therefore  fails  to  allege  a 
compliance  with  the  conditions  imposed  by  sections  3220  and  32-6  of  the  Revised 
Statutes  as  prerequisites  to  a suit  to  recover  taxes  wrongfully  collected.  But 
broadly  considering  the  whole  situation  and  taking  into  view  the  peculiar  tacts 

of  the  case  the  protest  to  the  Commissioner  and  his  exertion  of  authority  over 

it  and  his  adverse  ruling  upon  the  merits  of  the  tax,  thereby  passing  upon 
every  question  which  he  would  be  called  upon  to  decide  on  an  appeal  for  a 
refunding  of  the  taxes  paid,  we  think  that  this  case  isso  exceptional  in  char- 
acter as  not  to  justify  us  in  holding  that  reversible  error  was  committed  by 

the  court  below  in  passing  upon  the  case  upon  its  merits,  thus  putting  an  end 
to  further  absolutely  useless  and  unnecessary  controversy.  We  say  useless  and 
unnecessary  because  on  the  merits  all  the  contentions  urged  by  the  appellants 
concerning  the  unconstitutionalitv  of  the  law  and  of  the  surtaxes  which  it  imposes 


Mr.  Chief  Justice  White  delivered  the  opinion  of  the  Court.  _ 

539  As  in  Brushaber  v.  Union  Pacific  Railroad  Company,  _ this  case  was 

commenced  by  the  appellant  as  a stockholder  of  the  Baltic  Mining  Com- 
pany, the  appellee,  to  enjoin  the  voluntary  payment  by  the  corporation  and  its 
officers  of  the  tax  assessed  against  it  under  the  Income  Tax  section  of  the  Tariff 
Act  of  October  3,  1913  (38  Stat.  166,  181).  As  the  grounds  for  the  equitable 
relief  sought  in  this  case  so  far  as  the  question  of  jurisdiction  is  concerned  are 
substantially  the  same  as  those  which  were  relied  upon  in  the  Brushaber  case, 
it  follows  that  the  ruling  in  that  case  upholding  the  power  to  dispose  of  the  con- 
troversy in  controlling  here  and  we  put  that  subject  out  of  view. 

540  Further  also  like  the  Brushaber  case  this  is  before  us  on  a direct  appeal 
prosecuted  for  the  purpose  of  reviewing  the  action  of  the  court  below  in 

dismissing  on  motion  the  bill  for  want  of  equity. 

541  The  bill  averred:  “That  under  and  by  virtue  of  the  alleged  authority  con- 
tained in  said  Income  Tax  Law,  if  valid  and  constitutional,  the  respondent 

company  is  taxable  at  the  rate  of  1%  upon  its  gross  receipts  from  all  sources, 
during  the  calendar  year  ending  December  31,  1914,  after  deducting  (1)  its  ordi- 
nary  and  necessary  expenses  paid  within  the  year  in  the  maintenance  and  oper- 
ation of  its  business  and  properties  and  (2)  all  losses  actually  sustained  within 
the  year  and  not  compensated  by  insurance  or  otherwise,  including  depreciation 
arising  from  depletion  of  its  ore  deposits  to  the  limited  extent  of  5%  of  the  ‘gross 
value  at  the  mine  of  the  output’  during  said  year.  It  was  further  alleged  that 
the  company  would  if  not  restrained  make  a return  for  taxation  conformably  to 
the  statute  and  would  pay  the  tax  upon  the  basis  stated  without  protest  and  that 


CUIILCI  II  > '1*3  nic  iintuuoiuu  t . , . , t r • tj  * £• 

have  been  considered  and  adversely  disposed  of  in  Brushaber  v.  Union  Pacific 


S38 


Stanton  v.  Baltic  Mining  Co. 

(240  U.  S.  103.) 

(T.  D.  2303,  March  3,  1916.) 


Income  Tax 

Supplementary  Page  133. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


to  do  so  would  result  in  depriving  the  complainant  as  a stockholder  of  rights 
secured  by  the  Constitution  of  the  United  States  as  the  tax  which  it  was  proposed 
to  pay  without  protest  was  void  for  repugnancy  to  that  Constitution.  The  bill 
contained  many  averments  on  the  following  subjects  which  may  be  divided  into 
two  generic  classes:  (A)  those  concerning  the  operation  of  the  law  in  question 

upon  individuals  generally  and  upon  other  mining  corporations  and  the  discrim- 
ination against  mining  corporations  which  arose  in  favor  of  such  other  cor- 
porations and  individuals  by  the  legislation,  as  well  as  discrimination  which  the 
provisions  of  the  act  operated  against  mining  corporations  because  of  the  separate 
and  more  unfavorable  burden  cast  upon  them  by  the  statute  than  was  placed 
upon  other  corpoiations  and  individuals — averments  all  of  which  were  obviously 
made  to  support  the  subsequent  charges  which  the  bill  contained  as  to  the  re- 
pugnancy of  the  law  imposing  the  law  to  the  equal  protection,  due  process  and 
uniformity  clauses  of  the  Constitution.  And  (B)  those  dealing  with  the  practical 
results  on  the  company  of.  the  operation  of  the  tax  in  question  evidently  alleged 
for  the  purpose  of  sustaining  the  charge  which  the  bill  made  that  the  tax  levied 
was  not  what  was  deemed  to  be  the  peculiar  direct  tax  which  the  Sixteenth 
Amendment  exceptionally  authorized  to  be  levied  without  apportionment  and  of 
the  resulting  repugnancy  of  the  tax  to  the  Constitution  as  a direct  tax  on  property 
because  of  its  ownership  levied  without  conforming  to  the  regulation  of  appor- 
tionment generally  required  by  the  Constitution  as  to  such  taxation. 

542  We  need  not  more  particularly  state  the  averments  as  to  the  various  con- 
tentions in  class  (A),  as  their  character  will  necessarily  be  made  manifest 

by  the  statement  of  the  legal  propositions  based  on  them  which  we  shall  hereafter 
have  occasion  to  make.  As  to  the  averments  concerning  class  (B),  it  suffices  to 
say  that  it  resulted  from  copious  allegations  in  the  bill  as  to  the  value  of  the  ore 
body  contained  in  the  mine  which  the  company  worked  and  the  total  output  for 
the  year  of  the  product  of  the  mine  after  deducting  the  expenses  as  previously 
stated,  that  the  5%  deduction  permitted  by  the  statute  was  inadequate  to  allow 
for  the  depletion  of  the  ore  body  and  therefore  the  law  to  a large  extent  taxes  not 
the  mere  profit  arising  from  the  operation  of  the  mine,  but  taxes  as  income  the 
yearly  product  which  represented  to  a large  extent  the  yearly  depletion  or  ex- 
haustion of  the  ore  body  from  which  during  the  year  ore  was  taken.  Indeed, 
the  following  alleged  facts  concerning  the  relation  which  the  annual  production 
bore  to  the  exhaustion  or  diminution  of  the  property  in  the  ore  bed  must  be 
taken  as  true  for  the  purpose  of  reviewing  the  judgment  sustaining  the  motion 
to  dismiss  the  bill. 

“That  the  real  or  actual  yearly  income  derived  by  the  respondent  company 
from  its  business  or  property,  does  not  exceed  $550,000.  That,  under  the  Income 
Tax,  the  said  company  is  held  taxable  in  an  average  year,  to  the  amount  of 
approximately  $1,150,000,  the  same  being  ascertained  by"  deducting  from  its  net 
receipts  of  $1,400,000  only  a depreciation  of  $100,000  on  its  plant  and  a depletion 
of  its  ore  supply  limited  by  law  to  5 per  cent  of  the  value  of  its  annual  gross  re- 
ceipts and  amounting  to  $150,000;  whereas,  in  order  properly  to  ascertain  its  actual 
income  $750,000  per  annum  should  be  allowed  to  be  deducted  for  such  depletion, 
or  five  times  the  amount  actually  allowed.” 

543  Without  attempting  minutely  to  state  every  possible  ground  of  attack 
which  might  be  deduced  from  the  averments  of  the  bill,  but  in  substance 

embracing  every  material  grievance  therein  asserted  and  pressed  in  argument 
upon  our  attention  in  the  elaborate  briefs  which  have  been  submitted,  we  come 
to  separately  dispose  of  the  legal  propositions  advanced  in  the  bill  and  arguments 
concerning  the  two  classes. 

544  Class  A.  Under  this  the  bill  charged  that  the  provisions  of  the  statute 
are  “unconstitutional  and  void  under  the  Fifth  Amendment,  in  that  they 

deny  to  mining  companies  and  their  stockholders  equal  protection  of  the  laws 
and  deprive  them  of  their  property  without  due  process  of  law,”  for  the  following 
reasons : 

(1)  Because  all  other  individuals  or  corporations  were  given  a right  to  deduct 
a fair  and  reasonable  percentage  for  losses  and  depreciation  of  their  capital  and 
they  were  therefore  not  confined  to  the  arbitrary  5%  fixed  as  the  basis  for  deduc- 
tions by  ndning  corporations. 

(2)  Because  by  reason  of  the  difference  in  the  allowances  which  the  statute 
permitted  the  tax  levied  was  virtually  a net  income  tax  on  other  corporations  and 
individuals  and  a gross  tax  on  mining  corporations. 

(3)  Because  the  statute  established  a discriminating  rule  as  to  individuals  and 
other  corporations  as  against  mining  corporations  on  the  subject  of  the  method 
of  the  allowance  for  depreciations. 

Income  Tax 

Supplementary^Page  134. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


(4)  Because  the  law  permitted  all  individuals  to  deduct  from  their  net  income 
dividends  received  from  corporations  which  had  paid  the  tax  on  their  incomes, 
and  did  not  give  the  right  to  corporations  which  had  paid  their  income  tax.  this 
was  illustrated  by  the  averment  that  99%  of  the  stock  of  the  defendant  company 
was  owned  by  a holding  company  and  that  under  the  statute  not  only  was  the 
corporation  obliged  to  pay  the  tax  on  its  income,  but  so  also  was  the  holding 
company  obliged  to  pay  on  the  dividends  paid  it  by  the  defendant  company. 

(5)  Because  of  the  discrimination  resulting  from  the  provision  of  the  statute 
providing  for  a progressive  increase  of  taxation  or  surtaxes  to  individuals  and 

not  as  to  corporations.  , , • 

(6)  Because  of  the  exemptions  which  the  statute  made  of  individual  incomes 
below  $4,000  and  of  incomes  of  labor  organizations  and  various  other  exemptions 

which  were  set  forth.  . ...  . 

But  it  is  apparent  from  the  mere  statement  of  these  contentions  that  each 
and  all  of  them  were  adversely  disposed  of  by  the  decision  in  the  Brushaber 
case  and  they  all  therefore  may  be  put  out  of  view. 

Class  B.  Under  this  class  these  propositions  are  relied  upon: 

(1)  That  as  the  Sixteenth  Amendment  authorized  only  an  exceptional  direct 
income  tax  without  apportionment,  to  which  the  tax  in  question  does  not  con- 
form it  is  therefore  not  within  the  authority  of  that  amendment. 

(2)  Not  being  within  the  authority  of  the  Sixteenth  Amendment  the  tax  is 
therefore  within  the  ruling  of  Pollock  v.  Farmers’  Loan  & Trust  Company,  157 
U.  S.  429;  158  U.  S.  601,  a direct  tax  and  void  for  want  of  compliance  witn  tne 

regulation  of  apportionment.  . , , • , c- 

S45  As  the  first  proposition  is  plainly  in  conflict  with  the  meaning  ol  tne  Six- 
teenth Amendment  as  interpreted  in  the  Brushaber  case  it  may  also 
put  out  of  view.  As  to  the  second,  while  indeed  it  is  distinct  from  the  subjects 
considered  in  the  Rrushaber  case  to  the  extent  that  the  particular  tax  which  the 
statute  levies  on  mining  corporations  here  under  consideration  is  distinct  from 
the  tax  on  corporations  other  than  mining  and  on  individuals  which  was  disposed 
of  in  the  Brushaber  case,  a brief  analysis  will  serve  to  demonstrate  that  the  dis- 
tinction is  one  without  a difference  and  therefore  that  the  proposition  is.  also  fore- 
closed  by  the  previous  ruling.  The  contention  is  that  as  the  tax  here  imposed  is 
not  on  the  net  product  but  in  a sense  somewhat  equivalent  to  a tax  on  the  gross 
product  of  the  working  of  the  mine  by  the  corporation,  therefore  the  tax  is  not 
within  the  purview  of  the  Sixteenth  Amendment  and  consequently  it  must  be 
treated  as  a direct  tax  on  property  because  of  its  ownership  and  as  such  void  for 
want  of  apportionment.  But  aside  from  the  obvious  error  of  the  proposition 
intrinsically  considered,  it  manifestly  disregards  the  fact  that  by  the  previous 
ruling  it  was  settled  that  the  provisions  of  the  Sixteenth  Amendment  conferred 
no  new  power  of  taxation  but  simply  prohibited  the  previous  complete  and 
plenary  power  of  income  taxation  possessed  by  Congress  from  the  beginning 
from  being  taken  out  of  the  category  of  indirect  taxation  to  which  it  inherently 
belonged  and  being  placed  in  the  category  of  direct  taxation  subject  to  appor- 
tionment by  a consideration  of  the  sources  from  which  the  income  was  derived, 
that  is  by  testing  the  tax  not  by  what  it  was— a tax  on  income,  but  by  a mistaken 
theory  deduced  from  the  origin  or  source  of  the  income  taxed.  Mark,  of  course, 
in  saying  this  we  are  not  here  considering  a tax  not  within  the  provisions  ot  the 
Sixteenth  Amendment,  that  is,  one  in  which  the  regulation  of  apportionment  or 
the  rule  of  uniformity  is  wholly  negligible  because  the  tax  is  one  entirely  beyond 
the  scope  of  the  taxing  power  of  Congress  and  where  consequently  no  authority 
to  impose  a burden  either  direct  or  indirect  exists.  In  other  words,  we  are 
here  dealing  solely  with  the  restriction  imposed  by  the  Sixteenth  Amendment 
on  the  right  to  resort  to  the  source  whence  an  income  is  derived  in  a case  where 
there  is  power  to  tax  for  the  purpose  of  taking  the  income  tax  out  of  the  class 
of  indirect  to  which  it  generically  belongs  and  putting  in. the  class  of  direct  to 
which  it  would  not  otherwise  belong  in  order  to  subject  it  to  the  regulation  of 
apportionment.  But  it  is  said  that  although  this  be  undoubtedly  true  as  a general 
rule,  the  peculiarity  of  mining  property  and  the  exhaustion  of  the  ore  body  which 
must  result  from  working  the  mine,  causes,  the  tax  in  a case  like  this  where  an 
inadequate  allowance  by  way  of  deduction  is  made  for  the  exhaustion  of  the  ore 
body  to  be  in  the  nature  of  things  a tax  on  property  because  of  its  ownership 
and  therefore  subject  to  apportionment.  Not  to  so  hold,  it  is.  urged  is  as  to  min- 
ing  property  but  to  say,  that  mere  form  controls,  thus  rendering  in  substance  the 
command  of  the  Constitution  that  taxation  directly  on  property  because  of  its 
ownership  be  apportioned,  wholly  illusory  or  futile.  But  this  merely  asserts  a 
right  to  take  the  taxation  of  mining  corporations  out  of  the  rule  established  Dy 

Income  Tax 

Supplementary  Page  135. 


SUPREME  COURT  DECISIONS- 


1913  ACT. 


the  Sixteenth  Amendment  when  there  is  no  authority  for  cn  Hnlmr  t«- 

and  nature  in  every  case  a direct  tix  nn  nm™  t t,e  *S  neccs?arily  ,n  tts  essence 
adequate  allowance  be  made  for  the  exhaustion  oMhfoi-0/  hnH°WtnerShiPi  U?Iess 
of0rth'egcffect1o1fnetheVoD  sa^.  wholly  fallacious  assumption  because  independently 
Stratton’s  Independent.  " HowbertCfi* U^'s!  Z'ck  ™ 

S°  ThV'KsSbetrh?Leht„'ri,nn.o°fa  “fc 

Affirmed. 

Gould  vs.  Gould. 

(245  U.  S.  151.) 

S47Mr' AJU,^!-Ce  MrRfuyn|Ids  deliv?.red  the  opinion  of  the  Court. 

S A decree  of  the  Supreme  Court  for  New  York  County  entered  in  1909 

the  UniteTltat2arfarom  he/YnlfV0  I*  pr.OCreedi1ng«  then  and  now  citizens  of 
sented  is  whether  such  monthly  payments  during  the  years  1913  and  1914  con 

gS*?.  reached ^e^proper  SSfiSL  b''°W  h 'h'  ^ ^ « 

S48  Pertinent  portions  of  the  Act  follow: 

.S*ct.lon  A-  Subdivision  1.  That  there  shall  be  levied,  assessed  col- 
f mm  ,.ected  and  paid  annually  upon  the  entire  net  income  arising  or  accruim? 

su,b->.ect  on]y  to  such  exemptions  and  deductions  as  are  hereinafter 
*"™ed’  •' heanrCt  lnc°"le  0f  a taxab,e  Person  sba11  delude  gains,  profits  a"d  n- 
e^1VeCa  Eom  sauries,  wages,  or  compensation  for  personal  service ’of  what 
ever  land  and  in  whatever  form  paid,  or  from  professions,  vocations .businesses 
trade,  commerce  or  sales,  or  dealings  in  property,  whether  real  or  n™’ 
growing  out  of  the  ownership  or  use  of  or  interest ^n  real  or  personal  property’ 
also  from  interest,  rent,  dividends,  securities,  or  the  transaction  of  anv  lawful 
business  carried  on  for  gain  or  profit,  or  gains  or  profits  anrincom^derNed 
om  any  source  whatever,  including  the  income  from  but  not  the  value  of 
property  acquired  by  gift,  bequest,  devise,  or  descent:  * * * 

notm  lnterpretatl.on  of  statutes  levying  taxes  it  is  the  established  rule 
f tt,  J10t  t0  extend  their  provisions,  by  implication,  beyond  the  clear  import 

of  the  language  used  or  to  enlarge  their  operations  as  to  embrace  matted  not 

Sainst^he  F-°mted  °ut/  .cas,e  ot  doubt  they  are  construed  most  strongly 
against  the  Government,  and  in  favor  of  the  citizen.  United  States  v Wieeles- 

TT0^’^  Sj£[y  r369’- AmencTaTn.  Net  and  Twine  Company  v.  Worthington  S 141 
U-  S-  4a8,  474:  Benzi&er  v.  United  States;  192  U.  S.  38,  55.  vvorinmgton* 

As  appears  from  the  above  quotations,  the  net  income  which  sub- 

• j • d1vlrlor!|  ? dVle<;t?  an  annual  tax  shall  be  assessed,  levied  collected  and 

“kimp”lned  m dlvls,?n  R.  Tbe  use  of  the  word  itself  in  the  definition  of 
to  D causes  some  obscurity,  but  we  are  unable  to  assert  that  alimony  paid 

employed.rCed  ^ Under  3 deCree  °f  C°Urt  falls  fairly  within  any  of  the  terms 

S51  i(Audubofn  v-  shufe’dt..  181  u.  S.  575,  577,  578,  we  said:  “Alimony  does 
riaee  I?  k 3 from  any  business  transaction,  but  from  the  relation  of  mar- 
afe;  i If  0t  ol!ndfd  ?n  a contract,  express  or  implied,  but  on  the  natural 
and  legal  duty  of  the  husband  to  support  the  wife.  The  general  obligation  to 
^upport  'srnadespecTic  by  the  decree  of  the  court  of  appropriate  jurisdiction. 

1 ermanent  alimony  is  regarded  rather  as  a portion  of  the  husband’s 

Income  Tax 

Supplementary  Page  136. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


estate  to  which  the  wife  is  equitably  entitled,  than  as  strictly  a debt;  alimony 
from  time  to  time  may  be  regarded  as  a portion  of  his  current  income  or  earn- 
ings; * * * 

552  The  net  income  of  the  divorced  husband  subject  to  taxation  was  not  de- 
creased by  payment  of  alimony  under  the  court’s  order;  and,  on  the  other 

hand,  the  sum  received  by  the  wife  on  account  thereof  cannot  be  regarded  as 
income  arising  or  accruing  to  her  within  the  enactment. 

553  The  judgment  of  the  court  below  is  Affirmed. 


Towne  v.  Eisner. 

(245  U.  S.  418.) 

554  (T.  D.  2634,  Jan.  21,  1918.) 

555  This  is  a suit  to  recover  the  amount  of  a tax  paid  under  duress  in  respect 
of  a stock  dividend  alleged  by  the  Government  to  be  income.  A de- 
murrer to  the  declaration  was  sustained  by  the  District  Court  and  judgment 
was  entered  for  the  defendant,  242  Fed.  Rep.  702.  The  facts  alleged  are  that 
the  corporation  voted  on  December  17,  1913,  to  transfer  $1,500,000  surplus, 
being  profits  earned  before  January  1,  1913,  to  its  capital  account,  and  to  issue 
fifteen  thousand  shares  of  stock  representing  the  same  to  its  stockholders  of 
record  on  December  26;  that  the  distribution  took  place  on  January  2,  1914, 
and  that  the  plaintiff  received  as  his  due  proportion  four  thousand  and  one 
hundred  and  seventy-four  and  a half  shares.  The  defendant  compelled  the 
plaintiff  to  pay  an  income  tax  upon  his  stock  as  equivalent  to  $417,450  income 
in  cash.  The  District  Court  held  that  the  stock  was  income  within  the  mean- 
ing of  the  Income  Tax  Act  of  October  3,  1913,  c.  16,  Section  II;  A,  subdivision 
1 and  2;  and  B.  38  Stat.  114,  166,  167  It  also  held  that  the  Act  so  constructed 
was  constitutional,  whereas  the  declaration  set  up  that  so  far  as  the  Act  pur- 
ported to  confer  power  to  make  this  levy  it  was  unconstitutional  and  void. 

556  The  Government  in  the  first  place  moved  to  dismiss  the  case  for  want  of 
jurisdiction,  on  the  ground  that  the  only  question  here  is  the  construction 

of  the  statute,  not  its  constitutionality.  It  argues  that  if  such  a stock  dividend 
is  not  income  within  the  meaning  of  the  constitution,  it  is  not  income  within 
the  intent  of  the  statute,  and  hence  that  the  meaning  of  the  Sixteenth  amendment 
is  not  an  immediate  issue,  and  is  important  only  as  throwing  light  on  the  con- 
struction of  the  Act.  But  it  is  not  necessarily  true  that  income  means  the 
same  thing  in  the  Constitution  and  the  Act.  A word  is  not  a crystal,  trans- 
parent and  unchanged;  it  is  the  skin  of  a living  thought  and  may  vary  greatly 
in  color  and  content  according  to  the  circumstances  and  the  time  in  which  it 
is  used.  Lamar  v.  United  States,  240  U.  S.  60,  65.  Whatever  the  meaning  of 
the  Constitution,  the  Government  had  applied  its  force  to  the  plaintiff  on  the 
assertion  that  the  statute  authorized  it  to  do  so,  before  the  suit  was  brought, 
and  the  Court  below  has  sanctioned  its  course.  The  plaintiff  says  that  the  statute 
as  it  is  construed  and  administered  is  unconstitutional.  He  is  not  to  be  defeated 
by  the  reply  that  the  Government  does  not  adhere  to  the  construction  by  virtue 
of  which  alone  it  has  taken  and  keeps  the  plaintiff’s  money,  if  this  Court  should 
think  that  the  construction  would  make  the  Act  unconstitutional.  While  it  keeps 
the  money  it  opens  the  question  whether  the  Act  construed  as  it  has  construed 
it  can  be  maintained.  The  motion  to  dismiss  is  overruled.  Billings  v.  United 
States  232  U.  S.  261,  276.  B.  Altman-Comany  v.  United  States  224  U.  S.  583, 
596,  597. 

557  The  case  being  properly  here,  however,  the  construction  of  the  Act  is 
open,  as  well  as  its  constitutionality,  if  construed  as  the  Government  has 

construed  it  by  its  conduct.  Billings  v.  United  States  ubi  supra.  Notwithstanding 
the  thoughtful  discussion  that  the  case  received  below  we  can  not  doubt  that  the 
dividend  was  capital  as  well  for  the  purposes  of  the  Income  Tax  Law  as  for 
distribution  between  tenant  for  life  and  remainderman.  What  was  said  by  this 
Court  upon  the  latter  question  is  equally  true  for  the  former.  “A  stock  dividend 
really  takes  nothing  from  the  property  of  the  corporation,  and  adds  nothing  to 
the  interest  of  the  shareholders.  Its  property  is  not  diminished  and  their  inter- 
ests are  not  increased.  * * * The  proportional  interest  of  each  shareholder 

remains  the  same.  The  only  change  is  in  the  evidence  which  represents  that 
interest,  the  new  shares  and  the  original  shares  together  representing  the  same 

Income  Tax 

Supplementary  Page  137. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


proportional  interest  that  the  original  shares  represented  before  the  issue  of  the 
new  ones.”  Gibbons  v.  Mahon,  136  U.  S.  549,  559,  560.  In  short,  the  corporation 
is  no  poorer  and  the  stockholder  is  no  richer  than  they  were  before.  Logan 
County  v.  United  States,  169  U.  S.  255,  261.  If  the  plaintiff  gained  any  small 
advantage  by  the  change  it  certainly  was  not  an  advantage  of  $417,450,  the  sum 
upon  which  he  was  taxed.  It  is  alleged  and  admitted  that  he  received  no  more 
in  the  way  of  dividends  and  that  his  old  and  new  certificates  together  are  worth 
only  what  the  old  ones  were  worth  before.  If  the  sum  had  been  carried  from 
surplus  to  capital  account  without  a corresponding  issue  of  stock  certificates, 
which  there  was  nothing  in  the  nature  of  things  to  prevent,  we  do  not  suppose 
that  any  one  would  contend  that  the  plaintiff  had  received  an  accession  to  his 
income.  Presumably  his  certificate  would  have  the  same  value  as  before.  Again 
if  certificates  for  $1,000  par  were  split  up  in  ten  certificates,  each  for  $100,  we 
presume  that  no  one  would  call  the  new  certificates  income.  What  has  happened 
is  that  the  plaintiff’s  old  certificates  have  been  split  up  in  effect  and  have  dim- 
inished in  value  to  the  extent  of  the  value  of  the  new. 

Judgment  Reversed. 

Mr.  Justice  McKenna  concurs  in  the  result. 

[For  U.  S.  Supreme  Court  decision  on  “stock  dividends”  under  Revenue  Act 
of  1916  see  TfS244.] 


S58  Digest  of  the  Recent  Decisions  of  the  Supreme  Court.— [Comment:  Of 
the  cases  referred  to  those  brought  under  the  Act  of  October  3,  1913  only, 
are  reproduced  in  full  as  indicated  by  the  paragraph  references.  The  other 
cases  digested  were  brought  under  the  Excise  Tax  Act  of  August  5,  1909.]  _ 

The  following  propositions  of  law,  stated  for  the  information  and  guidance 
of  internal  revenue  officers  and  others  concerned,  are  expressed  or  implied  in 
the  recent  decisions  of  the  Supreme  Court  of  the  United  States,  in  United  States 
v.  Biwabik  Mining  Company  (T.  D.  2721)  (247  U.  S.  116),  Goldfield  Consolidated 
Mines  Company  v.  Scott  (T.  D.  2722)  (247  U.  S.  126)  Doyle  v.  Mitchell  Bros. 
Co.  (T.  D.  2723)  (247  U.  S.  179),  Hays  v.  Gauley  Mountain  Coal  Company  (T.  D. 
2724)  (247  U.  S.  189),  United  States  v.  Cleveland,  Cincinnati,  Chicago  & St. 
Louis  Railway  Company  (T.  D.  2725)  (247  U.  S.  195),  William  E.  Peck  & Co. 
(Inc.)  v.  Lowe  (T.  D.  2726,  Lynch  v.  Turrish  (T.  D.  2729),  Southern  Pacific  v. 
Lowe  (T.  D.  2730,  Lynch  v.  Hornby  (T.  D.  2731),  and  Peabody  v.  Eisner  (T.  D. 
2732)  : 

£59  1.  In  the  determination  of  net  income  the  Excise  Tax  of  August  5, 

1909,  permitted  the  deduction  from  gross  income  of  “a  reasonable  allow- 
ance for  depreciation  of  property,  if  any";  the  Income  Tax  Act  of  October  3, 
1913,  permitted  “a  reasonable  allowance,  for  the  exhaustion,  wear  and  tear 
of  property  arising  out  of  its  use  or  employment  in  the  business,  not  to 
exceed,  in  the  case  of  mines,  5 per  centum  of  the  gross,  value  at  the  mine  of 
the  output  for  the  year  for  which  the  computation  is  made”;  and  the  Income  Tax 
Act  of  September  8,  1916,  as  amended  permits,  in  the  case  of  mines,  a reasonable 
allowance  for  depletion  thereof  not  to  exceed  the  market  value  in  the  mine 
of  the  product  thereof  which  has  been  mined  and  sold  during  the  year  for 
which  the  return  and  computation  are  made.” 

S60  (a)  As  mining  leases  are  not  conveyances  of  the  ore  in  place,  but  are 

grants  of  the  privilege  of  entering  upon  the  premises  and  mining  and 
removing  the  ore,  under  none  of  the  Acts  of  1909,  1913  or  1916,  may  a lessee  of 
mining  property  deduct  as  so  much  depletion  of  capital  assets  the  propor- 
tionate value  in  place  on  January  1,  1909,  or  any  other  date,  of  each  ton  of  ore 
mined  during  the  taxable  year.  See  T.  D.  1606  (75);  Article  145  of  Regulations 
No.  33;  and  Article  8,  171  and  172  of  Regulations  No.  33  (revised).  (United 
States  v.  Biwabik  Mining  Company.  See  Von  Baumbach  v.  Sargent  Land  Com- 
pany, 242  U.  S.  503.)  , . 

£61  (b)  Under  the  Act  of  1909  a mining  corporation  owning  its  mine  is  not 

entitled  to  a deduction  from  its  gross  income  of  any  amount  whatever 
on  account  of  depletion  or  exhaustion  of  the  ore  bodies  caused  by  its  operations 
for  the  year  for  which  the  tax  is  assessed,  nor  to  a deduction  against  the  gross 
proceeds  from  the  mining  and  treatment  of  ores  to  the  extent  of  the  cost  value 
of  the  ore  in  the  ground  before  it  was  mined.  T.  D.  1675  (80-89)  and  T.  D. 
1742  (96-105)  are  modified  accordingly.  In  view  of  their  different  provisions 
this  rule  is  inapplicable  to  situations  arising  under  the  Acts  of  1913  and  1916. 

Income  Tax 

Supplementary  Page  138. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


See  Articles  141  and  142  of  Regulations  No.  33;  and  Articles  8,  171  and  172  of 
Regulations  No.  33  (revised).  (Goldfield  Consolidated  Mines  Company  v.  Scott. 
See  Stratton’s  Independence  v.  Howbert,  231  U.  S.  399;  Stanton  v.  Baltic  Mining 
Company,  240  U.  S.  103.) 

g62  2.  The  Excise  Tax  Act  of  August  5,  1909,  measured  the  tax  by  the  net 
income  of  a corporation  “received”  by  it  from  all  sources  during  the 
taxable  year;  the.  Income  Tax  Act  of  October  3,  1913,  imposed  the  tax  upon  the 
net  income  “arising  or  accruing”  from  all  sources  during  the  taxable  year;  and 
the  Income  Tax  Act  of  September  8,  1916,  as  amended  upon  the  net  income 
“received”  from  all  sources  during  the  taxable  year. 

SG8  (a)  Where  property  is  acquired  by  a corporation  and  subsequently  sold 
for  a higher  price,  under  all  three  Acts  the  gain  on  the  sale  is  income 
to  the  corporation.  If,  however,  the  property  was  acquired  before  January  I, 
1909,  only  such  portion  of  the  gain  as  accrued  subsequent  to  December  31,  1908, 
was  taxable  under  the  Act  of  1909,  and  if  it  was  acquired  before  March  1,  1913, 

only  such  portion  of  the  gain  as  accrued  subsequent  to  February  28,  1913,  was 

taxable  under  the  Act  of  1913,  or  is  taxable  under  the  Act  of  1916.  See  Regu- 
lations No.  31,  T.  D.  1606  (40,  SO,  76),  T.  D.  1675  (37,  48,  75)  T.  D.  1742  (43,  55, 
91);  and  Articles  88,  101  and  116  of  Regulations  No.  33  (revised)  (Doyle  v. 
Mitchell  Bros.  Co.;  Hays  v.  Gauley  Mountain  Coal  Company;  United  States  v. 
Cleveland,  Cincinnati,  Chicago  & St.  Louis  Railway  Company.) 

564  (b)  In  order  to  determine  whether  there  has  been  gain  or  loss  on  a sale,  and 

the  amount  of  the  gain,  if  any,  in  general  under  all  three  Acts  an  amount 

must  be  withdrawn  from  the  gross  proceeds  sufficient  to  restore  the  cost  of  the 
property  or  the  capital  value  that  existed  at  the  commencement  of  the  period 
under  consideration  (either  January  1,  1909,  or  March  1,  1913).  Interest  should 
not  be  added  to  the  purchase  price  in  order  to  ascertain  the  cost  of  the  property. 
In  apportioning  the  profits  derived  from  a disposition  of  property  acquired 
before  and  sold  after  January  1,  1909,  for  the  purpose  of  the  Act  of  1909,  or 
acquired  before  and  sold  after  March  1,  1913,  for  the  purpose  of  the  Act  of 
1913,  the  division  may  be  pro  rata  according  to  the  time  elapsed  or  may  be  based 
on  an  appraisal  or  inventory  taken  as  of  December  31,  1908,  or  February  28,  1913. 
This  is  a matter  of  detail,  to  be  settled  according  to  the  best  evidence  obtainable 
and  in  accordance  with  valid  departmental  regulations.  For  the  purpose  of 
the  Act  of  1916,  however,  the  fair  market  price  or  value  as  of  March  1,  1913, 
to  be  ascertained  in  any  practicable  manner,  is  the  statutory  basis  for  deter- 
mining the  amount  of  gain  on  a sale  of  property  acquired  before  that  date. 
See  Regulations  No.  31,  T.  D.  1578,  T.  1588,  T.  D.  1606  (37,  71),  T.  D.  1675 
(36,  55,  69),  T.  D.  1742  (42,  62,  86);  Articles  4,  90,  91,  92,  93,  101,  109,  111,  112 
and  116  of  Regulations  No.  33  (revised),  and  T.  D.  2649.  (Doyle  v.  Mitchell 
Bros.  Co.;  Hays  v.  Gauley  Mountain  Coal  Company;  United  States  v.  Cleveland, 
Cincinnati,  Chicago  & St.  Louis  Railway  Company.) 

565  (c).The  Act  of  1913  is  valid  and  constitutional  in  taxing  net  income 
derived  from  sales  in  foreign  commerce.  The  same  principle  applies 

to  the  Acts  of  1909  and  1916.  (William  E.  Peck  & Co.  (Inc.)  v.  Lowe.) 

566  (d)  Where  a stockholder  in  a corporation  receives  as  a liquidation  divi- 
dend, representing  his  share  in  the  distribution  of  the  proceeds  of  the 

sale  of  the  property  of  the  corporation  upon  dissolution,  a sum  greater  than 
the  cost  of  his  stock,  under  the  Acts  of  both  1913  and  1916  the  gain  is  income 
to  the  stockholder.  If,  however,  he  acquired  the  stock  before  March  1,  1913, 
only  such  portion  of  the  gain  as  accrued  subsequent  to  February  28,  1913,  was 
taxable  under  the  Act  of  1913  or  is  taxable  under  the  Act  of  1916.  Compare 
the  case  of  a dividend  in  ordinary  course  in  paragraph  (f)  below.  See  the 
citations  in  paragraphs  (a)  and  (b)  above.  (Lynch  v.  Turrish). 

567  (c)  Where  a corporation  owns  all  the  stock  and  operates  a lease  all  the 
property  and  business  of  another  corporation,  acting  as  banker  for  it 

and  the  two  corporations  being  in  substance  identical  and  merged  for  all  prac- 
tical  purposes,  under  the  Acts  of  both  1913  and  1916  surplus  of  the  lessor  cor- 
poration accrues  as  income  to  the  lessee  corporation  as  and  when  accumulated 
by  the  lessor  corporation,  notwithstanding  the  formal  distribution  of  such  surplus 
in  dividends  to  the  lessee  corporation  may  not  occur  during  the  taxable  year. 
This  special  situation  forms  an  exception  to  the  general  rule  stated  in  paragraph 
(f)  below.  See  Articles  125,  207  and  208  of  Regulations  No.  33  (revised). 
(Southern  Pacific  Company  v.  Lowe.) 

568  (f)  Where  a stockholder  of  a corporation  receives  dividends  paid  in  the 
ordinary  course  of  business,  even  though  extraordinary  in  amount,  under 

the  Acts  of  both  1913  and  1916  such  dividends  are  income  in  the  year  in  which 

Income  Tax 

Supplementary  Page  139. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


they  are  received  by  the  stockholder.  If  paid  out  of  surplus  accrued  to  the 
corporation  prior  to  March  1,  1913,  they  were  subject  to  tax  under  the  Act  of 
1913,  although  expressly  exempt  from  lax  under  the  Act  of  1916.  A dividend 
paid  by  a going  corporation  out  of  current  earnings  or  accumulated  surplus 
when  declared  by  the  directors  in  their  discretion,  being  in  the  nature  of  a 
recurrent  return  upon  the  slock,  is  distinguishable  from  a so-called  dividend  in 
liquidation  of  the  entire  assets  and  business  of  the  corporation,  which  is  a return 
to  the  stockholder  of  the  value  of  his  stock  upon  the  surrender  of  his  entire 
interest  in  the  corporation.  Compare  the  case  of  a liquidation  dividend  in  para- 
graph (d)  above.  See  Articles  105,  106  and  107  of  Regulations  No.  33  (revised), 
T.  D.  2659  and  T.  D.  2678.  (Lynch  v.  Hornby;  Peabody  v.  Eisner.) 

(g)  A dividend  in  ordinary  course  paid  on  stock  of  a corporation  in  prop- 
erty or  stock  other  than  its  own  is  income  to  the  stockholders  to  the 
amount  of  its  cash  value  when  received  under  the  Acts  of  both  1913  and  1916. 
A dividend  paid  in  stock  of  another  corporation  is  not  a stock  dividend.  See 
Articles  4 and  106  of  Regulations  No.  33  (revised).  (Peabody  v.  Eisner.  Compare 
Towne  v.  Eisner  (245  U.  S.  418.)  (T.  D.  2740,  June  24,  1918.) 


Peck  vs.  Lowe. 

(247  U.  S.  165.) 

570  (T.  D.  2726,  June  4,  1918.) 

Mr.  Justice  Van  Devanter  delivered  the  opinion  of  the  Court. 

571  This  was  an  action  to  recover  a tax  paid  under  protest  and  alleged  to  have 
been  imposed  contrary  to  the  constitutional  provision  (Art.  1,  sec.  9,  cl.  5) 

that  “No  tax  or  duty  shall  be  laid  on  articles  exported  from  any  State.”  The 
judgment  below  was  for  the  defendant.  234  Fed.  125. 

572  The  plaintiff  is  a domestic  corporation  chiefly  engaged  in  buying  goods 
in  the  several  States,  shipping  them  to  foreign  countries  and  there  selling  them. 
In  1914  its  net  income  from  this  business  was  $30,173.66,  and  from  other  sources 
$12,436.24.  An  income  tax  for  that  year,  computed  on  the  aggregate  of  these 
sums,  was  assessed  against  it  and  paid  under  compulsion.  It  is  conceded  that  so 
much  of  the  tax  as  was  based  on  the  income  from  other  sources  was  valid,  and 
the  controversy  is  over  so  much  of  it  as  was  attributable  to  the  income  from 
shipping  goods  to  foreign  countries  and  there  selling  them.  The  tax  was  levied 
under  the  Act  of  October  3,  1913,  c.  16,  sec.  11,  38  Stat.  166,  172,  which  provided 
for  annually  subjecting  every  domestic  corporation  to  the  payment  of  a tax  of  a 
specified  per  centum  of  its  “entire  net  income  arising  or  accruing  from  all  sources 
during  the  preceding  calendar  year.”  Certain  fraternal  and  other  corporations,  as 
also  income  from  certain  enumerated  sources,  were  specifically  excepted,  but  none 
of  the  exceptions  included  the  plaintiff  or  any  part  of  its  income.  So,  tested 
merely  by  the  terms  of  the  act,  the  tax  collected  from  the  plaintiff  was  rightly 
computed  on  its  total  net  income.  But  as  the  act  obviously  could  not  impose  a 
tax  forbidden  by  the  Constitution,  we  proceed  to  consider  whether  the  tax,  or 
rather  the  part  in  question,  was  forbidden  by  the  constitutional  provision  on 
which  he  plaintiff  relies. 

573  The  Sixteenth  Amendment,  although  referred  to  in  argument,  has  no  real 
bearing  and  may  be  put  out  of  view.  As  pointed  out  in  recent  decisions, 

it  does  not  extend  the  taxing  power  to  new  or  excepted  subjects,  but  merely 
removes  all  occasion  which  otherwise  might  exist,  for  an  apportionment  among 
the  States  of  taxes  laid  on  Income,  whether  to  be  derived  from  one  source  or 
another.  Brushaber  v.  Union  Pacific  R.  R.  Co.,  240  U.  S.  1,  17-19;  Stanton  v. 
Baltic  Mining  Co.,  240  U.  S.  103,  112-113. 

574  The  Constitution  broadly  empowers  Congress  not  only  ‘to  lay  and  collect 
taxes,  duties,  imposts  and  excises,”  but  also  “to  regulate  commerce  with 

foreign  nations.”  So,  if  the  prohibitory  clause  invoked  by  the  plaintiff  be  not 
in  the  way,  Congress  undoubtedly  has  power  to  lay  and  collect  such  a tax  as  is 
here  in  question.  That  clause  says,  “No  tax  or  duty  shall  be  laid  on  articles 
exported  from  any  State.”  Of  course  it  qualifies  and  restricts  the  power  to  tax 
as  broadly  conferred.  But  to  what  extent?  The  decisions  of  this  court  answer 
that  it  excepts  from  the  range  of  that  power  articles  in  course  of  exportation, 
Turpin  v.  Burgess,  117  U.  S.  504,  507;  the  act  or  occupation  of  exporting,  Brown 
v.  Maryland,  12  Wheat,  419,  445;  bills  of  lading  for  articles  being  exported,  Fair- 

Income  Tax 

Supplementary  Page  140. 


SUPREME  COURT  DECISIONS— 1913  ACT 


bank  v.  United  States;  181  U.  S.  283;  charter  parties  for  the  carriage  of  cargoes 
from  state  to  foreign  ports,  United  States  v.  Hvoslef,  237  U.  S.  1;  and  policies  of 
marine  insurance  on  articles  being  exported— such  insurance  being  uniformly  re- 
garded  as  “an  integral  part  of  the  exportation”  and  the  policy  as  ‘one  of  the 
ordinary  shipping  documents,”  Thames  and  Mersey  Inc.  Co.  v.  United  States,  237 
U.  S.  19.  In  short,  the  court  has  interpreted  the  clause  as  meaning  that  exporta- 
tion must  be  free  from  taxation,  and  therefore  as  requiring  “not  simply  an  omis- 
sion of  a tax  upon  the  articles  exported,  but  also  a freedom  from  any  tax  which 
directly  burdens  the  exportation.”  FairbanV.  v.  United  States,  supra,  pp.  292-293. 
And  the  court  has  indicated  that  where  the  tax  is  not  laid  on  the  articles  them- 
selves while  in  course  of  exportation  the  true  test  of  its  validity  is  whether  it 
“so  directly  and  closely”  bears  on  the  “process  of  exporting*  as  to  be  in  substance 
a tax  on  the  exportation.  Thames  and  Mersey  Inc.  Co.  v.  United  States,  supra, 
p.  25.  In  this  view  it  has  been  held  that  the  clause  does  not  condemn  or  invalidate 
charges  or  taxes,  not  laid  on  property  while  being  exported,  merely  because  they 
affect  exportation  indirectly  or  remotely;  thus  a charge  for  stamps  which  each 
package  of  manufactured  tobacco  intended  for  export  was  required  to  bear  before 
removal  from  the  factory  was  upheld  in  Pace  v.  Burgess,  92  U.  S.  372,  and 
Turpin  v.  Burgess,  117  U.  S.  504;  and  the  application  of  a manufacturing  tax  on 
all  filled  cheese  to  cheese  manufactured  under  contract  for  export,  and  actually 
exported,  was  upheld  in  Cornell  v.  Coyne,  192  U.  S.  418.  In  that  case  it  was 
said,  p.  427:  “The  true  construction  of  the  constitutional  provision  is  that  no 
burden  by  way  of  tax  or  duty  can  be  cast  upon  the  exportation  of  articles,  and 
does  not  mean  that  articles  exported  are  relieved  from  the  prior  ordinary  burdens 
of  taxation  which  rest  upon  all  property  similarly  situated.  The  ^exemption 
attaches  to  the  export  and  not  to  the  article  before  its  exportation.” 

575  While  fully  assenting  and  adhering  to  the  interpretation  which  has  been 
put  on  the  clause  in  giving  effect  to  its  spirit  as  well  as  its  letter,  we  are 

of  opinion  that  to  broaden  that  interpretation  would  be  to  depart  from  both  the 
spirit  and  letter. 

576  The  tax  in  question  is  unlike  any  of  those  heretofore  condemned.  It  is 
not  laid  on  articles  in  course  of  exportation  or  on  anything  which  in- 
herently or  by  the  usages  of  commerce  is  embraced  in  exportation  or  any  of  its 
processes.  On  the  contrary,  it  is  an  income  tax  laid  generally  on  net  incomes. 
And  while  it  cannot  be  applied  to  any  income  which  Congress  has  no  power 
to  tax  (see  Stanton  v.  Baltic  Mining  Co.,  supra,  p.  113),  it  is  both  nominally  and 
actually  a general  tax.  It  is  not  laid  on  income  from  exportation  because  of  its 
source,  or  in  a discriminative  way,  but  just  as  it  is  laid  on  other  income.  The 
words  of  the  Act  are  “net  income  arising  or  accruing  from  all  sources.”  There 
is  no  discrimination.  At  most,  exportation  is  affected  only  indirectly  and  re- 
motely. The  tax  is  levied  after  exportation  is  completed,  after  all  expenses  are 
paid  and  losses  adjusted,  and  after  the  recipient  of  the  income  is  free  to  use  it 
as  he  chooses.  Thus  what  is  taxed — the  net  income — is  as  far  removed  from 
exportation  as  are  articles  for  export  before  the  exportation  begins.  If  articles 
manufactured  and  intended  for  export  are  subject  to  taxation  under  general  laws 
up  to  the  time  they  are  put  in  course  of  exportation,  as  we  have  seen  they  are, 
the  conclusion  is  unavoidable  that  the  net  income  from  the  venture  when  com- 
pleted, that  is  to  say,  after  the  exportation  and  sale  are  fully  consummated,  is 
likewise  subject  to  taxation  under  general  laws.  In  that  respect  the  status 
of  the  income  is  not  different  from  that  of  the  exported  articles  prior  to  the 
exportation. 

577  For  these  reasons  we  hold  that  the  objection  urged  against  the  tax  is  not 
well  grounded. 

Judgment  Affirmed 


Lynch  v.  Hornby. 

(247  U.  S.  339.) 

578  (T.  D.  2731,  June  11,  1918.) 

Mr.  Justice  Pitney  delivered  the  opinion  of  the  Court. 

579  Hornby,  the  respondent,  recovered  a judgment  in  the  United  States  Dis- 
trict Court  against  Lynch,  as  Collector  of  Internal  Revenue,  for  the  re- 
turn of  $171,  assessed  as  an  additional  income  tax  under  the  Act  of  October  3, 


Income  Tax 

Supplementary  Page  141. 


SUPREME  COURT  DECISIONS- 1913  ACT. 


1913  (Ch.  16,  38  Stat.  114,  166),  and  paid  tinder  protest.  The  Circuit  Court  of 
Appeals  affirmed  the  judgment,  236  bed.  Rep.  661,  and  the  case  comes  here  on 
certiorari.  It  was  submitted  at  the  same  time  with  Lynch,  Collector  v.  Turrish, 
post,  flS92,  Southern  Pacific  v.  Lowe,  Collector,  post,  j|S121,  and  Peabody  v. 
Eisner,  Collector,  post,  1[S119,  arising  under  the  same  Act,  and  this  day  decided 
S«0  The  facts,  in  brief,  are  as  follows:  Hornby,  from  1906  to  1915,  was  the 

owner  of  434  (out  of  10,000)  shares  of  the  capital  stock  of  the  Cloquet 
Lumber  Company,  an  Iowa  corporation,  which  for  more  than  a quarter  of  a 
century  had  been  engaged  in  purchasing  timber  lands,  manufacturing  the  timber 
into  lumber  and  selling  it.  Its  shares  had  a par  value  of  $100  each,  making  the 
entire  capital  stock  $1,000,000.  On  and  prior  to  March  1,  1913,  by  the  increase 
of  the  value  of  its  limber  lands  and  through  its  business  operations,  the  total 
property  of  the  company  had  come  to  be  worth  $4,000,000,  and  Hornby’s  stock, 
the  par  of  which  was  $43,400,  had  become  worth  at  least  $150,000.  In  the  year 

1914  the  company  was  engaged  in  cutting  its  standing  timber,  manufacturing  it 
into  lumber,  selling  the  lumber,  and  distributing  the  proceeds  among  its  stock- 
holders. In  that  year  it  thus  distributed  dividends  aggregating  $650,000,  of  which 
$240,000,  or  24  per  cent,  of  the  par  value  of  the  capital  stock,  was  derived  from 
current  earnings,  and  $410,000  from  conversion  into  money  of  property  that  it 
owned  or  in  which  it  had  an  interest  on  March  1,  1913.  Hornby’s  share  of  the 
latter  amount  was  $17,794,  and  this  not  having  been  included  in  his  income  tax 
return,  the  Commissioner  of  Internal  Revenue  levied  an  additional  tax  of  $171 
on  account  of  it,  and  this  forms  the  subject  of  the  present  suit. 

SSI  The  case  was  tried  in  the  District  Court  and  argued  in  the  Circuit  Court 
of  Appeals  together  with  Lynch,  Collector,  v.  Turrish  (236  Fed.  Rep.  653), 
and  was  treated  as  presenting  substantially  the  same  question  upon  the  merits. 
In  our  opinion  it  is  distinguishable  from  the  Turrish  case,  where  the  distribution 
in  question  was  a single  and  final  dividend  received  by  Turrish  from  the  Payette 
Company  in  liquidation  of  the  entire  assets  and  business  of  the  company,  and  a 
return  to  him  of  the  value  of  his  stock  upon  the  surrender  of  his  entire  interest 
in  the  company,  at  a price  that  represented  its  intrinsic  value  at  and  before  March 
1,  1913,  when  the  Income  Tax  Act  took  effect. 

S^2  In  the  present  case  there  was  no  winding  up  or  liquidation  of  the  Cloquet 
Lumber  Company,  nor  any  surrender  of  Hornby’s  stock.  He  was  but  one 
of  many  stockholders,  and  had  but  the  ordinary  stockholder’s  interest  in  the  cap- 
ital and  surplus  of  the  company,  that  is,  a right  to  have  them  devoted  to  the 
proper  business  of  the  corporation  and  to  receive  from  the  current  earnings  or 
accumulated  surplus  such  dividends  as  the  directors  in  their  discretion  might 
declare.  Gibbons  v.  Mahon,  136  U.  S.  549,  557.  The  operations  of  this  company 
in  the  year  1914  were,  according  to  the  facts  pleaded,  of  a nature  essentially  like 
those  in  which  it  had  been  engaged  for  more  than  a quarter  of  a century.  The 
fact  that  they  resulted  in  converting  into  money,  and  thus  setting  free  for  dis- 
tribution as  dividends,  a part  of  its  surplus  assets  accumulated  prior  to  March  1, 
1913,  does  not  render  Hornby’s  share  of  those  dividends  any  the  less  a part  of 
his  income  within  the  true  intent  and  meaning  of  the  Act,  the  pertinent  language 
of  which  is  as  follows  (38  Stat.  166,  167): 

“A.  Subdivision  1.  That  there  shall  be  levied,  assessed,  collected  and  paid 
annually  upon  the  entire  net  income  arising  or  accruing  from  all  sources  in  the 
preceding  calendar  year  to  every  citizen  of  the  United  States,  * * * and  to 

every  person  residing  in  the  United  States,  * * * a tax  of  1 per  centum  per 

annum  upon  such  income,  except  as  hereinafter  provided;  * * * 

“B.  That,  subject  only  to  such  exemptions  and  deductions  as  are  hereinafter 
allowed,  the  net  income  of  a taxable  person  shall  include  gains,  profits,  and  income 
derived  from  salaries,  wages,  or  compensation  for  personal  service,  * * * also 

from  interest,  rent,  dividends,  securities  or  the  transaction  of  any  lawful  business 
carried  on  for  gain  or  profit,  or  gains  or  profits  and  income  derived  from  any 
source  whatever.” 

S83  Among  the  deductions  allowed  for  the  purpose  of  the  normal  tax  is, 
“seventh,  the  amount  received  as  dividends  upon  the  stock  or  from  the 
net  earnings  of  any  corporation,  * * * which  is  taxable  upon  its  net  income 

as  hereinafter  provided.”  There  is  a graduated  additional  tax,  commonly  known 
as  a “surtax,”  upon  net  income  in  excess  of  $20,000,  including  income  from  divi 
dends,  and  for  the  purpose  of  this  additional  tax  “the  taxable  income  of  any 
individual  shall  embrace  the  share  to  which  he  would  be  entitled  of  the  gains 
and  profits,  if  divided  or  distributed,  whether  divided  or  distributed  or  not,  of 
all  corporations  * * * formed  or  fraudulently  availed  of  for  the  purpose 


Income  Tax 

Supplementary  Page  142. 


SUPREME  COURT  DECISIONS  1913  ACT. 


of  preventing  the  imposition  of  such  tax  through  the  medium  of  permitting  such 
gains  and  profits  to  accumulate  instead  of  being  divided  or  distributed.” 

584  It  is  evident  that  Congress  intended  to  draw  and  did  draw  a distinction 
between  a stockholder’s  undivided  share  or  interest  in  the  gains  and  profits 

of  a corporation,  prior  to  the  declaration  of  a dividend,  and  his  participation  in 
the  dividends  declared  and  paid;  treating  the  latter,  in  ordinary  circumstances, 
as  a part  of  his  income  for  the  purposes  of  the  surtax,  and  not  regarding  the 
former  as  taxable  income  unless  fraudulently  accumulated  for  the  purpose  of 
evading  the  tax. 

585  This  treatment  of  undivided  profits  applies  only  to  profits  permitted  to 
accumulate  after  the  taking  effect  of  the  Act,  since  only  with  respect  to 

these  is  a fraudulent  purpose  of  evading  the  tax  predicable.  Corporate  profits 
that  accumulated  before  the  Act  took  effect  stand  on  a different  footing.  As  to 
these,  however,  just  as  we  deem  the  legislative  intent  manifest  to  tax  the  stock- 
holder with  respect  to  such  accumulations  only  if  and  when,  and  to  the  extent 
that,  his  interest  in  them  comes  to  fruition  as  income,  that  is,  in  dividends 
declared,  so  we  can  perceive  no  constitutional  obstacle  that  stands  in  the  way 
of  carrying  out  this  intent  when  dividends  are  declared  out  of  a pre-existing 
surplus.  The  Act  took  effect  on  March  1,  1913,  a few  days  after  the  requisite 
number  of  States  had  given  approval  to  the  Sixteenth  Amendment,  under  which 
for  the  first  time  Congress  was  empowered  to  tax  income  from  property  without 
apportioning  the  tax  among  the  States  according  to  population.  Southern  Pacific 
Co.  v.  Lowe,  supra.  That  the  retroactivity  of  the  Act  from  the  date  of  its  passage 
(October  3,  1913)  to  a date  not  prior  to  the  adoption  of  the  Amendment  was 
permissible  is  settled  by  Brushaber  v.  Union  Pacific  R.  R.,  240  U.  S.  1,  20.  And 
we  deem  it  equally  clear  that  Congress  was  at  liberty  under  the  Amendment  to 
tax  as  income,  without  apportionment,  everything  that  became  income,  in  the 
ordinary  sense  of  the  word,  after  the  adoption  of  the  Amendment,  including  divi- 
dends received  in  the  ordinary  course  by  a stockholder  from  a corporation,  even 
though  they  were  extraordinary  n amount  and  might  appear  upon  analysis  to 
be  a mere  realization  in  possession  of  an  inchoate  and  contingent  interest  that 
the  stockholder  had  in  a surplus  of  corporate  assets  previously  existing.  Divi- 
dends are  the  appropriate  fruit  of  stock  ownership,  are  commonly  reckoned  as 
income,  and  are  expended  as  such  by  the  stockholder  without  regard  to  whether 
they  are  declared  from  the  most  recent  earnings,  or  from  a surplus  accumulated 
from  the  earnings  of  the  past,  or  are  based  upon  the  increased  value  of  the 
property  of  the  corporation.  The  stockholder  is,  in  the  ordinary  case,  a different 
entity  from  the  corporation,  and  Congress  was  at  liberty  to  treat  the  dividends 
as  coming  to  him  ab  extra,  and  as  constituting  a part  of  his  income  when  they 
came  to  hand. 

586  Hence  we  construe  the  provision  of  the  Act  that  “the  net  income  of  a 

taxable  person  shall  include  gains,  profits,  and  income  derived  from 

* * * interest,  rent,  dividends,  * * * Dr  gains  or  profits  and  income  de- 

rived from  any  source  whatever”  as  including  (for  the  purposes  of  the  additional 
tax)  all  dividends  declared  and  paid  in  the  ordinary  course  of  business  by  a coi 
poration  to  its  stockholders  after  the  taking  effect  of  the  Act  (March  1,  1913), 
whether  from  current  earnings,  or  from  the  accumulated  surplus  made  up  of  past 
earnings  or  increase  in  value  of  corporate  assets,  notwithstanding  it  accrued  to 
the  corporation  in  whole  or  in  part  prior  to  March  1,  1913.  In  short,  the  word 
“dividend”  was  employed  in  the  Act  as  descriptive  of  one  kind  of  gain  to  the 
individual  stockholder;  dividends  being  treated  as  the  tangible  and  recurrent  re- 
turns upon  his  stock,  analogous  to  the  interest  and  rent  received  upon  other 

forms  of  invested  capital. 

587  In  the  more  recent  Income  Tax  Acts,  provisions  have  been  inserted  for 
the  purpose  of  excluding  from  the  effect  of  the  tax  any  dividends  declared 

out  of  earnings  or  profits  that  accrued  prior  to  March  1,  1913.  This  originated 
with  the  Act  of  September  8,  1916,  and  has  been  continued  in  the  Act  of  October 
3,  1917.*  We  are  referred  to  the  legislative  history  of  the  Act  of  1916,  which  it  is 
contended  indicates  that  the  new  definition  of  the  term  “dividends”  was  intended 
to  be  declaratory  of  the  meaning  of  the  term  as  used  in  the  1913  Act.  We  cannot 
accept  this  suggestion,  deeming  it  more  reasonable  to  regard  the  change  as  a 
concession  to  the  equity  of  stockholders  granted  in  the  1916  Act,  in  view  of 


Income  lax 

Supplementary  Page  143 


SUPREME  COURT  DECISIONS— 1913  ACT. 


constitutional  questions  that  had  been  raised  in  this  case,  in  the  companion  case 
of  Lynch,  Collector  v.  Turrish,  and  perhaps  in  other  cases.  These  two  cases 
were  commenced  in  October,  1915;  and  decisions  adverse  to  the  tax  were  rendered 
in  the  District  Court  in  January,  1916,  and  in  the  Circuit  Court  of  Appeals,  Sep- 
tember 4,  1916. 

588  We  repeat  that  under  the  1913  Act  dividends  declared  and  paid  in  the 
ordinary  course  by  a corporation  to  its  stockholders  after  March  1,  1913, 

whether  from  current  earnings  or  from  a surplus  accumulated  prior  to  that 
date,  were  taxable  as  income  to  the  stockholder. 

589  We  do  not  overlook  the  fact  that  every  dividend  distribution  diminishes 
by  just  so  much  the  assets  of  the  corporation,  and  in  a theoretical  sense 

reduces  the  intrinsic  value  of  the  stock.  But,  at  the  same  time,  it  demonstrates 
the  capacity  of  the  corporation  to  pay  dividends,  holds  out  a promise  of  further 
dividends  in  the  future,  and  quite  probably  increases  the  market  value  of  the 
shares.  In  our  opinion,  Congress  laid  hold  of  dividends  paid  in  the  ordinary 
course  as  de  facto  Income  of  the  stockholder,  without  regard  to  the  ultimate 
effect  upon  the  corporation  resulting  from  their  payment. 

590  Of  course  we  are  dealing  here  with  the  ordinary  stockholder  receiving  divi- 
dends declared  in  the  ordinary  way  of  business.  Lynch,  Collector  v. 

Turrish  and  Southern  Pacific  Co.  v.  Lowe,  Collector,  this  day  decided,  rest  upon 
their  special  facts  and  are  plainly  distinguishable. 

591  It  results  from  what  we  have  said  that  it  was  erroneous  to  award  a return 
of  the  tax  collected  from  the  respondent,  and  that  the  judgment  should  be 

Reversed,  and  the  cause  remanded  to 
the  District  Court  for  further  proceed- 
ings in  conformity  with  this  opinion. 


* In  Act  of  September  8,  1916  (Ch.  463,  39  Stat.  756,  757),  which  took  the 
place  of  the  Act  of  1913,  the  substance  of  what  we  have  quoted  from  Paragraph 
B of  the  1913  Act  was  embodied  in  Sec.  2 (a),  but  with  this  proviso:  “Provided, 
that  the  term  ‘dividends’  as  used  in  this  title  shall  be  held  to  mean  any  dis- 
tribution made  or  ordered  to  be  made  by  a corporation  * * * out  of  its 
earnings  or  profits  accrued  since  March  first,  nineteen  hundred  and  thirteen,  and 
payable  to  its  shareholders,  whether  in  cash  or  in  stock  of  the  corporation,”  etc. 
And  by  the  Act  of  October  3,  1917  (Ch.  63,  40  Stat.  300,  329,  337-8),  Sec.  2 (a) 
of  the  1916  Act  was  amended  by  being  repeated  without  the  proviso  (p.  329),  while 
the  proviso  was  inserted  as  a new  section — 31  (a) — and  it  was  added  a sub- 
section (b),  as  follows: 

“(b)  Any  distribution  made  to  the  shareholders  or  members  of  a corporation 
* * * in  the  year  nineteen  hundred  and  seventeen,  or  subsequent  tax  years, 

shall  be  deemed  to  have  been  made  from  the  most  recently  accumulated  undivided 
profits  or  surplus,  and  shall  constitute  a part  of  the  annual  income  of  the  distrib- 
utee for  the  year  in  which  received,  and  shall  be  taxed  to  the  distributee  at  the 
rates  prescribed  by  law  for  the  years  in  which  such  profits  or  surplus  were  accu- 
mulated by  the  corporation,  * * * but  nothing  herein  shall  be  construed  as 

taxing  any  earnings  or  profits  accrued  prior  to  March  first,  nineteen  hundred  and 
thirteen,  but  such  earnings  or  profits  may  be  distributed  in  stock  dividends  or 
otherwise,  exempt  from  the  tax,  after  the  distribution  of  earnings  and  profits 
accrued  since  March  first,  nineteen  hundred  and  thirteen,  has  been  made.  The 
subdivision  shall  not  apply  to  any  distribution  made  prior  to  August  sixth, _ nine- 
teen hundred  and  seventeen,  out  of  the  earnings  or  profits  accrued  prior  to 
March  first,  nineteen  hundred  and  thirteen.” 


Lynch  v.  Turrish. 

(247  U.  S 221.) 

S92  (T.  D.  2729,  June  11,  1918.) 

Mr  Justice  McKenna  delivered  the  opinion  of  the  Court. 

S91i  Suit  to  recover  an  income  tax,  paid  under  protest,  assessed  under  the 
Act  of  October  3,  1913,  38  Stat.  166. 

$94  The  facts,  as  admitted  by  demurrer,  are  these:  Respondent,  Turrish,  who 
was  plaintiff  in  the  trial  court,  made  a return  of  his  income  for  the 

Income  Tax 

Supplementary  Page  144. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


calendar  year  1914  which  showed  that  he  had  no  net  income  for  that  year;  a"er- 
wards  the  Commissioner  of  Internal  Revenue  made  a supplemental  assessment 
showing  that  he  had  received  a net  income  of  $32,712.08,  which,  because  of 
specific  deductions  and  exemptions,  resulted  in  no  normal  tax,  but  us  the  net 
income  exceeded  the  sum  of  $20,000  the  Commissioner  assessed  an  additional 
or  super-tax  of  one  per  cent  upon  the  excess,  resulting  in  a tax  of  $127.12,  which 
was  sought  to  be  recovered.  The  reassessment  was  based  upon  certain  sums 
received  by  the  plaintiff  in  the  year  1914  as  distributions  from  corporations  sub- 
ject to  the  Income  l ax  Law  and  held  by  the  Commissioner  to  be  income  derived 
from  dividends  received  by  the  plaintiff  on  stock  of  domestic  corporations;  of 
which  the  sum  of  $79,975,  received  as  a distribution  from  the  Payette  Lumber  & 
Manufacturing  Company,  and  without  which  no  tax  could  have  been  levied  against 
the  plaintiff,  is  here  in  dispute. 

595  Frior  to  March  1,  1913,  and  continuously  thereafter  until  the  surrender  of 
his  stock  as  hereinafter  mentioned,  plaintiff  was  a stockholder  in  the 

Payette  Company,  which  was  organized  in  the  year  1903  with  power  to  buy, 
hold,  and  sell  timber  lands,  and  in  fact  never  engaged  in  any  other  business 
than  this  except  minor  business  incidental  to  it.  Immediately  after  its  organ- 
ization this  company  began  to  invest  in  timber  lands,  and  prior  to  March  1,  1913, 
had  thus  invested  approximately  $1,375,000. 

596  On  March  1,  1913,  the  value  of  its  assets  was  not  less  than  $3,000,000,  of 
which  sum  the  value  of  the  timber  lands  was  not  less  than  $2,875,000. 

The  increase  was  due  to  the  gradual  rise  in  the  market  value  of  the  lands.  At 
that  date  the  value  of  Turrish’s  stock  was  twice  its  par  value,  or  $159,950,  and 
about  that  time  he  and  all  the  other  stockholders  gave  an  option  to  sell  their 
stock  for  twice  its  par  value.  The  holders  of  the  option  formed  another  com- 
pany, called  .the  Boise-Payette  Lumber  Company,  and  transferred  the  options  to 
it.  The  options  having  been  extended  to  December  31,  1913,  the  new  company 
informed  the  Payette  Company  and  its  stockholders  shortly  before  this  date  that 
instead  of  exercising  the  option  it  preferred  and  proposed 'to  purchase  all  of  the 
assets  of  the  Payette  Company,  paying  to  that  company  such  a purchase  price 
that  there  would  be  available  for  distribution  to  its  stockholders  twice  the  par 
value  of  their  stock.  The  stockholders  by  resolution  authorized  this  sale,  and, 
pursuant  to  this  and  a resolution  of  the  directors,  the  Payette  Company  trans- 
ferred to  the  new  company  all  of  its  assets,  property,  and  franchises,  and  upon  the 
completion  of  the  transaction  found  itself  with  no  assets  or  property,  except  cash 
to  the  amount  of  double  the  par  value  of  its  stock  which  had  been  paid  to  it  by 
the  new  company,  and  with  no  debts,  liabilities,  or  obligations  except  those  which 
the  new  company  had  assumed.  The  cash  was  distributed  to  the  stockholders 
on  the  surrender  of  their  certificates  of  stock,  and  the  company  went  out  of 
business.  In  this  way,  upon  the  surrender  of  his  shares,  Turrish  received  $159,- 
950,  being  double  their  par  value. 

597  The  Commissioner  of  Internal  Revenue  considered  that  of  this  sum  one- 
half  was  not  taxable,  being  the  liquidation  of  the  par  value  of  Turrish’i 

stock,  but  that  the  other  was  income  for  the  year  1914  and  taxable  under  the  Act 
of  1913. 

598  The  question  in  the  case  is  thus  indicated.  The  District  Court  took  a 
different  view  from  that  of  the  Commissioner  of  Internal  Revenue  and 

therefore  overruled  the  demurrer  to  Turrish’s  complaint  and  entered  judgment  for 
him  for  the  sum  prayed,  which  judgment  was  affirmed  by  the  Circuit  Court  of 
Appeals  for  the  Eighth  Circuit,  236  Fed.  653. 

599  The  point  in  the  case  seems  a short  one.  It,  however,  has  provoked  much 
discussion  on  not  only  the  legal  but  the  economic  distinction  between 

capital  and  income  and  by  what  processes  and  at  what  point  of  time  the  former 
produces  or  becomes  the  latter.  And  this  in  resolution  of  a statute  which  con- 
cerns the  activities  of  men  and  intended,  it  might  be  supposed,  to  be  without 
perplexities  and  readily  solvable  by  the  off-hand  conceptions  of  those  to  whom  it 
was  addressed. 

SlOO  The  provisions  of  the  Act,  so  far  as  material  to  be  noticed,  are  the 
following;  That  there  is  assessed  “upon  the  entire  net  income  arising 
or  accruing  from  all  sources  in  the  preceding  calendar  year  to  every  * * * 

person  residing  in  the  United  States  * * * a tax  of  one  per  centum  per 
annum  upon  such  income."  * * * Par.  a,  Subdiv.  1. 


Income  Tax 

Supplementary  Page  145. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


SJOl  In  addition  to  that  tax,  which  is  denominated  the  normal  income  tax,  it  is 
provided  that  there  shall  be  levied  “upon  the  net  income  of  every  indi- 
vidual an  additional  tax  * * * of  one  per  centum  per  annum  upon  the  amount 

by  which  the  total  net  income  exceeds”  certain  amounts,  and  the  person  subject 
to  the  tax  is  required  to  make  a personal  return  of  his  total  net  income  from  all 
sources  under  rules  and  regulations  to  be  prescribed  by  the  Commissioner  of 
Internal  Revenue.  Subdiv.  2. 

5102  By  Paragraph  B it  is  provided  that,  subject  to  certain  exemptions  and 
deductions,  “the  net  income  of  a taxable  person  shall  include  gains, 

profits,  and  income  derived  from  salaries,  wages,  or  compensation  for  personal 
service  * * * also  from  interest,  rent,  dividends,  securities,  or  the  transaction 

of  any  lawful  business  carried  on  for  gain  or  profit,  or  gains  or  profits  and  income 
derived  from  any  source  whatever.” 

5103  After  specifying  the  exemptions  and  deductions  allowed,  the  law  declares 

as  follows:  “The  said  tax  shall  be  computed  upon  the  remainder  of  said 

net  income  of  each  person  subject  thereto,  accruing  during  each  preceding  calen- 
dar year  ending  December  thirty-first:  Provided,  however,  That  for  the  year 

ending  December  thirty-first,  nineteen  hundred  and  thirteen,  said  tax  shall  be 
computed  on  the  net  income  from  March  first  to  December  thirty-first,  nineteen 
hundred  and  thirteen,  both  dates  inclusive.”  * * * Par.  D. 

5104  It  will  be  observed,  therefore,  that  the  statute  levies  a normal  tax^and  an 
additional  tax  upon  net  incomes,  derived  from  whatever  source,  “arising 

or  accruing”  each  preceding  calendar  year  ending  December  31,  except  that  for 
the  year  ending  December  31,  1913,  the  tax  shall  be  computed  on  the  net  income 
accruing  from  March  1,  1913,  to  December  31,  1913. 

5105  And  in  determining  the  application  of  the  statute  to  lurrish  we  must 
keep  in  mind  that  on  the  admitted  facts  the  distribution  received  by  him 

from  the  Payette  Company  manifestly  was  a single  and  final  dividend  in  liquida- 
tion of  the  entire  assets  and  business  of  the  company,  a return  to  him  of  the 
value  of  his  stock  upon  the  surrender  of  his  entire  interest  in  the  company, 
and  at  a price  that  represented  its  intrinsic  value  at  and  before  March  1,  1913, 
when  the  act  took  effect.  . _ , 

51 06  The  District  Court  and  the  Circuit  Court  of  Appeals  decided  that  the 
amount  so  distributed  to  Turrish  was  not  income  within  the  meaning  of 

the  statute,  basing  the  decision  on  two  propositions  as  expressed  in  the  opinion 
of  the  Circtiit  Court  of  Appeals,  by  Sanborn,  Circuit  Judge— (a)  The  amount  was 
the  realization  of  an  investment  made  some  years  before,  representing  its  gradual 
increase  during  those  years,  and  which  reached  its  height  before  the  effective  date 
of  the  law,  that  is,  before  March  1,  1913,  and  the  mere  change  of  form  of  the  prop 
erty  “as  from  real  to  personal  property,  or  from  stock  to  cash’  was  not  income 
to  its  holders  because  the  value  of  the  property  was  the  same  after  as  before  the 
change;  (b)  The  timber  lands  were  the  property,  capital  and  capital  assets  ot 
their  legal  and  equitable  owner  and  the  enhancement  of  their  value  during  a 
series  of  vears  “prior  to  the  effective  date  of  the  income  tax  law,  although  divided 
or  distributed  by  dividend  or  otherwise  subsequent  to  that  date,  does  not  become 
income,  gains,  or  profits  taxable  under  such  an  act.”  , 

5107  For  proposition  “a”  the  court  cited  Collector  v.  Hubbard,  1Z  Wall,  1, 
Bailey  v.  Railroad  Company,  22  Wall.  604,  and  the  same  case  in  106 

U.  S.  109.  For  proposition  “b”  Gray  v Darlington,  15  Wall.  63,  was  relied  on 

5108  The  Government  opposes  both  contentions  by  an  elaborate  argument  con- 
taining definitions  of  capital  and  income  drawn  from  legal  and  economic 

sources  and  given  breadth  to  cover  a number  of  other  cases  submitted  with  this 
The  argument,  in  effect,  makes  any  increase  of  value  of  property  income,  emerg- 
ing as  such  and  taxable  at  the  moment  of  realization  by  sale  or  some  act  of 
separation,  as  by  dividend  declared  or  by  distribution,  as  in  the  instant  case 

5109  To  sustain  the  argument  these  definitions  are  presented:  k Capital  is 

anything,  material  or  otherwise,  capable  of  ownership,  viewed  in  its  static 

condition  at  a moment  of  time,  or  the  right  of  ownership  therein.  2.  Income  is 
the  service  or  return  rendered  by  capital  during  a period  of  time. 

Net  income  (‘profits’)  is  the  difference  between  income  and  outgo.  ’ . '■ 

In  the  actual  production  and  distribution  of  capital  there  is  a constant  conversion 
of  capital  into  income,  and  vice  versa.  8.  The  attempt  to  conceal  this  con- 
version by  treating  ‘income’  as  the  standard  return  from  intact  capital  only 
leads  to  confusion  of  the  value  of  capital  with  capital  itself.  . ... 

SI  10  From  these  definitions  are  deducted  the  following  propositions,  which  are 
said  to  be  decisive  of  the  problems  in  the  cases:  . 

“1.  Income  being  derived  from  the  use  of  capital,  the  conversion  or  transfer 

Income  Tax 

Supplementary  Page  146. 


SUPREME  COURT  DECISIONS--1913  ACT. 


of  capital  always  produces  income.  2.  Merc  appreciation  of  capital  value  does 
not  produce  ■income,’  nor  mere  depreciation  ‘outgo.’  3.  Net  income  is  the  dif- 
ference between  actual  'income'  and  actual  ‘outgo.’  4.  Income  is  not  confined  to 
money  income,  but  includes  anything  capable  of  easy  valuation  in  money. 

Sill  It  will  be  observed  that  the  breadth  of  definition  and  the  breadth  of 
application  arc  necessary  to  the  refutation  of  the  reasoning  of  the  Circuit 
Couri  of  Appeals.  There  is  direct  antagonism,  the  court  basing  its  reliance,  it 
says,  upon  what  it  asserts  is  the  common  sense  and  understanding  of  the  words 
of  the  law,  and  the  exposition  of  like  laws  by  the  decisions  of  this  court.  The 
Government’s  resource  is  the  discussion  of  economists  and  the  fact,  concrete 
and  practical,  of  wealth  not  only  increased  but  come  to  actual  hand.  The  instant 
case  is  an  example.  Turrish’s  stock  doubled  in  value.  He  paid  for  it  $79,975; 
he  received  $159,950.  It  requires  a struggle  to  resist  the  influence  of  the  fact, 
but  we  are  aided  and  fortified  by  our  own  precedents  and  saved  from  much  in- 
tricate and  subtle  discussion  and  an  elaborate  review  of  other  cases  cited  in 
confirmation  or  opposition. 

SH2  In  Collector  v.  Hubbard,  supra,  the  distinction  between  a corporation 
and  its  stockholders  was  recognized  and  that  the  stockholder  had  not 
title  for  certain  purposes  to  the  earnings  of  the  corporation,  net  or  other,  prior 
to  a dividend  being  declared,  but  they  might  become  capital  by  investment  in 
permanent  improvements  and  thereby  increase  the  market  value  of  the  shares, 
"whether  held  by  the  original  subscribers  or  by  assignees.”  In  other  words,  it 
was  held  that  the  investments  of  the  corporation  were  the  investments  of  the 
stockholders;  that  is,  the  stockholders  could  have  an  interest,  taxable  under  the 
act  considered,  though  not  identical  with  the  corporation.  This  was  repeated 
in  Bailey  v.  Railroad  Company,  22  Wall.  604,  635,  636. 

SH3  The  latter  case  came  here  again  in  106  U .S.  109,  and  it  was  then  declared 
that  the  purpose  of  an  income  tax  law  was  to  tax  the  income  for  the  year 
that  it  accrued;  in  other  words,  no  tax  in  contemplation  of  the  law  accrued  upon 
something  except  for  the  year  in  which  that  something — earnings,  profits,  gains 
or  income — accrues.  In  that  case  the  subject  of  the  tax  was  a scrip  dividend, 
but  the  certificates  did  not  show  the  year  of  the  earnings  and  testimony  as  to  the 
particular  year  was  admitted.  The  principle  applies  to  the  case  at  bar.  If 
increase  in  value  of  the  lands  was  income,  it  had  its  particular  time  and  such 
time  must  have  been  within  the  time  of  the  law  to  be  subject  to  the  law,  that 
is,  it  must  have  been  after  March  1,  1913.  But,  according  to  the  fact  admitted, 
there  was  no  increase  after  that  date  and  therefore  no  increase  subject  to  the 
law.  There  was  continuity  of  value,  not  gain  or  increase.  In  the  first  proposi- 
tion of  the  Court  of  Appeals  we,  therefore,  concur. 

5114  In  support  of  its  second  proposition  it  adduced,  as  we  have  seen,  Gray  v. 
Darlington,  15  Wall.  63.  The  case  arose  under  the  income  tax  law  of 

1867,  which  levied  “upon  the  gains,  profits,  and  income  of  every  person,  * * * 
whether  derived  from  any  kind  of  property  * * * or  from  any  other  source 

whatever  * * * a tax  of  five  per  centum  on  the  amount  so  derived  over 

$1,000  * * * for  the  year  ending  the  thirty-first  of  December  next  preceding 

the  time  for  levying,  collecting  and  paying  said  tax.” 

5115  Darlington,  in  1865,  being  the  owner  of  certain  United  States  Treasury 
notes,  exchanged  them  for  United  States  bonds.  In  1869  he  sold  the 

bonds  at  an  advance  of  $20,000  over  the  cost  of  the  notes  and  upon  this  amount 
was  levied  a tax  of  five  per  centum  as  gains,  profits  and  income  for  that  year. 
He  paid  the  tax  under  protest  and  sued  to  recover,  and  prevailed.  This  court, 
by  Mr.  Justice  Field,  said:  “The  question  presented  is  whether  the  advance  in 
the  value  of  the  bonds,  during  this  period  of  four  years,  over  their  cost,  real- 
ized by  their  sale,  was  subject  to  taxation  as  gains,  profits,  or  income  of  the 
plaintiff  for  the  year  in  which  the  bonds  were  sold.  The  answer  which  should 
be  given  to  this  question  does  not,  in  our  judgment,  admit  of  any  doubt.  The 
advance  in  the  value  of  property  during  a series  of  years  can,  in  no  just  sense 
be  considered  the  gains,  profits,  or  income  of  any  one  particular  year  of  the 
series,  although  the  entire  amount  of  the  advance  be  at  one  time  turned  into 
money  by  the  sale  of  the  property.  The  statute  looks,  with  some  exceptions,, 
tor  subjects  of  taxation  only  to  annual  gains,  profits  and  income.” 

SI  JO  And  again,  “The  mere  fact  that  property  has  advanced  in  value  between 
the  date  of  its  acquisition  and  sale  does  not  authorize  the  imposition  ol 
a tax  on  the  amount  of  the  advance.  Mere  advance  in  value  in  no  sense  consti- 
tutes the  gains,  profits,  or  income  specified  bv  the  statute.  It  constitutes  and  can 
be  treated  merely  as  increase  of  capital.”  This  case  has  not  been  since  questioned 
or  modified. 


Income  Tax 

Supplementary  Page  147. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


8H7  The  Government  feels  the  impediment  of  the  case  and  attempts  to 
confine  its  ruling  to  the  exact  letter  of  the  Act  of  March  2 1867  and 
thereby  distinguish  that  act  from  the  act  of  1913  and  give  to  the  latter  some- 
thing of  retrospective  effect.  Opposed  to  this  there  is  a presumption,  resistless 
except  against  an  intention  imperatively  clear.  Ihe  Government,  however, 
makes  its  view  depend  upon  disputable  differences  between  certain  words  of 
the  two  acts.  It  urges  that  the  act  of  1913  makes  the  income  taxed  one  arising 
or  accruing”  in  the  preceding  calendar  year,  while  the  act  of  1867  makes  the  in- 
come one  “derived.”  Granting  that  there  is  a shade  of  difference  between  the 
words,  it  cannot  be  granted  that  Congress  made  that  shade  a criterion  of  intention 
and  committed  the  construction  of  its  legislation  to  the  disputes  of  purists,  be 
sides,  the  contention  of  the  Government  does  not  reach  the  principle  of  Gray  v 
Darlington,  which  is  that  the  gradual  advance  in  the  value  of  property  during  a 
series  of  years  in  no  just  sense  can  be  ascribed  to  a particular  year  not  therefore 
as  “arising  or  accruing,”  to  meet  the  challenge  of  the  words,  in  the  last  one  °f  the 
years  as  the  Government  contends,  and  taxable  as  income  for  that  year  o r when 
turned  into  cash.  Indeed,  the  case  decides  that  such  advance  in  value  is  not 
income  at  all,  but  merely  increase  of  capital  and  not  subject  to  a tax  as  income. 
S118  We  concur,  therefore,  in  the  second  proposition  of  the  Circuit  Court  of 
Appeals  as  well  as  in  the  first  and  . affirm  the  judgment 

Mr.  Justice  Brandeis  and  Mr.  Justice  Clarke  concur  in  the  result. 


Peabody  vs.  Eisner. 

(247  U.  S.  347.) 

S119  (T.  D.  2732,  June  11,  1918.) 

Mr.  Justice  Pitney  delivered  the  opinion  of  the  Court  „ . , i ion 

<*120  This  case  arose  under  the  Federal  Income  Tax  Act  of  Octobe  3, 

fCh  16  38  Stat  114  166).  The  controversy  is  over  the  first  cause  of 
action  set  up  by  plaintiff  in  error  in  a suit  against  the  collector  for  the  r^overy 
of  an  additional  tax  exacted  in  respect  of  a certain  d,v'd'nf  rc^1V^r^  191f 

in  the  vear  1914  the  facts  being  as  follows:  On  and  prior  to  March  l,  ivto, 

and  thenceforward  until  payment  of  the  dividend  in  question,  petitioner  was 
owner  of  1,100  shares  (out  of  a total  of  2,000,000  shares  outstanding)  . 
stock  of  the  Union  Pacific  Railroad  Company,  of  the  par  value  of  $100  each, 
and  during  the  same  period  the  company  had  large  holdings  of  the  common  a d 
deferred  stocks  of  the  Baltimore  & Ohio  Railroad  Company.  On  March  2 
1914  the  Union  Pacific  declared  and  paid  an  extra  dividend  upon  each  share : of 
its  common  stock  amounting  to  $3  in  cash,  $12  in  par  value  of  preferred  stock 
of  the  Baltimore  ’&  Ohio,  and  $22.50  in  par  value  of  the  common  stock  of  the 
Jam,  company  ; the  result  being*that  petitioner  received  as  his  dividend  upon  h« 
holdings  of  Union  Pacific  common  stock  $3,300  in  cash,  132  shares  oi  Baltimo  e 
& Ohio  preferred  and  247 */7  shares  of  Baltimore  & Ohio  common  stock.  In  h» 
income  return  for  1914  he  included  as  taxable  income  $4.12  per  share  of  this 
dividend  or  $4,532  in  all,  and  paid  his  tax  upon  the  basis  of  this  return.  Atte  - 
wa^-d*  he  was  subject  to  additional  assessment  upon  a valuation  of  the  balance 
of  his  dividend  and  this,  having  been  paid  under  protest,  is.  the  subject  of  the 
nresent  suit  the  theory  of  which  is  that  the  entire  earnings,  income  and  profits 
from  all  sources  realised  by  the  Union  Pacific  Railroad  Company  from  March 
% ini  i «.n  March  2 1914  remaining  after  the  payment  of  prior  charges  did  no 
exceed* $4. 12  per  share  of*the  Union  Pacific  common  stock  and  that  the  cash  and 
tj  h;  Rj  Ohio  ctock  disoosed  of  in  the  extra  dividend  (so  far  as  they  ex 

a s i aiue  Qf  $412  per  share  of  Union  Pacific)  did  not  constitute  a gain, 

profitf  <?' income  of  ^ SeJrion  Pacific,  and  therefore  did  not  const, 
nrofit  or  income  of  the  plaintiff  arising  or  accruing  either  in  or  for  the  year  1V14 
for  anv  oeriod  subsequent  to  March  1,  1913,  the  date  when  the  Income  Tax 
? , i ffor-t  The  District  Court  overruled  this  contention  upon  the  au- 

kaW>  nCWhcrn  Pacific  Co  v Lowe,  Collector,  238  Fed.  Rep.  847,  and  Townc 
th°Eisner  Collector  ?242  Fed.  Rep.  702.  The  latter  case  has  since  been  reversed 
(245  U S 418)?  but  only  upon  the  ground  that  it  related  to  a Stock  dividend 
' , • u r„rt  took  nothing  from  the  property  of  the  corporation  and  added  noth 
if,  ,o  te  'n.ere,,  St  th?  shareholder,  but  merely  changed  the  evidence  wh.eh 
represented  that  interest.  Southern  Pacific  Co.  v.  Lowe.  Collector,  has  bee 

Income  Tax 

Supplementary  Page  148. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


reversed  this  day,  post  HS121,  but  only  upon  the  ground  that  the  Central  Pacific 
Railway  Company,  which  paid  the  dividend,  and  the  Southern  1 acific  Company, 
which  received  it,  were  in  substance  identical  corporations  because  of  the  com- 
pete ownership  and  control  which  the  latter  possessed  over  the  former  as 
stockholder  and  in  other  capacities,  so  that  while  the  two  companies  were  sep- 
arate legal  entities,  yet  in  fact  and  for  all  practical  purposes  the  former  was  but 
a part  of  the  latter,  acting  merely  as  its  agent  and  subject  in  all  things  to  it. 
direction  and  control;  and  for  the  further  reason  that  the  funds  represented  by 
the  dividend  were  in  the  actual  possession  and  control  of  the  Southern  Pacific 
Company  as  well  before  as  after  the  declaration  of  the  dividend  In  this  case 
the  plaintiff  in  error  stands  in  the  position  of  the  ordinary  stockholder,  whose 
interest  in  the  accumulated  earnings  and  surplus  of  the  company  are  not  the 
same  before  as  after  the  declaration  of  a dividend;  his  right  being  merely  to 
have  the  assets  devoted  to  the  proper  business  of  the  corporation  and  to  receive 
from  the  current  earnings  or  accumulated  surplus  such  dividends  as  the  directors 
in  their  discretion  may  declare;  and  without  right  or  power  on  his  part  to 
control  that  discretion.  Hit  hardly  is  necessary  to  say  that  this  case  is  not 
ruled  bv  our  decision  in  Towne  v.  Eisner,  since  the  dividend  of  Baltimore  & 
Ohio  shares  was  not  a stock  dividend  but  a distribution  in  specie  of  a portion 
of  the  assets  of  the  Union  Pacific,  and  is  to  be  governed  for  all  present  pur- 
poses by  the  same  rule  applicable  to  the  distribution  of  a like  value  in  money 
[t  is  controlled  by  Lynch,  Collector,  v.  Hornby,  this  day  decided,  ante^  fib 78. 

Judgment  Affirmed. 


Southern  Pacific  Company  vs.  Lowe. 

(247  U.  S.  330.) 

5121  (T.  D.  2730,  June  11,  1918.) 

Mr.  Justice  Pitney  delivered  the  opinion  of  the  Court. 

5122  This  case  presents  a question  arising  under  the  Federal  Income  lax  Act 
of  October  3,  1913  (Ch.  16,  38  Stat.  114,  166).  Suit  was  brought  by 

plaintiff  in  error  against  the  Collector  to  recover  taxes  assessed  against  it  and 
paid  under  protest.  There  were  two  causes  of  action,  of  which  only  the  second 
went  to  trial,  it  having  been  stipulated  that  the  trial  of  the  other  might  be 
postponed  until  the  final  determination  of  this  one.  So  far  as  it  is  presented  to 
us  the  suit  is  an  effort  to  recover  a tax  imposed  upon  certain  dividends  upon 
=tock  in  form  received  by  the  plaintiff  from  another  corporation  in  the  early 
part  of  the  year  1914,  and  alleged  by  the  plaintiff  to  have  been  paid  out  of  a 
surplus  accumulated  not  only  prior  to  the  effective  date  of  the  Act  but  prior 
to  the  adoption  of  the  Sixteenth  Amendment  to  the  Constitution  of  the  United 
States  The  District  Court  directed  a verdict  and  judgment  in  favor  of  the 
Collector  238  Fed.  Rep.  847,  and  the  case  comes  here  by  direct  writ  of  error 
under  Sec.  238,  Judicial  Code,  because  of  the  constitutional  Question.  That  our 
jurisdiction  was  properly  invoked  is  settled  by  Towne  v.  Eisner,  245  U.  b.  418,  425. 

5123  The  case  was  submitted  at  the  same  time  with  several  other  cases  arising 
under  the  same  Act  and  decided  this  day,  viz..  Lynch,  Collector,  v.  lur- 

rish,  ante,  flS92,  Lynch,  Collector,  v.  Hornby,  ante,  flS78,  and  Peabody  v.  Eisner, 

Collector,  ante,  HS119.  , .. 

5124  The  material  facts  are  as  follows:  Prior  to  January  1,  1913,  and  at  all 
times  material  to  the  case,  plaintiff,  a corporation  organized  under  the 

laws  of  the  State  of  Kentucky,  owned  all  the  capital  stock  of  the  Central  Pacific 
Railway  Company,  a corporation  of  the  State  of  Utah,  including  the  stock 
registered  in  the  names  of  the  directors*  This  situation  existed  continuously 
from  the  incorporation  of  the  Railway  Company  in  the  year  1899  That  com- 
pany is  the  successor  of  the  Central  Pacific  Railroad  Company  and  acquired  all 
of  its  properties,  which  constitute  a part  of  a large  system  of  railways  owned 
or  controlled  by  the  Southern  Pacific  Company.  The  latter  company,  besides 
being  sole  stockholder,  was  in  the  actual  physical  possession  of  the  railroads 
and  all  other  assets  of  the  Railway  Company,  and  in  charge  of  its  operations, 
which  were  conducted  in  accordance  with  the  terms  of  a lease  made  by  the 

♦There  was  another  question,  concerning  a dividend  paid  by  the  Reward  Oil 
Company,  whose  stock  likewise  was  owned  by  the  Southern  Pacific  Company,  but 
the  contention  of  plaintiff  in  error  respecting  this  item  has  been  abandoned. 

Income  Tax 

Supplementary  Page  149. 


SUPREME  COURT  DECTSIOrfS— 1913  ACT. 


predecessor  company  to  the  Southern  Pacific  and  assumed  by  the  Railway  Com- 
pany, the  effect  of  which  was  that  the  Southern  Pacific  should  pay  to  the  lessor 
company  $10,000  per  annum  for  organization  expenses,  should  operate  the  rail- 
roads, branches,  and  leased  lines  belonging  to  the  lessor,  and  account  annually 
for  the  net  earnings,  and  if  these  exceeded  6 per  cent  on  the  existing  capital 
stock  of  the  lessor  the  lessee  should  retain  to  itself  one-half  of  the  excess;  ad- 
vances by  the  lessee  for  account  of  the  lessor  were  to  bear  lawful  interest  and 
the  lessor  was  to  be  entitled  at  any  time  and  from  time  to  time  to  refund  to  it- 
self its  advances  and  interest  out  of  any  net  earnings  which  might  be  in  its  hands 
The  provisions  of  the  lease  were  observed  by  both  corporations  for  bookkeeping 
purposes.  The  Southern  Pacific  acted  as  cashier  and  banker  for  the  entire 
system;  the  Central  Pacific  kept  no  bank  account,  its  earnings  being  deposited 
with  the  bank  account  of  the  Southern  Pacific;  and  if  the  Central  Pacific  needed 
money  for  additions  and  betterments  or  for  making  up  of  a deficit  of  current 
earnings,  the  necessary  funds  were  advanced  by  the  Southern  Pacific.  As  a 
result  of  these  operations  and  of  the  conversion  of  certain  capital  assets  of  the 
Central  Pacific  Company,  that  company  showed  upon  its  books  a large  surplus 
accumulated  prior  to  January  1,  1913,  principally  in  the  form  of  a debit  against 
the  Southern  Pacific,  which  at  the  same  time,  as  sole  stockholder,  was  entitled 
to  any  and  all  dividends  that  might  be  declared,  and  being  in  control  of  the 
board  of  directors  was  able  to  and  did  control  the  dividend  policy.  The  divi- 
dends in  question  were  declared  and  paid  during  the  first  six  months  of  the 
year  1914  out  of  this  surplus  of  the  Central  Pacific  accumulated  prior  to  January 
1,  1913;  but  the  payment  was  only  constructive,  being  carried  into  effect  by 
bookkeeping  entries  which  simply  reduced  the  apparent  surplus  of  the  Central 
Pacific  and  reduced  the  apparent  indebtedness  of  the  Southern  Pacific  to  the 
Central  Pacific  by  precisely  the  amount  of  the  dividends. 

5125  The  question  is  whether  the  dividends  received  under  these  circumstances 
and  in  this  manner  by  the  Southern  Pacific  Company  were  taxable  as 

income  of  that  company  under  the  Income  Tax  Act  of  1913.* 

5126  The  Act  provides  in  Section  II,  Paragraph  A,  Subdivision  1 (38  Stat. 
166);  “That  there  shall  be  levied,  assessed,  collected  and  paid  annually 

upon  the  entire  net  income  arising  or  accruing  from  all  sources  in  the  preceding 
calendar  year”  to  every  person  residing  in  the  United  States  a tax  of  1 per 
centum  per  annum,  with  exceptions  not  now  material.  By  Paragraph  G (a) 
(p.  172),  it  is  provided:  “That  the  normal  tax  hereinbefore  imposed  upon  indi- 
viduals [1  per  cent.]  likewise  shall  be  levied,  assessed,  and  paid  annually  upon  the 
entire  net  income  arising  or  accruing  from  all  sources  during  the  preceding  calen- 
dar year  to  every  corporation  * * * organized  in  the  United  States,”  with 

other  provisions  not  now  material. 

5127  It  is  provided  in  Paragraph  G (b),  as  to  domestic  corporations,  that 
such  net  income  shall  be  ascertained  by  deducting  from  the  gross  amount 

of  the  income  of  the  corporation  (1)  ordinary  and  necessary  expenses  paid  within 
the  year  in  the  maintenance  and  operation  of  its  business  and  properties,  includ- 
ing rentals  and  the  like;  (2)  losses  sustained  within  the  year  and  not  com- 
pensated by  insurance  or  otherwise,  including  a reasonable  allowance  for  depre- 
ciation by  use,  wear  and  tear  of  property,  if  any,  and  in  the  case  of  mines  a 
certain  allowance  for  depletion  of  ores  and  other  natural  deposits;  (3)  interest 
accrued  and  paid  within  the  year  upon  indebtedness  of  the  corporation,  within 
prescribed  limits;  (4)  national  and  state  taxes  paid.  It  will  be  observed  that 
moneys  received  as  dividends  upon  the  stock  of  other  corporations  are  not 
deducted,  as  they  are  in  computing  the  income  of  individuals  for  the  purpose  of 
the  normal  tax  under  this  Act  (p.  167),  and  as  they  were  in  computing  the 
income  of  the  corporation  under  the  Excise  Tax  Act  of  August  5,  1909  (Ch.  6, 
36  Stat.  11,  113,  Sec.  38). 

5128  By  Paragraph  G (c),  the  tax  upon  corporations  is  to  be  computed  upon 
the  entire  net  income  accrued  within  each  calendar  year,  but  for  the 

year  1913  only  upon  the  net  income  accrued  from  March  1 to  December  31,  to 
be  ascertained  by  taking  five-sixths  of  the  entire  net  income  for  the  calendar 
year. 


♦In  addition,  a question  was  made  in  the  District  Court  as  to  a special  divi- 
dend declared  by  the  Central  Pacific  out  of  the  proceeds  of  sale  of  certain  land 
on  Long  Island,  taken  in  satisfaction  of  a debt  and  sold  in  December,  1913.  As 
to  this,  however,  no  argument  is  submitted  by  plaintiff  in  error,  the  facts  are 
not  clear,  and  we  pass  it  without  consideration. 


Income  Tax 

Supplementary  Pace  i 50. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


51 29  The  purpose  to  refrain  from  taxing  income  that  accrued  prior  to  March 
1,  1913,  and  to  exclude  from  consideration  in  making  the  computation 

any  income  that  accrued  in  a preceding  calendar  year,  is  made  plain  by  the 
provision  last  referred  to;  indeed,  the  Sixteenth  Amendment,  under  which  for 
the  first  time  Congress  was  authorized  to  tax  income  from  property  without 
apportioning  the  tax  among  the  States  according  to  population,  received  the 
approval  of  the  requisite  number  of  States  only  in  February,  1913.  Pollock  v. 
Farmers’  Loan  & Trust  Co.,  157  U.  S.  429,  581;  158  U.  S.  601,  637;  Brushaber  v 
Union  Pacific  R.  R.,  240  U.  S.  1,16. 

5130  We  must  reject  in  this  case,  as  we  have  rejected  in  cases  arising  under 
the  Corporation  Excise  Tax  Act  of  1909  (Doyle,  Collector,  v.  Mitchell 

Brothers  Co.  and  Havs,  Collector,  v.  Gauley  Mountain  Coal  Co.,  decided  May 
20,  1918),  the  broad  contention  submitted  in  behalf  of  the  Government  that  all 
receipts — everything  that  comes  in — are  income  within  the  proper  definition  of 
the  term  “gross  income,”  and  that  the  entire  proceeds  of  a conversion  of  capital 
assets,  in  whatever  form  and  under  whatever  circumstances  accomplished,  should 
be  treated  as  gross  income.  Certainly  the  term  “income”  has  no  broader  mean- 
ing in  the  1913  Act  than  in  that  of  1909  (see  Stratton’s  Independence  v.  Howbert, 
231  U.  S.  399,  416,  417),  and  for  the  present  purpose  we  assume  there  is  no  dif- 
ference in  its  meaning  as  used  in  the  two  acts.  This  being  so,  we  are  bound 
to  consider  accumulations  that  accrued  to  a corporation  prior  to  January  1, 
1913,  as  being  capital,  not  income,  for  the  purposes  of  the  Act.  And  we  per- 
ceive no  adequate  ground  for  a distinction,  in  this  regard,  between  an  accumu- 
lation of  surplus  earnings,  and  the  increment  due  to  an  appreciation  in  value  of 
the  assets  of  the  taxpayer. 

5131  That  the  dividends  in  question  were  paid  out  of  a surplus  that  accrued 
to  the  Central  Pacific  prior  to  January  1,  1913,  is  undisputed;  and  we 

deem  it  to  be  equally  clear  that  this  surplus  accrued  to  the  Southern  Pacific 
Company  prior  to  that  date,  in  every  substantial  sense  pertinent  to  the  present 
inquiry,  and  hence  underwent  nothing  more  than  a change  of  form  when  the 
dividends  were  declared. 

5132  We  do  not  rest  this  upon  the  view  that  for  the  purposes  of  the  Act  of  1913 
stockholders  in  the  ordinary  case  have  the  same  interest  in  the  accumu- 
lated earnings  of  the  company  before  as  after  the  declaration  of  dividends.  The 
act  is  quite  different  in  this  respect  from  the  Income  Tax  Act  of  June  30,  1864 
(Ch.  173,  13  Stat.  223,  281,  282),  under  which  this  court  held,  in  Collector  v 
Hubbard,  12  Wall.  1,  16,  that  an  individual  was  taxable  upon  his  proportion  of 
the  earnings  of  the  coporation  although  not  declared  as  dividends.  That  de- 
cision was  based  upon  the  very  special  language  of  a clause  of  Sec.  117  of  the 
Act.  (13  Stat.  282)  that  “the  gains  and  profits  of  all  companies,  whether  incor- 
porated or  partnership,  other  than  the  companies  specified  in  this  section,  shall 
be  included  in  estimating  the  annual  gains,  profits,  or  income  of  any  person 
entitled  to  the  same,  whether  divided  or  otherwise.”  The  Act  of  1913  contains  no 
similar  language,  but  on  the  contrary  deals  with  dividends  as  a particular  item  of 
income,  leaving  them  free  from  the  normal  tax  imposed  upon  individuals,  sub- 
jecting them  to  the  graduated  surtaxes  only  when  received  as  dividends  (38 
Stat.  167,  Paragraph  B),  and  subjecting  the  interest  of  any  individual  share- 
holder in  the  undivided  gains  and  profits  of  his  corporation  to  these  taxes  only 
in  case  the  company  is  formed  or  fraudulently  availed  of  for  the  purpose  of  pre- 
venting the  imposition  of  such  tax  by  permitting  gains  and  profits  to  accumu- 
late instead  of  being  divided  or  distributed*.  Our  view  of  the  effect  of  this  Act 

* “For  the  purpose  of  this  additional  tax  the  taxable  income  of  any  individ- 
ual shall  embrace  the  share  to  which  he  would  be  entitled  of  the  gains  and  profits, 
if  divided  or  distributed,  whether  divided  or  distributed  or  not,  of  all  corpora- 
tions, joint-stock  companies,  or  associations  how’ever  created  or  organized,  formed 
or  fraudulently  availed  of  for  the  purpose  of  preventing  the  imposition  of  such 
tax  through  the  medium  of  permitting  such  gains  and  profits  to  accumulate  in- 
stead of  being  divided  or  distributed;  and  the  fact  that  any  such  corporation 
* * * is  a mere  holding  company,  or  that  the  gains  and  profits  are  permitted 

to  accumulate  beyond  the  reasonable  needs  of  the  business  shall  be  prima  facie 
evidence  of  a fraudulent  purpose  to  escape  such  tax;  but  the  fact  that  the 
gains  and  profits  are  in  any  case  permitted  to  accumulate  and  become  surplus 
shall  not  be  construed  as  evidence  of  a purpose  to  escape  the  said  tax  in  such 
case  unless  the  Secretary  of  the  Treasury  shall  certify  that  in  his  opinion  such 
accumulation  is  unreasonable  for  the  purposes  of  the  business.”  (38  Stat.  166. 
167  ) 

Income  Tax 

Supplementary  Page  151. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


upon  dividends  received  by  the  ordinary  stockholder  after  it  took  effect  but  paid 
out  of  a surplus  that  accrued  to  the  corporation  before  that  event,  is  set  forth 
in  Lynch,  Collector  v.  Hornby,  ante,  flS78,  decided  this  day. 

5133  We  base  our  conclusion  in  the  present  case  upon  the  view  that  it  was  the 
purpose  and  intent  of  Congress,  while  taxing  “the  entire  net  income  arising 

or  accruing  from  all  sources”  during  each  year  commencing  with  the  first  day  of 
March,  1913,  to  refrain  from  taxing  that  which,  in  mere  form  only,  bore  the  ap- 
pearance of  income  accruing  after  that  date,  while  in  truth  and  in  substance  it 
accrued  before;  and  upon  the  fact  that  the  Central  Pacific  and  the  Southern 
Pacific  were  in  substance  identical  because  of  the  complete  ownership  and  con- 
trol which  the  latter  possessed  over  the  former,  as  stockholder  and  in  other 
capacities.  While  the  two  companies  were  separate  legal  entities,  yet  in  fact, 
and  for  all  practical  purposes  they  were  merged,  the  former  being  but  a part 
of  the  latter,  acting  merely  as  its  agent  and  subject  in  all  things  to  its  proper 
direction  and  control.  And  besides,  the  funds  represented  by  the  dividends 
were  in  the  actual  possession  and  control  of  the  Southern  Pacific  as  well  before  as 
after  the  declaration  of  the  dividends.  The  fact  that  the  books  were  kept  in 
accordance  with  the  provisions  of  the  lease,  so  that  these  funds  appeared  upon 
the  account  as  an  indebtedness  of  the  lessee  to  the  lessor,  cannot  be  controlling, 
in  view  of  the  practical  identity  between  lessor  and  lessee.  Aside  from  the  inter- 
ests of  creditors  and  the  public — and  there  is  nothing  to  suggest  that  the  interests 
of  either  were  concerned  in  the  disposition  of  the  surplus  of  the  Central  Pacific — 
the  Southern  Pacific  was  entitled  to  dispose  of  the  matter  as  it  saw  fit.  There 
is  no  question  of  there  being  a surplus  to  warrant  the  dividends  at  the  time  they 
were  made,  hence  any  speculation  as  to  what  might  have  happened  in  case  of 
financial  reverses  that  did  not  occur  is  beside  the  mark. 

5134  It  is  true  that  in  ordinary  cases  the  mere  accumulation  of  an  adequate  sur- 
plus does  not  entitle  a stockholder  to  dividends  until  the  directors  in  their 

discretion  declare  them.  New  York,  etc.,  Railroad  v.  Nickals,  119  U.  S.  296,  306; 
Gibbons  v.  Mahan,  136  U.  S.  549,  558.  And  see  Humphreys  v.  McKissock,  140 
U.  S.  304,  312.  But  this  is  not  the  ordinary  case.  In  fact  the  discretion  of  the 
directors  was  affirmatively  exercised  by  declaring  dividends  out  of  the  surplus 
that  was  accumulated  prior  to  January  1,  1913;  it  does  not  appear  that  any  other 
fair  exercise  of  discretion  was  open;  and  the  complete  ownership  and  right  of 
control  of  the  Southern  Pacific  and  at  all  times  material  makes  it  a matter  of  indif- 
ference whether  the  vote  was  at  one  time  or  another.  Under  the  circumstances, 
the  entire  matter  of  the  declaration  and  payment  of  the  dividends  was  a paper 
transaction  to  bring  the  books  into  accord  with  the  acknowledged  rights  of  the 
Southern  Pacific;  and  so  far  as  the  dividends  represented  the  surplus  of  the  Cen- 
tral Pacific  that  accumulated  prior  to  January  1,  1913,  they  were  not  taxable  as  in- 
come of  the  Southern  Pacific  within  the  true  intent  and  meaning  of  the  Act  of 
1913. 

5135  The  case  turns  upon  its  very  peculiar  facts,  and  is  distinguishable  from 
others  in  which  the  question  of  the  identity  of  a controlling  stock- 
holder with  his  corporation  has  been  raised.  Pullman  Car  Co.  v.  Missouri 
Pacific  Co.,  115  U.  S.  587,  596;  Peterson  v.  Chicago,  Rock  Island  & Pacific  Ry., 
205  U.  S.  364,  391. 

Judgment  reversed,  and  the  cause  re- 
manded for  further  proceedings  in  con- 
formity with  this  opinion. 

Mr.  Justice  Clarke  dissents. 


Gulf  Oil  Corporation  vs.  Lewellyn. 

(248  U.  S.  71.) 

5136  , (T.  D.  2783,  Jan.  7,  1919.) 

Mr.  Justice  Holmes  delivered  the  opinion  of  the  Court 

5137  This  is  a suit  to  recover  a tax  levied  upon  certain  dividends  as  income 
under  the  Act  of  October  3,  1913,  c.  16,  Section  II.  38  Stat.  114,  166.  The 

District  Court  gave  judgment  for  the  plaintiff,  242  Fed.  Rep.  709,  but  this  judg- 
ment was  reversed  by  the  Circuit  Court  of  Appeals.  245  Fed.  Rep.  1.  158  C.  C. 
A.  1. 

8138  The  facts  may  be  abridged  from  the  findings  below  as  follows:  The  peti- 
tioner was  a holding  company  owning  all  the  stock  in  the  other  corpora- 

Income  Tax 

Supplementary  Page  152. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


tions  concerned  except  the  qualifying  shares  held  by  directors.  These  companies 
with  others  constituted  a single  enterprise,  carried  on  by  the  petitioner,  of  pro- 
ducing, buying,  transporting,  refining  and  selling  oil.  The  subsidiary  companies 
had  retained  their  earnings,  although  making  some  loans  inter  se,  and  all  their 
funds  were  invested  in  properties  or  actually  required  to  carry  on  the  business, 
so  that  the  debtor  companies  had  no  money  available  to  pay  their  debts.  In 
January,  1913,  the  petitioner  decided  to  take  over  the  previously  accumulated 
earnings  and  surplus  and  did  so  in  that  year  by  votes  of  the  companies  that  it 
controlled.  But,  disregarding  the  forms  gone  through,  the  result  was  merely 
that  the  petitioner  became  the  holder  of  the  debts  previously  due  from  one  of 
its  companies  to  another.  It  was  no  richer  than  before,  but  its  property  now 
was  represented  by  stock  in  and  debts  due  from  its  subsidiaries,  whereas  form- 
erly it  was  represented  by  the  stock  alone,  the  change  being  effected  by  entries 
upon  the  respective  companies'  books.  The  earnings  thus  transferred  bad  been 
accumulated  and  had  been  used  as  capital  before  the  taxing  year.  Lynch  v. 
Turrish,  247,  U.  S.  221,  228. 

S139  We  are  of  opinion  that  the  decision  of  the  District  Court  was  right.  It 
is  true  that  the  petitioner  and  its  subsidiaries  were  distinct  beings  in  con- 
templation of  law,  but  the  facts  that  they  were  related  as  parts  of  one  enterprise, 
all  owned  by  the  petitioner,  that  the  debts  were  all  enterprise  debts  to  members, 
and  that  the  dividend  represented  earnings  that  had  been  made  in  former  years 
and  that  practically  had  been  converted  into  capital,  unite  to  convince  us  that  the 
transaction  should  be  regarded  as  bookkeeping  rather  than  as  ‘dividends  declared 
and  paid  in  the  ordinary  course  by  a corporation.’  Lynch  v.  Hornby,  247  U.  S. 
339,  346  [ftS78].  The  petitioner  did  not  itself  do  the  business  of  its  subsidi- 
aries and  have  possession  of  their  property  as  in  Southern  Pacific  Co.  v.  Lowe, 
247  U.  S.  330  [jfS121],  but  the  principle  of  that  case  must  be  taken  to  cover  this 
By  Section  II,  G,  (c)  38  Stat.  174,  and  S,  id.  202,  the  tax  from  January  1 to 
February  28,  1913,  is  levied  as  a special  excise  tax,  but  in  view  of  our  decision 
that  the  dividends  here  concerned  were  not  income  it  is  unnecessary  to  discuss 
the  further  question  that  has  been  raised  under  the  latter  clause  as  to  the  effecf 
of  the  fact  that  excise  taxes  upon  the  subsidiary  corporations  had  been  paid 


Alvah  Crocker  et  al.,  Trustees  vs.  Malley. 

(249  U.  S 223.) 

Sl+O  (T.  D.  2816,  April  2,  1919.) 

Mr.  Justice  Holmes  delivered  the  opinion  of  the  Court 

5141  This  is  an  action  to  recover  taxes  paid  under  protest  to  the  Collector 
of  Internal  Revenue  by  the  petitioners,  the  plaintiffs.  The  taxes  were  as- 
sessed to  the  plaintiffs  as  a joint-stock  association  within  the  meaning  of  the  In- 
come Tax  Act  of  October  3,  1913,  c.  16,  Section  II,  G.  (a),  38  Stat.  114,  166,  172, 
and  were  levied  in  respect  of  dividends  received  from  a corporation  that  itself 
was  taxable  upon  its  net  income.  The  plaintiffs  say  that  they  were  not  an  asso- 
ciation but  simply  trustees,  and  subject  only  to  the  duties  imposed  upon  fidu- 
ciaries by  Section  II,  D.  The  Circuit  Court  of  Appeals  decided  that  the  plain- 
tiffs, together,  it  would  seem,  with  those  for  whose  benefit  they  held  the  prop- 
erty, were  an  association,  and  ordered  judgment  for  the  defendant,  reversing 
the  judgment  of  the  District  Court.  250  Fed.  Rep.  817. 

5142  The  facts  are  these.  A Maine  paper  manufacturing  corporation  with 
eight  shareholders  had  its  mills  on  the  Nashua  River  in  Massachusetts 

and  owned  outlying  land  to  protect  the  river  from  pollution.  In  1912  a corpora- 
tion was  formed  in  Massachusetts.  The  Maine  corporation  conveyed  to  it 
seven  mills  and  let  to  it  an  eighth  that  was  in  process  of  construction,  together 
with  the  outlying  lands  and  tenements,  on  a long  lease,  receiving  the  stock  of 
the  Massachusetts  corporation  in  return.  The  Maine  corporation  then  transferred 
to  the  plaintiffs  as  trustees  the  fee  of  the  property  subject  to  lease,  left  the 
Massachusetts  stock  in  their  hands,  and  was  dissolved.  By  the  declaration  of 
trust  the  plaintiffs  declared  that  they  held  the  real  estate  and  all  other  property 
at  any  time  received  by  them  thereunder,  subject  to  the  provisions  thereof,  ‘for 
the  benefit  of  the  cestui  que  trusts  (who  shall  be  trust  beneficiaries  only,  without 
partnership,  associate  or  other  relation  whatever  inter  sese)’  upon  trust  to  con- 
vert the  same  into  money  and  distribute  the  net  proceeds  to  the  persons  then 
holding  the  trustees’  receipt  certificates — the  time  of  distribution  being  left  to 

Income  Tax 

Supplementary  Page  153. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


the  discretion  of  the  trustees,  but  not  to  be  postponed  beyond  the  end  of  twenty 
years  after  the  death  of  specified  persons  then  living.  In  the  meantime  the 
trustees  were  to  have  the  powers  of  owners.  They  were  to  distribute  what  they 
determined  to  be  fairly  distributable  net  income  according  to  the  interests  of  the 
cestui  que  trusts  but  could  apply  any  funds  in  their  hands  for  the  repair  or  de- 
velopment of  the  property  held  by  them,  or  the  acquisition  of  other  property, 
pending  conversion  and  distribution.  The  trust  was  explained  to  be  because  of  the 
determination  of  the  Maine  corporation  to  dissolve  without  waiting  for  the  final 
cash  sale  of  its  real  estate  and  was  declared  to  be  for  the  benefit  of  the  eight 
shareholders  of  the  Maine  Company  who  were  to  receive  certificates  subject  to 
transfer  and  subdivision.  Then  followed  a more  detailed  statement  of  the  power 
of  the  trustees  and  provision  for  their  compensation,  not  exceeding  one  per  cent, 
of  the  gross  income  unless  with  the  written  consent  of  a majority  in  interest  of 
the  cestui  que  trusts.  A similar  consent  was  required  for  the  filling  of  a vacancy 
among  the  trustees,  and  for  a modification  of  the  terms  of  the  trust.  In  no  other 
matter  had  the  beneficiaries  any  control.  The  title  of  the  trust  was  fixed  for 
convenience  as  The  Massachusetts  [sic:  in  fact — Wachusett]  Realty  Trust. 

5143  The  declaration  of  trust  on  its  face  is  an  ordinary  real  estate  trust  of 
the  kind  familiar  in  Massachusetts,  unless  in  the  particular  that  the 

trustees’  receipt  provides  that  the  holder  has  no  interest  in  any  specific  property 
and  that  it  purports  only  to  declare  the  holder  entitled  to  a certain  fraction 
of  the  net  proceeds  of  the  property  when  converted  into  cash  ‘and  meantime 
to  income’.  The  only  property  expressly  mentioned  is  the  real  estate  not  trans- 
ferred to  the  Massachusetts  corporation.  Although  the  trustees  in  fact  have  held 
the  stock  of  that  corporation  and  have  collected  dividends  upon  it,  their  doing 
so  is  not  contemplated  in  terms  by  the  instrument.  It  does  not  appear  very 
clearly  that  the  eight  Maine  shareholders  might  have  demanded  it  had  they 
been  so  minded.  The  function  of  the  trustees  is  not  to  manage  the  mills  but 
simply  to  collect  the  rents  and  income  of  such  property  as  may  be  in  their  hands, 
with  a large  discretion  in  the  application  of  it,  but  with  a recognition  that  the  re- 
ceipt holders  are  entitled  to  it  subject  to  the  exercise  of  the  powers  confided  to 
the  trustees.  In  fact,  the  whole  income,  less  taxes  and  similar  expenses,  has 
been  paid  over  in  due  proportion  to  the  holders  of  the  receipts. 

5144  There  can  be  little  doubt  that  in  Massachusetts  this  arrangement  would 
be  held  to  create  a trust  and  nothing  more.  ‘The  certificate  holders 

. . . are  in  no  way  associated  together  nor  is  there  any  provision  in  the 

[instrument]  for  any  meeting  to  be  held  by  them.  The  only  act  which  (under 
the  [declaration  of]  trust)  they  can  do  is  to  consent  to  an  alteration  . . 
of  the  trust’  and  to  the  other  matters  that  we  have  mentioned  Thev  are 
confined  to  giving  or  withholding  assent,  and  the  giving  or  withholding  it  ‘is  not 
to  be  had  in  a meeting  but  is  to  be  given  by  them  individually’.  ‘The  sole  right 
of  the  cestui  que  trust  is  to  have  the  property  administered  in  their  interest  by 
the  trustees,  who  are  the  masters,  to  receive  income  while  the  trust  lasts,  and 
their  share  of  the  corpus  when  the  trust  comes  to  an  end’.  Williams  v.  Milton, 
215  Mass.  1,  10,  11;  ibid.  8.  The  question  is  whether  a different  view  is  required 
by  the  terms  of  the  present  act.  As  by  D.  above  referred  to  trustees  and  associ- 
ations acting  in  a fiduciary  capacity  have  the  exemption  that  individual  stock- 
holders have  from  taxation  upon  dividends  of  a corporation  that  itself  pays  an 
income  tax,  and  as  the  plaintiffs  undeniably  are  trustees,  if  they  are  to  be  sub- 
jected to  a double  liability  the  language  of  the  statute  must  make  the  intention 
clear.  Gould  v.  Gould,  245  U.  S.  151,  153.  United  States  v.  Isham,  17  Wall,  496, 
504. 

5145  The  requirement  of  G.  (a)  is  that  the  normal  tax  thereinbefore  imposed 
upon  individuals  shall  be  paid  upon  the  entire  net  income  accruing  from 

all  sources  during  the  preceding  year  “to  every  corporation,  joint-stock  com- 
pany or  association,  and  every  insurance  company,  organized  in  the  United 
States,  no  matter  how  created  or  organized,  not  including  partnerships.”  The 
trust  that  has  been  described  would  not  fall  under  any  familiar  conception  of  a 
joint-stock  association,  whether  formed  under  a statute  or  not.  Smith  v. 
Anderson,  15  Ch.  D.  247,  273,  274,  277,  282.  Eliot  v.  Freeman,  220  U.  S.  178,  186. 
If  we  assume  that  the  words  ‘no  matter  how  created  or  organized’  apply  to  ‘as- 
sociation’ and  not  only  to  ‘insurance  company’,  still  it  would  be  a wide  departure 
from  norma!  usage  to  call  the  beneficiaries  here  a joint-stock  association  when 
they  are  admitted  not  to  be  partners  in  any  sense,  and  when  they  have  no  joint 
action  or  interest  and  no  control  over  the  fund.  On  the  other  hand  the  trustees 
by  themselves  cannot  be  a joint-stock  association  within  the  meaning  of  the 
act  unless  all  trustees  with  discretionary  powers  are  such,  and  the  special  pro- 

income  Tax 

Supplementary  Page  154. 


SUPREME  COURT  DECISIONS— 1913  ACT 


vision  for  trustees  in  D.  is  to  be  made  meaningless.  We  perceive  no  ground 
for  grouping  the  two — beneficiaries  and  trustees — together,  in  order  to  turn  them 
into  an  association,  by  uniting  their  contrasted  functions  and  powers,  although 
they  are  in  no  proper  sense  associated.  It  seems  to  be  an  unnatural  perversion 
of  a well-known  institution  of  the  law. 

S140  VVe  do  not  see  either  that  the  result  is  alfected  by  any  technical  analysis 
of  the  individual  receipt  holders’  rights  in  the  income  received  by  the 
trustees.  The  description  most  in  accord  with  what  has  been  the  practice  would 
be  that,  as  the  receipts  declare,  the  holders,  until  distribution  of  the  capital, 
were  entitled  to  the  income  of  the  fund  subject  to  an  unexercised  power  in  the 
trustees  in  their  reasonable  discretion  to  divert  it  to  the  improvement  of  the 
capital.  But  even  if  it  were  said  that  the  receipt  holders  were  not  entitled  to 
the  income  as  such  until  they  got  it,  we  do  not  discern  how  that  would  turn 
them  into  a joint-stock  company.  Moreover  the  receipt  holders  did  get  it  and 
the  question  is  what  portion  it  was  the  duty  of  the  trustees  to  withhold. 

5147  We  presume  that  the  taxation  of  corporations  and  joint-stock  companies 
upon  dividends  of  corporations  that  themselves  pay  the  income  tax  was 

for  the  purpose  of  discouraging  combinations  of  the  kind  now  in  disfavor,  by 
which  a corporation  holds  controlling  interests  in  other  corporations  which  in 
their  turn  may  control  others,  and  so  on,  and  in  this  way  concentrates  a power 
that  is  disapproved.  There  is  nothing  of  that  sort  here.  Upon  the  whole  case 
we  are  of  opinion  that  the  statute  fails  to  show  a clear  intent  to  subject  the 
dividends  on  the  Massachusetts  corporation’s  stock  to  the  extra  tax  imposed  by 
G.  (a). 

5148  Our  view  upon  the  main  question  opens  a second  one  upon  which  the 
Circuit  Court  of  Appeals  did  not  have  to  pass.  The  District  Court  while 

it  found  for  the  plaintiffs,  ruled  that  the  defendant  was  entitled  to  retain  out  of 
the  sum  received  by  him  the  amount  of  the  tax  that  they  should  have  paid  as 
trustees.  To  this  the  plaintiffs  took  a cross  writ  of  error  to  the  Circuit  Court 
of  Appeals.  There  can  be  no  question  that  although  the  plaintiffs  escape  the 
larger  liability,  there  was  probable  cause  for  the  defendant’s  act.  The  Com- 
missioner of  Internal  Revenue  rejected  the  plaintiff’s  claim,  and  the  statute  does 
not  leave  the  matter  clear.  The  recovery  therefore  will  be  from  the  United 
States.  Rev.  Sts.  Sec.  989.  The  plaintiffs,  as  they  themselves  alleged  in  their 
claim,  were  the  persons  taxed,  whether  they  were  called  an  association  or  trustees. 
They  were  taxed  too  much.  If  the  United  States  retains  from  the  amount  re- 
ceived by  it  the  amount  that  it  should  have  received,  it  cannot  recover  that  sum 
in  a subsequent  suit. 

Judgment  of  the  Circuit  Court  of  Appeals  Reversed. 

Judgment  of  the  District  Court  Affirmed. 


DeGanay  vs.  Lederer. 

(250  U.  S.  376.) 

5149  (T.  D.  2876,  dated  June  25,  1919.) 

Mr.  Justice  Day  delivered  the  opinion  of  the  Court. 

5150  The  Act  of  October  3,  1913,  c.  16,  sec.  2a,  subdivision  1,  38  Stat.  166, 
provides: 

“That  there  shall  be  levied,  assessed,  collected  and  paid  annually  upon  the 
entire  net  income  arising  or  accruing  from  all  sources  in  the  preceding  calendar 
year  to  every  citizen  of  the  United  States,  whether  residing  at  home  or  abroad, 
and  to  every  person  residing  in  the  United  States,  though  not  a citizen  thereof, 
a tax  of  1 per  centum  per  annum  upon  such  income,  except  as  hereinafter  pro- 
vided; and  a like  tax  shall  be  assessed,  levied,  collected,  and  paid  annually  upon 
the  entire  net  income  from  all  property  owned  and  of  every  business,  trade,  or 
profession  carried  on  in  the  United  States  by  persons  residing  elsewhere.” 

5151  Under  this  statutory  provision  a question  arose  as  to  the  taxability  of  in- 
come from  certain  securities  of  Emily  R DeGanay,  a citizen  and  resident 

of  France.  The  District  Court  of  the  United  States  for  the  Eastern  District  of 
Pennsylvania  held  the  income  from  the  securities  taxable.  239  Fed.  568.  The  case 
is  here  upon  certificate  from  the  Circuit  Court  of  Appeals,  from  which  it  appears: 
That  Emily  R.  DeGanay  is  a citizen  of  France,  and  resides  in  that  country.  That 
her  father  was  an  American  citizen  domiciled  in  Pennsylvania,  and  died  in  1885, 
having  devised  pne-fourth  of  his  residuary  estate,  consisting  of  real  property,  to 
the  Pennsylvania  Company  for  Insurance  on  . Lives  and  Granting  Annuities,  in 

Income  Tax 

Supplementary  Page  155. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


trust  to  pay  the  net  income  thereof  to  her.  She  also  inherited  from  her  father  a 
large  amount  of  personal  property  in  her  own  right  free  from  any  trust.  This  per- 
sonal property  is  invested  in  stocks  and  bonds  of  corporations  organized  under 
laws  of  the  United  States  and  in  bonds  and  mortgages  secured  upon  property  in 
Pennsylvania.  Since  1885  the  Pennsylvania  Company  has  been  acting  as  her 
agent  under  power  of  attorney,  and  has  invested  and  reinvested  her  property,  and 
has  collected  and  remitted  to  her  the  net  income  therefrom.  The  certificates  of 
stocks,  bonds  and  mortgages  had  been  and  were  in  1913  in  the  Company’s  posses- 
sion in  its  offices  in  Philadelphia.  The  Company  made  a return  of  the  income  col- 
lected for  the  plaintiff  for  the  year  1913  both  from  her  real  estate,  which  is  not  in 
controversy  here,  and  her  net  income  from  corporate  stocks  and  bonds  and  the 
bonds  and  mortgages  held  by  her  in  her  own  right.  The  tax  was  paid  under  protest 
and  recovery  was  sought  by  the  proper  action. 

5152  The  question  certified  is  limited  to  the  net  income  collected  by  virtue  of 
the  power  of  attorney  from  the  personal  property  owned  by  the  plaintiff 

in  her  own  right. 

5153  The  power  of  attorney,  which  is  attached  to  the  certificate,  authorizes 

the  agent:  . . 

“To  sell,  assign,  transfer  any  stocks,  bonds,  loans,  or  other  securities  now 
standing  or  that  may  hereafter  stand  in  my  name  on  the  books  of  any  and  all 
corporations,  national,  state,  municipal  or  private,  to  enter  satisfaction  upon 
the  record  of  any  indenture  or  mortgage  now  or  hereafter  in  my  name,  or  to 
sell  and  assign  the  same  and  to  transfer  policies  of  insurance,  and  the  proceeds, 
also  any  other  moneys  to  invest  and  reinvest  in  such  securities  as  they  may 
in  their  discretion  deem  safe  and  judicious  to  hold  for  my  account;  to  collect 
and  receipt  for  all  interest  and  dividends,  loans,  stocks,  or  other  securities 
now  or  hereafter  belonging  to  me,  to  endorse  checks  payable  to  my  order  and 
to  make  or  enter  into  any  agreement  or  agreements  they  may  deem  necessary 
and  best  for  my  interest  in  the  management  of  my  business  and  affairs,  also 
to  represent  me  and  in  my  behalf,  to  vote  and  act  for  me  at  all  meetings,  con- 
nected with  any  company  in  which  I may  own  stocks  or  bonds  or  be  inter 
ested  in  any  way  whatever,  with  power  also  as  attorney  or  attorneys  under  it 
for  that  purpose  to  make  and  substitute,  and  to  do  all  lawful  acts  requisite  for 
effecting  the  premises,  hereby  ratifying  and  confirming  all  the  said  attorney  or 
substitute  or  substitutes  shall  do  therein  by  virtue  of  these,  presents.” 

5154  The  question  certified  is:  “If  an  alien  non-resident  owns  stocks,  bond? 
and  mortgages  secured  upon  property  in  the  United  States  or  payable 

by  persons  or  corporations  there  domiciled;  and  if  the  income  therefrom  is 
collected  for  and  remitted  to  such  non-resident  by  an  agent  domiciled  in  the 
United  States:  and  if  the  agent  has  physical  possession  of  the  certificates  of 
stock,  the  bonds  and  the  mortgages;  is  such  income  subject  to  an  income  tax 
under  the  Act  of  October  3,  1913?” 

51 55  The  question  submitted  comes  to  this:  “Is  the  income  from  the  stock, 
bonds  and  mortgages,  held  by  the  Pennsylvania  Company,  derived  from 

property  owned  in  the  United  States?  A learned  argument  is  made  to  the 
effect  that  the  stock  certificates,  bonds,  and  mortgages  are  not  property,  that 
they  are  but  evidences  of  the  ownership  of  interests  which  are  property;  that 
the  property,  in  a legal  sense,  represented  by  the  securities,  would  exist  if  the 
physical  evidences  thereof  were  destroyed.’  But  we  are  of  opinion  that  these 
refinements  are  not  decisive  of  the  congressional  intent  in  using  the  term 
“property”  in  this  statute.  Unless  the  contrary  appears,  statutory  words  are 
presumed  to  be  used  in  their  ordinary  and  usual  sense,  and  with  the  meaning 
commonly  attributable  to  them.  To  the  general  understanding  and  with  the 
common  meaning  usually  attached  to  such  descriptive  terms,  bonds,  mortgages, 
and  certificates  of  stock  are  regarded  as  property.  By  state  and  federal  stat- 
utes they  are  often  treated  as  property,  not  as  mere  evidences  of  the  interest 
which  they  represent.  In  Blackstone  v.  Miller,  188  U.  S.  189,  206,  this  court 
held  that  a deposit  by  a citizen  of  Illinois  in  a trust  company  in  the  city  of 
New  York  was  subject  to  the  transfer  tax  of  the  State  of  New  York  and  said: 
“There  is  no  conflict  between  our  views  and  the  point  decided  in  the  case 
reported  under  the  name  of  State  Tax  on  Foreign  Held  Bonds,  15  Wall.  300 
The  taxation  in  that  case  was  on  the  interest  on  bonds  held  out  of  the  State 
Bonds  and  negotiable  instruments  are  more  than  merely  evidences  of  debt.  The 
debt  is  inseparable  from  the  paper  which  declares  and  constitutes  it,  by  a tradi- 
tion which  comes  down  from  mor’e  archaic  conditions.  Bacon  v.  Hooker,  177 
Mass.  335,  337." 

Income  Tax 

Supplementary  Page  156 


SUPREME  COURT  DECISIONS— 1913  ACT. 


S150  The  Court  of  Appeals  of  New  York  recognizing  the  same  principle, 
treated  such  instruments  as  property  in  People  ex  rel,  Jefferson  v.  Smith, 
88  N.  Y.  576,  585: 

"It  is  clear  from  the  statutes  referred  to  and  the  authorities  cited  and  from 
the  understanding  of  business  men  in  commercial  transactions,  as  well  as  of 
jurists  and  legislators,  that  mortgages,  bonds,  bills  and  notes  have  for  many 
purposes  come  to  be  regarded  as  property  and  not  as  the  mere  evidences  of 
debts,  and  that  they  may  thus  have  a situs  at  the  place  where  they  are  found 
like  other  visible,  tangible  chattels.” 

S157  We  have  no  doubt  that  the  securities  herein  involved,  are  property.  Are 
they  property  within  the  United  States?  It  is  insisted  that  the  maxim 
mobilia  sequuntur  personam  applies  in  this  instance,  and  that  the  situs  of  the 
property  was  at  the  domicile  of  the  owner  in  France.  But  this  court  has  fre- 
quently declared  that  the  maxim,  a fiction  at  most,  must  yield  to  the  facts  and 
circumstances  of  cases  which  require  it;  and  the  notes,  bonds  and  mortgages  may 
acquire  a situs  at  a place  other  than  the  domicile  of  the  owner,  and  be  there 
reached  by  the  taxing  authority.  It  is  only  necessary  to  refer  to  some  of  the  de- 
cisions of  this  court.  New  Orleans  v.  Stempel,  175  U.  S.  309;  Bristol  v.  Wash- 
ington County,  177  U.  S.  133;  Blackstone  v.  Miller,  supra;  State  Board  of  As- 
sessors v.  Comptoir  National  d’Escompte,  191  U.  S.  388;  Carstairs  v.  Cochran, 
193  U.  S.  10;  Scottish  Union  & National  Ins.  Co.  v.  Bowland,  196  U.  S.  611; 
Wheeler  v.  New  York,  233  U.  S.  434,  439;  Iowa  v.  Slimmer,  248  U.  S.  115,  12a 
Shares  of  stock  in  national  banks,  this  court  has  held,  for  the  purpose  of  taxation 
may  be  separated  from  the  domicile  of  the  owner,  and  taxed  at  the  place  where 
held.  Tappan  v.  Merchants’  National  Bank,  19  Wall.  490. 

S15S  In  the  case  under  consideration  the  stocks  and  bonds  were  those  of 
corporations  organized  under  the  laws  of  the  United  States,  and  the 
bonds  and  mortgages  were  secured  upon  property  in  Pennsylvania.  The  cer- 
tificates of  stock,  the  bonds  and  mortgages  were  in  the  Pennsylvania  Company’s 
offices  in  Philadelphia.  Not  only  is  this  so,  but  the  stocks,  bonds  and  mortgages 
were  held  under  a power  of  attorney  which  gave  authority  to  the  agent  to  sell, 
assign,  or  transfer  any  of  them,  and  to  invest  and  reinvest  the  proceeds  of  such 
sales  as  it  might  deem  best  in  the  management  of  the  business  and  affairs  of  the 
principal.  It  is  difficult  to  conceive  how  property  could  be  more  completely 
localized  in  the  United  States.  There  can  be  no  question  of  the  power  of  Con- 
gress to  tax  the  income  from  such  securities.  Thus  situated  and  held,  and  witk 
the  authority  given  to  the  local  agent  over  them,  we  think  the  income  derived  is 
clearly  from  property  within  the  United  States  within  the  meaning  of  Con- 
gress as  expressed  in  the  statute  under  consideration.  It  follows  that  the  ques- 
tion certified  by  the  Circuit  Court  of  Appeals  must  be  answered  in  the  affirmative., 

• '•  . _ So  ordered » 

Mr.  Tustice  McReynolds  took  no  part  in  this  case. 


Maryland  Casualty  Co.  vs.  United  States. 

(251  U.  S.  342.) 

(T.  D.  3013  May  3,  1920.) 

Mr.  Justice  Clarke  delivered  the  opinion  of  the  Court. 

Si  59  Under  warrant  of  the  Act  of  Congress,  approved  August  5,  1909  (36  Stat.,  Ch.  6> 
pp.  11,  113),  the  Government  collected  from  the  claimant,  a corporation  organized 
as  an  insurance  company  under  the  laws  of  Maryland,  an  excise  tax  for  the  years  1909, 
1910,  1911  and  1912,  and,  under  warrant  of  the  Act  of  Congress  of  October  3,  1913,  (38 
Stat.,  Ch.  16,  pp.  114,  166),  it  likewise  collected  an  excise  tax  for  the  first  two  months  of 
1913,  and  an  income  tax  for  the  remaining  months  of  that  year. 

Si  60  1 his  suit,  instituted  in  the  Court  of  Claims,  to  recover  portions  of  such  payment* 

claimed  to  have  been  unlawfully  collected,  is  here  for  review  upon  appeal  from  the 
judgment  of  that  court. 

Si  61  The  claimant  was  engaged  in  casualty,  liability,  fidelity,  guaranty  and  surety 
insurance,  but  the  larger  part  of  its  business  was  employers’  liability,  accident^, 
and,  in  the  later  of  the  years  under  consideration  in  this  case,  workmen’s  compensation 

insurance. 

Si  62  By  process  of  elimination  the  essential  questions  of  difference  between  the  partie*. 
ultimately  became  three,  viz.: 

(1)  Should  claimant  be  charged,  as  a part  of  its  gross  income  each  year,  with  premium* 
collected  by  agents,  but  not  transmitted  by  them  to  its  treasurer  within  the  year? 

(2)  May  the  amount  of  gross  income  of  the  claimant  be  reduced  by  the  aggregate 
amount  of  the  taxes,  salaries,  brokerage  and  re-insurance  unpaid  at  the  end  of  each  year 

Income  Tax 

Supplementary  Page  157. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


under  the  provisions  in  both  the  excise  and  income  tax  laws  allowing  deductions  of  "net 
addition,  if  any,  required  by  law  to  be  made  within  the  year  to  reserve  funds”? 

(3)  Should  the  decrease  in  the  amount  of  reserve  funds  required  by  law  for  the  year 
1913  from  the  amount  required  for  1912  be  treated  as  “released  reserve”  and  charged 
to  the  company  as  income  for  1913? 

Si  63  Of  these  in  the  order  stated. 

S3  64  Section  38  of  the  Excise  Tax  Act  f36  Stat.  112)  provides  that  every  corporation, 
organized  under  the  laws  of  any  State  as  an  insurance  company  “shall  be  subject 
to  pay  annually  a special  excise  tax  with  respect  to  the  carrying  on  or  doing  business 
* * * * equivalent  to  one  per  centum  upon  the  entire  net  income  * * * received 
by  it  from  all  sources  during  such  year.” 

Si  65  The  Income  Tax  Act  (38  Stat.  172)  provides  (Section  G,  paragraph  (a)  ) that 
the  tax  shall  be  levied  upon  the  entire  “net  income  arising  or  accruing  from  all 
sources  during  the  preceding  calendar  year.”  But  in  paragraph  (b),  providing  for  deduc- 
tions, gross  income  is  described  as  that  “ received  within  the  year  from  all  sources.”  So 
that,  with  respect  to  domestic  corporations,  it  is  clear  enough  that  no  change  was  intended 
by  the  use  of  the  expression  “arising  or  accruing”  in  the  Income  Tax  Act,  and  that  the 
tax  should  be  levied  under  both  acts  upon  the  income  “received”  during  the  year.  Southern 
Pacific  Co.  v.  Lowe,  247  U.  S.  330,  335. 

SI  66  The  claimant  did  business  in  many  States,  through  many  agents,  with  whom 
it  had  uniform  written  contracts  which  allowed  them  to  extend  the  time  for 
payment  of  the  premiums  on  policies,  not  to  exceed  thirty  days  from  the  date  of  policy, 
and  required  that  on  the  fifth  day  of  each  calendar  month  they  should  pay  or  remit,  in  cash 
or  its  equivalent,  the  balance  due  claimant  as  shown  by  the  last  preceding  monthly  state- 
ment rendered  to  it. 

Si  67  Under  the  provisions  of  such  contracts  obviously  the  agents  were  not  required 
to  remit  premiums  on  policies  written  in  November  until  the  fifth  of  January 
of  the  next  year  and  on  policies  written  in  December  not  until  the  following  February. 

Si  68  Much  the  largest  item  of  the  gross  income  of  the  company  was  premiums  collected 
on  policies  of  various  kinds.  Omitting  reference  to  earlier  and  tentative  returns 
by  the  claimant  and  amendments  by  the  Government,  it  came  about  that  claimant  took  the 
final  position  that  the  only  premiums  with  which  it  could  properly  be  charged  as  net 
Income  “received  by  it  * * * during  each  year”  were  such  as  were  collected  and 

.actually  paid  to  its  treasurer  within  the  year.  This  involved  omitting  from  gross  income 
•each  year  “premiums  in  course  of  collection  by  agents,  not  reported  on  December  31st,” 
which  varied  in  amount  from  $584,000  in  one  year  to  $1,020,000  in  another.  The  a nount, 
if  deducted  one  year,  might  appear  in  the  return  of  the  claimant  for  the  next  year,  but  the 
rate  might  be  different. 

Si  69  The  Government,  on  the  other  hand,  contended  that  the  claimant  should  return 
the  full  amount  of  premiums  on  policies  written  in  each  year,  whether  actually 
•collected  or  not. 

Si  70  The  Court  of  Claims  refused  to  accept  the  construction  of  either  of  the  parties 
and  held  that  the  claimant  should  have  returned,  not  all  premiums  written  by  it, 
but  all  which  were  actually  received  by  it  during  the  year  and  that  receipt  by  its  agents 
was  receipt  by  the  company,  within  the  meaning  of  the  act  of  Congress. 

Si  7 1 The  claimant  contends  that  premiums  paid  to  its  agents  but  not  remitted  to  its 
treasurer  were  not  “received  by  it  during  the  year.”  chiefly  for  the  reason  that 
-while  in  possession  of  the  agents  the  money  could  not  be  attached  as  the  company’s  property 
Maxwell  v.  McGee,  66  Mass.  137),  and  because  money,  while  thus  in  the  possession  of  agents 
was  not  subject  to  beneficial  use  by  the  claimant  and  therefore  cannot,  with  propriety, 
be  said  to  have  been  received  by  it,  within  the  meaning  of  the  act. 

Si  72  On  the  other  hand  it  is  conclusively  argued  That  payment  of  the  premium 
to  the  agent  dischareed  the  obligation  of  the  insured  and  called  into  effect  the 
obligation  of  the  insurer  as  fully  as  payment  to  the  treasurer  could  have  done;  that  in  the 
popular  or  generally  accepted  meaning  of  the  words  “received  by  it”  (which  must  be 
•given  to  them,  Maillard  v.  Lawrence,  16  How.  251),  receipt  by  an  agent  is  regarded  as  receipt 
by  his  principal;  that  under  their  contract  collected  premiums  in  possession  of  the  agents 
of  the  claimant  were  subiect  to  use  by  it  in  an  important  respect  before  they  were  trans- 
mitted to  the  treasurer  of  the  company  for  the  agency  contract,  provided  that  “the  agent 
will  pay  on  demand,  out  of  any  funds  collected  bv  him  for  account  of  premium  and  not 
remitted  to  the  company,  such  drafts  as  may  be  drawn  on  him  by  the  company  * * * 

for  the  purpose  of  settling  claims,  deducting  the  amount  from  the  next  succeeding  monthly 
remittance;”  and  that  only  imperative  language  in  the  statute  would  justify  a construction 
which  would  place  it  in  the  power  of  the  claimant,  by  private  contract  with  its  agents, 
to  shift  payment  of  taxes  from  one  taxing  year  into  another. 

S 1 7 3 The  cl  aimant  withheld  from  its  returns  collections  in  the  custody  of  its  agents 
at  the  end  of  each  year,  and  because  in  its  amendments  the  Government  had 
Included  all  premiums  written  in  each  year  whether  or  not  collected,  the  Court  of 

Income  Tax 

Supplementary  Page  158. 


SUPREME  COURT  DECISIONS  -1913  ACT. 


Claims,  having  reached  the  conclusion  thus  approved  by  us,  allowed  the  claimant  ninety 
days  in  which  to  show  the  amount  of  premiums  received  by  it  and  its  agents  within  each 
of  the  years  in  controversy,  but  the  claimant  failed  to  make  such  a showing,  and  thereupon 
the  court  treated  the  return  of  premiums  written  as  the  correct  one  and  very  properly, 
so  far  as  this  item  is  concerned,  dismissed  claimant’s  petition. 

Si  74  Second:  In  the  same  words  the  Excise  and  Income  Tax  Acts  provide  that  the  “net 
addition,  if  any,  required  by  law  to  be  made  within  the  year  to  reserve  funds” 
may  be  deducted  from  gross,  in  determining  the  amount  of  net,  income  to  be  taxed. 

Si  75  binding  its  authority  in  this  provision  of  the  law  the  claimant  in  all  of  its  returns 
treated  as  “reserves,”  for  the  purpose  of  determining  whether  the  aggregate 
amount  of  them  each  year  was  greater  or  less  than  in  the  preceding  year,  and  of  thereby 
arriving  at  the  “net  addition  to  reserve  funds”  which  it  was  authorized  to  deduct  from 
gross  income,  the  following,  among  others,  viz.:  “Reserve  for  unearned  premiums,”  “Special 
reserve  for  unpaid  liability  losses,”  and  “Loss  claims  reserve.”  Unearned  premium  reserve 
and  special  reserve  for  unpaid  liability  losses  are  familiar  types  of  insurance  reserves, 
and  the  Government,  in  its  amended  returns,  allowed  these  two  items,  but  rejected 
the  third,  “Loss  claims  reserve.” 

Si  76  The  Court  of  Claims,  somewhat  obscurely,  held  that  the  third  item  should  also 
be  allowed.  This  “Loss  claims  reserve”  was  intended  to  provide  for  the  liquida- 
tion of  claims  for  unsettled  losses  (other  than  those  provided  for  by  the  reserve  for  liability 
losses)  which  had  accrued  at  the  end  of  the  tax  year  for  which  the  return  was  made  and 
the  reserve  computed.  The  finding  that  the  Insurance  Department  of  Pennsylvania, 
pursuant  to  statute,  has  at  all  times  since  and  including  1909  required  claimant  to  keep 
on  hand,  as  a condition  of  doing  business  in  that  State,  “assets  as  reserves  sufficient  to 
cover  outstanding  losses,”  justifies  the  deduction  of  this  reserve  as  one  required  by  law  to 
be  maintained,  and  the  holding  that  it  should  have  been  allowed  for  all  of  the  years  involved 
is  approved. 

Si  77  But  the  Court  of  Claims  approved  the  action  of  the  Government  in  rejecting 
other  claimed  deductions  of  reserves  for  “unpaid  taxes,  salaries,  brokerage  and 
re-insurance  due  other  companies.”  The  court  gave  as  its  reason  for  this  conclusion  that 
the  “net  addition,  if  any,  required  by  law  to  be  made  within  the  year  to  reserve  funds” 
which  the  act  of  Congress  permitted  to  be  deducted  from  gross  income  was  limited  to  re- 
serves required  by  express  statutory  provision  and  did  not  apply  to  reserves  required  by  the 
rules  and  regulations  of  State  Insurance  Departments,  when  promulgated  in  the  exercise 
of  an  appropriate  power  conferred  by  statute. 

Si  78  In  this  the  Court  of  Claims  fell  into  error.  It  is  settled  by  many  recent  decisions 
of  this  court  that  a regulation  by  a department  of  Government,  addressed  to  and 
reasonably  adapted  to  the  enforcement  of  an  act  of  Congress,  the  administration  of  which 
is  confided  to  such  department,  has  the  force  and  effect  of  law  if  it  be  not  in  conflict  with 
express  statutory  provision.  United  States  v.  Grimaud,  220  U.  S.  506;  United  States 
v.  Birds  all,  233  U.  S.  223,  231;  United  States  v.  Smull,  236  U.  S.  405,  409,  411;  United 
States  v.  Moorehead,  243  U.  S.  607.  The  law  is  not  different  with  respect  to  the  rules  and 
regulations  of  a department  of  a state  government. 

Si  79  But  it  is  contended  by  the  claimant  that  it  was  required  to  provide  “reserves” 
for  the  payment  of  the  rejected  items  of  liability:  because  the  Court  of  Claims 
found  that  pursuant  to  statutes  the  Insurance  Department  of  Pennsylvania  required 
the  company,  as  a condition  of  doing  business  in  that  State,  to  keep  on  hand  “assets  as 
reserves”  sufficient  to  cover  all  claims  against  the  company  “whether  due  or  accrued;” 
because  the  department  of  New  York  required  it  to  maintain  “reserves  sufficient  to  meet 
all  of  its  accrued  but  unpaid  indebtedness  in  each  year;”  and  because  the  department  of 
Wisconsin  required  it  to  carry  “sufficient  reserves  to  cover  all  of  its  outstanding  liabilities.” 
Si  80  Whether  this  contention  of  the  claimant  can  be  justified  or  not  depends  upon 
the  meaning  which  is  to  be  giver  to  the  words  “reserve  funds”  in  the  two  acts  of 
Congress  we  are  considering. 

Si  81  The  term  “reserve”  or  “reserves”  has  a special  meaning  in  the  law  of  insurance, 
While  its  scope  varies  under  different  laws,  in  general  it  means  a sum  of  money, 
variously  computed  or  estimated,  which,  with  accretions  from  interest,  is  set  aside, 
“reserved,”  as  a fund  with  which  to  mature  or  liquidate,  either  by  payment  or  reinsurance 
with  other  companies  future  unaccrued  and  contingent  claims,  and  claims  accrued,  but 
contingent  and  indefinite  asto  amount  or  time  of  payment. 

SI  82  In  this  case,  as  we  have  seen,  the  term  includes  “unearned  premium  reserve” 
to  meet  future  liabilities  on  policies,  “liability  reserve”  to  satisfy  claims,  indefinite 
in  amount  and  as  to  time  of  payment,  but  accrued  on  liability  and  workmen’s  compen- 
sation policies  and  “reserves  for  loss  claims”  accrued  on  policies  other  than  those  provided 
for  in  the  “liability  reserve,”  but  it  has  nowhere  been  held  that  “reserve”  in  this  technical 
sense,  must  be  maintained  to  provide  for  the  ordinary  running  expenses  of  a business, 
definite  in  amount  and  which  must  be  currently  paid  by  every  company  from  its  income 
if  its  business  is  to  continue,  such  as  taxes,  salaries,  re-insurance  and  unpaid  brokerage. 

Income  Tax 

Supplementary  Page  159. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


Si  33  I he  requirements  relied  upon,  of  the  Insurance  Departments  of  New  York 
**  ,,  ?n.8^v,?n‘a  anc*  Wisconsin  that  “assets  as  reserves’*  must  be  maintained  to 
cover  all  claims,  “all  indebtedness,”  “all  outstanding  liabilities,”  in  terms  might  include 
the  rejected  items  we  are  considering,  but  plainly  the  departments,  in  these  expressions 
used  the  word  reserves  in  a non-technical  sense  as  equivalent  to  “assets,”  as  illustrated 
by  the  Massachusetts  requirement  that  each  company  shall  “hold  or  reserve  assets”  for 
the  payment  of  all  claims  and  obligations.  The  distinction  between  the  “reserves”  and 
general  assets  of  a company  is  obvious  and  familiar  and  runs  through  the  statements  of 
claimant  and  every  other  insurance  company.  That  provision  for  the  payment  of  ordinary 
expenses  such  as  we  are  considering  was  not  intended  to  be  provided  for  and  included  in 
‘ reserve  funds”  as  the  term  is  used  in  the  acts  of  Congress  is  plain  from  the  fact  that  the 
acts  permit  deductions  for  such  charges  from  income  if  paid  within  the  year,  and  the 
claimant  was  permitted  in  this  case  to  deduct  large  sums  for  such  ordinary  expenses 
of  the  business— specifically,  large  sums  for  taxes.  The  claimant  did  not  regard  any 
such  charges  as  properly  covered  by  “reserves”  and  did  not  so  include  them  in  its 
statement  for  1909.  In  its  1910  return  “unpaid  taxes”  and  “salaries”  first  appear  as 
reserves  and  in  1911  “brokerage”  and  “re-insurance”  are  added.  This  earlier,  though 
;t  is  now  claimed  to  have  been  an  uninstructed  or  inexpert  interpretation  of  the  language 
of  the  acts,  was  nevertheless  the  candid  and  correct  interpretation  of  it,  and  the  judgment 
of  the  Court  of  Claims  in  this  respect  is  approved. 

Si  84  Third:  The  year  1913  was  the  only  one  of  those  under  consideration  in  which 
the  aggregate  amount  of  reserves  which  the  claimant  was  required  by  law  to  keep 
fell  below  the  amount  so  required  for  the.  preceding  year.  The  Government  allowed  only 
“unearned  premium”  and  “unpaid  liability  loss,”  reserves  to  be  considered  in  determining 
deductions.  In  1913  the  “unpaid  liability  loss  reserve”  decrease  exceeded  the  “unearned 
premium  reserve”  increase  by  over  $270,000,  and  this  amount  the  Government  added 
to  the  gross  income  of  the  claimant  for  the  year,  calling  it  “released  reserve,”  on  the  theory 
that  the  difference  in  the  amount  of  the  reserves  for  the  two  years  released  the  decrease 
to  the  claimant  so  that  it  could  use  it  for  its  general  purposes,  and  therefore  constituted 
free  income  for  the  year  1913,  in  which  the  decrease  occurred. 

S1S5  This  theory  of  the  Government  was  accepted  by  the  Court  of  Claims  and  the 
addition  to  the  gross  income  was  approved. 

SI  86  The  statute  does  not  in  terms  dispose  of  the  question  thus  presented. 

Si  87  Reserves,  as  we  have  seen,  are  funds  set  apart  as  a liability  in  the  accounts  of  a 
company  to  provide  for  the  payment  or  reinsurance  of  specific,  contingent  liabilities. 
They  are  held  not  only  as  security  for  the  payment  of  claims  but  also  as  funds  from  which 
payments  are  to  be  made.  The  amount  “reserved”  in  any  given  year  may  be  greater 
than  is  necessary  for  the  required  purposes,  or  it  may  be  less  than  is  necessary,  but  the 
fact  that  it  is  less  in  one  year  than  in  the  preceding  year  does  not  necessarily  show  either 
that  too  much  or  too  little  was  reserved  for  the  former  year,— it  simply  shows  that  the 
aggregate  reserve  requirement  for  the  second  year  is  less  than  for  the  first,  and  this  may 
be  due  to  various  causes.  If,  in  this  case,  it  were  due  to  an  over-estimate  of  reserves  for 
1912  with  a resulting  excessive  deduction  for  that  year  from  gross  income  and  if  such  excess 
was  released  to  the  general  uses  of  the  company  and  increased  its  free  assets  in  1913,  to 
that  extent  it  should  very  properly  be  treated  as  income  in  the  year  in  which  it  became  so 
available,  for  the  reason  that  in  that  year,  for  the  first  time,  it  became  free  income,  under 
the  system  for  determining  net  income  provided  by  the  statute,  and  the  fact  that  it  came  into 
the  possession  of  the  company  in  an  earlier  year  in  which  it  could  be  used  only  in  a special 
manner,  which  permitted  it  to  become  non-taxable  would  not  prevent  its  being  considered 
as  received  in  1913  for  the  purposes  of  taxation  within  the  meaning  of  the  act. 

SI  88  The  findings  of  fact  in  this  case,  however,  do  not  show  that  the  diminution  in  the 
amount  of  required  reserves  was  due  to  excessive  reserves  in  prior  years  or  to  any 
other  cause  by  which  the  free  assets  of  the  company  were  increased  in  the  year  1913, 
and  the  following  finding  of  fact  makes  strongly  against  such  a conclusion: 

Si  89  “The  decrease  in  employers’  liability  loss  reserve  for  1913,  designated  as  ‘released 
reserve’  did  not  in  any  respect  affect  or  change  claimant’s  gross  income  or  dis- 
bursements, as  shown  by  the  State  insurance  reports.” 

SI  90  It  would  not  be  difficult  to  suggest  conditions  under  which  the  statutory  permit 
to  deduct  net  additions  to  reserve  funds  would  result  in  double  deduction  in 
favor  of  an  insurance  company,  but  such  deductions  can  be  restored  to  income  again 
only  where  it  is  clearly  shown,  that  subsequent  business  conditions  have  released  the 
amount  of  them  to  the  free  beneficial  use  of  the  company  in  a real,  and  not  in  a mere 
bookkeeping  sense.  If  this  seemingly  favorable  treatment  of  insurance  companies  is  to 
be  otherwise  corrected  or  changed,  it  is  for  Congress,  and  not  for  the  courts,  to  amend 
the  law. 

Si  91  Since  the  findings  of  fact  before  us  do  not  make  the  clear  showing,  which  must 
be  required,  that  the  statutory  deduction  of  net  reserves  in  prior  years  was  restored 
to  the  free  use  of  the  claimant  in  1913,  it  should  not  have  been  charged  as  income  with 

Income  Tax 

Supplementary  Page  160. 


SUPREME  COURT  DECISIONS  1913  ACT. 


the  decrease  in  that  year,  and,  on  the  record  before  us,  the  holding  of  the  Court  of  Claims 
must  be  reversed. 

SI  92  There  remains  the  question  as  to  the  Statute  of  Limitations. 

SI  93  I he  Government  concedes  that  the  case  is  in  time  with  respect  to  the  amended 
returns  ,Ut  c*a‘las  tbat  !c  's  hatred  by  Revised  Statutes  Section  3226,  3227  and 
°>  with  respect  to  taxes  paid  on  the  original  returns  for  all  of  the  years  but  1913. 
I he  claimant  made  its  original  returns  without  protest  except  for  the  year  1909  and  without 
appeal  to  the  Commissioner  of  Internal  Revenue,  voluntarily  paid  the  taxes  computed  on 
them  lor  each  of  the  years.  Payment  was  made  for  1909  in  June,  1910;  for  1910  in  lune 
1911;  for  1911  in  June,  1912;  for  1912  in  June,  1913.  No  claim  for  a refund  of  any  of 
these  payments  was  made  until  April  30,  1915,  and  then  the  claim  was  in  general  terms 
1'or  amounts  paid  by  it  in  taxes  which,  through  lack  of  information  as  to  requirements 
ot  law  or  by  error  in  computation,  it  may  have  paid  in  excess  of  the  amount  legall,  due  ” 
SI  94  Nns  claim  was  rejected  subsequent  to  the  institution  of  this  suit,  which  was 
commenced  on  February  8,  1916. 

si  95  This  statement  shows  the  right  of  the  claimant  plainly  barred  by  its  failure  to 
appeal  to  the  Commissioner  of  Internal  Revenue,  R.  S.  3226  [This  is  funda- 
mental, King’s  County  Savings  Institution  v.  Blair,  116  U.  S.  200],  and  also  by  its  failure 
to  institute  suit  within  two  years  after  the  cause  of  action  accrued,  R.  S.  3227. 

Si  96  1 he  claimant  contends  that  the  amended  returns  filed  by  the  Commissioner  of 

Internal  Revenue  were  not  amendments  or  modifications  of  the  original  returns 
but  were  based  upon  a different  principle  and,  within  the  scope  of  Cheatham , el  al.  v.  United 
States,  92  U.  S.  85,  constituted  new  assessments  from  which  appeals  were  taken  in  time 
SI  97  Lut  they  are  denominated  “amended  returns”  and  while  in  dealing  with  the 
same  items  the  basis  of  computation  was  in  some  cases  varied,  in  eaca  case  the 
purpose  and  effect  of  them  was  to  increase  the  payment  which  the  claimant  was  required 
to  make  under  the  law  and  the  payments  made  on  the  original  returns  were  credited  on 
the  amounts  computed  as  due  on  the  returns  as  amended. 

Si  98  The  inapplicability  of  Cheatham,  et  al.  v.  United  States,  92  U.  S.  85,  is  obvious 
and  the  contention  that  the  filing  of  the  amended  returns  constituted  the  beginning 
ol  new  proceedings  which  so  superseded  the  original  returns  as  to  release  the  claimant 
irom  its  entire  failure  to  observe  the  statutory  requirements  for  review  of  the  latter  is  so 
unfounded  that  we  cannot  consent  to  enter  upon  a detailed  discussion  of  it.  This  con- 
clusion renders  Section  14  of  the  Act  of  Congress  of  September  8,  1916  (39  Stat  772) 
inapplicable.  ’• 

Si  99  It  results  that  the  judgment  of  the  Court  of  Claims  is  modified,  and  as  so  modified 
• , , . aitlrmed,  and  the  case  is  remanded  to  that  court  for  proceedings  in  accordance 

with  this  opinion. 


The  Union  Pacific  Coal  Co.  vs.  Mark  A.  Skinner,  Collector. 

S2Q0  [Comment:  The  Union  Pacific  Coal  Co.  owned  all  the  capital  stock  of  the  Superior 
Coal  Co.,  The  latter  on  June  19,  1913,  paid  to  the  plaintiff  a dividend  on  the 
Prr°ck£°f  ltS  .mess  for  the  fiscal  year  extending  from  July  1,  1912,  to  June  30  191 t 

of  50%  amounting  to  $500,000.  In  March,  1914,  the  plaintiff  made  its  income  tax ’return’ 
but  instead  ot  including  in  its  income  the  entire  $500,000,  included  only  one-half  S250  000 ' 
stating  that  the  other  half  was  not  income  of  the  calendar  year  1913  for  the  reason  that  it 
was  earned  by  the  Superior  Coal  Co.  during  the  latter  half  of  the  calendar  vear  ,f  |oi?. 
ilie  defendant  amended  the  plaintiff’s  return  so  as  to  include  the  $250,000  and  lc  ; d 
•a.  tam“eI?°n'.  Plaintiff  paid  the  tax  under  protest  and  brought  this  action  to  recover 
,t-,  . Cn-cuit  Court  held  that  the  income  tax  law  does  not  deal  with  the  period  during 
which  the  corporation  accumulates  the  profits  upon  which  the  dividend  is  pai  1 but  is 
concerned  only  with  the  income  of  the  corporation  receiving  the  dividend.  Vie\  i d in  that 
fight  the  dividend  accrued  to  the  Union  Pacific  Coal  Co.  in  the  year  1913,  and  all  of  jt  u as 
taxable  1 he  judgment  of  the  District  Court  was  reversed  by  the  Circuit  Court  in  favor 
ot  the  defendant,  Skinner,  and  the  Supreme  Court  now  (March  22,  1920)  a Mms  -v  r 
curiam,  the  judgment  of  the  Circuit  Court — The  Corporation  Trust  Company.] 

The  Penn  Mutual  Life  Insurance  Co.  vs.  Lederer,  Collector. 

(253  U.  S.  523.) 

(T.  D.  3046.  July  21,  1920.) 

Mr.  Justice  Brandies  delivered  the  opinion  of  the  Court. 

S2C  1 The  I enn  Mutual  Life  Insurance  Company,  a purely  mutual  legal  resen 
which  issues  level-premium  insurance,  brought  this  action  in  the  Disci 
of  the  United  States  fo  the  Eastern  District  of  Pennsylvania  to  recover  $6  865 
was  assessed  and  collected  as  an  income  tax  of  one  per  cent  upon  the  sum  of 
alleged  to  have  been  wrongly  included  as  a part  of  its  gross-income,  and  hence 
net-income,  for  the  period  from  March  1,  1913,  to  December  31  1913  The  : 


company 
ict  Court 
.,0.3  which 
$686,503,1 

tjjiO  Of  it< 

ttter  sum 


Income  Tax 

Supplementary  Page  161. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


equals  the  aggregate  of  the  amounts  paid  during  that  period  by  the  company  to  its  policy 
holders  in  cash  dividends  which  were  not  used  by  them  during  that  period  in  payment  of 
premiums.  The  several  amounts  making  up  this  aggregate  represent  mainly  a part  of  the 
so-called  redundancy  in  premiums  paid  by  the  respective  policyholders  in  some  previous 
year  or  years.  They  arc,  in  a sense,  a repayment  of  that  part  of  the  premium  previously 
paid  which  experience  has  proved  was  in  excess  of  the  amount  which  had  been  assumed 
would  be  required  to  meet  the  policy  obligations  (ordinarily  termed  losses)  or  the  legal 
reserve  and  the  expense  of  conducting  the  business.1  The  District  Court  allowed  recovery 
of  the  full  amount  with  interest.  (247  Fed.  559.)  The  Circuit  Court  of  Appeals  for  the 
Third  Circuit,  holding  that  nothing  was  recoverable  except  a single  small  item,  reversed 
the  judgment  and  awarded  a new  trial.  (258  Fed.  81.)  A writ  of  certiorari  from  this 
court  was  then  allowed.  (250  U.  S.  656.) 

5202  Whether  the  plaintiff  is  entitled  to  recover  depends  wholly  upon  the  construction 
to  be  given  certain  provisions  in  Section  II  G.  (b)  of  the  Revenue  Act  of  October  3, 

1913,  c.  16,  38  Stat,  114,  172,  173.  The  Act  enumerates  among  the  corporations  upon 
which  the  income  tax  is  imposed,  “every  insurance  company”  “other  than  fraternal  bene- 
ficiary societies,  orders  or  associations  operating  under  the  lodge  system  or  for  the  exclusive 
benefit  of  the  members  of  a fraternity  itself  operating  under  a lodge  system.”  It  provides 
(G.  (b)  pp.  172-174)  how  the  net  income  of  insurance  companies  shall  be  ascertained  for 
purposes  of  taxation,  prescribing  what  shall  be  included  to  determine  the  gross-income 
of  any  year  and  also  specifically  what  deductions  from  the  ascertained  gross-income  shall 
be  made  in  order  to  determine  the  net-income  upon  which  the  tax  is  assessed.  Premium 
receipts  are  a part  of  gross-income  to  be  accounted  for. 

5203  In  applying  to  insurance  companies  the  system  of  income  taxation  in  which 
the  assessable  net-income  is  to  be  ascertained  by  making  enumerated  deductions 

from  the  gross-income  (including  premium  receipts)  Congress  naturally  provided  how, 
in  making  the  computation2,  repayment  of  the  redundancy  in  the  premium  should  be 
dealt  with.  In  a mutual  company  whatever  the  field  of  its  operation,  the  premium  exacted 
is  necessarily  greater  than  the  expected  cost  of  the  insurance,  as  the  redundancy  in  the 
premium  furnishes  the  guaranty  fund  out  of  which  extraordinary  losses  may  be  met, 
while  in  a stock  company  they  may  be  met  from  the  capital  stock  subscribed.  It  is  of  the 
essence  of  mutual  insurance  that  the  excess  in  the  premium  over  the  actual  cost  as  later 
ascertained  shall  be  returned  to  the  policyholder.  Some  payment  to  the  policyholder 
representing  such  excess  is  ordinarily  made  by  every  mutual  company  every  year;  but 
the  so-called  repayment  or  dividend  is  rarely  made  within  the  calendar  year  in  which 
the  premium  (of  which  it  is  supposed  to  be  the  unused  surplus)  was  paid.  Congress  treated 
the  so-called  repayments  or  dividends  in  this  way  (p.  173): 

(a)  Mutual  fire  companies  “shall  not  return  as  income  any  portion  of  the  premium 
deposits  returned  to  their  policyholders." 

(b)  Mutual  marine  companies  “shall  be  entitled  to  include  in  deductions  from  gross 

income  amounts  repaid  to  policyholders  on  account  of  premiums  previously  paid  by  them 
and  interest  paid  upon  such  amounts  between  the  ascertainment  thereof  and  the  pay- 
ment thereof."  . 

(c)  Life  insurance  companies  (that  is  both  stock  and  strictly  mutual)  shall  not  include 
as  income  in  any  year  such  portion  of  any  actual  premium  received  from  any  individual 
policyholder  as  shall  have  been  paid  back  or  credited  to  such  individual  policyholder, 
or  treated  as  an  abatement  of  premium  of  such  individual  policyholder,  within  such  year.” 

(d)  1 or  all  insurance  companies,  whatever  their  field  of  operation,  and  whether  stock 
or  mutual,  the 'Act  provides  that  there  be  deducted  from  gross-income  “the  net  addition, 
if  any,  required  by  law  to  be  made  within  the  year  to  reserve  funds  and  the  sums  other 
than  dividends  paid  within  the  year  on  policy  and  annuity  contracts. 

5204  The  Government  contends,  in  substance,  for  the  rule  that  in  figuring  the  gross- 
income  of  life  insurance  companies,  there  shall  be  taken  the  aggregate  of  the  year’s 

net  premium  receipts  made  up  separately  for  each  policyholder. * 1 he  Penn-A.utual 

vphe  manner  in  which  mutual  level-premium  life  insurance  companies  conduct  their 
business,  and  the  nature  and  application  of  dividends  are  fully  set  forth  in  Mutual  benefit 
Life  ins.  Co.  v.  iierold,  198  Fed.  199;  Connecticut  General  Life  Ins.  Co.  v.  Eaton,  218  fed. 
188;  Connecticut  Mutual  Life  Ins.  V,o.  v.  Eaton,  218  led.  206. 

*The  percentage  of  the  redundancy  to  the  premium  varies,  from  year  to  year,  greatly 
in  the  several  fields  of  insurance,  and  likewise  in  the  same  year  in  the  several  companies 
in  the  same  field.  Where  the  margin  between  the  probable  losses  and  those  reasonably 
possible  is  verv  large,  the  return  premiums  rise  often  to  90  per  cent  or  more  of  the  premium 
paid.  This  is 'true  of  the  manufacturers  mutual  fire  insurance  companies  of  New  England. 
See  Report  Massachusetts  Insurance  Commissioner  (1913),  Vol.  I.  p.  16. 

3A  separate  account  is  kept  by  the  company  with  each  policyholder.  In  that  account 
there  is  entered  each  year  the  charges  of  the  premiums  payable  and  all  credits  either  for 
cash  payments  or  by  way  of  credit  of  div  idends,  or  by  way  of  abatement  of  premium. 

Income  Tax 

Supplementary  Page  162. 


SUPREME  COURT  DECISIONS—  1V»13  ACT. 


Company  contends  for  the  rale  that  in  figuring  the  gross-income  there  shall  be  taken  the 
aggregate  full  premiums  received  by  the  company  less  the  aggregate  of  all  dividends  paid 
by  it  to  any  policyholder  by  credit  upon  a premium  or  by  abatement  of  a premium  and 
also  of  all  dividends  whatsoever  paid  to  any  policyholder  in  cash  whether  applied  in  payment 
of  a premium  or  not.  The  non-inclusioii  clause,  (c)  above,  excludes  from  gross-income  those 
premium-receipts  which  were  actually  or  in  eil'ect  paid  by  applying  dividends.  The  com- 
pany seeks  to  graft  upon  the  clause  so  restricted  a provision  for  what  it  calls  non-including, 
but  which  in  fact  is  deducting,  all  cash  dividends  not  so  applied.  In  support  of  this  con- 
tention the  company  relies  mainly,  not  upon  the  words  of  the  statute,  but  upon  arguments 
which  it  bases  upon  the  nature  of  mutual  insurance,  upon  the  supposed  analogy  of  the  rules 
prescribed  in  the  statute  for  mutual  fire  and  marine  companies  and  upon  the  alleged  re- 
quirements of  consistency. 

S205  First:  The  reason  for  the  particular  provision  made  by  Congress  seems  to  be 
clear:  Dividends  may  be  made,  and  by  many  of  the  companies  have  been  made 
largely,  by  way  of  abating  or  reducing  the  amount  of  the  renewal  premium1.  Where  the 
dividend  is  so  made  the  actual  premium  receipt  of  the  year  is  obviously  only  the  reduced 
amount.  But,  as  a matter  of  bookeeping,  the  premium  is  entered  at  the  full  rate  and 
the  abatement  (that  is,  the  amount  by  which  it  was  reduced)  is  entered  as  a credit.  The 
financial  result  both  to  the  company  and  to  the  policyholders  is,  however,  exactly  the 
same  whether  the  renewal  premium  is  reduced  by  a dividend  or  whether  the  renewal 
premium  remains  unchanged  but  is  paid  in  part  either  by  a credit  or  by  cash  received 
as  a dividend.  And  the  entries  in  bookkeeping  would  be  substantially  the  same.  Because 
the  several  ways  of  paying  a dividend  are,  as  between  the  company  and  the  policyholder, 
financial  equivalents,  Congress,  doubtless,  concluded  to  make  the  incidents  the  same,, 
also,  as  respects  income  taxation.  Where  the  dividend  was  used  to  abate  or  reduce  the 
full  or  gross  premium — the  direction  to  eliminate  from  the  apparent  premium  receipts 
is  aptly  expressed  by  the  phrase  “shall  not  include,”  used  in  clause  (c)  above.  Where  the- 
premium  was  left  unchanged,  but  was  paid  in  part  by  a credit  or  cash  derived  from  the 
dividend  the  instruction  would  be  more  properly  expressed  by  a direction  t.o  deduct  those 
credits.  Congress  doubtless  used  the  words  “shall  not  include”  as  applied  also  to  these: 
credits  because  it  eliminated  them  from  the  aggregate  of  taxable  premiums  as  being  the 
equivalent  of  abatement  of  premiums. 

S20U  That  such  was  the  intention  of  Congress  is  confirmed  by  the  history  of  the  non- 
inclusion  clause,  (c)  above.  The  provision  in  the  Revenue  Act  of  1913,  for  taxing: 
the  income  of  insurance  companies  is  in  large  part  identical  with  the  provision  for  the 
special  excise  tax  upon  them  imposed  by  the  Act  of  August  5,  1909,  c.  6,  sec.  38,  36  Stat. 
112.  By  the  latter  act  the  net  income  of  insurance  companies  was,  also,  to  be  ascertained 
by  deducting  from  gross-income  “sums  other  than  dividends,  paid  within  the  year  on 
policy  and  renewal  contracts;”  but  there  was  in  that  act  no  non-inclusion  clause  what- 
soever. The  question  arose  whether  the  provision  in  the  Act  of  1913,  identical  with  (c) 
above,  prevented  using  in  the  computation  the  reduced  renewal  premiums  instead  of  the 
full  premiums,  where  the  reduction  in  the  premium  had  been  effected  by  means  of  dividends. 
In  Mutual  Benefit  Life  Insurance  Co.  v.  ilerold,  198  Fed.  199,  decided  July  29,  1912,  it 
was  held  that  the  renewal  premium  as  reduced  by  such  dividends  should  be  used  in  com- 
puting the  gross-premium;  and  it  was  said  (p.  212)  that  dividends  so  applied  in  reduction 
of  renewal  premiums  “should  not  be  confused  with  dividends  declared  in  the  case  of  a 
full-paid  participating  policy,  wherein  the  policyholder  has  no  further  premium  payments 
to  make.  Such  payments  having  been  duly  met,  the  policy  has  become  at  once  a contract 
of  insurance  and  of  investment.  The  holder  participates  in  the  profits  and  income  of  the 
invested  funds  of  the  company.”  On  writ  of  error  sued  out  by  the  Government  the  judg- 
ment entered  in  the  District  Court  was  affirmed  by  the  Circuit  Court  of  Appeals  on  January 
27,  1913,  201  Fed.  918;  but  that  court  stated  that  it  refrained  from  expressing  any  opinion 
concerning  dividends  on  full  paid  policies,  saying  that  it  did  so  “not  because  we  wish  to 
suggest  disapproval,  but  merely  because  no  opinion  about  these  matters  is  called  for  now, 
as  th:y  do  not  seem  to  be  directly  involved.”  The  non-inclusion  clause  in  the  Revenue 
Act  of  1913,  (c)  above,  was  doubtless  framed  to  define  what  amounts  involved  in  dividends 
should  be  “non-included,”  or  deducted,  and  thus  to  prevent  any  controversy  arising 


‘‘The  dividend  provision  of  the  Mutual  Benefit  Life  Insurance  Company  involved 
in  the  Herold  Case,  supra,  198  Fed.  199,  204,  was,  in  part:  “After  this  policy  shall  have  been 
in  force  one  year,  each  year’s  premium  subsequently  paid  shall  be  subject  to  reduction  by 
such  dividend  as  may  be  apportioned  by  the  directors.”  The  dividend-provision  in  some 
of  the  participating  policies  involved  in  the  Connecticut  General  Life  Ins.  Co.  Case  supra 
218  Fed.  188,  192,  was:  “Reduction  of  premiums  as  determined  by  the  company  will  be 
made  annually  beginning  at  the  second  year  or  the  insured  may  pay  the  full  premium 
and  instruct  the  company  to  apply  the  amount  of  the  reduction  apportioned  to  him  in  any 
one  of  the  following  plans:”  (Then  follow  four  plans.) 

Income  Tax 

Supplementary  Page  163. 


SUPREME  COURT  DECISIONS — 1913  ACT. 


over  the  questions  which  had  been  raised  under  the  Act  of  1919. 5 The  petition  for  writ  of 
certiorari  applied  for  by  the  Government  was  not  denied  by  this  court  until  December 
15,  1913  (231  U.  S.  755),  that  is,  after  the  passage  of  the  act. 

S207  Second:  It  is  argued  that  the  nature  of  life  insurance  dividends  is  the  same,  what- 
ever the  disposition  made  of  them;  and  that  Congress  could  not  have  intended 
to  relieve  the  companies  from  taxation  to  the  extent  that  dividends  are  applied  in  payment 
of  premiums  and  to  tax  them  to  the  extent  that  dividends  are  not  so  applied.  If  Congress 
is  to  be  assumed  to  have  intended,  in  obedience  to  the  demands  of  consistency,  that  all 
dividends  declared  under  life  insurance  policies  should  be  treated  alike  in  connection  with 
Income  taxation  regardless  of  their  disposition,  the  rule  of  consistency  would  require 
deductions  more  far-reaching  than  those  now  claimed  by  the  company.  Why  allow  so- 
called  non-inclusion  of  amounts  equal  to  the  dividends  paid  in  cash  but  not  applied  in 
reduction  of  renewal  premium  and  disallow  so-called  non-inclusion  of  amounts  equal 
to  the  dividends  paid  by  a credit  representing  amounts  retained  by  the  company  for 
accumulation  or  to  be  otherwise  used  for  the  policyholders’  benefit?  The  fact  is,  that 
Congress  has  acted  with  entire  consistency  in  laying  down  the  rule  by  which  in  computing 
gross-earnings  certain  amounts  only  arc  excluded;  but  the  company  has  failed  to  recognize 
what  the  principle  is  which  Congress  has  consistently  applied.  The  principle  applied  is 
that  of  basing  the  taxation  on  receipts  of  net-premiums,  instead  of  on  gross  premiums. 
The  amount  equal  to  the  aggregate  of  certain  dividends  is  excluded,  although  they  are 
■dividends,  because  by  reason  of  their  application  the  net-premium  receipts  of  the  tax 
year  are  to  that  extent  less.  There  is  a striking  difference  between  an  aggregate  of  indi- 
vidual premiums,  each  reduced  by  means  of  dividends,  and  an  aggregate  of  full  prem  ums, 
from  which  it  is  sought  to  deduct  amounts  paid  out  by  the  company  which  ha  e no  rela- 
tion whatever  to  premiums  received  within  the  tax  year  but  which  relate  to  some  other 
premiums  which  may  have  been  received  many  years  earlier.  The  difference  between  the 
two  cases  is  such  as  may  well  have  seemed  to  Congress  sufficient  to  justify  the  ap  plication 
of  different  rules  of  taxation. 

S2Q8  There  is  also  a further  significant  difference.  All  life  insurance  has  in  it  the  element 
of  protection.  That  afforded  by  fraternal  beneficiary  societies,  as  originally 
devised,  had  in  it  only  the  element  of  protection.  There  the  premiums  paid  by  the  member 
were  supposed  to  be  sufficient,  and  only  sufficient,  to  pay  the  losses  which  will  fall  during  the 
current  year;  just  as  premiums  in  fire,  marine,  or  casualty  insurance  are  supposed  to  cover 
only  the  losses  of  the  year  or  other  term  for  which  the  insurance  is  written.  Fraternal  life 
insurance  has  been  exempted  from  all  income  taxation;  Congress  having  differentiated 
these  societies,  in  this  respect  as  it  had  in  others,  from  ordinary  life  insurance  companies. 
'Compare  Royal  Arcanum  Supreme  Council  v.  Behrend,  247  U.  S.  394.  But  in  level  premium 
life  insurance,  while  the  motive  for  taking  it  may  be  mainly  protection,  the  business  is  largely 
that  of  savings  investment.  The  premium  is  in  the  nature  of  a savings  deposit.  Except 
where  there  are  stockholders,  the  savings  bank  pays  back  to  the  depositor  his  deposit 
•with  the  interest  earned  less  the  necessary  expense  of  management.  The  insurance  company 
does  the  same,  the  difference  being  merely  that  the  savings  bank  undertakes  to  repay  to 
each  individual  depositor  the  whole  of  his  deposit  with  interest;  while  the  life  insurance 
company  undertakes  to  pay  to  each  member  of  a class  the  average  amount  (regarding 
the  chances  of  life  and  death);  so  that  those  who  do  not  reach  the  average  age  get  more 
than  they  have  deposited,  that  is,  paid  in  premiums  (including  interest)  and  those  who 
exceed  the  average  age  less  than  they  deposited  (including  interest).  The  dividend  of  a 
life  insurance  company  may  be  regarded  as  paying  back  part  of  these  deposits  called  pre- 
miums. The  dividend  is  made  possible  because  the  amounts  paid  in  as  premium  have  earned 
more  than  it  was  assumed  they  would  when  the  policy  contract  was  made,  or  because 
the  expense  of  conducting  the  business  was  less  than  it  was  then  assumed  it  would  be  or 
because  the  mortality,  that  is  the  deaths  in  the  class  to  which  the  policyholder  belongs, 
proved  to  be  less  than  had  then  been  assumed  in  fixing  the  premium  rate.  When  for  any 
or  all  of  these  reasons  the  net  cost  of  the  investment  (that  is,  the  right  to  receive  at  death 
or'at  the  endowment  date  the  agreed  sum)  has  proved  to  be  less  than  that  for  which 
provision  was  made,  the  difference  may  be  regarded  either  as  profit  on  the  investment 
or  as  a saving  in  the  expense  of  the  protection.  When  the  dividend  is  applied  in  reduction 
of  the  renewal  premium,  Congress  might  well  regard  the  element  of  protection  as  predom- 
inant and  treat  the  reduction  of  the  premium  paid  by  means  of  a dividend  as  merely  a 
lessening  of  the  expens-  of  protection.  But  after  the  policy  is  paid  up,  the  clement  of 
investment  predominates  and  Congress  might  reasonably  regard  the  dividend  substantially 
as  profit  on  the  investment.  . . 

S209  The  dividends,  aggregating  &6S6,503,  which  the  Penn  Mutual  Company  insists 
should  have  been  “non-included,”  or  more  properly  deducted,  from  the  gross 

ASubstantially  the  same  questions  were  involved,  also,  in  Connecticut  General  Life 
Ins.  Co.  v.  Eaton,  218  Fed.  183,  and  Connecticut  Mutual  Life  Ins.  Co.  v.  Eaton,  218 
Fed.  206,  in  which  decisions  were  not,  however,  reached  until  the  following  year. 

Income  Tax 

Supplementary  Page  164. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


income,  were,  in  part,  dividends  on  the  ordinary  limited  payment  life  policies  which  had 
been  paid  up._  There  arc  others  which  arose  under  policy  contracts  in  which  the  invest- 
ment feature  is  more  striking;  for  instance,  the  Accelerative  Endowment  Policy  or  such 
special  form  of  contract  as  the  25-ycar  “6%  Investment  Bond”  matured  and  paid  March 
1913,  on  which  the  policyholder  received  besides  dividends,  interest,  and  a “share  of  for- 
feitures.” In  the  latter,  as  in  “Deferred  Dividend”  and  other  semi-atontine  policies,  the 
dividend  represents  in  part  what  clearly  could  not  be  regarded  as  a repayment  of  excess- 
premium  of  the  policyholder  receiving  the  dividend.  For  the  “share  of  the  forfeiture” 
which  he  receives  is  the  share  of  the  redundancy  in  premium  of  other  policyholders  who 
did  not  persist  in  premium-payments  to  the  end  of  the  contract  period. 

S21  0 Third:  The  non-inclusion  clause  here  in  question,  (e)  above,  is  found  in  Section  II 
G.  (b)  in  juxtaposition  to  the  provisions,  concerning  mutual  fire  and  mutual 
marine  compan’es,  clauses  (a)  and  (b)  above.  The  fact  that  in  three  separate  clauses 
three  different  rules  are  prescribed  by  Congress  for  the  treatment  of  redundant  premiums 
in  the  three  classes  of  insurance,  would  seem  to  be  conclusive  evidence  that  Congress  acted 
with  deliberation  and  intended  to  differentiate  between  them  in  respect  to  income-taxation. 
But  the  company,  ignoring  the  differences  in  the  provisions  concerning  fire  and  marine 
companies  respectively,  insists  that  mutual  life  insurance  rests  upon  the  same  principles 
as  mutual  fire  and  marine  and  that  as  the  clauses  concerning  fire  and  marine  companies 
provide  specifically  for  non-inclusion  in  or  deduction  from  gross-income  of  all  portions  of 
premiums  returned,  Congress  must  have  intended  to  apply  the  same  rule  to  all.  Neither 
premise  nor  conclusion  is  sound. 

S21  1 Mutual  fire,  mutual  marine  and  mutual  life  insurance  companies  are  analogous 
in  that  each  performs  the  service  called  insuring  wholly  for  the  benefit  of  their 
policyholders  and  not  like  stock  insurance  companies  in  part  for  the  benefit  of  persons 
who  as  stockholders  have  provided  working  capital  on  which  they  expect  to  receive  divi- 
dends  representing  profits  from  their  investment.  In  other  words,  these  mutual  companies 
are  alike  in  that  they  are  cooperative  enterprises.  But  in  respect  to  the  service  performed 
fire  and  marine  companies  differ  fundamentally,  as  above  pointed  out,  from  legal  reserve 
.ife  companies.  The  thing  for  which  a fire  or  marine  insurance  premium  is  paid  is  protec- 
tion, which  ceases  at  the  end  of  the  term.  If  after  the  end  of  the  term  a part  of  the  pre- 
mium is  returned  to  the  policyholder,  it  is  not  returned  as  something  purchased  with  the 
premium,  but  as  a part  of  the  premium  which  was  not  required  to  pay  for  the  protection- 
that  is,  the  expense  was  less  than  estimated.  On  the  other  hand,  the  service  preformed 
in  level-premium  life  insurance  is  both  protection  and  investment.  Premiums  paid— 
not  in  the  tax  year,  but  perhaps  a generation  earlier — have  earned  so  much  for  the  co- 
°5nra-t0rS’i  t'lat  t^ie  comPa_ny  is  able  to  pay  to  each  not  only  the  agreed  amount  but  also 
additional  sums  called  dividends,  and  have  earned  these  additional  sums,  in  part  at  least 
by  transactions  not  among  the  members,  but  with  others;  as  by  lending  the  money  of 
the  c9°Perato.rs  third  persons  who  pay  a larger  rate  of  interest  than  it  was  assumed 
would. be  received  on  investments.  _ The  faetthat  the  investment  resulting  in  accumulation 
or  dividend  is  made  by  a cooperative  as  distinguished  from  a capitalistic  concern  does  not 
prevent  the  amount  thereof  being  properly  deemed  a profit  on  the  investment.  Nor  does 
the  fact  that  the  profit  was  earned  by  a cooperative  concern  afford  basis  for  the  argument 
that  Congress  did  not  intend  to  tax  the  profit.  Congress  exempted  certain  co-operative 
enterprises  from  all  income  taxation, . among  others,  mutual  savings  banks;  but,  with  the 
exception  of  fraternal  beneficiary  societies,  it  imposed  in  express  terms  such  taxation  upon 
’ every  insurance  company  ”6  ^ 

S2  I 2 The  purpose  of  Congress  to  differentiate  between  mutual  fire  and  marine  insurance 
C4mu>an*e-S  °n  t^e  one  and  life-insurance  companies  on  the  other  is  further 
manifested  by  this:  The  provision  concerning  return-premiums  in  computation  of  the 
gross  income  of  fire  and  marine  insurance  companies  is  limited  in  terms  to  mutual  companies, 
whereas  the  non-inclusion  clause,  (c)  above,  relating  to  life  insurance  companies,  applies 
whether  the  company  be  a stock  or  a mutual  one.  There  is  good  reason  to  believe  that  the 
failure  to  differentiate  between  stock  and  mutual  life  insurance  companies  was  not  inad- 
vertant.  For  while  there  is  a radical  difference  between  stock,  fire  and  marine  companies 
ana  mutual  fare  and  marine  companies,  both  in  respect  to  the  conduct  of  the  business  and 
in  the  results  to  policyholders,  the  participating  policy  commonly  issued  by  the  stock 
life  insurance  company  is,  both  in  rights  conferred  and  in  financial  results,  substantially 
the  same  as  the  policy  issued  by  a purely  mutual  life  insurance  company.  The  real  dif- 
ference between  the  two  classes  of  life  companies  as  now  conducted  lies  in  the  legal  right 
of  electing  directors  and  officers.-  In  the  stock  company  stockholders  have  that  right- 
in  the  mutual  companies,  the  policyholders  who  are  the  members  of  the  corporation. 

crhe  alleged  unwisdom  and  injustice  of  taxing  mutual  life  insurance  companies  while 
mutual  savings  banks  were  exempted  had  been  strongly  pressed  upon  Congress.  Briefs 
and  statements  filed  with  the  Senate  Committee  on  Finance  on  H.  R.  332 1 — Sixtv-third 
Congress,  hirst  Session,  Vol.  3,  pp.  1955-2094. 

Income  Tax 

Supplementary  Page  165. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


S2  «3  The  Penn  Mutual  Company,  seeking  to  draw  support  for  its  argument  from 
legislation  subsequent  to  the  Revenue  Act  of  1913,  points  also  to  the  fact  that 
by  the  Act  of  September  8,  1916,  c.  463,  section  12,  subsection  second,  subdivision  c, 
39  Stat.  756,  768,  the  rule  for  computing  gross-income  there  provided  for  mutual  fire 
insurance  companies  was  made  applicable  to  mutual  employers*  liability,  mutual  work- 
men’s compensation  and  mutual  casualty  insurance  companies.  It  asserts  that  thereby 
Congress  has  manifested  a settled  policy  to  treat  the  taxable  income  of  mutual  concerns 
as  not  including  premium  refunds;  and  that  if  mutual  life  insurance  companies  are  not 
permitted  to  “exclude”  them,  these  companies  will  be  the  only  mutual  concerns  which 
are  thus  discriminated  against.  Casualty  insurance,  in  its  various  forms,  like  fire  and 
marine  insurance,  provide  only  protection,  and  the  premium  is  wholly  an  expense.  If 
such  later  legislation  could  be  considered  in  construing  the  Act  of  1913,  the  conclusion  to 
be  drawn  fromjt  would  be  dearly  the  opposite  of  that  urged.  The  later  Act  would  tend 
to  show  that  Congress  persists  in  its  determination  to  differentiate  between  life  and  other 
forms  of  insurance. 

S214  Fourth : It  is  urged  that  in  order  to  sustain  the  interpretation  given  to  the  non- 
inclusion clause  by.  the  Circuit  Court  of  Appeals  (which  was,  in  effect,  the  inter- 
pretation set  forth  above)  it  is  necessary  to  interpolate  in  the  clause  the  words  “within 
such  year,”  as  shown  in  italics  in  brackets,  thus: 

“And  life  insurance  companies  shall  not  include  as  income  in  any  year  such  portion 
of  any  actual  premiums  received  from  any  individual  policyholder  "[ within  suck  year]  as 
shall  have  been  paid  back  or  credited  to  such  individual  policyholder,  or  treated  as  an 
abatement  of  premium  of  such  individual  policyholder,  within  such  year.” 

S2  1 5 What  has  been  said  above  shows  that  no  such  interpolation  is  necessary  to  sustain 
the  construction  given  by  the  Circuit  Court  of  Appeals.  That  court  did  not  hold  that  the 
permitted  non-inclusion  from  the  year’s  gross-income  is  limited  to  that  portion  of  the 
premium  received  within  the  year  which,  by  reason  of  a dividend,  is  paid  back  within 
the  same  year.  What  the  court  held  was  that  the  non-inclusion  is  limited  to  that  portion 
of  the  premium  which,  although  entered  on  the  books  as  received,  was  not  actually  received, 
within  the  year,  because  the  full  premium  was,  by  means  of  the  dividend,  either  reduced 
or  otherwise  wiped  out  to  that  extent.  Nor  does  the  Government  contend  that  any  portion 
of  a premium,  not  received  within  the  tax  year  shall  be  included  in  computing  the  year’s 
gross  income.  On  the  other  hand  what  the  company  is  seeking  is  not  to  have  “non-included” 
a part  of  the  premiums  which  wer  • actually  received  within  the  year,  or  which  appear, 
as  matter  of  bookkeeping  to  have  been  received  but  actually  were  not  It  is  seeking  tc  have 
the  aggregate  of  premiums  actually  received  within  the  year  reduced  by  an  amount  which 
the  company  paid  out  within  the  year:  and  which  it  paid  out  mainly  on  account  of  premiums 
received  long  before  the  tax  year.  What  it  seeks  is  not  a non-inclusion  of  amounts  paid  in 
— but  a deduction  of  amounts  paid  out. 

S2  1 6 If  the  terms  of  the  non-inclusion  clause,  (c)  above,  standing  alone  permitted  of 
a doubt  as  to  its  proper  construction,  the  doubt  would  disappear  when  it  is  read 
in  connection  with  the  deduction  clause,  (d)  above.  The  deduction  there  prescribed  is 
of  “the  sums  other  than  dividends  paid  within  the  year  on  policy  and  annuity  contracts.” 
This  is  tantamount  to  a direction  that  dividends  sh'all  not  be  deducted.  It  was  argued 
that  the  dividends  there  referred  to  are  “commercial”  dividends  like  those  upon  capital 
stock;  and  that  those  here  involved  are  dividends  of  a different  character.  But  the  divi- 
dends, which  the  deduction-clause  says,  in  effect  shall  not  be  deducted,  are  the  very  divi- 
dends here  in  question,  that  is  dividends  “on  policy  and  annuity  contracts.”  None  such 
may  be  deducted  by  any  insurance  company  except  as  expressly  provided  for  in  the  Act, 
in  clauses  quoted  above,  (a),  (b)  and  (c).  That  is,  clauses  (a),  (b)  and  (c)  are,  in  effect, 
exceptions  to  the  general  exclusion  of  dividends  from  the  permissible  deductions  a pre- 
scribed in  clause  (d)  above. 

S217  In  support  of  the  company’s  contention  that  the  interpolation  of  the  words 
“within  the  year”  is  necessary  in  order  to  support  the  construction  given  to  the 
Act  by  the  Circuit  Court  of  Appeals  we  are  asked  to  consider  the  legislative  history  of  the 
Revenue  Act  of  1918  (enacted  February  24,  1919,  c.  18,  40  Stat.  1057);  and  specifically 
to  the  fact  that  in  the  bill  as  introduced  in  and  passed  by  the  House,  the  corresponding 
section  (233  (a)  ) contained  the  words  “within  the  taxable  year”  and  ■ these  words  were 
stricken  out  by  the  Conference  Committee  (Report  No.  1037,  Sixty-fifth  Congress,  Third 
Session.  The  legislative  history  of  an  act  may,  where  the  meaning  of  words  u cd  is  doubtful, 
be  resorted  to  as  an  aid  to  construction.  Caminetti  v.  7 nited  States,  242  U.  S.  470,  490. 
But  no  aid  could  possible  be  derived  from  the  legislative  history  of  another  act  passed 
nearly  six  years  after  the  one  in  question.  Further  answer  to  the  argument  based  on  the 
legislative  history  of  the  later  act  would,  therefore,  be  inappropriate. 

S2  1 8 We  find  no  error  in  the  judgment  of  the  Circuit  Court  of  Appeals.  It  is 

Affirmed. 


» 


Income  Tax 

Supplementary  Page  166. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


United  States  vs.  C.  W.  Phellis. 

(42  Sup.  Ct.  63.) 

(November  21,  1921.) 

Mr.  Justice  Pitney  delivered  the  opinion  of  the  Court. 

5219  T he  court  below  sustained  the  claim  of  C.  VV  . Phellis  for  a refund  of  certain  moneys 
paid  by  him  under  protest  in  discharge  of  an  additional  tax  assessed  against  him 
for  the  year  1915,  based  upon  alleged  income  equivalent  to  the  market  value  of 

500  shares  of  stock  of  a Delaware  corporation  called  the  E.  I.  du  Pont  de  Nemours  & 
Company,  received  by  him  as  a dividend  upon  his  250  shares  of  stock  of  the  E.  1.  du  Pont 
de  Nemours  Powder  Company,  a New  Jersey  corporation.  The  United  States  appeals. 

5220  From  the  findings  of  the  Court  of  Claims,  read  in  connection  with  claimant’s 
petition,  the  following  essential  facts  appear.  In  and  prior  to  September,  1915, 

the  New  Jersey  company  had  been  engaged  for  many  years  in  the  business  of  manufacturing 
and  selling  ex-plosives.  Its  funded  debt  and  its  capital  stock  at  par  values  were  as  follows: 


5%  mortgage  bonds $ 1,230,000 

\ % 30-year  bonds 14,166,000 

Preferred  stock  ($100  shares) 16,068,600 

Common  stock  ($100  shares) 29,427,100 


Total , $60,891,700 


S221  It  has  an  excess  of  assets  over  liabilities  showing  a large' su-rplus  of  accumulated 
profits;  the  precise  amount  is  not  important,  except  that  it  should  be  stated  that 
it  was  sufficient  to  cover  the  dividend  distribution  presently  to  be  mentioned.  In  that 
month  a reorganization  and  financial  adjustment  of  the  business  was  resolved  upon  and 
carried  into  effect  with  the  assent  of  a sufficient  proportion  of  the  stockholders,  in  which 
a new  corporation  was  formed  under  the  laws  of  Delaware  with  an  authorized  capital  stock 
of  $240,000,000  to  consist  in  part  of  debenture  stock  bearing  6%  cumulative  dividends, 
in  part  of  common  stock;  and  to  this  new  corporation  all  the  assets  and  good-will  of  the 
New  Jersey  company  were  transferred  as  an  entirety  and  as  a going  concern,  as  of  October 
1,  1915,  at  a valuation  of  $120,000,000,  the  new  company  assuming  all  the  obligations  of 
the  old  except  its  capital  stock  and  funded  debt.  In  payment  of  the  consideration,  the 
old  company  retained  $1,484,100  in  cash  to  be  used  in  redemption  of  its  outstanding  5% 
mortgage  bonds,  and  received  $59,661,700  par  value  in  debenture  stock  of  the  new-  company 
(of  which  $30,234,600  was  to  be  used  in  taking  up,  share  for  share  and  dollar  for  dollar, 
the  preferred  stock  of  the  old  company  and  redeeming  its  30-year  bonds),  and  $58,854,200 
par  value  of  the  common  stock  of  the  new  company  which  was  to  be  and  was  immediately 
distributed  among  the  common  stockholders  of  the  old  company  as  a dividend,  paying 
them  two  shares  of  the  new'  stock  for  each  share  they  held  in  the  old  company.  This  plan 
was  carried  out  by  appropriate  corporate  action;  the  new  company  took  over  ail  the  assets 
of  the  old  company,  and  that  company  besides  paying  off  its  5%  bonds  acquired  debenture 
stock  of  the  new  company  sufficient  to  liquidate  its  \xA°7c  30-year  bonds  and  retire  its 
preferred  stock,  additional  debenture  stock  equal  in  amount  at  par  to  its  own  outstanding 
common  stock,  and  also  two  shares  of  common  stock  of  the  Delaware  corporation  for  each 
share  of  the  outstanding  common  stock  of  the  New  Jersey  corporation.  Each  holder  of 
the  New  Jersey  company’s  common  stock  (including  claimant),  retained  his  old  stock  and 
besides  received  a dividend  of  two  shares  for  one  in  common  stock  of  the  Delaware  company, 
and  the  New  Jersey  corporation  retained  in  its  treasurv  6%  debenture  stock  of  the  Delaware 
corporation  equivalent  to  the  par  value  of  its  own  outstanding  common  stock.  The 
personnel  of  the  stockholders  and  officers  of  the  tw-o  corporations  was  on  October  1,  1915. 
identical,  the  new  company  having  elected  the  same  officers  as  the  old;  and  the  holders  of 
common  stock  in' both  corporations  had  the  same  proportionate  stockholding  in  each. 
After  the  reorganization  and  the  distribution  of  the  stock  of  the  Delaware  corporation, 
the  New  Jersey  corporation  continued  as  a going  concern,  and  still  exists,  but  except  for 
the  redemption  of  its  outstanding  bonds,  the  exchange  of  debenture  stock  for  its  preferred 
stock,  and  the  holding  of  debenture  stock  to  an  amount  equivalent  to  its  own  outstanding 
common  and  the  collection  and  disposition  of  dividends  thereon,  it  has  done  no  business. 
It  is  not,  however,  in  process  of  liquidation.  It  has  received  as  income  upon  the  Delaware 
company’s  debenture  stock  held  by  it,  dividends  to  the  amount  of  6 % per  annum,  which 
it  has  paid  out  to  its  own  stockholders  including  the  claimant.  The  fair  market  value  of 
the  stock  of  the  New  Jersey  corporation  on  September  30,  1915,  prior  to  the  reorganization, 
was  $795  per  share,  and  its  fair  market  value,  after  the  execution  of  the  contracts  between 
the  two  corporations,  was  on  October  1,  1915,  $100  per  share.  The  fair  market  value  of 
the  stock  of  the  Delaware  corporation  distributed  as  aforesaid  was  on  October  1,  1915, 
$347.50  per  share.  The  Commissioner  of  Internal  Revenue  held  that  the  500  shares  of 
Delaware  company  stock  acquired  by  claimant  in  the  distribution  was  income  of  the 
value  of  $347.50  per  share  and  assessed  the  additional  tax  accordingly. 

Income  Tax. 

Supplementary  Page  167. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


5222  The  Court  of  Claims,  observing  that  from  the  facts  as  found  claimant’s  250  shares 
of  stock  in  the  New  Jersey  corporation  were  worth  on  the  market,  prior  to  the 

transfer  and  dividend,  precisely  the  same  that  the  same  shares  plus  the  Delaware  company’s 
shares  received  by  him  were  worth  thereafter,  and  that  he  did  not  gain  any  increase  in  the 
value  of  his  aggregate  holdings  by  the  operation,  held  that  the  whole  transaction  was  to 
be  regarded  as  merely  a financial  reorganization  of  the  business  of  the  company,  producing 
to  him  nq  prolit  and  hence  no  income,  and  that  the  distribution  was  in  effect  a stock  dividend 
nontaxable  as  income  under  the  authority  of  Eisner  vs.  Macombcr,  252  U.  S.  189,  and  not 
within  the  rule  of  Peabody  vs.  Eisner,  247  U.  S.  347. 

5223  We  recognize  the  importance  of  regarding  matters  of  substance  and  disregarding 
forms  in  applying  the  provisions  of  the  Sixteenth  Amendment  and  income  tax 

laws  enacted  thereunder.  In  a number  of  cases  besides  those  just  cited  we  have  under 
varying  conditions  followed  the  rule.  Lynch  vs.  Turrish,  247  U.  S.  221;  Southern  Pacific 
Co.  vs.  Lowe,  247  U.  S.  330;  Gulf  Oil  Corporation  vs.  Lewcllyn,  248  U.  S.  71. 

5224  T he  Act  under  which  the  tax  now  in  question  was  imposed,  (Act  of  October  3, 
1913,  Chap.  16,  38  Stat.  114,  166-167),  declares  that  income  shall  include,  among 

other  things,  gains  derived  “from  interest,  rent,  dividends,  securities,  or  the  transaction 
of  any  lawful  business  carried  on  for  gain  or  profit,  or  gains  or  profits  and  income  derived 
from  any  source  whatever.”  Disregarding  the  slight  looseness  of  construction,  we  interpret 
“gains,  profits,  and  income  derived  from  * * * dividends,”  etc.,  as  meaning  not  that 

everything  in  the  form  of  a dividend  must  be  treated  as  income,  but  that  income  derived 
in  the  way  of  dividends  shall  be  taxed.  Hence  the  inquiry  must  be  whether  the  shares 
of  stock  in  the  new  company  received  by  claimant  as  a dividend  by  reason  of  his  ownership 
of  stock  in  the  old  company  constituted  (to  apply  the  tests  laid  down  in  Eisner  vs. 
Macomber,  252  U.  S.  189,  207),  a gain  derived  from  capital,  not  a gain  accruing  to  capital, 
nor  a growth  or  increment  of  value  in  the  investment,  but  a gain,  a profit,  something  of 
exchangeable  value  proceeding  from  the  property,  severed  from  the  capital  however  invest- 
ed, and  coming  in,  that  is,  received  or  drawn  by  the  claimant  for  his  separate  use,  benefit 
and  disposal. 

5225  Claimant’s  capital  investment  was  represented  by  his  New  Jersey  shares.  What- 
ever increment  of  value  had  accrued  to  them  prior  to  September  30,  1915,  by  reason 

of  the  surplus  profits  that  theretofore  had  been  accumulated  by  the  company,  was  still  a 
part  of  claimant’s  capital,  from  which  as  yet  he  had  derived  no  actual  and  therefore  no 
taxable  income  so  far  as  the  surplus  remained  undistributed.  As  yet  he  had  no  right  to 
withdraw  it  or  any  part  of  it,  could  not  have  such  right  until  action  by  the  company  or  its 
proper  representatives,  and  his  interest  still  was  but  the  general  property  interest  of  a stock- 
holder in  the  entire  assets,  business  and  affairs  of  the  company — a capital  interest,  as  we 
declared  in  Eisner  vs.  Macomber,  supra  (p.  208). 

S22S  Upon  the  face  of  things  however,  the  transfer  of  the  old  company’s  assets  to  the 
new  company  in  exchange  for  the  securities  issued  by  the  latter,  and  the  distribu- 
tion of  those  securities  by  the  old  company  among  its  stockholders,  changed  the  former 
situation  materially.  The  common  stock  of  the  new  company,  after  its  transfer  to  the  old 
comoany  and  prior  to  its  distribution,  constituted  assets  of  the  old  company  which  it  now 
held  to  represent  its  surplus  of  accumulated  profits — still,  however,  a common  fund  in  which 
the  individual  stockholders  of  the  old  company  had  no  separate  interest.  But  when  this 
common  stock  was  distributed  among  the  common  stockholders  of  the  old  company  as  a 
dividend,  then  at  once — unless  the  two  companies  must  be  regarded  as  substantially 
identical — the  individual  stockholders  of  the  old  company,  including  claimant,  received 
assets  of  exchangeable  and  actual  value  severed  from  their  capital  interest  in  the  old 
company,  proceeding  from  it  as  the  result  of  a division  of  former  corporate  profits,  and 
drawn  by  them  severally  for  their  individual  and  separate  use  and  benefit.  Such  a gain 
resulting  from  their  ownership  of  stock  in  the  old  company  and  proceeding  from  it  con- 
stituted individual  income  in  the  proper  sense. 

S227  That  a comparison  of  the  market  value  of  claimant’s  shares  in  the  New  Jersey 
corporation  immediately  before,  with  the  aggregate  market  value  of  those  shares 
plus  the  dividend  shares  immediately  after  the  dividend  showed  no  change  in  the  aggregate 
— a fact  relied  upon  by  the  Court  of  Claims  as  demonstrating  that  claimant  neither  gained 
nor  lost  pecuniarily  in  the  transaction — seems  to  us  a circumstance  of  no  particular  im- 
portance in  the  present  inquiry.  Assuming  the  market  values  were  a precise  reflex  of 
intrinsic  values,  they  would  show  merely  that  claimant  acquired  no  increase  in  aggregate 
wealth  through  the  mere  effect  of  the  reorganization  and  consequent  dividend,  not  that  the 
dividend  did  not  constitute  income.  There  would  remain  the  presumption  that  the  value 
of  the  New  Jersey  shares  immediately  prior  to  the  transaction  reflected  the  original  capital 
investment  plus  the  accretions  which  had  resulted  through  the  company’s  business  activities 
and  constituted  its  surplus;  a surplus  in  which  until  dividend  made  the  individual  stock- 
holder had  no  property  interest  except  as  it  increased  the  valuation  of  his  capital.  It  is 
the  appropriate  function  of  a dividend  to  convert  a part  of  a surplus  thus  accumulated 
from  property  of  the  company  into  property  of  the  individual  stockholders;  the  stock- 

income  Tax. 

Supplementary  Page  168. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


holder’s  share  being  thereby  released  to  and  drawn  by  him  as  profits  or  income  derived  from 
the  company.  That  the  distribution  reduces  the  intrinsic  capital  value  of  the  shares  by  an 
equal  amount  is  a normal  and  necessary  effect  of  all  dividend  distributions — whether  large 
or  small  and  whether  paid  in  money  or  in  other  divisible  assets — but  such  reduction 
constitutes  the  dividend  none  the  less  income  derived  by  the  stockholder  if  it  represents 
gains  previously  acquired  by  the  corporation.  Hence,  a comparison  of  aggregate  values 
immediately  before  with  those  immediately  after  the  dividend  is  not  a proper  test  for 
determining  whether  individual  income,  taxable  against  the  stockholder,  has  been  received 
by  means  of  the  dividend. 

5228  The  possibility  of  occasional  instances  of  apparent  hardship  in  the  incidence  of  the 
tax  may  be  conceded.  Where,  as  in  this  case,  the  dividend  constitutes  a distribu- 
tion of  profits  accumulated  during  an  extended  period  and  bears  a large  proportion  to  the 
par  value  of  the  stock,  if  an  investor  happened  to  buy  stock  shortly  before  the  dividend, 
paying  a price  enhanced  by  an  estimate  of  the  capital  plus  the  surplus  of  the  company, 
and  after  distribution  of  the  surplus,  with  corresponding  reduction  in  the  intrinsic  and 
market  value  of  the  shares,  he  were  called  upon  to  pay  a tax  upon  the  dividend  received, 
it  might  look  in  his  case  like  a tax  upon  his  capital.  But  it  is  only  apparently  so.  In 
buying  at  a price  that  reflected  the  accumulated  profits,  he  of  course  acquired  as  a part  of 
the  valuable  rights  purchased  the  prospect  of  a dividend  from  the  accumulations — bought 
“dividend  on,”  as  the  phrase  goes — and  necessarily  took  subject  to  the  burden  of  the  income 
tax  proper  to  be  assessed  against  him  by  reason  of  the  dividend  if  and  when  made.  He 
simply  stepped  into  the  shoes,  in  this  as  in  other  respects,  of  the  stockholder  whose  shares 
he  acquired,  and  presumably  the  prospect  of  a dividend  influenced  the  price  paid,  and  was 
discounted  by  the  prospect  of  an  income  tax  to  be  paid  thereon.  In  short,  the  question 
whether  a dividend  made  out  of  company  profits  constitutes  income  of  the  stockholder  is 
not  affected  by  antecedent  transfers  of  the  stock  from  hand  to  hand. 

5229  There  is. more  force  in  the  suggestion  that,  looking  through  and  through  the  entire 
transaction  out  of  which  the  distribution  came,  it  was  but  a financial  reorganization 

of  the  business  as  it  stood  before,  without  diminution  of  the  aggregate  assets  or  change  in 
the  general  corporate  objects  and  purposes,  without  change  of  personnel  either  in  officers  or 
stockholders,  or  change  in  the  proportionate  interest  of  any  individual  stockholder.  The 
argument,  in  effect,  is  that  there  was  no  loss  of  essential  identity  on  the  part  of  the  com- 
pany, only  a change  in  the  legal  habilaments  in  which  the  aggregate  corporate  interests 
were  clothed,  no  substantial  realization  by  individual  stockholders  -out  of  the  previous 
accumulation  of  corporate  profits,  merely  a distribution  of  additional  certificates  indica- 
ting an  increase  in  the  value  of  their  capital  holdings.  This  brings  into  view  the  gen- 
eral effect  of  the  combined  action  of  the  entire  body  of  stockholders  as  a mass. 

£>230  Ip  such  matters,  what  was  done,  rather  than  the  design  and  purpose  of  the  par- 
ticipants, should  be  the  test.  However,  in  this  case  there  is  no  difference.  The 
proposed  plan  was  set  out  in  a written  communication  from  the  president  of  the  New  Jersey 
corporation  to  the  stockholders,  a written  assent  signed  by  about  90%  of  the  stockholders, 
a written  agreement  made  between  the  old  company  and  the  new,  and  a bill  of  sale  made  by 
^ormer  ^e  '®ttfr,  all  of  which  are  in  the  findings.  The  plan  as  thus  proposed  and 
adopted,  and  as  carried  out,  involved  the  formation  of  a new  corporation  to  take  over  the 
business  and  the  business  assets  of  the  old;  it  was  to  be  and  was  formed  under  the  laws  of  a 
different  State,  which  necessarily  imports  a different  measure  of  responsibility  to  the  public, 
and  presumably  different  rights  between  stockholders  and  company  and  between  stock- 
holders inter  sese,  than  before.  The  articles  of  association  of  neither  company  is  made  to 
appear,  but  in  Javor  of  the  asserted  identity  between  the  companies  we  will  assume  (contrary 
to  the  probabilities)  that  there  was  no  significant  difference  here.  But  the  new  company 
was  to  have  authorized  capital  stock  aggregating  $240,000,000 — nearly  four  times  the 
stock  issues  and  funded  debt  of  the  old  company — of  which  less  than  one-half 
($113,515,900)  was.  to  be  issued  presently  to  the  old  company  or  its  stockholders,  leaving 
the  future  disposition  of  a majority  of  the  authorized  new  issues  still  to  be  determined. 
There  was  no  present  change  of  officers  or  stockholders,  but  manifestly  a continuation  of 
identity  in  this  respect  depended  upon  continued  unanimous  consent  or  concurrent  action 
of  a multitude  of  individual  stockholders  actuated  by  motives  and  influences  necessarily 
to  some  extent  divergent.  In  the  light  of  all  this  we  cannot  regard  the  new  company  as 
virtually  identical  with  the  old,  but  must  treat  it  as  a substantial  corporate  body  with  its 
°tYn  !fParate  identity,. and  its  stockholders  as  having  property  rights  and  interests  materi- 
ally different  to  those  incident  to  ownership  of  stock  in  the  old  company. 

£>231  The  findings  show  that  it  was  intended  to  be  established  as  such,  and  that  it  was 
so  created  in  fact  and  in  law.  There  is  nothing  to  warrant  us  in  treating  this 
separateness  as  imaginary,  unless  the  identity  of  the  body  of  stockholders  and  the  transfer 
in  solido  of  the  manufacturing  business  and  assets  from  the  old  company  to  the  new  neces- 
sarily  have  that  effect.  But  the  identity  of  stockholders  was  but  a temporary  condition, 
subject  to  change  at  any  moment  at  the  option  of  any  individual.  As  to  the  assets,  the 

Income  Tax. 

Supplementary  Page  169. 


SUPREME  COURT  DECISIONS — 1913  ACT. 


very  fact  of  their  transfer  from  one  company  to  the  other  evidenced  the  actual  separateness 
of  the  two  companies. 

5232  But  further,  it  would  be  erroneous,  we  think,  to  test  the  question  whether  an 
individual  stockholder  derived  income  in  the  true  and  substantial  sense  through 

receiving  a part  in  the  distribution  of  the  new  shares,  by  regarding  alone  the  general 
effect  of  the  reorganization  upon  the  aggregate  body  of  stockholders.  The  liability  of  a 
stockholder  to  pay  an  individual  income  tax  must  be  tested  by  the  effect  of  the  trans- 
action upon  the  individual.  It  was  a part  of  the  purpose  and  a necessary  result  of  the  plan 
of  reorganization,  as  carried  out,  that  common  stock  of  the  new  company  to  the  extent  of 
$58,854,200  should  be  turned  over  to  the  old  company,  treated  by  it  as  assets  to  be 
distributed  as  against  its  liability  to  stockholders  for  accrued  surplus,  and  thereupon  dis- 
tributed to  them  “as  a dividend.”  The  assent  of  the  stockholders  was  based  upon  this 
as  a part  of  the  plan. 

5233  In  thus  creating  the  common  stock  of  the  new  company  and  transferring  it  to  the 
old  company  for  distribution  pro  rata  among  its  stockholders,  the  parties  were 

acting  in  the  exercise  of  their  rights  for  the  very  purpose  of  placing  the  common  stock- 
holders individually  in  possession  of  new  and  substantial  property  rights  in  esse,  in  realiza- 
tion of  their  former  contingent  right  to  participate  eventually  in  the  accumulated  surplus. 
No  question  is  made  but  that  the  proceedings  taken  were  legally  adequate  to  accomplish 
the  purpose.  The  new  common  stock  became  treasury  assets  of  the  old  company,  and  was 
capable  of  distribution  as  the  manufacturing  assets  whose  place  it  took  were  not.  Its 
distribution  transferred  to  the  several  stockholders  new  individual  property  rights  which 
they  severally  were  entitled  to  retain  and  enjoy,  or  to  sell  and  transfer,  with  precisely  the 
same  substantial  benefit  to  each  as  if  the  old  company  had  acquired  the  stock  by  purchase 
from  strangers.  According  to  the  findings  the  stock  thus  distributed  was  marketable. 
There  was  neither  express  nor  implied  condition,  arising  out  of  the  plan  of  reorganization 
or  otherwise,  to  prevent  any  stockholder  from  selling  it;  and  he  could  sell  his  entire  portion 
or  any  of  it  without  parting  with  his  capital  interest  in  the  parent  company,  or  affecting 
his  proportionate  relation  to  the  interests  of  other  stockholders.  Whether  he  sold  the  new 
stock  for  money  or  retained  it  in  preference,  in  either  case  when  he  received  it  he. received 
of  his  separate  property  a part  of  the  accumulated  profits  of  the  old  company  in  which 
previously  he  had  only  a potential  and  contingent  interest. 

5234  It  thus  appears  that  in  substance  and  fact,  as  well  as  in  appearance,  the  dividend 
received  by' claimant  was  a gain,  a profit,  derived  from  his  capital  interest  in  the 

old  company,  not  in  liquidation  of  the  capital  but  in  distribution  of  accumulated  profits 
of  the  company;  something  of  exchangeable  value  produced  by  and  proceeding  from  his 
investment*  therein,  severed  from  it  and  drawn  by  him  for  his  separate  use.  Hence  it 
constituted  individual  income  within  the  meaning  of  the  income  tax  law,  as  clearly  as 
was  the  case  in  Peabody  vs.  Eisner,  247  U.  S.  347. 

Judgment.  of  the  Court  of  Claims  reversed,  and  the 
cause  remanded  with  directions  to  dismiss  the  suit. 

Mr.  Justice  McReynolds  dissenting. 

5235  In  the  course  of  its  opinion,  citing  Eisner  vs.  Macombcr,  250  U.  S.  189,  213, 
the  Court  of  Claims  declared: 

“We  think  the  whole  transaction  is  to  be  regarded  as  merely  a financial  reorganization 
of  the  business  of  the  company  and  that  this  view  is  justified  by  the  power  and  duty  of  the 
court  to  look  through  the  form  of  the  transaction  to  its  substance.”  And  further,  “It 
seems  incredible  that  Congress  intended  to  tax  as  income  a business  transaction  which 
admittedly  produced  no  gain,  no  profit,  and  hence  no  income.  If  any  income  had  accrued 
to  the  plaintiff  by  reason  of  the  sale  and  exchange  made  it  would  doubtless  be  taxable. 

5236  There  were  perfectly  good  reasons  for  the  reorganization  and  the  good  faith  of  the 
parties  is  not  questioned.  I assume  that  the  statute  was  not  intended  to  put  an 

embargo  upon  legitimate  reorganizations  when  deemed  essential  for  carrying  on  important 
enterprises.  Eisner  vs.  Macomber  was  rightly  decided  and  the  principle  which  I think 
it  announced  seems  in  conflict  with  the  decision  just  announced. 

Mr.  Justice  Van  Devanter  concurs  in  this  dissent. 


John  D.  Rockefeller  vs.  United  States. 

The  New  York  Trust  Company  and  Edith  Hale  Harkness,  Executors  of  the  last 
Will  and  Testament  of  William  L.  Harkness,  deceased,  vs.  Edwards,  Collector. 

(42  Sup.  Ct.  68.) 

(November  21,  1921.) 

Mr.  Justice  Pitney  delivered  the  opinion  of  the  Court. 

S237  These  two  cases  were  argued  together,  turn  upon  like  facts,  and  may  be  disposed 
of  in  a single  opinion.  They  involve  the  legality  of  certain  income  taxes  assessed 
against  the  plaintiff  in  error  in  the  one  case,  and  against  the  testator  of  plaintiffs  in  erroi  in 

! ncome  Tax. 

Supplementary  Page  170. 


SUPREME  COURT  DECISIONS -1913  ACT. 


the  other,  under  the  Income  Tax  provisions  of  the  Act  of  October  3,  1913,  Chap.  16,  38 
Slat.  114,  166-167,  by  reason  of  certain  distributions  of  corporate  stocks  received  by  the 
respective  taxpayers  under  the  following  circumstances.  In  and  prior  to  the  year  1914, 
the  Prairie  Oil  & Gas  Company,  a corporation  of  the  State  of  Kansas,  was  engaged  in  pro- 
ducing, purchasing  and  selling  crude  petroleum,  and  transporting  it  through  pipe  lines 
owned  by  the  company  in  the  States  of  Kansas  and  Oklahoma,  and  elsewhere.  At  the  same 
time  the  Ohio  Oil  Company,  a corporation  of  the  State  of  Ohio,  was  engaged  in  producing 
and  manufacturing  petroleum  and  mineral  oil  and  transporting  the  same  through  pipe 
lines  owned  by'  it  in  the  States  of  Ohio,  Indiana,  Illinois  and  Pennsylvania.  In  the  month 
of  June,  1914,  it  was  judicially  determined  by  this  court  (The  Pipe  Line  Cases,  234  U.  S. 
548),  that  with  respect  to  the  transportation  business  these  companies  were  common 
carriers  in  interstate  commerce,  subject  to  the  Act  to  regulate  commerce  as  amended 
by  Act  of  June  29,  1906,  Chap.  3391,  34  Stat.  584,  and  as  such  subject  to  the  supervision 
of  the  Interstate  Commerce  Commission.  By  Act  of  September  26,  1914,  Chap.  311,  38 
Stat.  717,  the  remainder  of  their  business  became  subject  to  the  supervision  of  the  Federal 
Trade  Commission.  In  order  to  avoid  a probable  conflict  of  federal  authority  in  case  the 
combined  business  of  production  and  transportation  should  continue  to  be  carried  on  as 
theretofore,  it  was  in  each  case,  upon  advice  of  counsel,  determined  that  the  pipe  line 
property  should  be  owned  and  operated  by  a separate  corporation.  In  the  case  of  the 
Ohio  company  an  added  reason  for  segregation  lay'  in  the  fact  that  by  a section  of  the 
Ohio  General  Code  its  entire  gross  receipts,  including  those  derived  from  business  other  than 
transportation,  were  subject  to  an  annual  assessment  of  4%  chargeable  against  the  gross 
receipts  of  companies  engaged  in  the  transportation  business.  For  these  reasons,  the 
stockholders  of  the  Prairie  Oil  & Gas  Company  caused  a corporation  to  be  organized 
under  the  laws  of  the  State  of  Kansas,  by  the  name  of  the  Prairie  Pipe  Line  Company,  to 
which  all  the  pipe  line  property'  of  the  Prairie  Oil  & Gas  Company'  was  transferred  in  con- 
sideration of  t lie  issue  and  delivery  of  the  entire  capital  stock  of  the  new  company,  to  be 
distributed  pro  rata  to  the  stockholders  of  the  Prairie  Oil  & Gas  Company.  And  similarly, 
the  stockholders  of  the  Ohio  Oil  Company  caused  a corporation  to  be  formed  under  the  laws 
of  that  State,  by  the  name  of  the  Illinois  Pipe  Line  Company,  to  which  all  the  pipe  line 
property'  of  the  Ohio  Oil  Company  was  transferred  in  consideration  of  the  issue  to  it  of  the 
entire  capital  stock  of  the  new  company,  which  was  to  be  distributed  at  once  by  the  old 
company  to  its  stockholders  pro  rata.  These  arrangements  were  carried  out  in  like  manner 
in  both  cases,  except  that  in  the  case  of  the  Kansas  companies  the  stock  of  the  pipe  line 
company'  was  issued  directly'  to  the  stockholders  of  the  oil  company',  whereas  in  the  case  of 
the  Ohio  companies  the  pipe  line  company  issued  its  stock  to  the  oil  company,  but  in  the 
same  resolution  by  which  the  contract  was  made,  an  immediate  distribution  of  the  new 
stock  among  the  oil  company’s  stockholders  was  provided  for,  and  in  fact  it  was  carried  out. 
The  aggregate  valuation  of  the  Prairie  pipe  lines  was  $27,000,000.  that  of  the  Ohio  pipe 
lines  $20,000,000,  and  the  total  capitalization  of  the  respective  pipe  line  companies  equalled 
these  amounts. 

S233  In  each  case,  the  oil  company  had  a surplus  in  excess  of  the  stated  value  of  its 
pipe  lines  and  of  the  par  value  of  the  total  stock  of  the  corresponding  pipe  line 
company;  so  that  the  transfer  of  the  pipe  lines  and  the  distribution  of  the  stock  received 
for  them  left  the  capital  of  the  respective  oil  companies  unimpaired  and  required  no  reduc- 
tion in  their  outstanding  issues. 

S23S*  Messrs.  Rockefeller  and  Harkness  respectively  were  holders  of  large  amounts  of 
the  stock  of  both  the  Prairie  and  the  Ohio  oil  companies  and  in  the  distributions 
each  received  an  amount  of  stock  in  each  of  the  pipe  line  companies  proportionate  to  his 
holdings  in  the  oil  companies.  This  occurred  in  the  year  1915.  Neither  Mr.  Rockefeller 
nor  Mr.  Harkness  nor  the  latter’s  executors  sold  anv  of  the  stock  in  the  pipe  line  companies. 

5240  Income  tax  assessments  for  the  year  1915  were  imposed  upon  Messrs.  Rockefeller 
and  Hark  ness,  based  upon  the  value  of  the  stocks  thus  received  as  dividends; 

and  these  assessments  are  in  question  in  the  present  suits,  both  of  which  were  brought  in 
the  District  Court  of  the  United  States  for  the  Southern  District  of  New  York;  one  by  the 
United  States  against  Mr.  Rockefeller,  the  other  byr  the  Executors  of  Air.  Harkness  against 
the  Collector.  In  each  case  the  facts  were  specially  pleaded  so  as  to  present  the  question 
whether  the  distribution  of  the  stocks  of  the  pipe  line  companies  among  the  stockholders  of 
the  oil  companies  constituted,  under  the  circumstances,  dividends  within  the  meaning  of  the 
Act  of  1913,  and  income  within  the  meaning  of  the  Sixteenth  Amendment.  In  each  case 
a final  judgment  was  rendered  sustaining  the  assessment,  and  the  judgments  are  brought 
here  by  direct  writs  of  error  under  section  238  Judicial  Code,  because  of  the  constitutional 
question. 

5241  Under  the  facts  as  recited  we  deem  it  to  be  too  plain  for  dispute  that  in  both  cases 
the  new  pipe  line  company'  shares  were  in  substance  and  effect  distributed  by  the 

oil  company  to  its  stockholders;  as  much  so  in  the  case  of  the  Kansas  company  where  the 
new  stock  went  directly  from  the  pipe  line  company'  to  the  stockholders  of  the  oil  company, 


Income  Tax. 

Supplementary  Page  171. 


SUPREME  COURT  DECISIONS— 1913  ACT. 


as  in  the  case  of  the  Ohio  company  where  the  new  stock  went  from  the  pipe  line  company 
to  the  oil  company  and  by  it  was  transferred  to  its  stockholders.  Looking  to  the  substance 
of  things  the  difference  is  unessential.  In  each  case  the  consideration  moved  from  the  oil 
company  in  its  corporate  capacity,  the  new  company’s  stock  issued  in  exchange  for  it  was 
distributed  among  the  oil  company’s  stockholders  in  their  individual  capacity,  and  was  a 
substantial  fruit  of  their  ownership  of  stock  in  the  oil  company,  in  effect  a dividend  out 
of  the  accumulated  surplus. 

5242  The  facts  are  in  all  essentials  indistinguishable  from  those  presented  in  United 
States  v.  Phellis  HIS219  herein],  decided  this  day.  In  these  cases  as  in  that,  regard- 
ing the  general  effect  of  the  entire  transactions  resulting  from  the  combined  action  of  the 
mass  of  stockholders,  there  was  apparently  little  but  a reorganization  and  financial  readjust- 
ment of  the  affairs  of  the  companies  concerned,  here  a subdivision  of  companies,  without 
immediate  effect  upon  the  personnel  of  the  stockholders,  or  much  difference  in  the  aggregate 
corporate  activities  or  properties.  As  in  the  Phellis  case,  the  adoption  of  the  new  arrange- 
ment did  not  of  itself  produce  any  increase  of  wealth  to  the  stockholders,  since  whatever 
was  gained  by  each  in  the  value  of  his  new  pipe  line  stock  was  at  the  same  moment  with- 
drawn through  a corresponding  diminution  of  the  value  of  his  oil  stock.  Nevertheless  the 
new  stock  represented  assets  of  the  oil  companies  standing  in  the  place  of  the  pipe  line 
properties  that  before  had  constituted  portions  of  their  surplus  assets,  and  it  was  capable 
of  division  among  stockholders  as  the  pipe  line  properties  were  not.  The  distribution, 
whatever  its  effect  upon  the  aggregate  interests  of  the  mass  of  stockholders,  constituted  in 
the  case  of  each  individual  a gain  in  the  form  of  actual  exchangeable  assets  transferred  to 
him  from  the  oil  company  for  his  separate  use  in  partial  realization  of  his  former  indivisible 
and  contingent  interest  in  the  corporate  surplus.  It  was  in  substance  and  effect,  not  merely 
in  form,  a dividend  of  profits  by  the  corporation,  and  individual  income  to  the  stockholder. 

5243  The  opinion  just  delivered  in  United  States  vs.  Phellis  sufficiently  indicates  the 
grounds  of  our  conclusion  that  the  judgment  in  each  of  the  present  cases  must  be 

affirmed. 

Mr.  Justice  Clarke  took  no  part  in  the  consideration  or  decision  of  these  cases. 

Mr.  Justice  Van  Devanter  and  Mr.  Justice  McReynolds  dissent. 


I ncome  Tax. 

Supplementary  Page  172. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


Eisner  vs.  Macomber. 

(252  U.  S.  189.) 

(T.  D.  3010.  April  26,  1920.) 


Mr.  Justice  Pitney  delivered  the  opinion  of  the  Court. 

5244  This  case  presents  the  question  whether,  by  virtue  of  the  Sixteenth  Amendment, 
Congress  has  the  power  to  tax,  as  income  of  the  stockholder  and  without  appor- 
tionment, a stock  dividend  made  lawfully,  and  in  good  faith  against  profits  accumulated 
by  the  corporation  since  March  1,  1913.  It  arises  under  the  Revenue  Act  of  September 
8,  1916  (Ch.  463,  39  Stat.  756,  et  seq.),  which,  in  our  opinion  (notwithstanding  a contention 
of  the  Government  that  will  be  noticed),  plainly  evinces  the  purpose  of  Congress  to  tax 
stock  dividends  as  income. 

5245  The  facts,  in  outline,  are  as  follows:  On  January  1,  1916,  the  Standard  Oil  Com- 
pany  of  California,  a corporation  of  that  State,  out  of  an  authorized  capital  stock 

of  $100,000,000,  had  shares  of  stock  outstanding,  par  value  $100  each,  amounting  in 
round  figures  to  $50,000,000.  In  addition,  it  had  surplus  and  undivided  profits  invested 
in  plant,  property,  and  business  and  required  for  the  purposes  of  the  corporation,  amounting 
to  about  $45,000,000,  of  which  about  $20,000,000  had  been  earned  prior  to  March  1,  1913, 
the  balance  thereafter.  In  January,  1916,  :n  order  to  readjust  the  capitalization,  the 
board  of  directors  decided  to  issue  additional  shares  sufficient  to  constitute  a stock  dividend 
of  50  per  cent,  of  the  outstanding  stock,  and  to  transfer  from  surplus  account  to  capital 
stock  account  an  amount  equivalent  to  such  issue.  Appropriate  resolutions  were  adopted, 
an  amount  equivalent  to  the  par  value  of  the  proposed  new  stock  was  transferred  accordingly 
and  the  new  stock  duly  issued  against  it  and  divided  among  the  stockholders. 

S24S  Defendant  in  error,  being  the  owner  of  2,200  shares  of  the  old  stock,  received 
certificates  for  1,100  additional  shares,  of  which  18.07  per  cent.,  or  198.77  shares, 
par  value  $19,877,  were  treated  as  representing  surplus  earned  between  March  1,  1913,’ 
and  January  1,  1916.  She  was  called  upon  to  pay,  and  did  pay  under  protest,  a tax  imposed 
under  the  Revenue  Act  of  1916,  based  upon  a supposed  income  of  $19,877  because  of  the 
new  shares;  and  an  appeal  to  the  Commissioner  of  Internal  Revenue  having  been  disallowed, 
she  brought  action  against  the  Collector  to  recover  the  tax.  In  her  complaint  she  alleged 
the  above  facts,  and  contended  that  in  imposing  such  a tax  the  Revenue  Act  of  1916 
violated  Art.  1,  sec.  2,  cl.  3,  and  Art.  I,  sec.  9,  el.  4,  of  the  Constitution  of  the  United 
States,  requiring  direct  taxes  to  be  apportioned  according  to  population,  and  that  the  stock 
dividend  was  not  income  within  the  meaning  of  the  Sixteenth  Amendment.  A g°nmal 
demurrer  to  the  complaint  was  overruled  upon  the  authority  of  Towne  v.  Eisner  [1JS54 
herein],  245  U.  S.  418;  and,  defendant  having  failed  to  plead  further,  final  judgment  went 
against  him.  to  review  it,  the  present  writ  of  error  is  prosecuted 
S247  rr"- - ‘ ...  - 


S248 

supra  ; 


The  case  was  argued  at  the  last  term,  and  reargued  at  the  present  term,  both 
orally  and  by  additional  briefs. 

We  are  constrained  to  hold  that  the  judgment  of  the  District  Court  must  be 
affirmed . hirst,  because  the  question  at  issue  is  controlled  by  Towne  v.  Eisner , 
' : u7,  because  a reexaminution  of  the  question,  with  the  additional  light  thrown 

upon  it  by  elaborate  arguments,  has  confirmed  the  view  that  the  underlying  ground  of  that 
decision  is  sound,  that  it  disposes  of  the  question  here  presented,  and  that  other  funda- 
mental considerations  lead  to  the  same  result. 

S24^  In  I owne  v.  Eisner , the  question  was  whether  a stock  dividend  made  in  1914 
against  surplus  earned  prior  to  January  1,  1913,  was  taxable  against  the  stock- 
holder  under  the  Act  of  October  3,  1913  (Ch.  16,  38  Stat.  1 14,  166),  which  provided  fsec.  B, 
p.  ) that  net  income  should  include  ‘ dividends,”  and  also  “gains  or  profits  and  income 
derived  from  any  source  whatever.”  Suit  having  been  brought  by  a stockholder  to  recover 
the  tax  assessed  against  him  by  reason  of  the  dividend,  the  District  Court  sustained  a de- 
murrer to  the  complaint.  242  fed.  Rep.  702.  The  court  treated  the  construction  of  the 
act  as  inseparable  from  the  interpretation  of  the  Sixteenth  Amendment;  and  having 
referred  to  Pollack  v.  Farmers  Loan 'M  Trust  Co.,  158  U.  S.  601,  and  quoted  the  Amend- 
ment, proceeded  very  properly  to  say  (p.  704):  “It  is  manifest  that  the  stock  dividend  in 
question  cannot  be  reached  by  the  Income  Tax  Act,  and  could  not,  even  though  Congress 
expressly  declared  it  to  be  taxable  as  income,  unless  it  is  in  fact  income.”  It  declined 
however,  to  accede  to  the  contention  that  in  Cibbons  v.  Mahon,  136  U.  S.  549  “stock  divi- 
dends had  received  a definition  sufficiently  clear  to  be  controlling,  treated  the  language 
ot  this  court  in  that  case  as  obiter  dictum  in  respect  of  the  matter  then  before  it  (p  706) 
and  examined  the  question  as  res  nova,  with  the  result  stated.  When  the  case  came 
.Ter!’.r  overruling  a motion  to  dismiss  made  by  the  Government  upon  the  ground 
that  the  only  question  involved  was  the  construction  of  the  statute  and  not  its  constitu- 


Income  Tax. 

Supplementary  Page  173. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


tionality,  we  dealt  upon  the  merits  with  the  question  of  construction  only,  but  disposed 
of  it  upon  consideration  of  the  essential  nature  of  a stock  dividend,  disregarding  the  fact 
that  the  one  in  question  was  based  upon  surplus  earnings  that  accrued  before  the  Six- 
teenth Amendment  took  ellect.  Not  only  so,  but  we  rejected  the  reasoning  of  the  District 
Court,  saying  (245  U.  S.,  p.  426):  “Notwithstanding  the  thoughtful  discussion  that  the 
case  received  below  we  cannot  doubt  that  the  dividend  was  capital  as  well  for  the  purposes 
of  the  Income  Tax  Law  as  for  distribution  between  tenant  for  life  and  remainderman. 
What  was  said  by  this  court  upon  the  latter  question  is  equally  true  of  the  former.  A 
stock  dividend  really  takes  nothing  from  the  property  of  the  corporation,  and  adds. nothing 
to  the  interests  of  the  shareholders.  Its  property  is  not  diminished,  and  their  interests 
are  not  increased.  * * * The  proportional  interest  of  each  shareholder  remains  the 

same.  The  only  change  is  in  the  evidence  which  represents  that  interest,  the  new  shares 
and  the  original  shares  together  representing  the  same  proportional  interest  that  the 
original  shares  represented  before  the  issue  of  the  new  ones.  Gibbons  v.  Mahon,  136  U.  S. 
549,  559,  560.  In  short,  the  corporation  is  no  poorer  and  the  stockholder  is  no  richer 
than  they  were  before.  Logan  County  v.  United  States,  169  U.  S.  255,  261.  if  the  plaintiff 
gained  any  small  advantage  by  the  change,  it  certainly  was  not  an  advantage  of  $417,450, 
the  sum  upon  which  he  was  taxed.  * * * Vvhat  has.  happened. is  that  the  plaintiii  s 

old  certificates  have  been  split  up  in  effect  and  have  diminished  in  value  to  the  extent 


of  the  value  of  the  new.”  . . . „ , 

5250  This  language  aptly  answered  not  only  the  reasoning  of  the  District  Court  but 
the  argument  of  the  Solicitor  General  in  this  court,  which  discussed  the  essential 

nature  of  a stock  dividend.  And  if,  for  the  reasons. thus  expressed,  such  a dividend  is 
not  to  be  regarded  as  “income”  or  “dividends”  within  the  meaning. of  the  Act  of  1913, 
we  are  unabie  to  see  how  it  can  be  brought  within  the  meaning  of  incomes  in  the  Six- 
teenth Amendment;  it  being  very  clear  that  Congress  intended  in  that.  Act  to  exert 
its  power  to  the  extent  permitted  by  the  Amendment.  In  Towne  v.  Eisner  it  was  not. con- 
tended that  any  construction  of  the  statute  could  make  it  narrower  than  the  constitutional 

grant;  rather  the  contrary.  . , . . . . . , 

5251  The  fact  that  the  dividend  was  charged  against  profits  earned  be. ore  the  Act  ot 
1913  took  effect,  even  before  the  Amendment  was  adopted  was  neither  relied 

upon  nor  alluded  to  in  our  consideration  of  the  merits  in  that  case.  Not. only  so  but 
had  we  considered  that  a stock  dividend  constituted  income  in  any  true  sense,  it  would  have 
been  held  taxable  under  the  Act  of  1913  notwithstanding  it  was  based  upon  profits  earned 
before  the  Amendment.  We  ruled  at  the  same  term,  in  Lynch  v.  Hornby,  247  L.  b.  339, 
that  a cash  dividend  extraordinary  in  amount,  and  in  Peabody  v.  Eisner,  247  L.  b.  34/, 
that  a dividend  paid  in  stock  of  another  company,  were  taxable  as  income  although  based 
upon  earnings  that  accrued  before  adoption  of  the  Amendment.  In  the  former  case, 
concerning  “corporate  profits  that  accumulated  before  the  Act  took  effect  we  declared 
(dp.  343-344):  “fust  as  we  deem  the  legislative  intent  manifest  to  tax  the  stockholder 
with  respect  to  such  accumulations  only  if  and  when,  and  to  the  extent  that,  his  interest 
in  them  comes  to  fruition  as  income,  that  is,  in  dividends  declared,  so  we  can  perceive  no 
constitutional  obstacle  that  stands  in  the  way  of  carrying  out  this  intent  when  dividends 
are  declared  out  of  a preexisting  surplus.  * * Congress  was  at  liberty  under  the 

Amendment  to  tax  as  income,  without  apportionment,  everything  that  became  income, 
in  the  ordinary  sense  of  the  word,  after  the  adoption  of  the  Amendment,  including  dividends 
received  in  the  ordinary  course  by  a stockholder  from  a corporation,  even  though  they 
were  extraordinary  in  amount  and  might  appear  upon  analysis  to  be  a mere  realization 
in  possession  of  an  inchoate  and  contingent  interest  that  the  stockholder  had  in  a surplus 
of  corporate  assets  previously  existing.”  fn  Peabody  v.  Eisner  (pp.  349-350),  we  observed 
that  the  decision  of  the  District  Court  in  Towne  v.  Eisner  had  been  reversed  only  upon  the 
ground  that  it  related  to  a stock  dividend  which  in  fact  took  nothing  from  the  property 
of  the  corporation  and  added  nothing  to  the  interest  of  the  shareholder  but  merely  changed 
the  evidence  which  represented  that  interest;  and  we : distinguished  the  F eabody  case 
from  the  Towne  case  upon  the  ground  that  “the.  dividend  of  Baltimore  & shares  was 

not  a stock  dividend  but  a distribution  in  specie  of  a portion  of  the  assets  of  the  l mon 

S252C  Therefore,  Towne  v.  Eisner  cannot  be  regarded  as  turning  upon  the  point  that 
the  surplus  accrued  to  the  company  before  the  Act  took  effect  , and  before 
adoption  of  the  Amendment.  And  what  we  have  quoted  from  the  opinion  in  that  case 
cannot  be  regarded  as  obiter  dictum,  it  having  furnished  the  entire  basis  for  the  conclusion 
reach-d.  We  adhere  to  the  view  then  expressed,  and  might  rest  the  present  case  there, 
not  because  that  case  in  terms  decided  the  constitutional  question,  for  it  did  not;  but 
because  the  conclusion  there  reached. as  to  the  essential  nature  of  a stock  dividend  neces- 
sarily prevents  its  being  regarded  as  income  in  any  true  sense. 


Income  Tax 

Supplementary  Page  174. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


5253  Nevertheless,  in  view  of  the  importance  of  the  matter,  and  the  fact  that  Congress 
in  the  Revenue  Act  of  1916  declared  (39  Stat;  757)  that  a “stock  dividend  shall  be 

considered  income,  to  the  amount  of  its  cash  value,”  we  will  deal  at  length  with  the  con- 
stitutional question,  incidentally  testing  the  soundness  of  our  previous  conclusion. 

5254  T he  Sixteenth  Amendment  must  be  construed  in  connection  with  the  taxing 
clauses  of  the  original  Constitution  and  the  effect  attributed  to  them  before  the 

Amendment  was  adopted.  In  Pollock  v.  Farmers  Loan  & Trust  Co.,  158  U.  S.  601,  under 
the  Act  of  August  27,  1894  (Ch.  349,  sec.  27,  28  Stat.  509,  553),  it  was  held  that  taxes  upon 
rents  and  profits  of  real  estate  and  upon  returns  from  investments  of  personal  property 
were  in  effect  direct  taxes  upon  the  property  from  which  such  income  arose,  imposed  by 
reason  of  ownership;  and  that  Congress  could  not  impose  such  taxes  without  apportioning 
them  among  the  States  according  to  population,  as  required  by  Art.  I,  sec.  2,  cl.  3,  and  sec. 
9,  cl.  4,  of  the  original  Constitution. 

£255  Afterwards,  and  evidently  in  recognition  of  the  limitation  upon  the  taxing  power 
of  Congress  thus  determined,  the  Sixteenth  Amendment  was  adopted,  in  words 
lucidly  expressing  the  object  to  be  accomplished:  “The  Congress  shall  have  power  to 
lay  and  collect  taxes  on  incomes,  from  whatever  source  derived,  without  apportionment 
among  the  several  States,  and  without  regard  to  any  census  or  enumeration.”  As  repeatedly 
held,  this  did  not  extend  the  taxing  power  to  new  subjects,  but  merely  removed  the  neces- 
sity which  otherwise  might  exist  for  an  apportionment  among  the  States  of  taxes  laid  on 
income.  Brushaber  v.  Union  Pacific  R.  R.  Co.,  240  U.  S.  1,  17-19;  Stanton  v.  Baltic 
Mining  Co.,  240  U.  S.  103,  112  et  seq.,  Peck  & Co.  v.  Lowe,  247  U.  S.  165,  172-173. 

5255  A proper  regard  for  its  genesis,  as  well  as  its  very  clear  language,  requires  also 
that  this  Amendment  shall  not  be  extended  by  loose  construction,  so  as  to  repeal 

or  modify,  except  as  applied  to  income,  those  provisions  of  the  Constitution  that  require 
an  apportionment  according  to  population  for  direct  taxes  upon  property,  real  and  per- 
sonal. This  limitation  still  has  an  appropriate  and  important  function,  and  it  is  not  to  be 
overriden  by  Congress  or  disregarded  by  the  courts. 

S257  In  order,  therefore,  that  the  clauses  cited  from  Article  I of  the  Constitution 
may  have  proper  force  and  effect,  save  only  as  modified  by  the  Amendment, 
and  that  the  latter  also  may  have  proper  effect,  it  becomes  essential  to  distinguish  between 
what  is  and  what  is  not  “income,”  as  the  term  is  there  used;  and  to  apply  the  distinction, 
as  cases  arise,  according  to  truth  and  substance,  without  regard  to  form.  Congress  cannot 
by  any  definition  it  may  adopt  conclude  the  matter,  since  it  cannot  by  legislation  alter  the 
Constitution,  from  which  alone  it  derives  its  power  to  legislate,  and  within  whose  limitations 
alone  that  power  can  be  lawfully  exercised. 

S25S  The  fundamental  relation  of  “capital”  to  “income”  has  been  much  discussed 
by  economists,  the  former  being  likened  to  the  tree  or  the  land,  the  latter  to  the 
fruit  or  the  crop;  the  former  depicted  as  a reservoir  supplied  from  springs,  the  latter  as 
the  outlet  stream,  to  be  measured  by  its  flow  during  a period  of  time.  For  the  present  purpose 
we  require  only  a clear  definition  of  the  term  “income,”  as  used  in  common  speech,  in  order 
to  determine  its  meaning  in  the  Amendment;  and,  having  formed  also  a correct  judgment 
as  to  the  nature  of  a stock  dividend,  we  shall  find  it  easy  to  decide  the  matter  at  issue. 

5259  After  examining  dictionaries  in  common  use  (Bouv.  L.  D.;  Standard  Diet.; 
Webster’s  Internat.  Diet.;  Century  Diet.),  we  find  little  to  add  to  the  succinct 

definition  adopted  in  two  cases  arising  under  the  Corporation  Tax  Act  of  1909  ( Stratton’s 
Independence  v.  Howbert,  231  U.  S.  399,  415;  Doyle  v.  Mitchell  Bros.  Co.,  247  U.  S.  179, 
185)— “Income  may  be  defined  as  the  gain  derived  from  capital,  from  labor,  or  from  both 
combined,”  provided  it  be  understood  to  include  profit  gained  through  a sale  or  conversion 
of  capital  assets,  to  which  it  was  applied  in  the  Doyle  case  (pp.183,  185). 

5260  Brief  as  it  is,  it  indicates  the  characteristic  and  distinguishing  attribute  of  income 
essential  for  a correct  solution  of  the  present  controversy.  The  Government, 

although  basing  its  argument  upon  the  definition  as  quoted,  placed  chief  emphasis  upon 
the  word  “gain,”  which  was  extended  to  include  a variety  of  meanings;  while  the  signi- 
ficance of  the  ne  ;t  three  words  was  either  overlooked  or  misconceived.  “ Derived — from — ■ 
capital” ; — “the  gain — derived — from — capital,”  etc.  Here  we  have  the  essential  matter: 
not  a gain  accruing  to  capital,  not  a growth  or  increment  of  value  in  the  investment;  but  a 
gain,  a profit,  something  of  exchangeable  value  proceeding  from  the  property,  severed  from 
the  capital  however  invested  or  employed,  and  coming  in,  being  “derived,”  that  is,  received 
or  drawn  by  the  recipient  (the  taxpayer)  for  his  separate  use,  benefit  and  disposal; — that 
is  income  derived  from  property.  Nothing  else  answers  the  description. 

5261  The  same  fundamental  conception  is  clearly  set  forth  in  the  Sixteenth  Amendment 
— “incomes,  from  whatever  source  derived” — the  essential  thought  being  expressed 

with  a conciseness  and  lucidity  entirely  in  harmony  with  the  form  and  style  of  the  Con- 
stitution. 


Income  Tax 

Supplementary  Page  175. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


5262  Can  a stock  dividend,  considering  its  essential  character,  be  brought  within 
the  definition?  To  answer  this,  regard  must  be  had  to  the  nature  of  a corporation 

and  the  stockholder’s  relation  to  it.  We  refer,  or  course,  to  a corporation  such  as  the  one 
in  the  case  at  bar,  organized  for  profit,  and  having  a capital  stock  divided  into  shares  to 
which  a nominal  or  par  value  is  attributed. 

5263  Certainly  the  interest  of  the  stockholder  is  a capital  interest,  and  his  certificates 
of  stock  are  but  the  evidence  of  it.  They  state  the  number  of  shares  to  which 

he  is  entitled  and  indicate  their  par  value  and  how  the  stock  may  be  transferred.  They 
show  that  he  or  his  assignors,  immediate  or  remote,  have  contributed  capital  to  the  enter- 
prise, that  he  is  entitled  to  a corresponding  interest  proportionate  to  the  whole,  entitled 
to  have  the  property  and  business  of  the  company  devoted  during  the  corporate  existence 
to  attainment  of  the  common  objects,  entitled  to  vote  at  stockholders’  meetings,  to  receive 
dividends  out  of  the  corporation’s  profits  if  and  when  declared,  and,  in  the  event  of  liquida- 
tion, to  receive  a proportionate  share  of  the  net  assets,  if  any,  remaining  after  paying 
creditors.  Short  of  liquidation,  or  until  dividend  declared,  he  has  no  right  to  withdraw 
any  part  of  either  capital  or  profits  from  the  common  enterprise;  on  the  contrary,  his 
interest  pertains  not  to  any  part,  divisible  or  indivisible,  but  to  the  entire  assets,  business, 
and  affairs  of  the  company.  Nor  is  it  the  interest  of  an  owner,  since  the  corporation  has 
full  title,  legal  and  equitable,  to  the  whole.  The  stockholder  has  the  right  to  have  the  assets 
employed  in  the  enterprise,  with  the  incidental  rights  mentioned;  but,  as  stockholder,  he 
has  no  right  to  withdraw,  only  the  right  to  persist,  subject  to  the  risks  of  the  enterprise, 
and  looking  only  to  dividends  for  his  return.  If  he  desires  to  dissociate  himself  from  the 
company  he  can  do  so  only  by  disposing  of  his  stock. 

5264  For  bookkeeping  purposes,  the  company  acknowledged  a liability  in  form  to  the 
stockholders  equivalent  to  the  aggregate  par  value  of  their  stock,  evidenced  by 

a “capital  stock  account.”  If  profits  have  been  made  and  not  divided  they  create  additional 
bookkeeping  liabilities  under  the  head  of  “profit  and  loss,”  “undivided  profits,”  “surplus 
account,”  or  the  like.  None  of  these,  however,  gives  to  the  stockholders  as  a body,  much 
less  to  any  one  of  them,  either  a claim  against  the  going  concern  for  any  particular  sum  of 
money,  or  a right  to  any  particular  portion  of  the  assets  or  any  share  in  them  unless  or  until 
the  directors  conclude  that  dividends  shall  be  made  and  a part  of  the  company’s  assets 
segregated  from  the  common  fund  for  the  purpose.  The  dividend  normally  is  payable 
in  money,  under  exceptional  circumstances  in  some  other  divisible  property;  and  when  so 
paid,  then  only  (excluding,  of  course,  a possible  advantageous  sale  of  his  stock  or  winding- 
up  of  the  company)  docs  the  stockholder  realize  a profit  or  gain  which  becomes  his  separate 
property,  and  thus  derive  income  from  the  capital  that  he  or  his  predecessor  has  invested. 

5265  fn  the  present  case,  the  corporation  had  surplus  and  undivided  profits  invested  in 
plant,  property,  and  business,  and  required  for  the  purposes  of  the  corporation, 

amounting  to  about  $45,000,000,  in  addition  to  outstanding  capital  stock  of  $50,000,000.  In 
this  the  case  is  not  extraordinary.  The  profits  of  a corporation,  as  they  appear  upon  the  bal- 
ance sheet  at  the  end  of  the  year,  need  not  be  in  the  form  of  money  on  hand  in  excess  of  what 
is  required  to  meet  current  liabilities  and  finance  current  operations  of  the  company. 
Often,  especially  in  a growing  business,  only  a part,  sometimes  a small  part,  of  the  year’s 
profits  is  in  property  capable  of  division;  the  remainder  having  been  absorbed  in  the  acqui- 
sition of  increased  plant,  equipment,  stock  in  trade,  or  accounts  receivable,  or  in  decrease 
of  outstanding  liabilities.  When  only  a part  is  available  for  dividends,  the  balance  of 
the  year’s  profits  is  carried  to  the  credit  of  undivided  profits,  or  surplus,  or  some  other 
account  having  like  significance.  If  thereafter  the  company  finds  itself  in  funds  beyond 
current  needs  it  may  declare  dividends  out  of  such  surplus  or  undivided  profits;  otherwise 
it  may  go  on  for  years  conducting  a successful  business,  but  requiring  more  and  more 
working  capital  because  of  the  extension  of  its  operations,  and  therefore  unable  to  declare 
dividends  approximating  the  amount  of  its  profits.  Thus  the  surplus  may  increase  until 
it  equals  or  even  exceeds  the  par  value  of  the  outstanding  capital  stock.  This  may  be 
adjusted  upon  the  books  in  the  mode  adopted  in  the  case  at  bar— by  declaring  a “stock 
dividend.”  This,  however,  is  no  more  than  a book  adiustment,  in  essence  not  a dividend 
but  rather  the  opposite;  no  part  of  the  assets  of  the  company  is  separated  from  that  common 
fund,  nothing  distributed  except  paper  certificates  that  evidence  an  antecedent  increase 
in  the  value  of  the  stockholder’s  capital  interest  resulting  from  an  accumulation  of  profits 
by  the  company,  but  profits  so  far  absorbed  in  the  business  as  to  render  it  impracticabla 
to  separate  them  for  withdrawal  and  distribution.  In  order  to  make  the  adjustment,  e 
charge  is  made  against  surplus  account  with  corresponding  credit  to  capital  stock  account, 
equal  to  the  proposed  “dividend”;  the  new  stock  is  issued  against  this  and  the  certifi- 
cates delivered  to  the  existing  stockholders  in  proportion  to  their  previous  holdings.  This, 
however,  is  merely  bookkeeping  that  does  not  affect  the  aggregate  assets  of  the  corporation 
or  its  outstanding  liabilities;  it  affects  only  the  form,  not  the  essence,  of  the  “liability” 
acknowledged  by  the  corporation  to  its  own  shareholders,  and  this  through  a readjustment 
of  accounts  on  one  side  of  the  balance  sheet  only,  increasing  “capital  stock”  at  the  expense 
of  “surplus”;  it  does  not  alter  the  preexisting  proportionate  interest  of  any  stockholder 

Income  Tax. 

Supplementary  Page  176. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


or  increase  the  intrinsic  value  of  his  holding  or  of  the  aggregate  holdings  of  the  other  stock- 
holders as  they  stood  before.  1 he  new  certificates  simply  increase  the  number  of  the  shares 
with  consequent  dilution  of  the  value  of  each  share. 

• ’266  A stock  dividend  shows  that  the  company’s  accumulated  profits  have  been 
■l  ki  caPlta!lzed>  ‘nstead  of  distributed  to  the  stockholders  or  retained  as  surplus 
available  for  distribution  in  money  or  in  kind  should  opportunity  offer.  Far  from  being 
profits  of. tbe  stockholder,  it  tends  rather  to  postpone  such  realization,  in 
that  the  fund  represented  by  the  new  stock  has  been  transferred  from  surplus  to  capital 
and  no  longer  is  available  for  actual  distribution.  P ’ 

S267  The  essential  and  controlling  fact  is  that  the  stockholder  has  received  nothin? 

out  of  the  company  s assets  for  his  separate  use  and  benefit;  on  the  contrary 
every  dollar  of  his  original  investment,  together  with  whatever  accretions  and  accumula- 
tions  have  resulted  from  employment  of  his  money  and  that  of  the  other  stockholders  in 
the  business  of  the  company,  still  remains  the  property  of  the  company,  and  subject  to 
business  ns k,s  which  may  result  in  wiping  out  the  entire  investment.  Having  regard  to 
the  very  truth  of  the  matter,  to  substance  and  not  to  form,  he  has  received  nothing  that 
answers  the  definition  of  income  within  the  meaning  of  the  Sixteenth  Amendment 
b268  Being  concerned  only  with  the  true  character  and  effect  of  such  a dividend  when 
A-  ■ A ,lawfull>r  made>  we  lay  aside  the  question  whether  in  a particular  case  a stock 
dividend  may  be  authorized  by  the  local  law  governing  the  corporation,  or  whether  the 

on^r^  Pr°fitS  may  bC  thf  rejult  °f  cojrect  judgment  and  proper  business  policy 
on  the  part  of  its  management,  and  a due  regard  for  the  interest  of  the  stockholders.  And 
we  are  considering  the  taxability  of  bona  fide  stock  dividends  only. 

S2G9  We  are  clear  that  not  only  does  a stock  dividend  really  take  nothin?  from  the 
♦ Pr jperty  °f  the  forP°rat;.0n  and  add  nothing  to  that  of  the  shareholder,  but  that 
the  antecedent  accumulation  of  profits  evidenced  thereby,  while  indicating  that  the 

nnfrrtrdej  'S  the  beca.use  of  a.n  ‘grease  of  his  capital,  at  the  same  time  shows  he  has 

not  realized  or  received  any  income  in  the  transaction. 

3270  It  is  said  that  a stockholder  may  sell  the  new  shares  acquired  in  the  stock  divi- 

, dend;  an?.  so  he  lf  h«  can cfind  a buyer.  It  is  equally  true  that  if  he  does  sell 
and  in  doing  so  realizes  a profit,  such  profit,  like  any  other,  is  income,  and  so  far  as  it  mav  have 
arisen  since  the  Sixteenth  Amendment  is  taxable  by  Congress  without  apportionment  The 
same  would  be  true  were  he  to  sell  some  of  his  original  shares  at  a profit.  But  if  a'share- 
holder  sells  dividend  stock  he  necessarily  disposes  of  a part  of  his  capital  interest  iust  at 
if  he  should  sell  a part  of  his  old  stock,  either  before  or  after  the  dividend  What  he 

?k§er  entlflers  hulm  t0  the  sa™e  Proportion  of  future  dividends  as  before  the  sale 
His  part  in  the  control  of  the  company  likewise  is  diminished.  Thus,  if  one  holding  $60  000 
out  of  a total  $100  000  of  the  capital  stock  of  a corporation  shodd  receive illwSK 
stockholders  a 50  per  cent,  stock  dividend,  and  should  sell  his  part,  he  thereby 
would  be  reduced  from  a majority  to  a minority  stockholder,  having  six-fifteenths  instead 
of  six-tenths  of  the  total  stock  outstanding.  A corresponding  and  proportionate decrease 
dend^n^'  ffr<kSt-an^  1D  ,V°tmg  Powfr  would  befall  a minority  holder  should  he  sell  divi- 
df",d  1 • k’  lt  -btln8  in  tbe  nat.ure  of  things  impossible  for  one  to  dispose  of  any  part  of 
such  an  issue  without  a proportionate  disturbance  of  the  distribution  of  the  entire  caoitai 
stock  and  a like  diminution  of  the  seller’s  comparative  voting  power-that “right  me- 

fin'll!  °f  r‘8^tSf  ‘Vhe  contro1  of  a corporation.  Yet,  without  selling,  the  shareholder 
unkss  possessed  of  other  resources,  has  not  the  wherewithal  to  pay  an  income  tax  unon 
fa!  dl^lde.ud  stock.  Nothing  could  more  clearly  show  that  to  tax  a stock  dividend  isP  to 
tax  a capital  increase,  and  not  income,  than  this  demonstration  that  in  the  nature  of 
things  it  requires  conversion  of  capital  in  order  to  pay  the  tax. 

S27  1 Throughout  the  argument  of  the  Government,  in  a variety  of  forms,  runs  the  funda* 

“incnm,”1!!13  3 mentloned ~ a fa>lure  to  appraise  correctly  the  force  of  the  term 

income  as  used  in  the  Sixteenth  Amendment,  or  at  least  to  give  practical  effect  to  it 
Thus,  the  Government  contends  that  the  tax  “is  levied  on  income  derived  from  corporate 
earnings,  when  in  truth  the  stockholder  has  “derived”  nothing  except  paper  ceSaS 
which  so  far  as  they  have  any  effect,  deny  him  present  participation  & such eaS. 
t contends  that  the  tax  may  be  laid  when  earnings  “are  received  by  the  stockholder” 
whereas  he  has  received  none;  that  the  profits  are  “distributed  by  means  of  a stock  dNi- 
dend,  although  a stock  dividend. distributes  no  profits;  that  under  the  Act  of  1916  “the 
** hhe  8toc^ho,de.r  9 9hare  »?  corporate  earnings,”  when  in  truth  a stockholder  ha* 
f.  ' f,  fhare’  and  re,:elve9  none  ln  a stock  dividend;  that  “the  profits  are  segregated 
from  his  former  capital,  and  he  has  a separate  certificate  representing  his  invested  profit, 
or  gains,  whereas  there  has  been  no  segregation  of  profits,  nor  has  he  any  separate^erti- 
ficate  representing  a personal  gain,  since  the  certificates,  new  and  old,  are  alike  in  what 
CaPjta  i!nteJes,t  ln  the  ent!re  concern*  of  the  corporation. 

3272  We  have  no  doubt  of  the  power  or  duty  of  a court  to  look  through  the  form  of 

fo  a«rf.rftbe  Cfcr%rati?\aild  deter"?'.ne  the  question  of  the  stockholder’s  right,  in  order 
to  ascertain  whether  he  has  received  income  taxable  by  Congress  without  apportionment. 

Income  Tax 

Supplementary  Page  177. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


But,  looking  through  the  form,  we  cannot  disregard  the  essential  truth  disclosed;  ignore 
the  substantial  difference  between  corporation  and  stockholder;  treat  the  entire  organi- 
zation as  unreal;  look  upon  stockholders  as  partners,  when  they  arc  not  such;  treat  them 
as  having  in  equity  a right  to  a partition  of  the  corporate  assets,  when  they  have  none; 
and  indulge  the  fiction  that  they  have  received  and  realized  a share  of  the  profits  of  the 
company  which  in  truth  they  have  neither  received  nor  realized.  We  must  treat  the  cor- 
poration as  a substantial  entity  separate  from  the  stockholder,  not  only  because  such  is  the 
practical  fact  but  because  it  is  only  by  recognizing  such  separateness  that  any  dividend- 
even  one  paid  in  money  or  property — can  be  regarded  as  income  of  the  stockholder.  Did 
we  regard  corporation  and  stockholders  as  altogether  identical,  there  would  be  no  income 
except  as  the  corporation  acquired  it;  and  while  this  would  be  taxable  against  the  corporation 
as  income  under  appropriate  provisions  of  law,  the  individual  stockholders  could  not 
be  separately  and  additionally  taxed  with  respect  to  their  several  shares  even  when  divided, 
since  if  there  were  entire  identity  between  them  and  the  company  they  could  not  be  re- 
garded as  receiving  anything  from  it,  anymore  than  if  one’s  money  were  to  be  removed 
from  one  pocket  to  another. 

5273  Conceding  that  the  mere  issue  of  a stock  dividend  makes  the  recipient  no  richer 
than  before,  the  Government  nevertheless  contends  that  the  new  certificates 

measure  the  extent  to  which  the  gains  accumulated  by  the  corporation  have  made  him  the 
richer.  There  are  two  insuperable  difficulties  with  this:  In  the  first  place,  it  would  depend 
upon  how  long  he  had  held  the  stock  whether  the  stock  dividend  indicated  the  extent  to 
which  he  had  been  enriched  by  the  operations  of  the  company;  unless  he  had  held  it 
throughout  such  operations  the  measure  would  not  hold  true.  Secondly,  and  more  impor- 
tant  for  present  purposes,  enrichment  through  increase  in  value  of  capital  investment  is 
not  income  in  any  proper  meaning  of  the  term. 

5274  The  complaint  contains  averments  respecting  the  market  prices  of  stock  such  as 
plaintiff  held,  based  upon  sales  before  and  after  the  stock  dividend,  tending  to 

show  that  the  receipt  of  the  additional  1,100  shares  did  not  substantially  change  the  market 
value  of  her  entire  holdings.  This  tends  to  show  that  in  this  instance  market  quotations 
reflected  intrinsic  values — a thing  they  do  not  always  do.  But  we  regard  the  market 
prices  of  the  securities  as  an  unsafe  criterion  in  an  inquiry  such  as  the  present,  when  the 
question  must  be,  not  what  will  the  thing  sell  for,  but  what  is  it  in  truth  and  in  essence. 

5275  It  is  said  there  is  no  difference  in  principle  between  a simple  stock  dividend  and  a 
case  where  stockholders  use  money  received  as  cash  dividends  to  purchase,  addi- 
tional stock  contemporaneously  issued  by  the  corporation.  But  an  actual  cash  dividend, 
with  a real  option  to  the  stockholder  either  to  keep  the  money  for  his  own  or  to  reinvest 
it  in  new  shares,  would  be  as  far  removed  as  possible  from  a true  stock  dividend,  such  as 
the  one  we  have  under  consideration,  where  nothing  of  value  is  taken  from  the  company’* 
assets  and  transferred  to  the  individual  ownership  of  the  several  stockholders  and  thereby 
subjected  to  their  disposal. 

S27  6 The  Government’s  reliance  upon  the  supposed  anaolgy  between  a dividend  of 
the  corporation’s  own  shares  and  one  made  by  distributing  shares  owned  by  it  in 
the  stock  of  another  company,  calls  for  no  comment  beyond  the  statement  that  the  latter 
distributes  assets  of  the  company  among  the  shareholders  while  the  former  does  not;  and 
for  no  citation  of  authority  except  Peabody  v.  Eisner,  247  U.  S.  347,  349-350. 

S277  Two  recent  decisions,  proceeding  from  courts  of  high  jurisdiction,  are  cited  in 
support  of  the  position  of  the  Government. 

S27  8 Swan  Brewery  Co.,  Ltd.  v.  Rex,  [1914]  A.  C.  231,  arose  under  the  Dividend  Duties 
Act  of  Western  Australia,  which  provided  that  “dividend”  should  include  “every 
dividend,  profit,  advantage,  or  gain  intended  to  be  paid  or  credited  to  or  distributed  among 
any  members  or  directors  of  any  company,”  except,  etc.  There  was  a stock  dividend, 
the  new  shares  being  allotted  among  the  shareholders  pro  rata;  and  the  question  was 
whether  this  was  a distribution  of  a dividend  within  the  meaning  of  the  act.  The  Judicial 
Committee  of  the  Privy  Council  sustained  the  dividend  duty  upon  the  ground  that,  although 
“in  ordinary  language  the  new  shares  would  not  be  called  a dividend,  nor  would  the  allot- 
ment of  them  be  a distribution  of  a dividend,”  yet,  within  the  meaning  of  the  act,  such 
new  shares  were  an  “advantage”  to  the  recipients.  There  being  no  constitutional  restri- 
tion  upon  the  action  of  the  lawmaking  body,  the  case  presented  merely  a question  of  sta- 
tutory construction,  and  manifestly  the  decision  is  not  a precedent  for  the.  guidance  of  this 
court  when  acting  under  a duty  to  test  an  act  of  Congress  by  the  limitations  of  a written 
Constitution  having  superior  force. 

S279  In  Tax  Commissioner  v.  Putnam  (1917),  227  Mass.  522,  it  was  held  that  the 
44th  Amendment  to  the  Constitution  of  Massachusetts,  which  conferred  upon 
the  Legislature  full  power  to  tax  incomes,  “must  be  interpreted  as  including  every  item 
which  by  any  reasonable  understanding  can  fairly  be  regarded  as  income  (pp. 526,  531); 
and  that  under  it  a stock  dividend  was  taxable  as  income,  the  court  saying  (p.  535):  In 

essence  the  thing  which  has  been  done  is  to  distribute  a symbol  representing  an. accumula- 
tion of  profits,  which  instead  of  being  paid  out  in  cash  is  invested  in  the  business,  thus 

Income  Tax 

Supplementary  Page  178. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


augmenting  its  durable  assets.  In  this  aspect  of  the  case  the  substance  of  the  transaction 
is  no  different  from  what  it  would  be  if  a cash  dividend  had  been  declared  with  the  privilege 
of  subscription  to  an  equivalent  amount  of  new  shares.”  We  cannot  accept  this  reasoning. 
Evidently  in  ord  r to  give  a sufficiently  broad  sweep  to  the  new  taxing  provision,  it  was 
deemed  necessary  to  take  the  symbol  for  the  substance,  accumulation  for  distribution, 
capital  accretion  for  its  opposite;  while  a case  where  money  is  paid  into  the  hand  of  the 
stockholder  with  an  option  to  buy  new  shares  with  it,  followed  by  a hypothetical  acceptance 
of  the  option,  was  regarded  as  identical  in  substance  with  a case  where  the  stockholder 
receives  no  money  and  has  no  option.  The  Massachusetts  court  was  not  under  an  obligation, 
like  the  one  which  binds  us,  of  applying  a constitutional  amendment  in  the  light  of  other 
constitutional  provisions  that  stand  in  the  way  of  extending  it  by  construction. 

5280  Upon  the  second  argument,  the  Government,  recognizing  the  force  of  the  decision 
in  Towne  v.  Eisner,  supra,  and  virtually  abandoning  the  contention  that  a stock 

dividend  increases  the  interest  of  the  stockholder  or  otherwise  enriches  him,  insisted  as 
an  alternative  that  by  the  true  construction  of  the  Act  of  1916  the  tax  is  imposed  not 
upon  the  stock  dividend  but  rather  upon  the  stockholder’s  share  of  the  undivided  profits 
previously  accumulated  by  the  corporation;  the  tax  being  levied  as  a matter  of  convenience 
at  the  time  such  profits  become  manifest  through  the  stock  dividend.  If  so  construed, 
would  the  Act  be  constitutional? 

5281  That  Congress  has  power  to  tax  shareholders  upon  their  property  interests  in 
.the.  stock  of  corporations  is  beyond  question;  and  that  such  interests  might  be 

valued  in  view  of  the  condition  of  the  company,  including  its  accumulated  and  undivided 
profits,  is  equally  clear.  But  that  this  would  be  taxation  of  property  because  of  ownership, 
and  hence  would  require  apportionment  under  the  provisions  of  the  Constitution,  is 
settled  beyond  peradventure  by  previous  decisions  of  this  court. 

5282  The  Government  relies  upon  Collector  v.  Hubbard  (1870),  12  Wall.  1,  17,  which 
arose  under  sec.  117  of  the  Act  of  June  30,  1864  (Ch.  173;  13  Stat.  223,  282), 

providing  that  ‘‘the  gains  and  profits  of  all  companies,  whether  incorporated  or  partner- 
ship, other  than  the  companies  specified  in  this  section,  shall  be  included  in  estimating  the 
annual,  gains,  profits,  or  income,  of  any  person  entitled  to  the  same,  whether  divided  or 
otherwise.”  The  court  held  an  individual  taxable  upon  his  proportion  of  the  earnings  of 
a corporation  although  not  declared  as  dividends  and  although  invested  in  assets  not  in 
their  nature  divisible.  Conceding  that  the  stockholder  for  certain  purposes  had  no  title 
prior  to  dividend  declared,  the  court  nevertheless  said  (p.  18):  “Grant  all  that,  still  it  is 
true  that  the  owner  of  a share  of  stock  in  a corporation  holds  the  share  with  all  its  incidents, 
and  that  among  those  incidents  is  the  right  to  receive  all  future  dividends,  that  is,  his  pro- 
portional share  of  all  profits  not  then  divided.  Profits  are  incident  to  the  share  to  which 
the. owner  at  once  becomes  entitled  provided  he  remains  a member  of  the  corporation  until 
a dividend  is  made.  Regarded  as  an  incident  to  the  shares  undivided  profits  are  property 
of  the  shareholder,  and  as  such  are  the  proper  subject  of  sale,  gift,  or  devise.  Undivided 
profits  invested  in  real  estate,  machinery,  or  raw  material  for  the  purpose  of  being  manu- 
factured are  investments  in  which  the  stockholders  are  interested,  and  when  such  profits 
are  actually  appropriated  to  the  payment  of  the  debts  of  the  corporation  they  serve  to  in- 
crease the  market  value  of  the  shares,  whether  held  by  the  original  subscribers  or  by 
assignees.”  In  so  far  as  this  seems  to  uphold  the  right  of  Congress  to  tax  without  appor- 
tionment a stockholder’s  interest  in  accumulated  earnings  prior  to  dividend  declared,  it 
must  be  regarded  as  overruled  by  Pollock  v.  Farmers  Loan  y Trust  Co.  158  U.  S.  601,  627, 
628,  637.  Conceding.  Collector  v.  Hubbard  was  inconsistent  with  the  doctrine  of  that 
case,  because  it  sustained  a direct  tax  upon  property  not  apportioned  among  the  States, 
the  Government  nevertheless  insists  that  the  Sixteenth  Amendment  removed  thi  sobstacle, 
so  that  now  the  Hubbard  case  is  authority  for  the  power  of  Congress  to  levy  a tax  on  the 
stockholder’s  share  in  the  accumulated  profits  of  the  corporation  even  before  division  by 
the  declaration  of  a dividend  of  any  kind.  Manifestly  this  argument  must  be  rejected, 
since  the  Amendment  applies  to  income  only,  and  what  is  called  thes  tockholder’s  share 
in  the  accumulated  profits  of  the  company  is  capital,  not  income.  As  we  have  pointed  out, 
a stockholder  has  no  individual  share  in  accumulated  profits,  nor  in  any  particular  part 
of  the  assets  of  the  corporation,  prior  to  dividend  declared. 

£>283  Thus,  from  every  point  of  view,  we  are  brought  irresistibly  to  the  conclusion 
that  neither  under  the  Sixteenth  Amendment  nor  otherwise  has  Congress  power 
to  tax  without  apportionment  a true  stock  dividend  made  lawfully  and  in  good  faith, 
or  the  accumulated,  profits  behind  it,  as  income  of  the  stockholder.  The  Revenue  Act 
of  1916,  in  so  far  as  it  imposes  a tax  upon  the  stockholder  because  of  such  dividend,  violates 
the  provisions  of  Article  I,  Section  2,  clause  3,  and  Article  I,  Section  9,  Clause  4,  of  the 
Constitution,  and  to  this  extent  is  invalid  notwithstanding  the  Sixteenth  Amendment. 

Judgment  Affirmed, 


Income  Tax 

Supplementary  Page  179. 


SUPREME  COURT  DECISIONS -1916-1917  ACTS. 


Mr.  Justice  Holmeju  dissenting.  (Eisner  vs.  Macomber.) 

S284  I think  that  Towne  v.  Eisner,  245  L'.  S.  414,  was  right  in  its  reasoning  and  result 
and  that  on  sound  principles  the  stock  dividend  was  not  income.  But  it  was 
clearly  intimated  in  that  case  that  the  construction  of  the  statute  then  before  the  Court 
might  be  different  from  that  of  the  Constitution,  245  L.  S.  425.  1 think  that  the  word 

“incomes”  in  the  Sixteenth  Amendment  should  be  read  in  “a  sense  most  obvious  to  the 
common  understanding  at  the  time  of  its  adoption.”  Bishop  v.  Stale,  149  Jnd.  223,  230; 
State  v.  Butler,  70  l-  la.  102,  133.  For  it  was  for  public  adoption  that  it  was  proposed. 
McCulloch  v.  M aryland,  4 Wheat.  316,  407.  The  known  purpose  of  this  Amendment 
was  to  get  rid  of  nice  ciucstions  as  to  what  might  be  direct  taxes,  and  1 cannot  doubt  that 
most  people  not  lawyers  would  suppose  when  they  voted  for  it  that  they  put  a question 
like  the  present  to  rest.  J am  of  opinion  that  the  Amendment  justifies  the  tax.  See  Tax 
Commissioner  v.  Putnam,  227  Mass.  522,  532,  533. 

Mr.  Justice  Day  concurs  in  this  opinion. 


Mr  Justice  Brandies  delivered  the  following  dissenting  opinion,  in  which  Mr.  Justice 
Clarke  concurs.  (Eisner  vs.  Macomber.) 

5285  Financiers,  with  the  aid  of  lawyers,  devised  long  ago  two  different  methods  by 
which  a corporation  can,  without  increasing  its  indebtedness,  keep  for  corporate 

purposes  accumulated  profits,  and  yet,  in  eifect,  distribute  these  profits  among  its  stock- 
holders. One  method  is  a simple  one.  The  capital  stock  is  increased;  the  new  stock 
is  paid  up  with  the  accumulated  profits;  and  the  new  shares  of  paid-up  stock  are  then 
distributed  among  the  stockholders  pro  rata  as  a dividend.  If  the  stockholder  prefers 
ready  money  to  increasing  his  holding  of  the  stock  in  the  company,  he  sells  the  new  stock 
received  as  a dividend.  The  other  method  is  slightly  more  complicated.  Arrangements 
are  made  for  an  increase  of  stock  to  be  offered  to  stockholders  pro  rata  at  par  and,  at  the 
same  time,  for  the  payment  of  a cash  dividend  equal  to  the  amount  which  the  stockholder 
will  be  required  to  pay  to  the  company,  if  he  avails  himself  of  the  right  to  subscribe  for  his 
pro  rata  of  the  new  stock.  If  the  stockholder  takes  the  new  stock,  as  is  expected,  he  may 
endorse  the  dividend  check  received  to  the  corporation  and  thus  pay  for  the  new  stock. 
In  order  to  ensure  that  all  the  new  stock  so  offered  will  be  taken,  the  price  at  which  it  is 
offered  is  fixed  far  below  what  it  is  believed  will  be  its  market  value.  If  the  stockholder 
prefers  ready  money  to  an  increase  of  his  holdings  of  stock,  he  may  sell  his  right  to  take 
new  stock  pro  rata,  which  is  evidenced  by  an  assignable  instrument.  In  that  event  the 
purchaser  of  the  rights  repays  to  the  corporation,  as  the  subscription  price  of  the  new  stock, 
an  amount  equal  to  that  which  it  had  paid  as  a cash  dividend  to  the  stockholder. 

5286  Both  of  these  methods  of  retaining  accumulated  profits  while  in  effect  distributing 
them  as  a dividend  had  been  in  common  use  in  the  United  States  for  many  years 

prior  to  the  adoption  of  the  Sixteenth  Amendment.  They  were  recognized  equivalents. 
Whether  a particular  corporation  employed  one  or  the  other  method  was  determined 
sometimes  by  requirements  of  the  law  under  which  the  corporation  was  organized;  some- 
times it  was  determined  by  preferences  of  the  individual  officials  of  the  corporation;  and 
sometimes  by  stock  market  conditions.  Whichever  method  was  employed  the  resultant 
distribution  of  the  new  stock  was  commonly  referred  to  as  a stock  dividend.  How  these  two 
methods  have  been  employed  may  be  illustrated  by  the  action  in  this  respect  (as  reported 
in  Moody’s  Manual,  1918  Industrial,  and  the  Commercial  and  Financial  Chronicle),  of 
some  of  the  Standard  Oil  companies,  since  the  disintegration  pursuant  to  the  decision  of 
this  court  in  1911.  Standard  Oil  Co.  v.  United  States,  221  U.  S.  1. 

5287  («)  Standard  Oil  Co.  (of  Indiana),  an  Indiana  corporation.  It  had  on  December 
31,  1911,  $1,000,000  capital  stock  (all  common),  and  a large  surplus.  On  May  15, 

1912,  it  increased  its  capital  stock  to  $30,000,000,  and  paid  a simple  stock  dividend  of 
2900  per  cent,  in  stock  to  stockholders  of  record  May  15,  1912.1 * * * 

5288  (h)  Standard  Oil  Co.  (of  Nebraska),  a Nebraska  corporation.  Jt  had  on  December 
31,  1911,  $600,000  capital  stock  (all  common),  and  a substantial  surplus.  On  April 

25,  1912,  it  paid  a simple  stock  dividend  of  33l/$  per  cent.,  increasing  the  outstanding 
capital  to  $800,000.  During  the  calendar  year  1912  it  paid  cash  dividends  aggregating 
20  per  cent.;  but  it  earned  considerably  more,  and  had  at  the  close  of  the  year  again  a sub- 
stantial surplus.  On  June  20,  1913,  it  declared  a further  stock  dividend  of  25  per  cent., 
thus  increasing  the  capital  to  $1,000,000  5 

S28S  (c)  The  Standard  Oil  Co.  (of  Kentucky),  a Kentucky  corporation.  It  had  on 
December  31,  1913,  $1,000,000  capital  stock  (all  common)  and  $3,701,710  surplus. 
Of  this  surplus  $902,457  had  been  earned  during  the  calendar  year  1913,  the  net  profits 


1 Moodys,  p.  1545;  Commercial  and  Financial  Chronicle,  Vol.  94,  p.  851;  Vol.  98, 

pp.  1005,  1076. 

* Moodys,  p.  1548;  Commercial  and  Financial  Chronicle,  Vol.  94,  p.  771;  Vol.  96, 
p.  1428;  Vol.  97,  p.  1434;  Vol.  98,  p.  1541. 

Income  Tax 

Supplementary  Page  180. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


of  that  year  having  been  $1,002,457  and  the  dividends  paid  only  $100,000  (10  per  cent.). 
On  December  22,  1 9 1 3,  a cash  dividend  of  $200  per  share  was  declared  payable  on  February 
14,  1914,  to  stockholders  of  record  December  31,  1913;  and  these  stockholders  were  offered 
the  right  to  subscribe  for  an  equal  amount  of  new  stock  at  par  and  to  apply  the  cash  divi- 
dend in  payment  therefor.  The  outstanding  stock  was  thus  increased  to  $3,000,000.  During 
the  calendar  years  1914,  1915  and  1916,  quarterly  dividends  were  paid  on  this  stock  at  an 
annual  rate  of  between  15  per  cent,  and  20  per  cent.,  but  the  company’s  surplus  increased 
by  $2,347,614,  so  that  on  December  31,  1916,  it  had  a large  surplus  over  its  $3,000,000 
capital  stock.  On  December  15,  1916,  the  company  issued  a circular  to  the  stockholders, 

saying:  . 

“The  company’s  business  for  this  year  has  shown  a very  good  increase  in  volume  and  a 
proportionate  increase  in  profits,  and  it  is  estimated  that  by  Jan.  1,  1917,  the  company 
will  have  a surplus  of  over  $4,000,000.  The  board  feels  justified  in  stating  that  if  the  propo- 
sition to  increase  the  capital  stock  is  acted  on  favorably,  it  will  be  proper  in  the  near  future 
to  declare  a cash  dividend  of  100%;  and  to  allow  stockholders  the  privilege  pro  rata 
according  to  their  holdings,  to  purchase,  the  new  stock  at  par,  the  plan  being  to  allow  the 
stockholders,  if  they  desire  to  use  their  cash  dividend  to  pay  for  the  new  stock.” 

S290  Fhe  increase  of  stock  was  voted.  The  company  then  paid  a cash  dividend  of 
100  per  cent.,  payable  May  1,  1917,  again  offering  to  such  stockholders  the  right 
to  subscribe  for  an  equal  amount  of  new  stock  at  par  and  to  apply  the  cash  dividend  in 


payment  therefor. 

5291  Moodys  Manual,  describing  the  transaction  with  exactness,  says  first  that  the 
stock  was  increased  from  $3,000,000  to  $6,000,000,  “a  cash  dividend  of  100%, 

payable  May  1,  1917,  being  exchanged  for  one  share  of  new  stock,  the  equivalent  of  a 
100%  stock  "dividend.”  But  later  in  the  report  giving,  as  customary  in  the  Manual,  the 
dividend  record  of  the  company,  the  Manual  says:  “A  stock  dividend  of  200%  was  paid 
Feb.  14,  1914,  and  one  of  100%'on  May  1,  1917.”  And  in  reporting  specifically  the  income 
account  of  the  company  for  a series  of  years  ending  December  31,  covering  net  profits, 
dividends  paid  and  surplus  for  the  year,  it  gives,  as  the  aggregate  of  dividends  for  the  year 
1917,  $660,000;  (which  was  the  aggregate  paid  on  the  quarterly  cash  dividend— 5 per 
cent.  January  and  April;  6 per  cent.  July  and  October);  and  adds  in  a note:  “In  addition 
a stock  dividend  of  100%  was  paid  during  the  year.”3  The  Wall  Street  Journal  of  May  2, 
1917,  p.  2,  quotes  the  1917  “High”  price  for  Standard  Oil  of  Kentucky  as  “375  Ex.  Stock 

Dividend.”  . . ’ . 

5292  It  thus  appears  that  among  financiers  and  investors  the  distribution  of  the  stock 
by  whichever  method  effected  is  called  a stock  dividend;  that  the  two  methods 

by  which  accumulated  profits  are  legally  retained  for  corporate  purposes  and  at  the  same 
time  distributed  as  dividends  are  recognized  by  them  to  be  equivalents;  and  that  the 
financial  results  to  the  corporation  and  to  the  stockholders  of  the  two  methods  are  sub- 
stantially the  same— unless  a difference  results  from  the  application  of  the  federal  income 
tax  law.  ^ 

5293  3\  ' rs.  Macomber,  a citizen  and  resident  of  New  York,  was,  in  the  year  1916,  a stock- 
holder in  the  Standard  Oil  Company  (of  California),  a corporation  organized 

under  the  laws  of  California  and  having  its  principal  place  of  business  in  that  State.  During 
that  year  she  received  from  the  company  a stock  dividend  representing  profits  earned  since 
March  1,  1913.  The  dividend  was  paid  by  direct  issue  of  the  stock  to  her  according  to  the 
simple  method  described  above,  pursued  also  by  the  Indiana  and  Nebraska  companies. 
In  1917  she  was  taxed  under  the  federal  law  on  the  stock  dividend  so  received  at  its  par 
value  of  $100  a share,  as  income  received  during  the  year  1916.  Such  a stock  dividend  is 
income  as  distinguished  from  capital  both  under  the  law  of  New  York  and  under  the  law 
of  California;  because  in  both  States  every  dividend  representing  profits  is  deemed  to  be 
income  whether  paid  in  cash  or  in  stock.  It  had  been  so  held  in  New  York,  where  the 
question  arose  as  between  life-tenant  and  remainderman,  Lowery  v.  Farmers  Loan  & Trust 
Company , 172  N.  Y.  137;  Matter  of  Osborne,  209  N.  Y.  450;  and  also,  where  the  question 
arose  in  matters  of  taxation,  People  v.  Glynn,  130  N.  Y App.  Div  332, ■■  198  N Y 605. 
It  has  been  so  held  in  California,  where  the  question  appears  to  have  arisen  only  in  con- 
troversies between  life-tenant  and  remainderman.  Estate  of  Duf field,  58  Calif.  Dec.  97; 
183  Pac.  337.  . , , , , 

5294  It  is  conceded  that  if  the  stock  dividend  paid  to  Mrs.  Macomber  nad  been  made 
by  the  more  complicated  method  pursued  by  the  Standard  Oil  Company  of 

Kentucky^  that  is,  issuing  rights  to  take  new  stock  pro  rata  and  paying  to  each  stockholder 
simultaneously  a dividend  in  cash  sufficient  in  amount  to  enable  him  to  pay  for  this  pro- 


‘Moodvs,  p.  1547;  Commercial  and  Financial  Chronicle,  Vol.  97,  pp.  1589,  1827,  1903; 
Vol.  98,  pp.  76,  457;  Vol.  103,  p.  2348.  Poor’s  Manual  of  Industrials  (1918),  p.  2240,  in 
giving  the  “Comparative  Income  Account”  of  the  company  describes  the  1914  dividend 
as  “Stock  Dividend  paid  (200%)— $2,000,000”;  and  describes  the  1917  dividend  a» 
“$3,000,000  special  cash  dividend.” 


Income  Tax 

Supplementary  Page  181. 


SUPREME  COURT  DECISIONS — 1916-1917  ACTS. 


rata  of  new  stock  to  be  purchased— the  dividend  so  paid  to  him  would  have  been  taxable 
as  income,  whether  lie  retained  the  cash  or  whether  he  returned  it  to  the  corporation  in 
payment  for  his  pro  rata  of  new  stock.  But  it  is  contended  that,  because  the  simple  method 
was  adopted  of  having  the  new  stock  issued  direct  to  the  stockholders  as  paid-up  stock, 
the  new  stock  is  not  be  be  deemed  income,  whether  she  retained  it  or  converted  into  it  cash 
by  sale,  if  such  a dillerent  result  can  how  merely  from  the  difference  in  the  method  pur- 
sued, it  must  be  because  Congress  is  without  power  to  tax  as  income  of  the  stockholder  either 
the  stock  received  under  the  latter  method  or  the  proceeds  of  its  sale;  for  Congress  has,  by 
the  provisions  in  the  Revenue  Act  of  1916,  expressly  declared  its  purpose  to  make  stock 
dividends,  by  which  ever  method  paid,  taxable  as  income. 

5295  The  Sixteenth  Amendment  proclaimed  bebruary  25,  1913,  declares: 

1 he  Congress  shall  have  power  to  lay  and  collect  taxes  on  incomes  from  whatever 
source  derived,  without  apportionment  among  the  several  States  and  without  regard  to 
any  census  or  enumeration.” 

5296  The  Revenue  Act  of  September  8,  1916,  c.  463,  39  Stat.  756,  757,  provided: 

i hat  the  term  dividends  as  used  in  this  title  shall  be  held  to  mean  any  distribution 
made  or  ordered  to  be  made  by  a corporation,  * * * out  of  its  earnings  or  profits 

accrued  since  March  first,  nineteen  hundred  and  thirteen,  and  payable  to  its  shareholders, 
whether  in  cash  or  in  stocks  of  the  Corporation  * * * which  dividend  shall  be  consid- 

ered income,  to  the  amount  of  its  cash  value.” 

5297  Hitherto  powers  conferred  upon  Congress  by  the  Constitution  have  been  liberally 
construed,  and  have  been  held  to  extend  to  every  means  appropriate  to  attain  the 

end  sought,  in  determining  the  scope  of  the  power  the  substance  of  the  transaction, 
not  its  form  has  been  regarded.  Martin  v.  Hunter,  1 Wheaton  304,  326;  McCullough  v. 
Maryland,  4 Wheaton  316,  407,  415;  Brown  v.  Maryland,  12  W;heaton  419,  446;  Craig 
v.  Missouri,  4 Pet.  410,  433;  Jarrolt  v.  Moberly,  103  U.  S.  580,  585,  587;  Legal  Tender 
Case,  110  U.  S.  421;  Lithograph  Co.  v.  Sarony,  111  U.  S.  53,  58;  United  States  v.  Realty 
Co.,  163  U.  S..427,  440,  441,  442;  South  Carolina  v.  United  States,  199  U.  S.  437,  448-9. 
Is  there  anything  in  the  phraseology  of  the  Sixteenth  Amendment  or  in  the  nature  of  cor- 
porate dividends  which  should  lead  to  a departure  from  these  rules  of  construction  and 
compel  this  court  to  hold,  that  Congress  is  powerless  to  prevent  a result  so  extraordinary 
as  that  here  contended  for  by  the  stockholder? 

5298  First:  The  term  “income,”  when  applied  to  the  investment  of  the  stockholder 
in  a corporation,  had,  before  the  adoption  of  the  Sixteenth  Amendment,  been 

commonly  understood  to  mean  the  returns  from  time  to  time  received  by  the  stockholder 
from  gains  or  earnings  of  the  corporation.  A dividend  received  by  a stockholder  from  a 
corporation  may  be  either  in  distribution  of  capital  assets  or  in  distribution  of  profits. 
Whether  it  is  the  one  or  the  other  is  in  no  way  affected  by  the  medium  in  which  it  is  paid, 
nor  by  the  method  or  means  through  which  the  particular  thing  distributed  as  a dividend 
was  procured.  If  the  dividend  is  declared  payable  in  cash,  the  money  with  which  to  pay 
it  is  ordinarily  taken  from  surplus  cash  in  the  treasury.  But  (if  there  are  profits  legally 
available  for  distribution  and  the  law  under  which  the  company  was  incorporated  so  per- 
mits) the  company  may  raise  the  money  by  discounting  negotiable  paper;  or  by  selling 
bonds,  scrip  or  stock  of  another  corporation  then  in  the  treasury;  or  by  selling  its  own 
bonds,  scrip  or  stock  then  in  the  treasury;  or  by  selling  its  own  bonds,  scrip  or  stock 
issued  expressly  for  that  purpose.  How  the  money  shall  be  raised  is  wholly  a matter  of 
financial  management.  I he  manner  in  which  it  is  raised  in  no  way  affects  the  question 
whether  the  dividend  received  by  the  stockholder  is  income  or  capital;  nor  can  it  conceiv- 
ably affect  the  question  whether  it  is  taxable  as  income. 

5299  Likewise  whether  a dividend  declared  payable  from  profits,  shall  be  paid  in  cash 
or  in  some  other  medium  is  also  wholly  a matter  of  financial  management.  If 

some  other  medium  is  decided  upon  it  is  also  wholly  a question  of  financial  management 
whether  the  distribution  shall  be.  for  instance,  in  bonds,  serin  or  stock  of  another  cor- 
poration or  in  issues  of  its  own.  And  if  the  dividend  is  paid  in  its  own  issues,  why  should 
there  be  a difference  in  result  dependent  upon  whether  the  distribution  was  made  from 
such  securities  then  in  the  treasury  or  from  others  to  be  created  and  issued  by  the  company 
expressly  for  that  purpose?  So  far  as  the  distribution  may  be  made  from  its  own  issues 
of  bonds,  or  preferred  stock  created  expressly  for  the  purpose,  it  clearly  would  make  no 
difference  in  the  decision  of  the  question  whether  the  dividend  was  a distribution  of  profits, 
that  the  securities  had  to  be  created  expressly  for  the  purpose  of  distribution.  If  a divi- 
dend paid  in  securities  of  that  nature  represents  a distribution  of  profits  Congress  may, 
of  course,  tax  it  as  income  of  the  stockholder.  Is  the  result  different  where  the  security 
distributed  is  common  stock? 

5300  Suppose  that  a corporation  having  power  to  buy  and  sell  its  own  stock,  purchases, 
in  the  interval  between  its  regular  dividend  dates,  with  monies  derived  from 

current  profits,  some  of  its  own  common  stock  as  a temporary  investment,  intending  at 
the  time  of  purchase  to  sell  it  before  the  next  dividend  date  and  to  use  the  proceeds  in  pay- 
ing dividends,  but  later,  deeming  it  inadvisable  either  to  sell  this  stock  or  to  raise  by 

Income  Tax 

Supplementary  Page  182. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


borrowing  the  monev  necessary  to  pay  the  regular  dividend  in  cash,  declares  a dividend 
payable  in  this  stock:— Can  anyone  doubt  that  in  such  a case  the  dividend  in  common 
stock  would  be  income  of  the  stockholder  and  constitutionally  taxable  as  such;  bee 
Qrtrn  v Bis  sell  79  Conn.  547;  l. eland  v.  Hayden,  102  Mass.  542.  And  would  it  not  like- 
wise be"  income'  of  the  stockholder  subject  to  taxation  if  the  purpose  of  the  company  in 
buying  the  stock  so  distributed  had  been  from  the  beginning  to  take  it  oil  the  market 
and  distribute  it  among  the  stockholders  as  a dividend,  and  the  company  actually  did  sot 
And  proceeding  a short  step  further:  Suppose  that  a corporation  decided  to  cataitdhze 
some  of  its  accumulated  nrotits  bv  creating  additional  common  stock  and  selling  the 
same  to  raise  working  capital,  but  after  the  stock  has  been  issued  and  certificates  therefor 
are  delivered  to  the  bankers  for  sale,  general  financial  conditions  make  it  undesirable  to 
market  the  stock  and  the  company  concludes  that  it  is  wiser  to  husband,  for  working 
capital  the  cash  which  it  had  intended  to  use  in  paying  stockholders  a dividend,  and 
instead  to  pay  the  dividend  in  the  common  stock  which  it  had  planned  to  sell:  Would 
not  the  stock  so  distributed  be  a distribution  of  profits,  and,  hence,  when  received,  be 
income  of  the  stockholder  and  taxable  as  such?  If  this  be  conceded,  why  should  it  not  be 
equally  income  of  the  stockholder,  and  taxable  as  such,  if  the  common  stock  created  by 
capitalizing  profits,  had  been  originally  created  for  the  express  purpose  of  being  distributed 
as  a dividend  to  the  stockholder  who  afterwards  received  it? 

830 1 Second:  It  has  been  said  that  a dividend  payable  in  bonds  or  preferred  stock 
created  for  the  purpose  of  distributing  profits  may  be  income  and  taxable  as  such, 
but  that  the  case  is  different  where  the  distribution  is  in  common  stock  created  lor  that 
purpose.  Various  reasons  are  assigned  for  making  this  distinction.  One  is  that  the  pro- 
portion of  the  stockholder’s  ownership  to  the  aggregate  number  of  the  shares  ot  the  company 
is  not  changed  by  the  distribution.  But  that  is  equally  true  where  the  dividend  is  paid 
in  its  bonds  or  in  its  preferred  stock.  Furthermore,  neither  maintenance  nor  change  in  the 
proportionate  ownership  of  a stockholder  in  a corporation  has  any  bearing  upon  the  ques- 
tion here  involved.  Another  reason  assigned  is  that  the  value  of  the  old  stock  held  is  reduced 
approximately  by  the  value  of  the  new  stock  received,  so  that  the  stockholder  after  receipt 
of  the  stock  dividend  has  no  more  than  he  had  before  it  was  paid.  I hat  is  equally  true 
whether  the  dividend  be  paid  in  cash  or  in  other  property,  for  instance,  bonds  scrip  or 
preferred  stock  of  the  company.  The  payment  from  profits  of  a large  cash  dividend,  and 
even  a small  one,  customarily  lowers  the  then  market  value  of  stock  because  the  undivided 
property  represented  by  each  share  has  been  correspondingly  reduced.  The  argument 
which  appears  to  be  most  strongly  urged  for  the  stockholders  is,  that  when  a stock  divi- 
dend is  made,  no  portion  of  the  assets  of  the  company  is  thereby  segregated  for  the  stock- 
holder. But  does  the  issue  of  new  bonds  or  of  preferred  stock  created  for  use  as  a dividend 
result  in  any  segregation  of  assets  for  the  stockholder?  In  each  case  he  receives  a piece 
of  paper  which  entitled  him  to  certain  rights  in  the  undivided  property.  Clearly  segre- 
gation of  assets  in  a physical  sense  is  not  an  essential  of  income.  The  year  s gains  of  a 
partner  is  taxable  as  income  although  there,  likewise,  no  segregation  of  his  share  in  the 
gains  from  that  of  his  partners  is  had.  . , 

5302  The  objection  that  there  has  been  no  segregation  is  presented  also  in  another 
form.  It  is  argued  that  until  there  is  a segregation,  the  stockholder  cannot  know 

whether  he  has  really  received  gains;  since  the  gains  may  be  invested  in  plant  or  merchan- 
dise or  other  property  and  perhaps  be  later  lost.  But  is  not  this  equally  true  of  the  share 
of  a partner  in  the  year’s  profits  of  the  firm  or,  indeed,  of  the  profits  of  the  individual 
who  is  engaged  in  business  alone?  And  is  it  not  true,  also,  when  dividends  are  paid  in 
cash?  The  gains  of  a business,  whether  conducted  by  an  individual,  by  a firm  or  by  a 
corporation,  are  ordinarily  reinvested  in  large  part.  Many  a cash  dividend  honestly 
declared  as  a distribution  of  profits,  proves  later  to  have  been  paid  of  out  capital,  because 
errors  in  forecast  prevent  correct  ascertainment  of  values.  Until  a business  adventure  has 
been  completely  liquidated,  it  can  never  be  determined  with  certainty  whether  there  have 
been  profits  unless  the  returns  have  at  least  exceeded  the  capital  originally  invested. 
Business  men,  dealing  with  the  problem  practically,  fix  necessarily  periods  and  rules 
for  determining  whether  there  have  been  net  profits-  that  is  income  or  gains.  hey 
protect  themselves  from  being  seriously  misled  by  adopting  a system  of  depreciation  charges 
and  reserves.  Then,  they  act  upon  their  own  determination,  whether  profits  have  been 
made.  Congress  in  legislating  has  wisely  adopted  their  practices  as  its  own  rules  of  action. 

5303  Third:  The  Government  urges  that  it  would  have  been  within  the  power  of  Con- 
gress  to  have  taxed  as  income  of  the  stockholder  his  pro  rata  share  of  undistributed 

profits  earned,  even  if  no  stock  dividend  representing  it  had  been  paid.  Strong  reasons  may 
be  assigned  for  such  a view.  See  The  Collector  v.  Hubbard,  12  Wall.  1.  1 he  undivided 

share  of  a partner  in  the  year’s  undistributed  profits  of  his  firm  is  taxable  as  income  of  the 
partner  although  the  share  in  the  gain  is  not  evidenced  by  any  action  taken  oy  the  firm. 
Why  may  not  the  stockholder’s  interest  in  the  gains  of  the  company?  The  law  finds  no 
difficultv  in  disregarding  the  corporate  fiction  whenever  that  is  deemed  necessary  to  attain 
a just  result.  Linn  Timber  Co.  v.  United  Stales,  236  U.  S.  574;  see  Morawetz  on  Corpora- 

Income  Tax 

Supplementary  Page  183. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


tions  (2d  ed.J,  secs.  227-231;  Cook  on  Corporations,  (7th  ed.),  sees.  663,  664.  The  stock- 
holder’s interest  in  the  property  of  the  corporation  differs,  not  fundamentally  but  in  form 
only,  from  the  interest  of  a partner  in  the  property  of  the  firm.  There  is  much  authority 
for  the  proposition  that,  under  our  law,  a partnership  or  joint  stock  company  is  just  as 
distinct  .and  palpable  an  entity  in  the  idea  of  the  law  as  distinguished  from  the  individuals 
composing  it,  as  is  a corporation  * No  reason  appears,  why  Congress,  in  legislating  under 
a grant  of  power  so  comprehensive  as  that  authorizing  the  levy  of  an  income  tax,°should 
be  limited  by  the  particular  view  of  the  relation  of  the  stockholder  to  the  corporation  and 
its  property  which  may,  in  the  absence  of  legislation,  have  been  taken  by  this  court.  But 
we  have  no  occasion  to  decide  the  question  whether  Congress  might  have  taxed  to  the 
stockholder  his  undivided  share  of  the  corporation’s  earnings.  For  Congress  has  in  this 
act  limited  the  income  tax  to  that  share  of  the  stockholder  in  the  earnings  which  is,  in  effect, 
distributed  by  means  of  the  stock  dividend  paid.  In  other  words  to  render  the  stockholder 
taxable  there  must  be  both  earnings  made  and  a dividend  paid.  Neither  earnings  with- 
out dividend— nor  a dividend  without  earnings — subjects  the  stockholder  to  taxation  under 
the  Revenue  Act  of  1916. 

S304  Fourth:  'I  he  equivalency  of  all  dividends  representing  profits,  whether  paid  in 
cash  or  in  stock,  is  so  complete  that  serious  question  of  the  taxability  of  stock 
dividends  would  probably  never  have  been  made,  if  Congress  had  undertaken  to  tax 
only  those  dividends  which  represented  profits  earned  during  the  year  in  which  the  dividend 
was  paid,or  in  the  year  preceding.  But  this  court,  construing  liberally  not  only  the  consti- 
tutional grant  of  power  but  also  the  revenue  act  of  1913  held  that  Congress  might  tax, 
and  had  taxed,  to  the  stockholder  dividends  received  during  the  year,  although  earned 
by  the  company  long  before;  and  even  prior  to  the  adoption  of  the  Sixteenth  Amendment. 
Lynch  v.  Hornby , 247  U.  S.  339. 6 That  rule,  if  indiscriminately  applied  to  all  stock  divi- 
dends representing  profits  earned,  might,  in  view  of  corporate  practice,  have  worked  con- 
siderable hardship,  and  have  raised  serious  questions.  Many  corporations,  without  legally 
capitalizing  any  part  of  their  profits,  had  assigned  definitely  sorhe  part  or  all  of  the  annual 
balances  remaining  after  paying  the  usual  cash  dividends,  to  the  uses  to  which  permanent 
capital  is  ordinarily  applied.  Some  of  the  corporations  doing  this  transferred  such  balances 
on  their  books  to  “Surplus”  account,— distinguishing  between  such  permanent  “Surplus” 
and-  the  “Undivided  Profits”  account.  Other  corporations,  without  this  formality,  had 
assumed  that  the  annual  accumulating  balances  carried  as  undistributed  profits  were  to  be 
treated  as  capital  permanently  invested  in  the  business.  And  still  others,  without  definite 
assumption  of  any  kind,  had  so  used  undivided  profits  for  capital  purposes.  To  have 
made  the  revenue  law  apply  retroactively  so  as  to  reach  such  accumulated  profits,  if  and 
whenever  it  should  be  deemed  desirable  to  capitalize  them  legally  by  the  issue  of  additional 
stock  distributed  as  a dividend  to  stockholders,  would  have  worked  great  injustice.  Con- 
gress endeavored  in  the  Revenue  Act  of  I9L6  to  guard  against  any  serious  hardship  which 
might  otherwise  have  arisen  from  making  taxable  stock  dividends  representing  accumulated 
profit.  It  did  not  limit  the  taxability  to  stock  dividends  representing  profits  earned  within 
the  tax  year  or  in  the  year  preceding;  but  it  did  limit  taxability  to  such  dividends  repre- 
senting profits  earned  since  March  1,  1913.  Thereby  stockholders  were  given  notice  that 
their  share  also  in  undistributed  profits  accumulating  thereafter  was  at  some  time  to  be 
taxed  as  income.  And  Congress  sought  by  section  220  to  discourage  the  postponement 
of  distribution  for  the  illegitimate  purpose  of  evading  liability  to  surtaxes. 

5305  Fifth:  The  decision  of  this  court,  that  earnings  made  before  the  adoption  of  the 
Sixteenth  Amendment  but  paid  out  in  cash  dividend  after  its  adoption  were  taxable 

as  income  of  the  stockholder,  involved  a very  liberal  construction  of  the  Amendment. 
To  hold  now  that  earnings  both  made  and  paid  out  after  the  adoption  of  the  Sixteenth 
Amendment  cannot  be  taxed  as  income  of  the  stockholder,  if  paid  in  the  form  of  a stock 
dividend,  involves  an  exceeding  narrow  construction  of  it.  As  said  by  Mr.  Chief  Justice 
Marshall  n Brown  v.  Maryland,  12  Wheat.  419,  446:  “To  construe  the  power  so  as  to 
impair  its  efficacy,  would  tend  to  defeat  an  object,  in  the  attainment  of  which  the  American 
public  took,  and  justly  took,  the  strong  interest  which  arose  from  a full  conviction  of  its 
necessity.” 

5306  No  decision  heretofore  rendered  by  this  cour  require  us  to  hold  that  Congress, 
in  providing  for  the  taxation  of  stock  dividends,  exceeded  the  power  conferred 

upon  it  by  the  Sixteenth  Amendment.  The  two  cases  mainly  relied  upon  to  show  that 

‘See  “Some  Judicial  Myths,”  by  Francis  M.  Burdick,  22  Harvard  Law  Review,  394- 
396;  The  Firm  as  a Legal  Person,  by  William  Hamilton  Cowles,  57  Cent.  L.  J.,  348;  Estates 
of  Non-Bankrupt  Partners,  by  J.  D.  Brannan,  20  Harvard  Law  Review,  589-592;  compare 
Harvard  Law  Review,  Vol.  7,  p.  426;  Vol.  14  p.  222;  Vol.  17,  p.  194. 

‘The  hardship  supposed  to  have  resulted  from  such  a decision  has  been  removed  in 
the  Revenue  Act  of  1916  by  providing  in  Section  201  (b)  that  such  cash  dividends  shall 
thereafter  be  exempt  from  taxation,  if  before  they  are  made,  all  earnings  made  since 
February  28,  1913,  shall  have  been  distributed. 

Income  Tax 

Supplementary  Page  184. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


this  was  beyond  the  power  of  Congress  are  Totvne  v.  Eisner,  245  U.  S.  4)8,  which  involved 
a question  not  of  constitutional  power  but  of  statutory  construction,  and  Gibbons  v.  Mahon, 
136  U.  S.  549,  which  involved  a question  arising  between  life-tenant  and  remainderman. 
So  far  as  concerns  Towne  v.  Eisner  we  have  only  to  bear  in  mind  what  was  there  said  (p.425), 
“Butitis  not  necessarily  true  that  income  means  the  same  thing  in  the  Constitution  and  the 
[anj  act  ”•  Gibbons  v.  Mahon  is  even  less  an  authority  for  a narrow  construction  of  the  power 
to  tax  incomes  conferred  by  the  Sixteenth  Amendment.  In  that  case  the  court  was  required 
to  determine  how,  in  the  administration  of  an  estate  in  the  District  of  Columbia,  a stock 
dividend,  representing  prolits,  received  after  the  decedent’s  death,  should  be  disposed  of 
as  between  life-tenant  and  remainderman.  The  question  was  in  essence:  What  shall 

the  intention  of  the  testator  be  presumed  to  have  been?  On  this  question  there  was  great 
diversity  of  opinion  and  practice  in  the  courts  of  English-speaking  countries.  1 hree 
well-defined  rules  were  then  competing  for  acceptance:  two  of  these  involve  an  arbitrary 
rule  of  distribution,  the  third  equitable  apportionment.  See  Cook  on  Corporations  (7th 
ed.),  sections  552-558. 

5307  1.  The  so-called  English  rule,  declares  in  1799,  by  Brander  v.  Brander,  4 Ves. 
800,  that  a dividend  representing  profits,  whether  in  cash,  stock  or  other  property, 

belongs  to  the  life-tenant  if  it  was  a regular  or  ordinary  dividend,  and  belongs  to  the  re- 
mainderman if  it  was  an  extraordinary  dividend. 

5308  2.  The  so-called  Massachusetts  rule,  declared  in  1868  by  Minot  v,  Paine,  99 
Mass.  101,  that  a dividend  representing  profits,  whether  regular,  ordinary  or 

extraordinarv,  if  in  cash  belongs  to  the  life-tenant,  and  if  in  stock  belongs  to  the  remain- 
derman. 

5309  3.  The  so-called  Pennsylvania  rule  declared  in  1857  by  Earp’s  Appeal,  29  Pa. 
St.  368,  that  where  a stock  dividend  is  paid,  the  court  shall  inquire  into  the  cir- 
cumstances under  which  the  fund  had  been  earned  and  accumulated  out  of  which  the  divi- 
dend, whether  a regular,  an  ordinary  or  an  extraordinary  one,  was  paid.  If  it  finds  that 
the  stock  dividend  was  paid  out  of  profits  earned  since  the  decedent’s  death,  the  stock 
dividend  belongs  to  the  life-tenant;  if  the  court  finds  that  the  stock  dividend  was  paid 
from  capital  or  from  profits  earned  before  the  decedent’s  death,  the  stock  dividend  belongs 
to  the  remainderman. 

53 10  This  court  adopted  in  Gibbons  v.  Mahon  as  the  rule  of  administration  for  the 
District  of  Columbia  the  so-called  Massachusetts  rule,  the  opinion  being  delivered 

in  1890  by  Mr.  Justice  Gray.  Since  then  the  same  question  has  come  up  for  decision  in 
many  of  the  States.  The  so-called  Massachusetts  rule,  although  approved  by  this  court, 
has  found  favor  in  only  a few  States.  The  so-called  Pennsylvania  rule,  on  the  other  hand, 
has  been  adopted  since  by  so  many  of  the  States  (including  New  York  and  C alifornia), 
that  it  has  come  to  be  known  as  the  “American  Rule.”  Whether,  in  view  of  these  facts 
and  the  practical  results  of  the  operation  of  the  two  rules  as  shown  by  the  experience  of 
the  thirty  years  which  have  elapsed  since  the  decision  in  Gibbons  v.  Mahon,  it  might  be 
desirable  for  this  court  to  reconsider  the  question  there  decided,  as  some  other  courts 
have  done  (see  29  Harvard  Law  Review  551),  we  have  no  occasion  to  consider  in  this  case. 
For,  as  this  court  there  pointed  out  (p.  560),  the  question  involved  was  one  “between  the 
owners  of  successive  interests  in  particular  shares,”  and  not,  as  in  Bailey  v.  Railroad  Co., 
22  Wall.  604,  a question  “between  the  corporation  and  the  government,  and  |which] 
depended  upon  the  terms  of  a statute  carefully  framed  to  prevent  corporations  from  evading 
payment  of  the  tax  upon  their  earnings.” 

S31  1 We  have,  however,  not  merely  argument,  we  have  examples  which  should  convince 
us  that  “there  is  no  inherent,  necessary  and  immutable  reason  why  stock  dividends 
should  always  be  treated  as  capital”  Tax  Commissioner  v.  Putnam,  227  Mass.  522,  533. 
The  Supreme  Judicial  Court  of  Massachusetts  has  steadfastly  adhered,  despite  ever- 
renewed  protest,  to  the  rule  that  every  stock  dividend  is,  as  between  life-tenant  and  remain- 
derman, capital  and  not  income.  But  in  construing  the  Massachusetts  Income  Tax  Amend- 
ment, which  is  substantially  identical  with  the  Federal  Amendment,  that  court  held  that 
the  legislature  was  thereby  empowered  to  levy  an  income  tax  upon  stock  dividends  repre- 
senting profits.  The  courts  of  England  have,  with  some  relaxation,  adhered  to  their 
rule  that  every  extraordinary  dividend  is,  as  between  life-tenant  and  remai nderman,  to  be 
deemed  capital.  But  in  1913  the  Judicial  Committee  of  the  Privy  Council  held  that  a 
stock  dividend  representing  accumulated  profits  was  taxable  like  an  ordinary  cash  dividend, 
Swan  Brewery  Company,  Limited  v.  The  King,  A.  C.  (1914)  231.  In  dismissing  the  appeal 
these  words  of  the  Chief  Justice  of  the  Supreme  Court  of  Western  Australia  were  quoted 
(p.  236)  which  show  that  the  facts  involved  were  identical  with  those  in  the  case  at  bar: 

•Compare  Rugg,  C.  J.,  in  Tax  Commissioner  v.  Putnam,  227  Mass.  552,  533:  “Ffowever 
strong  such  an  argument  might  be  when  urged  as  to  the  interpretation , of  a statute,  it  is 
not  of  prevailing  force  as  to  the  broad  considerations  involved  in  the  interpretation  of  an 
amendment  to  the  Constitution  adopted  under  the  conditions  preceding  and  attendant 
upon  the  ratification  of  the  Fortv-Fourth  Amendment.” 

Income  Tax 

Supplementary  Page  185. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


“Had  the  company  distributed  the  £101,450  among  the  shareholders  and  had  the  share- 
holders repaid  such  sums  to  the  company  as  the  price  of  the  81,160  new  shares,  the  duty 
on  the  £101,450  would  clearly  have  been  payable.  Is  not  this  virtually  the  effect  of  what 
was  actually  done?  I think  it  is.” 

S3 12  Sixth:  If  stock  dividends  representing  profits  are  held  exempt  from  taxation 
under  the  Sixteenth  Amendment,  the  owners  of  the  most  successful  businesses 
in  America  will,  as  the  facts  in  this  case  illustrate,  be  able  to  escape  taxation  on  a large 
part  of  what  is  actually  their  income.  So  far  as  their  profits  are  represented  by  stock 
received  as  dividends  they  will  pay  these  taxes  not  upon  their  income  but  only  upon  the 
income  of  their  income.  That  such  a result  was  intended  by  the  people  of  the  United 
States  when  adopting  the  Sixteenth  Amendment  is  inconceivable.  Our  sole  duty  is  to 
ascertain  their  intent  as  therein  expressed.7  In  terse,  comprehensive  language  befitting 
the  Constitution,  they  empowered  Congress  “to  lay  and  collect  taxes  on  incomes  from 
whatever  source  derived.”  They  intended  to  include  thereby  everything  which  by  reason- 
able understanding  can  fairly  be  regarded  as  income.  That  stock  dividends  representing 
profits  are  so  regarded,  not  only  by  the  plain  people  but  by  investors  and  financiers,  and 
by  most  of  the  courts  of  the  country,  is  shown,  beyond  peradventure,  by  their  acts  and  by 
their  utterances.  It  seems  tome  clear,  therefore,  that  Congress  possesses  the  power  which 
it  exercised  to  make  dividends  representing  profits,  taxable  as  income,  whether  the  medium 
in  which  the  dividend  is  paid  be  cash  or  stock,  and  that  it  may  define,  as  it  has  done,  what 
dividends  representing  profits  shall  be  deemed  income.  It  surely  is  not  clear  that  the 
enactment  exceeds  the  power  granted  by  the  Sixteenth  Amendment.  And,  as  this  court 
has  so  often  said,  the  high  prerogative  of  declaring  an  Act  of  Congress  invalid  should 
never  be  exercised  except  in  a clear  case.8  “It  is  but  a decent  respect  due  to  the  wisdom, 
the  integrity,  and  the  patriotism  of  the  legislative  body,  by  which  any  law  is  passed,  to 
presume  in  favor  of  its  validity,  until  its  violation  of  the  Constitution  is  proved  beyond  a 
reasonable  doubt.”  Ogden  v.  Saunders,  12  IVheaton  213,  270. 


’Compare  Rugg,  C.  J.,  Tax  Commissioner  v.  Putnam,  227  Mass.  522,  533:  “It  is  a grant 
from  the  sovereign  people  and  not  the  exercise  of  a delegated  power.  It  is  a statement  of 
general  principles  and  not  a specification  of  details.  Amendments  to  such  a charter  of 
government  ought  to  be  construed  in  the  same  spirit  and  according  to  the  same  rules  as  the 
original.  It  is  to  be  interpreted  as  the  Constitution  of  a State  and  not  as  a statute  or  an 
ordinary  piece  of  legislation.  Its  words  must  be  given  a construction  adapted  to  carry  into 
effect  its  purpose.” 

8“It  is  our  duty,  when  required  in  the  regular  course  of  judicial  proceedings,  to  declare 
an  act  of  Congress  void  if  not  within  the  legislative  power  of  the  United  States;  but  this 
declaration  should  never  be  made  except  in  a clear  case.  Every  possible  presumption  is  in 
favor  of  the  validity  of  the  statute,  and  this  continues  until  the  contrary  is  shown  beyond 
a rational  doubt.  One  branch  of  the  Government  cannot  encroach  on  the  domain  of  another 
without  danger.  The  safety  of  our  institutions  depends  in  no  small  degree  on  a strict 
observance  of  this  salutary  rule.”  The  Sinking  Fund  Cases,  99  U.  S.  700,  718  (1878). 
See  also  Legal  Tender  Cases,  12  Wall.  457,  531  (1870);  Trade  Mark  Cases,  100  U.  S.  82. 
96  (1879).  See  American  Doctrine  of  Constitutional  Law  by  James  B.  Thayer,  7 Harvard 
Law  Review  129,  142. 

“With  the  exception  of  the  extraordinary  decree  rendered  in  the  Dred  Scott  Case, 

*  *  * * all  of  the  acts  or  the  portions  of  the  acts  of  Congress  invalidated  by  the  courts 
before  1868  related  to  the  organization  of  courts.  Denying  the  power  of  Congress  to  make 
notes  legal  tender  seems  to  be  the  first  departure  from  this  rule.”  Haines,  American  Doc- 
trine of  Judicial  Supremacy,  p.  238.  The  first  legal  tender  decision  was  overruled  in  part 
two  years  later  (1870),  Legal  Tender  Cases,  12  Wall.  457;  and  again  in  1883,  LegalTender 
Case,  110  U.  S.  421. 


The  Merchants’  Loan  & Trust  Company,  as  Trustee  of  the  Estate  of  Arthur  Ryerson, 
Deceased,  vs.  Smietanka,  Collectoc. 

(255  U.  S.  509.) 

(T.  D.  3173.  June  4,  1921.) 

Mr.  Justice  Clarke  delivered  the  opinion  of  the  Court. 

S3 1 3 A writ  of  error  brings  this  case  here  for  review  of  a judgment  of  the  District  Court 
of  the  United  States  for  the  Northern  District  of  Illinois,  sustaining  a demurrer 
to  a declaration  in  assumpsit  to  recover  an  assessment  of  taxes  for  the  year  1917,  made 
under  warrant  of  the  Income  Tax  Act  of  Congress,  approved  September  8,  1916  (39  Stat., 
ch.  463,  p.  756)  as  amended  by  the  act,  approved  October  3,  1917  (40  Stat.,  ch.  63,  p.  300). 
Payment  was  made  under  protest  and  the  claim  to  recover  is  based  upon  the  contention 
that  the  fund  taxed  was  not  “income”  within  the  scope  of  the  Sixteenth  Amendment  to  the 
Constitution  of  the  United  States  and  that  the  effect  given  by  the  lower  court  to  the  Act 

Income  Tax 

Supplementary  Page  186. 


m 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


# 

m 


of  Congress  cited  renders  it  unconstitutional  and  void.  This  is  sufficient  to  sustain  the 
writ  of  error.  Towne  v.  Eisner,  245  U.  S.  418. 

S3 14  Arthur  Ryerson  died  in  1912,  and  the  plaintiff  in  error  is  trustee  under  his  will,  of 
property  the  net  income  of  which  was  directed  to  be  paid  to  his  widow  during  her 
life  and  after  her  death  to  be  used  for  the  benefit  of  his  children,  or  their  representatives, 
until  each  child  should  arrive  at  twenty-five  years  of  age,  when  each  should  receive  his  or 
her  share  of  the  trust  fund. 

S31  5 The  trustee  was  given  the  fullest  possible  dominion  over  the  trust  estate.  It  was 
made  the  final  judge  as  to  what  “net  income”  of  the  estate  should  be,  and  its 
determination  in  this  respect  was  made  binding  upon  all  parties  interested  therein,  “except 
that  it  is  my  will  that  stock  dividends  and  accretions  of  selling  values  shall  be  considered 
principal  and  not  income.” 

S3  16  The  widow  and  four  children  were  living  in  1917. 

S3  17  Among  the  assets  which  came  to  the  custody  of  the  trustee  were  9,522  shares  of 
the  capital  stock  of  Joseph  T.  Ryerson  & Son,  a corporation.  It  is  averred  that 
the  cash  value  of  tlmse  shares,  on  March  1,  1913,  was  $561,798,  and  that  they  were  sold  for 
$1,280,996.64,  on  February  2,  1917.  The  Commissioner  of  Internal  Revenue  treated  the 
difference  between  the  value  of  the  stock  on  March  1,  1913,  and  the  amount  for  which 
it  was  sold  on  February  2,  1917,  as  income  for  the  year  1917,  and  upon  that  amount  assessed 
the  tax  which  was  paid.  No  question  is  made  as  to  the  amount  of  the  tax  if  the  collection 
of  it  was  lawful. 

S31  8 The  ground  of  the  protest,  and  the  argument  for  the  plaintiff  in  error  here,  is  that 
the  sum  charged  as  “income”  represented  appreciation  in  the  value  of  the  capital 
assets  of  the  estate  which  was  not  “income”  within  the  meaning  of  the  Sixteenth  Amend- 
ment and  therefore  could  not,  constitutionally,  be  taxed,  without  apportionment,  as 
required  by  Section  2,  Clause  3,  and  by  Section  9,  Clause  4,  of  Article  I of  the  Constitution 
of  the  United  States. 

53 19  It  is  first  argued  that  the  increase  in  value  of  the  stock  could  not  be  lawfully  taxed 
under  the  Act  of  Congress  because  it  was  not  income  to  the  widow,  for  she  did  not 

receive  it  in  1917,  and  never  can  receive  it,  that  it  was  not  income  in  that  year  to  the  children 
for  they  did  not  then,  and  may  never,  receive  it,  and  that  it  was  not  income  to  the  trustee, 
not  only  because  the  will  creating  the  trust  required  that  “stock  dividends  and  accretions 
of  selling  value  shall  be  considered  principal  and  not  income,”  but  also  because  in  the 
“common  understanding”  the  term  “income”  does  not  comprehend  such  a gain  or  profit 
as  we  have  here,  which  it  is  contended  is  really  an  accretion  to  capital  and  therefore  not 
constitutionally  taxable  under  Eisner  v.  M acomber,  252  U.  S.  189. 

5320  The  provision  of  the  will  may  be  disregarded.  It  was  not  within  the  power  of  the 
testator  to  render  the  fund  non-taxable. 

5321  Assuming  for  the  present  that  there  was  constitutional  power  to  tax  such  a gain 
or  profit  as  is  here  involved,  are  the  terms  of  the  statute  comprehensive  enough 

to  include  it? 

5322  Section  2 (a)  of  the  act  of  September  8,  1916  (39  Stat.  757),  (40  Stat.  300,  307, 
sec.  212),  applicable  to  the  case,  defines  the  income  of  “a  taxable  person”  as 

including  “gains,  profits  and  income  derived  from  * * * sales,  or  dealings  in. property, 

whether  real  or  personal,  growing  out  of  the  ownership  or  use  of  or  interest  in  real  or 
personal  property  * * * or  gains  or  profits  and  income  derived  from  any  source 

whatever.” 

5323  Plainly  the  gain  we  are  considering  was  derived  from  the  sale  of  personal  property, 
and,  very  certainly  the  comprehensive  last  clause  “gains  or  profits  and  income 

derived  from  any  source  whatever,”  must  also  include  it,  if  the  trustee  was  a “taxable  per- 
son” within  the  meaning  of  the  act  when  the  assessment  was  made. 

5324  That  the  trustee  was  such  a “taxable  person”  is  clear  from  Section  1204  (1)  (c)  of 
the  act  of  October  3,  1917  (40  Stat.  331),  which  requires  that 

“trustees,  executors  * * * and  all  persons,  corporations  or  associations,  acting 

in  any  fiduciary  capacity,  shall  make  and  render  a return  of  the  income  of  the 
person,  trust,  or  estate  for  whom  or  which  they  act,  and  be  subject  to  all  the 
provisions  of  this  title  which  apply  to  individuals.” 

5325  And  section  2 (b)  of  the  act  of  September  8,  1916,  supra,  specifically  declares 
that  the 

“income  received  by  estates  of  deceased  persons  during  the  period  of  administration 
or  settlement  of  the  estate,  * * * or  any  kind  of  property  held  in  trust,  including 

such  income  accumulated  in  trust  for  the  benefit  of  unborn  or  unascertained 
persons,  or  persons  with  contingent  interests,  and  income  held  for  future  distribu- 
tion under  the  terms  of  the  will  or  trust  shall  be  likewise  taxed,  the  tax  in  each 
instance,  except  when  the  income  is  returned  for  the  purpose  of  the  tax  by  the 
beneficiary,  to  be  assessed  to  the  executor,  administrator,  or  trustee,  as  the  case 
may  be.” 


Income  Tax 

Supplementary  Page  187. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


S3 £6  further,  Section  2 (c)  clearly  shows  that  it  was  the  purpose  of  Congress  to  tax 
gains,  derived  from  such  a sale  as  we  have  here,  in  the  manner  in  which  this  fund 
was  assessed,  by  providing  that 

“for  the  purpose  of  ascertaining  the  gain  derived  from  the  sale  or  other  disposition 
of  property,  real,  personal,  or  mixed,  acquired  before  March  1,  1913,  the  fair 
market  price  or  value  of  such  property  as  of  March  1,  1913,  shall  be  the  basis  for 
determining  the  amount  of  such  gain  derived.” 

S327  1 hus,  it  is  the  plainly  expressed  purpose  of  the  act  of  Congress  to  treat  such  a 

, . . trustee  as  we  have  here  as  a “taxable  person”  and  for  the  purposes  of  the  act  to 

dea  with  the  income  received  for  others  precisely  as  if  the  beneficiaries  had  received  it  in 
person. 

$>o28  1 here  remains  the  question,  strenuously  argued,  whether  this  gain  in  four  years 

. of.  °,verp  $700,000  on  an  investment  of  about  $500,000  is  “income”  within  the 
meaning  of  the  Sixteenth  Amendment  to  the  Constitution  of  the  United  States. 

5329  I he  question  is  one  of  definition  and  the  answer  to  it  may  be  found  in  recent 
decisions  of  this  Court. 

5330  The  Corporation  Excise  Tax  Act  of  August  5,  1909  (36  Stat.  11,  112),  was  not  an 
income  tax  law,  but  a definition  of  the  word  “income”  was  so  necessary  in  its 

administration  that  in  an  early  case  it  was  formulated  as  “A  gain  derived  from  capital, 
from  labor,  or  from  both  combined.”  ( Stratton’s  Independence  v.  llowbert  231  U S 399’ 
415).  ’ 

5331  This  definition,  frequently  approved  by  this  Court,  received  an  addition,  in  its 
latest  income  tax  decision,  which  is  especially  significant  in  its  application  to  such 

a case  as  we  have  here,  so  that  it  now  reads:  “Income  may  be  defined  as  a gain  derived 
from  capital,  from  labor,  or  from  both  combined,  provided  it  be  understood  to  include  profit 
gained  through  sale  or  conversion  of  capital  assets .”  Eisner  v.  Macomber,  252  U.  S.  189,  207. 
$*332  The  use  made  of  this  definition  of  “income”  in  the  decision  of  cases  arising  under 
. the  Corporation  Excise  T.ax  Act  of  August  5,  1909,  and  under  the  Income  Tax 
Acts  is,  we  think  decisive  of  the  case  before  us.  Thus,  in  two  cases  arising  under  the 
Corporation  Excise  Tax  Act: 

$>333  In  Hays  v.  Gauley  Mountain  Coal  Company,  247  U.  S.  189,  a coal  company,  with- 
out corporate  authority  to  trade  in  stocks,  purchased  shares  in  another  coal  mining 
company  in  1902,  which  it  sold  in  1911,  realizing  a profit  of  $210,000.  Over  the  same 
objection  made  in  this  case,  that  the  fund  was  merely  converted  capital,  this  Court  held 
that  so  much  of  the  profit  upon  the  sale  of  the  stock  as  accrued  subsequent  to  the  effective 
date  of  the  act  was  properly  treated  as  income  received  during  1911,  in  assessing  the  tax 
for  that  year. 

5334  In  United  States  v.  Cleveland,  Cincinnati,  Chicago  id  St.  Louis  Railway  Company, 
247  U.  S.  195,  a railroad  company  purchased  shares  of  stock  in  another  railroad 

company  in  1900  which  it  sold  in  1909,  realizing  a profit  of  $814,000.  Here,  again,  over  the 
same  objection,  this  Court  held  that  the  part  of  the  profit  which  accrued  subsequent  to  the 
effective  date  of  the  act  was  properly  treated  as  income  received  during  the  year  1909  for 
the  purposes  of  the  act. 

5335  Thus,  from  the  price  realized  from  the  sale  of  stock  by  two  investors,  as  distinguished 
from  dealers,  and  from  a single  transaction  as  distinguished  from  a course  of  busi- 
ness, the  value  of  the  stock  on  the  effective  date  of  the  tax  act  was  deducted  and  the  resulting 
gain  was  treated  by  this  Court  as  “income”  by  which  the  tax  was  measured. 

$>336  It  is  obvious  that  these  decisions  in  principle  rule  the  case  at  bar  if  the  word 
“income”  has  the  same  meaning  in  the  Income  Tax  Act  of  1913  that  it  had  in  the 
Corporation  Excise  Tax  Act  of  1909,  and  that  it  has  the  same  scope  of  meaning  was  in 
effect  dec'ded  in  Southern  Pacific _ Company  v.  Lowe,  247  U.  S.  330,  335,  where  it  was 
assumed  for  the  purposes  of  decision  that  there  was  no  difference  in  its  meaning  as  used 
in  the  Act  of  1909  and  in  the  Income  T ax  Act  of  1913.  Therdcan  be  no  doubt  that  the  word 
must  be  given  the  same  meaning  and  content  in  the  Income  Tax  Acts  of  1916  and  1917 
that  it  had  in  the  Act  of  1913.  When  to  this  we  add  that  in  Eisner  v.  Macomber,  supra,  a 
c?sfl.ar's'nS  ^ndet  the  same  Income  Tax  Act  of  1916  which  is  here  involved,  the  definition 
of  income  which  was  applied  was  adopted  from  Stratton’s  Independence  v.  Howbert, 
supra,  arising  under  the  Corporation  Excise  Tax  Act  of  1909,  with  the  addition  that  it  should 
include  “profit  gained  through  sale  or  conversion  of  capital  assets,”  there  would  seem  to 
be  no  room  to  doubt  that  the  word  must  be  given  the  same  meaning  in  all  of  the  Income 
Tax  Acts  of  Congress  that  was  given  to  it  in  the  Corporation  Excise  Tax  A t and  that  wha 
that  meaning  is  has  now  become  definitely  settled  by  decisions  of  this  Court. 

^337  In  determining  the  definition  of  the  word  “income”  thus  arrived  at,  this  Court 
has  consistently  refused  to  enter  into  the  refinements  of  lexicographers  or  economists 
and  has  approved,  in  the  definitions  quoted,  what  it  believed  to  be  the  commonly  under- 
stood meaning  of  the  term  which  must  have  been  in  the  minds  of  the  people  when  they 
adopted  the  Sixteenth  Amendment  to  the  Constitution  Doyle  v.  Mitchell  Brothers  Com- 
pany, 247  U.  S.  179,  185;  Eisner  v.  Macomber,  252  U.  S.  189,  206,  207.  Notwithstanding 

Income  Tax 

Supplementary  Page  188. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


the  full  argument  heard  in  this  case  and  in  the  scries  of  cases  now  under  consideration  we 
continue  entirely  satisfied  with  that  definition,  and,  since  the  fund  here  taxed  was  the 
amount  realized  from  the  sale  of  the  stock  in  1917,  less  the  capital  investment  as  determined 
by  the  trustee  as  of  March  1,  1913,  it  is  palpable  that  it  was  a “gain  or  profit”  “produced 
by”  or  “derived  from”  that  investment,  and  that  it  “proceeded”,  and  was  “severed”  or 
rendered  severable,  from  it,  by  the  sale  for  cash,  and  thereby  became  that  “realized  gain” 
which  has  been  repeatedly  declared  to  be  taxable  income  within  the  meaning  of  the  con- 
stitutional amendment  and  the  acts  of  Congress.  Doyle  v.  Mitchell  Brothers  Company  and 
Eisner  v.  Macomber,  supra. 

£>338  It  is  elaborately  argued  in  this  case,  in  No.  609,  Eldorado  Coal  and  Mining  Com- 
pany v.  Harry  W.  Mager,  Collector,  etc.,  submitted  with  it,  and  in  other  cases  since 
argued,  that  the  word  “income”  as  used  in  the  Sixteenth  Amendment  and  in  the  Income 
Tax  Act  we  are  considering  does  not  include  the  gain  from  capital  realized  by  a single 
isolated  sale  of  property  but  that  only  the  profits  realized  from  sales  by  one  engaged  in 
buying  and  selling  as  a business — a merchant,  a real  estate  agent,  or  broker — constitute 
income  which  may  be  taxed. 

5339  It  is  sufficient  to  say  of  this  contention,  that  no  such  distinction  was  recognized 
in  the  Civil  War  Income  Tax  Act  of  1867  (14  Stat.  471,  478),  or  in  the  Act  of  1894 

(28  Stat.  509,  553),  declared  unconstitutional  on  an  unrelated  ground;  that  it  was  not 
recognized  in  determining  income  under  the  Excise  Tax  Act  of  1909,  as  the  cases  cited, 
supra,  show;  that  it  is  not  to  be  found,  in  terms,  in  any  of  the  income  tax  provisions  of  the 
Internal  Revenue  acts  of  1913,  1916,  1917  or  1919;  that  the  definition  of  the  word  “income” 
as  used  in  the  Sixteenth  Amendment,  which  has  been  developed  by  this  Court,  does  not 
recognize  any  such  distinction;  that  in  departmental  practice,  for  now  seven  years,  such  a 
rule  has  not  been  applied;  and  that  there  is  no  essential  difference  in  the  nature  of  the 
transaction  or  in  the  relation  of  the  profit  to  the  capital  involved,  whether  the  sale  or  con- 
version be  a single,  isolated  transaction  or  one  of  many.  The  interesting  and  ingenious 
argument,  which  is  earnestly  pressed  upon  us,  that  this  distinction  is  so  fundamental  and 
obvious  that  it  must  be  assumed  to  be  a part  of  the  “genera  lunderstanding”  of  the  meaning 
of  the  word  “income”  fails  to  convince  us  that  a construction  should  be  adopted  which 
would,  in  a large  measure,  defeat  the  purpose  of  the  amendment. 

5340  The  opinions  of  the  courts  in  dealing  with  the  rights  of  life  tenants  and  remainder- 
men in  gains  derived  from  invested  capital,  especially  in  dividends  paid  by  cor- 
porations, are  of  little  value  in  determining  such  a question  as  we  have  here,  influenced 
as  such  decisions  are  by  the  terms  of  the  instruments  creating  the  trusts  involved  and  by  the 
various  rules  adopted  in  the  various  jurisdictions  for  attaining  results  thought  to  be  equitable. 
Here  the  trustee,  acting  within  its  powers,  sold  the  stock,  as  it  might  have  sold  a building, 
and  realized  a profit  of  $700,000,  which  at  once  became  assets  in  its  possession  free  for  any 
disposition  within  the  scope  of  the  trust  but  for  the  purposes  of  taxation  to  be  treated  as 
if  the  trustee  were  the  sole  owner. 

534 1 Gray  v.  Darlington,  15  Wall.  63,  much  relied  upon  in  argument,  was  sufficiently 
distinguished  from  cases  such  as  we  have  here  in  Hays  v.  Gauley  Mountain  Coal 

Company,  247  U.  S.  189,  191.  The  differences  in  the  statutes  involved  render  inapplicable 
the  expressions  in  the  opinion  in  that  case  (not  necessary  to  the  decision  of  it)  as  to  distinc- 
tions between  income  and  increase  of  capital. 

5342  In  Lynch  v.  Turrish,  247  U.  S.  221,  also  much  relied  upon,  it  is  expressly  stated 
that,  “according  to  the  fact  admitted,  there  was  no  increase  after  that  date  (March 

1,  1913)  and  therefore  no  increase  subject  to  the  law.”  For  this  reason  the  questions  here 
discussed  and  decided  were  not  there  presented. 

5343  The  British  income  tax  decisions  are  interpretations  of  statutes  so  wholly  different 
in  their  wording  from  the  acts  of  Congress  which  we  are  considering  that  they  are 

quite  without  value  in  arriving  at  the  construction  of  the  laws  here  involved. 

5344  Another  assessment  on  a small  gain  realized  from  a sale  of  bonds,  also  made  by 
the  trustee  in  1917,  does  not  present  any  questions  other  than  those  which  we  have 

discussed  and  therefore  it  does  not  call  for  separate  consideration. 

5345  The  judgment  of  the  District  Court  is 

Affirmed. 

Mr.  Justice  Holmes  and  Mr.  Justice  Brandeis,  because  of  prior  decisions  of  the  Court, 
concur  only  in  the  judgment. 


David  M.  Goodrich  vs.  Edwards,  Collector. 

(255  U.  S.  527.) 

(T.  D.  3174.  June  4,  1921.) 

Mr.  Justice  Clarke  delivered  the  opinion  of  the  Court. 

S346  The  plaintiff  in  error  sued  the  defendant,  a collector  of  Internal  Revenue,  to 
recover  income  taxes  assessed  in  1920  for  the  year  1916  and  paid  under  protest 
to  avoid  penalties.  A demurrer  to  the  complaint  was  sustained  and  the  constitutional 

Income  Tax 

Supplementary  Page  189. 


SUPREME  COURT  DECISIONS— 19K5-1917  ACTS. 


validity  of  a law  of  the  United  States  is  so  involved,  that  the  case  is  properly  here  by  writ 
of  error.  Towne  v.  Eisner,  245  U.  S.  418.  3 

5347  Two  transactions  are  involved. 

5348  (1)  In  1912  the  plaintiff  in  error  purchased  1,000  shares  of  the  capital  stock  of  a 
...  nnning  company  for  which  he  paid  $500.  It  is  averred  that  the  stock  was  worth 
»695  on  March  1,  1913,  and  that  it  was  sold  in  March,  1916,  for  $13,931.22.  The  tax  which 
the  plaintiff  in  error  seeks  to  recover  was  assessed  on  the  difference  between  the  value  of  the 
stock  on  March  1,  1913,  and  the  amount  for  which  it  was  sold. 

5349  (2)  The  plaintiff  in  error  being  the  owner  of  shares  of  the  capital  stock  of  another 
corporation,  in  1912  exchanged  them  for  stock,  in  a reorganized  company,  of  the 

then  value  of  $291,600.  It  is  averred  and  admitted  that  on  March  1,  1913,  the  value  of 
this  stock  was  $148,635.50,  and  that  it  was  sold  in  1916  for  $269,346.25.  Although  it  is 
thus  apparent  that  the  stock  involved  was  of  less  value  on  March  1,  1913,  than  when  it  was 
acquired,  and  that  it  was  ultimately  sold  at  a loss  to  the  owner,  nevertheless  the  collector 
assessed  the  tax  on  the  difference  between  the  value  on  March  1,  1913,  and  the  amount 
tor  which  it  was  sold. 

5350  The  plaintiff  in  error  seeks  to  recover  the  whole  of  these  two  assessments. 

*351  The  same  contention  is  made  with  respect  to  each  of  these  payments  as  was  made 

in  No.  608,  The  Merchants'  Loan  IA  Trust  Company,  as  Trustee  v.  Julius  F. 
bmietanka,  Collector  of  Internal  Revenue,  this  day  decided  [Supplementary  Page  186, 
herein],  viz.,  that  the  amounts  realized  from  the  salesofthe  stocks  were  in  their  inherent 
nature  capital  as  distinguished  from  income,  being  an  increment  in  value  of  the  securities 
while  owned  and  held  as  an  investment  and  therefore  not  taxable  under  the  Revenue  Act 
of  1916  (39  Stat.  756)  as  amended  in  1917  (40  Stat.  300)  or  under  any  constitutional  law. 
*352  v\  ith  respect  to  the  first  payment.  It  is  plain  that  this  assessment  was  on  the 
profit  accruing  after  March  1,  1913,  the  effective  date  of  the  Act,  realized  to  the 
°wn®r  by  the  sale  after  deducting  his  capital  investment.  The  question  involved  is  ruled 
by  No  608,  supra,  and  the  amount  was  properly  taxed. 

*353  As  to  the  second  payment.  The  Government  confesses  error  in  the  judgment  with 
respect  to  this  assessment.  The  stock  was  sold  in  the  year  for  which  the  tax  was 
assessed  for  $22,253.75  less  than  its  value  when  it  was  acquired,  but  for  $120,710.75  more 
than  its  value  on  March  1,  1913,  and  the  tax  was  assessed  on  the  latter  amount. 

*354  The  Act  under  which  the  assessment  was  made  provides  that  the  net  income  of  a 
taxable  person  shall  include  gains,  profits  and  income  derived  from  * * * sales 

or  dealings  in  property,  whether  real  or  personal  * * * or  gains  or  profits  and  income 

derived  from  any  source  whatever.  (39  Stat.  757:  40  Stat.  300,  307.) 

*355  Section  2 (c)  of  this  same  act  provides  that  “for  the  purpose  of  ascertaining  the 
pSS  _ gam  derived  from  a sale  or  other  disposition  of  property,  real,  personal  or  mixed, 
acquired  before  March  1,  1913,  the  fair  market  price  or  value  of  such  property  as  of  March 
1,  1913,  shall  be  the  basis  for  determining  the  amount  of  such  gain  derived.” 

*356  And  the  definition  of  “income”  approved  by  this  Court  is:  “A  gain  derived  from 
capital,  from  labor,  or  from  both  combined,  provided  it  be  understood  to  include 
profits  gained  through  sale  or  conversion  of  capital  assets.”  Eisner  v.  Macomber,  252 
U.  S.  189,  207. 

S357  It  is  thus  very  plain  that  the  statute  imposes  the  income  tax  on  the  proceeds  of  the 
sale  of  personal  property  to  the  extent  only  that  gains  are  derived  therefrom  by  the 
vendor,  and  we  therefore  agree  with  the  Solicitor  General  that  since  no  gain  was  realized 
on  this  investment  by  the  plaintiff  in  error  no  tax  should  have  been  assessed  against  him. 
*358  Section  2 (c)  is  applicable  only  where  a gain  over  the  original  capital  investment 
has  been  realized  after  March  1,  1913,  from  a sale  or  other  disposition  of  property. 
S359  It  results  that  the  judgment  of  the  District  Court  as  to  the  first  assessment,  as 
we  have  described  it,  is  affirmed,  that  as  to  the  second  assessment  it  is  reversed, 
and  the  case  is  remanded  to  that  court  for  further  proceedings  in  conformity  with  this 
opinion. 

Reversed  in  Part. 
Affirmed  in  Part. 

Mr.  Justice  Holmes  and  Mr.  Justice  Brandeis,  because  of  prior  decisions  of  the  Court, 
concur  only  in  the  judgment. 


Eldorado  Coal  and  Mining  Company  vs.  Mager,  Collector. 

(255  U.  S.  522.) 

(T.  D.  3175.  June  4,  1921.) 

Mr.  Justice  Clarke  delivered  the  opinion  of  the  Court. 

§360  This  case  comes  into  this  Court  on  a writ  of  error  to  review  a judgment  of  the 
District  Court  of  the  United  States  for  the  Northern  District  of  Illinois,  sustaining 
a demurrer  to  a declaration  in  assumpsit  to  recover  an  assessment  of  income  and  excess 

Income  Tax 

Supplementary  Page  190. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


profits  taxes  for  the  year  1917,  under  warrant  of  the  Income  Tax  Act  of  Congress,  approved 
September  8,  1916,  (39  Stat.,  ch.  463,  p.  756)  as  amended  by  the  act  approved  October  3, 
1917  (40  Stat.,  ch.  63,  p.  300).  Payment  was  made  under  protest  and  the  claim  to  recover 
is  based  upon  the  same  contention  dealt  with  in  No.  608,  this  day  decided,  that  the  fund  taxed 
was  not  “income”  within  the  scope  of  the  Sixteenth  Amendment  to  the  Constitution  of  the 
United  States,  and  that  the  effect  given  by  the  lower  court  to  the  act  renders  it  uncon- 
stitutional and  void. 

5361  The  Eldorado  Coal  and  Mining  Company  is  an  Indiana  corporation,  which 
operated  a bituminous  coal  mine  and  mining  plant,  which  it  sold  in  May,  1917,  for 

cash.  The  company  retained  its  accounts  receivable  and  prior  to  September  30,  1917,  it 
distributed  among  its  stockholders,  proportionately  to  their  ownership  of  stocks,  the  cash 
received  from  the  sale  and  the  accounts  receivable  in  kind.  The  corporation,  however,  was 
not  dissolved  nor  its  charter  surrendered,  because  there  were  unsettled  liabilities  against  it 
for  federal  income  taxes  and  excess  profit  taxes.  Otherwise  its  affairs  were  wound  up. 

5362  It  is  averred  in  the  declaration  that,  taking  the  fair  market  value  as  of  March  1, 
1913,  of  the  capital  assets  of  the  company  invested  and  employed  in  its  business, 

and  adding  thereto  the  cost  of  additions  and  betterments,  and  subtracting  depreciation 
and  depletion. to  the  date  of  sale,  it  appears  that  there  was  an  appreciation  in  value  of  the 
property  after  March  1,  1913,  of  $5,986.02,  and  it  was  on  this  profit  realized  by  the  sale 
that  the  assessment  of  $3,073.16  was  made  which  the  company  paid  and  in  this  suit  seeks 
to  recover. 

S3  63  It  is  obvious  from  this  statement  of  the  case  that  it  presents  in  so  nearly  the  same 
form  precisely  the  same  questions  as  were  considered  in  No.  608,  The  Merchants’ 
Loan  y Trust  Company,  etc.  v.  Julius  F.  Smietanka,  Collector,  etc.,  this  day  decided, 
[Supplementary  Page  186,  herein],  that  further  discussion  of  them  is  unnecessary,  and,  on 
the  authority  of  that  case,  the  judgment  of  the  District  Court  is 

affirmed. 

Mr.  Justice  Holmes  and  Mr.  Justice  Brandeis,  because  of  prior  decisions  of  the  Court, 
concur  only  in  the  judgment. 


Walsh,  Collector  vs.  Brewster. 

(255  U.  S.  536.) 

(T.  D.  3176.  June  4,  1921.) 

Mr.  Justice  Clarke  delivered  the  opinion  of  the  Court. 

S3 64  In  this  case  the  defendant  in  error  sued  the  plaintiff  in  error,  a collector  of  Internal 
Revenue,  to  recover  income  taxes  for  the  year  1916,  assessed  in  1918,  and  which 
were  paid  under  protest  to  avoid  penalties.  The  defendant  answered,  the  case  was  tried 
upon  an  agreed  statement  of  facts,  and  judgment  was  rendered  in  favor  of  the  taxpayer, 
the  defendant  in  error.  The  case  is  properly  here  by  writ  of  error.  Towne  v.  Eisner,  245 
U.  S.  418. 

S3  65  The  defendant  in  error  was  not  a trader  or  dealer  in  stocks  or  bonds,  but  occasionally 
purchased  and  sold  one  or  the  other  for  the  purpose  of  changing  his  investments. 

5366  Three  transactions  are  involved. 

5367  The  first  relates  to  bonds  of  the  International  Navigation  Company,  purchased 
in  1909,  for  $191,000  and  sold  in  1916  for  the  same  amount.  The  market  value 

of  these  bonds  on  March  1,  1913,  was  $151,845,  and  the  tax  in  dispute  was  assessed  on  the 
difference  between  this  amount  and  the  amount  for  which  they  were  sold  in  1916,  viz., 
$39,155. 

5368  The  trial  court  held  that  this  apparent  gain  was  capital  assets  and  not  taxable 
income  under  the  Sixteenth  Amendment  to  the  Constitution  of  the  United  States, 

and  rendered  judgment  in  favor  of  the  defendant  in  error  for  the  amount  of  the  tax  which 
he  had  paid. 

5369  The  ground  upon  which  this  part  of  the  judgment  was  justified  below  is  held  to 
be  erroneous  in  No.  608,  Merchants’  Loan  y Trust  Company , as  Trustee  v.  Julius 

F.  Smietanka,  Collector  of  Internal  Revenue,  this  day  decided  [Supplementary  Page  186, 
herein],  but,  since  the  owner  of  the  stock  did  not  realize  any  gain  on  his  original  investment 
by.  the  sale  in  1916,  the  judgment  was  right  in  this  respect,  and  under  authority  of  the 
opinion  and  judgment  in  No.  663,  Goodrich  v.  Edwards,  Collector,  also  rendered  this  day 
[Supplementary  Page  169,  herein],  this  part  of  the  judgment  is  affirmed. 

5370  The  second  transaction  involved  the  purchase  in  1902  and  1903  of  bonds  of  the 
International  Mercantile  Marine  Company  for  $231,300,  which  were  sold  in  1916 

for  $276,150.  This  purchase  was  made  through  an  underwriting  agreement  such  that  the 
purchaser  did  not  receive  any  interest  upon  the  amount  paid  prior  to  the  allotment  to  him 
of  the  bonds  in  1906,  and  he  claimed  that  interest  upon  the  investment  for  the  time  which 
so  elapsed  should  be  added  as  a part  of  the  cost  to  him  of  the  bonds.  But  this  claim  was 
properly  rejected  by  the  trial  court  under  authority  of  Hays  v.  Gauley  Mountain  Coal 
Company,  247  U.  S.  189. 

Income  Tax 

Supplementary  Page  191. 


SUPREME  COURT  DECISIONS— 1916-1917  ACTS. 


S37  1 It  is  stipulated  that  the  market  value  of  these  bonds  on  March  1,  1913,  was  $164,- 
480,  and  the  Collector  assessed  the  tax  upon  the  difference  between  the  selling 
price  and  this  amount,  but  since  the  gain  to  the  taxpayer  was  only  the  difference  between 
his  investment  of  $231,300  and  the  amount  realized  by  the  sale,  $276,150,  under  authority 
of  No.  663,  Goodrich  v.  Edwards,  Collector,  this  day  decided,  he  was  taxable  only  on  $44,850. 

5372  The  District  Court,  however,  held  that  any  gain  realized  by  the  sale  was  a mere 
conversion  of  capital  assets  and  was  not  income  which  could  lawfully  be  taxed. 

In  this  respect  the  court  fell  into  error.  The  tax  was  properly  assessed,  but  only  upon  the 
difference  between  the  purchase  and  selling  price  of  the  bonds  as  stated. 

5373  The  third  transaction  related  to  stock  in  the  Standard  Oil  Company  of  California, 
received  through  the  same  stock  dividend  involved  in  Eisner  v.  Macomber,  252 

U.  S.  189.  The  District  Court,  upon  authority  of  that  case,  properly  held  that  the  assess- 
ment made  and  collected  upon  this  dividend  should  be  refunded  to  the  defendant  in  error. 

5374  It  results  that  as  to  the  profit  realized  upon  the  second  transaction,  as  indicated 
in  this  opinion,  the  judgment  of  the  District  Court  is  reversed,  but  as  to  the  other 

transactions  it  is  affirmed  for  the  reasons  and  upon  the  grounds  herein  stated. 

Judgment  reversed  in  -part,  affirmed  in  part,  and  case  remanded. 

Mr.  Justice  Holmes  and  Mr.  Justice  Brandeis,  because  of  prior  decisions  of  the  Court, 
concur  only  in  the  judgment. 


Income  Tax 

Supplementary  Page  192. 


SUPREME  COURT  DECISIONS— 1918  ACT, 


Evans  vs.  Gore. 

(253  U.  S.  245.) 

(T.  D.  3037.  June  21,  1920.) 

Mr.  Justice  Van  Devanter  delivered  the  opinion  of  the  Court. 

5375  This  is  an  action  to  recover  money  paid  under  protest  as  a tax  alleged  to  be  for- 
bidden by  the  Constitution.  The  plaintiff  is  the  United  States  District  Judge 

for  the  Western  District  of  Kentucky,  and  holds  that  office  under  an  appointment  by  the 
President  made  in  1899  with  the  advice  and  consent  of  the  Senate.  The  tax  which  he  calls 
in  question  was  levied  under  the  Act  of  February  24,  1919,  c.  18,  40  Stat.  1062,  on  his  net 
income  for  the  year  1918,  as  computed  under  that  act.  His  compensation  or  salary  as 
District  Judge  was  included  in  the  computation.  Had  it  been  excluded  he  would  not  have 
been  called  on  to  pay  any  income  tax  for  that  year.  The  inclusion  was  in  obedience  to  a 
provision  in  §213  requiring  the  computation  to  embrace  all  gains,  profits,  income  and 
the  like,  “including  in  the  case  of  the  President  of  the  United  States,  the  judges  of  the 
Supreme  and  inferior  courts  of  the  United  States,  [and  others} *  * * * the  compensation 
received  as  such.”  Whether  he  could  be  subjected  to  such  a tax  in  respect  of  his  salary, 
consistently  with  the  Constitution,  is  the  matter  in  issue.  If  it  be  resolved  against  the  tax 
he  will  be  entitled  to  recover  what  he  paid;  otherwise  his  action  must  fail.  It  did  fail 
in^the  District  Court.  262  Fed.  550. 

5376  The  Constitution  establishes  three  great  coordinate  departments  of  the  National 
Government, — the  legislative,  the  executive,  and  the  judicial, — and  distributes 

among  them  the  powers  confided  to  that  Government  by  the  people.  Each  department  is 
dealt  with  in  a separate  Article,  the  legislative  in  the  first,  the  executive  in  the  second 
and  the  judicial  in  the  third.  Our  present  concern  is  chiefly  with  the  third  Article.  It 
defines  the  judicial  power,  vests  it  in  the  Supreme  Court  and  such  inferior  courts  as  Congress 
may  from  time  to  time  ordain  and  establish,  and  declares:  “The  Judges,  both  of  the  supreme 
and  inferior  Courts,  shall  hold  their  Offices  during  good  Behaviour,  and  shall  at  stated 
Times,  receive  for  their  Services,  a Compensation,  which  shall  not  be  diminished  during  their 
Continuance  in  Office.” 

S3  7 7 The  plaintiff  insists  that  the  provision  in  §213  which  subjects  him  to  a tax  in 
y ; respect  of  his  compensation  as  a judge  by  its  necessary  operation  and  effect 

diminishes  that  compensation  and  therefore  is  repugnant  to  the  constitutional  limitation 
just 'quoted. 

5378  Stated  in  its  broadest  aspect,  the  contention  involved  the  power  to  tax  the  com- 
Fpensation  of  federal  judges  in  general, — and  also  the  salary  of  the  President,  as 

to  which  the  Constitution  (Art.  II,  §1,  cl.  6)  contains  a similar  limitation.  Because  of 
the  individual  relation  of  the  members  of  this  court  to  the  question,  thus  broadly  stated, 
wejcannot  but  regret  that  its  solution  falls  to  us;  and  this  although  each  member  has  been 
paying  the  tax  in  respect  of  his  salary  voluntarily  and  in  regular  course.  But  juris- 
diction of  the  present  case  cannot  be  declined  or  renounced.  The  plaintiff  was  entitled 
by  law  to  invoke  our  decision  on  the  question  as  respects  his  own  compensation,  in  which  no 
other  judge  can  have  any  direct  personal  interest;  and  there  was  no  other  appellate  tribunal 
to  which  under  the  law  he  could  go.  He  brought  the  case  here  in  due  course,  the  Govern- 
ment joined  him  in  asking  an  early  determination  of  the  question  involved,  and  both 
have  been  heard  at  the  bar  and  through  printed  briefs.  In  this  situation,  the  only  course 
open  to  us  is  to  consider  and  decide  the  cause, — a conclusion  supported  by  precedents 
reaching  back  many  years.  Moreover,  it  appears  that,  when  this  taxing  provision  was 
adopted,  Congress  regarded  it  as  of  uncertain  constitutionality  and  both  contemplated 
and  intended  that  the  question  should  be  settled  by  us  in  a case  like  this.* 

5379  With  what  purpose  does  the  Constitution  provide  that  the  compensation  of  the 
judges  “shall  not  be  diminished  during  their  continuance  in  office?”  Is  it  primarily 

to  benefit  the  judges,  or  rather  to  promote  the  public  weal  by  giving  them  that  indepen- 


*See  House  Report,  No.  767,  p.  29,  65th  Cong.,  2d  Sess.;  Senate  Report,  No.  617, 
p.  6,  65th  Cong.,  3rd  Sess.  And  see  Cong.  Record,  Col.  56,  p.  10370,  where  the  Chairman 
of  the  House  Committee,  on  asking  the  adoption  of  the  provision,  said:  “I  wish  to  say,  Mr. 
Chairman,  that  while  there  is  considerable  doubt  as  to  the  constitutionality  of  taxing 

* * * Federal  judges’  or  the  President’s  salaries,  * * * we  cannot  settle  it;  we 
have  not  the  power  to  settle  it.  No  power  in  the  world  can  settle  it  except  the  Supreme 
Court  of  the  United  States.  Let  us  raise  it,  as  we  have  done,  and  let  it  be  tested,  and  it 
can  only  be  done  by  some  one  protesting  his  tax  and  taking  an  appeal  to  the  Supreme 
Court.”  And  again:  “I  think  really  that  every  man  who  has  a doubt  about  this  can 
very  well  vote  for  it  and  take  the  advice  of  the  gentlemen  from  Pennsylvania  [Mr.  Graham], 
which  was  sound  then  and  is  sound  now,  that  this  question  ought  to  be  raised  by  Congress, 
the  only  power  that  can  raise  it,  in  order  that  it  may  be  tested  in  the  Supreme  Court,  the 
only  power  that  can  decide  it.” 


Income  Tax 

Supplementary  Page  193 


SUPREME  COURT  DECISIONS— 1918  ACT. 


rw.  H ™-k  f°r  ?' n .,mPa.rtl?i  and  courageous  discharge  of  the  judicial  function? 
Docs  the  provision  merely  forbid  direct  diminution,  such  as  expressly  reducing  the  com- 
pensation from  a greater  to  a ess  sum  per  year,  and  thereby  leave  the  way  open  for  indirect 

Or  5«ff \VC'  d,mf',nUtT’  8^h  38i  W,,,tuh°lding  °r  ca,Iin®  back  a Part  as  a tax  on  the  whole? 
Or,  does  it  mean  that  the  judge  shall  have  a sure  and  continuing  right  to  the  compensation 
whereon  he  confidently  may  rely  for  his  support  during  his  continuance  in  office? so th« 
»dvantage?Ve  n°  apprehen9,on  lcst  his  8‘tuation  in  this  regard  may  be  changed  to  his  dis- 

S330  The - Constitution  was  framed  on  the  fundamental  theory  that  a larger  measure 
I • i .•  °‘  !berty  . Justice  would  be  assured  by  vesting  the  three  great  powers — the 
legislative,  the  executive,  and  the  judicial,— in  separate  departments,  each  relatively  inde- 
pendent  of  the  others;  and  it  was  recognized  that  without  this  independence— if  it  was 
not  made  both  real  and  enduring, — the  separation  would  fail  of  its  purpose.  All  agreed 
that  restraints  and  checks  must  be  imposed  to  secure  the  requisite  measure  of  independence- 
V*Ve  department,  .inherently  the  strongest,  might  encroach  on  o’r 
even  come  to  dominate  the  others,  and  the  judicial,  naturally  the  weakest,  might  be  dwarfed 
or  swayed  by  the  other  two,  especially  the  legislative. 

S381  The  particular  need  for  making  the  judiciary  independent  was  elaborately  pointed 
followingOU  by  A eXander  Hamllton  ln  ^e  Federalist,  No.  78,  from  which  we  excerpt  the 

rpi  “The  Executive  not  only  dispenses  the  honors,  but  holds  the  sword  of  the  community, 
the  legislature  not  only  commands  the  purse,  but  prescribes  the  rules  by  which  the  duties 
and  rights  of  every  citizen  are  to  be  regulated.  The  judiciary,  on  the  contrary,  has  no 
in  uence  over  either  the  sword  or  the  purse;  no  direction  either  of  the  strength  or  of  the 
the  wealth  of  the  society;  and  can  take  no  active  resolution  whatever.  It  may  truly 
be  said  to  have  neither  force  nor  will,  but  merely  judgment.  * * * This  simple  view 

ot  the  matter  suggests  several  important  consequences.  It  proves  incontestably  that  the 
judiciary  is  beyond  comparison  the  weakest  of  the  three  departments  of  power;  that 
it  can  never  attack  with  success  either  of  the  other  two;  and  that  all  possible  care  is  re- 
quisite  to  enable  it  to  defend  itself  against  their  attacks. ” 

“The  complete  independence  of  the  courts  of  justice  is  peculiarly  essential  in  a limited 
Constitution.  By  a limited  Constitution  I understand  one  which  contains  certain  specified 
exceptions  to  the  legislative  authority;  such,  for  instance,  as  that  it  shall  passr  no  bills 
ot  attainder,  no  ex  post  facto  laws,  and  the  like.  Limitations  of  this  kind  can  be  preserved 
in  practice  no  other  way  than  through  the  medium  of  courts  of  justice,  whose  duty  it  must 
be  to  declare  all  acts  contrary  to  the  manifest  tenor  of  the  Constitution  void.  Without 
this,  all  the  reservations  of  particular  rights  or  privileges  would  amount  to  nothing.” 
^382  At  a later  period  John  Marshall,  whose  rich  experience  as  lawyer,  legislator, 

V».  Co„v“  laM-'/sl"  p“  t0  !p“k  “ “ °"  d!e  c°“ld'  '""'y  said  (D'b*“ 

Advert,  Sir,  to  the  duties  of  a Judge.  He  has  to  pass  between  the  Government  and  the 
man  whom  that  Government  is  prosecuting:  between  the  most  powerful  individual  in 
the  community,  and  the  poorest  and  most  unpopular.  It  is  of  the  last  importance,  that 
in  the  exercise  of  these  duties,  he  should  observe  the  utmost  fairness.  Need  I press  the 
necessity  ot  this?  Does  not  every  man  feel  that  his  own  personal  security  and  the  security 
of  his  property  depends  on  that  fairness?  The  Judicial  Department  comes  home  in  its 
ettects  to  every  man  s fireside:  it  passes  on  his  property,  his  reputation,  his  life,  his  all. 
is  it  not,  to  the  last  degree  important,  that  he  should  be  rendered  perfectly  and  completely 
independent,  with  nothing  to  influence  or  control  him  but  God  and  his  conscience?  * * * 
1 have  always  thought,  from  my  earliest  youth  till  now,  that  the  greatest  scourge  an  angry 
Heaven  ever  inflicted  upon  an  ungrateful  and  a sinning  people,  was  an  ignorant,  a corrupt 
or  a dependent  Judiciary.” 

S383  More  recently  the  need  for  this  independence  was  illustrated  by  Mr.  Wilson, 
now  the  President,  in  the  following  admirable  statement: 

. , “ j a'so  necessary  that  there  should  be  a judiciary  endowed  with  substantial  and 
independent  powers  and  secure  against  all  corrupting  or  perverting  influences;  secure, 
also,  against  the  arbitrary  authority  of  the  administrative  heads  of  the  government. 

Indeed  there  is  a sense  in  which  it  may  be  said  that  the  whole  efficacy  and  reality  of 
constitutional  government  resides  in  its  courts.  Our  definition  of  liberty  is  that  it  is  the 
best_  practicable  adjustment  between  the  powers  of  the  government  and  the  privileges  of 
the  individual. 

Our  courts  are  the  balance-wheel  of  our  whole  constitutional  system;  and  ours  is 
the  only  constitutional  system  so  balanced  and  controlled.  Other  constitutional  systems 
lack  complete  poise  and  certainty  of  operation  because  they  lack  the  support  and  inter- 
pretation of  authoritative,  undisputable  courts  of  law.  It  is  clear  beyond  all  need  of 
exposition  that  for  the  definite  maintenance  of  constitutional  understandings  it  is  indis- 
pensable, alike  for  the  preservation  of  the  liberty  of  the  individual  and  for  the  preservation 


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Supplementary  Page  194. 


SUPREME  COURT  DECISIONS— 1918  ACT. 


of  the  integrity  of  the  powers  of  the  government,  that  there  should  be  some  non-political 
forum  in  which  those  understandings  can  be  impartially  debated  and  determined.  '1  hat 
forum  our  courts  supply.  There  the  individual  may  assert  his  rights;  there  the  government 
must  accept  definition  of  its  authority.  There  the  individual  may  challenge  the  legality 
of  governmental  action  and  have  it  adjudged  by  the  test  of  fundamental  principles,  and 
that  test  the  government  must  abide;  there  the  government  can  check  the  too  aggressive 
self-assertion  of  the  individual  and  establish  its  power  upon  lines  which  all  can  comprehend 
and  heed.  The  constitutional  powers  of  the  courts  constitute  the  ultimate  safeguard 
alike  of  individual  privilege  and  of  governmental  prerogative.  It  is  in  this  sense  that 
our  judiciary  is  the  balance  wheel  of  our  entire  system;  it  is  meant  to  maintain  that  nice 
adjustment  between  individual  rights  and  governmental  powers  which  constitutes  political 
liberty.”  Constitutional  Government  in  the  United  States,  pp.  17,  142. 

5384  Conscious  of  the  nature  and  scope  of  the  power  being  vested  in  the  national 
courts,  recognizing  that  they  would  be  charged  with  responsibilities  more  delicate 

and  important  than  any  ever  before  confided  to  judicial  tribunals,  and  appreciating  that 
they  were  to  be,  in  the  words  of  George  Washington1,  “the  keystone  of  our  political  fabric,’ 
the  convention  with  unusual  accord  incorporated  in  the  Constitution  the  provision  that 
the  judges  “shall  hold  their  offices  during  good  behavior  and  shall  at  stated  times  receive 
for  their  services  a compensation  which  shall  not  be  diminished  during  their  continuance 
in  office.”  Can  there  be  any  doubt  that  the  two  things  thus  coupled  in  place. — the  clause 
in  respect  of  tenure  during  good  behavior  and  that  in  respect  of  an  undiminishable  com- 
pensation— were  equally  coupled  in  purpose?  And  is  it  not  plain  that  their  purpose  was 
to  invest  the  judges  with  an  independence  in  keeping  with  the  delicacy  and  importance 
of  their  task  and  with  the  imperative  need  for  its  impartial  and  fearless  performance? 
Mr.  Hamilton  said  in  explanation  and  support  of  the  provision  (Federalist,  No.  79):  “Next 
to  permanency  in  office,  nothing  can  contribute  more  to  the  independence  of  the  judges 
than  a fixed  provision  for  their  support.  * * * In  the  general  course  of  human  nature, 

a power  over  a man’s  subsistence  amounts  to  a power  over  his  will.  * * * The  enlightened 

friends  of  good  government  in  every  state  have  seen  cause  to  lament  the  want  of  precise 
and  explicit  precautions  in  the  state  constitutions  on  this  head.  Some  of  these  indeed  have 
declared  that  permanent  salaries  should  be  established  for  the  judges;  but  the  experiment 
has  in  some  instances  shown  that  such  expressions  are  not  sufficiently  definite  to  preclude 
legislative  evasions.  Something  still  more  positive  and  unequivocal  has  been  evinced 
to  be  requisite.  * * * This  provision  for  the  support  of  the  judges  bears  every  mark 

of  prudence  and  efficacy;  and  it  may  be  safely  affirmed  that,  together  with  the  permanent 
tenure  of  their  offices,  it  affords  a better  prospect  of  their  independence  than  is  discoverable 
in  the  constitutions  of  any  of  the  States  in  regard  to  their  own  judges.”  The  several 
commentators  on  the  Constitution  have  adopted  and  reiterated  this  view2 — Judge  Story 
adding:  “Without  this  provision  [as  to  an  undiminishable  compensation],  the  other,  as 
to  the  tenure  of  office,  would  have  been  utterly  nugatory,  and  indeed  a mere  mockery;” 
and  Chancellor  Kent  observing:  “It  tends,  also,  to  secure  a succession  of  learned  men  on  the 
bench,  who,  in  consequence  of  a certain  undiminished  support,  are  enabled  and  induced 
to  quit  the  lucrative  pursuits  of  private  business  for  the  duties  of  that  important  station.  ’ 

5385  These  considerations  make  it  very  plain,  as  we  think,  that  the  primary  purpose 
of  the  prohibition  against  diminution  was  not  to  benefit  the  judges,  but,  like 

the  clause  in  respect  of  tenure,  to  attract  good  and  competent  men  to  the  bench  and  to 
promote  that  independence  of  action  and  judgment  which  is  essential  to  the  maintenance 
of  the  guaranties,  limitations  and  pervading  principles  of  the  Constitution  and  to  the 
administration  of  justice  without  respect  to  persons  and  with  equal  concern  for  the  poor 
and  the  rich.  Such  being  its  purpose,  it  is  to  be  construed,  not  as  a private  grant,  but  a» 
a limitation  imposed  in  the  public  interest;  in  other  words,  not  restrictively,  but  in  accord 
with  its  spirit  and  the  principle  on  which  it  proceeds. 

5386  Obviously,  diminution  may  be  effected  in  more  ways  than  one.  Some  may  be 
direct  and  other  indirect,  or  even  evasive  as  Mr.  Hamilton  suggested.  But  all 

which  by  their  necessary  operation  and  effect  withhold  or  take  from  the  judge  a part  of 
that  which  has  been  promised  by  law  for  his  services  must  be  regarded  as  within  the  pro- 
hibition. Nothing  short  of  this  will  give  full  effect  to  its  spirit  and  principle.  Here  the 
plaintiff  was  paid  the  full  compensation,  but  was  subjected  to  an  involuntary  obligation 
to  pay  back  a part,  and  the  obligation  was  promptly  enforced.  Of  what  avail  to  him  was 
the  part  which  was  paid  with  one  hand  and  then  taken  back  with  the  other?  Was  he  not 

S laced  in  practically  the  same  situation  as  if  it  had  been  withheld  in  the  first  instance? 

!nly  by  subordinating  substance  to  mere  form  could  it  be  held  that  his  compensation  was 
not  diminished.  Of  course,  the  conclusion  that  it  was  diminished  is  the  natural  one.  This. 


‘Sparks’  Washington,  Col.  X.,  pp.  35-36. 

s2  Story,  §1628;  1 Kent’s  Com.,*  294;  1 Wilson’s  Works,  410,  411;  2 Tucker,  §364; 
Miller,  340-343;  1 Carson’s  Supreme  Court,  6. 


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Supplementary  Page  195. 


SUPREME  COURT  DECISIONS— 1918  ACT. 


has  „ch  effect  7 A \ whlC/1  8ecures.  to  the  officer  in  its  entireness?  It  certainly 
S387  But  k ifurt-H  fTyf  a7  °f  ? statc.  lm,?osing  such  a ta*  cannot  be  constitutional.” 
and  that  a like  r y ''  13t  tbe  ? alfntl/  was  'nade  to  pay  back  was  an  income  tax, 
S3RR  I 7h  ‘ was  exacted  of  others  engaged  in  private  employment. 

388  in  the  tax V! -reSpefct  °f  h!s  compensation  be  prohibited,  it  can  find  no  justification 
doing  what  the  A„.  t f ° ‘^  '"com.e  as  to  whlch  there  is  no  prohibition;  for,  of  course, 
S3RQ  The  L°n?\'tu\lon  Pcnn.ts  g.ves  no  license  to  do  what  it  prohibit 

again,?,1!!  j?n  ■'*  Se.neTal’  n°  exccPtinS  words  and  appears  to  be  directed 

for  its  adomion  a, °n-’  wtletherL  for  one  Purpose  or  another;  and  the  reasons 
assigned  at  the  tune  and  commonly  accepted  ever  since,  make 
Dro  i?  Pd in  bf , ? I the.conclus“?"  that  the  fathers  of  the  Constitution  intended  to 
of  the  iudv?  ? Tf  57  axatlorl  as  wel1  as  otherwise,— that  they  regarded  the  independence 
their  silanes  ^ greater  lmPortance  than  any  revenue  that  could  come  from  taxing 

S390  1 rue,  the  taxing  power  is  comprehensive  and  acknowledges  few  exceptions.  But 

•errled  I?  r /??  are  ttle  one  we  here  recognize  and  sustain,  is  well 

? Lo!lec‘or  v.  Day  11  Wall.  113,  it  was  held  that  Congress  could  not  impose 

Loan  d T , r re??5CTT°cth?  *a' lary  °f  3 Judge  of  a 8tate  court;  in  Pollack  v.  Farmers' 
Loand  Trust  Co.,  157  U.  S.  429,  585,  601,  652,  653,  it  was  held-the  full  court  agreeing 

° F ‘ IT" t— that  ■ Congress  was  without  power  to  impose  such  a tax  in  respect  of  interest 
J7«IwV?m  bpn?S  ‘S?^d  b,sf,?,t,ate  °r  any  of  ks  counties  or  municipalities;  and  in 
Sir  /u  V ■ *allr?aud  p?"  17  Wall.  322,  there  was  a like  holding  as  to  municipal  revenues 

erned  by  the  city  of  Baltimore  from  its  ownership  of  stock  in  a railroad  company.  None 
ot  those  decisions  was  put  on  any  express  prohibition  in  the  Constitution,  for  there  is  none; 
but  all  recognized  and  gave  effect  to.  a prohibition  implied  from  the  independence  of  the 
otates  within  their  own  spheres. 

■S391  When  we  consider,  as  was  done  in  those  cases,  what  is  comprehended  in  the 
,.  , congressional  power  to  tax, — where  its  exertion  is  not  directly  or  impliedly  inter- 

■ 1CFe  a’  11  becomes  additionally  manifest  that  the  prohibition  now  under  discussion  was 
intended  to  embrace  and  prevent  diminution  through  the  exertion  of  that  power;  for,  as 
rePeated,y  has  held,  the  power  to  tax  carried  with  it  “the  power  to  embarrass 
•and  destroy;’’  may  be  applied  to  every  object  within  its  range  “in  such  measure  as  Congress 
ma\  determine;  enables  that  body  “to  select  one  calling  and  omit  another,  to  tax  one 
cla8S. ir  BroPer*-y  and  to  forbear  to  tax  another;”  and  mav  be  applied  in  different  ways 
to  different  objects  so  long  as  there  is  “geographical  uniformity”  in  the  duties,  imposts 
and  excises  imposed.  McCulloch  v.  Maryland , 4 Wheat.  316,  431;  Pacific  Insurance  Co. 
v.  Soule,  7 Wall.  433,  443;  Austin  v.  The  Alderman,  7 Wall.  694,  699;  Veazie  Bank  v. 
tenno  8 Wall.  533,  541,  548;  Knowlton  v.  Moore,  178  U.  S.  41,  92,  106;  Treat  v.  IF  kite, 
181  U.  S.  264,  268-269;  McCray  v.  United  States,  195  U.  S.  27,  61;  Flint  v.  Stone  Tracy 
D 'i2Q^'n'  107>  I58l  Billings  v.  United  States,  232  U.  S.  261,  282;  Brushaber  v.  Union 
Pacific  R.  R.  Co.,  240  LI.  S.  1,  24-26.  Is  it  not  therefore  morally  certain  that  the  discerning 
statesmen  who  framed  the  Constitution  and  were  so  sedulously  bent  on  securing  the 
independence  of  the  judiciary  intended  to  protect  the  compensation  of  the  judges  from 
assault  and  diminution  in  the  name  or  form  of  a tax?  Could  not  the  purpose  of  the  pro- 
hibition be  wholly  thwarted  if  this  avenue  of  attack  were  left  open?  Certainly  there  is 
nothing  in  the  words  of  the  prohibition  indicating  that  it  is  directed  against  one  legislative 
power  and  not  another;  and  in  our  opinion  due  regard  for  its  spirit  and  principle  requires 
that  it  be  taken  as  directed  against  them  all. 

S392  This  view  finds  support  in  rulings  in  Pennsylvania,  Louisiana  and  North  Carolina 
made  under  like  constitutional  restrictions,  Commonwealth  ex  ret.  v.  Mann,  5 Watts 
& Serg.  403,  415,  et  seq.*;  New  Orleans  v.  Lea,  14  La.  Ann.  197;  48  N.  C„  Appendix; 
N.  C.  Public  Documents  l899,_Doc.  No.  8,  p.  95;  131  N.  C.  692;  Purnell  v.  Page,  133  N.  C. 
125,  and  has  strong  sanction  in  the  actual  practice  of  the  Government,  to  which  we  now 
advert. 


*The  tax  condemned  was  levied  under  a provision,  in  a general  revenue  law,  charging 
a tax  of  two  per  cent,  “upon  all  salaries  and  emoluments  of  office,  created  or  held  by  or 
under  the  constitution  or  iaws  of  this  commonwealth,  and  by  or  under  any  incorporation, 
institution,  or  company  incorporated  by  the  said  commonwealth,  where  such  salaries  or 
emoluments  exceed  two  hundred  dollars.”  Act  No.  232,  §2,  Penn.  Laws  1840,  p,  613; 
Act  No.  117,  §9,  Penn.  Laws  1841,  p.  310. 


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Supplementary  Page  196. 


SUPREME  COURT  DECISIONS— 1918  ACT. 


5393  No  attempt  was  made  to  tax  the  compensation  of  federal  judges  prior  to  1862. 
A.  statute  of  that  year,  c.  119,  §86,  12  Stat.  472,  with  its  amendments,  subjected 

the  salaries  of  all  civil  officers  of  the  United  States  to  an  income  tax  of  three  per  cent,  and 
was  construed  >y  the  revenue  officers  as  including  the  compensation  of  the  President 
and  the  judges.  Chief  Justice  Taney,  the  head  of  the  judiciary,  wrote  to  the  Secretary  of 
the  Treasury  a letter  of  protest  (157  U.  S.  701),  based  on  the  prohibition  we  are  considering 
and  in  the  course  of  the  letter  said: 

“l’he  act  in  question,  as  you  interpret  it,  diminishes  the  compensation  of  every  judge 
three  per  cent,  and  if  it  can  be  diminished  to  that  extent  by  the  name  of  a tax,  it  may  in 
the  same  way  be  reduced  from  time  to  time  at  the  pleasure  of  the  legislature. 

•\“The  Judiciary  is  one  of  the  three  great  departments  of  the  government,  created  and 
established  by  the  Constitution.  Its  duties  and  powers  are  specifically  set  forth,  and  are 
of  a character  that  requires  it  to  be  perfectly  independent  of  the  two  other  departments, 
and  in  order  to  place  it  beyond  the  reach  and  above  even  the  suspicion  of  any  such  influ- 
ence, the  power  to  reduce  their  compensation  is  expressly  withheld  from  Congress,  and 
excepted  from  their  powers  of  legislation. 

“Language  could  not  be  more  plain  that  than  used  in  the  Constitution.  It  is  more- 
over one  of  its  most  important  and  essential  provisions.  For  the  articles  which  limit 
the  powers  of  the  legislative  and  executive  branches  of  the  government,  and  those  which 
provide  safeguards  for  the  protection  of  the  citizen  and  his  person  and  property,  would 
be  of  little  value  without  a judiciary  to  uphold  and  maintain  them,  which  was  free  from 
every  influence,  direct  or  indirect,  that  might  by  possibility  in  times  of  political  excitement 
warp  their  judgments. 

“Upon  these  grounds  I regard  an  act  of  Congress  retaining  in  the  Treasury  a portion 
of  the  compensation  of  the  judges,  as  unconstitutional  and  void.” 

5394  The  collection  of  the  tax  proceeded,  and,  at  the  suggestion  of  the  Chief  Justice, 
this  court  ordered  his  protest  spread  on  its  records.  In  1869  the  Secretary  of  the 

Treasury  referred  the  question  to  the  Attorney  General  (Judge  Hoar)  and  that  officer 
rendered  an  opinion  in  substantial  accord  with  Chief  Justice  Taney’s  protest,  and  also 
advised  that  the  tax  on  the  President’s  compensation  was  likewise  invalid.  13  Op.  A.  G. 
161.  The  tax  on  the  compensation  of  the  President  and  the  judges  was  then  discontinued, 
and  the  amounts  theretofore  collected  were  all  refunded, — apart  through  administrative 
channels  and  a part  through  the  action  of  the  Court  of  Claims  and  ensuing  appropriations 
by  Congress.  Wayne  v.  United  States,  26  Ct.  Cls.  274;  c.  311,  27  Stat.  306.  Thus  the 
Secretary  of  the  Treasury,  the  accounting  officers,  the  Court  of  Claims  and  Congress  ac- 
cepted and  gave  effect  to  the  view  expressed  by  the  Attorney  General.  In  the  Income  Tax 
Act  of  1894,  c.  349,  §27,  et  seq.,  28  Stat.  509,  nothing  was  said  about  the  compensation 
of  the  judges;  but  Mr.  justice  Field  regarded  it  as  included  and  gave  that  as  one  reason 
for  joining  in  the  decision  holding  the  act  unconstitutional.  157  U.  S.  604-606.  On  the 
rehearing  the  Attorney  General  (Mr.  Olney)  frankly  said  in  his  brief:  “There  has  never  been 
a doubt  since  the  opinion  of  Attorney  General  Hoar  that  the  salaries  of  the  President  and 
judges  were  exempt.”  The  income  tax  acts  of  1913,  1916  and  1917  (c.  16,  38  Stat.  168; 
c.  463,  39  Stat.  758;  c.  63,  40  Stat.  329)  severally  excepted  the  compensation  of  the  judges 
then  in  office, — also  that  of  the  President  for  the  then  current  term.  In  short,  during  a 
period  of  more  than  one  hundred  and  twenty  years  there  was  but  a single  real  attempt 
to  tax  the  judges  in  respect  of  their  compensation,  and  that  attempt  soon  was  disapproved 
and  pronounced  untenable  by  the  concurring  action  of  judicial,  executive  and  legislative 
officers.  And  so  it  is  apparent  that  in  the  actual  practice  of  the  Government  the  prohibition 
has  been  construed  as  embracing  and  preventing  diminution  by  taxation. 

5395  Does  the  Sixteenth  Amendment  authorize  and  support  this  tax  and  the  attendant 
diminution;  that  is  to  say,  does  it  bring  within  the  taxing  power  subjects  there- 
tofore excepted?  The  court  below  answered  in  the  negative;  and  counsel  for  the  Govern- 
ment say,  “It  is  not,  in  view  of  recent  decisions,  contended  that  this  Amendment  rendered 
anything  taxable  as  income  that  was  not  so  taxable  before.”  We  might  rest  the  matter 
here  but  it  seems  better  that  our  view  and  the  reasons  therefor  be  stated  in  this  opinion, 
even  if  there  be  some  repetition  of  what  recently  has  been  said  in  other  cases. 

5396  Preliminarily  we  observe  that,  unless  there  be  some  real  conflict  between  the 
Sixteenth  Amendment  and  the  prohibition,  in  Article  III,  section  1,  making  the 

compensation  of  the  judges  undiminishable,  effect  must  be  given  to  the  latter  as  well 
as  to  the  former;  and  also  that  a purpose  to  depart  from  or  imperil  a constitutional  principle 
so  widely  esteemed  and  so  vital  to  our  system  of  government  as  the  independence  of  the 
judiciary  is  not  lightly  to  be  assumed. 

5397  In  Knowllon  v.  Moore,  supra,  p.  95,  this  court  said:  “The  necessities  which  gave 
birth  to  the  Constitution,  the  controversies  which  preceded  its  formation,  and 

the  conflicts  of  opinion  which  were  settled  by  its  adoption,  may  properly  be  taken  into 
view  for  the  purpose  of  tracing  to  its  source  any  particular  provision  of  the  Constitution, 
in  order  thereby  to  be  enabled  to  correctly  interpret  its  meaning.”  This  sound  rule  is 
as  applicable  to  the  Amendments  as  to  the  provisions  of  the  original  Constitution. 

Income  Tax 

Supplementary  Page  197. 


SUPREME  COURT  DECISIONS— 1918  ACT. 


53 98  Let  us  turn  then  to  the  circumstances  in  which  this  Amendment  was  proposed 
and  rat‘^ec*  anc*  tc!  t^le  controversy  it  was  intended  to  settle.  By  the  Constitution 

all  direct  taxes  were  required  to  be  apportioned  among  the  several  states  according  to 
their  population,  as  ascertained  by  a census  or  enumeration  (Art.  I,  §2,  cl.  3,  and  §9,  cl.  4), 
but  no  such  requirement  was  imposed  as  to  other  taxes.  And  apart  from  capitation  taxes’ 
with  which  we  now  are  not  concerned,  no  rule  was  given  for  determining  what  taxes  were 
direct  and  therefore  to  be  apportioned,  or  what  were  indirect  and  not  within  that  require- 
ment. Controversy  ensued  and  ultimately  centered  around  the  right  classification  of 
income  from  taxable  real  estate  and  from  investments  in  taxable  personal  property.  The 
matter  then  came  before  this  court  in  Pollock  v.  Farmers'  Loan  & Trust  Co.,  157  U.  S.  429; 
158,  U.  S.  601;  and  the  decision  when  announced  disclosed  that  the  same  differences 
in  opinion  existing  elsewhere  were  shared  by  the  members  of  the  court, — five,  the  controlling 
number,  regarding  a tax  on  such  income  as  in  effect  a direct  tax  on  the  property  from 
which  it  arose  and  therefore  as  requiring  apportionment,  and  four  regarding  it  as  indirect 
and  not  to  be  apportioned.  Much  of  the  law  then  under  consideration  had  been  framed 
according  to  the  latter  view  and  because  of  this  and  the  adjudged  inseparability  of  other 
P°r^i?inS-  en*’re  ^aw  was  held  invalid.  Afterwards,  to  enable  Congress  to  reach  all 
taxable  income  more  conveniently  and  effectively  than  would  be  possible  as  to  much  of 
it  if  an  apportionment  among  the  States  were  essential,  the  Sixteenth  Amendment  was 
proposed  and  ratified.  In  other  words,  the  purpose  of  the  Amendment  was  to  eliminate 
all  occasion  for  such  an  apportionment  because  of  the  source  from  which  the  income  came, — 
a change  in  no  wise  affecting  the  power  to  tax  but  only  the  mode  of  exercising  it.  The 
message  of  the  President1  recommending  the  adoption  by  Congress  of  a joint  resolution 
proposing  the  Amendment,  the  debates2  on  the  resolution  by  which  it  was  proposed,  and 
the  public  appeals3 — corresponding  to  those  in  the  Federalist — made  to  secure  its  rati- 
fication leave  no  doubt  on  this  point.  And  that  the  proponents  of  the  Amendment  in 
drafting  it  lucidly  and  aptly  expressed  this  as  its  object  is  shown  by  its  words: 

The  Congress  shall  have  power  to  iay  and  collect  taxes  on  incomes,  from  whatever 
source  derived,  without  apportionment  among  the  several  states,  and  without  regard  to 
any  census  or  enumeration.” 

5399  True,  Governor  Hughes,  of  New  York,  in  a message  laying  the  Amendment 
before  the.  legislature  of  that  State  for  ratification  or  rejection,  expressed  some 

apprehension  lest  it  might  be  construed  as  extending  the  taxing  power  to  income  not 
taxable  before:  but  his  message  promptly  brought  forth  from  statesmen  who  participated 
in  proposing  the  Amendment  such  convincing  expositions  of  its  purpose4 *,  as  here  stated, 
that  the  apprehension  was  effectively  dispelled  and  ratification  followed. 

5400  Thus  the  genesis  and  words  of  the  Amendment  unite  in  showing  that  it  does  not 

. extend  the  taxing  power  to  new  or  excepted  subjects,  but  merely  removes  all  occa- 

sion otherwise  existing  for  an  apportionment  among  the  States  of  taxes  laid  on  income, 
whether  derived  from  one  source  or  another6.  And  we  have  so  held  in  other  cases. 

5401  In  Brushaber  v.  Union  Pacific  R.  R.  Co.,  240  U.  S.  1,  where  the  purpose  and 
effect  of  the  Amendment  were  first  drawn  in  auesiton  the  Chief  Justice  reviewed 

at  length  the  legislative  and  judicial  action  which  prompted  its  adoption  and  then,  referring 
to  its  text  and  speaking  for  a unanimous  court,  said,  pp.  17-18: 

“It  is  clear  on  the  face  of  this  text  that  it  does  not  purport  to  confer  power  to  levy  income 
taxes  in  a generic  sense — an  authority  already  possessed  and  never  questioned — or  to 
limit  and  distinguish  between  one  kind  of  income  taxes  and  another,  but  that  the  whole 
purpose  of  the  Amendment  was  to  relieve  all  income  taxes  when  imposed  from  apportion- 
ment from  a consideration  of  the  source  whence  the  income  was  derived.  Indeed  in  the 
light  of  the  history  which  we  have  given  and  of  the  decision  in  the  Pollock  Case  and  the 
ground  upon  which  the  ruling  in  that  case  was  based,  there  is  no  escape  from  the  con- 
clusion that  the  Amendment  was  drawn  for  the  purpose  of  doing  away  for  the  future  with 
the  principle  upon  which  the  Pollock  Case  was  decided,  that  is,  of  determining  whether  a 
tax  on  income  was  direct  not  by  a consideration  of  the  burden  placed  on  the  taxed  income 
upon  which  it  directly  operated,  but  by  taking  into  view  the  burden  which  resulted  on  the 


‘Cong.  Rec.,  Vol.  44,  p.  3344. 

2 Cong.  Rec.,  Vol.  44,  pp.  1568-1570,  3377,  3900,  4067,  4105-4107,  4108-4121,  4389-4441. 

’Cong.  Rec.,  Vol.  45,  pp.  1694-1699,  2245-2247,  2539-2540. 

4Cong.  Rec.,  Vol.  45,  pp.  1694-1699,  2245-2247,  2539-2540. 

6In  passing  the  income  tax  law  of  1919  Congress  refused  to  treat  interest  received  from 
bonds  issued  by  a State  or  any  of  its  counties  or  municipalities  as  within  the  taxing  power, 
Cong.  Rec.,  vol.  57,  pp.  553,  774-777,  2988;  ch.  18,  §213,  40  Stat.  1065;  and  in  the  regula- 
tions issued  under  that  law  the  administrative  officers  recognize  that  the  salaries  and  emolu- 
ments of  the  officers  of  a State  and  its  political  subdividions  are  not  taxable  by  the  United 
States.  Reg.  45,  Published  1920,  pp.  47,  313. 


Income  Tax 

Supplementary  Page  198. 


SUPREME  COURT  DECISIONS— 1918  ACT. 


property  from  which  the  income  was  derived,  since  in  express  terms  the  Amendment 
provides  that  income  taxes,  from  whatever  source  the  income  was  derived,  shall  not  be 
subject  to  the  regulation  of  apportionment.” 

5402  What  was  there  said  was  reaflirmed  and  applied  in  Stanton  v.  Baltic  Mining 
Co.,  240  U.  S.  103,  112-1 13,  and  Peck  & Co.  v.  Lowe,  247  U.  S.  165,  172;  and  in 

Eisner  v.A/ acomber,  189  U.S.252,  decided  at  the  present  term,  we  again  held,  citing  the  prior 
cases  that  the  Amendment  “did  not  extend  the  taxing  power  to  new  subjects,  but  merely 
removed  the  necessity  which  otherwise  might  exist  for  an  apportionment  among  the  States 
of  taxes  laid  on  income.” 

5403  After  further  consideration,  we  adhere  to  that  view  and  accordingly  hold  that  the 
Sixteenth  Amendment  does  not  authorize  or  support  the  tax  in  question. 

5404  Apart  from  his  salary,  a federal  judge  is  as  much  within  the  taxing  power  as  other 
men  arc.  If  he  has  a home  or  other  property,  it  may  be  taxed  just  as  if  it  belonged 

to  another.  If  he  has  an  income  other  than  his  salary,  it  also  may  be  taxed  in  the  same 
way.  And,  speaking  generally,  his  duties  and  obligations  as  a citizen  are  not  different 
from  those  of  his  neighbors.  But  for  the  common  good — to  render  him,  in  the  words  of 

iohn  Marshall,  “perfectly  and  completely  independent,  with  nothing  to  influence  or  control 
im  but  God  and  his  conscience” — his  compensation  is  protected  from  diminution  in  any 
form,  whether  by  a tax  or  otherwise,  and  is  assured  to  him  in  its  entirety  for  his  support. 
S405  The  court  below  concluded  that  the  compensation  was  not  diminished,  and 
regarded  this  an  inferable  from  our  decisions  in  Peck  & Co.  v.  Lowe , 247  U.  S. 
165,  174-175,  and  United  States  Glue  Co.  v.  Oak  Creek,  ibid.  321,  329.  We  think  neither 
case  tends  to  support  that  view.  Each  related  to  a business — one  to  exportation,  the  other 
to  interstate  commerce — which  the  taxing  power — of  Congress  in  one  case,  of  a State  in 
the  other — was  restrained  from  directly  burdening;  and  the  holding  in  both  was  that  an 
income  tax  laid,  not  on  the  gross  receipts,  but  on  the  net  proceeds  remaining  after  all 
expenses  were  paid  and  losses  adjusted,  did  not  directly  burden  the  business,  but  only 
indirectly  and  remotely  affected  it.  Here  the  Constitution  expressly  forbids  diminution 
of  the  judge’s  compensation,  meaning,  as  we  have  shown,  diminution  by  taxation  as  well 
as  otherwise.  The  taxing  act  directs  that  the  compensation — the  full  sum,  with  no  deduc- 
tion for  expenses — be  included  in  computing  the  net  income,  on  which  the  tax  is  laid.  If 
the  compensation  be  the  only  income,  the  tax  falls  on  it  alone;  and,  if  there  be  other  income, 
the  inclusion  of  the  compensation  augments  the  tax  accordingly.  In  either  event  the 
compensation  suffers  a diminution  to  the  extent  that  it  is  taxed. 

S406  We  conclude  that  the  tax  was  imposed  contrary  to  the  constitutional  prohibition 
and  so  must  be  adjudged  invalid. 

Judgment  Reversed. 

(Dissenting  opinion  in  Evans  vs.  Gore,  above.) 

Mr.  Justice  Holmes,  dissenting. 

S407  This  is  an  action  brought  by  the  plaintiff  in  error  against  an  acting  Collector 
of  Internal  Revenue  to  recover  a portion  of  the  income  tax  paid  by  the  former. 
The  ground  of  the  suit  is  that  the  plaintiff  is  entitled  to  deduct  from  the  total  of  his  net 
income  six  thousand  dollars,  being  the  amount  of  his  salary  as  a judge  of  the  District  Court 
of  the  United  States.  The  Act  of  February  24,  1919,  c.  18,  §210,  40  Stat.  1057,  1062,  taxes 
the  net  income  of  every  individual,  and  §213,  p.  1065,  requires  the  compensation  received 
by  the  judges  of  the  United  States  to  be  included  in  the  gross  income  from  which  the  net 
income  is  to  be  computed.  This  was  done  by  the  plaintiff  in  error  and  the  tax  was  paid 
under  protest.  He  contends  that  the  requirement  mentioned  and  the  tax,  to  the  extent 
that  it  was  enhanced  by  consideration  of  the  plaintiff’s  salary,  are  contrary  to  Article  3, 
Section  1,  of  the  Constitution,  which  provides  that  the  compensation  of  the  judges  shall 
not  be  diminished  during  their  continuance  in  office.  Upon  demurrer  judgment  was  entered 
for  the  defendant,  and  the  case  comes  here  upon  the  single  question  of  the  validity  of  the 
above  mentioned  provisions  of  the  act. 

S4O8  The  decision  below  seems  to  me  to  have  been  right  for  two  distinct  reasons:  that  . 

this  tax  would  have  been  valid  under  the  original  Constitution,  and  that  if  not  so 
it  was  made  lawful  by  the  Sixteenth  Amendment.  In  the  first  place  I think  that  the  clause 
protecting  the  compensation  of  judges  has  no  reference  to  a case  like  this.  The  exemption 
of  salaries  from  diminution  is  intended  to  secure  the  independence  of  the  judges,  on  the 
ground,  as  it  was  put  by  Hamilton  in  the  Federalist  (No.  79,)  that  ‘a  power  over  a man’s 
subsistence  amounts  to  a power  over  his  will.’  That  is  a very  good  reason  for  preventing 
attempts  to  deal  with  a judge’s  salary  as  such,  but  seems  to  me  no  reason  for  exonerating 
him  from  the  ordinary  duties  of  a citizen,  which  he  shares  with  all  others.  To  require  a 
man  to  pay  the  taxes  that  all  other  men  have  to  pay  cannot  possibly  be  made  an  instru- 
ment to  attack  his  independence  as  a judge.  I see  nothing  in  the  purpose  of  this  clause 


Income  Tax 

Supplementary  Page  199. 


SUPREME  COURT  DECISIONS— 1918  ACT. 


of  the  Constitution  to  indicate  that  the  judges  were  to  be  a privileged  class,  free  from 
bearing  their  share  of  the  cost  of  the  institutions  upon  which  their  well-being  if  not  their 
liie  depends. 

S409  I see  equally  little  in  the  letter  of  the  clause  to  indicate  the  intent  supposed.  The  tax 

on  net  incomes  is  a tax  on  the  balance  of  a mutual  account  in  which  there  always  are 
some  and  may  be  many  items  on  both  sides.  It  seems  to  me  that  it  cannot  be  affected  by 
an  inquiry  into  the  source  from  which  the  items  more  or  less  remotely  are  derived.  Obviously 
there  is  some  point  at  which  the  immunity  of  a judge’s  salary  stops,  or  to  put  it  in  the 
anguage  of  the  clause,  a point  at  which  it  could  not  be  said  that  his  compensation  wai 
diminished  by  a charge.  If  he  bought  a house  the  fact  that  a part  or  the  whole  of  the 
Price  “a(^  been  Paic*  front  his  compensation  as  judge  would  not  exempt  the  house.  So 
it  he  bought  bonds.  Yet  in  such  cases  the  advantages  of  his  salary  would  be  diminished, 
liven  it  the  house  or  bonds  were  bought  with  other  money  the  same  would  be  true,  since 
the  money  would  not  have  been  free  for  such  an  application  if  he  had  not  used  his  salary 
to  satisfy  other  more  peremptory  needs.  At  some  point,  I repeat,  money  received  as 
sa  ary  loses  it  specific  character  as  such.  Money  held  in  trust  loses  it  identity  by  being 
mingled  with  the  general  funds  of  the  owner.  I see  no  reason  why  the  same  should  not  be 
true  of  a salary.  But  I do  not  think  that  the  result  could  be  avoided  by  keeping  the  salary 
distinct.  I think  that  the  moment  the  salary  is  received,  whether  kept  distinct  or  not,  it 
becomes  part. of  the  general  income  of  the  owner,  and  is  mingled  with  the  rest,  in  theory 
ot  aw,  as  an  item  in  the  mutual  account  with  the  United  States.  I see  no  greater  reason 
or  exempting  the  recipients  while  they  still  have  the  income  as  income  than  when  they 
have  invested  it  in  a house  or  bond. 

S4  1 O 1 he. decisions  heretofore  reached  by  this  Court  seem  to  me  to  justify  my  con- 
. elusion  . In  Peck  & Co.  v.  Lowe,  247  U.  S.  165,  a tax  was  levied  by  Congress  upon  the 

income  of  the  plaintiff  corporation.  More  than  two-thirds  of  the  income  v ere  derived  from 
exports  and  the  Constitution  in  terms  prohibits  any  tax  on  articles  exported  from  any 
otate.  By  construction  it  had  been  held  to  create  ‘a  freedom  from  any  tax  which  directly 
burdens  the  exportation,’  Fairbank  v.  United  States,  181  U.  S.  283,  293.  The  prohibition 
was  unequivocal  and  express,  not  merely  an  inference  as  in  the  present  case.  Yet  it  was 
held  unanimously  that  the  tax  was  valid.  “It  is  not  laid  on  income  from  exportation  in  a 
discriminative  way,  but  just  as  it  is  laid  on  other  income.  * * * There  is  no  dis- 

crimination. At  most,  exportation  is  affected  only  indirectly  and  remotely.  The  tax  is 
levied.  * * after  the  recipient  of  the  income  is  free  to  use  it  as  he  chooses.  Thus 

what  is  taxed — the  net  income  is  as  far  removed  from  exportation  as  are  aiticles  intended 
for  export  before  the  exportation  begins.”  247  U.  S.  174,  175.  All  this  applies  with  even 
greater  force  when,  as  I have  observed,  the  Constitution  has  no  words  that  forbid  a tax. 
In  united  States  Glue  Co.  v.  Oak  Creek,  247  U.  S.  321,  329,  the  same  principle  was  affirmed 
as  to  interstate  commerce  and  it  was  said  that  if  there  was  no  discrimination  against  such 
commerce  the  tax  constituted  one  of  the  ordinary  burdens  of  Government  from  which  parties 
were  not  exempted  because  they  happened  to  be  engaged  in  commerce  among  the  States. 
S4  1 1 A second  and  independent  reason  why  this  tax  appears  to  me  valid  is  that,  even 
if  I am  wrong  as  to  the  scope  of  the  original  document,  the  Sixteenth  Amendment 
justifies  the  tax,  whatever  would  have  been  the  law  before  it  was  applied.  By  that  amend- 
ment Congress. is  given  power  to  “collect  taxes  on  incomes  from  whatever  source  derived.” 
It  is  true  that  it  goes  on  “without  apportionment  among  the  several  States,  and  without 
regard  to  any  census  or  enumeration,”  and  this  shows  the  particular  difficulty  that  led  to  it. 
But  the  only  cause  of  that  difficulty  was  an  attempt  to  trace  income  to  its  source,  and  it 
seems  to  me  that  the  Amendment  was  intended  to  put  an  end  to  the  cause  and  not  merely 
to  obviate  a single  result.  I. do  not  see  how  judges  can  claim  an  abatement  of  their  income 
tax  on  the  ground  that  an  item  in  their  gross  income  is  salary,  when  the  power  is  given 
expressly  to  . tax  incomes  from  whatever  source  derived. 

Mr.  Justice  Brandies  concurs  in  this  opinion. 

Darlington  vs.  Mager,  Cohector. 

£(41  Sup.  Ct.  533.) 

®4 1 2 [This  was  a suit  for  the  refund  of  the  amount  of  tax  alleged  to  have  been  erron- 
eously assessed  and  collected  under  the  Revenue  Act  of  1918  on  so  much  of  the 
price  received  by  plaintiff  on  the  sale  in  1919  of  certain  shares  of  stock  which  he  had 
purchased^as  an.investment  prior  to  March  1,  1913,  and  so  continuously  held  to  the  time 
of  sale,  as’was  in  excess  of  the  fair  market  value  thereof  on  March  1,  1913.  The  collector’s 
demurrer  to.the  plaintiff’s  declaration  was  sustained  (February  1,  1921)  by  the  United 
States  District  Court  for  the  Northern  District  of  Illinois,  Eastern  Division.  (No  opin- 
ion.) Writ  of  error  issued  February  1,  1921.] 

The  United  States  Supreme  Court  on  April  18,  1921,  affirmed  the  decision  of  the  lower 
court,  sustaining  the  Government  on  the  authority  of  cases  decided  March  28,  1921.  Per 
•curiam.  The  cases  referred  to  are  those  appearing  at  fS313,  1[S346,  1fS360,  and  1[S364, 
(herein. 

Income  Tax 

Supplementary  Page  200. 


SUPREME  COURT  DECISIONS— 1918  ACT. 


United  States  vs.  Woodward. 

(41  Sup.  Ct.  615.) 

(T.  D.  3195.  July  13,  1921.) 

Mr.  Justice  Van  Devanter  delivered  the  opinion  of  the  Court. 

S413  This  is  an  appeal  from  a judgment  in  favor  of  the  executors  of  Joseph  H.  Woodward, 
deceased,  for  money  claimed  to  have  been  erroneously  exacted  from  them  as  a tax 
on  the  income  of  his  estate  while  in  their  hands. 

S4  1 4 The  testator  died  December  15,  1917.  The  Revenue  Act  of  1916  “imposed  upon 
the  transfer  of  the  net  estate  of  every  dedecent”  dying  thereafter  a tax  which  it 
called  an  “estate  tax.”  The  act  fixed  the  amount  of  the  tax  at  a named  percentage  “of  the 
value  of  the  net  estate,”  made  the  tax  a lien  upon  the  “entire  gross  estate,”  required  that 
it  be  paid  “out  of  the  estate”  before  distribution,  declared  that  it  should  “be  due  one 
year  after  the  decedent’s  death,”  charged  the  executor  or  administrator  with  the  duty  of 
paying  it,  and  declared  that  the  receipt  therefor  should  entitle  him  to  a credit  for  the 
amount  in  the  usual  settlement  of  his  accounts.  Under  that  act  these  executors  were 
required  to  pay  an  estate  tax  of  $489,834.07.  The  tax  became  due  December  15,  1918,  and 
they  paid  it  February  8,  1919.  Shortly  thereafter  the  executors  made  a return,  under  the 
Revenue  Act  of  1918,  of  the  income  of  the  testator’s  estate  for  the  taxable  year  1918  and 
claimed  in  the  return  that  in  ascertaining  the  net  income  for  that  year  the  estate  tax  of 
$489,834.07  should  be  deducted.  The  Commissioner  of  Internal  Revenue  refused  to  allow 
the  deduction  and  assessed  an  income  tax  of  $165,075.78  against  the  estate.  Had  the 
deduction  been  allowed  there  would  have  been  no  taxable  net  income  for  that  year  and  no 
part  of  the  $165,075.78  would  have  been  collectible.  Payment  of  that  sum,  as  so  assessed, 
was  pressed  on  the  executors  and  they  paid  it  under  duress.  Then,  after  taking  the  necessary 
steps  to  entitle  them  to  do  so,  they  brought  this  suit  in  the  Court  of  Claims  to  recover  the 
money  thus  exacted  from  them. 

5415  The  sole  question  for  decision  is,  was  the  estate  tax  paid  by  the  executors,  and 
claimed  by  them  as  a deduction  in  the  income  tax  return  for  the  year  1918,  an 

allowable  deduction  in  ascertaining  the  net  taxable  income  of  the  estate  for  that  year? 
The  Court  of  Claims  held  that  it  was.  56  Ct.  Cl.  opinion.  No.  34734. 

5416  The  solution  of  the  question  turns  entirely  upon  the  statutory  provisions  under 
which  the  two  taxes  were  severally  collected.  The  Act  of  1918,  by  Secs.  210,  211 

and  219,  subjects  the  net  income  “received  by  estates  of  deceased  persons  during  the 
period  of  administration  or  settlement”  to  an  income  tax  measured  by  fixed  percentages 
thereof;  by  Secs.  212  and  219  requires  that  the  net  income  be  ascertained  by  taking  the 
gross  income,  as  defined  in  Sec.  213,  and  making  the  deductions  named  in  Sec.  214,  and  by 
Sec.  214  makes  express  provision  for  the  deduction  of  “taxes  paid  or  accrued  within  the 
taxable  year  imposed  (a)  by  the  authority  of  the  United  States,  except  income,  war-profits 
and  excess-profits  taxes.”  This  last  provision  is  the  important  one  here.  It  is  not  ambigu- 
ous, but  explicit,  and  leaves  little  room  for  construction.  The  words  of  its  major  clause  are 
comprehensive  and  include  every  tax  which  is  charged  against  the  estate  by  the  authority 
of  the  United  States.  The  excepting  clause  specifically  enumerates  what  is  to  be  excepted. 
The  implication  from  the  latter  is  that  the  taxes  which  it  enumerates  would  be  within  the 
major  clause  were  they  not  expressly  excepted,  and  also  that  there  was  no  purpose  to 
except  any  others.  Estate  taxes  were  as  well  known  at  the  time  the  provision  was  framed 
as  the  ones  particularly  excepted.  Indeed,  the  same  act,  by  secs.  400-410,  expressly 
provides  for  their  continued  imposition  and  enforcement.  Thus  their  omission  from  the 
excepting  clause  means  that  Congress  did  not  intend  to  except  them. 

S4  1 7 The  act  of  1916  calls  the  estate  tax  a “tax”  and  particularly  denominates  it  an 
“estate  tax.”  This  court  recently  has  recognized  that  it  is  a duty  or  excise  and  is 
imposed  in  the  exertion  of  the  taxing  power  of  the  United  States.  New  York  Trust  Co.  v. 
Eisner,  U.  S.  It  is  made  a charge  on  the  estate  and  is  to  be  paid  out  of  it  by  the 
administrator  or  executor  substantially  as  other  taxes  and  charges  are  paid.  It  becomes 
due  not  at  the  time  of  the  decedent’s  death,  as  suggested  by  counsel  for  the  Government, 
but  one  year  thereafter,  as  the  statute  plainly  provides.  It  does  not  segregate  any  part  of 
the  estate  from  the  rest  and  keep  it  from  passing  to  the  administrator  or  executor  for 
purposes  of  administration,  as  counsel  contend,  but  is  made  a general  charge  on  the  gross 
estate,  and  is  to  be  paid  in  money  out  of  any  available  funds  or,  if  there  be  none,  by  con- 
verting other  property  into  money  for  the  purpose. 

S418  Here  the  estate  tax  not  only  “accrued,”  which  means  became  due,  during  the 
taxable  year  of  1918,  but  it  was  paid  before  the  income  for  that  year  was  returned 
or  required  to  be  returned.  When  the  return  was  made  the  executors  claimed  a deduction 
by  reason  of  that  tax.  We  hold  that  under  the  terms  of  the  act  of  1918  the  deduction 
should  have  been  allowed. 

Judgment  Affirmed. 


Income  Tax 

Supplementary  Page  201. 


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. f OS  sg/.'i  nninsr-  riqqud 


GENERAL INDE 


6-6-22. 


Form 

No. 

23 

843 

1000 

1001 

1001A 

1001 B 

1001C 

1012 

1013 

1040 
1040 A 

1040B 

1040C 

1040E 

1040F 

1041 

1042 

1058 

1059 
1065 
1065 A 
1065B 

1078 

1086 

1087 

1096 

1096 A 

1096B 

1099 

1115 

1116 

1117 

1118 

1119 

1120 


TABLE  OF  FORMS. 

For  the  use  of  specified  forms  see  at  1,  Index  Page  20. 

Reproduced  on 

Designation  Supplementary  Page 

Application  for  admission  to  practice  before  the  Treasury  De- 
partment (See  Revised  Circular  230,  at  1)3174) . 283 

Claim  for  abatement;  claim  for  credit;  claim  for  refund  (Dis- 
places old  Forms  46,  47  and  47A) 205 

Ownership  Certificate— Tax  to  be  paid  at  source.  207 

Ownership  Certificate— Tax  not  to  be  paid  at  source— Dom- 
estic securities 208 

Ownership  Certificate— Tax  not  to  be  paid  at  source— Foreign 

securities ; ;••• 209 

Statement  of  income  received  by  nonresident  alien  from  sources 

within  United  States 246 

Nonresident  alien — Exemption  certificate ; 259 

Monthly  return  of  tax  withheld  at  source — Bond  interest  ...  251 

Annual  return  of  tax  withheld  at  source — Bond  interest 252 

Individual  income  tax  return  for  net  income  of  more  than  $5,000  22 1 

Individual  income  tax  return  for  net  income  of  not  more  than 

$5,000 211 

Nonresident  alien  individual  return  for  taxable  year  1921.  . . . 271 

Resident  and  nonresident  alien  individual  income  tax  return,  for 

taxable  period  1922,  for  net  incomes  of  not  more  than  $5,000  258 

Schedule  for  citizen  entitled  to  benefits  of  Sec.  262 293 

Schedule  of  farm  income  and  expenses 215 

Fiduciary  return  of  income 229 

Annual  return  of  tax  withheld  at  source— Salaries,  wages,  etc..  253 

Substitute  certificate— Tax  not  to  be  paid  at  source 249 

Substitute  certificate— Tax  to  be  paid  at  source _ 250 

Partnership  and  Personal  Service  Corporation  return  of  income  235 
Partnership  return  of  income  for  fiscal  year  ending  in  1922.  . . 289 

Personal  Serv'ce  Corporation  income  tax  return  for  fiscal  year 

ending  in  1922 ■_ .••••• 285 

Certificate  of  alien  claiming  residence  in  United  States 282 

Ownership  and  exemption  certificate — Foreign  corporation.  . . . 248 

Ownership  certificate — Disclosing  actual  owner  of  stock 295 

Annual  information  return  summary — Salaries,  wages,  interest, 

rent,  etc ^ 19 

Monthly  information  return— Bond  interest  and  foreign  divi- 
dends  

Annual  information  return— Bond  interest  and  foreign  divi- 
dends  257 

Annual  information  return— Salaries,  wages,  interest,  rent,  etc. . 210 

Claim  by  nonresident  alien  for  benefit  of  personal  exemption 

of  $1,000 ; ;•.•  • • 2*1 

Claim  for  credit  for  foreign  taxes  paid — Individuals 267 

Bond — In  connection  with  claim  on  Form  1116. 260 

Claim  for  credit  for  foreign  taxes  paid — Corporations 261 

Bond — In  connection  with  claim  on  Form  1118 281 

Corporation  income  and  profits  tax  return 239 

( Continued  on  Supplementary  Page  204.) 


The  Federal  Income  Tax  Service 
Supplementary  Page  203. 


TABLE  OF  FORMS.— Concluded. 


Form 

No. 

1120A 

1120L 

1122 

1126 

1127 


. . Reproduced  on 

^ . . Designation  Supplementary  Page 

Corporation  income  and  profits  tax  return  for  fiscal  year 

ending  in  1922 275 

Life  insurance  company  income  tax  return 265 

Information  return  of  subsidiary  or  affiliated  corporation 245 

Certificate  of  inventory 255 

Application  for  extension  of  time  for  payment  of  deficiency  in 

227 


tax. 


The  Federal  Income  Tax  Service 
Supplementary  Page  204. 


g-f-22. 


TREASURY  DEPARTMENT 
Internal  Revenue  Sebvice 
Form  043  Jan  . l»2S 
Comptroller  Ornernl  U.  S. 
January  18,  1922 


IMPORTANT 
Flit  with  Collector  of  Internal 
Rtoenut  where  assessment  was 
made  Not  accept  able  unless 
completely  filled  tn. 


Stole  of 
County  of . 


CLAIM  FOR 

I I ABATEMENT  OF  TAX  ASSESSED 

L I CREDIT  AGAINST  OUTSTANDING  ASSESSMENTS 

I I REFUND  OF  TAXES  ILLEGALLY  COLLECTED 

I I REFUND  OF  AMOUNTS  PAID  FOR  STAMPS 

USED  IN  ERROR  OR  EXCESS 


NOTICE  TO  COLLECTOR 


f COLLECTOR'S  NOTATION 


. Date  reeeioed 


Account  number 


Coilttlt  of  Inland  Rtrenut 


(Name  o(  taxpayer  or  purchaser  of  stamps.) 


(Residence— five  street  and  number  as  well  as  city  or  town  und  State.) 


(Business  address.) 


This  deponent,  bring  duly  sworn  according  to  law,  deposes  and  says  that  this  statement  is  made  on  behalf  of  the  taxpayer  named,  and 
that  the  facts  given  belyw  with  reference  to  said  statement  are  true  and  complete: 


1.  Business  in  which  engaged 

2.  Character  of  assessment  or  tax... 

(Stute  for  o 

3.  Amouut  of  assessment  or  stamps  purchased 


upon  what  the  tax  was  assessed  or  the  stamps  affixed.) 


«-~ 

4.  Reduction  of  Tax  Liability  requested  (Income  and  Profits  Tax) ~ $--- 

5.  Amount  to  be  abated I $ — 

<i.  Amount  to  be  refunded  (or  such  greater  amount  as  is  legally  refundable) .. — $~. 

7.  Dates  of  payment  (see  Collector’s  receipts  or  indorsements  of  canceled  checks) .. — - - 

(If  statement  covers  income  tax  liability,  items  8-11,  inclusive,  must  be  answered.) 

8.  District  in  which  return  (if  any)  was  filed - 

9.  District  in  which  unpaid  assessment  appears - 

10.  Amount  of  overpayment  claimed  as  credit - j - $--- 

11.  Unpaid  assessment  against  which  credit  is  asked;  period  from .....to 

Deponcut  verily  believes  that  this  application  should  be  allowed  for  the  following  reasons. 


(Attach  additional  sheets  U necessary.) 

Sworn  to  and  subscribed  beforo  me  this t day 

of 19 


Signed: 


(TUa  iddiflt  may  be  room  to  before  a Deputy  Collector  of  Internal  Revenue  or  Revenue  Agent  without  charge.)  *J— tiro* 

[Page  1 of  Form  843.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  205. 


CERTIFICATES 

I certify  that  an  examination  of  the  records  of  the  Bureau  of  Internal  Revenue  shows  the  following  facta  as  to 


the  assessment  and  payment  of  the  tax: 


r taxtater. 


Collector  of  Into  nal  Rivtnut. 
Assessment  Clerk,  Commiesiomr Office. 


I certify  that  the  records  of  my  office  show  the  following  facts  as  to  the  purchase  of  stamps: 


TO  WHOM  SOLD  OR  ISSUED 

Kind. 

Number 

Denomination 

D it*  of  sale 

If  r-pecial  tax 

'Z 

tamp,  state;  0 

Amount. 

Serial  number. 

commencing 

Schedule  Number 

Allowed  or  Rejected  Number . 

Claimant 

Address 


Claim  examined  by— 


Claim  approved  by— 


Collector District 


District . 


Examined  and  submitted  for  action - 19--- 

COMM3TTEE  ON  CLAIMS 


Amount  claimed.-.  $. 
Amount  allowed...  $... 
Amount  rejected...  $... 


[Page  2 of  Form  843. 


The  Federal  Income  Tax  Service 
Supplementary  Page  206. 


Schedule  No. 


2-9-22. 


The  Federal  Income  Tax  Service 
Supplementary  Page  2Q7. 


See  Instructions  on  Form  1012  1 Tax  should  be  withheld  at  rate  indicated.  2-11707  cvmuar ^,-fke 


o o 


X 

x 

1 

• 

1 

1 

1 

• 

X 

X 

X 

1 

1 

1 

I 

1 

1 

1 

1 

1 

1 

X 

1 

1 

« 

1 

1 

1 

1 

<A> 

X 

X 

X 

X 

X 

■3 1 

*g 

o © 

X 

~ s 

fH 

•* 

! 

1 

1 

1.  Individual  or  fiduciary 
( Personal  exemption  claimec 

2.  Individual  or  fiduciary 
(Not  subject  to  withholding 

3.  Partnership 

■ SO' 

■ n . 


® s ® 

Hs 

as-o 

O u © 

all 

o S © 

5®-2 

b£i^*0 


© 

a5  O 

•SS  © 

”a-a 

I"  8 

o £ S 

u w 
°-.2 

T3  '§ 

g © 3 

© © 2 M 

S^oS 

v-  22  3+* 

o S 0,s 
S5,Jo 

B ® ®3 

o55i 

S'15-12” 

^3-0  © © 
**  ® n'O 

1§*3 

Jess 

fga* 

© © 

►h-2  2- 
© 9 ® 


S"  r* 

g 

► § 
o-< 


5 « 

s 


The  Federal  Income  Tax  Service 
Supplementary  Page  208. 


1-16-22. 


SOIEOULEB.  EXPLANATION  OF  ITEM  5.  (Burin...  or  Frol 

Total  Income  from  Business 
Total  Business  Expenses  (sti 
Nkt  Pnom  (on  Loss) 

or  Profession 



— 

| 

| 

i 

D 

i 

1 

; 

| 

(If  profit  Is  less  than  usual,  explain)  . 

Explanation  of  business  expenses 


1-  KIM  of  property. 


9CHEWJU  C tXHjWATION  OF  ITEM  6.  {«.: 


ff  not  acquired  by  purchase,  state  how  acquired  . 


1.  Kind  of  property. 

2.  Date 
acquired. 

3.  Cost. 

4.  March  1 
value. 

1913, 

6.  Airfount 
received. 

6.  Net  profit 
(or  Joss). 







■ 1 it... 

If  not  acquired  by  purchaao,  state  how  acquired  . 


1.  Kind  of  property. 

2.  Cost,  or  MaYch 
1, 1913,  valuo. 

3.  Depreciation 
previously  taken. 

4.  Salvage  value.  5.  Insurance. 

6.  Net  loss. 



SCHEDULE  F — EXPLANATION  OF  DEDUCTIONS  CLAIMED  IN  ITEMS  1,  13,  14,  and  15.) 


1.  Arc  you  a citizen  or 
resident  of  the  United/ 

States? 

4.  Was  a separate 
return  filed  by  your 
husband  or  wife? 


2.  If  you  filed  a return  for  3.  Is  this  a joint 

1920,  to  what  Collector's  return  of  husband 

..  office  was  it  sent? ... ....  and  wife? 

If  so,  state:  (0)  Name  and  address 

(a)  Exemption  entered  at  head  of 

claimed,  ........  that  return. * ....; tmm. 

5.  Were  you  married  and  living  with  husband  6.  If  not,  were  you  on  the  last  day  of  your  taxable  period  supporting  one  or  more  persons 

or  wife  on  the  last  day  of  your  taxable  period? living  in  yqur  household  whcaare  closely  related  to  you  by  blood,  marriage,  or  adoption? ....... 

7.  How  many  do^endent  persons  (other  than  husband  or  wife)  under  18  years  of  age  or  Incapable  of  self-support  because 

mentally  or  physically  defective  were  rocoiving  their  chief  Support  from  you  on  the  last  day  of  your  taxable  period? 

8.  State  amount  of  dividends  received  P.  State  amount  of  10.  State  amount  of  interest  received  oh 

from  domestic  corporations  (including  interest  received  on  other  obligations  of  thb  United  States 

dividends  received  through  partner-  Victory  Liberty  (except  Liberty  Bonds)  on  a principal 

ships,  fiduciaries,  etc.) f ,^-a.y  Loan  4}%  Notes  . . . < a In  excess  of  So.OOfL . . ? 


I awtar  for  affirm)  that  this  return,  Including  the  accompanying  schedules  and  statements  (if  apy), has  been  oxamincd  by  me,  and.  to  the  best  nf  m / knowledge 
and  belief,  is  A true  and  complete  return,  made  in  good  faith,  lor  the  taxable  period  as  stated,  pursuant  tolhe  Revenue  Act  of  1921  and  tho  Regulations  issued  undoi 
authority  thereof.  - • 


(It  re l am  io  made  by  •sml.  the  reason  therefor  mint  t*  iUU4  on  l tun  hn».) 


Sworn  to  and  subscribed  beforo  mo  this day  of .. 


. ^Signature  o(  officer  ndnunutorinex-aUr.)  (Ti'tfer)  ' _*  ---.  '^*£33' 0|'indTv”du»!  *— y--w— 

(An  »rti*hded  return  mutt  be  plainly  marked  ‘'Amended”  across  the  face  cf  tho  return.)  y ling 


A040! 


[Page  2 of  Form  1040A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  212. 


1-1S-22. 


INSTRUCTIONS  FOR  INDIVIDUAL  RETURN 


•"  i;  ARSONS  REQUIRED  TO  MAKE  A RETURN  OF  INCOME. 

f ArHneonio  taxPehirn  must  be  filed  hr  every  cltlirn  of  tho  United  States 
Whether  residing  at  homo  or  abroad,  and  every  person  residing  in  tho  United 
' $t*t«r>,  though  not  a citl/o.n  thereof,  whose  gross  income  for  the  taxable  period 
1921  amounted  to$5,000,  or  a hose  net  Income  amounted  to— 

. . (o)  81.000  ifsinglo  or  If  married  and  not  living  with  husband  or  wife. 

(t>)  $2  000  If  married  and  living  with  husband  or  wife.  . 

. I|  the  combined  net  Income  of  husband,  wife,  and  dependent  mmor  chil- 
dren equalled  or  exceeded  $2,n00,  or  If  the  combined  cross  income  of  husband, 
wife,  and  dependent  minor  children  equalled  or  exceeded  $3,000 all  such  incotno 
must  t>«  reported  on  a Joint  return,  or  on  separate  returns  of  husband  and  wife, 
lfslngleand  the  net  Income, Includtngthatofdonendcnlminors.ifony, equalled 
or  exceeded  $1,000,  or  if  the  gross  income  equalled  or  exceeded  $->,000,  a return 
must  bo  filed.  A minor,  however,  having  a not  Incomo  of  $1,000  or  $2,000,  ac-  , 
cording  to  the  marital  status,  or  a cross  Income  of  $5,000,  must  Ole  p.  return. 

Under  each  of  tho  above  conditions,  a return  must  bo  filed  oven  though 
no  tax  Is  duo.  Note  especially  Instruction  8,  “Credits  for  l’orsonnl  Exemp- 
tion and  Depcndenta.’r 

The  Income  of  a minor  or  Incompetent,  If  dartvod  from  a separato  estate 
under  control  of  a guardian,  trustee,  or  other  fiduciary,  must  be  reported  by  his, 
cuerdi&n  or  other  local  representative. 

Income  of  (")  estates  of  decedents  before  final  settlement;  (6)  trusts,  whotber 
created  by  will  or  deed,  for  unascertained  persons  or  persons  with  contingent 
Interests;  or  Income  hold,  or  wbfch  under  tlm  terms  of  tho  will  cr  trust  mav  be 
held,  for  future  distribution,  Is  taxed  to  the  fidoriorv  as  a single  person,  except 
th.it  from  i he  Income  of  an  estate  t hero  may  first  l.e  deducted  any  amountprop- 
crl*  paid  or  credited  to  beneficiaries. 

If  the  net  Income  of  a decedent  from  the  beginning  of  tho  toxablo  period  ‘ 
to  (he  date  of  his  death  wasfl.oon,  If  unmarried,  or  $2,000,  If  married  and  livtog 


2.  WHEN  TO  USE  FORM  1040  INSTEAD  OF  THIS  FORM. 

You  am5t  file  tout  return  on  Form  1040—  ..... 

(а)  If  the  combined  net  Income  husband  and  wifo  exceeds  $5,000. 

(б)  lfvnur  net  Incomo  exceeds  55,000. 

(c)  I f the  net  Income  repo-tad  In  this  rerum  exceeds  $4,000  and  the  entire 
family  exemption  has  been  claimed  In  a separate  return  filed  by  husband 
or  wild. 

( j ) if  the  return  Is  filed  far  a pon-id  cf  less  than  one  rear  and  the  net  Incomo 
when  placed  on  an  annuel  basis  cxcoeds  Ift.ooo.  (Gee  Instruction  3 below  ) 

y.  PERIOD  TO  BE  COVERED  BY  RETURN. 

Your  return  mast  be  filed  for  the  calendar  year  ending  December’s!.  1921. 
or  for  the  fiscal  year  ending  on  tholasf  day  of  any  month  other  than  December. 
Th*  d*t«3  on  which  tho  pcrlr<d  covered  by  the  return  begins  and  ends,  if  olhet 
thin  a calendar  year,  must  bo  plainly  stated  at  tbe  head  o(  the  return 
You  were  required  to  file  your  return  foi  1918  on  the  basis  of  your  annual 
account  we  pwtod.  Havtngastablisbfd  an  aocoimtinp  period  for  Wlx  thfcperi'-Hi 
muM  be  adnered-ho  for  subsequent  years;  unions  permission  was  received  from 
ihaCommisdoner  to  make  ft  change  In  Lhocasoof  a return  for  a period  i f loss 
Th  tn  one  year.  tfienet  Ineomeshallbo  plvrd  on  an  annual  basis  bv  mul'  .pMng 
r he  amount  thereof  by  f wrlvo  and  dividing  by  the  number  of  men  tbs  included 
In  such  period:  and  tbe  tax  shall  be  such  part  of  a tax  computed  on  such  annual 
basis  as  the  number  of  moothslnsuch  period  is  of  twelve  months. 

, 4.  ACCRUED  OR  RECEIVED  INCOME. 

If' your  are  tent  on  an  ncr-rual  bads,  report  oil  Income 

accrued,  even  thonrh  ft  has  not  been  actually  received  cr  entered  on  the 
bonks,  and  expenses  Incurred  Instead  of  expeh'-ps  paid 
If  your  books  do  not  'how  Income  accrued  and  expenses  Incurred,  roryirt 
all  Income  received  or  constructively  received,  such  as  bank  Intcrev.  credited 
to  your  account,  and  expend  paid. 

S.  INSTALLMENT  SALES, 

If  you  have  used  the  Installment  method  in  computing  Income  trim  lo- 
it aliment  sale*  y«u  must  attach  to  vnur  return  ft  schedule  'howinc  separately 
for  lb*  years  I91\  1919,  1929,  and  19?l  the  following  In'crmation  (o)  Oross 
sales,  (b)  roit  of  goods  fold.  (r)  gross  profits;  ((f)  percentage  of  profits  to  gross 
sate;  (r)  amount  collected.  (J)  gross  profit  on  amount  coUerted. 

..  ITEMS  EXEMPT  FROM  TAX. 

The  following  item*  are  exempt  from  Federal  Income  tax  and  should  not 
be  reported,  unless  it  lx  desired  to  establish  a net  loss,  in  wluch  case  see  Section 
.TM  of  the  Revenue  Art  of  1071  > .......  . 

(o)  The  f.»  weeds  of  life  ia'urance  policies  paid  upon  tho  death  or  tbe  in-Jurao; 

- (b)  The  amount  received  bv  the  Injured  as  a return  of  premium  or  pram  hire* 

t>v  him  under  life  in'-urence,  endowment,  or  annuity  contract *.  either 
rfSrmg  the  firm  r.r  at  the  maturity  of  the  term  mentioned  In  the  contract  or 
upon  surrender  of  the  contract,  .....  , 

(r»  Gifts  (not  made  as  a consideration  for  service  rendered),  and  mcm«Y  and 
rroperty  acq.drad  under  a will  or  by  Inheritance  (bnt  tbe  lucerne  derived  fram 
m-vry  ' r property  received  by  gift,  will,  or  inheritance  Ls  tax  able  and  must  be 

^IrflTnrcrest  upon  fl)  the  obligations  of  a State,  T^tory  cr  any  political 
modi'  liion  thereof,  or  the  Distract  of  Columbia;  or  (?)  securities  Issued  under 
tbe  provisions  of  the  Vederal  FftTn  Loan  Act  of  July  T7,  1916;  or  Q)  the  ob-ija- 
lions  of  the  United  States  or  Its  passe«sfoof,  or  (♦)  bonds  Istajedby  the  wm 
H nance  Corpora  tic  n In  the  cara  of  obligations  of  the  United  Plates  It'11*} 
after  September  1.  1917  fother  than  postal  ravings  cert^cates  of  dopcwJt),  and 
in  the  cara  of  boods  Issued  by  the  war  Finance  Corporation,  the  Interest  Is 
exerant  >hlv  if  aod  to  tbe  extent  provided  In  the  respective  arts  authorizing 
ihe  ix«ue  thereof  as  amended  and  supplemented  by  Section  1328  of  the  Revenue 
Art  of  toil,  and  should  be  excluded  from  cross  incoms  <-nlv  If  an.l  to  the  ext  wit 
it  Is  wholly  exempt  to  tbe  taxpayer  from  Income,  war  profits,  and  excess  profits 

**(t)  Amounts  received  through  aerldent  or  health  Insurance  or  under  work- 
ui*D‘e  compensation  acts,  as  compensation  for  persona)  Injuries  or  xickniB-v  plus 
the  amount  of  any  iiim^i  reeled,  w bather  ny  suit  or  on  account 

of  euch  in  Juries  w’-ricimras;  »— 


i tho  last  day  of  such  taxable  period.  (See 


(/)  Amounts  received  n ■ • '.ncn  a'-  farnHy  allotment*  nnd  »UowOTca$ 
under  i he  provision > of  thn  U .r  KlT  Insurance  and  tho  \ ocHllooal  2fSS&l!S5r 
ti  'ii  MU.  or  os  portion- from  tu»  Uni'od  ites  for  .rvlco  of  the  ^ncfidery 
or  another  in  tho  military  or  nr  ab/orces  of  th«*  United  St-'tcs  In  Uroo  of  tv ar- 
(D  Tho  rental  ' slue  of  a d a oiling  hnu  ,o  and  appurtenances  tne.cof  furnished 

^(M^-unpem  aUnVpaCl  bVft  St  of  o or' poll  t .cm'  u Ml  vision  thereof  to  its  officers 
or  employees. 

7.  FARMER'S  INCOME  3CHLDULE. 

Tf  v u 3rr-  a farmer  ern  fc.nn  owner  rontine yourfarm  out  on  shares  and  keej 

,10  or  •••'.•p  lxv.ka  on  a -ah  h-.-i;.  obtain  from  tho  Collector, 

and  afi  " h to  ini . return,  Form  U>!0  1 . Schedule  of  T inn  Income  and  Expense^ 
Enter  the  i-t  firm  income  an  Item  5,  pare  l nt  tho  ratdia.  If  yOUr  Prm 
. books  of  :ic  ..lint  are  kept  on  an  accrual  Iv  ‘.(ho  fling  of  k or  m W0  FIs  optional. 
Report  incomo  from  salaries,  Interest,  rent  , -ale.  of  property,  ete.,  ui  Itcau  1 1 
7 of  tho  return. 

S.  CREDITS  FOR  PERSONAL  EXEMPTION  AND  DEPENDENTS. 

If  you  were  mor-IM  and  living  with  yobr  husband  or  wife  or  wore  heart 
of  a family  on  the  last  day  of  y'xir  taxable  period,  you  may  subtract  from  your 
net  Income  on  Form  10I0A,  befora  calculating  your  normal  tax,  an  exemption 
of  $2,500,  phis  ?;00  for  ra,  h person  (oilier  than  husband  or  wife)  undci  J8  yeara 
of  age  or  inrapablo  of  self  -import  hactute  iiieutr>lljr  or  phyMcalty  defect  i'0,  who 
vas  receiving  Ills  chief  support  from  you  on  that  date.  If  lur-band  «nd  »li) 
make  separate  returns,  tbo  oxenq  tlon  of  *2,500  may  bo  claimed  by  cither  (but 
not  by  both)  or  may  ho  divided  between  them,  but  tho  exemption  "I  $400  for 
each  dependent  may  beclafmed  only  by  the  person  furnishing  thechief  support. 

If  you  wore  not  marriod  or  did  not  live  with  husband  or  wife  and  wero 
not  h<*nd  of  a family  on  tho  last  dey  of  your  taxablo  period,  you  are  entitled  to 
a personal  exemption  of  *l,0CO  plus  $ifo  for  each  dependent  Pjr*>a  under  1$ 
•years  ofago  or  incapable  of  self-support  because  mentally  or  physically  defec- 
tive, who  "was  receiving  his  chlefsopuorl  fr°™  y°u  oa  1rL,AA  iQ 

Am  exemption  of  Jl.iWt  may  bo  claimed  in  cases  where  form  1040A  13  QJed 
for  estates  In  process  of  administration,  or  with  respect  to  incomo  held  for  future 
distribution.  ...  »i.j 

If  by  re.i3on  of  a chango  in  your  accounting  period  a return  Is  filed  for 
part  of  a year,  tbe  personal  exemption  ®od  Credit  tor  dependents  may  be  claimed 
In  accordanoe  with  your  st  ilus  on  the  last  day  of  such  taxable  period,  (b-ee 

also  Instruction  3 rn  thl ; page.)  

A "head  offanulv"  la  a person  who  actually  supports  one  or  1 more ptfWug 
living  in  his  (or  her  j household,  who  are  closely  related  to  him  (or  ber)  by  bfood, 
mamaga,  er  adoption. 

9.  AFFIDAVIT. 

Tho  affidavit  must  bo  executed  by  tho  person  whose  Income  Is  reported 
unlr.x3  he  i9  a minor  or  Incomoo'en1,  cir  unl®^  he  isill,  abseni  from  tbe  country, 
or  otherwise  incapacitated,  in  which  case  the  legal  representative  or  agent  may 
execute  the  affidavit.  A minor,  however,  making hi3  own  return,  must  execute 

' Tho 'oath  will  ho  adminisler.vi  without  charge  by  any  collector  deputy 
collector,  nr  Internalrevcnuo  agent,  or  (if  you  arc  In  the  military  or  navaloorvire 
of  tbo  United  ?t  itcx;byuny  military  or  navalr.n-.ccr  a hois  a l'horaod  to  admin- 
ister oaths  for  purn'^cs  of  military  or  naval  justice  and  adnunistration . If  an 
Int^rnalrevenuo  oibter  is  not  available,  tbe  rc:urn  should  be  Jworn  to  before  a 
notory  public,  justice  of  the  peace,  or  other  person  authorized  to  administer 
oaths. 

10.  WHEN  AND  WHERE  THE  RETURN  MUST  BE  FILED. 

If  thereturniafor  the  calendar  year  1921,  file  it  with  tho  Collector  of  Internal 
Revenue  for  tbe  district  in  which  you  live  or  have  your  principal  place  ef  bo3tn«» 
on  or  before  March  15,  1922.  If  for  a period  other  than  the  calendar  year,  tb* 
return  should  be  hied  on  or  before  the  15th  day  of  the  third  month  following  tho 
dose  of  such  period.  . , , 

In  case  the  taxpayer  had  no  l^-al  residence  or  place  of  business  in  the 
United  States,  the  return  should  be  forwarded  to  the  Collector  of  Internal  Rev*, 
one,  Baltimore,  MJ.  , , . 

Ijr  the  address  of  the  collector  is  not  printed  on  the  return  and  you  do  not 
taww  it,  usk  at  the  post  office  or  baok. 

IL  WHEN  AND  TO  WHOM  THE  TAX  MUST  BE  PAID. 

Tho  lax  should  bo  paid,  if  posxiblo,  bv  sending  or  bringing  with  the  return 
a check  or  money  order  drawn  to  the  order  of  "Collector  of  Internal  Revenue 
at  f insert  name  of  citv  and  State).'’  , _ 

Do  not  send  cash  through  the  mail,  or  pay  u in  person,  except  at  tbe  office 

Tbe  tax  may  bo  paid  in  f-*ur  c lual  installments  as  follows:  Tho  first  Install- 
ment a hail  be  pail  at  the  nmefked  by  law  for  filing  the  return  the  second 
tnstailmen  t shall  tiboajd  on  the  Lth  dav  of^ r hethird  month,  the  third  installment 
on  the  ISth  d>y  of  the  sixth  moolh.  and  the  fourth  mstallroeut  on  the  IHh  day 
of  the  ninth  month  afrir  tho  time  fixed  by  law  lor  filing  therotorn. 

Tbe  total  tax  may  b-  p&.-l  et  the  lime  of  filing  thurcturn.or  U not  so  paid, 
one  installment  must  l*o  paid  and  tho  balance  may  be  paid  in  installments,  or 
In  hull  oner  prior  toanv  iubsoquent  inrtallncnt  daierafcrrod  to  above,  mum 
tot»7  any  Installment  on  the  d.i'.c  tLxed  b>  la"  makes  the  la.-rpayerbahlo  forth* 
payment  of  tbe  baian»  of  tax  duo  upoa  notice  in'!  demand  by  tho  collector. 

U-  PENALTIES. 

For  Making  Fala*  or  Fraudulent  Return*. 

Not  exceeding  tld.900  or  not  PXco^d.ne  one  v car's  imprisonment,  or  both. 
In  thedlscrarionof  tho  court,  and.  in  adaitlon,  50  per  cj  ntum  ofthe  tax  evaded 

For  Failing  to  M*ke  Return  on  Time- 

Not  more  than  ll.oon,  and,  to  acidl'^on,  25  per  oehtum  of  the  total  tax. 

For  Falling  to  Par  To*  WSen  D-je,  or  Underatstamant  of  TuTh rou^b 

Neg!iy*-*ce.  etc. 

rt-ra  per  e*nt  of  t'-"  *ax  due  but  unpaid,  plus  Interest  at  tb«  rate  of  1 par 
jantnxnx^r  month  during  fV'  f-°ri  -1  in  which  jt  remains  unpaid. 


!{Page'3  of.Fotm  1040A.I 


The  FederaLin^onie  Tax  Service 
SuppI'enSenfary  Paee  213, 


1-19-2E. 


13.  INCOME  FROM  SALARIES,  WAGES,  COMMISSIONS,  ETC. 

llcpoit  all  solorlcF  or  o'.b'-r  oompW'lllon  rrolitr*l  ly  or  recolvol  from 
otjlSuJo  • sources.  and  i»oy  salaries  (npludrd  as  a dWOction  In  lU-ro  6 nr 
t>\)  \ our-wtf , (9 ) your  Wlio  (or  huibsnd).  > f a Joint  return  l*.  filed,  n:id  (r ) M'h 
-icpcn-Rut  minor  child  buvlru;  ft  D<-t  Incr-m©  of  Ws  thin  $l/>  *>  r-cr  annum. 

I „i  i 'u-p.iruiolim-  tor  Mch  n'ry.  riving  tbe  Inforn  itioa  DVjuestH. 

Koy  amount  claimed  os  a deduction  tor  necessary  e»peoM  ? 'jvaln<t  ...  i'l«, 
ct«  . should  he  fully  explained  iu  Schrduio  F,  page  2 of  tho  return,  or  iu  an 
attached  rtatrmont.  A ..  . . . , ... 

Traveling  e*  proxoaClnotadtng  the  entire  amount  expended  tormrar.  and  Ju<>c- 
Itty)  while  away  from  hern*  In  il.c*  pursuit  of  a tru-Jo  or  business  are  deductible. 

14.  INCOME  FROM  PARTNERSHIPS.  FIDUCIARIES,  ETC* 

Report  your  sharo  (whether  reertved  or  rot)  la  the  profits  of  a partner- 
ship or  porccoal  servlos  corporation,  or  In  tho  Income  of  an  estate  or  trust, 
except  tho  pari  of  such  share  that  coexisted  c-f  dividends  on  slock  of  domestic 
< erporstloa.',  apd  taxable  Intcre-t  on  obligations  of  tbe  Vailed  States,  which 
•.h  'Uld  be  Included  In  Hems  8,9,  and  ip.  at  foot  of  pipe  2 of  the  return. 

Report  In  Item  1,  sa.i~.ry  receive  1 from  a partnership  or  personal  scrvlro 
• .*poral|ot». 

if  tbe  taxable  period  on  tbe  bus's  of  which  you  file  your  return  falls  to 
oinc.de  with  tbe  ucnunl  accounting  period  of  the  partner-nip,  person *1  sorv'eo 
f'.rporatlon.  or  fiduciary.  ibtn  vcm:  should  Include  in  vour  return  vour  div 
trtbutlve  shore  of  tho  total  net  income  lor  such  occounUnc  period,  ending 
within  your  taxable  period. 

IS.  INCOME  FROM  RENTS  AND  ROYALTIES. 

If  you  received  property  or  crops  In  lieu  of  cash  reo*.  report  the  Income  as 
though  the  rent  hart  been  received  in  cash.  Crops  received  as  rent  on  a crop- 
•h:.ro  basis  should  be  reported  as  income  lor  the  year  ia  which  disposed  of 
(unless  your  return  showslncome  accrued ; 

F.xplaiu  In  Schedule  A,  repairs,  depreciation,  depletion  and  other  expenses. 

< >tb*r  expenses  Include  interest,  taxes,  fire  insurance,  fuel,  light,  labor,  and 
>ther  ueoossary  expeases  of  this  character. 

1C.  INCOME  FROM  BUSINESS  OR  PROFESSION. 

Report  In  Item  6 Income  from— 

(a)  Bale  of  merchandise,  or  of  products  of  manufacturing,  construction,  tula- 
iry.  and  agriculture. 

(!«>  Business  smlc  . 

'estairrant  service,  livery  and  garage  s ..  ..... 

If  vou  are  only  an  employee  of  a business, report  your  salary  or  wogesln  Item  1, 

(c)  A profession,  6ucb  as  medicine,  law,  or  dentistry.  I » you  practiced  it  oa 
vour  own  account.  U you  wero  employed  oa  a salary,  report  your  salary  la 
It  m 1. 

cum-5'expensrs ’for  labor,  rcDt,  etc. 

If  you  are  a farmer  (or  a farm  owner  renting  your  farm  to  another  person  on 
sb  -rts),see  Instruction  7.  „ * 

Describe  the  business  or  nrofe^.lon,  os  "grocery,”  ' retail  clothing,”  "drug 
afore,”'1  launary,”  '■doctor,*'  ••lawyer,”  "farmer,”  etc. 

Report  the  total  income  derived  from  sales  or  from  services,  less  any  discounts 
or  allowance*  from  the  salo  price  or  scrvtco  charge.  (For  installment  sales  see 
Instruction  5 ) 

• Total  Business  Expenses”  include;  (1)  cost  of  goods  sold,  which  Is  usually 
obtolr.fd  by  adding  to  the  Inventory  at  tho  beg.cning  of  the  vrar  the  mei- 
c handle  ond  supplies  purchased  during  the  year,  and  deducting  from  ibis 
■•jin  tbe  inventory  at  tbe  end  of  tbe  year.  (2)  business  ex  peases,  winch  Includo 
.11  ordinary  and  necessary  business  expenses  not  classified  above,  such  as 
( ffJco  wages,  rent,  heat,  light,  and  traveling  oxpenses  (He  Instruction  13;, 
(3)  repairs,  wear  and  tear,  obsolescence,  depletion,  end  property  lossrs  <o*hrr 
than  mm  handle),  such  as  (a)  ordinary  repairs  rtsouired  to  keep  property 
In  usable  cond.tsn,  (t)  reasoaablo  allowance  for  exhaustion  wear  ar.d  tear 
of  property  used  in  the  trade  or  business,  Includirg  a reasonable  allowance  for 
obsolt-sccDce,  ftrcl  (c)  losses  of  business  property  bv  Ore  storm,  or  olhcrcafflalty, 
or  theft,  not  compensated  for  by  Insurance  or  otherwise  ar.d  not  m&d&Odoc!  by 
repairi  cLiimed  <-s  deductions;  end  (4)  bed  dobts,  or  portions  thereof,  arising 
from  silts  or  professional  services  that  have  been  reported  os  Income,  which, 
have  Won  definitely  ascertained  to  T=er  worThTaS'acd  charred  oil  within  tho 
year,  or  such  reasonable  amount  as  has  Wen  added  to  a rcscr-e  for  tad  debts 
within  tbe  veer.  A debt  previously  charged  ofl  as  bad,  If  subsequently  col- 
hctcO.  must  be  returned  os  Income  for  the  year  In  which  collected.  Explain 
t b**«i.*  deductions  under  Schedule  B,  page  2 of  the  return. 

Do  not  Include  cost  of  business  equipment  or  furniture,  expenditures  for 
replacements  or  for-permauei-t  Improvements  to  property,  or  personal  h'-lng 
or  family  expenses,  Duran  v deduction  for  depreciation  la  the  value  of  a build* 
lag  occupied  by  you  as  a dwelling,  or  of  other  property  held  for  personal  use. 

If  Item  5 shows  a deficit,  Indicate  by  using  redink  or  a minus  aign, 

17.  PROF'T  FROM  SALE  OF  REAL  ESTATE. 

Describo  tho  property  briefly,  as  "farm,”  "house,”  •'lot,'* 

State  tho  actual  consideration  or  prh-o  rrrnwd,  or,  la  case  of  an  oxchango, 
tho  fair  market  value  of  th*  property  received. 


Enter  the  qrlgfml  cost  of  tbe  property,  and  If  It  was  vqulrod  pHqr  W 
M-irrti  1 ion  the  fair  market  value  oa  that  data.  Attach  statement  explain- 
io-  ho/'  va'ue  at  M irvh  1,  1911,  was  determined.  ExpenseslnrHental  to tha 
purchase  m iy  bo  Ire!  ided  In  the  cost  If  never  clalmecl  Inlncomo  tax  returns 
as  deduction*-  from  income.  . . t . . , . _ 

Kutt-r  US  droM  Ciatien  the  amount  of  wear  aed  tear  and  ot'-ol^cencc,  or 
dfph-tt'*i,  V!  • ,:r..d  -.(nee  March  1,  1913  (or  alncs  date  of  acquisition,  If  suW 

**?n  Vr-MhV  prow-rVv  v v,  acquired  by  gift,  boqur jt,  devi'«e,  or  Inheritance 
nfti  r M .n  h l , l'*i  l,  or  in  any  manner  prior  to  that  data,  see  8*ctlon  2i/2  of  tbe 

^IfVh^hOt  result* to  bo  cnlired  In  Item  8 Is  a deductible  loss,  Indicate  tha 
deficit  by  using  rod  ini:  or  a minus  sign. 

18.  PROFIT  FROM  SALE  OF  STOCKS,  BONDS.  ETC. 

Tho  xnothod  of  computation  and  the  Information  to  be  submittod  In  tha 
coe  of  suits  of  stocks,  bonds,  etc.,  Ij  similar  to  that  required  for  Item  8, 
except  that  subsequent  improvements  and  depreciation  aro  not  Involved.  Tho 
profit  (or  loss;  should  bo  computed  in  accordanco  with  Instruction  17  above. 

19.  OTHER  INCOME. 

Report-all  other  taxable  Income  for  whJch  no  piece  Ij  provided  elsewhere 
on  page  1 of  the  return,  Including  dividends  received  on  jtock  ot  foreign  cor- 
porations. Dividends  received  on  stork  of  dome- 'lc  corporations  and  taxable 
interest  on  obligations  of  the  United  States  should  bo  reported  in  Items  8,9, 
and  10  at  the  loot  of  pago  2 c-f  the  return. 

20.  INTEREST  PAID. 

Enter  u Tt*m  10  Interest  ptd-1  on  personal  Indebtedness  as  distinguished 
from  boatnem  Indebtedness  (which  should  .e  deducted  on  dor  Schedules  A , B, 
C or  D).  Do  not  Include  Interest  on  Indebtedness  lorurred  for  tho  purchase 
oi  bonds  ond  other  ohlla&tloas,  the  interest  on  which  la  exempt  from  tax 
c xceni  Interest  on  indebtedness  incurred  to  purchaso  or  carry  obUgfttiocn  of 
the  United  Hui«  Issued  aftar  September  24, 1917,  aad  originally  subscribed 
for  by  the  taxpayer. 

21.  TAXES  PAID. 

Enter  oa  Item  11  personal  taxe3  paid  and  all  taxes  on  property  not  used 
In  business  or  profession,  not  including  those  assessed  agalrut  local  benefits 
of  a kind  tenalng  to  Increase  iho  value  of  the  property.  Do  not  Include 
Federal  Income  taxes,  toxes  Imposed  upon  the  taxpayer  upon  bLs  Interest  as 
shareholder  or  mem Wr  of  a corporation,  which  are  paid  by  the  oorporatlor) 
without  reimbursement  from  the  taxpayer,  nor  income  and  profits  taxes 
claimed  as  a credit  in  Item  23,  pare  1 of  ihe  return. 

12.  LOSSES  BY  FIR£,  STORM,  ETC. 

Enter  &9  Item  12  losses  of  property  not  connected  with  your  trade,  business, 
or  profession,  sustained  during  the  year  from  fire,  storm,  shipwreck,  or  other 
casualty,  or  from  theft,  whlrh  were  not  compensated  for  l>y  Imun.uro  or  other- 
wd.«?  (l-osse3  claimed  should  be  explained  in  Schedule  E,  on  page  i of  the 
return  ) 

Do  not  deduct  loaaa  Incurred  in  transactions  which  wore  neither  connected 
with  your  trade  or  ouxlness,  nor  entered  into  for  profit. 

2X  CONTRIBUTIONS. 

- Enter  as  Item  13  contributions  or  gifts  made  within  tho  taxablo  period  to 
or  for  the  use  of:  (a)  the  United  States,  any  State.  Territory,  or  any  political 
subdivision  thereof,  or  the  District  of  Col uraHa,  for  exclusively  public  nur- 
po-es.(6)  any  corporation,  or  community  chest,  (and,  or  foundation,  organized 
aa  l operated  exclusively  for  religious,  charitable,  srientl£c,lRcrary,  or  cdu* 
c'.ucnal  purposes.  Including  posts  of  tho  American  Legion  or  the  Women’s 
Auxiliary  units  thereof,  or  for  the  prevention  of  cruelty  to  children  or  oni  mob, 
co  part  c-f  the  net  csraings  of  which  inures  to  tho  benefit  of  any  private 
stuck  holder  or  Individual;  or  (r)  the  special  fund  for  vocational  rehabilitation 
r.uthorl/cd  by  section  7 of  tho  Vocational  Rehabilitation  Act;  lo  an  amount 
which  In  all  the  above  cases  combined  docs  not  exceed  15  per  centum  of  the 
' taxpayer’s  net  tncorno  aa  computed  without  tho  benefit  of  lots  paragraph. 
Fiduciaries  film?  this  return  for  estates  In  tho  process  cf  administration 
are  allowed,  In  lieu  of  this  deduction,  that  provided  In  Section  2l9(8)of  the 
Revenue  Act  of  i9?l.  List  names  of  orgaaaotlons  and  amounts  contributed  to 
each  in  Schedule  R. 

24.  BAD  DEBTS. 

Enter  as  Item  14  all  bad  debts  other  than  tboso  claimed  as  a deduction 
in  Items  above.  State  in  Schedule  F (a)  of  what  the  debts  consisted,  (6)  when 
they  were  created,  ( t ) when  they  bocamo  due,  acu  (4)  how  they  wore  Actually 
determined  to  be  worthless. 

25.  OTHER  AUTHORIZED  DEDUCTIONS. 

If  this  reJura  Is  filed  for  cm  cstalo  Id  iho  process  of  ad  min  Is  tro  lion,  thara 
may  bo  deducted  tho  amount  of  uny  income  properly  paid  or  credited  to 
Wooficiarles.  Any  deduction  claimed  in  Item  15  should  be  explained  to 


DETACH  AND  RETAIN  THIS  INSTRUCTION  SHEET  WITH  YOUR  WORKING  PARERS. 


[Page  4 of  Form  1040A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  71 4, 


K.  1-1 9-22, 


ATTACH  THIS  FORM 
TO  YOUR  INCOME 
TAX  RETURN  FORM 
1040A  OR  1040  AND 
FILE  IT  WITH  THE 
COLLECTOR  OF 
INTERNAL  REVENDF. 


Page  1. 

Form  1040  F.— UNITED  OTATEU  INTERNAL  REVENUE  SERVICE. 

SCHEDULE  OF  FARM  INCOME  AND  EXPENSES 

. FOR  THE  YEAR  1921 


(Name.} 


J Past  offloc  and  State. ) 


IF  YOUR  ACCOUNTS 
ARE  KEPT  ON  A 
CASH  RECEIPT  AND 
DISBURSEMENT 
BASIS,  FILL  IN  PAGES 
1 AND  3 ONLY. 

IF  YOU  KEEP  BOOKS 
OF  INCOME  AND 
EXPENSES  ON  AN 
ACCRUAL  BASIS,  FILL 
IN  PAGES  2 AND  3 
INSTEAD. 


1.  Sals  or  Live  Stuck  Rained  on  an©  PnODUcra 
FROM  FOUR  FaP.II. 


Kind  of  animals. 


Quantity. 


Amount- 


Kind  of  crop. 


Quantity. 


Items. 


Amount. 


Wheat  .. 
Cotton  .. 
Tobacco 


Cotton  Seed 


Total 


SUMMARY  OF  INCOME  AND  EXPENSES 


DISBURSEMENT  BASIS. 


1.  Sale  of  live  stock  and  stock  products  rained 

2.  Sale  of  crops  and  crop  prodocte  grown 

8.  Other  receipts 

4.  Sale  of  stock,  or  other  items  purchased 

R Gross  Profits 


7.  Expenses  (column  1,  page  3). 

8.  Expenses  (column  2,  page  3). 

9.  Repairs 


Total  Expenses 


FARM  IN  CO  ACE  FOR  TAXABLE  PERIOD. 

2.  S ai.e  or  Crops  and  Products  Grown  on  tour  Farm. 


Tota 


(Entry  on  lice  3. >• 


* 8alr  of  l ive  Stock,  Crops,  or  Other  Itehs  Purchased 


Wool  ... 


Hides 


Honey  


Total ’.Is 


Total 


(Enter  an  lina  4.) 


Milk 

Butter 
Cream 


e^Net  jymjirofil  to  be  reported  m Item  5,  Form  1C40A,  or  F„rm  1040  (lu,m  5 Iton  ln 


Bulls 

Steers 

Horses 


Celts.... 


Sheep 


Lambs 


Chickens 


Turkeys  . 


Ducks . 


Hire  of  teams. 


Breeding  fees .. 


Cows  .. 
Calves . 


Merchandise  rec’d  for  produce.  $. 
Machine  work 


[Page  1 of  Form  1040F.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  215. 


Pago  2.  FARM  INVENTORY  FOR  TCOME  COMPUTED  ON  AN  ACCRUAL  BASISL 




(l'lud  ct  luilriiuW,  crops, 
or  other  product  ' ) 

Oh  Tamj  at  i'uoriMfKn  Deux-. 

lijcoiNKi.ru  or  V,:.ut.  Ykak. 

11  M < '.0  DVCIKO  j 
year.. 

1 

CONtHUr  V < fill  LOST 
Duij.no  ifr.ia. 

Bold  DuRnio  Year. 

On  IUxd  at  Knd 
or  YEAR. 

Q ua  ti- 
ll ty. 

It  ' o'  - y 

valuu, 

Quan- 

tity. 

Amount 

paid. 

Q.mt. 

Uty. 

Invr-itory  I 

Inventory 

value. 

Quan- 

tity. 

Amount 

received. 

Quan- 

tity. 

Inventory 

value. 

$ .... 

$ 

l.  ... 

% - 

$ 

» 

— 

— 

— 

— — 

— 

4 

— 

Totals 

? 



... 

$ 









$ 



$..... 

(tutor  on  line  4.)  (Enter  oa  lino  5.)  (Enter  on  lino  2.)  (Enter  on  line  1.) 


SUMMARY  OF  INCOME  AND  EXPENSES  COMPUTED  ON  AN  ACCRUAL  BASIS. 


1.  laveutcry  of  live  stock,  crops,  and  products  at  ei 

2.  Srdca  of  live  stock,  crops,  and  products  during  yc 

$ 

7.  Expenses  (column  1,. page  3).. 

8.  Expenses  (column  2,  page  3)„ 

$-  - 

$ 

*1.  Inventory  of  live  stock,  crops,  and  products  at 

$ 

— 

6.  Cost  of  live  stock  and.  products  purchased  during 

$ 

11.  Total  Expenses  

* 

f>.  Cross  profits  (Item  3 minus  the  euro  of  Items  4 and  5) 

$ — 

12.  Net  farm  profit  to  be  reported  in  Item  5,  Fcrm  1040A,  or  Form  1040  (Item  6 minus  Item  11) 

* . . 

2— iiuoa 


[Page  2 of  Form  1040F.] 


The  Federal  Income  Tax  Service 

Supplementary  Page  216. 

■ 


FARM  EXPENSES  FOR  TAXABLE  PERIOD. 


1-I1K22. 


Page  3. 


Total.. , 


Hired  help  for  farm 

Feed,  hay,  straw,  otc 

Sped,  plants,  otc „ 

Threshing  and  baling 

Cotton  ginning 

Silo  filling 

Milling  and  grinding  food . 

Fertilizers  and  spraying  materials 

Blacksmi  thing 

Fuel  and  oil  for  farm  work.... 

Barrels,  bags,  crate*,  and  twine._ 

Taxes  (except  Federal  income  taxes} 


Water  rent  ... 
Rent 


Farm  buildings 

Farm  machinery  and  tools 

Farm  fences,  drains,  ditches,  etc 


Remarks: 


.[.'•iOMU 


[Page  3 of  Form  1040F.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  217. 


P/Igfl  4. 


INSTRUCTIONS. 


run"  ) I and  3 ore  to  be  filled  In  by  farmers  who  either  hoop 
no  records  or  only  records  of  cash  receipts  and  dlshtirso- 
rnents.  I’nges  2 and  3 arc  to  he  tilled  In  hy  fanners  who  keep 
complete  accounts  on  an  accrual  hash  with  Inventories  to 
determine  net  profits.  Returns  on  an  Inventory  basis  nro 
not  acceptable  unless  the  Inventories  wero  actually  taken 
and  ho  recorded  at  the  boginning  and  end  of  the' taxable 
period. 

If  you  do  not,  ne  a matter  of  eel  tied  practice,  keep  books  of 
account  upon  an  accrual  basis,  no  idtompt  should  be  made  to  fill 
out  the  items  in  the  form  relating  to  inventories,  and  the  ominsion  of 
ihoeo  items  in  that  case  will  not  result  in  an  incorrect  computation 
of  your  farm  not  profit.  I however,  you  regularly  keep  nooks  of 
account  upon  an  accrual  basis,  which  clearly  reflect  your  net  income, 
you  should  report  the  value  of  your  crops  and  stock  on  hand  at  the 
end  of  tho  year  in  gross  profits,  as  provided  on  the  form. 

This  schedule  may  be  used  by  farmers  who  work  .their  own  farms 
or  ront  them  out  on  shares,  and  if  two  or  more  farms  are  owned  it 
may  bo  dcniniblo  to  fill  out  a separate  schedule  for  each  farm. 

Attach  this  schedule  to  your  income  tax  return  (Form  1040A  or 
Form  1010).  You  should  keep  a copy  for  future  reference. 

Whou  you  have  determined  the  net  farm  profit,  transfer  tho 
amount  to  Item  5 of  tho  income  tax  return  Form  1040A,  or  Form  1040. 

Cash  Receipts  and  Disbursements  Basis. 

A farmor  reporting  on  the  basis  of  cash  receipts  and  disburse- 
ments shall  include  in  his  gross  income  for  the  taxable  year  the 
amount  of  cash  or  the  value  of  merchandise  or  other  property  received 
from  the  sale  of  livestock  and  produce  which  were  raised  during  tho 
taxable  year  or  prior  years,  also  the  profits  from  the  sale  of  ony 
stock  or  other  items  which  were  purchased.  The  farm  expenses 
will  be  the  actual  amounts  paid  out  during  the  taxable  year. 

Accrual  Basis. 

If  your  farm  books  of  account  are  kept  on  an  accrual  basis,  the 
filing  of  this  form  is  optional. 

For  those  reporting  on  the  accrual  basis,  the  gross  profits  are 
obtained  by  adding  to  the  inventory  value  of  live  stock  and  products 
on  hand  at  the  end  of  the  year  the  amount  received  from  tho  sale 
of  stock  and  products  and  other  miscellaneous  receipts,  for  hire  of 
teams,  machinery,  etc.,  during  tho  year,  and  deducting  from  this 
sum  the  invontory  value  of  stock  and  products  on  hand  at  tho 
beginning  of  the  year  plus  the  cost  of  stock  and  produce  purchased 
dining  the  year.  The  farm  expenses  will  be  of  tne  actual  expenses 
incurred  during  the  year,  whether  paid  or  not. 

Inventory.— it  you  render  a return  for  the  taxable  period  of  1921 
upon  an  accrual  basis,  you  may  value  the  closing  inventory  for  1921' 
according  to  the  farm  price  method,  which  contemplates  valuation 
of  inventories  at  market  less  cost  of  marketing.  In  tho  event  the 
use  of  tho  farm  price  method  of  valuing  your  closing  inventory  for 
1921  represents  a change  in  method  of  taking  inventories  from  that 
employed  by  you  for  1920,  the  opening  inventory  for  1921  should 
be  brought  in  at  the  3ame  value  as  the  closing  inventory  for  1920 
(this  being  the  same  in  effect  as  valuing  the  opening  inventory  on 
the  new  basis  and  crediting  income  with  the  excess  valuation 
brought  in).  If  such  treatment  of  your  opening  inventory  for  1921 
results,  however,  in  an  abnormally  large  income  lor  1921,  then  adjust- 
ments in  the  form  of  an  adjustment  sheet  attached  to  your  1921 
return  may  be  made  of  your  taxes  for  1917  and  each  succeeding 
year  to  1921,  based  on  the  new  method  of  taking  inventories  (using 
for  each  of  such  years  prior  to  1921  the  same  method  employed 
for  1921).  r * 

Farmers  may  change  the  basis  of  their  returns  from  that  of  receipts 
and  disbursements  to  that  of  an  inventory  basis,  which  necessitates 
the  use  of  opening  and  closing  inventories  for  the  year  in  which  the 
change  is  made.  There  should  be  included  in  the  opening  in  ventory 
all  farm  products  (including  live  stock). purchased  or  raised,  which 
were  on  hand  at  the  date  of  the  inventory,  and  there  must  be  sub- 
mitted with  the  return  for  the  current  taxable  year  an  adjustment 
sheet  for  1917  and  each  year  thereafter  (prior  to  the  year  in  which 
the  change  is  made)  based  on  the  inventory  method;  upon  the 
amount  of  which  adjustments  the  tax  shall  be  assessed  and  paid 
(if  any  be  due)  at  the  rate  of  tax  in  effect  for  each  respective  year 
Where  it  is  impossible  to  render  complete  inventories  from  the  begin- 
mngofthe  taxable  year  1917,  the  Department  will  accept  estimates 
which,  in  ito  opinion,  substanti tally  reflect  the  income  on  the 
inventory  basis,  for  the  year  1917  and  thereafter;  but  inventories 
must  not  include  real  estate,  buildings,  permanent  improvements  or 
any  other  assets  subject  to  depredation. 

Income. 

All  the  farm  income  from  whatever  source  must  be  reported  in 
pus  schedule.  Anything  of  value  received  instead  of  cash  must  be 
treated  as  income  to  the  extent  of  its  cash  value.  Thus,  the  total 
value  of  groceries,  merchandise,  etc.,  received  in  exchange  for  eggs 
butter,  or  other  produce  must  be  reported  as  income. 


Hail  and  firo  insurance  on  growing  crops  should  he  included  in 
proRn  income  to  the  amount  received  in  cash  or  the  equivalent.  lor 
tho  crop  dwtroyod. 

If  you  sold  your  farm  or  any  part  of  it,  report  the  profit  in  Item  (» 
of  Form  J040A  or  Form  1040.  . 

Tho  value  of  farm  produce  which  is  consumed  by  tho  farmer  and 
his  family  need  not  no  reported  as  income;  but  expenses  incurred 

raising  produce  thus  consumed  must  not  be  claimed  as  deductions 

The  term  "farm’'  ombracee  the  farm  in  tho  ordinarily  accepted 
sense,  and  includes  stock,  dairy,  poultry,  fruit,  and  truck  farms, 
also  plantations,  ranchee,  and  all  land  used  for  fanning  operations. 
All  individuals,  partnerehipa,  or  corporations  that  cultivate,  operate, 
or  manage  farms  for  gain  or  profit,  either  as  owners  or  tenants,  are 
designated  farm  ore.  A person  cultivating  or  operating  a farm  for 
recreation  or  pleasure  iB  not  regarded  os  a farmer. 

Expenses  and  Other  Deductions. 

Labor. — Only  that  part  of  the  hoard  of  hired  labor  which  is  pur-  ‘ 
chased  should  be  included  as  a deduction.  Tho  value  of  products 
furnished  by  the  farm  and  usod  in  the  board  of  hired  labor  is  not  a 
deductible  expense.  Rations  purchased  and  furnished  to  laborers 
Or  share  croppers  are  deductible  as  a part  of  the  labor  expense. 
Do  not  deduct  the  value  of  your  own  labor  or  that  of  your  wife  or 
dependent  minor  children,  unless  you  report  such  value  as  income 
in  Item  1,  Form  1040 A or  Form  1040.  Do  not  deduct  amounts 
paid  to  persons  engaged  in  household  work,  except  to  the  extent 
that  the  services  of  such  employees  are  used  in  boarding  and  other- 
wise v -MiB-g  for  farm  laborers.  Services  of  such  employees  engaged  in 
caring  for  tho  farmer’s  own  household  are  not  a deductible  expense. 

Fertilizers,  manvjee,  etc. — The  cost  of  manures,  commercial  fer- 
tilizers, lime,  raw  rock  phoephate,  etc.,  that  were  bought  during 
the  year  may  be  doducted  es  an  expense. 

. Tuxes. — Do  cot  deduct  Federal  income  taxes  nor  taxes  for  any 
improvement  or  betterment  tending  to  increase  the  value  of  the 
property.  (See  Articles  131  to  135,  Income  Tax  Regulations,  1922 
edition.)  Be  ready  to  show  tax  receipts  for  taxes  claimed  as  a 
deduction.  Taxea  on  your  dwelling  or  household  property  should 
be  reported  in  Item  11,  Form  1040A,  or  Item  13,  Form  1040. 

Interest  on  indebtedness. — All  interest  paid  on  farm  mortgages, 
notes,  and  other  obligations  incurred  to  carry  on  the  farm  business 
should  be  deducted 

Bad  debit. — Report  only  debts,  or  portions  thereof,  arising  from 
sales  that  have  been  reported  as  income,  which  have  been  definitely 
proved  within  the  year  to  l>o  worthless,  or  such  reasonable  amount, 
as  has  been  added  to  a reserve  for  bad  debts  within  the  year.  If 
you  report  your  farm  income  on  a cash  basis,  bad  debts  arising  from 
sales  are  not  an  allowable  deduction. 

Repairs  end  depreciation. — Depredation  claims  should  not  exceed 
the  actual  cost  of  buildings  and  equipment  (or  if  acquired  prior  to 
March  1, 1913,  the  fair  market  value  on  that  date)  di  vided  by  its  prob- 
able life  in  years  since  acquisition.  In  computing  depreciation  do  not 
include  the  value  of  farm  land  nor  the  laud  on  which  farm  buildings 
are  located.  Do  not  deduct  repairs  or  depreciation  on  the  dwelling 
you  occupy  or  on  your  personal  or  household  equipment.  Do  not 
claim  cs  a separate  item  depredation  on  live  stock  or  any  other 
property  included  in  your  inventory,  as  such  depreciation  is  taken 
care  of  in  tho  reduced  amount  of  the  inventory  at  the  close  of  the 
year.  Depredation,  however,  may  be  claimed  on  draft  or  work 
animals  and  animals  held  for  breeding  purposes  which  were  pur- 
chased and  which  are  notinduded  in  your  inventory  of  stock  bought 
or  raised  for  sale. 

Losses. — You  may  deduct  in  Item  12,  Form  1040A,  or  Item  14, 
Form  1040,  losses  of  buildings,  machinery,  and  other  property  not 
included  in  your  inventory,  resulting  from  fixes  or  other  casualties 
and  not  compensated  for  by  insurance  or  otherwise.  Losses  of  prop- 
erty included  in  your  inventory  are  taken  care  of  by  tho  reduced 
amount  of  the  inventory  at  the  close  of  the  year.  The  loss  of  growing 
crops  by  frost,  storm,  flood,  or  firo,  or  the  loss  of  animals  raised,  is 
not  deductible. 

Tools,  machinery,  and  equipment.— The  cost  of  small  tools  of  short 
life,  such  03  shovels,  rakee,  etc,  may  be  deducted  as  an  expense. 
You  may  deduct  expenses  of  operation,  repairs,  and  depreciation 
on  automobiles  used  exclusively  in  farm  business.  If  an  automobile 
is  used  in  farm  business  for  a part  of  the  time  only,  a corresponding 
part  of  the  expense  may  be  deducted.  Amounts  expended  for 
automobiles,  farm  machinery,  farm  buildines.  Or  other  farm  equip- 
ment of  a permanent  nature  are  not  deductible  as  expenses,  as  such 
expenditures  are  regarded  as  investment  of  capital  which  is  re- 
turned to  the  owner  through  depreciation  allowances  prorated  over 
the  useful  life  of  the  property. 

Rent  void  in  crops. — Where  a tenant  farmer  pays  his  rent  to  the 
landlord  in  form  of  crops  raised  on  the  farm  (the  agreement  being 
on  a crop-share  basis),  the  tenant  may  not  deduct  as  rent  the  value 
of  the  crop  given  to  the  landlord,  but  he  may  deduct  all  amounts 
paid  by  him  in  raising  the  crop.  a— now 


[Page  4 of  Form  1040F.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  218, 


1-19  22. 


(KlTlHd  binilwr,  1»SJ)  UNITED  BTATKH  INTERNAL  REVENUE  SERVICE 

ANNUAL  INFORMATION  RETURN 

OF  PAYMENTS  OF  INCOME.  ETC.,  REQUIRED  TO  BE  REPORTED  UNDER  REVENUE  ACT 

OF  1921 

FOR  CALENDAR  YEAR  1921 

(Return  for  FImmI  Y»»r  Can  Not  B«  Aoeapted) 


FOR  INSTRUCTIONS  SEE  REVERSE  SIDE 


THIS  RETURN, 
ACCOMPANIED  BY 
REPORTS  ON 
FORM  1099,  MUST  BE 
FORWARDED  SO  AS 
TO  REACH  THE 
COMMISSIONER  OF 
INTERNAL  REVENUE. 

sorting  section, 
WASHINGTON,  D.  C.. 
ON  OR  BEFORE 
MARCH  IS,  1922. 

(Name  of  person  or  organisation  rendering  this  return.) 

(Date  rocalvad  In 
Sorting  GecUon) 

(Street  nnd  number  or  rural  route.) 

(Ci»W  (State.) 

A 

B 

CHARACTER  OF  INCOME  PAID. 

NUMBER  of 
REPORT 
FORMS  1099 
ATTACHED. 

Interest,  rent,  salaries,  wages,  premiums,  annuities,  compensation,  remuneration,  emoluments  or  other 
fixed  or  determinable  gains,  profits,  and  income  of  $1,000  or  more 

(DO  NOT  WRITE  IN  THIS  SPACE.) 


IMPORTANT  NOTICE 

Returns  of  Information  are  required  to  be  rendered  on  the  basis  or  the  calendar  year.  Returns  for  any  other  nerlod 
of  time  will  not  be  accepted.  F 

It  list  showing  names  and  addresses  of  payees  is  compiled  or  an  adding  machine  tape  used  in, executing  Forms  1099  it  should  be 
submitted  with  forms.  ' ’ 

The  name  of  the  individual,  corporation,  partnership,  etc.,  using  Form  1099  may  be  printed  or  stamped  on  each  form,  if  so  desired. 

Returns  of  individuals  on  this  form  must  be  signed  and  sworn  to  by  the  individual  or  his  duly  authorized  agent.  Returns  of 
corporations,  partnerships,  etc.,  must  be  signed  and  sworn  to  by  an  officer  of  the  corporation  or  member  of  firm. 


. , 1 swef'  (°r  affirm)  that  the  beet  of  my  knowledge  and  belief  the  foregoing  return  and  the  accompanying  reports  constitute  a true 
and  complete  statement  of  payments  of  the  above-described  classes  of  income  made  by  the  person  or  organization  named  at  the  head 
of  this  return  during  the  calendar  year  1921. 

Sworn  to  and  subscribed  before  me  this day  

(Signature.) 

of 1 1922. 

(8ttt«  whether  individual  owner,  member  of  Arm,  or  disbursing  offlcer'of 
Government  bureau  or  office,  or  If  officer  of  corporation  give  title.) 

(Signature.) 


(Title.) 


(State  addreaj  of  person  signing  If  different  from  that  given  at  head  ofretorn.T 
(THIS  RETURN  MUST  BE  SIGNED  AND  SWORN  TO) 


[Page  1 of  Form  1096.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  219. 


INSTRUCTIONS 


Forms  1008  and  1000  (Interest,  Rent,  Salaries,  otc.,  of  81,000  or  more)  must  be  made  by  every  individual,  corporation 
partnership,  personal  service  corporation,  association,  or  insurance  company,  including  lessees  or  mortgagors  of  real  or  personal  property, 
trustees,  o ucutom,  administrators,  receivers,  employers,  and  all  officers  and  employees  of  the  United  Staton  who  paid  interest,  ren! 
salaries,  etc.,  to  another  individual,  partnership,  personal  service  corporation,  or  fiduciary  during  the  calendar  year  1921.  A soparan 
report  on  Form  1099  must  be  made  (and  forwarded  with  this  return)  for  each  individual,  partnership,  personal  service  corporation,  or 
fiduciary  to  whom  such  income  was  paid,  credited,  or  distributed. 

Interest,  rent,  salaries,  etc.,  regardless  of  amount  paid  to  nonresident  alien  individuals,  should  not  be  included  in  this  return  but 
Should  be  reported  on  return  Form  10-12. 

in  executing  Form  1099,  an  employer  who  is  required  to  withhold  tax  from  an  employee  under  a State  income  tax  law,  should  report 
on  each  form  the  amount  of  salary  paid  to  the  employee  plus  the  amount  of  tax  withheld.  The  employee  should  report  the  same  amount 
on  Form  1010  or  Form  J040A,  as  the  case  may  be. 

ORGANIZATIONS  HAYING  A MAIN  OFFICE  OR  PLACE  OF  BUSINESS,  AND  ONE  OR  MORE  BRANCH.  OFFICES, 
SHOULD  FILE  COMPLETE  RETURNS  ON  FORMS  1096  AND  1090  SHOWING  ALL  PAYMENTS  MADE  RY  MAIN  AND 
Ji RANCH  OFFICES.  THIS  RETURN  SHOULD  BE  MADE  FROM  THE  MAIN  OFFICE  AND  THE  LOCATIONS  OF  ALL 
BRaNCH  O.  'i<  t:s  COVERED  by  THE  RETURN  should  be  NOTED  THEREON. 

Reports  on  Form  i099  are  not  reejuired  in  the  following  cases: 

Interest  ou  the  obligations  of  the  United  States,  of  States,  Territories,  or  political  subdivisions  thereof  or  of  the  District  of 
Columbia,  and  compensation  paid  officers  and  employees  by  a State  or  political  subdivision  thereof  for  personal  services 

Bills  paid  for  merchandise,  telegrams,  telephone,  freight,  storage,  and  similar  charges. 

Amounts  paid  to  employees  for  expenses  incurred  in  business. 

Premiums  paid  to  insurance  companies. 

Annuities  representing  return  of  capital. 

Interest  accrued  on  bank  deposits  if  not  credited. 

Payments  made  by  domestic  establishments  or  foreign  branch  houses  thereof  to  nonresident  alien  employees  for  services 
performed  entirely  in  foreign  countries. 

Interest  oft  bonds  of  domestic  and  foreign  corporations.  (See  Forms  1012  and  1096A.) 

Salaries,  wages,  etc.,  paid  to  nonresident  alien  individuals  and  foreign  corporations.  (See  Form  1042.) 

The  rental  value  of  a dwelling  house  and  appurtenances  thereof  furnished  to  a minister  of  the  gospel  as  a part  of  his 
compensation. 

Distributions  to  members  of  a partnership,  personal  service  corporation,  and  beneficiaries,  (Distributions  male  to  members 
of  partnerships,  personal  service  corporation,  and  to  beneficiaries  of  estates  or  trusts  must  be  shown  on  Partnership  and 
Fiduciary  Returns.) 

TENANTS  ARE  NOT  REQUIRED  TO  REPORT  PAYMENTS  OF  RENT  MADE  TO  REAL  ESTATE  AGENTS  OR 
REPRESENTATIVES,  PUT  AGENTS  OR  REPRESENTATIVES  ARE  REQUIRED  TO  REPORT  PAYMENT  TO 
LANDLORD  OS  OWNER  iF  THEY  AMOUNT  IN  THE  AGGREGATE  TO  §1,000  OR  MORE  FOR  THE  Y3AR. 

• [Page  2 of  Form  1096.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  220. 


1-28-22. 


IF  RETURN  IS  FOR 
CALENDAR  YEAR  1971 
KILE  IT  WITH  THE 
COLLECTOR  OF  INTERNAL 
. REVENUE  FOR  YOUR 
DISTRICT  ON  OR  BEFORE 
MARCH  15,  1922 

IF  FOR  A PERIOD  OTHER 
THAN  A CALENDAR 
YEAR  THE  RETURN 
SHOULD  BE  FILED  ON  OR 
BEFORE  THE  1STH  DAY 
OF  THE  THIRD  MONTH 
FOLLOWING  THE  CLOSE 
OF  SUCH  PERIOD 


INDIVIDUAL  INCOME  TAX  RETURN  J 

rot  Nn  incomes  or  more  than  u.mo.  or  spar ail  returns  or  husband  and  wire  if  comeined  net  income  exceeds  a w $ — 

CuhJtr'i  Stamp 

FOR  CALENDAR  YEAR  1921 

Or  for  period  begun  , 1920,  end  ended .»  1921 


PRINT  NAME  AND  ADDRESS  PLAINLY  BELOW 


->ntl  oumbM  « rural 


CASH  CHECK.  M O-  CW.  QUITO. 

•Abx 


OCCUPATION.  PROFESSION,  OR  KIND  OF  BUSINESS  . 


I ewcor  (or  affirm)  that  this  return,  including  the  accompanying  erh-*tulre  and  cUtemonU  i ii  any),  has  boon  examined  by  me,  and  to  the  b«*t  of  my  kpowlec 
and  complete  return  made  in  good  faith,  lor  the  taxable  period  an  eutod,  pursuant  to  the  Rovenue  Act  of  1021  and  tho  Regulations  issued  under  authority  thora>l. 


Sworn  to  and  subscribed  before  me  this  .. 


•»  K%Mo'ttM««for  cntit\b*  ruiad  tv. 

1922. 


The  Federal  Income  Tax  Service 
Supplementary  Page  221. 


SCHEDULE  A. — EXPLANATION  OF  1 

rEM  4.  iRmU  a 

ad  Royaltias.)  la-.nfK-u  )(.. 

1 1m  or  fwotrvn. 

i.  Ott  *r  U»ncB 

1,  WlS.  VALUE. 

r ^aaoewr 

4.  Rtradu. 

s Ov  icctv’vw 
in  Daru-nos. 

KXrerrtKt 

1 Nat  Prom 

' 

- - • I-  .... 

... 



. __ 

...  .4...... 

8UUi  estimated  Ilia  of  proparty  tod  how  you  figured  depreciation... 


SCHEDULE  £J  - EXPLANATION  OF  ITEM  6.  <Bu»lne« 


1.  ToUl  income  from  burinws  o 
CoaT  o»  Goods  Sold 

2.  Labor 


9.  Material  and  supplies 

4.  Merchandise  bought  for  aalc_ 


6.  Plus  Inventory  i 

7.  Total 


S.  Lea  inventory  at  end  of  year  — 

9.  Nar  Coer  or  Goods  Solo — - 


Other  BcanreBs  Drotrcnowe: 

10.  8alariea  and  wagee  not  re  ported  as  "Labor" 

od  line  2 (soo  Instruction  13) 

’ ' " bust  ate*  property  in  which  taxpayer 
j equity 


11.  Kent  < 

baa 

12.  Interest  on  business  iodebtedntee  to  others . .. 


usc/i'ieconcc.  qepie- 
» (explain  below) . 


15.  Amortization  of  war  facilities 

16.  Bad  debts  arising  from  sales  or  services,  if 
already  report* 


18.  Total  (Items  10  to  17,  Inclusive) I — 

19.  Net  Cost,  no o Total  Deductions  (Item  9 plus  Item  13) 

20.  Net  Pnom  (on  Loss)  mow  Business  oa  Profession  (Item  1 minus  Item  19)-.. 


Explanation  of  deduction! 


1.  Krso  or  Puomrr 

2.  Date  AxxttraxD. 

J.  Anocnt  Received. 

4.  Cost. 

!.  liAOCH  1,  1913, 
Vlict. 

4 Bt’utKQverrr 
lurutviuSH-n. 

7,  Derazcurion. 

* (oaTLoJ^WT 

! 

, 1 

....... 

' 

i 

... 

1 

i 

1 

| 

1 

SCHEDULE  D.— EXPLANATION  OF  ITEM  7.  (Sale  of  Slocks.  Bond.,  etc.)  Bw  tnrtrirtt.-n  is 

L ton  or  Psorurr. 

Acemsap. 

> 

4.  Uxaai  1,  190, 

AMOI’ 

RZClUVEl 

A Net  Paorrr  * 
(oa  Loss).  - 

, 

■ 

' 

- ..... 







it  acquired  by  purehase,  state  bow  acquired — 


SCHEDULE  £.— EXPLANATION  OF  ITEM  9.  (Taxable  !nt-v« 


C.)  8«w  la",  ruction^*. 


1.  Obuoatior*  or  t*s  Csited  States  Ijoctd  Swcs  GtrretiBrs  1.  1917 
(WVSJr  exemp!  tronraermU  tax,  but  robjeet  to  surtax  u to  excess  over  exempUoas  »poclfl*4.) 

EJEV^noni. 

<A*g!»$»t6  1’tloMpBl  A maun  t ) 

5»j" 

« iKTsaestoN  ram- 

2.  430,‘XD 

3 1125,000. 

4.  Li.OW 

“sfsssssr- 

.._  ...NONE 

vovr 

(<)  Total  Taxable  Interest  (If  you  hAve  bought  or  sold  during  the  year  attach  statement  showing  holdings  by  periods) t 

SCHEDULE  F. -EXPLANATION  OF  ITEM  14.  (Lowes  b 

Fire,  Storm,  ate.)  E*e  ItuUuc-liun  a. 

1.  Knn>  or  Peomstt. 

J.  Cost,  obM>BCH 
1,  191J,  VM.CE. 

3.  DEFStCUTICN 
PBEVIOOSL?  T.lXEN. 

4 u*xviur  Value. 

8.  IjWClLtSCE. 

B.  >(Ef  Loss. 

• 







SCHEDULE  G.— EXPLANATION  OF  DEDUCTIONS  CLAIMED  IN  ITEMS  1,  SS,  16,  AND  17. 


(An  amended  return  must  bo  plainly  marked  "Amended"  across  the  face  of  the  return.)  *-  •>** 

[Page  2 of  Form  1040 


The  Federal  Income  Tax  Service 
Supplementary  Page  222. 


I 28  22, 


DUPLICATE 


INDIVIDUAL  INCOME  TAX  RETURN 

fOI  Nf.r  INCOMES  OF  MORE  THIN  RS.COOL  OR  SEPARATE  RETURNS  Of  HUSBAND  AND  WIFE  IT  COMBINED  NFT  INCOME  EXCEEDS  VS, Ml 

FOR  CALENDAR  YEAR  1921 


DUPLICATE 


Or  for  period  begun  , 1920,  and  ended 


, 1921 


PRINT  NAME  AND  ADDRESS  PLAINLY  BELOW 

DETACH  AND  RETAIN 
Tins  COPY  AND 
THE  INSTRUCTIONS 

(SuBf.) 

(HiMl  au<l  numtar  or  rami  rout!"  ) 

IF  YOU  NEED 
ASSISTANCE  GO  TO  A 
DEPUTY  COLLECTOR 
OR  TO  THE 

(Vert  omcaj  (County.)  (*mi»  ■ 

COLLECTOR'S  OFFICE 

OCCUPATION,  PROFESSION,  OR  KIND  OF  BUSINESS  . 


TAXPAYER'S  RECOUP  OF  PAYMENTS, 


1 IYMKS'1 

AMOUNT. 

DATV. 

CHROX  OR  U.  O No 

hank  oa  oryict;  Of  UMUK 

Fourth 



- 

1 " > fo  you  married  and  living  with  husband  8.  If  not,  were  you  on  the  last  dav  of  your  taxable  period  oupporting  ou»  nr  i 

wife  on  the  last  day  of  your  taxable  period? living  in  your  household  who  are  cloeclv  related  to  you  by  Idood,  marriage,  , 


ft 

IS 


’ INCOME. 

1.  Salariee,  Wapee.  Corots  l»«i  ms,  etc. 

(SUM  tumo  nvl  alilra*  of  (worn  tram  wl  an  rw«!v»l.)  J nouni  tttttrtl.  Frpeiuto  fold. 

3.  Income  from  Partnerships,  Fiduciaries,  etc.  (Statu  name  and  edd-oas  of  partnership*,  etc.) 

4.  Renta  and  Royalties 

5.  Profit  [nr  ' .is)  fr»m  3daiaaai  or  profession  (not  including  income  from  piTtncrehip?) 

6 Profit  i 1: 1 *w)  from  Sale  of  Resl  Feta  to 

1 

7.  Profit  1 r lorn)  from  Sale  of  Stocks,  Bonds,  etc 

I 

8.  Di  1 !»ijj  on  Steel:  0?  no. ^Corporations 

i 

9.  T .Tfci.lH  I nter tit.  on  Liberty  Bonds,  otc. 

10.  Other  Income  (including  dividends  received  on  stock  of  foreign  corporations).  (8tate  nature  of  income.) 
«• - 

11.  Tor xi.  I .--co ax  is  Itsos  ! to  10  (lose  laaaox  chown  therein,  if  any) 

DEDUCTIONS. 

12.  Iniero*;  Prjd  (not  including  interest  deducted  above). 



13.  Tav*  Paid  not  including  fares  deduct'*!  above) .. . . 
1*.  Low??  by  Fir*,  Storm,  oJ  . __ 



15.  Contributions.  . 

l'i  Bad  Debts  (not  indudfagbad  debts  deducted  Above) 

K Other  Dcducti  one  Authorised  by  lav  . 

I”.  Totai  cr  rrces  12  to  17  .. 

11  Ntrr  I.vcoms  (Item  11  minus  Item  18) _ 

20  Net  Income  (Item  Id  above).. 


. Lees:  Dividends  (Item  8 above).... 

Taxable  Intereston  Liberty 
Benda,  etc.  (Item  9 above). 


ToTat  or  Irena  21,  22  4*0  23 

• Balance  (Item  30  minus  Item  24). 

Amount  taxable  at  <%  (not  over  H.OOO) 

Balance  taxable  *tS  <6  (Item  25  mtaua  Item  2B) 

q^acln  end  dr  Jts  will  be  accepted  only  if  peyebU 


28.  Normal  tax  (4'jf  of  Item  28) 

20.  Normal  tax  (8^  of  Item  27) 

50.  Surtax  on  Item  20  (see  Instruction  6) 

51.  Total  Tax 


’•  L«s:  Tor  paid  »»  source 

Income  and  profits  tax* 
pud  to  foreign  countries 
er  pcewaioaa  of  (be  U.  8. 
(atte.-ii  Form  111C) 


34.  Balance  duo  (Item  31  minus  Items  32  and  33) 

3 o.  Amount  of  tax  paid  when  (ding  return 


[Page  3 of  Form  1040.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  223. 


vmjrmrt. 


SCHEDULE  A.  EXPLANATION  OF  ITEM  « (Rent.  «nd  RoyaltUs.)  Pf*lruirKilon  t^ 

ViKinvro! 


H <y\ 


I.  Vr.rr.zcu-na* 
mo  Urn-uTiuM. 


- , . ■ urn  kb  l»l«  i”  . ■ 

c<  iiii.iii  ■ ii  t vpi  a r 


SCHEDUI.I  l»  EXPLANATION  OF  ITtM  5 Bu»in«  or  l>rof««.fon  1 


1.  Total  Income  from  buslncri  or  profowion.. 
Coer  ob  Goons  Sold: 


3.  Mutcrinl  on<!  supplies 

1 Mrrchandlno  bought  lor  «!<• 

f,.  Other  cw»U  (lint  prineljrfil  llomci  or 
below  or  on  tn'pwute  caret) 

Him  inventory  st  beginning  ol  >« 

7,.  Total  - 

rt  I oss  inventory  a»  end  "J  )'•*' 
l.'rr  Coot  or  Goot>»  Sold  . _ 
Explanation  ol  deductions 


Omm  khh  Druncnomt: 

10.  Salar'loi  and  warns  not  reported  as  "Labor” 

on  lino  2 (two  Instruction  13).-.- 

11  Koni  on  bimnmi  properly  in  which  taxpayer 

12.  I n tercet  on  bu*i new  indebtedness  to  ntbew  .... 

13.  Thus  on  business  and  btwttUM  property.  ... 

H PetAi.ro,  w<*r  unit  tear,  ob-oioacence.  doplo- 

t ion,  end  property  logon  (explain  below) 

If.  Amortisation  of  war  lacllltiw  — 

16,  Pad  debt,  •iulnr  from  sob*  <>r  aemces,  il 

already  reported  a’  income  ~ 

17.  Other  expense*  (list  principal  ltenw  aud 

amounts  below  nr  on  separate  sheet) 

lh. 

l't  Nst  Coat,  tlvb  Total  1'CDLrTtoN.  (Item  0 plus  Item  19). 

20  Nri  PimriT  (on  loss.  ruoM  Brsis'eaw  or  rnorg9870N  Mtrm  1 minus  lTnm  10), 


i.  (Items  10  to  17.  inclusive/.... 


SCHEDULE  C. — EXPLANATION  OF 

i Rr-ro  or  pEoir.srr.  1 J.  Patb  Aceciwo.  Is  Auonrr TUcenro. 

i reM  «. 

orlnrlniotiwi  ir 

7.  nxmc-UTIOK. 

• H5F 

1 L 

| 

L 

, . 

j 

1 .... s, 

........ 

i 1 ii i 

— 

IL'llia £-1 ^[|EDUtF  n EXPLANATION  OF  ITEM  ?.  (S«I.  «l  Stotk..  Bond.,  .to.)  «■»»«“ 

l.  Kum  or  rmonarr  | acqcixto  | *' Co#T'  | v*un 

,»u. 

R«tWt£ 

6.  Nct  Pscr.T 

(OS  1>033|. 

1 ‘1 £ 

, 



f V. 

- ' i ! 1 ' ' 

! 

1 ! 

i 

: — 



^ . J.  - . . . . 



lijuA^acq  ull*d  by  rT*r*.  - s?tMulee7"  EXPLANATION  OF  ITEM  9 ;T«.bl« on  Libort,  Bon*.  «tc.(  ln1,,.u,,o_i.  . ..... 

,WI»J,  S5SA‘5t71Sii,cJi  1 

EXSilPTCOV! 

(Aggregate  Prtncu-al  Amoun 
.j,  no.ivo  | 3 SlK.npO. 

■ ,„H 

POTKCltAL  AMOOtrt| 
rurnoM  anamirni  j 

ru.  AMO'.PT^IJI  5 tc-tn, 

=■ : 

, , 

- 1 

(u)  First  Liberty  Loan  Second  Converted  4J$  Bonds 

(6)  First.  and  Second  4’s.  and  First.  Second,  Third,  and  Fourth  4i's - 

(c)  Other  Obligations  issued  since  September  1,  1917  (except  vi< ’o-y  aod  Tr(*-ury  No-,  . 



~ 

....... 

NONE 

KOKE 

::x j 

SCHFLULF  F F.XP1  A NAT  ION  (v  I1FM  14.  ( Losqca  by  E ire.  Stonr»,__etc.)  £«>  Ljirucilon  ffl.  ... ... 

1 

1.  Kim  cr  P Rorrj.tr. 

j-aeinouta?  Taxur. 

4.  Salvxol  VaLUB. 

6,  bllvaAHCC. 

Ii.  Nit  Los* 

T'  , - 

A 

. -1 

. 

- " 

1- 

- 

1 

1 

1 

- 

1 

• . ’ 1 .... 

“(An  a^nsitded  return  roust  be  plainly  marked  "A/Modsd’7'******  the  face  of  the  nlura.) 

[Page  4 of  Form  1040.: 


The  Federal  Income  Tax  Service 
Supplementary  Paige  224. 


1-28-22, 


l.  PERSONS  REQUIRED  TO  MAKE  A RETURN  OF  INCOME. 

An  Imorno  tax  return  mu*t  bo  filed  by  every  rillifri  of  tho  Uni  tod  States  whether 


INSTRUCTIONS  FOR  INDIVIDUAL  RETURN 

T.  FARMER'S  INCOME  SCHEDULE. 


tuioee  net  income  amounted  tu — • ...  . , . 

In)  *1.000  it  Mnylo  Or  il  married  and  not  living  with  hunlmon 
lb)  K.  <**)  it  rimmed  and  I min;  withboulmnd  or  wil* 

II  the  romhlned  not  income  ol  bu»baud,  witc,  and  dependent  ch‘ 

or  i.Rceetled  *2,000,  nr  it  the  combined  grow  income  ol  husband,  wife, 
mmnr  children  rntiAlled  or  tuc-coded  *f>,d(X)  ull  such  Income TniiRt  bo  .oported  on  » joint 
ZZ> « »' 2£“.. rcWmlTbu.toid  ...A  Kite.  II  .ImI.  «»4  i»",  »« 

lh.l ol dJp.oil.ol minor.  II toy.  ^|..»11.«1  o.oo.c^d.,. »l .IW  or  0 ib..j^-.^o<OT» 

<>  luiUed  or  exceeded  *8.000,  a return  roust  be  filed.  A minor,  no* over,  Iiumov  a mi 
income  of  *1,000  or  *2,000,  according  to  tho  marital  status,  or  a groea  Incomo  ol  *j,  XX , 

mUh  Vnder  mchof  the  above  condition*,  a return  mint  be  filed  even  thotich  no  tax  la  duo 
Note  Specially  Instruction  H.  " Creditor  Personal  Exemption  Form 

In  the  case  of  bu'band  end  wile  whose  combi  nod  net  incomo  exceed*  Form 

llMU  (not  Form  1040  A)  should  bo  un-d  for  eoparato  returns,  even  though  tho  income 

lld.rivM  I™ . ,op.™,.r..l.  „i.d« .««.! 

" ' '‘lmomoftol  mSiS  X d£  tSSSShUX^S  tKrwJ ^5^ 

s«™vutorCdii"n,M  i»w  ™ 

If  the  ue'  income  of  » decedent  from  the  Wmnin?  „f  the  taxable  period  to  the  da 
hi*  death  »-«•  *1,000,  if  unmarried,  or  *2,000.  ,f  mamed  and  living  ad*  bueband  or 
'HI,-,  or  if  tho  uros*  incomo  »<i*  *->.000  or  over,  the  cxocutor  or  administrator  rhull  file  a 
return  ou  T r.rm  KMO  or  1040A  for  such  decodent. 

J.  PERIOD  TO  J5E  COVERED  BY  RETURN. 

Ytmr  return  Hurt  be  filed  for  the  calendar  year  endine  T'.vemlwjr  31,  1921,  '’r  for  ibe 
Tmral  vnar  ending  on  tho  last  day  of  snv  month  other  than  December  The  date*  on  whnh 
tho  penod  covered  fiv  tho  return  Htina  and  code,  if  other  than  n calendar  ymr.  must  be 
nlalnlv  stated  at  tho  head  ol  the  return.  ....  . 

You  wore  required  to  file  veur  return  for  1918  on  the  bam*  of  your  annual  accounting 
reriod.  Having  established  an  accounting  period  for  1918  thi*  penodmusi  1*  adhered 
to  for  roboequent  years  unites  permission  w»«  reroivod  from  tho  Commiwoncr^m  roAko  a 
hauge.  In  tho  cbjO  o( a ret-irn  for  a period  of  l*«*  than  one  ywr.  the  net  in%itne  ehall  bo 
. laced  on  an  annual  basis  by  multiplying  tho  amount  thereof  by  twelve  and  dividing  by 
thefoumber  of  month*  included  in  ouch  period;  and  tho  tax, hall  be  i »*^««*  *“ 
computed  on  ruch  annual  baei*  as  tho  number  of  month*  in  auch  period  is  of  twelve  mouth*. 

3.  ACCRUED  OR  RECEIVED  INCOME. 

If  yonr  books  of  account  are  kopt  on  an  accrual  basl*.  report  all  Incomo  accrued, 
though  it  bae  not  been  actually  received  < 
instead  of  expense*  paid 


ir  entered  on  tho  books,  and  expenses  Incurred 


„ „ . farm  owner  renting  vour  farm  out  on  rbareaand  keep  no ‘book' 

.1  account,  or  k"T  W*.  «o  » «*  0k«il«(N«  Ik"  ColUrM.  “f.MWh 


1 ( you  ai 


nlTraki'mloW.Scl.oJolool  torn 

tbo'n'ujIR  ScFo'rm  1M0F  il'o pUoi'ol'1' IlJporl  income  Iron,  ulofloo.  lolcro«t,  root-,  u-loo 
of  properly,  etc  , iu  Items  l to  7 of  the  return. 

8.  CREDITS  FOR  PERSONAL  EXEMPTION  AND  DEPENDENTS 

If  vou  were  married  and  livimr  with  your  husband  or  wife  or  wore  h«d lof  a family 

i than  tho  amount  oi,th<* 


date;  but  in  ho  eaeo  "ball  tho  tax,  comput'  d with  a 

but  the  credit  of  *400  (or  each  dependent  may  bo  claimed  ouly  b>  tho  perxon  furnishing 

<b°  lVjinSTjol  n.orrlo-l  or  did  not  Uvo  .ilh  hn-Un.l  or  Rite  tod  ’‘CT0,“0li*S  * 

family  on  tho  last  day  of  your  taxable  period,  you  are  ontitlod  to  a personal  oxampnon  o 
fl  OO^pltl*  J4(V>  fur  each  dependent  por»nu  under  1 K yeareofxcoor  inenpahio 
E*5  mentally  or  phyricnliy  defective,  who  was  roceivmg  hia  chief  support  from  you 
that  date  ^ i ^ i,  „i,nr*  Form  10-10  i*  filed  for  eriatoi 


in  proccw  of  administration, « 


n in  filod  for  part  of  a year 


the  M&^xmption^nd  cr.viit'lor  d-^ndcntB  may  bo  claimed  i-i  ^C0T^?j\tU 
\ ourstatus  on  tbe  last  day  ofeurh  taxable  peri  >d  (See 

A ••head  of  familv'1  is  a portion  who  actually  support*  ono  or  more  pereona  nvinr  m 
hls(orhcr)hc"i*chold,  who  arc  ,-loeely  related  to  him  tor  her)  by  blood,  mairugo,  or  adop- 


- II  vonr  booka  do  not  show  Income  accrued  and  expenaw  Incurred,  report  all  income 
received  or  constmcti'  . ly  received,  such  oj  bank  iotcreet  credited  to  your  account,  and 

etpeoeos  paid 

4.  INSTALLMENT  SALES. 

ii  k^.,0  u*od  the  installment  method  in  computing  incomo  from  installment 
xd«  you  must  attach  to  your  return  a echodulo  showing  separately  for  the  year*  1QH, 
1519  1920,  and  1921  the  following  information:  (a)  Ore*  ealce;  (b)  cost  of  good*  sold; 
I-)  rroea  profits;  (rf>  percentage  ol  profits  to  grow  salee;  (<)  amount  collected;  (/)  grow 
profit  on  amount  collected. 

J.  ITEMS  EXEMPT  FROM  TAX. 

The  following  item*  are  e*ompt  from  Federal  income  tax  and  should  net  be  reported, 
unless  it  is  deeirod  to  establish  a net  low,  in  which  case  seo  Section  204  of  tho  Revenue 

ACt  (a)1  The  procoeils  of  life  insurance  policies  paid  upon  the  death  of  the  insured; 

(6)  The  amount  received  by  the  insured  os  a return  of  premium  or  premiums  paid  by 
him  undeb  life  insurance,  endowment,  or  annuity  contracts,  either  during  the  term  or  at 
tho  maturity  of  tho  term  mentioned  in  the  contract  or  upon  aurronddr  of  the  contract; 

(e)  Gifts  (not  made  as  a consideration  for  service  rendered),  and  money  and  property 
ici.uired  under  a win  or  bv  inheritance  (but  the  income  derived. from  money  or  property 
received  by  ciit,  will,  or  inheritance  is  taxable  and  must  be  reported); 

Id)  Interest  upon  (1)  the  obligations  of  a State,  Territory-,  or  any  political  subdivision 
thereof,  or  the  District  of  Columbia;  or  (2)  securities  issued  under  the  provisions  of  tbe 
t cderul  Farm  Loon  Act  of  July  17,  191C,  or  (3)  the  obligations  of  the  United  $tates  or  its 
luiiiireirnn-  or  (4)  bonds  issued  by  the  war  Finance  Corporation.  .In  tho  enso  ol  obliga- 
{ions  of  the  United  State*  issued  after  September  1.  1917  (other  than  postal  savings  cop 
uficatea  of  deposit),  and  in  the  case  of  bonds  issued  by  the  Wer  Finance  Corporation,  the 
interest  is  exempt  only  U and  to  the  extent  provided  in  the  respective  acts  authonrisg 
ib*  iame  thereof  as  amended  and  rapplemonted  by  Section  1328  of  tho  Revenue  Act  of 
192J,  and  should  be  excluded  from  gn*e  income  only  if  aijd  to  tho  extent  it  is  wholly 
, iguipt  to  the  taxpayer  Jroni  income,  >rar  profit*,  aisd  excess  profits  taxes; 

It)  Amounts  received  through  accident  or  health  Insurance  or  under  workmen's  com- 
iviivatioa  acta,  as  compensation  for  personal  injuries  or  sick  new,  plus  the  amount  of  any 
homages  rqeelvad,  whether  by  suit  oc  agreement,  on  account  of  such  injuries  or.  sickness ; 

m Amounts  received  as  compenaaucin,  famJy  allotments  and  allowances  under  the 
ptiv&ona  of  the  War  Risk  Insurance  and  the  Vocational  Rehabilitation  Acts,  or  as  peo- 
djns  from  the  United  States  for  service  ol  the  beiMfrli  Y V acothu  in  the  military  oc 
uaval  forces  ol  the  Colt ed  State*  in  tune  of  war; 

(a)  The  rental  vaJoe  ot  a dwelling  house  and  appurtenances  thereof  furniahed  to  a 
minister  of  the  gospel  u port  of  his  compensation; 

(A)  Compensation  paid  by  a 8tat«  or  political  subdivision  thereof  to  its  officers  or 
employees. 


9.  AFFIDAVIT. 

The  affidavit  must  bo  executed  by  the  person  whose  Income  la  *** 

is  a minor  or  incompetent,  or  uulew  bo  i«  ill,  absent  irom  thecountry,  or  ^thencise  rocapa^ 
taud,  in  which  olio  tho  legal  representativo  or  ng 
hnwsver  making  hi*  omi  return  mutt  execute  tl 
• The  oath  will  bo  administered  without  cWce  by  any 
Of  intnreal  revenue  agont,  or  (if  vou  are  in  the  military  or  naval  service  of  the  United 
ajfiffw  StoyOTll.viToniccr -ho  lo  Nimmirta ".Ih.  or  p«rp~-- 

Of  or  ami  iuVtJce  and  admln.-trarim  )i an  infernal  revenue  ofbeer  is  not  avail- 

able. th«?otuni  should  bo  axiom  to  before  a notary  public,  justice  of  the  peace,  or  other 
parson  authorised  lo  administer  oaths. 

10.  WHEN  AND  WHERE  THE  RETURN  MUST  BE  FILED. 

If  tho  return  Is  for  tbe  calendar  year  1921,  file  it  with  the  CoUector InteniaJ 
Revenue  for  the  district  in  which  y-U  live  or  have  your  minapal  place  ol  buoam . «»  « 
before  March  15,  1922.  11  for  a period  other  than  the  calendar  year,  thereturnshould  b« 
tiled  on  or  before  the  15th  day  ortho  third  month  following  the.d/*®.°Nu^ 

In  rxnfi  tho  taxpayer  had  no  legal  reunion co  or  place  of  busineai  in  the  United 
f Utw.  thereturn  eh^  bo  fonvwded  to  tho  Collector  of  Internal  Re\cn“^ 

II  of  tho  o,n«lot  i.  not  rri«Uxl  or,  tho  r«o^u,d  yooio  not  too.  Il, 

ssk  at  tho  poet  office  or  honk. 

11.  WHEN  AND  TO  WHOM  THE  TAX  MUST  BE  PAID. 

Tho  tax  should  be  paid,  if  possible,  by  sending  or  bringing  with  tho  rotum  a chock 
or  money  order  drawn  to  tho  order  of  “Collector  oflntoroal  Revenue  at  (msart  name  of 

“7  catl.  tto»eh  Iho  trail,  rat  pry  it  io  penoo.  to<»pt«llJ>.  411, <»  .Ilh. 

° 11  The  tax  may  be  paid  in  four  equal  insUllments,  as  follow:  ,..  

The  first  insulimcnt  shall  bo  paid  at  the  ume  fixed  by  law  for 
the  fMond  installment  shall  be  paid  ou  the  15th  day  of  the  third  month,  theth^i^UU- 
meni  on  the  loth  day  of  the  sixth  monch.  and  the  fourth  installment  on  the  16th  day  of 
the  ninth  month,  after  the  ume  fixed  by  law  for  filing  the  return. 

The  total  tax  may  be  paid  at  tho  timo  of  filing  tho  return,  or  if  not  ^jmd,  one 
installment  mast  be  paid  and  the  balance  may  be  paid  in  installments, 
prior  to  any  subsequent  installment  date  referred 

on  the  date  luted  oy  law  make*  the  ta. '■" 

due  upon  notice  and  demand  by  tho 


jenis,  or  m iun,  ou  oi 
errea  ua  »oo.e.  Failure  to  pay  any  installment 
er  liablo  for  the  payment  of  the  balance  of  tax 


12.  PENALTIES. 

For  Making  False  or  Fraudulent  Return. 

S-ot  exceeding  *10.000  or  nut  exceeding  one  year’s  inrorironment.  or  both,  in  the 
diu-rfeiloQ  of  the  court,  and,  in  addition,  60  per  oautum  of  the  total  tax  evaded. 

For  Failing  to  Make  Return  on  Time. 

Not  uwre  Olui  *1,000,  and,  in  addition,  26  per  centum  of  tbe  total  annual  <jJ  the  tax 

For  Failing  to  Pay  Tax  Whan  Dus,  or  Understatemettt  of  Tax  Through 
NosUgenee,  etc. 


Five  per  centum  ol  the  lax  due  but  unpaid,  plus  interest 
per  month  during  the  period  in  which  it  rooams  unpaid. 


t the  cate  of  1 per  centum 


«.  TABLES  OF  SURTAX  AND  INSTRUCTIONS  FOR  CALCULATION. 


Tbe  federal  Income  Tas.J5er.vice 
Supplementary  Page  22'5, 


13.  INCOME  FROM  SALARIES,  WAGES,  COMMISSIONS,  ETC  „ 

10* port  aH  •wlnrlre  '■(  other  compensation  credited  by  or  r/'o’V'  d fr.irn  outside  sources, 
aed  any  Ktlanrn  included  n/i  a /l»**J»ir  lion  on  line  10,  BcboduJe  B,  lor  (a)  yourvlf,  (6)  your 
vrtlo  (or  husband),  II  a Joint  return  ui  filed,  and  (r)  each  dm  cndoat  minor  child  having  « 
ik» » income  of  l*»«i  • liko  }l,00<i  per  ioimioi  l go  a lino  (or  cur  h entry , giving  lha 

in  format  ion  roqiest/ri 

Any  amount  >|  aimed  as  u deduction  for  nwmmcjy  fixpeiure*  a Tain/'t  radon  m,  stc  , 
rhoold  l/o  fully  explained  in  tlrh«.1uU  is.  page  2 of  the  return,  or  in  an  all  orbed  nUtemeut. 

Traveling  c inoni-i » (including  tl.r*  ic.ii/a  amount  expended  for  meal*  and  lodging) 
white  srwey  from  homo  in  (bo  pursuit  of  a trade  or  business  are  deductible. 

14.  INCOME.  FROM  PARTNERSHIPS,  FIDUCIARIES,  ETC. 

Rqpurt  your  shore  ( whether  received  or  not)  in  the  profit*  of  a pfirlnerahip  or  personal 
ear  vice  corporation.  or  in  fho  ir«-om«i  of  an  estate  or  trust,  except  tlie  part  of  eueh  shore 
that  consisted  of  <ti  oil  end*  on  rtnrk  of  domestic  corporations,  and  taxable  interest  on 
obligations  of  tli*>  Untied  Stat*c,  which  rboidd  bo  included  in  Items  8 and  9,  respectively, 
page  > of  the  re  tern 

Report  in  I ton  I,  mlary  received  from  n pi.rioernhip  or  personal  eervice  ctTporatino. 

If  th«  taxable  period  or.  the  basi«  of  wbun  you  file  vour  return  fails  to  coincide  with 
> He  annual  accounting  period  of  tho  partnership,  personal  oe/vice corporation,  or  fiduciary, 
then  you  rfiould  include  in  your  return  your  distributive  xhars  ol  tho  total  net  income 
lor  such  accounting  period,  ending  within  your  taxable  period. 

18.  INCOME  FROM  RENTS  AND  ROYALTIES. 

If  you  received  property  or  crops  In  lieu  of  c«h  rent,  report  :ho  income  a*  though 
tho  rent  had  been  received  in  each  Crop*  received  a*  rrnt  od  a crop-chore  basis  should 
)>•  reported  an  income  for  the  year  in  whi  ii  dwposed  of  (unleas  your  return  shows  income 
accrued  >. 

Explain  in  Schedule  A,  repairs,  depredation,  depletion  end  other  expense*. 

Other  expen**  include  • nteretd,  laxta,  fire  insurance,  fuel,  light,  labor,  and  other 
n-resaory  ex^acoee  of  this  rhara>  ter. 

14.  INCOME  FROM  BUSINESS  OR  FROPESSION. 

Report  in  Item  5 the  net  profit  (or  Ices)  from — 

(al  Solo  of  merchandise,  or  of  products  of  manufsr  hiring,  ccnstTurhon,  mininp,  and 
agriculture 

(6)  Bunnesfl  service,  such  as  transportation,  storage,  bundering,  hotel  and  restaurant 
service,  livery  and  garage  service,  etc.,  il  yon  owned  the  bunces*.  If  you  are  an 
( mplovoe  of  a business,  report  your  salary  or  wages  in  Item  1 

(c)  A profession,  such  as  medicine,  law,  or  dentistry,  if  yea  practiced  it  on  your  own 
accouut.  I f you  were  employed  on  a salary,  report  your  salary  in  J tern  1 . 

i n general,  report  in  Item  5,  any  incc  me  in  tho  earning  ol  which  you  incurred  expenses 
lor  labor,  rent,  etc . 

Jf  you  aro  a farmer  'or  a (arm  owner  renting  you r farm  to  another  person  on  shares  , 
eaa  Inptmrticn  7 

Describe  tho  bud  new  or  profession  in  the  space  provided  on  pa^e  l,  as  “grocery,” 
“retail  clothing,  '*  “drug  store,  ” "laundry,”  “doctor,”  “lawyer,  ■‘farmer,”  etc  , ax.d 
fill  in  8ch«dule  B page  2 of  tho  return. 

Enter  on  lino  1,  Schedule  D,  tho  total  Income  from  -mice  or  services,  less  any  dwcounto 
or  allowance*  from  the  sale  price  or  service  charge.  (For  instillment  sales  c-ec  Instruction  4). 

If  you  are  engaged  in  a trade  or  business  m which  the  ^reduction,  purchase,  or  sale 
of  merchandise  of  any  kind  ia  an  income-producing  factor,  secure  from  the  Collector  of 
Internal  Revenue  and  file  as  a part  of  thia  return  a Orcifteate  of  Inventory,  Form  tier.. 

Salaries  —Enter  on  lino  10  all  salaries  and  wagoe  not  reported  os  ' Labor”  on  line  2. 
Falary  or  wages  for  your  own  services  or  the  rervices  of  your  aepondont  nunor  children  if 
deducted,  must  be  reported  as  income  in  Item  1 

Rent. — Enter  on  tine  11  rent  on  business  property  ia  which  you  have  no  equity.  Do 
not  include  rent  for  dwelling  you  occupy  for  residential  purpose 

InU-'tt  —Enter  on  line  12'intereet  on  busiocee  indebtedness  to  others.  Do  not  include 
interest  to  yourself  on  capital  invested  in  or  advanced  to  tfc*>  hurinen. 

Taxes  —Enter  on  line  13  taxes  on  btiainma  property  or  for  carrying  on  business.  Do 
eot  Include  taxes  assessed  against  local  benefits  of  a kind  tending  to  increase  the  value  ot 
the  property  css  eased,  as  for  paving  sewers,  etc.,  nor  Federal  income  faxes 

Repairs,  t near  and  tear,  obtolez.mce,  depletion,  and  properly  lou.s  {other  than  merchan- 
dise).— Enter  on  lino  14,  fa)  ordinary  rep*  required  fo  keep  property  in  usable  condition, 
(6)  reasonable  allowance  lor  exhaustion . wear  and  tear  oi  property  usod  in  tho  trade  or  busi- 
ncos,  including  a rcoionablo  allowance  for  obsolescence,  ana  tc)  losses  ol  b-.wincee  property 
by  fire,  storm,  or  other  casualty,  or  theft,  not  compensated  for  by  insurance  or  otherwise 
and  not  made  good  by  ropairs  claimed  os  deductions.  Explain  theso  deductions  in 
Schedule  B 

Tho  amount  claimed  for  wear  and  tear  (depreciation),  including  obsolescence,  should 
not  exeoed  the  original  cost  of  the  property  (or  if  acquired  prior  to  March  1,  1013,  th9  fair 
market  value  on  that  data)  divided  Dy  its  estimated  life  .o  yearn,  if  obsolescent  is 
claimed,  state  why  useful  life  ia  Isea  than  actual  life.  When  tho  amount  of  depreciation 
and  obso’cecence  allowed  equals  the  coot  of  the  property  (or  if  acquired  prior  to  March  1, 
1013.  the  fair  market  value  on  that  date),  no  funn  r chum  should  bo  made. 

Do  not  claim  aDv  deduction  for  depreciction  in  tbe  value  of  a building  occupied  by 
you  as  a dwelling,  or  of  other  property  held  for  perroaal  use,  nor  for  land  (exclusivo  of 
improvements  thereon),  nor  on  6tocks,  bonds,  and  other  securities. 

Deprcrwlion  of  patent i,  copyrujhts,  etc.,  and  depletion  of  mines  elr. — If  you  claim  a 
deduction  on  account  of  depreciation  in  the  value  of  patents,  copyright-’,  franchises,  and 
other  legal  privileges,  ot  on  account  of  depletion  ol  minus  or  oi!  and  gas  wells,  eee  Section 
214  (a)  8 and  10,  of  the  Revenue  Act  of  1921. 

Amortixation  oj  war  facilities. — If  amortization  of  war  facilities  is  claimed,  see  Section 
214  (a)  9,  of  the  Revenue  Act  oi  1921 , and  the  Regulations  issued  under  authority  thereof. 

Bad  debts.— Enter  on  line  16  debts,  or  portion;  thereof,  arising  from  sales  or  professional 
services  that  have  been  reported  as  income,  which  have  be*n  dofinitelv  ascertained  to 
He  worthless  and  charged  off  within  the  year,  or  such  resisoneblc  amount  as  has  been  added 
to  a reserve  tor  bad  debts  within  the  year  A debt  previously  charged  off  as  bad,  if  subse- 
quently collected,  must  bo  returned  as  income  for  tho  year  "in  which  collected. 

Outer  erptr.tses  — Enter  on  line  17  all  ordinary  and  necesSary  business  expenses  not 
classified  above,  such  as  firo  insurance,  heat,  light,  and  traveling  expenses  (see  Instruc- 
tion 13). 

Do  not  Include  coet  of  business  equipment  or  furniture,  expenditures  for  replacements, 
or  for  permanent  improvements  to  property,  nor  personal  living  or  family  expenses. 

Deficit. — I!  Item  20  shows  a deficit,  indicate  by  usinj  red  ink  or  a minus  men. 


17.  PROFIT  FROM  SALE  OF  REAL  ESTATE. 

Nwibs  ths  property  brlsfly,‘o* ''farm,'' ' hr, u*e," ‘'lot’'  , 

State  the  actual  conaidemtion  or  price  rocei'od,  or,  in  com  of  on  exchange,  tho  fair 
market  value  ol  the  property  received.  t 

Enter  tho  original  cost  of  the  property,  and  if  it  wts  acquired  prior  Ip  March  1, 1913. 
tho  fair  market  value  on  that  dale  Attach  otatement  explaining  now  value  at  March  1. 
10)3,  was  determined.  Exponsns  incidental  te  tiio  purchase  may  be  included  in  the  cost 
If  never  claimed  In  income  tax  returns  os  deductions  irota  income. 

Enter  ns  depreciation  tho  amount  of  weor  and  tear  and  obooloKCenco.  or  depiction, 
sustained  nines  March  1,  1613  formneo  aato  of  acquis, Ucn,  if  subsequent  U>  March  1, 1913' 

In  case  tbo  property  woe  acquired  by  gift,  bequest,  devise,  or  inheritance  after  If  arch 
1,  1913,  or  in  any  manner  prior  to  that  Oslo  r<  •>  Section  202  of  the'  Revenue  Act  of  1621. 

If  the  net  result  to  be  entered  in  Item  0 in  a deductible  low,  indicate  the  deficit  by 
using  red  Ink  or  a minus  sign. 

18.  PROFIT  FROM  SALE  OF  STOCKS,  BONDS,  ETC. 

The  method  ol  ongraulatioo  and  the  information  to  be  submitted  in  tr.e  cc*o  of  esls* 
of  stocks,  bonds,  etc  , ie  similar  to  that  required  for  Item  6,  except  that  toihocqucot  Improve  - 
men  to  and  depreciation  are  not  involved.  The  profit  (or  lues)  should  be  computed  ia 
accordance  wmh  Instruction  17  above, 

19.  TAXABLE  INTEREST  ON  LIBERTY  BONDS.  ETC. 

Tb«  interest  on  Liberty  Bonds  and  other  cMi/u* i,  ns  of  the  United  iiUtea  iscued  since 
September  1 1917  (except  Victor/I  ibtrly  I/uin  Jj  H .Notes,  and  postal  savings  certificates 
of  deposit),  is  subject  to  surtax  to  the  extent  that  the  holdings  exceed  the  exemptions 
provided  by  tho  act  authorizing  the,  iasu'  and  subsequent  act". 

The  exrmptiona  specified  in  columns  2, 3,  oni  4,  c*chedule  E,  are  applicable  to  the 
obligations  listed  on  lines  (of,  (6).  and  (<>,  but  the  total  amount  entered  on  these  lin<«  ia 
any  one  column  must  not  exceed  tho  exemption  spocifiod.  Tho  oxemptlous  specified 
at  head  of  columns  do  not  apply  to  the  obligations  wb?rc  t h--  word  "None"  e.ppeara. 

Enter  in  col'imn  6 on  the  proper  lines  the  principal  amounts  of  tho  various  obligation* 
owned  in  excess  of  tho  exemptions  specified,  curing  the  taxai  le  period,  inrlrn'iDg  ycur 
shoxeof  theeo  obligations  held  t>y  partccrehip",  pereonnJ  rericc  corporations,  and  fiduciaries. 

To  determine  the  Interest  on  any  closa  of  obligations  received  during  the  taxable 
period,  where  tho  books  aro  kept  cn  a ctnh  receipts  an  l disbursement  basis,  odd  to  tho 
amount  of  all  coupe, ns  and  registered  band  inte-rezt  fallin"  duo  within  the  taxable  period 
tbe  amount  of  accrued  interest  received  on  Rales  of  obligations  between  interest  payment 
date*,  and  deduct  from  this  sum  the  accrued  intereot  paid  on  purchases  of  obligations 
between  interest  payment  date?.  Tins  method  will  i>c  followed  where  books  mo  kept, 
on  a rseh  basis,  whether  or  not  the  coupons  falling  duo  within  tho  taxable  period  ore  actually  • 
cvhsd. 

If  the  books  ore  kept  on  the  accrual  bafie,  report  tho  actual  amount  of  interest  accrued 
on  the  obligations  owned  during  the  taxable  penod, 

20.  OTHER  INCOPdE. 

Report  all  other  taxable  income  fir  which  no  place  is  provided  elsewhere  on  page  l 
of  tho  return,  including  dividends  received  on  stuck  ol  foreign  corporations. 

21.  INTEREST  PAID. 

Enter  as  Item  12  interest  paid  on  personal  indebtedness  *e  distinguished  from  businwo 
indebtedness  'which  should  be  deducted  under  Srhetiulee  A.  B,  C,  or  D).  Do  not  include 
interest  on  indebtedness  incurred  or  can'iuued  for  tho  purchase  of  bonds  and  other  obliga- 
tions, the  interest  on  which  is  wholly  exempt  from  tax,  except  inienat  ou  indsbtedne* 
incurred  to  purchase  or  carry  Victory  Liberty  Loan  .3j  & Notes,  originally  subscribed  for 
*oy  the  taxpayer. 

22.  TAXES  PAID: 

Ealor  es  Item  13  personal  tax  ■«  paid  and  all  taxo"  ou  property  not  used  in  business  or 
profession,  not  including  thoeo  aet^esed  cgaui’t  local  benefits  ol  r.  kind  tending  to  lntseso*. 
the  vclus  of  the  property.  Do  not  include  Federal  income  tax  ns,  taxes  impaeed  upon  the 
taxpayer  upon  his  interest  as  shareholder  or  member  of  a corporation  which  are  paid  by 
the  corporation  without  reimbursement  from  the  taxpayer,  nor  income  and  profits  (axea 
claimed  as  a credit  in  Item  33,  paged  of  tho  return. 

23.  L035E3  BY  FIRE,  STORM.  ETC. 

Enter  as  Item  lowce  of  property  not  connected  with  your  trade,  business,  or  profes- 
sion, sustained  during  tbe  year  from  nrc,  rlorm,  shipwreck,  or  other  cisualtv,  or  imm  theft, 
winch  were  not  compensated  for  by  insurance  or  otherwise.  (Lowes  claimed  should  be 
explained  in  Schedule  F.  on  page  ?'of  the  return. ) * 

Dc.  not  deduct  losses  incurred  in  trane?ctionfl  which  were  neither  connected  with  vour 
trode  or  business,  nor  entered  into  for  profit. 

24.  CONTRIBUTIONS. 

Enter  ee  Item  15  contributions  or  gilts  made  within  the  taxable  period  to  or  for  tho 
uk  of  (a)  the  United  States,  any  Slate,  Territory,  or  any  political  subdivision  thereof, 
or  the  District  of  Columbia,  for  exdudvely  public  purposes;  (by  any  corporation,  or  com- 
munity chest,  fund,  or  foundat/'/C,  organized  and  operated  exclusively  for  religious,  char- 
itable, eeientlflc,  Literary,  or  educational  purposes,  including  posts  of  the  American  legion 
or  tho  Women's  Auxiunry  unifj  thereof,  or  lor  the  prevention  of  cruelty  to  children  or 
ani  mala,  no  part  of  the  net  earnings  of  which  inures  to  the  benefit  of  any  private  stockholder 
or  individual,  or  te)  the  special  fund  far  vocational  rehabilitation  authorized  fcy  section  7 
of  tho  Vocational  Rehabilitation  Act  . to  an  amount  which  in  all  tho  obovo  cases  combined 
does  not  exceed  15  per  centum  ol  the  taxpayer  e net  income  as  computed  without  tbe  benefit 
of  this  paragraph. 

Fiduciaries  filing  this  return  for  estates  in  the  pi  voces  of  administration  are  allowed,  in 
lieu  of  this  deduction,  that  provided  tn  Section  216(6)  of  tho  Revenuo  Act  oi  1921.  List 
names  of  organizations  and  amounts  contributed  to  each  in  Schedule  G. 

25.  BAD  DEBTS. 

Enter  os  Item  16  all  bad  debts  other  than^o?e  claimed  as  a deduction  in  iteou  above. 
State  in  Schedule  G,  (a)  ot  what  the  debts  consisted,  (6)  when  they  wore  created,  (e)  when 
they  became  duo.  and  (<f)  how  they  were  actually  determined  to  bo  worthless. 

26.  OTHER  AUTHORIZED  DEDUCTIONS. 

If  this  return  is  filed  lor  &u  eatatc  in  tho  procres  of  adniiniptration,  there  may  be  <lc 
ducted  the  amount  of  any  income  properly  paid  or  credited  to  beneficiaries.  Any  deduc- 
tion claimed  in  Item  17  should  l*i  oxplaioed  in  Schedule  G 


[Page  6 of  Form  1040.] 


Tire  Federal  Income  Tax  Service 
Supplementary  Page  226. 


2-9-22. 


* 


TREASURY  DEPARTMENT 
U.  8.  INTERNAL  RXVTNTT* 
Income  Tax— Jon.,  \ru 
Form  1 1ST 


Application  for  Extension  of  Time  for  Payment  ,of  Deficiency  ia  Tax,  under 
Section  250  (f)  of  the  Revenue  Act  of  1921. 


Commissioner  of  Internal  Revenue: 

Through  the  Collector  of  Internal  Revenue  at 

Sir: 

Application  for  an  extension  of  time  until  ia  hereby  requested  in 

which  to  pay  a deficiency  in  income  and  profile  tax  in  the  amount  of  $ , due  for  the  year 

ended , on  account  of  an  understatement  therein  not  due  to  negligence 

or  fraud. 

The  collector  demanded  payment  of  the  above  amount  of  tax  on  or  before , I Pd 

This  extension  is  necessary  by  reason  of  the  following  facts: 


» 


As  evidence  of  the  necessity  for  the  extension,  I herewith  submit  p.  balance  sheet  showing  the  condition 
of  my  business  as  of  the  last  day  of  the  preceding  month  or  the  last  taxable  period. 

Sworn  to  and  subscribed  before  me  this  

day  of  — , 192  

Applicant. 


The  extorter  of  internal  revenue  for  your  district  will  ad  vise  you  of  thoVction  oi  this  office  and  win  runnel'  you  with  thenecc.—arv 
form  of  bond,  if  required  by  the  Department.  Hewilleloo,  upon  app'icalion  therefor,  fnmieh  ywrwith  a bet  of  approved  surety  companies 


I hereby  recommend  the  f*PPr0Vft'  0f  this  aoplication  with — 

J disapproval 

1.  A bond  with  an  approved  surety  company  as  surety. 

2.  Bond  with  Liberty  bonds  or  other  bonds  or  notes  of  the  United  States  as  security. 

3.  Without  bond. 


(Sec  mslnjcfions  on  back)  mruaa  man  err, (!  a-uen  Collector. 

[Page  1 of  Form  1127.] 


The  Fedepal  Income  Tax  Service 
Supplementary  Page  227. 


Instructions  relative  to  filing  application  for  extension  of  time  for  payment  of  deficiency 
under  Section  250  (f)  of  the  Revenue  Act  of  1921. 


Section  250  (f)  of  the  Revenue  Act  of  1921  contains  a special  relief  provision  which  will  ho  in  effect  for 
only  eighteen  months  after  November  23,  1921,  tho  date  of  the  passage  of  the  act.  It  provides  that,  in  the 
case  of  any  deficiency  in  tax  rovealod  on  the  examination  of  an  income  or  profits  tax  return  (except  where  the 
deficiency  is  duo  to  negligence  or  to  fraud  with  intent  to  evade  tax),  where  it  is  shown  to  the  satisfaction  of 
the  Commissioner  that  the  payment  of  such  deficiency  would  result  in  undue  hardship  to  the  taxpayer,  the 
Commissioner  may,  with  the  approve!  of  t.bo  Secretary,  e ' tend  the  time  for  tho  payment  of  such  deficiency 
or  any  part  thereof  for  a period  not  to  extend  beyond  eighteen  months  from  November  23,  1921.  Where 
such  an  extension  is  granted  there  is  to  be  added  as  part  of  the  deficiency,  in  lieu  of  other  interest  provided 
by  law,  interest  at  tho  rate  of  two-thuds  of  1 per  cent  per  month  from  the  time  the  extension  is  granted. 
Where  such  other  interest  provided  by  law,  however,  is  in  excess  of  two-thirds  of  1 per  cent  per  month  the 
higher  rate  will  be  charged.  If  the  deficiency  or  any  part  thereof  is  not  paid  in  accordance  with  the  terms  of 
the  extension  agreement  there  is  to  be  added  a3  part  of  the  deficiency,  in  lieu  of  other  ir.torest  and  penalties 
provided  by  law,  the  sum  of  5 per  cent  of  the  deficiency  together  with  interest  on  the  deficiency  at  the  rate  of 
1 per  cent  per  month  from  the  time  it  became  payable  under  the  terms  of  the  extension  agreement.  Tho 
extension  will  be  granted  only  in  case  the  taxpayer  establishes  to  the  satisfaction  of  the  Commissioner  that 
without  such  extension  undue  hardship  will  result  to  the  taxpayer.  The  terra  “undue  hardship”  means 
more  than  an  inconvenience  to  the  taxpayer.  It  is  defined  as  meaning  that  substantial  financial  loss  or 
sacrifice  will  result  to  the  taxpayer  from  making  payment  of  the  deficiency  at  the  duo  date.  This  provision 
of  the  statute  is  applicable  only  to  deficiencies  in  taxes  which  have  accrued  or  may  accrue  under  the  Revenue 
Act  of  1917,  the  Revenue  Act  of  1918,  or  the  Revenue  Act  of  1921,  and  the  deficiency  refereed  to  is  only  3uch 
deficiency  in  tax  as  is  revealed  on  the  examination  of  an  income  or  profits  tax  return.  It  has  no  application 
to  deficiencies  in  taxes  other  than  deficiencies  in  income  and  profits  taxes  under  the  three'  acts  named. 

Any  application  for  the  extension  must  be  made  under  oath  on  Form  1127  in  accordance  with  instruc- 
tions printed  thereon,  and  must  be  accompanied  by  evidence  showing  that  undue  hardship  to  the  taxpayer 
would  result  if  the  extension  were  refused.  The  extension  will  not  be  granted  on  a general  statement  of 
hardship,  but  in  each  case  there  must  be  furnished  a statement  of  the  specific  facts  showing  wbat,  if  any, 
financial  loss  or  sacrifice  will  result  if  tho  extension  is  not  granted.  The  application,  with  the  evidence,  must 
be  filed  with  the  collector,  who  will  at  once  transmit  it  to  the  Commissioner  with  his  recommendations  as  to 
the  extension.  When  it  is  received  by  tho  Commissioner  it  will  be  examined  and  within  thirty  days  either 
rejected  or  tentatively  approved. 

The  application  should,  wherever  practicable,  contain  a certified  statement  of  assets  and  liabilities  of 
the  taxpayer.  Where  the  application  is -tentatively  approved  and  a bond  is  required,  it  must  be  filed  with 
the  collector  within  ten  days  after  the  notification,  by  the  Commissioner  that  a boDd  is  required.  It  shall  bo 
conditioned  for  the  payment  of  the  deficiency  and  applicable  penalties,  if  any,  and  interest  in  accordance 
with  the  terms  of  the  extension  to  be  granted  and  shall  be  executed  by  a surety  company  holding  a certificate 
of  authority  from  the  Secretary  of  the  'Treasury  as  an  acceptable  3uretv  on  Federal  bonds  and  shall  bo  subject 
to  the  approval  of  the  Commissioner.  In  lieu  of  such  a bond  the  taxpayer  may  file  a bond  secured  by  deposit 
of  Liberty  bonds  or  other  bonds  or  notes  of  the  United  States  equal  in  their  total  par  value  to  the  amount 
of  the  deficiency  and  applicable  penalties,  if  any,  and  interest,  aa  provided  in  section  1329  of  the  Revenue 
Act  of  1921. 

[Page  2 of  Form  1127.] 


The  Federal  Income  Tax  Service 
Supplementary  Pag*  228. 


2-11-22, 


THIS  RETURN  SHOULD 
BE  FILED  NOT  LATER 
THAN  THE  1JTH  DAY 
OF  THE  THIRD  MONTH 
FOLLOWING  THE  CLOSE 
OF  THE  ACCOUNTING 
PF.RlOD 


FIDUCIARY  RETURN  OF  INCOME 

FOR  CALENDAR  YEAR  1921 


Or  f©/  period  begun. - — » 1*20,  and  wnclod 


1921 


rniNT  NAMU  A 


» ADOWUaU  ItAINLY 


nJciro;  • of 


Do  not  write  in  this  (pace 


AFFIDAVIT 

ir  (or  affirm)  that  this  return,  including  the  accompanying  schedule*  and  statements  (if  any),  has  boon  examined  by  me.  and>  to  the  beet  of  my  knowledge  and  belief,  ia  a ti 
'*  icounting  period  aa  staled,  pursuant  to  tho  Revcnuo  Act  of  1921  and  tho  Regulations  issued  under  authority  thereof. 


and  com  pic  i'  return  made  in  good  faith  for  tho  accounting  p 


Sworn  to  and  aubacribed  before  mo  thia ... day  of.. 


1022. 


ir  rapretcaUnf  aducLury.) 


re  ot  officer  »diDluiM«rlngc*lb.) 


(A<ldr<»  of  fiduciary  or  otfioor.) 


1.  Was  a return  of  incotno  for  1920  filed  on  bcbalf  of  the  catAtc  or  trust  named  above? 

2.  Hao,  to  what  collector's  office  was  it  sent  (give  district  or  city  and_Sutc)? - 

SSL  INCOME 

1.  Intoraat  on  Bank  Depceita,  Notes,  Mortgages,  and  Corporation  Bond  ' 

2.  Income  from  Partnemhipa,  Fiduciaries,  etc.  (8tat*  narno  and  address  of  partnerships,  etc.) 


3.  Give  date  of  creation  of  t 


ir  decedent’s  death... 


3.  Renta  and  Royalties.. . : — 

4.  Profit  (or  loss)  from  Business  or  Profession  (not  including  income  from  partnerships).. 

5.  Profit  (or  loss)  from  Sale  of  Real  Estate — 


. Profit  (or  loss)  from  8aJe  of  Stocks,  Bonds,  etc... 
. Dividends  on  Stock  of  Domestic  Corporations ... 


. Other  Income  (including  dividends  received  on  etock  of  foreign  corporations),  (State  nature  of  income.) 

(s) : — i. — - 

(C) 


(Do  not  locludo  any  lnt*re»l  on  Ubtrty  Bonis,  ot 
Total  Income  in  Items  1 to  8 (le®  loeaes  shown  therein,  if  any)  — 

DEDUCTIONS 

i.  Interest  Paid  (not  including  interest  deducted  above) — 

. Taxes  Paid,  (not  including  taxes  deducted  above) 

. Losses  by  Fire,  Storm,  etc 

. Contributions . , - ..  

. Bad  Debts  (not  including  bad  debts  deducted  above) 

i.  Other  Deductions  Authorized  by  Law — 

:.  Total  op  Items  10  to  15 — 

Net  Income  (Item  9 minus  Item  16) 


BENEFICIARIES’  SHARES  OF  INCOME  AND  CREDITS 

18.  Eoter-below  tho  sliaro  oi  not  income  (whether  distributed  or  not)  of  each  beneficiary  of  the  estate  or  trust  (except  interest'  on  obligations  of  the  United  States);  each  beneGciory’a 
share  of  tax  paid  by  the  debtor  corporation  on  tax-free  covenant  bonds,  and  the  income  and  profits  taxes  paia  by  the  estate  or  trust  to  a foreign  country  or  to  a possession  of  the 
United  States.  (See  Instructions  tt  to  9,  ineluaive.) 

If  the  distributable  beneficial  interest  in  the  net  income  is  determined  on  a basis  other  than  a percentage  basis,  attach  an  explanatory  statement. 


1.  Name  and  Addfess  or  Each  BESEncuSr. 
(Deslgoat*  Docre&ifant  atleas.) 

2.  ?rx- 
cn^Ace 

Z.  Dividends 
(Item  7 above).  ’ 

4.  Other  Income 
(Item  17  mwvs  Item  T). 

5.  Tax  Pais  at  SocmcE 
ox  T ax -Pelse^  Covenant 

0.  Income  and  Profits 
Taxes  Pais  io  a Foreign 
Country  ox  to  a 
Possession  op 
the  l:  NIT  ED  States. 

!, ... 

1,  _ 

1 

| 

i 

1 

i 

r 

Jk)  .Totals  - 

J» 



•- - 

_ 

5-  

* 

[Page  1 of  Form  1041.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  229. 


ik  » r 

I.  Com,  on  Ifiaoi 
1,  i»ii,  v.L0« 

L fmiu. 

fi.  I rcra  ecu  rum 
awo  Jisrcrnou. 

fcSX. 

7.  Krr  r» mtt 

<oa  Look;. 

, 

. 

....  . 



- 

— 

state  petimatcd  life  of  properly  and  how  you  figured  depreciation  .. 


SCHEDULE  B.— EXPLANATION  OF  HIM  4.  ...(r,,,.,,,  . i. 


1.  Total  Income  from  bumn«*»e  (state  kind  <J  buainww)  .... 

Cost  or  Coons  Mold: 

2.  Labor , — -...(l . 


8.  Material  and  supplier 

4.  Mcrrhamlm"  bought  for  salo 
>al  i 


>cl) 


md  amounts 


8.  Plus  invontory  at  boginning  of  year 

7.  Total  . 

8.  I,eea  inventory  at  ond  of  year  ... 

9.  Net  Coot  or  Goono  Soi.n  . 


Oraan  BuojMKsfl  Dkductjono: 

10.  rialorioa  and  wagon  not  reported  aa  "Labor" 

11  Renton  bnniii***  property  in  which  estate  or 
trust  haa  no  oquuty 

12.  Internal  on  bumneea  iodebudnees  to  others 

13  Taiooon  business  and  hurinrwi  property 
H lb-pair*.  w'«r  and  U-ar.  obeoles'-cuio,  deple- 
tion. and  property  loam  (ox plain  below)  . 

18.  Amortization  of  war  fnciiition  

10.  Bad  dcbla  arising  from  ealee,  if  already  reported 

on  income  .... — 

17.  Other  expanses  (lint  principxl  items  and 
amounts  below  or  on  noparate  ehoet) 


18  Total  (Ilema  10  to  17,  ineluait*) 

19.  Nkt  Coot  vivm  Total  Dkdoctionb  (Item  9 pi  da  Item  18) 

20  Nut  Promt  (or  f.oas)  from  Bpemaea  (Item  1 minus  Item  19).. 


Explanation  of  deductions  .. 


SCHEDULE  C.  EXPLANATION  Oi'  ITEM  5.  iSalc  of  Real  Estate.)  o«  TTctmctim  17, 


^ IK  f a r 

2.  Dats  Acquired. 

3.  AWOtTNT  RECEIVED 

4.  Cost. 

S.  14*  ECU  1,  1913, 

6.  BcwtQDrwT 

7.  DUBECTATIMf. 

8.  *!rr  r-nom 
('« 

, 1 : 

. 1- 

| 

1 

1 

1 

m 

i 

i 

i 

i 

1 

- 1 

L; 



1 

— 



. I!  not  acquired  by  purchase,  state  how  acquired — — 

* SCHEDULE  D.— EXPIRATION  OF  ITEM  6.  (Sale  of  Stocks , Bonda,  etc.)  B«w  Imtmetton  v>. 


An  amended  return  must  be  plainly  marked  "Amended"  acrooa  the  face  of  tho  return. 


[Page  2 of  Form  1041.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  230. 


11-11-22. 


Form  1041 
U.  8,  Intpiinal  Revehi/* 


DUPLICATE 


DETACH  AND  RETAIN 
THIS  COPY  AND 
THE  INSTRUCTIONS 


FIDUCIARY  RETURN  OF  INCOME 

FOR  CALENDAR  YEAR  1321 


Or  for  period  begun 


, 1920)  «od  onded  .. 


PRINT  NAMED  ADD  ADORKSbIU  PLAINLY 


NtllMUil 
eddrew  of 
fiduciary 


FIDUCIARY’S  MEMORANDA 


DUPLICATE 


IF  YOU  NEED 
ASSISTANCE  CO  TO  A 
DEPUTY  COLLECTOR 
OR  TO  THE 

COLLECTOR’S  OFFICE 


25T 

H 

hJS.  INCOME 

14 

2.  Income  from  PxtaexMpa,  Fiduciaries,  etc.  (State  name  and  address  of  partnerships,  etc.) 

A 

16 

a 

17 

c 

18 

D 

1ft 

8.  Other  Income  (including  dividends  received  on  stock  of  foreign  corpora  toons).  (State  nature  of  income. ) 

(a)^„.  

(»)’. - - _ . . 

(Do  not  loclndo  nay  Intusst  «o  Liberty  Soacb,  etc.) 

9.  Total  Income  in  Items  1 to  8 (less  lessee  Bhown  therein,  if  any)  . 

DEDUCTIONS 

20 

10.  Interest  Paid  (not  including  interest  deducted  above)  

21 

11.  Tazee  Paid  (not  including  taxes  deducted  above) ..  _ 

22 

•E 

12.  Loanee  by  File.  Storm,  etc  

23 

F 

24 

F 

25 

F 

15.  Other  Deductions  Authorized  by  Law 

16.  Total  op  Items  10  to  15._  

17.  Net  Income  (Item  9 minus  Item  1C) _ . .. 

L_. 

18.  Enter  below  the  share  of  n 
share  of  tax  paid  by  the 
United  Stafee'.  (See  lm 


BENEFICIARIES’  SHARES  OF  INCOME  AND  CREDITS 


a.  Pta- 

l.  Name  and  adobes#  or  Each  Beneticiabt. 

(Polina:*  oowcsldeni  aliens.)  0T  Boia- 

Tntmest. 

2.  thrtDorDa 
(1KM  7 ABOVE). 

4.  Onrrx  Income 
(Item  17  mwvb  Item  7). 

8.  Tax  J»»m  at  Sonars 

O.T  Tax-Tail  COVENANT 

ft.  Income  and  Pro  me 
Taxes  Pam  to  a Foaemn 
Courtxt  oa  to  a 
POiSESJlOX  OP 
TUX  C NTT  ED  0TATEA 

1 

m - ..  .1  . • 1. 

« .. ! ! I I 

« - t j 1 

i 

W - . ' 

1 

1 

(s) 1 

<») - I 



...... 

« ■. — L __1 

' 

' 

— - - - ...  J . 

(1)  Totals ■ . ' 

... ~~L— 

_ 

- 

[Page  3 of  Form  1041.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  231. 


».  icnro  or  r*oir»TT 

1 Co*T,  OK  KjtBca 
J,  I9li,  \ tlVt. 

%HS!S 

4.  It  IT  AIM, 

» lnrr*«a»Tiow 
*»o  UincnuN. 

Fxr°rZ«. 

7 *"1 EF 

- - 





[Page  4 of  Form  1041.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  232. 


2-1 1-22 


INSTRUCTIONS  FOR  FIDUCIARY  RETURN 


t.  RETURNS  »V  P'PUCIARIF.T. 

Ltlurnt  o it  Form  1041  for  winter  nn.t  InuU  / f.  Inc  cry,  or  one  in  com  of  joint 

fiduclai la*,  i:urt malum r,  tura  on'li^f.  »i  ■ ?uhH  1041 1 ter  t,  sretatao*  tidit  (•  r which  1 o 
»ct»,i£  the.  income  of  tneb  or  tru- 1 lit  . . tab'.!  p.  ucj;,' V.iy.or  tbg  Uxlfpnyabtu 
by  Ui»  **c»  y to,  jwvM  w!  (u)  jU  hr  l lniwu-  , r.i!  • or  t-  <*t  fwiUlau&^ysa.- 

wan  81,000  crovof  or  (6)  toy  KjuofiCiar/ of  uiic!'  talon" ul  inn  i>(*cj  , r.t  kJ’op. 

RjIutm  o\Ferm  Mo  Jot  tx-ilt*  end  tru.  . -Idovoi  . f (*)  • -i.r  ' ,h 

final  o*tU<im<  ..t.  (8)  tru-ito,  whether  *«•'.  ■ by  will  • < .<.•?,  ' . r • • - . , , r ; ^ •i,-.ooi** 
ot  pvnor 4 till-  roolingoatSntaiirta.oTiii  V!,  - w .rj  •)  oVn.Jctlh#  ! t 

treat  may  1..  hc!d,  fur  fulutedi.it/tt  utiou,  it  • ixrd  toihoflJu> ' ry  r.  t '■<  cio  ( non,  r •>  t 
thitUom  tire  !.-iooiha  of  a dec  bnl'n  rotate  J»i  •••:  i*y  fi;.ub  > 'olucVi  sr.yr  r.evut  prewar!/ 
paid  or  credited  to  a beneficiary.  Iu  euch  cunxi  tbo  fiduclai  j ehc'.iM  u A->  t rc’.oin  for  the 
o*ul« or truat  on Form  lf*!9or  10 10A.  (SeePo  ti.  ai?00,t;i,anit?-:Cn/th*!toVAmif<  Actof 
1921.) 

Return*  on  IV  re  10{O  Jut  bcnefieusne  i -A  return  on  Form  1W0  or  t0-!0A  should  b» 
nrodon-d  by  the  fiduciary  In  tho  ca-e  of  (o)  Incomo  dletributablo  to  ft  nonmddoat  alien, 
rojpvrdlow  of  amount,  (J)  an  ordinary  guard ixsob ip  of  a miner  (unF-i  such  minor  himself 
.males  a return),  or  committee  for  an  ir-ano  pertcu,  if  the  netwnme  fo;  tho  taxable  y~\r 
amounted  to  52,0(0  or  over,  if  marriod  and  living  with  husband  cr  wifo  or.  the  list  di.y  of 
the  Uxabl'  yo*r,  or  if  tho  not  income  for  the  taxable  year  amounted  to  fl.COO  or  over,  if 
not  married  or  not  living  with  husband  or  wifeon  Che  last  day  of  the  taxable  year  or  if  in 
».iy  csoe  tho  gwa  incomo  was  *5,000  or  over;  (t)  an  eetate  </i  a decedent  before  final  settle- 
ment, and  (.f>  if  part  of  tho  Income  of  a truat  cetato  ia  dbi'ributed  to  beneficiaries  and  pan 
is  retained  for  the  benefit  of  the  trust  crute.  Under  tlio  conditions  described  in  (if),  t 
return  *bould  be  mado  on  Form  1041  for  the  entire  income  of  tho  trust  estate,  and  on  Form 
HM0  for  the  retained  portion  of  tho  income.  Any  income  properly  paid,  credited,  or 
distributable  to  a beneficiary  Is  taxable  directly  to  the  beneficiary 

Return  for  dcredcnl.—U  tho  net  income  of  & decedent  from  tho  beginning  of  the  taxable 
year  to  the  dato  of  hi*  death  was  51,000,  if  unmarried,  or  52,000,  if  married  and  Uviog  with 
husband  or  wife,  or  if  in  either  cose  the  groea  incomo  was  50,000  oc  over,  tho  executor  or 
administrator  shall  nak  a return  on  Form  1040  or  1IM0A  for  tsuch  dccedeDt. 

Return*  for  two  tnuU.  — U two  or  more  trusts,  the  incomo  of  which  ia  taxable  to  the 
beneGctaries,  were  created  by  the  same  person  and  ere  in  charge  of  tho  eame  trustee,  tho 
trustee  ehall  make  a single  return  on  Fomi  1011  for  all  fiuch  truiU,  nctwitiistanding’tbat 
they  may  anno  from  ditfexent  instrument*.  If,  however,  a trustee  holds  tnirto  created 
by  different  ptmoni*  for  the  benrfil  of  the  name  beneficiary , he  ehall  make  a return  on  Form 
1041  for  each  trust  separately. 

2.  PERIOD  TO  BE  COVERED  BY  RETURN. 

In  gsncral,  tho  regulations  governing  the  preparation  of  returns  by  fiduciaries  ora  the 
same  as  ihooo  governing  individuals. 

The  return  muct  be  filed  for  tho  cch  ndar  year  ceding  December  31,  1921,  c;  fur  the 
fiecal  year  ending  on  ti  e laut  day  of  w»y  or, nth  other  titan  D xvtub.r.  The  i&tw  ,a  which 
the  period  covered  by  Ihr  r.  turn  beyim  tjui  /-nds,  if  other  than  a caln  dar  *r.  moui  be 
pleinly  etatco  at  CiO  head  of  the  return. 

A fiduciary  was  requir  -i  a>  C!o  the  191R  return  for  «ta«o  or  trts:  cn  ihu  0f 
its  annual  accounting  period.  The  periocl  for  which  the  rcljiro  for  1.23  a-„j  file d must  be 
adhered  to  for  subsequent  years,  unless  pc-rmimirm  was  received  Cr^m  tho  Comxuiitiec^ 

to  make  a change. 

3.  ACCRUED  OR  RECEIVED  INCOME. 

If  the  books  of  an  tclate  or  trust  are  kept  on  an  scent,!  basw,  rCj>ort  !VJ1  ipcome  K.  rued 
even  though  it  has  not  b:-sa  actually  received  or  entered  on  the  books,  sr.w  exy-aua  j 
incurred  instead  of  expenses  paid. 

If  tho  books  do  net  show  income  accrued  and  expenree  incurred,  report  all  im  omo 
received  or  constructively  receive,  such  as  bank  intercut  credited  to  tho  account  of  the 
estate  cr  trust,  and  expenses  paid. 


4.  ITEMS  EXEMPT  FROM  TA1E 

The  following  items  are  exempt  from  Federal  income  tax  and  rbsuM  tit  I - ’ 

urdefls  it  is  dsoirad  to  establish  a net  low,  in  which  case  **  Section  8M  <f  thy  ?.p- 
Act  of  1921: 

(c)  TV?  proceed*  of  life  inaurecce  folkiee  paid  upon  tfco  death  of  the  iosvr-J- 

<*>  'I1*a  *«.ooat  received  by  tho  inenzed  as  a return  of  premium  or  r»r-m;u-«  paid  by 
him  under  life  insurance,  eaccr/mcnt,  or  annuity  contract*,  either  duric«  the  term  or  at 
the  maturity  of  tho  term  mentioned  in  the  couire.  t or  open  surrender  o',  hs  ctr  frei  t- 

(c)  Gifts  (not  made  m a cotsi^ftnUon  for  eervico  rendered),  and  »v-x-y  r.^d  pn^rv 

acquired  ccder  a will  or  by  ir^nla/icc  (hui,  the  inco-*  darived  freia  mtnoy  or  non  r' 
received  by  gift,  wili,  or  iuhrrli  >n.-o  b toxable  tfld  mu>»  fee  reported);  ‘ ' 

(d)  Interest  upon  (1)  tho  obligation*  c(  a Stale,  Tcnitcry,  or  any  political  atbdl  vision 

thereof,  or  the  Distort  of  Co'ianbit;  or  (2)  eecuritjcs  i»>sd  under  •}■- 

Federal  Farm  loan  Act  of  July  17,  1916;  or  (?)  the  obligrticDr  of  the  tnitoj  S'  crV*. 

poesewions;  or  (4)  bond*  issued  by  tho  Wor  Fin&cea  Cccpore'lrn  Ia  r?ZG  cf 

♦long  of  the  United  State*  issued  after  So,  tember  1.  1917  ( >tho.-  .ixu  noatj  -g,  cer. 

A~'  *j  "" J “ **“  ~~y  <*t  bends  itoued  by  tho  War  Finance  Corporate  •,  D# 


tificate*  of  depoait)  and  i 


* i — — 1 .1.VIWDV 

a amended  and  aupplemeutoil  by  Soctiur,  I3»  of  tho  Keveiuo  Act  of 
1921,  and  should  be  excluded  fvern  grass  indmo  pal; 
exempt  to  the  taxpayer  from  income  tax. 

(e)  Amount*  received  through  accident  cr  health  insurance  or  coder  workmen 's  com- 
pensetion  act*  as  competition  for  personal  injuries  or  «k»s*o,  ; ' ,.  >h,.  zaiounl  of  un” 
damage*  received,  whether  by  suit  or  cg-eement.  on  ivrour.t  cf  ouch  injuriaj  or  sicknees; 

(f)  Amounts  received  as  compensation,  family  allotmcnta  and  ailc  ./once*  under  O.e 
provisions  of  tho  War  Risk  Insurance  and  the  Vocational  iftebabilitatioa  Ac  -,,  or  a*.  j*n- 
mona  from  th-  United  State-*  for  aorvice  of  the  Irenoftcutry  or  another  in  to®  military  or 
naval  forces  of.  tho  United  State*  in  time  of  war. 


S.  FARMER'S  INCOME  SCHEDULE. 

If  tho  f.-tat'>  or  treat  dnriveo  income  from  fanaing,  and  no  book*  of  account  are  kept, 
or  hcohn  ore  kept  on  a :t.V,  i *-b,  obtain  from  tho  Collector,  and  attach  to  thia  return, 
1'orin  i-tOK,  ' hodnlo  of  Fi.tu  Income  and  Erpenrm.  Euter  llie  not  farm  Income  m 
Item  4,  p*?c  1 of  tho  return.  If  tb-i  fune  books  of  account  ar*  kept  oa  an  ecciuol  basis, 
fr  -'1-i  of  Form  lOtCF  li  optional.  P.r?  - * n -ime  frou  r.ir.w,  inioraet,  atlee  of  property, 
etc.,  in  Ite  uu  1 to  6 of  the  return. 

€.  DISTRUiUTJOW  OF  INCOME. 

Tt>o  table  undar  Item  19,  peg*  1 of  tin  return,  la  to  ba  used  for  allowing  each  beno- 
fidary'a  share  of  tho  not  incomo,  whether  dlatributod  or  not. 

Enter  on  line*  (a),  (6),  (r).  eu.\,  the  dUrributive  amount  of  the  totals  ahown  In  columna 
3 and  4 to  which  each  bonefiri-ry  is  c- ■titled,  whether  distributed  or  not.  If  the  amount 
to  be  entered  iu  column  4 ia  a loss,  tbe  amount  should  bo  indicated  by  red  ink  or  a annus 
•Igu. 

7.  TAX  PAID  AT  THE  SOURCE. 

If  the  estate  or  trust  received  interest  directly  or  through  a partnership,  pewonil 
acr.-ice  corporation,  or  another  fiduciary,  on  corporation  bonds  containing  a clause  by 
wlach  tho  debtor  coiyoretfon- egress  to  pay  the  interest  without  any  dod  action  for  taxes, 
aud  there  were  filed  with  ruck  inferxit  coupons  a white  certificate,  Form  1000,  not  claiming 
exemption,  a tax  of  2 per  cent  was  paid  at  the  source,  and  this  lax  should  be  allocated  to  the 
beneficiaries  in  column  6,  Item  18. 

8.  CREDIT  FOR  INCOME  AND  PROFITS  TAXES  PAID  TO  A FOREIGN 
COUNTRY  OR  TO  A POSSESSION  OF  THE  UNITED  STATES. 

If  any  amount  is  entered  iu  column  5,  Item  1?,  pare  1 of  the  return,  a copy  of  Form 
1116,  completely  filled  out  and  swore  to  cr  affirmed,  must  be  submitted  with  this  return. 
It  ti.  ~h  tax-*  ha vo  been  paid,  Form  1116  must  have  attached  to  it  the  receipt  for  each 
such  tax  payment.  If  such  taxes  have  been  accrued.  Form  1116  must  have  attached  to  it 
a copy  of  the  return  on  which  each  euch  accrued  tax  wa*  based,  or  other  evidence  os  to 
the  accrual  of  tax*.  (3eo  Section  222  of  the  Revenue  Act  of  1521?) 

When  a credit  is  claimed  on  Form  1040  or  Form  10-iOA  for  accrued  taxes,  the  Commie- 
aione.  may,  ns  a condition  precedent  to  the  allowance  of  such  credit,  require  tho  taxpayer  to 
give  a bond  on  Form  1117,  with  eurelies  satisfactory  to  Siud  to  be  approved  by  him,  in  euch 
punal  sum  as  ho  may  require,  conditioned  for  tbe  payment  by  the  taxpayer  of  any  amount 
cf  taxes  found  due  if  the  taxea  when  paid  differ  from  tho  emount  claimed  in  respect  thereof. 

9.  INTEREST  ON  LIBERTY  BONDS,  ETC. 

In  case  the  estate  or  trust  owned  Liberty  Bonds  or  other  obligations  cf  the  United 
States  Issued  since  September  1, 1917  (except  Victory  Liberty  Loan  3J,T.  Notes  and  postal 
saving  certificates  of  deposit',  or  a shore  of  these  obligalione  held  by  & parfucrehip,  personal 
eervico  corporation,  or  another  fiduciary,  the  fiduciary  should  advies  each  beneficiary  as 
to  hi*  proportionate  amount  of  these  obligations  and  the  interest  thereon,  in  order  that  the 
beneficiary  rnny  determine  whether  such  interest  is  taxable  on  his  individual  income  tax 
return. 

To  determine  tho  interest  oa  any  class  of  obligations  received  during  the  accounting 
period,  where  the  book*  sre  kept  on  a .-neh  receipt*  and  disbursement*  basis,  add  to  tho 
amount  of  all  coupons  and  registered  bond  interest  lolling  duo  within  the  ncccunticg 
period  tho  amount  cf  accrued  interc-t  received  on  rales  of  obligations  between  interest 
payment  dales,  and  deduct  from  this  sum  tho  accrued  iatereot  paid  on  purchases  of  obliga- 
tions between  interes*  payment  dates,  'flu*  method  will  be  followed  where  books  are  kept 
cn  a cash  basis,  whether  or  not  the  coupe  ns  falling  due  within  tho  accounting  period  are 
actually  c^ned.  If  tho  bcok*  rre  kopt  on  tbe  accrual  basis,  report  the  actual  amount  of 
intercet  accrued  on  the  obligati: ns  ownod  daring  the  accounting  period. 

10.  AFFIDAVIT. 

The  affidavit  muol  be  executed  by  the  individual  or  organization  receiving,  or  Laving 
Custody  or  control  and  Tnanaaecer.t  cf  the  income  of  the  e-tote  or  trust.  If  two  or  more 
individuals  act  jointly  oo  a fiiuciniy,  the  ofbdzvii  may  bo  executed  by  any  one  of  them. 

Tbs  oath  Trill  bo  admim stored  without  charge  by  any  collector,  deputy  collector, 
c intorecl  re venn:  agent  If  an  fcfera-1  re  /snu&  officer  is  not  available,  the  return 
she ulu  be  sweru  to  before  a notary  public,  justice  of  uio  psace,  cr  othor  person  authorized 
to  administer  u*Uui. 

It  re  not  cc f w-in-  to  show  rbs  raternent  cf  re*  incc.ne  to  the  offeer  wto  odministera 
th:  oath. 

ll.V/HEN  AND  KE  THE  RETURN  MUST  BE  FILED. 

Ii  tbo  retina  er.  toe  pofend, . yet-  3321.  file  it  r.ith  tho  Collector  of  Internal  Reve- 
1 ,J - *-•  district  ia  wid.Ji  the  uducrar.1  renacs  or  has  his  principal  place  oi  buainoof. 
w as  to  reach  the  c Ucctorti  o^rc  cn  or  before  Marc  ft  16,  1922. . If  for  a period  other  than 
* .J^ndw  too  return  eWd  »w  filed  tta  or  before  tho  1SU,  Jay  of  the  third  month 
.'  •In  whe/  fj_»  cl-^o  of  euci>.  period.  .Ii  lie  fiduciary  bx:  no  !&gui  r.*idcocw  or  principal 
puce  o i buuiaocs  - tho  United  States.  iLo  return  should  be  forwarded  to  Che  (Elector  of 
Internal  Revenue.  IkJUmwe,  Md.  (*k«  diction  22V  of  the  Revenue  Act  of  1921.) 

i2.  PENALTY  FOR  FAILING  TO  MAKE  RETURN  ON  TIME. 

A penalty  0f  not  m or-  thin  attaches  fr<r  iailuro  to  filn  the  return  within  the 

n"tuLred  ky  iaw.  U t fee  tail  are  u w-Jlful  or  f.-,  .-cteropt  in  rondo  to  defeat  or  evade 
<b.'  the  penally  i*  not  more  tbon  * . ;•  i<0  or  lmprur>D:o3Bt  for  not  mare  than  one  year, 
cr  Lota,  together  with  rests  of  pron-mrion. 

17.  INFORMATION  AT  THE  SOURCE. 

E -cry  ii  ■ • ;--w  who,  (luring  ibe  calendar  year  1921.  paid  to  any  Individual,  partite r- 
fthir'.  w pr-rauia!  service  corporation,  salaries,  viyea,  coau -.u-uons,  rentals,  oi  oilier  fixed 

terminable  income  of  51  .CSX)  t more,  id  required  to  make  a tret:  and  accurate  return 
to  the  CororcLf : re  .-  of  Internal  K»T>air*  showing  the  nature  and  eourcc*  of  such  payment* 
and  tho  nam«  cud  vSJremet  Ji-  rcripirnt.  All  Forms  10tf>  must  be  accompanied  by  Fdnn 
W90.  and  eho-Jd  be  forwarded  to  tho  Commissioner  of  Interne!  Revenue.  Sorting  Section. 
Washington,  D.  C . in  timt,  to  be  received  not  later  than  March  15, 1922.  *_um 


[Page  5 of  Form  1041.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  233. 


14.  INCOME  PROM  PARTNERSHIPS,  FI DUC1  ARIFS,  ETC. 

IUjK.rt  the  nhoro  of  Urn  ku!«  0r  trurt  (wh«u>«or roceiv  A or  not!  in  tho  prr  fit*  ol  x portly- 
«jip  or  pomonai  service  corpora  doo,  Cf  ir,  th*.  iooarey  si  c-^U>  or  irUJ:  ecu,,  the 

p.ut  of  with  ahva  thet  consisted  o!  dividend*  on  sfijek  cf  docuatic  corporate  which 
^hould  bo  included  in  Item  7,  page  1 of  the  return,  end  the  tatarest  or.  vbligzt.™  of  tho 
United  States  (act.  Instruction  9). 

11  Uu-  nccountiuK  pud od  on  the  been  of  which  this  return  k £bd  Uil*  u>  c at  kUU  with 
to<  r'  ma!  account  :ig  period  -A  the  partixsahip.  p^&orjl  nrr  ,it«  c.cp-.mtioo,  or  lid.-ciAry 
'•"u  you  rho-ill  irclud;,  in  thin  return  tire  distributive  ei  do  c/  the  total  cot  jpyM  for 
eu.h  accounting  period , coding  wit  nan  your  taxable  period. 

19.  INCOME  FF.Oa!  £ENT3  AND  ROYALTIES. 

’f  r^y  « wan  received  in  lieu  of  cash  rent,  report,  tho  income  ns  tiongh 
, rent  had  Von  ««.<.:*•  •»  *o  cash.  <>*»*  revived  no  rent  on  * ctop+uu*  iuoj.  diou'.d 
• iK-rud  u income  for  vao  year  in  which  deposed  of  ( unle**  your  return  flcrw*  ir.rome 
accrued). 

I -.plain  V Ctheduin  .' , ^50  2,  repairs,  depredation,  depletion,  acd  other  e.xponsec. 
other  eipeiA-e  include  interest,  uses,  file  uieurence,  fuel,  light.  mbor,  uo<l  other 

neceirary  cxrmonca  of  this  character. 

16.  INCOME  FROM  BUSINESS  OR  PROFESSION. 

Report  in  Item  4 the  net  profit  (or  loss)  from  - 

(а)  Solo  of  merchandise),  or  of  products  of  manufacturing,  construction  mining  end 
agriculture. 

(б)  J-n.dn.ca  service,  ouch  as  transportation,  dotage,  lauadarinf,  hotel  end  r stauraat 

acxvico,  it  very  and  gunge  service,  etc.  * 

Jn  general,  report  in  Item  4 any  incomo  in  tiro  turning  of  which  c-xpenrea  for  labor 
rent,  etc.,  were  incurred. 

If  tho  eouto  or  tr-.mt  derives  iocoras  from  forming,  me  Instruction  6. 

Dcetribo  (he  Luatncas  or  ecuvicoi  rendered,  os  "grocery,"  "retail  clothing,"  ' Jrjg 
oy>re."  " jobber,”  • importer, ’’  "broker,”  "farmer,"  ete.,  on  line  1,  ScLedule  E,  p*go  2 
of  the  return.  ^ 

hater  also  cn  line  1,  Eched-do  B,  tlio  total  income  from  burdoecn  or  talM  lax  zny  dio- 
«*»»»*  or  allowances  from  the  er.io  price. 

I!  engaged  in  a trudo  or  business  in  which  the  production,  purchase,  or  *.!«  cf  mer- 
chand»ye  ol  uny  kind  ia  an  income-producing  factor,  orcure  from  tho  Collector  of  Tntcr- al 
e cnu«  and  filo  erf  a purl  of  this  ro‘um  a CertifstiU  oj  Insmtcry,  Form  l: X6. 
rcirwtai^-Ent'-r  on  line  10  all  diaries  and  ws^tc  not  reported  as  "Labor”  on  lino  2. 
2i.-r.r.— Enter  on  Una  31  rent  on  bunbeec  property  in  which  the  estate  or  trust  has  no 
erjuily.  Do  not  include  rent  for  dwelling  occupied  by  any  beneficiary  fer  residential 
pvjpcifji. 

7r*tral  — Enter  on  line  12  interest  on  buslicw  indeblc idea  to  others.  Do  not  include 
cf  the  ectate  or  tmei  on  capital  invested  in  or  advanced  to  the  buoine». 

7oi/«  — Enter  ou  lino  13  taxea  on  burinex  prepariy  or  for  carrying  on  fcurinew.  Do 
BCt  aeoe^e  i ac>aiiist  local  benefits  of  a kind  tending  to  increase  the  value  of 

tho  property  awuawd,  as  -cr  paving,  eewere,  etc.,  nor  Federal  income  tasco. 

Ape* r»,  war  m*i  tin,-,  obsoUtuna,  depletion,  and  y.operly  loua  (ol/r  than  n^rehan- 
Enter  online  14.  (a)  ordinary  repairs  required  to  keep  property  in  usable  condition, 

■ toaiooable  allowance  ior  eihauction,  wear  and  tear  of  property  used  ia  the  trade  or  busi- 
ness, including  t reasonable  allowance  ior  obsolescence,  and  (c)  loses  of  busine®  property 
by  £rc,  storm,  or  other  casualty,  or  theft,  not  compensated  for  by  insurance  or  otherwise 
and  not  made  good  by  repairs  claimed  as  deductions.  Explain  theee  deductions  in 
Schedule  B. 

The  amount  claimed  for  weex  and  tear  (dapredation),  including  obsolescence,  should 
not  exceed  tho  c.i^mcl  cost  of  the  property  (or  i»  acquired  prior  to  March  1, 1913,  the  lair 
market  value  on  that  date)  divided  by  ito  artimated  life  in  years.  If  obsolacence  is 
claused,  e to  to  why  useful  life  is  loss  then  actual  life.  When  the  amount  oi  depreciation 
and  obsolescence  allowed  equeis  the  coot  of  the  property  (or  if  acquired  prior  to  March  1 
1813,  the  fair  market  value  on  thet  date),  no  further  claim  should  bo  made. 

Do  not  claim  aay  deduction  for  depreciation  in  tho  value  of  a building  occupied  by 
any  beneficiary  as  a dwelling,  or  of  other  property  held  fer  personal  use,  nor  for  land  (exclu- 
sive of  improvements  thereon V nor  on  stocks,  bonds,  an^  other  securities. 

Depreciation  of  potente,  copyrights,  etc.,  and  depletion  of  mines,  etc.— If  you  claim  a 
deduction  on  account  of  depreciation  in  tho  value  ol  putents,  copyrights,  franchises,  and 
other  letjal  privileges,  or  on  account  of  depletion  of  mines  or  oil  and  gas  w elk,  see  Section 
214  (a)  S and  1C:  of  the  Revenue  Act  of  1921. 

Amortuatum  of  rear  facilities— ll  amortization  of  war  facilities  ia  claimed,  boo  Section 
2i4  (a)  9,  of  the  Revenue  Act  of  1021 , end  the  Regulations  issued  under  authority  thereof. 

Bed  debts.  Enter  on  lino  1C>  debts,  or  portions  thereof,  arising  from  ealto  that  have 
been  reported  on  income,  which  have  been  definitely  ascertained  to  be  worthless  and 
charged  off  within  the  year,  cr  such  reasonable  amount  aa  has  been  added  to  a reserve  for 
bad  debts  within  the  year.  A debt  previously  charged  off  ao  bad,  if  subsequently  collected, 
must  be  returned  as  income  for  the  year  in  which  collected. 

Odor  expenses  — Enter  ca  line  17  all  ordinary  acd  necessary  business  expenses  not 
classified  above,  6uch  as  fire  insurance,  heat,  and  light. 

Do  r.ol  include  coat  of  business  equipment  or  furniture,  expenditures  for  replacement 
or  for  permanent  improvements  to  property,  or  living  and  family  expense*  of  sny  bene- 

DtJiriL.—ll  line  20  shows  a deficit,  indicate  by  using  red  ink  or  a minus  sign. 


17.  PROFIT  FROM  SALE  OF  REAL  ESTATE. 

Dwcrbv  the  property  briefly,  as  "farm,"  "hou»,”  "lot.” 

Ctite  tho  act-*!  consideration  ct  price  received,  or,  in  case  of  an  cxchacyc,  th*  fair 
market  value  of  iho  proprrty  received. 

Enter  tho  original  <x*t  of  th*  prop-rty  if  purchased  b"  the  fiduciary  and  if  it  w ns 
acquired  In  any  manner  p.loi  f.o  March  1,  )9LS,  the  fair  market  value  on  that  date  In 
th»  property  was  ownad  by  the  decedent,  tho  basis  tor  computing  profit  (cr  1.x*)  u 
tho  inventory  value  at  tiw  date  of  death.  Attach  statement  explaining  hcv  vriue  at 
March  1,  1913,  wr*  determined.  Expenses  incidental  to  the  purchase  may  le  iu<  lnd«i 
xu  ths  coot  if  never  claimed  in  income  tax  refume  aa  deductious  from  income 

Enter  to  depreciation  the  amount  of  wear  and  tear  and  oheokecoace,  or  depktion, 
sustained  since  March  1, 1913  (or  since  date  of  acquisition,  if  sul»oquent  to  Mar^d.  V.  1313). 

In  case  the  property  was  acquired  by  gift,  bequest,  devise,  or  inheritance  after  March 
1,  1915,  or  in  any  maunor  prior  to  that  dale,  see  Section  202  of  the  Revenue  Act  of  1921. 

If  tho  net  result  to  be  entered  in  Item  6 is  a deductible  low,  indicate  ilrc  d.-bot  by 
using  red  ink  or  a minus  sign. 

1C.  PROFIT  FROM  SALE  OF  STOCKS,  BONDS,  ETC. 

The  method  of  computation  and  io  information  te  be  oubraivted  in  the  case  of  sal-o 
of  steel®,  bonds,  etc  , is  similar  to  that  required  for  Item  5,  except  thateeboequent  improve- 
ments and  depreciation  ere  wot  involved.  The  profit  for  lexe)  should  bo  computed  in  1 
accordance  with  Instruction  17  above. 


19.  OTHER  INCOME. 

Itelwjrt  all  other  taxable  income  for  which  no  place  is  provided  elsewhere  on  page  1 
of  the  return,  including  dividends  received  on  stock  of  foreign  corporations,  and  corpora- 
tions  ea tidying  the  conditions  provided  in  Section  262  of  the  Revenue  Act  of  1921. 

20.  INTEREST  PAID. 

Enter  as  Item  10  interest  paid  on  other  ir.debtednos  a a distinguished  from  burinao 
indebtedness  ( which  should  be  deducted  under  Schedules  A,  B,  C,  or  D).  Do  not  include 
interest  on  iud^btednea  inc-irred  for  the  purchase  of  bonds  and  other  obMgatlons,  the  inter- 
ect  on  which  is  wholly  exempt  from  tax,  except  interoet  on  indebtedness  incurred  to  pure 
cfacee  or  carry  Victory  Liberty  Loan  3J%  Notes,  originally  subecribed  for  by  the  taxpayer. 

21.  TAXES  PAID. 

En’or  oo  Item  11  p**ionnl  texen  paid  acd  all  tax  re  on  property  not  used  in  bu  air  res, 
not  including  thoee  assoced  against  local  benefits  of  a kind  tending  to  inc rearc  the  v»lu* 
o!  tho  property.  Do  not  include  Fedcaal  income  loirs,  taxes  impowd  upon  the  estate  cr 
Lroat  on  its  interest  as  rtockholder  of  a corporation,  which  are  paid  by  thp  corporation  with- 
out reimbursement  from  the  taxpayc,  nor  income  and  profits  taxes  reported  In  s 

Item  18,  page  1 of  tho  return 


22.  LOSSES  BY  FIRE,  STORM,  ETC 

Enter  ss  Item  12  looses  of  property  not  connected  with  tho  trade,  or  business,  sustained 
during  the  year  from  fire,  etonn,  shipwreck,  cr  other  casualty,  or  from  theft,  which  were 
not  compensated  for  by  insurance  or  otherwise.  Lweee  claimed  should  be  explained  in 
Schedule  E,  on  page  2 of  the  return.  (Seo  Section  214(a)  6 of  the  Revenue  Act'd  1921  ) 


23.  CONTRIBUTIONS. 

Enter  us  Item  13  any  part  of  the  gross  income  which,  pursuant  to  the  terms  of  the  will 
or  deed  creating  the  trust,  was  dilring  the  accounting  period  paid  to  or  permanently  Ml 
a3ide  for  tLe  use  cf : (a)  the  Uaited  Staten,  any  State,  Territory,  or  any  political  subdivision 
thereof,  cr  the  District  of  Columbia,  for  exclusively  public  purposes;  (6)  any  corporation, 
or  community  chest,  fund,  or  foundation,  organized  and  operated  exclusively  for  religious, 
charitable,  poientifie,  literary,  or  educational  purpoees,  including  posts  of  tho  American 
Legion  or  ih»  Women’s  Auxiliary  unite  thereof,  or  for  tho  prevention  of  cruelty  to  children 
or  animals,  no  part  of  the  net  eamingB  of  which  inures  to  the  benefit  of  any  private  stock- 
holder or  individual,  or  (e)  the  special  fund  for  vocational  rehabilitation  authorized  by 
Section  7 of  the  \ orations!  Rehabilitation  Act.  List  names  of  organizations  and  amounts 
contributed  to  each  in  Schedule  F. 


24.  BAD  DEBTS. 

I.cter  aa  Item  14  all  led  debts  other  than  thoee  claimed  as  a deduction  in  items  above. 
State  ir.  Schedulo  F , (a)  of  went  the  debts  consisted,  (b)  when  they  were  crested,  (e)  when 
they  became  due,  and  (d)  how  they  were  actually  determined  to  be  worthless. 


25.  OTHER  AUTHORIZED  DEDUCTIONS. 

Enter  a?  1 'em  1 5 all  other  deductions  authorized  by  law  for  which  no  place  ia  providaf 
elnercfcrm  ou  page  1 oi  the  return.  Do  not  deduct  looses  incurred  in  transactions  which 
were  neither  connected  with  the  trade  or  business  nor  entered  into  for  profit.  Any 
deduction  daimtd  should  fce  explained  in  Schedule  F 


[Page  6 of  Forrrf  1 04 1 .] 


The  Federal  Income  Tax  Service 
Supplementary  Page  234. 


Enter  below  the  share  ol  net  inc  >me  (whether  distributed  or  Dott  of  each  member  ol  lh^  partnership  or  stockholder  of  the  personal  service  corporation  f except  interest  on  oblige* 
lions  ol  the  United  States),  each  farmer's  or  stockholder's  share  of  my  income  tax  paid  at  source  on  tax-free  covenant  bonds  and  any  income  and  profits  taxes  paid  by  the  partnership 
or  corporation  to  a foreign  country  or  to  a possession  of  ^be  United  States.  (See  page  l; ol  Instructions,  paraijapha  9 to  It,  inclusive  ) 

If  the  distributable  interests  in  the  net  income  are  determined  on  a Ladle  other  than  a percentage  basis,  attach  an  explanatory  statement 


Mrv eras  or  riiTscio?  oz  Siwiaoutu  of  PcasoirtL  Sravict  Coa»oa»nr 

y. 

• 

, 



) Kara*  and  addr**)  ot  cacti,  uttiown  oo  Individual  tax  rctumi, 

2.  Intel*  it  In  rsrujrr1 

X . Dixie  ursaactuxcr 

TO  StTBTA  X OHIT 

(inx  s aaovx) 

« owr*  I scour 

(ITIK  .i  Mixes  ITXV8). 

EouarVoK^TxxwME 
Covxmakt  Boros. 

Tilt*  1**10  TO  * 

Foaoox  Comrrar  oa 

, ‘ 



To„,„  



....... 

« ! 

* 

. 

The  undersigned,  being  s<*.erallv  dulv  sworn,  each  for  himself  deposes  and  rajs  that  this  return,  including  the  accompanying  schedules  and  stat;meatj,  has  ha**  examined  by  him 
and  is  to  the  beet  of  his  knowledge  and  belief  a true  and  complete  return,  made  in  good  faith,  for  the  accounting  period  as  stated,  pursuant  to  the  Revenue  Act  of  1921  and  the  Regula- 
tions iseued  under  the  authority  thereof. 

Sworn  to  and  eubscribed  belorc  me  this_ day  of 1922 


(3ljo»ture  ot  efl.  t e ; .ami  it  <•:  u 


PrtndrrU  of  corporation. 
Ui’nhtr  */  parthoihip. 

Tmtwa  oj  corporation. 


[Page  1 of  Form  1065.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  235. 


SCHEDULE  C RECONCIl  IAT10N  OK  NET  INCOME  AND  ANALYSIS  OF  CHANGES  IN  SURPLUS. 


Attach  hereto  balance  sheet*  as  at  the  beginning  and  end  of  the  accounting  period  (preferably  in  parallel  column*),  allowing  a*  nearly  a*  practicable  the  detail*  called  for  below: 
(Tlieae  balance  sheet*  should  be  prepared  from  the  books  and  should  be  in  agreement  therewith,  or  any  differences  should  be  reconciled.) 

ASSETS.  ASSETS  (Continued). 

C tab  (Including  cosh  In  bonk  and  on  band,  certificate*  ot  deposit,  ate.). 

Tfode  account*  (before  deducting  renorves  for  loose*). 

Note*  receivable  (tom  customer*. 

Other  eccouot*  and  notes  receivable  (to  be  classified). 


b I esua  to  ba  stated  separately). 


Deferred  charge*  to  tuture  operation*  (to  be  detailed). 


Fixed  aooaU: 

Land. 

Buildings. 

Kgautr 


,7  minor  equipment. 

Delivery  equipment 
Office  furniture. 

Otbtrjrtato  character). 

Less recorves  for  depreciation  end  > 

applicable  to  each  fixed  a*sol).» 
Nit  Vax.tr*. 

VenXa.^geod  will,  and  other  Inlanjib! 
Created  by  stock  < 


in  (showieporately  amount 


k dividends  or  otherwise. 


tone  and  netee  parable: 

To  o there  (Including  bank  loane). 
ccoonl*  parable: 

Trade. 

ccrued  etpenaet  end  reserve*,  tb«  charges  ere* 
able  deduction*  I rum  Income  (to  be  detailed), 
eienee,  the  charges  creating  which  art  not  alio1 
Income  (lo  be  (totalled  >. 

it  accounts  (to  be  detailed). 

Surplus  *nd  undivided  (refit*. 


QUESTIONS. 


KIND  OF  BUSINESS. 

. . 1.  By  moans  of  the  loy  loiters  given  telow,  Identity  the  corporation's  main  locomo  producing  tcUvl 
do*  ottlio  general  classes , and  follow  this  by  a special  description  ol  tl«*  business,  sufficient  to  give  Uio  Inf© 
ceiled  for  under  each  general  class.: 

• A— Agriculture  and  related  Industries, Including  fishlnt 


e product  or  products.  I 


bridges,  railroads,  si 


lnp,  logging.  Ico  harvesting,  etc.,  end  abo  the  leasing 
-Mining  and  quarrying,  including  gas  and  cil  wclb, 
1 or  products.  C- Manufacturing.  Stale  Uw  product 
- D—Construcilon— excavations,  buildings. 

Ji  ay  urns,  devices,  or  machinery,  without 
or  Lind  ot  installations.  El  Tianjporta- 


lg  of  such  properly.  6tato  the  | , _ „.  . 

Uriel  II  Dot  Implied  by  the  nanm  ol  tha  product,  D— Cottstrucilon— excavations,  buildings. 

ships,  etc,  abo  equipping  and  Ins  tellings "k — — • - 

ruu  Aiiauuiaoiunr.  Siam  nature  ol  structure*  bulk,  materi . .._ 

tfoa-rall,  water,  local,  etc.  State  Coo  kind  and  special  product  transported.  II  any.  E3— Public  utiUUco-gas 
(natural,  cool  or  water);  electric  liEht  or  power  (hydro  or  steal*  generated),  Leo  ting  (steam  or  hot  water):  tele- 
phone; waterworks  or  power.  KF-Ttorege— without  trading  or  profit  from  salts  'elevator,  warehouses, stack- 
yards,  ete.)  State  product  stored,  t*—  Lessing  transportation  or  utilities,  fiat*  imd  ot  property,  r— 
Trading  In  goods  bought  and  not  produced  by  tho  trading  concern  Sum  tnatr.tr  <d  trade,  whether  wholesale, 
retell,  or  commission,  and  the  product  bandied.  Sales  with  storage  with  profit  primarily  (torn  sales  G—  Scrvtoo— 
domestic,  Including  hotels,  restaurants,  etc  ; amusement!;  other  protezJonal,  personal,  or  technical  servin'. 
Mate  tha  swvioo.  H-Fmaom,  including  bodkin*,  res)  estate  insurance  1-  Concerns  not  faUlng  in  abovo 
classes  (a)  booause  ol  combining  several  ol  them  with  no  predominant  boilnc::,  or  (b;  (or  other  reasons 

2.  Concerns  whoso  business  Involves  activity  falling  In  two  or  were  of  tho  above  general  cl»**e  where  the 
jame  produtf  Is  concerned,  should  report  business  as  identified  with  but  one  of  the  above  general  classes;  for 
example,  concerns  In  A or  B which  also  transport  and  market  Uwlr  own  piodact  exclusively  or  mainly,  should 
still  bo  identified  with  classes  A or  B . concerns  In  C (manufacturing)  which  own  or  control  their  Mura  of  material 
supply  In  A or  B and  which  also  transport,  sell,  or  Install  their  own  product  delusively  or  mainly,  should  to 
identified  with  manufacturing ; concerns  In  D may  control  or  own  source  of  supply  of  materials  used  exclusively 
or  maloly  In  tbdr  constructive  work;  concerns  In  El  or  E3  may  own  or  control  the  source  ot  their  material  or 
power^  concerns  In  F mey  transport  or  store  their  own  merchandise,  but  Its  production  would  Identify  them 

3.  Answers: 

(а)  General  doss  (use  key  letter  designation) .. - 

(б)  Main  Income  producing  business.  Give  specifically  the  loturmaUoo  called  tor  under  each  key  letter, 
, also  whether  acting  as  principal  or  as  agent,  on  commission.  Btete  if  Inactive  or  In  liquidation. 


..  a.  personal  service  corporation  must  ex  plain  its  business  In  sufficient  detail  tojustlfy  its  claim  to  be  classed 
os  such.  If  U*  character  of  tho  business  Is  different  from  that  oarried  on  daring  tbe  paced  lag  accounting  ponod, 
tho  nature  ol  tho  change  must  bo  explained.  Where  necessary,  the  statement  should  bo  made  on  a separate 
t,  which  should  bo  firmly  attached  to  this  return. 


•a  ot  the  country  eDgaged  in  the  same  kig.d  of  business. 

ORGANIZATION  OR  INCORPORATION. 

Data  of  organisation  or  Incorporation. 

I.  If  incorporated,  under  tho  laws  of  what  Butot_. 


i.  Is  tho  corporation  a successor  to  or  was  It  fanned  to  lake  over  or  conduct  part  of  the  business  of  another 
corporation). ...........  If  so,  stato  name  and  address  of  predecessor  or  other  organization,  and.  In  the  latter 

case,  the  financial,  managerial,  aad  contractual  relationships  existing  between  yourselves  and  tho  other  organl- 


VALUATIONS  OF  CAPITAL  STOCK. 

).  What  was  tbe  fair  value  of  the  total  capital  stock  ol  the  corporation  as  determined  In  the  last 

ly,  of  tho  capital  stock  tax? 

« of  that  assessment  — 

AFFILIATIONS  WITH  CORPORATIONS. 

10.  Does  the  corporation  own  directly  or  control  through  closely  affiliated  Interests  or  by  a 

Inacs  ever  7(1  per  cent  Of  tho  outstanding  voting  capital  stock  ol  another  corporation’ 

Ills  over  70  per  cent  of  your  voting  capital  stock  owned  by  another  corporation  or  by  two  or  n 
» that  ore  affiliated? 

12.  I*  over  70  per  cent  of  your  voting  capital  slock  as  well  as  over  70  per  o-ut  otlbn  voting  c»i 
her  corporaUon  or  ol  other  corporations  owned  or  controlled  by  the  same  Individual  or  parti* 
i*me  Individuals  or  partnership? 


a I change  during  such  period 


( Name  of  corporation. ) 

(Name  of  corporation.) 

(Addre**.) 

Percentage  of 
.tockholdlugi. 

fc  bores  held. 

aOUkhc!dfn^r 

1 

;..j 

1U  viio^prinlc^tJ  during  tha  entire 
Ming  privileges  may  *be  eocrlfioed  or  o 


ng  prtvikitw  may  "be  escri fiord  or  acquired. 

(6)  State  tha  dividend  privileges  of  ibo  respective  cl 
attainting  period,  tha  dale  aud  rata  of  last  dividend  j>o; 


ig  the  accounting  period,  OT  eruditions  by  which  these 
paid  during  ll 


sod  under  what  conditions,  lb 


lod,  tha  data  aud  rata  of  last  dividend  payment,  and  a h* 
participate  I u tho  earning*  above  the  fixed  dividend  rate. 

(c)  Slate  Lithe  preferred  stock  has  preference  In  respect  to  distribution  of  assets,  dividends  or  otherwise. 

(d)  Show  separately  the  number  of  shares  of  each  class  held  by  the  respective  stockholders  of  each  company, 
ppt  w hero  impracticable  by  reason  of  tbe  large  number  of  stockholders.  Under  such  conditions  show  only 


(Q  Indira.. 

and  tho  conditions,  either  expressed  ot — 

accounting  period.  Also  submit  the  Ril owing  Infonnatlon^reepect^to  ouch  suvhholdere^a 
amouctpald  lor  such  sa-ttssifi  of  payment  far  such  stock. 

(j)  If  the  slock  In  any  oar  or  mpre  of  the  coporatfons  Is  held  by  mom  bar*  of  one  family,  or  related  famine*, 
state  tbe  relations  existing  between  the  various  stockholders  and  whether  such  stock  was  acquired  by  gift,  pur- 
chase, or  otherwise. 

(M  Erplalnfully  tbenatureond  extent  of*ny  Intercompany  transactions  or  erranxciDeriC  which  may  effect 
an  artificial  JuiributJan  of  profits  or  assign  lo  any  one  ol  the  affiliated  corpcraUonsa  disproportionate  share  of 
Foreign  corporation*  may  not  be  Indudod  In  consolidations. 

GOVERNMENT  CONTRACTS. 


iKffiew 


rs  and  state  their  relationship  tc 


*lth  tbe  Ooveromeu 
Briefly  or  indirectly,  through  the  oporaUou 
(*o,  state  tbe  amounts  involved,  t 


r or  not  such  a 
accounting  for 


r "Ye*”  or  "No")... 

ounts  are  included  in  Ibis 
te  additional  Income  filed 


' ATTACHED  SCHEDULES. 


,i  of  schedule*  occompan) 


{c 


a 


G 


G 


o. 


[Page  2 of  Form  1065.] 


'c 


The  Federal  Income  Tax  Service 
Supplementary  Page  236. 


2-11-22 


p«;e  1 of  Initrucdoiu.  GENERAL  INSTRUCTIONS. 

P»rtn«riliip  end  Pcraonal  Service  Corporation  Return  of  Income. 


PARTNERSHIPS  AND  PERSONAL  SERVICE  CORPORATIONS  REQUIRED  TO 
MAKE  A RETURN  OF  INCOME 

1.  Partnership*.— Every  partnership,  whether  domestic  or  foreign, 
doing  business  in  (he  United  Slaton  must  make  a return  of  income  on 
thh  form  regardless  of  the  amount  of  ifs  gross  or  net.  income.  (Sow  Sec- 
tions 218  and  224  of  Revenue  Act  of  1921.) 

2.  Personal  service  corporation*. — Every  personal  norvioe  corporation 
must  make  e ralurn  of  income  on  thin  form  regardless  of  the  Amount  of  its 
gross  or  net  income.  (See  Sectiou  218  of  Revenue  Act  of  1921.) 

3.  Personal  service  corporation  defined. — The  term  "pcraonal  servico 
corporation”  means  a corporation,  not  expressly  excluded,  tho  iccoruo  of 
which  is  derived  from  a profession  or  business  (a)  which  consists  prin- 
cipally of  rendering  personal  service,  (b)  the  eanungs  of  which  are  to  he 
ascribed  primarily  to  the  activities  of  tho  principal  owners  or  stock- 
holders, and  (c)  in  which  the  employment  of  capitul  is  not  necessary  or 
is  only  incidental.  (Soe  Section  200.  paragraph  5,  Revenue  Act  of  1921.) 

4.  Corporations  excluded. — The  following  classes  of  corporations  are 
expressly  ekcluded  from  classification  as  personal  9orvico  corporations: 
(<i)  Foreign  corporations ; (b)  corporations  50  per  cent  or  more  of  whose 
gross  income  consists  of  gains,  profits,  or  income  derived  from  trading  as  a 
principal ; and  (c)  corporations  50  per  cent  or  more  of  whose  gross  income 
consists  of  gains,  profits,  commissions,  or  other  income  derived  from  a 
Government  contract  or  contracts  made  between  April  6,  1917,  and 
Novomher  11,  1918,  inclusive. 

A corporation  is  not  a personal  service  corporation  merely  because 
less  than  50  per  cent  of  its  gross  income  wad  derived  from  trading  as  a 
principal  or  from  Government  contracts.  A corporation  can  not  be 
considered  a personal  service  corporation  when  another  corporation  owns 
or  controls  substantially  all  of  its  stock,  or  when  substantially  all  of  its 
stock  and  of  the  stock  of  another  corporation  (not  itself  a personal 
service  corporation)  forming  part  of  the  same  business  enterprise  is 
owned  or  controlled  by  the  same  interest*.  (See  Sections  200  and  240 
of  the  Revenue  Act  of  1921.) 

5.  J lore  than  one  business. — A corporation  engaged  in  two  or  more 
professions  or  businesses  which  are  more  or  less  related,  one  of  which 
does  not  consist  of  rendering  personal  service,  is  not  & personal  service 
corporation  unless  the  nonpersonal  service  element  is  negligible  or  merely 
incidental  and  no  appreciable  part  of  its  earnings  are  to  be  ascribed  to 
such  sources.  (See  also  Section  303  of  the  Revenue  Act  of  1921.) 

6.  Activities  of  stockholders. — In  determining  whether  a corporation 
is  a personal  service  corporation,  no  weight  can  be  given  to  the  fact  that 
it  renders  personal  services  unless  (a)  the  principal  owners  or  stock- 
holders are  regularly  engaged  in  the  active  conduct  of  its  affairs,  and  are 
engaged  in  such  a manner  that  the  earnings  are  to  be  ascribed  primarily 
to  their  activities,  and  ( b ) its  affairs  are  conducted  principally  by  such 
owuors  or  stockholders.  If  employees  contribute  substantially  to  the 
services  rendered  by  a corporation,  it  is  not  a personal  service  corporation 
unleas  in  every  case  in  which  services  are  so  rendered  the  value  of  and  the 
compensation  charged  for  such  services  are  to  be  attributed  primarily  to 
the  experience  or  skill  of  the  principal  owners  or  stockholders. 

7.  Stock  interest  of  active  members.— No  corporation  or  its  ownors 
or  stockholders  shall  make  a return  in  the  first  instance  on  the  basis  of  its 
being  a personal  service  corporation  unless  at  least  80  per  cent  of  iU  stock 
is  held  by  those  regularly  engaged  in  the  active  conduct  of  its  affairs. 

8.  Capital. — In  determining  whether  a corporation  is  a personal 
service  corporation,  no  weight  can  be  given  to  the  fact  that  the  invested 
capital  of  the  corporation  under  Title  III  of  the  Act  or  the  actual  invest- 
ment of  the  principal  ownors  or  stockholders  is  comparatively  small. 
If  the  use  of  Capital  is  necessary  or  more  than  incidental,  capital  is  a 
material  income-producing  factor  and  the  corporatioit  is  not  a personal 
service  corporation. 

INSTRUCTIONS  FOR  FILLING  IN  SCHEDULE  B,  PACE  1. 

9.  This  Schedule  is  to  be  used  for  showing  the  share  of  each  partner  or 
stockholder  in  the  income  of  the  partnership  or  personal  service  corporation, 
whether  distributed  or  not.  Where  the  ownership  of  a personal  service 
corporation  has  changed  during  the  accounting  period,  the  distributed 
portion  of  the  net  income  is  taxable  to  the  recipients,  while  the  undis- 
tributed portion  is  taxable  to  the  owners  as  at  the  end  of  the  accounting 
period. 

10.  Enter  on  lines  (a),  (6),  (c),  etc  , the  proportionate  amount  of  the 
totals  shown  in  columns  3 and  4 to  which  each  individual  partner  or 
stockholder  is  entitled,  whether  distributed  or  not.  If  the  amount  to  be 
entered  in  column  4 is  a loss,  the  amount  should  be  indicated  by  red  ink 
or  a minus  sign. 

11.  If  the  partnership  or  personal  servico  corporation  received 
directly  or  through  another  partnership,  personal  service  corporation,  or  a 
fiduciary,  interest  on  corporation  bonds  containing  a clause  by  which 
tbs  debtor  corporation  agrees  to  pay  the  interest  without  any  deduction 


for  taxes,  and  there  were  filed  with  hucIi  interest  coupons  a wliito  certificate, 
Form  1000,  not  claiming  exemption,  u tax  of  2 per  Cent  Waft  paid  at  the 
source,  and  thin  tax  abound' bo  allocater!  to  the  members  or  slockhoMori  in 
column  0. 

12.  If  any  amount  in  entered  in  column  0,  a copy  of  Form  JIK>, 
completely  fiJln«l  in  and  sworn  to  or  affirmed,  muni  bo  submittal  with 
Una  return.  If  such  taxes  havo  been  paid,  Form  lllff  must  have 
attached  to  it  the  nvwpt.  or  other  evidence  of  each  such  tax  payment. 
If  auch  taxes  have  been  accrued,  Form  1110  must  have  attached  to  it 
a copy  of  tho  return  on  which  each  such  accrued  tax  waa  baaed,  or  other 
evidence  ns  to  tho  accrual  of  taxes. 

13.  When  a crodit  is  claimed  on  Form  1040  or  Form  HHOA  for 
nccrued  taxes,  the  Commissioner  may,  ft9  a condition  precedent  to  the 
allowance)  of  such  crodit,  require  bhe  taxpayer  to  give  a bond  (Form 
1117),  with  sureties  satisfactory  to  and  to  be  approved  by  him,  in  such 
penal  sum  an  ho  may  require,  conditioned  for  tho  payment  by  tho  tax- 
payer of  any  amount  of  taxes  found  due  if  tho  taxes  when  paid  differ 
from  the  amount  claimed  in  respect  thereof. 

INTEREST  ON  LIBERTY  BONDS,  ETC. 

14.  In  case  the  partnership  or  personal  service  corporation  owned 
Liberty  Bonds  or  other  obligations  of  tho  United  States  issued  since 
September  1,  1917  (except  Victory  Liberty  Loan  8}%  Notes,  and  postal 
saving  certificates  of  deposit),  or, a share  of  these  obligations  held  by 
anoliier  partnershipj  personal  service  corporation,  or  a fiduciary,  the 
partnership  or  personal  service  corporation  should  advise  each  partner 
or  stockholder  ua  to  his  proportionate  amount  of  these  obligations  and  ikp 
interest  thereon,  in  order  that  the  partner  or 'stockholder  may  determine 
whether  tho  in  tercet  is.  taxable  Qn  his  individual  jncome-tox  return. 

PERIOD  COVERED. 

15.  The  accounting  period  is  tho  cflendar  year  ending  Deoember  31, 
1921,  or  the  fiscal  year  ending  on  tho  last  day  of  any  month  other  than 
December  in  the  c jendar  year  1921.  The  accounting  period  established 
for  the  year  immediately  preceding  must  be  adhered  to,  unless  penms- 
sion  was  received  from  the  Commissioner  to  make  a change. 

10.  If  a partnership  or  corporation  changes  its  accounting  period, 
it  shall  as  soon  as  possible  give  to  the  collector  for  transmissiou  to  the 
Commissioner  written  notice  of  such  change  and  of  its  reasons  thcrafor. 
Uoon  approval  by  the  Commissioner,  the  taxpayer  shall  thereafter  make 
his  returns  upon  the  basis  of  the  new  accounting  period.  (See  Section* 

212  V)  226»  Kevenue  Act  of  1Q21.) 

TIME  AND  PLACE  FOR  FILING. 

17.  Returns  must  be  sent  to  the  Collector  of  Internal  Revenue  for  ilia 

district  in  which  the  partnership's  or  corporation'll  pr.uupai  plat*  of 
business  is  located,  ao  as  to  reach  the  Collector’s  office  ou  or  before  the 
15ih  day  of  tho  third  month  following  the  close  of  the  accounting  period. 

SIGNATURES  AND  VERIFICATION. 

IS.  Returns  of  partnerships  must  bo  sworu  to  by  a member  of  the 
partnership.  Corporation  returns  must  ho  sworn  to  by  the  president,  vice 
president,  or  other  principal  officer  and  by  the  treasurer  or  assistant 
treasurer  of  tho  corporation.  If  recoivore,  trustees  in  bankrupt*  y or 
assignees  are  operating  the  property  or  business  of  tho  partnership  or 
corporation,  such  receivers,  trustees,  or  assignees  shall  oxocuto  the  return 
under  oath. 

PENALTY  FOR  FAILURE  TO  FILE  RETURN  ON  TIME. 

19.  A penalty  of  not  more  than  51,000  attaches  for  failure  to  file  a 
return  within  the  time  required  by  law.  If  the  failure  is  willful  or  au 
attempt  is  mado  to  defeat  or  evade  the  tax,  the  penalty  is  an  amount 
not  in  excess  of  $10,000  or  imprisonment  for  not  more  than  one  year,  or 
both,  together  with  costs  of  prosecution. 

INFORMATION  AT  THE  SOURCE. 

20.  Every  corporation  making  payrn  nta  of  salaries,  wages,  interest, 
rent,  commissions,  or  other  fixed  or  determinable  income  of  $1,000  or 
more  during  the  ealendnr  year,  to  any  individual  or  partnership,  is  re- 
quired to  make  a true  and  accurate  return  to  the  Commissioner  of  Internal 
Revenue,  showing  the  nuturo  and  source  of  such  payment*  and  the  name 
and  address  of  the  recipient.  Forms  10'.6  and  1099,  for  reporting  such 
information,  will  bo  furnished  by  any  collector  of  internal  revenue.  Such 
retains  of  information  covering  tbe  colonel „r  year  1921  unis',  bo  forwarded 
to  tbe  CommiHoioner  of  Internal  Revenue,  Sorting  Section,  WaahuigUiu, 
D.  C , in  time  to  be  received  not  later  than  March  15,  1922. 


[Page  3 of  Form  1065.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  237. 


P«r  2 of  Inatrurliun*. 


SCHEDULES  TO  BE  FURf  SHED  IN  SUPPORT  OF  ITEMS  IN  SCHEDULE  A. 


*he  cuIK’ri  for  below  should  ba  prepared  and  t,  -inly  attached  to  the  rotnni.  De Mg’) ate  each  Mtlu-dule  with  the  number  of  rut 

BODeaule  A which  it  nxpleiu*  Make  achedule#  on  paper  of  ui  form  oizo,  ho  far  as  practicable,  and  enter  the  name  and  address  on  etch  ahoe! 
a hat  of  acueduleu  acoompui.ying  tho  return,  giving  for  each  % brief  titio  ami  schodule  number. 


SCHEDULE.  Aii  COST  OF  GOODS  SOLD.  EXCLUSIVE  OF  XXPEK3E3, 
REFAIRS,  AND  OTHER  'TEMS  CALLED  FOR  StPAXATEL  /. 

If  you  are  engaged  in  a tnvdo  or  biurinouc  in  /ditch  the  production,  par  heae,  or  «J« 
of  iu«tchandfM  is  an  income  prod  dug  factor.  (a)  uwu.-e  from  tho  Colled-  r of  Internal 
Kovuiiu  i and  flloaaa  part  of  this  re",  .m  Certificate  of  Inventory.  Form  112*.  id  (6,  anho.it 
a arbedulo  showing— 

(1)  Coot  of  mere  bond  ice  bought  for  sale. 

^2)  Coot  of  man  u far- tu  ring  ,r  othorwiae  producing  good*.  (Liat  pritdpul  item*  of 
cv»t,  grouping  minor  items  in  ono  amount  > 

(3)  Plus  in  von  tory  at  begh  uing  of  year 

(4)  Total  of  I twn  1 to  3,  ii  elueivo. 

(6)  Loot  invontoi y at  end  cf  year. 

(6)  Coot  of  goods  oold,  Item  4 minus  Horn  a. 

SCHEDULE  A8r  GROSS  INCOME  FROM  SERVICE3  OR  OPERATIONS 
OTHER  TUAN  TRADING  OR  MANUFACTURING,  LESS  ALLO  VANCES. 

Submit  a schedule  showing  th-j  nature  and  amount  of  the  principal  it  mj  IncludoJ 
herein,  tho  minor  itunu  being  grouped  in  one  aino-.int. 

SCHEDULE  A8i  DIVIDENDS  SUBJECT  TO  SURTAX  ONLY. 

Submit  a schedule  showing  tho  amount  received  oa  dividends  (a)  from  cr.eh  domestic 
corporation  otfcrar  than  a corporation  entitled  to  tho  benefits  of  Section  2C2  of  die  3evenu  « 
Act  of  lWl,  or  (fi)  from  each  foreign  corporation  when  it  ia  shown  to  the  satis'actioa  o!  the 
Commissi  ong  that  more  than  SO  per  centum  of  tho  gross  income  of  such  for»ig. . corport  ioa 
for  the  three -year  period  ending  with  the  clow  of  its  taxable  year  preceding  th  j declaration 
of  such  dividends  (or  for  such  part  of  such  period  oa  the  corporation  has  b^m  a existence) 
w is  denved  from  source*  within  tho  United  State*  a*  determined  under  the  prov isioas  of 
Section  217  of  the  Act. 


SCHEDULE  A9.  DIVIDENDS  SUBJECT  TO  BOTH  NORMAL  AND  SURTAX. 

Submit  a schedule  showing  dividends  subject  to  both  normal  and  surtax,  whether 
received  from  foreign  or  domestic  corporations,  and  which  are  not  allowed  as  a credit 
under  Section  216  of  the  Revenue  Act  of  M21. 

SCHEDULE  AlOi  OTHER  INCOME  (not  including  any  amount  with  respect  to 
salea  of  capital  aaeeta  or  mDoeUaneous  investments  nor  Interest  on  Libert/ 
Hondo). 

Submit  a schedule  showing  the  source,  nature,  and  amount  of  the  principal  items 
included  herein,  tho  minor  items  being  grouped  in  one  amount. 

SCHEDULE  A 12:  ORDINARY  AND  NECESSARY  EXPENSES  (•«*;*  amounts 
caitad  for  separate!/  In  Schedule  A). 

Submit  a schedule  showing  character  and  amount  of  the  principal  items  included 
herein,  the  minor  items  being  grouped  in  one  amount 

SCHEDULE  A13i  COMPENSATION  OF  PARTNERS  OR  SHAREHOLDERS. 

Submit  a schedule  showing  for  each  member  of  the  partnership  or  stockholder  of  the 
corporation  who  w«o  performing  active  sarvico  cr  who  received  compensation  in  any  form 
from  the  partnership  or  corporation,  (a)  name,  (J)  duties,  (e)  tin. a devoted  to  juch  duties, 
and  (J)  total  compensation  for  the  accounting  period.  A personal  cervice  corporation 
should  also  explain  f\iliy  the  manner  And  degrees  in  which  the  earnings  of  the  corporation 
are  dependent  on  the  activities  of  the  stockholders. 

SCHEDULE  All i REPA!R§  (including  labor,  *uppll*a,  overhead,  and  other 
item*  properly  chargeable  to  repair*). 

Submit  a schedule  showing  the  nature  and  amount  of  the  principal  items  included 
herein,  the  minor  items  being  grouped  in  one  amount. 

Incidental  repain,  which  do  not  add  to  the  value  or  appreciably  prolong  the  lifo  of 
property,  are  deductible  as  expenses.  Expenditures  for  new  buildings  or  for  permanent 
improvements  or  betterments  which  Increase  the  value  of  tho  property  are  chargeable 
to  capital  account.  Expenditures  Lr  restoring  or  replacing  property  are  not  deductible 
under  rfci.i  or  any  other  item  of  the  return.  Such  expenditures  are  chargeable  to  capital 
account  or  to  depredation  reeervee,  depending  os  the  treatment  of  depredation  on  the 
books  of  the  taxpayer. 

SCHEDULE  AlSi  INTEREST. 

Submit  a detailed  schedule  with  respect  to  interest  j>aid  or  credited  to  ny  member. 
State  the  character  and  origin  of  tho  principal  on  which  the  Interest  yu  computed,  and 
whether  such  principal  is  evidoacod  by  notes  or  other  forms  of  contract  Describe  fully. 

The  amount  of  interest  deductible  under  Item  15,  Scheduie  A,  ia  the  amortat  of  interwt 
paid  07  accrued  within  tho  taxable  year  on  indebtedness,  except  on  indebtedness  incurred 
or  continued  to  purchase  or  carry  obligations  or  aoenritiea  (other  than  obligation*  of  the 
United  States  issued  after  September  24,  1917,  am!  originally  subscribed  fafby  the  tax- 
payer) the  interest  upon  which  is  wholly  oxsnpt  from  taxation. 

SCHEDULE  Al«.  TAXES. 

Submit  a schedule  showing  taxes  paid  or  accrued  within  tho  taxable  year  except 
(a)  income,  war  profits  and  exetife  profits  taxta  imposed  by  the  authority  of  the  United 
State*,  (6)  so  much  of  the  income,  war  profits  and  exc«ss  profits  taxes,  imposed  by  the 
authority  of  any  foreign  country  gg  ’foaaawdon  of  . tho  United  States,  as  is  allowed  as  a 
credit  under  Section  222,  Revenue  Avt  oi  1921,  (c)  taxes  afieeaeed  against  local  benefits  of 
a kind  tending  to  increase  the  value  of  the  property  ameered,  and  ((f)  taxes  imposed  upon 
the  taxpayer  upon  bin  in  tenet  oa  shin-holder  or  member  ol  a corporation,  which  are  paid 
by  the  corporation  without  reimbursement  from  the  taxpayer. 


SCHEDULE  A17i  BAD  DEBTS. 

Submit  a schedule  showing  debts,  or  portion  ihetoof,  arising  from  sales  or  proicgional 
services  that  have  Wo  reported  as  income,  winch  have  boon  dofini-  :•/  osoertein.  d to 
bo  worth!  cm  and  charged  off  within  (W  accounting  period,  or  so  •A  r t».  • *.|t  ,, 

a*  b*»  b«en  added  to  a reserve  for  bad  debts  within  the  y.-ir 

If  the  amount  entered  ns  Item  17,  Schedule  A,  in  or.  addirfen  to  n <,  f.ir  .u,!, 
proof  of  th-i  rwwooableseee  of  the  aoio-.iuv.  (Ejs  tioctiun  234  (c)  b of  tire  iUvvu-...  - 
ol  Ml.) 

SCHEDULE  AH.  EXH/.LCT10N,  WEAR  AND  TZAR  (te.dudb.g  olteolc^o.n  »). 

8ubmit  a ocheduU  in  colon. bar- form  -Jiu>ing  fur  each  das*  of  property  tho  folio*  iiy 
iakwmatioc : 

(1)  Kind  of  property  (If  buiMuige,  atate  material  of  which  construe  ;<• 

(3)  Date  acquired. 

(3)  Air*  when  acquired, 

(4)  Coat,  or  '1  acqtoacd  prior  to  March  L IfilX  tho  fair  morkot  vilna ca  that  date. 

(6)  ProiAtde  bf*  after  acquk«nenx. 

(6)  Amount c f dcprMtetion  oLngcd  off  thin  year. 

(7)  ToUl  ua.ua;  of  ffsprociation  charged  off  preview*  to  l»Jfl  : c-es 

The  total  exrro  tn*  claimed  in  thi*  ecteduUabould  curve  rood  wiJi’tLu  figure*  reflected 
in  the  balance  efcr.ec. 

If  ohoobvjwn cm,  is  a iu*cr  in  dstermuxiog  your  dnduettou,  attach  a stxtemaat  Juswuw 
the  armruct  claimed  foe  tbo  accounting  p>rtod-a»d  the  hams  oa  which  computed. 

The  amo'int  deductible  oo  a-.-c-.-iut  of  depr*.- ci.-tioa  is  oa  amcuai.  -F-.y  -i  v.hich 
fairly  i.iecw-iroe  the  lew,  daclag  tfco  Occcistiaj  pw rod  in  the  value  >A  pbymcai  j ,o.  arty  try 
rMsonofcahaustion,  wear  trv,  indelsxeirsr-rwA.  fibdran *=rototch<Add  i>  detseednod 
on  tbs  basis  cf  the  ccri  erf  ->*  property,  cr  if  required  pri/w  to  M*wh  1.  19.3,  the  tnir  wljt 
valao  on  that  date  sad  tim  prolvibie  munba*  of  year*  oorutitutiito  ii*  Ufa.  Tho  3.5-iiI 
sum  to  bo  roplaced  xhauld  b*  charged  off  ww  the  profcihlo  Lie  of  the  prop*V  atiw  h* 
equal  annual.  insteUaente  or  in  ac^ocdaace  with  any  odvu  ivcogmxed  trade-  ^rac-.co,  such 
•s  an  apportiotuai-rtaf  thft  capita!  sum  over  nmto  of  production  V/hat.w^  piun  cr  :-Wod 
of  apportirinmant  ie  cdopted  muse  be  reaar.aahlo  a=d  choc  Id  bo  ffgacrlbed  in  too  Mura. 
Stork*,  bond*,  and  like  securities  Are  w>t  vafcjw-t  to  exhamrtien,  wear  nr  * ter  -ritiria  tho 
to  caning  of  the  law, 

SCHEDULE  A19:  DEPLETION. 

If  a deduction  is  claimed  on  account  of  depletion,  ascure*ffnm  the  Collector  Poem  D 
(nitnaab),  Form  E (coal).  Form  F (miscellaneous  ncuaetab).  Form  C (oil  and  gc*;,  or 
Forra  T (timber),  fill  in  and  file  with  return.  If  complete  vahsstiim  dote  ha;  bwui  f' 'ed 
with  question uaL~«  ia  prevtou.!  years,  then  file  with  titia  retar;:  im-jinixtion  jkxeamy  to 
bring  your  depletion  scheduie  up  to  date,  setting  forth  in  fail  astcueat  of  ay'trxaaA; 
bearing  on  deductions  or  additions  to  vain-?  of  pbyrical  ejocte  with  explanation  cf  haw 
depletion  de>Juctteo  tor  the  accounting  period  has  been  determined.  In  ca4  of  timte. 
thig  V-ar.-Ud^  done  by  filling  in  Fora  T (timber). 

SCHEDULE  AJb.  AMORTIZATION  .OF  WAR  FACILITIES. 

In  case  e doductioa  is  claixnsd.oa  account  of  amortitation,  a echedu:  a should  be  sub- 
mitted containing  the  ini-wmalion  called  fer  in  Guido  Form  1007 Ja,  which  oxpiaiu-«  :n 
detail  the  manner  m which  a cisirn  of  this  nature  ohoutd  be  piwented  A copy  oS  Uu* 
form  may  be  obtained  from  the  Commissioner.  (So*  Section  211  (a)9o(  tiro  Su von  J Act 
of  1921.) 

SCHEDULE  A23.  PROFIT  OR  LOSS  ON  SALES  OF  CAPITAL  ASSETS  AND 

MISCELLANEOUS  INVESTMENTS. 

Submit  a schedule  ia  columnar  form  showing  the  following  information  far  aach  -«—• 
eold: 

(1)  Kind  of  property. 

(2)  Date  acquired. 

(8)  Sale  price. 

(4)  Goat. 

(5)  Fair  market  value  on  March  l,  1913,  if  acquired  peior  to  that  date. 

(6)  Cost  of  subseq»*ut  improvement*. 

(7)  Depreciation. 

(8)  Net  profit  (or  loi). 

(9)  Amount  in  column  5 which  represents  good  will,  if  any. 

. If  any  of  the  eseto  were  Acquired  prior  to  March  1,  1913,  rtste  how  toe  fair  market 
value  on  that  date  was  determined. 

In  case  of  exchange  0/  property,  submit  evidonce  substantiating  the  besia  ured  in 
arriving  at  tho  fair  market  value  of  the  property  received- 

SCHEDULE  A24i  LOSSES  SUSTAINED  BY  TIRE,  STOFJd,  ETC. 

A schedule  similar  to  toe  one  requested  above  should  bo  submitted  with  rrepert  to* 
losses  of  property  arising  from  fires,  storms,  ohipwreck,  cr  other  casualty,  or  from  <ht-'\ 
nnd  not  compensated  for  by  insurance  or  cthorwMe,  except  that  column  3 siroulchrirow 
" Insurance  and  salvage"  instead  0!  “Sale  price.” 

CAPITAL  EMPLOYED  IN  BUSINESS. 

If  tho  balance  shc-at  (Schedule  D)  of  0 persona.’  Mrvico  cerporetiou  indicates  that  a 
snMantial  amount  of  capital  (invented  of  borrowed)  is  euapieyed  *a  ths  buainec  submit  a 
b to  terser  t explaining  why  the  employmaat  of  such  capital  is  incidental  and  not  a*c  e^try. 

WORKING  PAPERS. 

Every  partafttship  or  ccpor-.tion  shsrxld  preserve,  available  for  inxpoctian  by  a revenu* 
officer,  workirg  paper*  ehowin*^- 

L The  balnro-e  in  each  account  on  the  parfueixhip's  or  cciporaticu’e  books  that 
wsa  usod  ui  preparing  Scheduie  A. 

3.  The  amount  ded'iWed  from  each  hal*n«  on  account  of  each  cbw  of  oc,: 
taxablo  incEice,  ciaHewnkle  Ceductiosa,  and  othar  aajartorouta  itelic^ted 
in  Schedulo  C,  v.-ito  a nhnoce  to  the  numbs-  of  the  item  m Scboduie  <J  hi 
which  each  amount  oa  deducted  woo  included. 

SL  Tho  romainds  of  *acfc  eoth  htlacce,  roxalyxfd  to  nhow  the  emojut  included 
in  each  item  of  Schedule  A,  with  a reference  to  the  number  of  the  lU-tr.  io 
Schedule  A *— mo 


[Page  4 of  Form  1065.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  238. 


2-11-22, 


Form  1120 

U.  SMhtkiinai,  Kitvrvur 

THIS  RETURN. <IIOULD 
OS.  FILED  NOT  LATER 
THAN  TOE  1STH  DAY 
OF  THE  THIRD  MONTH 
POUOWJNC  THE  CLOSE 
OF  THE  TAXABLE 
PFJCf^O 


CORPORATION  INCOME  AND  PROFITS  TAX  RETURN 

FOR  CALENDAR  YEAR  1921 


Puff**  J <>f  ltaturn 

(00  NOT  WITK  IN  THEM  ■ j 
fmaii.K  J by 


Or  for  period  begun 


, 1920,  and  cndod  . 


PRINT  I "LA  INLY  CORPORA  HON'%  NAME  AND  UUSIKLVS  AODCUXS 


(iti 

< I'ii'iWw  iuurtuu!) 


KIND  Of  BUSINESS 


IS  TWS  A CONSOLIDATED  RETURN  ? 


SCHEDULE  A -TAXABLE  NET  INCOME. 


CROSS  INCOME. 

Grow  salts  I<*e  returns  and  allowances  . * 

low  cost  o(  goods  sold,  exclusive  ©I  items  called  (of  separately  below  (Worn  Schedule  A2v 


i.  Grew  income  from  operation*  other  than  leading  or  manufacturing,  low  a'.lowan-  -*i  (from  fr’«  hedulo  A.i  

i Taxable  ialerost  on  Liberty  Bomb,  etc.  (Irora  Schedule  Ad.. 

i.  Taxable  loterrat  Icon  all  other  aouroea - . 

. Royaluoa  

Share  ol  net  income  earned  by  personal  service  corporation  (whether  received  or  uot)  ...... 

. Dividends  on  stock  of  foreigo  and  domestic  corpora  Ilona.  

i.  Grow  iDtoiuo  from  all  other  eourvos  (not  including  any  amnuot  reported  in  Itou.  23.  below  / (from  Schedule  AJO) 

Total  of  Its  no  1 to  10 - . — 

DEDUCTIONS. 

! Expeome  (except  amoonto  reported  in  lum  2 above  or  called  for  separately  below)  (fto  o Schedule  A12)  

1.  Compensation  of  officers  (in  whatever  ferry  paid)  (from  Schefule  A 13'  

I.  Repairs  (including  labor,  supplies,  otc  > (|p>ai  Schedule  AH/ ........ 

i.  Interest  (see  page  2 of  Instructions,  paragraph  9' 

I.  Taxes  (from  Schedule  A 16)...  . 

’ Rad  debts  (from  ReboJole  A17)  

I.  Exhaustion,  w tar  and  tear  (ineludiug  obeoloa.vucei  (from  Schedule  A18) 

I.  Depletion  (!mui  Schedule  AID) 

».  Amortisation  of  war  facililiee  (from  Schcdulo  A2<'i.  ... 

Total  of  Iran#  12  to  20.... 

I.  Iter  11  Minus  Itxm  21 - 


4 


•f-i ; t 


. Profit  Or  lose  on  sales  of  capital  assets  and  miscellaneous  invwtmeula  (Irutu  Scb/odulo  

. Lowes  by  fire,  storm,  etc  (From  Schedule  A2t  ) (Extend  difference  befwoon  or  sum  of  It*f»  23  ar~1 

. Net  lotocnc  exclusive  of  deductions  for  dividonds  (Item  2°  minus  24,  extended)  — * 

. Dividends  deductible  under  Section  234(al  ft  of  the  R«vcuuo  A :t  of  1921.  (bom  Schedule  .*JH) 

!*rr  Ivcomt  fltero  ?*>  mic-is  Item  Vi,'  rlf  return  is  for  a penod  I«*m  than  twelve  months,  see  lags  1 of  Instr  ict-ocs  paragraph  10)  .. 


SCHEDULE  B — 1NYESTF.D  CAPITAL. 


1.  Capital,  surplus,  and  undivided  profits  xt  beginning  of  caxabio  period  (from  Schedulo  K,  Item  II) 

2 Plus  iwljuslmoots  by  way  of  addite  n*  (from  Schedule  F,  Item  ■'  - 

4.  I>w  adjustments  by  way  of  doduccions  (from  Schedule  0,  Item  7) * - ...  . 

6.  Rrmaindr* 

ft  Mu*  or  minus  changes  in  invested  capiul  during  taxable  j-iriod  vnet  Inrreaso  or  Decrecse  from  Schedule  Hi 

7.  Total  (oa  Remainder) 


8.  I/sae  deduction  on  account  of  inadmissible  a 

9.  Invested  capital  for  taxable  period 


a ( from  Schedule  J) 


444 


SCHEDULE  C— EXCESS  PROFITS  CXEDTT. 


1.  Eight  per  cent  of  invested  capital  for  taxable  period  (Item  9 of  Schedule  B)  — 

2.  Exemption  (13,000)  (except  for  a foreign  corporation  or  a corporation  ettisfyu^j  the  c 

3-  Excete  Profits  Credit  (Item  1 plus  Item  2i  - 


vliHons  provided  iu  Section  2C2  of  the  Act) . 


'4:d:-4z 


SCHEDULE  D— COMPUTATION  OF  TAXES. 


The  Federal  Income  Tax  Service 
Supplementary  Page  239. 


Pago  2 of  Return. 


[Page  2 of  Form  1120.J 


The  Federal  Income  Tax  Service 
Supplementary  Page  240. 


2-11-22. 


r«jfn  .1  of  Return. 


KIND  OF  BUSINESS. 


QUESTIONS. 


-nrid&SH! Wow.  identify  ths  rnrnoratfon1*  main  incotno- 
jJl?  , k. octMty  with  onu  of  tho  general  dawn*,  and  fallow  fl.lAy  > »<>«.  - ' don*  ription 
of  flic  buiiinoM  sufficient  (ogive  tho  Information  called  for  umlor  m u h general  t-lnro  1 


iMinujiu.i  riinii  u nt  io  give  inn  luiormution  cailod  for  un.lor  wuli  general  dam 
i , Acric'jltiiro  end  rotated  Industries,  including  fmhliK’,  IokjM'h;.  C o hit' venting,  „« 
and  ulso  Ujo  looking  of  nueb  property  8t«to  tho  product  or  product*  B. — Mining  and 
quarrying,  including  go*  nun  oil  wolls,  and  also  tho  loaning  of  such  property  Statu 
tho  product  or  product*  C.— Manufacturing.  State  tho  product  and  olso  the  material 
if  not  implied  by  tho  namo  of  tho  product.  D.— Construction  -excavations.  building* 
bridge®.  railroads,  ships,  etc  , ah©  oquippiug  ami  installing  roam  with  system*,  devices 
or  machinery,  without  their  manufacture  State  nature  of  structure*  built,  material* 
u*>d,  or  Lind  of  installations.  Bl. — ' Transportation  rail,  water,  local,  etc  Stato  tho 
kind  nod  smcinl  product  transported,  if  any.  K2.— l'ublic  utilities  pus  (natuml  coal 
or  water),  oloctric  light  or  power  (hydro  or  steam  generated);  heating  (steam  or  hot  water)' 
telephone;  waterworks  or  power,  EH.  Storage  -without  trading  or  profit  from  aal>.> 
(elevators,  warobouars,  stockyards,  etc)  State  product  stored  M.-  Loosing  tmnspor 
uu™  or  ullllllt.  MU.  UoJ  or  proj.orty  K,  - TrwJioo  io  gnrf,  ko,*ht  mt  «» 
aucod  by  the  trading  ooncuru  State  manner  of  trade,  whether  wholesale  retail  or  tom 
rpwdon,  and  product  handled.  Sales  with  storage  with  profit  primarily  from  roles  O. 
Service— domestic,  including  hotels,  restaurants,  otc.;  atouremeuts  other  professional, 
personal,  or  tcchnicid  aerview.  State  the  aorvicw.  M.— Finance,  including  banking, 
real  estate,  insurance,  I. — Concern*  not  falling  in  above  clarers  (a)  buiauoo  of  fombiiiiog 
several  of  them  with  no  predominant  businoas,  or  (6)  for  other  reason*. 

2.  Concerns  whose  businoes  involve*  activity  falling  in  two  or  moro  of  tho  above 
general  classes,  where  tho  wm*  product  is  concerned,  should  report  busincro  us  identified 
with  but  one  of  the  above  general  ctaase*.  for  example,  concern*  in  A or  B which  also 
transport  and  market  their  own  product  exclusively  or  mainly,  should  still  be  identified 
with  clnsro*  A or  B ; concerns  in  C (manufacturing)  which  own  or  control  their  source  of 
material  supply  in  A or  B and  which  alro  transport,  sell,  or  install  their  own  product 
exclumvely  or  mainly,  should  be  identified  with  manufacturing;  concerns  in  D may 
rrontrol  or  own  eourco  qf  supply  of  materials  used  exclusively  or  mainly  in  their  construc- 
tive werk^  concerns  in  El  or  L2  may  own  or  control  the  source  of  their  material  or  power, 
coocern*  in  F may  transport  or  stnro  thoix  own  merchandise,  but  its  production  would 
identify  them  with  A,  B,  or  C. 

8.  Answers 

fa)  General  clan*  (use  key  letter  designation) , 

(b)  Main  income-producing  business  (give  specifically  tho  information  called  for 
uuder  each  key  letter,  also  whether  acting  as  principal,  c 
Mon;  state  if  inactive  or  in  liquidation) 


a agent  on  commas- 


OTHER  CORPORATIONS  IN  SAME  BU8INESS. 


INCORPORATION. 


6.  Bate  of  incorporation  . 

A Under  tho  laws  of  what  State  or  country.. 


REORGANIZATION  AND  ACQUISITION  OF  MIXED  AGGREGATES  OF  ASSETS. 

7.  Ras  the  corporation,  or  any  r>J iu  vrtdtctuors,  been  reorganised,  or  has  it,  or  any 

of  its  preaecason,  taken  over  a going  burdneee  or  acquired  a mixed  aggregate  of  tangible 
and  intangible  property,  and  paid  for  such  property  in  whole  or  in  part  with  stock  or  other 
securities  since  the  eloeo  of  the  preceding  taxable  period? 

8.  If  eo,  furnish  a brief  narrative  history  of  the  business  and  submit  a statement 
showing: 

' ) ti 

d T)  _ 

) The  total  par  value  of  the  stock  issued  thereto 
(d)  The  value  at  which  each  class  of  assets  was  carried  on  the  books  of  the  concern 
irom  which  acquired  (submit  a balance  sheet  of  the  predecessor  concern  as  at  the  date  of 
ocquisirion  or  as  at  the  close  of  its  last  accounting  penod  prior  thereto); 

...  W ™ ff*  ite“.  WU3  carried  on  the  books  of  tho  corporation  making 

this  return,  nod  full  details  of  any  adjustments  subsequently  made  pertaining  thereto  and 
the  basis  on  which  such  revaluation  was  made. 

9.  Mpatente,  copyrights,  secret  processes  or  formula*,  good  will,  trade-marks  trade 
brands,  franchises,  or  other  intangible  property  were  acquired,  state  tho  basis  on  which 
their  value  was  determined  and  how  they  were  paid  for. 

10.  If  at  the  time  of  any  ourchase  or  reorganization  os  contemplated  in  question  7 any 
property  was  entered  on  the  books  of  the  reorganized  concern  or  any  vendee  predecessor  at 
a value  in  excess  of  that  at  which  it  was  carried  on  the  books  of  the  vendor  concern  elate 
the  basis  on  which  the  revaluation  was  nude. 

AFFILIATIONS  WITH  OTHER  CORPORATIONS  (TO  BE  ANSWERED  BY 
EVERY  CORPORATION). 

11.  Does  the  corporation  own  directly  or  control  through  closely  affiliated  interests  or 

by  a nomineo  or  nominees  over  70  per  cent  of  the  outstanding  voting  capital  stock  of 
another  corporation  or  of  other  corporations? 

12 - 18  over  70  per  cent  of  your  outstanding  voting  capital  stock  owned  by  another  cor^ 
poration  or  by  two  or  moro  corporations  that  are  affiliated  7 

13.  Is  over  70  per  cent  of  your  outstanding  voting  capital  stork  as  welTas  over  70  nor 
cent  of  the  outstanding  voting  capital  stock  of  another  corporation  or  of  other  c 
tions  owned  or  controller!  hv  (tin  ,.  in/ti^rtn.i  n.  . . i 

partnerships?  .... 


11,  If  UlS answer  U>  q'jsstionfl  II,  1?,  and  13,  or  to  any  of  them,  in  "yes,"  answer  the 
following: 

(o)  Did  tho  corporation  fllo  Affiliated  Corporations  Questionnaire,  Form  819,  (or  1J17  or 
mibwquent  taxable  years’'  ...  If  tho  answer  to  this  question  is  "yea,"  a 

questionnaire  is  not  required,  except  under  tiro  circumstances  aerenbod  in  question 
'V)  If  the  Duirwor  to  thin  question  in  "no,"  and  tiro  nnnwor  to  questions  II,  12,  and 
n,  or  to  any  of  them,  i*  " , " proc  ure  from  tho  Collector  of  Intonial  Itovonun  1 or  your 

district  Form  Pin,  which  shall  ha’ fill**!  out  and  lilod  iu>  a part  of  thin  return  If  tho 
a newer  to  tld*  question  in  "no,”  question  <b)  m-«j  uot  bo  answered 

(6)  Did  substantially  tho  satire  conditions,  us  nro  set  out  iu  tho  quostionnoiro  filed  for 

l'>?0  or  prior  yours,  obtain  during  tho  entire  taxable  period  1021?  

If  the  answer  to  this  question  i : "no,"  a statement,  witting  forth  tho  particulars  in  which 
Uni  situation  bus  • hanged , should  l>«>  alUchud  to  and  uuulo  a part  of  ini*  return  ff  there 
havo  boon  substantial  rhuugeo  in  sUxkJioldiuirr,  u complete  schedule  of  such  changes 
should  bo  submitted  in  tire  form  proscribed  iu  Tub  Ice  3 and  6 of  tho  questionnaire 
ff  the'-  are  comnanios  oilier  than  Umw  covered  by  tho  questionnaire  for  1020  or  prior 
years  which,  applying  the  teste  contained  in  question*  11,  12,  or  13,  may  havo  come  into 
lire  alii  bated  group  since  1020,  a questionnaire,  Form  81'*,  is  required  fur  tho  entire 
group  for  tho  Unable  period 

VALUATION  OF  CAPITAL  STOCK. 

16  WLut  was  tho  fair  valuo  of  the  total  capital  stock  of  tho  corporation  as  determined 
iu  the  last  aree ssment.  if  any,  of  the  capital  stock  tat?  I Date  of  that 


srnment. 


PREDECESSOR  BUSINESS. 

10  Did  the  corporation  CJo  a return  under  tho  same  name  for  the  procoding  taxable 

Period?  If  not,  was  the  corporation  in  any  way  an  outgrowth,  result, 

continuation,  or  reorganization  of  a busice®  or  businesses  in  existenco  during  this  or  the 

If  answer  is  "yes,"  give  name  and  address  of 


BASIS  OF  RETURN. 

17.  Is  this  return  made  on  the  basis  of  actual  receipts  and  disbursements? 

not,  describe  fully  what  other  basis  or  method  Was  used  in  computing  net  income-.- 


GOVERNMENT  CONTRACTS. 

18  Have  any  adto/rtroente  boon  mode  during  tbo  taxable  period  on  account  of  con- 
tract or  contracts  with  the  Government  or  its  agencies  or  in  any  Government  contract  or 
contracts  Irom  which  the  corporation  derived  income  directly  or  indirectly,  through  ths 
operations  of  a claim  board  or  otherwise? Tf  the  answer  to  this  question  is 


whether  or  not  such  a 


"yes,"  state  the  amounts  involved  ? 

ore  included  in  this  return ; and.  if  not.  was  on  amended  return. 

accounting  for  the  additional  income,  filed  for  the  taxable  period  in  which  the  contract 

was  terminated ? ‘ Submit  a eohodule  showing  full  particulars  of  the  contract, 

date  entered  into,  date  tho  work  ceased  under  slid  contract  or  contracts,  and  tho  amount 
and  nature  of  the  adjustment. 

AMORTIZATION. 

19.  Has  amortization  boon  claimed’ 

is  "yes,"  state  for  what  year Amount 


If  the  answer  to  this  question 


LIST  OF  ATTACHED  SCHEDULES. 

- of  all  set 

title  and  the  schedule  number 


SCHEDULE  K. — BALANCE  SHEETS. 

-j£S$53hGm*m4'  ASSETS—  Coollou*d.  LIABILITIES. 


balance  shoots  should  be  prepared  from  the  books  and  should  be  in  agrees 
bo  furnished  in  accordance  with  paragraph  7 of  pago  1 of  Instruction*  ) 

C«9h  (Ineludlnif  casb^f^Ik'and  on  hand  cenin 
cates  of  deposit,  etc.). 

Trade  *ccount»  ( tclore  deduct ln^  r<c«rv«  for  loss**) 

Notes  receivable  from  customers. 

r accounts  and  note*  receivable  (to  teclasjlflad) 


U . 8.  bond s end  obllcatlons  (each  Issue  tf 
stated  separately). 

Exempt  (municipal,  State.  *to.). 


xratkrus  (to  be  detallrd ) 


l|"il  1 "r 


I minor  equipment, 
furniture. 


ASSETS-  CeoHouat 
filed  stsei:-  continued. 

' Ian  reserves  for  depredation  (■ 
amount  applicable  to  eatb  dit 


Created  by  at 
Discount: 


Sfbar. 

Accrued  espeotes  cod  reeerves.  tbe eharxei creatlnf 
width  are  allowable  deductions  Irom  Income  (to 
be  detailed). 

Reserves,  the  chareua  entuUnx  which  are  not  allow- 
eblo  deductions  from  Incoroe: 

R«oervo»b|for  lesson  oo  not  to  and  aooouou 
Other  reserves  (to  bo  detailed). 

Capital  stock  eutstandlnc  (to  bo  classified). 


•Rasorvta  (or  depredation  may  bo  deduoled  Irom  the  respective  asset  aecoantr 
is  uu  interstate  and  intrastate  trado  or  business  and 
of  abovo  form,  copies  of  their  balance  sheets  prescribed 


1MMWM  ud  arUnO.Mrlt  or  bmnra.  reporOM  to  tho  Intootato  Cmaer.  CUBfaSo.  »nd  tomy  oaliotul,  Su».  mumdpj.  or  oth.t  public 
oy  said  Commifflinn  or  State  and  municipal  authorities,  as  at  tho  beginning  und  end  of  the  taxable  period. 


[Page  3 of  Form  1120.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  241. 


r»g«  * of  Return. 


Tbe  following  scheduled  must  b«  furniriied,  »nd  those  prepared  on  eopcj^to  ahwfp  should  m fired y attached  to  this  return.  Enter  name  and  addrene  of  corporation  on  ere-h  sheet 


Inooroa-prsductog  (amor,  (e)  eenre  fr 


EXCLUSIVE  0»  ITEMS  CALLED  TOR  SEPARATELY, 
ila  of  m< 


i ihe  prwluctlon.tmmhAte.or  call  of  marhaodlte  of  M7  *tod 
I th«  Collector  of  Interne)  TUrvenus  end  IU«  es  a port  of  IMt 
,3)  Olflo  the  tallowing  sohC4loW,(»nt<elng  online:  StnJ  t.louswU- 

luivtiuinr  or  othkrwlt*  nro-i  acta g px.1- 


5 MerobeodlM  bought 
i)  Goat  or  manufiurturlr 
thawing  principal 

))  Flo#  lnv«nu><7  m beginning  of  yvor. 


to  that  In reauirtes  are  valued  at 

..  t 


it  bring  grouped  In  01 


re  to  tor?  at  ecd  of  /as. 


flCHBDULE  AJi  OROS3  INCOME  FROM  OPERATIONS  OTHER 
FACTURJNO. 

flubmlr  a schedule  thowln*  the  namro  end  amount  off 
bring  (trooped  In  ona  amount.  (For  Insurance  companies 


II  TAXABLE  OTTKREST  C 


principal  I 
0 pace  J 01 

U3KRTY  BONDS.  BTC. 


TRADING  OH  MANU- 
Irvdoded  herein,  0 


•CKXDULB  I 

dy  '>■>  «bo  Otter, l tb*t  1*0  aggroet'-e  prtirSpetK  loontc  do 

. ...  .....  rxompUnn*  «p>-<d9ed  In  columns  3,  3,  and  I 

In  o»so  the  obllgjlloos  hold  eirved  these  esemptlons,  the  principal  amounts  In  «zc«a  thereof  ahrmld  he 
en'ored  In  ontumn  R,  and  tho  laxnblo  Interest  thereon  In  column  «.  If  that*  eereirltiaa  bought  anu  nid 
during  the  'arable  oertr-J , 01  Inch  a ntatetnanl  ohuwtng  tho  holding*  by  periods. 

• ‘this  Is  a rxroWidaled  return,  each  corporation  composing  the  aOluitod  group  Is  entitled  to  tho  full  anveont 


i Obll^Klara. 

Exemption*. 

(Aggregate  Principal  Amount). 

6 rrtoalptlamouni 
1 n ciooss  of  exemp- 
tions speeidr-1  In 

3- 105, COO 

3.  II15BOO 

4.  W.003 

<•>  Con' 

< A)  Firtlonoecoood  i'o  and  Plrct, 
ReOnad,  Third,  and  Fourth 

<r)  ritiar  obligations  tesuod  since 
September  1, 1W7  (except  Via- 

(if)  Victory  Liberty  Loan  if% 
Notes,  and  Treasury  Noteo  ... 

Tot«i.  Tahilt  iRTrUEWr 

l..; 

SCHEDULE  A10:  GROSS  INCOME  FROM  ALL  OTHER  SOURCES  (not  Including  toy  uantl 
retptci  le  sale  of  capital  acaota  cr  mlstallaneoua  tnveataecto ). 
fluhmit  a schedule  showing  tho  source,  nature,  and  *moont  ofthapitodpalltemt  Irdodad  beraln.  tha  m 
llama  bring  grouped  In  one  amount.  The  total  of  the  schedule  should  be  entered  aa  Item  K>,  BcbadcO*  A. 

SCHEDULE  A12:  EXPENSES  (etcept  amounts  caDod  tor  eeparatoly  In  Schedule  A). 

tog  character  and  amount  of  the  principal  Items  Included  hereto,  tfce'totoer  It 

_r t.  (For  schedules  to  bo  submitted  by  Insurance  companies  at*  page  3 of  Inst 

iro  graphs  3 to  7.  ) 


being  grouped  In 
tkms,  paragraph. 

SCBBDULB  A13l  COMPENSATION  OF  OFFICERS. 

Pubmlto  schedule  showing  for  each  officer  (15  rams,  (7)  duties,  f 35  tin 
stock  owned  or  controlled:  (0)  preferred,  (6)  common,  It,/  total  componi 
amount  of.BDd  reason  for  lnoreoee,  itany,  over  preceding  period. 

SCHEDULE  Alii  REPAIRS  (Including  labor,  aoppUea.  overbad,  and 
repairs). 

Ji«  principal  Iti 

Jon  of  repairs  see  page  3 of  1 

SCHEDULE  All)  TAXES. 

Submit  a echedulo  ’bowing  separately  for  ench  'lore  of 
Federal  Income  and  profits  toioe,  taxes  which  am  a ert 
l^neflts  of  0 Idnd  tending  lo  Increase  the  vottu*  ol  tho  pro. 

Section  23i(u)  3 ollbo  Kovcnuo  Act  Of  1#2L) 

SCHEDULE  All:  BAD  DEBTS. 

Submit  o achodufc  sho^wln^dehwor 


taxable  period,  ni 


J charged  cO  within  tb 


f ih*  amount.  (Sec  Section  i 


(a)!, 


Kind  of  property 
(U  building#,  treda 
the  material  of 
which  eatryiKwed.) 

Age 

acquired 

Probable 
life  after 
acquire- 

Cwt.or  JJ 
vviulrwl  prtor^ 

> mount  of  depredation  otorgad  ofl. 

Uir  miciiti  veJut 

TU,  jmi 

Previous  years. 

f 

' 



Total'. 1 

!. 

* 

t.  

1*  taxable  period  ai 


mining  your  dedootfr 
a wtuob  oral  poled 


a ttMsan eot  tiowta*  th«  oi 


KKDUI.E  Al»:  DEPLETION. 

If  a deduction  Is  claimed  on  account  of  depUrJon,  ceermfrera  rbrooHretnr  Form  P (rJoYato),  Form  R (wall, 
' - 0 (oil  and  gat),  or  Torm  T (timber),  fill  In  and  (U«  with  return  If 


Form  F (ralaoallaiMOui  nonmeult), 
lary^to  ,’r,D*^)' 


alSt  period 
SCHEDULE 


1 has  l-eso  Died  with  9 'jnjticmxtlre  In  prerturu  years,  thm  file  with  this  reran)  Intorrew 
•nut  deplerjon  sehedol#  np  to  date,  swung  terth  In  fol'  sretoment  of  ai  I trannrttoa*  bw 

— ' ie  of  ph^dcal  luaei#  with  explanation  of  bow  deplreioo  dtdootkm  tor  f« 

rest  of  timber  this  should  be  done  by  Oiling  In  Form  T (Umber) 


* rahmllted  oontotoJot 


t)  » of  the  Revenue  Act  of  JM1). 


nbhed.relnf  eeeporatelli 


. . ttpMm  In  detail  the  manaot  In  »bl'._ 
ol  thlt  form  may  bi  obtalawl  from  tht  idtomltjrfacer  (Bee  Deoitou  11 


Jr*  In  * 
(Bee  fr 


BALM  O CAPITAL  ASSETS  AND  MISCELLANEOUS 

1,  a schedule  In  the  tallowing  farm  mutt  he  for- 
5i<«)  land  »i(o)  l«  ol  theBavauna  Act  of  IB1.) 


1.  Dad  of  property 

7 Date 

prSu* 

4.  Ccat. 

SE 

"T 

1 

, rrpresftiti  good  will.,  t 

, 1915,  nut  how  the  lair  marfcat  value  on  that  dui 
31  i botaDUatuig* t‘he~baait  iiaod  in  arrtving  aa  the  m 


a caac,  ol  eichango  of  property,  suho 

SCHEDULE  Alt:  LOSSES  BY  TELE.  STORM.  ETC. 

A tchadalo  U ml  ter  to  tho  one  reoumted  above  shtnld  be  mbmilted  with  rrrpeot  to  lanea  rd  property  arte- 
lngf'em  Ores,  stonna,  shipwreck,  or  other  casualty,  or  (rota  then,  end  not  oompenuoed  lor  by  toturanca  or 
olhorwtee,  except  that  column  3 should  show  "Inxurasoe  and  stuvige'’  Instead  of  "Sale  price.'! 


SCHEDULE  A 2i>:  DrYfDKNDS  (dodoctlble  under  Soctk 
Submit  a schedule  ahowteg  the  amount  received  &J  d 
then  a corporation  entlllod  to  ths  benofUj  ofSeotlun  M3  ol 
It  It  shown  to  the  ssJtte~i!i.a  of  tho  rumiolsslnniar  that  m 
foreign  corporation  lor  the  three  year  period  ending  with  ll 
oftueh  dlvlnohU  (or  for  aocli  port  ofroch  period  itthefw 
from  sources  within  tho  United  Slates  ae  determined  node# 


cl.  or  1 6 (from  etch  (orelgn  ct 


fSSET 


o alliance)  wfc)  derive 


v a worn,  each  for  hituaulf  ilepoaos  And  mya  th*t  thio  roturn. 


taxable  jicrioil  as  statod,  pursuant  to  tbo  Revonue  Act  of  1921  and  tho  Rogulalic 
Sworn  to  an«l  subscribed  boforo  mo  this day  of .. 


wed  under  authority  thereof. 


(Official  capecllr  ) 


[Page  4 of  Form  1120.] 


(; 

e 

a 


€ 

( 


The  Federal  Income  Tax  Service 
Supplementary  Page  242. 


1-11-22. 


l’ugo  l uf  Instruction*. 

INSTRUCTIONS  FOR  CORPORATION  RETURN. 


LIABILITY  FOR  FILING  RETURNS. 

1.  Corporations  generally.— Every  domostio  or  rcflidont  corporation, 
joint-stock  company,  association,  or  insurance  company  not  npocifically 
exempted  by  Soction  231  of  the  ltavsnuo  Act  of  1921,  whether  or  not 
having  any  not  income,  must  file*  a rotum. 

2.  A corporation,  having  n not  income  of  loss  than  51,000  for  tho 
taxable  period  need  not  fill  in  tho  schedules  pertainin''  to  oxenas  profits 
tax,  but  if  the  -oat  income  io  $3,000  or  more,  it.  is  subject  to  the  oxrcas 
profits  tax  and  must  file  a complete  rotum  ou  this  form. 

.'i.  Government  Contracts. — In  addition  thereto,  if  not  income  in 
exnoHi  of  $10, l)U0  was  derived  during  tho  taxnblo  period  from  a Gov  urn  - 
‘ mont  contract,  Form  1 120S  should  b'o  secured  from  the  Collector  of  Inter- 
nal Revenue  for  your  district  and  tiled  as  a part  of  this  return 

*.  ■!.  Corporations  in  Possessions  of  the  United  Staten.— Domestic 

corporations  within  tb&/posdn£sions  of  tho  United  States  (except  tbe 
Virgin  Islands)  may  report  as  gross  income  only  groan  income  from 
sources  within  tho  United  States,  provided,  (a)  SO- per  cent  or  more  of 
t ho  total  gross  income  for  the  throe-year  period  immediately  preceding 
the  dose  ol  tho  taxnblo  year  (or  such  part  thereof  ns  may  be  applicable) 
was deuvod  from  sources  within  a possession  of  tho  United  States;  and 
(b)  50  per  cent  or  moro  of  tho  total  grose  income  for  such  three-year 
period  or  applicable  part  thoroof  was  derived  from  tho  active  conduct  of 
a trado  or  business  within  a possession  of  the  United  Status. 

However,  a corporation  entitled  to  tho  abovo  benefits  is  not  entitled 
to  tho  specific  exemption  of  $3,000  in  computing  tho  oxcoss  profits  tax. 
(Seo  Sections  262  and  312,  Ravonuo  Act  of  1921.1 

5.  Foreign  Corporations. — A foreign  corporation  subject  to  the  law, 
regardless  of  the  amount  of  its  net  income,  is  required  to  file  a return  with 
the  Collector  in  whose  district  is  located  it?  principal  office  or  agency 
through  which  is  transacted  tho  business  in  the  United  States.  If  it  has 
no  offico  or  agency  in  tho  United  States,  tho  return  should  be  filed  with 
the  Collector  of  Internal  Revenue,  Baltimore,  Maryland . Tho  net  income 
should  be  computed  in  accordance  with  Soction  217  of  tho  Revenue  Act 
of  1921. 

6.  Personal  Service  Corporations. — Personal  service  corporations 
must  filo  a return  on  Form  1065. 

CONSOLIDATED  RETURNS. 

7.  Too  parent  or  principal  reporting  company  of  affiliated  corpora- 
tions as  defined  in  Soction  240  of  tho  Act  must  filo  a consolidated  return 
on  this  form  with  the  collector  of  tho  district  in  which  its  principal  offico 
is  located  and  attach  thereto  a schedule  showing  the  names  aad  addrettas 
of  all  affiliated  corporations  in  the  group,  and  if  the  tax  is  apportioned 
among  those  corporations,  the  amount  allocated  to  each.  (Seo  paragraph 
9,  below.)  Etch  of  the  other  affiliated  corporations  shall  file  Form  1122 
in  the  office  of  tiv  Collector  of  its  district. 

Consolidated  m vested  capital  must  be  computed  as  at  the  beginning 
of  the  taxable  period  of  tho  parent  or  principal  reporting  comoany  and 
consolidated  income  must  be  computed  on  the  basis  of  its  taxable  period. 

All  supplementary  and  supporting  echedulee  should  be  prepared  in 
columnar  form,  one  column  being  provided  for  each  corporation  included 
in  tho  consolidation,  one  column  for  a total  of  liko  items  before  adjust- 
ments aro  made,  one  column  for  intercompany  eliminations  and  adjust- 
ments, and  one  column  for  a total  of  like  items  after  giving  effect  to  the 
eliminations  and  adjustments.  The  items  included  in  tho  column  for 
eliminations  and  adjustments  Bliquld  be  symbolized  so  as  to  readily 
identify  contra  items  affected,  and  if  necessary,  in  order  to  give  a correct 
understanding  of  those  entries,  suitable  explanations  should  he  appended. 

8.  If  one  domestic  corporation  owns  95  per  cent  or  more  of  the 
outstanding  voting  stock  ot  another,  or  if  95  per  cent  or  more  of  the 
outstanding  voting  stock  of  two  or  more  domestic  corporations  is  owned 
by  the  same  individual  or  individuals,  partnership  or  partnerships,  in 
substantially  the  a^jt^roportion,  a consolidated  return  must  be  hied 
by  such  corporations,  except  that  the  purpose  of  tho  statute  being  to 
prevent  the  avoidance  or  reduction  of  tax  liability,  corporations  engaged 
in  entirely  distinct  and  unrelated  lines  of  business,  tbera  being  no 
common  dealings  between  them  giving  rise  to  opportunity  to  avoid  or 
reduce  tax  liability,  shall  not  be  required  to  file  a consolidated  return. 
If  the  ownership  is  lees  than  95  per  cent  of  the  outstanding  voting  stock, 
but  exceeds  70  per  cent,  the  parent  or  principal  corporation  of  any  group 
of  affiliated  corporations  must  furnish  the  information  called  for  in  ques- 
tions 11  to  14,  page  3. 

9.  The  Department  prefers  that  tho  entire  tax  shown  on  a consoli- 
dated return  be  paid  by  the  parent  or  principal  reporting  corporation, 
instead  of  being  apportioned  among  the  corporations  composing ' the 
affiliated  group. 

If  apportionment  is  made,  each' subsidiary  or  affiliated  corporation 
should  state  on  its  Form  1122  the  amount  of  income  and  profits  taxes 
to  be  assessed  against  it  for  the  taxable  period. 

PERIOD  COVERED. 

10.  The  taxable  period  is  the  calendar  year  or  the  fiscal  period  ended 
in  such  calendar  year,  and  the  net  income  shall  be  computed  upon  tho 
basis  of  the  corporation’s  annual  accounting  period  (calendar  year  or  fiscal 
period)  in  accordance  with  tho  method  of  keeping  the  book*,  unless 
such  method  does  not  clearly  reflect  the  income.  The  accounting  period 
established  for  the  taxable  year  immediately  preceding  must  be  aohered 
to  unless  permission  has  been  received  from  the  Commissioner  to  make  a 
change. 

In  the  case  of  a return  for  a period  of  less  than  one  year,  the  net 
inoomo  shall  be  placed  on  an  annual  basis  by  multiplying  the  amount 


thoroof  by  twolvo  anil  dividing  by  tho  number  of  months  included  in  such 
period;  and  tho  lax  shall  bo  ouch  pai  l of  a tHx  computed  on  such  annual 
fiu-ia  as ( tho  number  of  months  in  such  period  is  of  twelve  months. 

If  tbe  period  for  which  tho  first  or  final  return  is  mode  includes 
fractions  of  months,  there  Hhall  bo  added  to  the  number  of  complete 
months  as  many  thirtieths  of  a mouth  as  thoro  aro  days  in  tho  fractional 
parts  of  months. 

11.  If  a corporation  changes  its  accounting  period,  it  alial]  as  soon 
as  possible  give  to  the  Collector  for  transmission  to  tno  Commissioner 
writ  ion  notice  of  such  change  and  of  its  reasons  tbartfor.  Upon  approval 
by  the  Comm  Us. oner,  tho  corporation  shall  thereafter  make  its  return-* 
upon  the  basis  of  tho  now  accounting  period.  See  Sec  tin  us  212(c)  end 
226,  Revenue  Act  of  1921. 

TIME  AND  PIACE  FOR  FILING. 

12.  Tho  return  must  bo  sent  to  the  Collector  of  Internal  Rovonuo  for 
the  district  in  which  tho  corporation's  principal  offico  is  located,  bo  as  to 
reach  thg  Collector's  office  on  or  before  tno  fifteenth  day  of  the  third  month 
following  the  close  of  tho  taxnblo  period,  In  the  caso  of  a foreign  cor- 
poration'not  haviug  any  offico  or  place  of  business  in  the  United  States 
the  return  shall  bo  filed  on  or  before  tho  fifteenth  day  of  tho  sixth 

, month  following  tho  close  of  tho  taxable  period.' 

13.  The  Collector  is  authorized  to  grant  an  extension  «•?  not  more 
than  thirty  days  for  fifing  returns  in  cases  of  absence  or  ^mr,  In 
meritorious  coses  tho  Commissioner  is  authorized  to  gronf  a further  exr 
tension. 

SIGNATURES  AND'  VERIFICATION. 

14.  The  return  shall  be  sworn  to  by  tho  president,  vico  president,  or 
other  principal  officer  and  by  the  treasurer  or  assistant  treasurer.  The 
return  of  a foreign  corporation  having  an  agent  in  the  United  States  shall 
be  sworn  io  by  such  agent.  If  receivers,  trustees  in  bankruptcy,  or 
aoaignoss  are  operating  tfie  property  or  business  of  the  corporation,  bucIi 
reeeivera.  trustees,  or  assignees  shall  execute  tho  return  for  3Ucjj  corpora- 
tion, under  oath. 

PAYMENT  OF  TAXES. 

16.  The  tax  should  be  paid  by  sending  or  bringing  with  the  return ' 
a check  or  money  order  drawn  to  the  order  of  "Collector  of  Ioip7aal 
Revenue  at  (insert  name  of  city  and  State).” 

16.  Do  not  send  cash  through  the  moil  or  pay  it  in  pereoa  except  at 
the  office  of  the  Collector. 

17.  Tho  £otal  tax  may  be  paid  at  the  time  of  filing  the  return  or  in 
foisr  equal  installments,  aa  follows: 

The  first  installment  shall  be  paid  at  the  time  fixed  by  law  for  filing 
the  return,  tho  second  installment  shall  be  paid  on  the  fifteenth  day  of 
tho  third  month,  tho  third  installment  on  tdie  fifteenth  day  of  the  eixik 
moaih.  and  the  fourth  installment  on  the  fifteenth  day  of  the  ninth  month 
after  the  time  fixed  by  kw  for  filing  the  return. 

PENALTIES. 

Foe  i-fclrlcj;  FaU*  «r  F:-*odul*vt  Return. 

13.  Not  exceeding  $10,000  or  not  exceeding  one  year's  unpritomaent, 
or  both,  in  the  discretion  of  the  court,  and,  in  addition,  50  pec  ceaUun  of 
the  total  tax  evaded. 

For  Failln*  to  Mako  Return  on  Tima. 

19.  Not  more  than  $1,000,  and,  in  addition,  25  per  centum  of  the  total 
amount  of  the  tax. 

For  Falling  to  Pay  Tax  Whan  Duo  or  Understatement  of  Tax,  Throuyfc 
Negligence,  Etc. 

20.  Five  per  centum  of  the  tax  due  but  unpaid  plus  internet  at  tha 
rate  of  1 per  centum  per  month  during  the  period  in  which;  it  remaiaa 
unpaid. 

WORKING  PAPERS. 

21.  Every  corporation  Bhould  preserve,  available  for  inspection  by  a 
revenue  officer,  working  papers  showing-1— 

(a)  The  balance  in  each  account  on  tho  corporation's  hooka  that  was 
used  in  preparing  Schedule  A. 

(S)  The  amount  deducted  from  each  such  balance  on  account  of  each 
close  of  non  taxable  income,  unallowable  deductions,  and  other 
adjustments  indicated  in  Schedule  L,  with  a reference  to  the 
number  of  the  item  in  Schedule  L in  which  each  amount  so 
deducted  woo  included. 

(c)  The  remainder  of  sack  ouch  balance,  analyzed  to  show  tho 
amount  included  in  each  item  of  Schedule  A,  with  a reference 
to  the  number  of  the  item  in  Schedule  A in  which  each  euch 
Amount  was  included. 

INFORMATION  AT  THE  .SOURCE. 

22.  Every  corporation  making  payments  of  salaries,  wages,  interest, 
rent,  commissions,  or  other  fixed  or  determinable  income  of  81,000  or 
more  during  the  oalendar  year,  to  any  individual  or  partnership,  ia  re- 

Suircd  to  make  a true  and  accurate  return  to  the > Commissioner  of  Internal 
Revenue,  showing  the  nature  of  such  payments  and  the  name  and  addreei 
of  the  recipient  Focus  1096  and  1 099,  for  reporting  such  information, 
will  be  furnished  by  any  collector  of  internal  revenue.  Such  returns  of 
information  covering  tne  calender  year  1921  must  be  forwarded  to  the 
Commisaioder  of  Internal  Revenue,  Sorting  Section,  Washington,  D.  C.f 
in  time  to  be  received  not  later  than  March  15,  1922.  *-j*m 


[Page  5 of  Form  1120.J 


The  Federal  Income  Tax  Service 
Supplementary  Page  243. 


’Ago  2 of  Instructions. 


INSTRUCTIONS  RECARDING  INCOME,  CREDITS.  COMPUTATION  OF  TAX,  ETC. 


CROSS  INCOME  AND  DEDUCTIONS. 

I . Railroad  corporations,  bank*,  insurance  companies,  and  other  corporations  required 
U.  •iiboiit  statement*  of  income  and  expenses  to  any  national,  Stall-,  (Municipal,  or  other 
public  officer  m«y  submit  instead  of  Schedule  A a statement,  of  income  and  expenses  in 
the  form  In  which  submitted  to  such  officer.  In  such  cases  the  taxable  net  income  will 
be  reconciled  by  mean#  of  Schedule  I.  with  the  net  profit  shown  by  t he  income  and  expense 
statement  submitted,  and  should  be  entered  sis  Item  27,  Schedule  A,  page  1. 

2 A life  insurance  company  issuing  life  insurance  WUl  annuity  contracts  (including 
contracts  ol  combined  lilo,  health,  and  accident  insurance),  as  defined  by  Section  242  of 
the  ICe  viruun  Act  of  1I»2I,  almll  file  its  tax  return  on  Form  1I20L,  instead  ol  form  1120 

U.  An  iiiiuranco  company  (other  than  a company  taxed  under  Section  213  of  tin-  Act) 
iiuuiug  policies  covering  life,  health,  and  accident  insurance  combined  in  one  policy  issued 
on  the  weekly  premium  payment  plan,  continuing  for  life,  and  not  subject  to  ranCullaltoii, 
shall  Ide  its  return  on  this  furm,  and  report  as  a deduction  in  Schedule  A 12  subject  to  the 
approval  of  the  Commissioner,  such  portion  of  the  uctaddition  (not required  by  law)  made 
within  the  taxable  period  to  reserve  funds  as  may  be  required  (ortho  protection  of  the 
holders  of  such  policies  only, 

4 An  insurance  company  (other  than  a lilo  insurance  company)  should  report  as 
a deduction  in  Schedule  A12  of  this  form,  (a)  the  net  addition  required  by  law  to  be  made 
within  the  taxable  period  to  reserve  funds  (includiug  in  the  case  of  an  aaviwment  insur- 
ance company  the  actual  deposit  of  same  with  State  or  Territorial  officers  pursuant  to  law 
as  additions  to  guarantee  or  reserve  funds),  and  (5)  the  sums  other  than  dividends  paid 
within  the  taxable  period  on  policy  and  annuity  contracts. 

5.  A mutual  marine  insurance  company  should  report  as  Item  3,  Schedule  A,  of  this 
form,  the  gross  premiums  collected  and  received,  Jess  amounts  paid  for  reinsurance,  arid 
report  as  a deduction  in  Schedulo  A12  amounts  repaid  to  policyholders  on  account  of 
premiums  previously  paid  by  them  and  interest  paid  upon  such  amounts  between  ascer- 
tainment and  the  payment  thereof. 

0 The  receipts  ol  a shipowners’  mutual  protection  am]  indemnity  association,  not 
organized  for  profit,  and  no  part  of  the  Det  earnings  of  which  inures  to  the  benefit  of  any 
private  stockholder  or  member,  are  exempt  from  taxation,  but  such  association  shall  be 
subject  as  a corporation  to  the  tax  upon  its  net  income  from  interest,  dividends,  and  rents. 

7.  A mutual  insurance  company  (including  interinsuranco  and  reciprocal  under- 
writers, but  not  including  a mutual  life  or  mutual  marine  insurance  company)  requiring  its 
members  to  mako  premium  deposits  to  provide  for  losses  and  expenses,  should  report  in 
Schedule  Al2  of  this  lorm,  the  amount  of  premium  deposits  returned  to  its  policyholders 
and  the  amount  of  premium  deposits  retained  for  the  payment  oi  losses,  expenses,  and 
reinsurance  reserves  (unless  otherwise  allowed  in  Schedulo  £ i 

8.  Incidental  repairs,  which  do  not  add  to  the  value  or  appreciably  prolong  tbe  life  of 
property,  are  deductible  as  expenses  (Item  14,  Schedule  A)  Expenditures  for  new  build- 
ings, machinery,  equipment,  or  lor  permanent  improvement  or  betterments  which  increase 
the  value  of  the  property  are  chargeable  to  capital  account.  Expenditures  for  rest  .ring 
or  replacing  property  are  not  deductible  under  this  or  any  other  item  of  the  return  Such 
expenditures  are  chargeable  to  capital  account  or  to  depreciation  reserve,  depending  on 
the  treament  of  depreciation  on  the  books  of  the  taxpayer. 

9.  The  amount  of  interest  deductible  in  Item  15,  Schedule  A,  i the  amount  of 
interest  paid  within  the  taxable  period  on  the  corporation’s  indebtedness.  . veept  on  indebt- 
edness incurred  or  continued  to  purchase  or  carry  obligations  or  securities  (other  than 
obligations  of  the  United  States  Issued  after  September  24,  1917,  and  originally  subscribed 
for  by  the  corporation),  tbo  interest  upon  which  is  wholly  exempt  from  taxation  (Seo 
Sections  234(a)  2 and  234(6)  of  tbo  Revenue  Act  of  1921.) 

10.  Tbo  amount  deductible  on  account  of  depreciation  in  Item  18,  Schedule  A,  is  an 
amount  charged  off  which  fairly  measures  the  lota  during  the  year  in  the  value  of  physical 
property  by  reason  of  exhaustion,  wear,  tear,  and  ob3olc?concc.  Such  an  amount  should 
be  determined  upon  the  basis  of  tbe  cost  of  the  property  or,  if  acquired  prior  to  March 
1,  1913,  the  fair  market  value  on  that  date  and  the  probablo  number  of  years  remaining  of 
its  useful  life.  The  capital  sum  to  be  replaced  should  be  charged  off  over  the  probable 
life  of  tho  property  either  in  equal  annual  installments  or  in  accordance  with  3ny  other 
Tccognixed  trade  practice,  such  as  an  apportionment  of  tho  capital  sum  over  units  of 
production.  Whatever  plan  or  method  is  adopted  must  be  reasonable  and  should  be 
described  in  tho  return.  Stocks,  bonds,  and  like  securities  arc  not  subject  to  exhaustion , 
wear  and  tear  within  the  meaning  of  the  law. 

II.  If  property  is  compulsorily  or  involuntarily  converted  into  cash  or  its  equivalent 
as  a result  of  (a)  its  destruction  in  whole  or  in  part,  (6)  theft  or  seizure,  or  (c)  an  exercise 
of  the  power  of  requisition  or  condemnation,  or  the  threat  or  imminence  thereof;  and  if  the 
taxpayer  proceeds  forthwith  in  good  faith,  under  regulations  prescribed  by  tho  Commis- 
sioner with  the  approval  of  the  Secretary,  to  expend  the  proceeds  of  such  conversion  in 
the  acquisition  of  other  property  of  a character  similar  or  related  in  service  or  use  to  the 
property  so  converted,  or  in  the  acquisition  of  80  per  centum  or  more  of  tho  stock  or  shares 
of  a corporation  owning  such  other  property,  or  in  tho  establishment  of  a replacement  fund, 
then  there  shall  be  allowed  as  a deduction  such  portion  of  the  gain  derived  as  tho  portion 
of  the  proceeds  so  expended  bears  to  the  entire  proceeds.  The  gToes  receipts  and  deduc- 
tions claimed  should  be  included  in  Schedule  A23.  (See  Section  234(a)  14  of  the 
Revenue  Act  of  1921.) 

CREDIT  FOR  INCOME  AND  PROFITS  TAXES  PAID  TO  FOREIGN  COUNTRIES 
* , OR  POSSESSIONS  OF  THE  UNITED  STATES. 

12.  If  a credit  is  claimed  in  Item  14,  Schedule  D,  a copy  of  Form  1118,  completely 
filled  out  and  sworn  to  or  affirmed,  must  be  submitted  with  this  return.  If  credit  is  sought 
for  taxes  already  paid,  tho  form  must  have  attached  to  it  the  receipt  for  each  such  tax 
payment.  If  credit  is  sought  for  taxes  accrued,  tho  form  must  have  attached  to  it  the 
return  on  which  each  such  accrued  tax  was  based. 

13.  When  a credit  is  claimed  for  accrued  taxes,  the  Commissioner  may,  os  a condition 
precedent  to  the  allowance  of  this  credit,  require  the  corporation  to  give  a bond  (Form 
1119),  with  sureties  satisfactory  to  and  to  be  approved  by  him  in  such  penal  sum  os  he 
may  require,  conditioned  for  tho  payment  by  tho  taxpayer  ol  any  amount  of  taxes  found 
due  if  the  taxes  when  paid  differ  from  the  amount  claimed  in  respect  thereof. 

*•  PROVISIONS  AFFECTING  COMPUTATION  OF  TAX. 

14.  Schedule  D,  “Computation  of  Tax, " may  be  subject  to  one  or  more  of  the  follow- 
ing provision— 


(<j,i  Return  for  a fiscal  year.— If  return  is  for  a fiscal  yoarendr-J  in  1921,  the  tax  should 
l>e  computed  in  accordance  with  Section*  20o.  230(f),  aod  335(c)  of  the  Revenue  Act  of  1921 
(6)  Limitation  on  income  tax  — If  the  net  income  reported  as  Item  5,  Schedule 
D,  ii  more  than  525, (XX)  the  tax  of  30  per  Centum  imposed  by  Section  23ft  of  tbe  Act  on  the 
umount  of  the  net  income  "hall  not  exceed  the  tax  which  would  he  payable  if  the  52,000 
credit  were  allowed,  plus  the  amount  of  the  net  income  in  excess  of  S25.0U0. 

i.  i Limitations  on  excess  profits  tax.— The  maximum  exrow  profits  lax  imposed  shall 
in  no  r3...  be  more  than  20  per  r.-nt  of  the  uetincomo  in  i-xcw ol  53.000  and  not  in  i-iros 
of  $20,(XK>  plus  40  per  cent  of  the  net  income  in  excess  of  $20,000  (Section  302),  unices  net 
income  auiv  luting  to  more  than  $10,000  was  derive  I frnia  a Government  Contract,  when 
the  t ix  on  such  income  shall  be  .vanned  under  Section  301(6),  iu  which  c-jse  the  uvjximuru 
excess  and  war  profits  tax  imposed  up.n  this  proportion  of  the  net  income  shall  not  be  mors 
than  30  per  cent  of  the  amount  of  net  income  in  excess  of  53,000  and  not  in  excess  of 
$20,000  |,'U»  HO  percent  of  the  amount  of  net  incorue  in  excess  of  920.000.  (See  Section  302  ) 
(if)  Tax  of  corporation  whose  income  is  derived  in  part  from  “Personal  Service."— li 
part  of  the  net  income  (not  less  than  30  per  cent)  is  derived  from  a separate  trade  or  business 
of  tho  character  of  per-., nil  services’  foatix  shall  be  computed  in  accordance  with  tbe 
provisions  of  Section  303  of  the  Act 

(c)  Tax  on  corporation  engaged  in  mining  of  gold.— If  a corporation  is  engaged  in 
the  raining  of  gold,  its  ox-  , vs  profit*  tax  shall  be  that  proportion  of  Item  3,  Schedulo  D, 
which  the  net  income  not  derived  (mm  the  mining  of  gold  bear*  to  tho  total  net  income. 

(oee  Section  304(c)  of  the  Ac®* 

(/)  Tax  on  profits  from  sale  sf  mineral  deposits.— In  the  caae  ol  a bona  fide  ealo  of 
mines,  oil  or  gnu  wells,  or  any  i do*  rot  therein,  where  tho  principal  value  of  the  p—perty 
has  been  demonstrated  by  prospecting  or  exploration  and  discovery  wort  done  by  tho 
taxpayer,  the  portion  of  the  excess  profits  tax  attributable  to  eueh  aale  shall  not  exceed 
20  per  cent  of  the  selling  price  of  such  property  or  interest.  (See  Section  337  of  the  Act ) 
Tho  first  step  is  to  find  tbe  cxccm  profits  tax  computed  without  regard  to  this  provision, 
tbe  second  is  to  fiod  of  the  tax  thus  computed  eueh  portion  ae  the  net  income  from  tho 
aale  bears  to  the  total  net  income.  If  this  portion  equals  or  does  not  exceed  20  per  cent 
of  the  selling  price,  then  no  adjustment  is  permitted  Should  such  portion  exceed  20  per 
cent  of  the  selling  price,  the  tax  will  be  that  portion  of  the  excess  proflta  tax  which  the 
net  income  not  attributable  to  the  sale  bears  to  the  total  net  income  plus  20  per  cent  of 
tbe  selling  price  of  the  mineral  deposits. 

15.  Statement  of  basis  of  claims.— If  a corporation  claims  tbe  benefit  of  any  of  tbe 

provisions  outlined  in  (</),  (/),  or  (/.,  ft  should  attach  to  the  return  a complete  statement  of 
tbo  basis  for  such  claim  and  a computation  of  the  tax  payable  in  the  event  that  such  claim 
is  allowed.  The  atn.-unt  of  lax  u computed  should  b'-  entered  in  Schedule  D. 

SPECIAL  CASES. 

16.  Definition  of  special  ca3es. — Section  327  of  tbe  Act  provides  that  in  the  following 
caeca  the  tax  shall  be  determined  as  provided  in  Section  323: 

(а)  Where  the  Commissioner  is  unable  to  determine  the  invested  capital  as  providod 
in  Section  326. 

(б)  In  the  case  of  a foreign  corporation  or  a corporation  entitled  to  tbo  benefits  of 
Section  262  of  the  Revenue  Act  of  1921.  See  paragraph  4.  page  1 of  Instructions. 

(c)  Where  v mixed  aggregate  of  tangible  property  and  intangible  property  has  been 
paid  jd  for  stock  of  for  stock  and  bond3  and  the  Commissioner  is  unable  satisfactorily  to 
determine  the  respective  values  of  the  several  classes  of  property  at  the  time  of  payment, 
or  to  distinguish  tho  classes  of  property  paid  in  for  stock  and  for  bonds,  respectively. 

(if)  Where,  upon  application  by  the  corporation,  the  Commiioioner  finds  and  declares 
of  record  that  the  tax  if  deform:  nod  without  benefit  of  this  section  would,  owing  to  abnormal 
conditions  affecting  the  capital  or  income  of  tho  corporation,  work  upon  tho  corporation 
an  exceptional  hardship  evidenced  by  gross  disproportion  between  the  tax  computed 
without  benefit  of  this  section  and  tho  tax  computed  by  reference  to  the  representative 
corporations  specified  in  Section  328.  This  subdivision  shall  not  apply  to  any  case;  (1)  In 
which  the  tax  (computed  without  benefit  of  this  section)  is  high  merely  because  tho  corpo- 
ration earned  within  the  taxable  period  a high  rate  of  profit  upon  a normal  invested  capital, 
nor  (2)  in  which  50  per  contfim  or  more  of  tho  gross  income  of  tho  corporation  for  the  taxable 
period  (computed  under  Section  233  of  t ho  Act)  consisted  of  gains,  profits,  commissions, 
or  other  income  derived  on  a co3t-plu3  basis  from  a Government  contract  or  contracts 
made  between  April  6,  1917,  and  November  11,  1918,  both  datea  inclusive. 

17.  Treatment  of  special  cases.— In  tho  cases  specified  in  Section  327  the  tax  will  be 
specially  determined  under  the  provisions  of  Section  328.  A corporation  which  comes 
within  tho  provisions  of  subdivision  (d)  of  Soction  327  (paragraph  16,  above)  may  make 
application  for  assessment  under  the  provisions  of  Section  328,  which  application  shall 
bo  attached  to  its  return  in  the  form  of  a statement  setting  forth  in  full;  (a)  Tho  reasons 
why  the  tax  should  bo  so  determined,  (6)  tho  facts  upon  which  such  reasono  are  based, 
(e)  an  exact  description  of  each  trade  or  business  or  important  branch  of  a trade  or  business 
carried  on  by  it;  (<i)  a statement  of  the  invested  capital  and  net  income  for  each  year 
since  tho  beginning  of  the  prewar  period;  and  (e)  a statement  showing  the  amount  of 
gains,  profits,  commissions,  or  other  income  derivod  on  a cost-plus  basis  from  Government 
contracts  made  between  April  5,  1917,  and  November  12,  1918,  both  date*  inclusive, 
and  showing  the  per  cent  which  such  income  is  of  the  total  income  of  the  corporation 

18.  Returns  In  special  cases. — Corporations  other  than  foreign  corporations  making 
claim  for  assessment  under  Section  328  of  the  Act  should  answer  all  questions  mid  file  all 
schedules  as  far  as  possible  and  attach  a statement  explaining  why  it  is  impracticable  to 
fill  out  the  entire  return . 

UNDISTRIBUTED  PROFITS  TAXABLE  TO  STOCKHOLDERS. 


19.  If  any  corporation,  however  created  or  organized,  is  formed  or  availed  of  for  the 
purpose  of  prevent!  eg  the  imposition  of  the  surtax  upon  it*  stockholders  or  members  through 
tho  medium  of  permitting  gains  and  profits  to  accumulate  instead  of  being  divided  or 
distributed,  there  shall  be  levied,  collected  and  paid  for  each  taxable  year  upon  tho  net 
income  of  eueh  corporation  a tax  equal  to  twenty-five  per  cent  (25# ) of  tho  amount  thereof, 
which  shall  be  in  addition  to  the  tax  imposed  by  Section  230,  Revenue  Act  of  1921,  and 
shall  be  computed,  collected  and  paid  upon  the  samo  basis  and  in  tho  same  manner  aDd 
subject  to  the  same  provisions  of  law,  including  penalties,  as  that  tax.  (See  Section  220, 
Revenue  Act  ol  1921.)  s-io.7* 


[Page  6 of  Form  1120.] 


flie  Federal  Income  Tax  Service 
Supplementary  Page  244. 


2-11-22. 


Form  1122— UNITED  STATES  INTERNAL  REVENUE  SERVICE 

INFORMATION  RETURN  OF  SUBSIDIARY  OR  AFFILIATED  CORPORATION 

WHOSE  NET  INCOME  AND  INVESTED  CAPITAL  ARE  INCLUDED  IN  RETURN  OF  A PARENT  OR  PRINCIPAL 
REPORTING  CORPORATION  FOR  PURPOSES  OF  INCOME  AND  PROFITS  TAXES 


FOR  CALENDAR  YEAR  1921 


If  return  U for  calendar 
year  1921,  file  it  on  or  be- 
fore March  IS,  192 2,  with 
the  Collector  of  Internal 
Revenue  for  the  District  in 
which  the  Subsidiary  or 
Affiliated  Corporation  has 

Or  for  period  begun  , 1920,  and  ended ,1921 

(Date  Received) 

If  for  a period  other  than 
a calendar  year,  the  return 
should  be  filed  on  or  before 
the  lSth  day  of  the  third 
month  following  the  dose 
of  such  period. 

(Memo) 

(Street  and  number  or  rural  route) 

(Post  Office  and  8tato) 

1.  Data  incorporated Under  laws  of  what  State? - - - 

2.  Band  of  business 

3.  Par  value  of  capital  stock  outstanding  at  beginning  of  taxable  period: 

(a)  Common,  S ; (b)  preferred,  $ 

4.  Name  of  parent  corporation 

5.  Address  of  parent  corporation 

6.  Internal  revenue  district  in  which  consolidated  return  ha3  been  filed — - 

(Give  district,  or  city  and  State) 

7.  The  department  prefers  that  the  entire  tax  shown  on  a consolidated  return  be  paid  by  the  paront  or  principal 

reporting  corporation,  instead  of  being  apportioned  among  the  corporations  composing  the  affiliated  group. 

If  apportionment  is  made,  state  th9  amount  of  income  and  profits  taxes  for  the  taxable  period  to  be  assessed 
against  the  subsidiary  or  affiliated  corporation  making  this  return S 


We,  the  undersigned,  president  and  treasurer  of  the  above-named  subsidiary  or  affiliated  corporation,  being 
severally  duly  sworn,  each  for  himself  deposes  and  says  that  the  foregoing  return,  including  the  accompanying 
list  (if  any),  has  been  examined  by  him  and  is  to  the  best  of  his  knowledge  and  belief  a true  and  complete  return 
of  information  made  in  good  faith  pursuant  to  the  Revenue  Act  of  1921  and  the  Regulations  issued  thereunder. 

Sworn  to  and  subscribed  before  me  this 


day  of , 1922. 


President. 


( Signal  ore  of  officer  administering  oath) 


3—1144* 


(Title) 


Treasurer. 


The  Federal  Income  Tax  Service 
Supplementary  Page  245. 


JPorm  1001  B— rtcvl- id— Jnn.,  1*^22 
r.  8.  Internal  Revbnvc 


This  form  will  not  bn  accepted  unices  all  Information  called  for  It  furnished. 


STATEMENT  OF  INCOME  RECEIVED  BY  NONRESIDENT  ALIEN  FROM  SOURCES  WITHIN  UNITED  STATES 

PERSONAL  EXEMPTION  CLAIMED. 


FOR  CALENDAR  YEAR  1321 


To  l»  Hied  with  withholding  .-went  by  nonrwldent  «tai  Individual  ownirii;  bond-*  of  a dome-Uc  wreontlon  which  etmtoln  a n-w. 

execution  of  this  ceptifle-ito  docs  not  rplltvo  tho  bond  owner  from  filing  ownership  certificates  rwjulred  by  tho  rogtilatious 


NAMES  MUST  BE  PRINTED  OR  WRITTEN  PLAINLY 


DEBTOR  ORGANIZATION. 
Name 

OWNER  OF  BONDS. 

Name ^ 

Street 

City state 

Street 

Subj'ect  of 

This  is  to  certify  that  the  owner  of  the  above-described  bonds 
is  a nonresident  alien  as  to  the  United  Stateo  and  is  a subject 
of  the  country  as  stated  above,  and  is  entitled  to  the  personal 
exemption  of  $i,000  as  provided  by  Section  21G  of  the  Revenue 
Act  of  1921. 

■SlONATUna  OF  Owvbb 
OB  AODNT. 

Bond  interest  received  during  calendar  year  with 
respect  to  tax-free  covenant  bonds  issued  by 

above-named  corporation $ 

All  other  income  f»-  * -purees  in  United  States  $ 
Total f 

exemption $1  000.00 

»- 

Note— For  the  taxable  year  192]  and  subsequent  years,  only  $1,000  personal  exomptic  , flowed  a no  tesident  alien  individual 
whether  lie  is  single,  married,  or  tho  head  of  a family,  and  regardless  of  his  nationality.  N credit  is  allowed  for  dependents. 


TO  BE  FILLED  IN  BY  WITHHOLDING  AGENT. 

District  in  which  return  Form  101,3  is  filed  , ^ 

Amount  of  tax  required  to  be  withheld  at  source  as  shown  h,  .orm  1013,  for  1921,  

To  be  reduced  on  account  rf  personal  exemption  claimed  as  indicated  by  this  certificate,  the  items  appearing  on  the  following 
mocthly  returns,  Form  1012:  s 


Month  — _ Page . Amount  of  

Month — Page AmounPof  tax 

Month P;ige  Amount  of  tax 

Month Page Amount  of  tax... 

Total...  $ a.-....: 

Name  of  withholding  agent 

Address. 

p2  ft 600  60/rem»T  prwtins  orncc 


The  Federal  Income  Tax  Service 
Supplementary  Page  246. 


2-11-22. 


afeoald 

this  form  with  hi?  tmpuya  do* I*  u*n  reoruary  i rw»Au.j  us*  - 



T»a  wm??iciir#o  acakt 
od  oucjjbcT'Wi  «**rvn« 
YKU  CUM  .WAU.  ih  m 
DAT*  Of  KbCOtT  Of  T5C* 
SfACt 

Sorffl  lll*~  2arfcwd  Saar ar7.  vm 
V&Lja  Sa.ua*  Irr*aHAi  UrvttfUa  t**>sx 

am  3f  nonresident  alen  individual 

PG»  UHanr  OF  FEU0NU.  K2MPTHSN  Cf  *1,000 

POA  TAXAJU-K  YEAH  1KU 

POSOT  WAITE  HCA2 

, " ~ ISUWtMdWanb.,.) 

, t^yn  ) 

~ Claim  i8~liereby  made  for  benefit  of  the  personal  exemption  provided  under  section  216  of  the  Revenue 
Act  of  1921  by  (or ’for)— 

Name  of  claimant — - - — 

Addrera  in  the! * 

United  States.  { - - - 

1.  Of  what  country  are  yon  a citizen  or  subject? 

2.  State  or  Province? 3-  A»  you  single?. 

(Name  ol  St&ta  <k  ProsinM.)  . , . , , . , • .1 

4.  If  married,  has  your  wife  or  husband  derived  income  during  the  taxable  year  to  date  from  sources  m the 

United  States  separate  from  your  own  ?. — - - 

6.  If  so,  is  such  income  included  in  the  income  stated  below  ? - 

6.  Have  you  filed  a return  of  net  income  for  all  or  any  of  the  past  four  years  ? - 7 ■ If  so,  atito 

for  which  years  and  the  Internal  Revenue  Districts  in  which  Sled 


INCOME  OF  r.t.MMANT,  DUHZHG  TAXABLE  TEAR  TO  BATS,  FROM  SOURCES  WITHIN  THE  UNITED  STATES. 

(1)  Salaxt  os  Waoes. ‘ 


y.ua  or  Eutlotsb. 

Add  bxes. 

Period. 

Amount. 

r 



" 

- ....  I 

(2)  Otsbr  Ikooks. 

Njlkz  or  Souses. 

AnrzBSw. 

PZHOD  OR  DATS. 

AacusT. 

% 

- 

1 

Total  igcomeofcl.im.nt.  during  taxable  year  to  date,  from  Bourcea  within  the  United  Statee  (X)  I ? 


STATEMENT  OF  PERSONAL  EXEMPTION  CLAIMED. 

Amount  of  personal  exemption  to  which  entitled . — - - — 00  * 1,000.00 

Total  income  of  claimant,  during  taxable  year  to  date,  from  cources  within  the  United  States  (item  X from  above) — 

Balance  of  credit  (item  Y minus  iteni  X) — $ 

N errs. —For  tb«  taxable  rear  1921.  and  sobaeqaeot  yean*,  anlv  *1,000  personal  exemption  le  allowed  a nMirwident  alien  Individual,  regardless  of  whether  he  Is  single, 
married,  ef  the  tv»i  of  alasiilj,  and  re^ardiest*  of  nationality.  No  credit  Ib  allowed  for  dependents.  

I swear  (or  affirm)  that  the  above  is,  to  the  best  of  my  knowledge  and  belief,  a true  and  complete  state- 
ment of  facte  in  connection  with  the  claim  for  credit**  above  made. 


" (l/dalm  U made  by  agont  the  th'jf^or  meat  b«  stated  on  tais  line.) 

Sworn  to  (or  affirmed)  and  subscribed  before  me 
f.bia day  of {._ — 192  . 


(Offlcul  chesty.) 


emaaunT  rwruas  cftvj 


(8l£U*t*ir«  of  lihlirldna!  (M  ugtnt.) 

(Addrau  cf  ind;7lduid  or  agoat.) 


The  Federal  Income  Tax  Service 
Supplementary  Page  247. 


GOVERNMENT  PRINTING  OFFICE 


2-16-22. 


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The  Federal  Income  Tax  Service 
Supplementary  Page  249. 


The' Federal  Income  Tax  Service 
Supplementary  Page  250. 

. ogsT  y,  .mctmlTP-'S 


Thiacarf^iloata  should  be  attached  to  interest  coupons  by  the  collecting  agent 
&3  a snbsUtate  for  the  owner’s  certificate  Form  1000.  2— 11687 

S*e  Instructions  onTorm  1012. 


I 


2-17-22. 


Form  101S.— Revised  Januaut,  1«3— UNITED  STATES  INTERNAL  REVENUE  SERVICE 

MONTHLY  RETURN  OF  NORMAL  INCOME  TAX  TO  BE  PAID  AT  SOURCE 

INTEREST  ON  BONDS  AND  OTHER  SIMILAR  OBLIGATIONS  OF  DOMESTIC  AND 
RESIDENT  CORPORATIONS  AND  FOREIGN  CORPORATIONS  HAVING 
A PAVING  AGENT  IN  THE  UNITED  STATES 

(To  be  used  by  paying  agent  of  forolgn  corporation  only  In  case  tbo  bonds  contain  a tax-freo-covenant  clause.) 


THIS  RETURN  ACCOM- 
PAN1ED  BY  CERTIFICATES 
ON  FORM  1000  AND  FORM 
1059  MUST  BE  FILED  WITH 
THE  COMMISSIONER  OF  IN- 
TERNAL  REVENUE,  SORTING 
SECTION,  WASHINGTON,  D.  C, 
ON  OR  BEFORE  THE  20th 
DAY  OP  THE  MONTH  SUC- 
CEEDING THAT  FOR  WHICH 
MADE 

Date  received 

(Name  of  debtor  organization.) 

(Full  post-offloe  address.) 

(Name  of  withholding  agent.) 

( Full  post-office  address.) 

INSTRUCTIONS 

If  debtor  organization  makes  its  own  withholding  return,  no  entries  need  be  made  on  lines  provided  above  for  name  and  address  of  withholding 
agent.  This  roturu  should  not  be  made  by  a paying  agent  for  a domestic  organization  unless  authorized  to  act  also  a a withholding  a^ont. 

V return  on  this  form  must  be  made  to  cover  the  following  classes  of  payments: 

1.  Interest  on  bonds  with  tax-free-covenant  clauses  paid  to  citizens  and  residents  of  the  United  States  (individuals  and  fiduciaries),  not  claiming 

personal  exomption,  to  domestic  and  resident  partnerships,  to  nonresident  alien  individuals  or  fiduciaries,  to  foreign  partnerships,  and 
to  foreign  corporations  having  no  office  or  place  of  business  in  the  United  States,  or  in  esse  owner  is  unknown.  A normal  tax  of  2 
per  centum  is  required  to  be  withheld  and  paid  at  source  in  such  cases. 

2.  Interest  on  bonds  without  tax-free-covenant  clauses: 

(а)  If  paid  to  a nonresident  alien  individual,  foreign  partnership  having  no  office  or  place  of  business  in  the  United' States,  or  in  case 

owner  is  unknown,  a normal  tax  of  8 per  centum  is  required  to  be  withheld  and  paid  at  source. 

(б)  If  paid  to  a foreign  corporation  having  no  office  or  place  of  business  in  the  United  States,  a normal  tax  of  12*  per  centum  is 

required  to  be  withheld  and  paid  at  source  beginning  January  1,  1922. 

A certificate  on  Form  1000  should  accompany  this  return  for  every  payment  entered  hereon. 

In  the  absence  of  ownership  certificates  covering  registered  bonds  owned  by  a person  or  organization  falling  within  the  named  above, 

the  debtor  corporation  shall  prepare  reports  on  Form  1000.  When  so  used  the  forms  need  not  be  signed. 

In  the  case  of  payments  of  interest  on  tax-free-covenant  bonds  to  citizens  and  residents  of  the  United  States  (individuals  and  fiduciaries)  and 
to  domestic  and  resident  partnerships,  resident  collecting  agents  and  responsible  banks  and  bankers  receiving  interest  coupons  for  collection  may 
detach  certificate  Form  1000  and  forward  it  directly  to  the  Commissioner  of  Internal  Revenue  provided  certificate  Form  1059  (revised)  is  substituted 
for  the  certificate  detached.  Substitute  certificates  Form  1059  should  be  listed  by  the  debtor  corporation  on  this  return,  the  serial  number  given 
the  original  certificate  being  entered  in  the  column  “ Name  of  Payee.” 

* I*  coupons  are  received  not  accompanied  by  certificates  of  ownership,  except  when  it  is  definitely  ascertained  that  thq  owner  is  a domestic 
corporation,  the  first  bank  receiving  such  coupons  will  require  of  the  payee  a statement  showing  the  following : 

(a)  Name  and  address  of  payee,  (6)  name  and  address  of  debtor  corporation,  (<?)  date  of  maturity  of  interest,  (<f)  name  ana  address  of  person 
from  whom  the  coupons  were  received,  (e)  amount  of  interest,  and  (/)  a statement  that  owner  of  bonds  is  unknown  tp  him. 

The  first  bank  shall  prepare  Form  1000,  crossing  out  “owner’  ’ and  inserting  “payee,”  entering  the  amount  of  interest,  duo  date,  and 
date  paid  in  the  proper  spaces  and  stamping  or  writing  across  the  face  of  the  certificate,  “Statement  furnished  (insert  name  of  bank).” 
The  statement  should  accompany  the  ownership  certificate  to  the  Commissioner  of  Internal  Revenue. 

If  bonds  are  owned  jointly,  separate  certificates  should  be  made  by  or  for  each  joint  owner.  Fiduciaries  must  enter  on  the  certificates  under 
owner  of  bonds  the  name  of  estate,  trust,  or  beneficiary  on  behalf  of  whom  the  exemption  is  claimed. 

A summary  on  Form  1013  of  all  Forms  1012  filed  during  the  calendar  year  must  be  filed  by  the  withholding  agent  on  or  before  March  1 of  the 
succeeding  year. 

I certify  that  the  following  is  a true  and  complete  return  of  all  payments  of  classes  1,  2(a),  and  2(6),  described  above  made,  and  of  the  amount 
01  W1  - elfi  O'11111?  the  month  stated  above  by  the  above-named  organization,  the  several  items  being  evidenced  by  certificates  listed  b-lcw 
and  transmitted  herewith: 


Class. 

Interest  Pad. 

Tax  Withheld. 

'N 

1 

$ 

2(a) 

2(6) 

Totals... 

J 

$ 

Name  of  Patkz. 


(Capacity  in  which  acting.) 


(Address  in  full.) 


Amount  Paid. 


Tax  ffinmnn. 


CONTINUE  ON  FORM  1012A 


The  Federal  Income  Tax’Service 
Supplementary  Page  251. 


day  of 


1922. 


(Signature.) 


(Signature.) 


(Capacity  In  which  acting  ) 


(Title.) 


(Address  in  full.) 


The  Federal  Income  Tax  Scryice 
Supplementary  Page  252. 


2-17-22. 


»UI  k.r»  lb* 

*1  Mini  it  'ho  it'. tin  U nd 
troi«p«<»W4  hy  (••chtUK*. 


Form  lMd— Rev  Hod  J*nuaxy,  1«JJ 
VN1TED  STATES  INTERNAL  REVENUE  SERVICE 

ANNUAL  RETURN  OF  NORMAL  INCOME  TAX  TO  BE  PAS)  AT  SOURCE 


SALARIES,  WAGES,  RENT,  ETC.,  PAID  TO  NONRESIDENT  ALIEN  INDI- 
VIDUALS, FOREIGN  PARTNERSHIPS  HAVING  NO  OFFICE  OR  PLACE 
OF  BUSINESS  IN  THE  UNITED  STATES,  AND  CORPORATIONS  (NOT 
ENGAGED  IN  TRADE  OR  BUSINESS  WITHIN  THE  UNITED  STATES 
AND  NOT  HAVING  ANY  OFFICE  OR  PLACE  OF  BUSINESS  THEREIN) 

For  th#  Calendar  Year  1921 


Do  rvo>  write  in  Itu*  1(40 

PAYMENT 

5 

(Caohl-r’f  Stamp1) 


TK*S  KTUKH  MUST  BE  MADE 
T9  THE  COLUCTOa  OF  IK- 
TTENAl  BEiENUI  FOB  THE 
DHTWCT IH  WHICH  THE  WITH- 
HOLDING AGENT  IS  LOOTED. 
ON  OE  IF70IE  MATCH  1, 1922. 
AND  Till  TAX  MUST  BE  PAID 
OH  CS  BEFORE  JUNE  IS.  1822. 


(Vara*  of  withholding  agent.) 


(Addrseln  fnfl.) 


CASH  CHECK  M.O 
Enaised  Vy 


INSTRUCTIONS 

This  return  is  required  to  be  made  by  all  individuals,  corporations,  and  partnerships,  in  whatever  capacity  acting,  including  lessees  or 
mortgagors  ol  real  or  personal  property,  fiduciaries,  employers,  and  officers  and  employees  of  the  United  States  having  the  control,  receipt,  custody, 
disposal,  or  payment  of  interest,  rent,  salaries,  wages,  premiums  annuities,  compensation,  remuneration,  emoluments,  or  other  fixed  or  detenni 
nable  annual  or  periodical  gains,  profits  and  income  of  nonresident  alien  individuals,  foreign  partner*  hi  pa  and  corporations  not  engaged  in  trade 
or  business  within  the  United  States  ana  not  having  any  office  or  place  of  business  within  the  United  States. 

The  law  requires  that  there  shall  l>e  deducted  and  withheld  a tax  equal  to  8 per  centum  of  the  amount  paid  as  salaries,  wages,  rent,  etc.,  to 
nonresident  alien  individuals  and  partnerships  having  no  office  or  place  ol  businew  in  the  United  States  and  10  per  centum  of  the  amount  paid  to 
foreign  corporations.  If  any  tax  required  to  be  deducted  and  withheld  is  paid  by  the  recipient  of  the  income,  it  shall  not  be  recollected  from 
tho  withholding  agent.  Income  derived  from  dividends  allowed  as  a credit  for  normal  tax  is  not  subject  to  withholding-  • • 


I swear  (or  affirm)  that  the  following  is  a true  and  complete  return  of  all  payments  of  salaries,  wages,  interest,  rents,  etc.,  m&de  duringthe 
calendar  year  1921  by  the  above  withholding  agent  and  of  the  tax  withheld  on  payments  of  income,  as  above  described,  to  nonresident  alien 
fcdividuftls,  foreign  partnerships,  and  foreign  corporations  as  defined  above,  the  several  items  listed  below  and  showing  the  name  and  address  of 
the  recipient  of  the  income,  tho  kind  and  amount  of  income  paid,  and  the  amount  ol  tax  withheld. 


RATE  | AMOUNT  PAID 

TAX  W1T1 

3HELD 

8^ | $ 

$ 

10% f } 

$ 

Totals.1  $ 

f 

( ?Ignatarc. ) """ 

(Capacity  in  which  acting.) 


Sworn  to  and  mbecribed  before  me  this day  of 192 


(Signatory.) (Title.) 


NAME  OP  INDIVIDUAL, PARTNERSHIP, OR 
CORPORATION  TO  WHOM  PAID 

ADDRE88  IN  PULL 

AMOUNT  OP 
INCOME  PAID 

AMOUNT  OF 
TAX  WITHHELD 

9 

Totals 

ttVIUMDlT  AMfTk:  •'rv. 

5 - 

The  Federal  Income  Tax  Service 
Supplementary  Page  253. 


Form  i otic  a ' „ 

H»vlMd  January,  1K2  UNITED  STATES  INTERNAL  REVENUE  SERVICE 

MONTHLY  INFORMATION  RETURN 

'PAYMENTS  OF  INTEREST  ON  BONDS  OF  DOMESTIC  AND  FOREIGN  CORPORATIONS  AND 
COUNTRIES  AND  DIVIDENDS  ON  STOCK  OF  FOREIGN  CORPORATIONS 


FOR  MONTH  OF , 192 


> THIS  RETURN 
ACCOMPANIED  BY 

(Date  received) 

1001,  1001  A,  AND  1058, 
MUST  BE  MAILED  TO 
THE  COMMISSIONER  OF 

(Kamo  of  debtor  or&iui'atiou; 

INTERNAL  REVENUE, 
SORTING  SECTION. 
WASHINGTON,  D.  C.. 

(1-  ull  post -office  addrr  s > 

ON  OR  BEFORE  THE 
20ii  DAY  OF  THE  MONTH 
SUCCEEDING  THAT 

'(Name  of  collecting  or  paying  agent > 

FOR  WHICH  MADE 

...  . (Full  pcSKUQco  address) 

' 

: , 

Class  of  Income 

Number  of 
Certificates 

Total  Amount  of 
Payments 

A.  Interest  on  bonds  and  other  similar  obligations  of  domestic  and  resident  cor- 
porations (provided  tax  was  not  withheld  at  source) 

(FORM  1031) 

$ 

B.  Interest  on  bonds  and  other  similar  obligations  of  domestic  and  resident  cor- 
porations (provided  tax  was  not  withheld  at  source) 

(FORM  1058) 

$ 

fC.  Interest  on  bonds  of  foreign  corporations  and  countries  and  dividends  on  stock 
of  foreign  corporations •. 

(FORM  1001  A) 

INSTRUCTIONS 

A:  A certificate  on  Form  1001  should  accompany  this  return  for  every  payment  of  interest  cm  bonds  ant!  other  similar  obligations  of 
domestic  and  resident  corporations,  under  the  following  conditions: 

1.  Interest  on  bonds  wild  laztfree-covemnt  clauses  paid  to  citizens  and  residents  of  the  United  States  (individuals  and  fiduciaries) 

claiming  personal  exemption. 

Where  ownership  certificates  are  not  furnished  by  individuals  and  partnerships  owning  tax-free  registered  bonds,  the 
debtor  organization  should  prepare  reports  on  Form  1000  and  forward  them  to  the  Commissioner  of  Internal  Revenue 
with  return  Form  1012.  When  so  used  the  forms  need  not  be  signed. 

2.  Interest  on  bonds  uithout  tax-free-covenant  clauses  paid  to  citizens  and  residents  of  the  United  States  (individuals  and 

fiduciaries),  domestic  partnerships  and  foreign  partnerships  having  an  office  or  place  of  business  in  the  United  Slates. 

In  the  case  of  registered  bonds  not  having  tax-free-covenant  clauses  the  debtor  organization  will  prepare  reports  on  Form 
1001  and  forward  them  with  this  return  to  the  Commissioner  of  Internal  Revenue.  When  so  used  the  form  (1001)  need 
not  be  signed. 

B.  Resident  collecting  agents,  responsible  banks  and  bankers  receiving  interest  coupons  presented  by  citizens  or  residents  of  the 

United  States  for  collection,  may  detach  certificate  Form  1001  and  forward  it  directly  to  the  Commissioner  of  Internal  Revenue 
provided  certificate  Form  1058  (revised)  is  substituted  for  the  certificate  detached.  The  aggregate  number  of  substitute  cer- 
tificates,  form  1058,  should  be  entered  by  the  debtor  corporation  on  line  B,  in  the  column  ‘Number  of  Certificates  ” 

C.  A certificate  on  Form  1001 A should  be  Required  by  individuals,  partnerships,  and  corporations  undertaking  as  a matter  of  busi- 

ness or  lor  profit  the  collection  of  interest  on  bonds  of  foreign  corporations  and  countries  and  dividends  on  stock  of  foreign  corporations 
by  means  of  coupons,  checks,  or  bills  of  exchange  for  citizens  and  residents  of  the  United  States  (individuals  and  fiduciaries) 
domestic  and  resident  partnerships. 

If  the  payments  consist  of  interest  on  bonds  (and  there  is  no  paying  agent  in  the  United  States),  the  last  bank  or  collecting  a^ent 
handling  the  item  shall  detach  the  certificate,  Form  1001A,  and  forward  it  directly  to  the  Commissioner  of  Internal  Revenue 
accompanied  by  a return  on  this  form.  ’ 

If  the  Payments  consist  of  dividends  on  stock  of  foreign  corporations,  the  first  bank  or  collecting  agent  receiving  the  certificate 
(torm  1001A)  is  required  to  detach  and  forward  it  directly  to  the  Commissioner  of  Internal  Revenue.  The  first  bank  shall 
indorse  upon  the  foreign  item  “Certificate  detached  and  information  furnished  (insert  name  ahd  address  of  licensee).”  Sub- 
stitute  certificates  are  not  permitted  to  be  used  in  the  case  of  foreign  items  Licensed  banks  and  collecting  agents  not  acting  as 
withholding  or  paying  agents  for  debtor  organizations  may  file  one  return  on  this  form,  making  no  entries  in  the  spaces  at  the 
head  ot  the  form  for  name  and  address  of  debtor  organization 

D.  If  bonds  are  owned  jointly  , separate  certificates  must  be  made  by  or  for  each  joint  owner  Fiduciaries  must  enter  on  the  certificates 

under  Owner  of  bonds  the  name  of  estate  or  trust  on  behalf  of  which  the  certificate  is  executed. 

E‘  mU8t.b®  ?eJ>t  of  *U  certificates  filed  during  each  month  and  an  annual  return,  Form  1096B,  executed  by  each  domestic 

debtor  organization  and  bv  each  collecting  or  paying  agent  and  filed  with  the  Commissioner  of  Internal  Revenue  not  later  than 
the  15th  day  of  March  of  the  following  year.  ; 


I certify  that  the  foregoing  return  and  the  accompanying  certificates  constitute  a true  and  complete  statement  of  payments  of  the 
above-described  classes  of  income  made  by  the  person  or  organisation  named  at  the  head  of  this  return,  during  the  month  stated  above 


Dated — 

c2— H773  (Signature) 


(Capacity  in  which  acting) 


eovrtSKEXT  raMTiMc  orncr 


(Address  in/uJl) 


The  Federal  Income  Tax  Service 
Supplementary  Page  254. 


2-17-2*. 


Form  1I3C 

U.  6.  INTCBK.U.  IUtbotis 


CERTIFICATE  OF  INVENTORY 

(To  bi  filoJ  wltH  Collector  of  Internal  Raronue  with  Ineoina  Tea  Return) 

FOR  CALENDAR  YEAR  1921 


Or  for  period  begun  . 19 and  ended  i9 

Name  . 


Address 


PRINCIPAL  CERTIFICATE 


Number  of  sheets 
submitted  herewith.. 


I swear  (or  affirm)  that  tho  closing  inventory  of  the  taxpayer  named  above,  amounting  to  $ , was  taken  under  my 

direction, "and  that  to  the  beat  of  my  knowledge  and  belief  ia  true  and  complete  in  every  respect;  that  the  method  of  pricing  the  raw 

material,  work  in  process,  and  finished  goods  was  at  * ; 

that  1 have  carefully  read  all  of  the  instructions  on  the  reverse  aide  of  this  form;  that  this  inventory  was  taken  in  accordance  therewith; 
and  that  the  following-named  persons  whose  separate  certificates  are  subscribed  hereon  or  attached  hereto  aro  the  officers  and 
employees  under  whose  personal  direction  the  various  parts  of  this  inventory  were  taken: 


Name.  Till 'e  or  position.  Pari  of  inventory  taken.  Amount. 


Sworn  to  and  subscribed  before  me  this day  of , 19_ 

(Signature.) 


(Slgimura  of  officer  administer^  oath.)  (Title.)  (Tide.) 

• State  "oort  " or  "cost  or  market,  whichever  Is  lower.”  If  any  other  basf3  was  used,  describe  fuHr,  state  why  used  and  dato  on  which  inventory  was  last 
reconciled  with  stock. 


SUBSIDIARY  CERTIFICATE 

I (or  we),  the  undersigned  employees  of  the  taxpayer  named  above  swear  (or affirm)  that  I (or  we)  personally  directed  and  observed 
the  taking  of  the  parts  of  the  inventor}'  set  opposite  my  (or  our)  names,  and,  to  the  best  of  my  (or  cur)  knowledge  and  belief,  is  true 
and  complete  in  every  respect;  that  I (or  we)  have  carefully  read  the  instructions  on  the  reverse  side  of  this  form  and  that  the  parts  of 
the  inventory  for  which  I am  (or  we  are)  responsible  was  taken  in  accordance  therewith. 

Signature.  Title  or ‘position.  Part  of  inventory  taken. 


Sworn  to  and  subscribed  before  me  f.bip 


day  of 


a— 11758 


( Slgnaturo  of  offlocr  administering  oatb.) 


(Tltlo?) 

[Page  1 of  Form  1126.] 


The  Federal  Income  Tax 
Supplementary  Page 


Service. 

255. 


INSTRUCTIONS. 


This  rt’irrtflrato  of  Inventory  rou-ri  ho  submitted  by  all  taxpayer*  t. -pure.  lu  n 
trad*  or  biutlnoss  In  which  the  production,  purcfiSso,  or  sole  of  merchaudb*'  of 

• \.4~A  I. I _L„_  •*  ' 


Miy  kind  1 3 an  Income-producing  far  tor. 

The  principal  certificate  will  be  signed  by  the  taxpny; 
iuid  tho  subsidiary  curttflcato  by  officers  and  omplo^oje  (ituch  tz  depa rirnot 


hands,  superintendents,  etc.)  designated  by  the  taxpayer  or  executive  offlrA-. 
If  tho  taxpayer  who  fills  In  tlio  principal  ©MtiflcHto  finally  direct*  and  observes 
tho  taking  of  tho  Inventory,  the  ou  bn  diary  certificate  ncx)  not.  be  filled  Jr 
In  case  there  la  not  sufficient  space  on  this  form  to  outer  Ido  r.  irc-3  of  those 
directed  to  toko  the  inventory,  or  it  13  not  convenient  for  th  ./  a to  take  tho  oath 
Jointly,  additional  copies  of  thlsformuhould  bo  used,  but  tho  oath  of  tbo  pi  Uirtpr.i 
ofTiow  nood  only  be  nin^le  on  tbo  first  sheet,  staling  thoroon  tbo  nuxnbT  of  sheets 
■nbmltted. 


Section  233  oy  td*  Revenue  Act  or  1W1. 

That  whfDOVor  In  tho  opinion  of  tho  Com®1  sooner  live  use  of  Inventories  la 
nocaseary  In  order  clearly  to  determine  the  income  of  any  taxpayer,  In7i>  tori-a 
shall  bo  taken  by  such  taxpayor  upon  such  basis  as  tlie  Commluii  n«r,  wT.n  tL> 
approval  of  the  Secretory,  me?  prescribe  ns  conforming  as  needy  me.  y f-e  to 

the  best  accounting  practice  In  tho  trade  or  busluoss  and  as  most  clearly  receding 
the  income.  , 

KlTRACTfl  Fsoii  RECUSATIONS  C2. 

Art.  1581.  Need  of  Inventories,— In  order  to  reflect  the  net  Income  correctly, 
knventorico  at  tho  beginning  end  end  of  each  year  are  vecrazary  ip.  every  ease  In 
which  the  production,  purelmso,  or  solo  of  morctumdeje  b au  Income-pro.  u«  log 
factor.  The  Inventory  should  me!udo  raw  materials  and  supplies  on  cund  that 
have  bean  acquired  for  sale,  consumption,  or  use . . : productive  V'  ■>. ioge  nor 
with  ail  finished  or  partly  finbbed  goody.  OjuIv  iuorohaj.diso  title  to  .hleh  b 
vested  in  the  taxpayer  should  be  Included  fa  tbo  Inventory.  AuxuPingiy  the 
teller  should  include  in  hie  inventory  goods  under  contract  for  sals  but  no*,  yet 
segregated  and  appllod  to  tbo  contract  and  goods  out  upon  cousigu'f.ent,,  out 
should  exclude  from  Inventory  goods  sold,  tiCe  to  which lie.;  rosoea  to  .h:  .Air- 
chaser.  A purcliaser  should  indude  in  inventory  xnorcl-».i-llse  purchased,  .t  in 
to  which  has  passed  to  him,  although  such  mnrchaxvlbe  is  In  trait;!,  or  for  other 
reasons  had  not  been  reduced  to  physical poesti.j'.on,  bctebould  pot  Include  m 

ordered  for  future  dollvory  transrir  of  titlo  to  which  bn3  not  yet  1 *«n  effected . 

Art.  1582.  Valuation  of  lnveotoricfw— The  act  provi.h\s  two  testa  to  vnlch 
each  inventory  must  conform:  (1)  It  murt  confi  rm  as  n-uly  nc  v • be  to  * a, 
best  accounting  practice  in  tho  trade  or  business,  and  (2;  it  must  cl  ar!  / reflect 
the  income,  ft  follows,  therefore,  that  inventory  rul-s  con  net  tv  unif  .ret  but 
must  give  effect  to  trade  customs  which  como  within  the  scope  oi  U>>  bed. 
accounting  practice  in  the  particular  trade  or  business.  In  order  to  cV  jly 
reflect  income,  the  inventory  practice  of  a taxpayer  should  be  oo,  I str  ut  from 
year  to  year,  and  greater  weight  is  to  bo  given  to  consistency  than  to  any  per- 
ticular  method  of  inventorying  or  basis  of  valuation  so  long  as  the  method  or  basis 
used  Is  substantially  In  accord  with  thera  regulations.  An  luventory  that  can 
be  used  under  the  host  cccounting  practice  in  a balance  sheet  showing  tho  finan- 
cial position  of  tho  taxpayer  can,  as  e general  rule,  be  regarded  as  clsarly  rci  j irg 
hit;  income.  , 

The  basis  of  valuation  most  commonly  used  by  business  ccn.'cms  and  wh'-h 
meets  the  requirements  of  the  Itovenu6  Act  Is  (a)  cost  or  (t)  co,t  or  market, 
whichever  io  lower.  (For  Inventories  by  deal  ere  in  securities,  nea  article  l vF.  » 
Any  goods  In  an  inventory  which  are  unsalable  a*,  normal  price;  or  unusable  in 
tho  normal  way  because  of  damage,  lm i m 

odd  or  broken  lots,  or  other  similar  causes,  irrclu-  mg  seceudhan  J goods  tabu  i in 
exchange,  should  be  valued  at  bona  fide  selling  puces  less  coct  of  seilir.  gw  • • Iw 
basis  (a)  or  (6)  is  used,  or  If  such  goods  consist  of  raw  materia Is  or  partly  hi  I shed 
goods  nald  for  uso  or  consumption,  thoy  should  be  valued  upon  p.  reasonable  ’-jcis, 
taking  into  consideration  the  usability  and  the  condition  of  the  goods,  but  fca  no 
casesnall  such  value  belA3S  than  tho  scrap  value. 

Bona  fide  selling  price  means  actual  omirings  of  goods  daring  a period  ending 
not  later  than  30  days  after  inventory  date. 

The  burden  of  proot  will  rest  upon  the  taxpayer  to  show  that  such  oxwp’.  r nal 
goods  as  are  valued  upon  such  selling  basis  come  within  tho  cKvufme  -03  Indi- 
cated above,  and  he  sd&II  maintain  such  records  of  tho  disposition  of  the  goods 
as  will  enable  a yorif: cation  of  tho  inventory  to  bo  made. 

In  respect  to  normal  goods  whichever  bads,  (a)  or  ( b ) is  adopted  atbi  bo 
applied  withreasonableconsistencvtothe6ntlreicventory.  Taxpayerewsregiven 
an  option  to  adopt  the  basis  of  either  (a)  cost  or  (5)  cost  or  -narsict.  '.vhichovcv  is 
lower,  for  their  1920  inventories,  and  the  basis  adopted  for  that  year  la  ccn'.rokj-c, 
and  a change  can  now  be  made  only  after  perum^ion  is  secured  fro.G  tho  Cdn- 
mlssioner.  Goods  taken  in  the  inventory  which  have  teen  so  intermingled  t hat 
they  can  not  ba  identified  with  specific  invoices  will  be  doomed  to  bo  eithar  (a) 
the  goods  most  recently  purchased  cr  produced,  and  the  coat  tbsreci  will  bo  the 
actual  cost  of  the  poods  purchased  or  produced  during  tho  period  in  which  the 
quantity  of  goods  in  the  inventory  has  been  acquired,  or  (fc)  whete  the  taxpayer 
maintains  book  inventories  in  accordance  with  a sound  Sccourding  Syrtehi  tn 
which  the  respective  inventory  accounts  are  charged  with  tho  actual  cost  of  the 
goods  purchased  or  produced  and  credited  with  the  value  of  roods  med.  trans- 
ferred, or  sold,  calculated  upon  the  basis  of  the  actual  cost  of  tho  goods  acquired 
during  the  taxable  year  (including  the  inventory  at  the  beginning  of  the  year) 
the  net  value  as  shown  by  such  Inventory  accounts  will  be  deemed  to  oo  ihn 
cost  of  the  goods  on  hand.  The  balances  6hown  by  such  book  inventories  should 
be  verifiod  by  physical  inventories  at  reasonable  intervals  and  adjusted  to 
conform  therewith. 

Inventories  should  be  recorded  in  a legible  manner,  properly  computed  and 
summarized,  and  should  be  preserved  os  a part  of  the  accounting  record  of  the 
taxpayer.  The  inventories  of  taxpayers  on  whatever  basis  taken  will  be  sub'  ct 
to  investigation  by  the  Commissioner,  and  the  taxpayer  must  satisfy  the  Com- 
missioner of  the  correctness  of  the  prices  adopted. 

The  following  methods,  among  others,  are  .sometimes  used  in  taking  or  valuing 
inventories,  but  are  not  m accord  with  these  regulations-,  viz: 

(0)  Deducting  lrom  the  inventory  a reservo  for  price  changes,  ot;  an  estimated 

depreciation  in  the  value  thereof. 

(6)  Taking  work  in  process,  ot  other  parts  of  the  inventory,  at  a nominal 

price  or  at  less  than  its  proper  value. 

(c)  Omitting  portions  of  the  stock  on  hand. 

(d)  Using  a constant  prico  or  nominal  value  for  a so-called  normal  quantity  of 

materials  or  goods  In  stock. 

(«)  Including  stock  in  transit,  either  shipped  to  or  from  the  taxpayer,  the 

title  ci  which  is  not  vested  in  the  taxpayer. 

Art.  1583.  Inventories  at  coatv— Cost  meaus: 

(1)  In  the  case  of  merchandise  on  hand  at  the  beginning  of  the  taxable  year, 
the  Inventory  price  of  such  goods. 

(2)  In  the  case  of  merchandise  purchased  since  the  beginning  of  the  taxable 

year,  the  invoioo  price  less  trade  or  other  discounts,  .exoept  strictly  cash  dis- 
counts, approximating  a fair  interest  rate,  which  may  be  deducted  or  not  at  tho 
option  of  the  taxpayer,  provided  a consistent  course  is  followed.  To  net 
invoice  price  should  be  added  transportation  or  other  necessary  charges  l&carrad 
in  acquiring  possession  of  the  goods.  . v , 

(3)  In  the  case  of  merchandise  produced  by  tho  taxpayor  since  too  beginning 
of  the  f year,  (a)  the  cost  of  raw  materials  and  supplies  entering  into  of 


Sadlturw  for  direct  labor, 
produclion  of  tho  partic- 
ular arilcle,  including  In  eucli  Indirect  expense;  a reasonable  proportion  of  man- 
•getcont  emoTis**,  but  not  Including  any  cost  of  selling  or  return  on  capital, 
whether  by  way  of  interest  or  profit. 

(4)  In  any  industry  in  which  the  usual  rules  for  computation  of  cost  of  pro- 


: ac),  (i*'  rouioir  and  manufacturers  who  by  a ningl*  process  or  uniform  sa-iei 
cf  processes  derive  a product  of  two  or  more  kinds,  trite?.,  or  grades,  the  unit  cost 
of  which  Sr;  substantially  alike  (see  article  158'/).  and  retail  merchants  who  use 
vvh.st  la  Jenown  as  the  "retail  method"  in  asctrirJnJrg  approximate  cost.  (See 

arficlo  15*> ) 

AjvT.  i luveotorian  at  market.— Under  ordinary  circumstances,  and  for 
norm;  ! »Jj  In  an  inventory,  "market"  means  the  current  bid  price  prevailing 
«t  1 1. ' dnteoi  the  ir  ventory  fortbeparticu'jj  merchandise  in  the  volume  in  which 
usi’idi ; purchas  -l  by  tho  teuipayor.  and  it  applicable  in  the  care3  (a)  of  goods 
-nui  K:iscd  r.nd  or,  hand,  and  <b)  of  basis  dement'!  of  cost  (materials,  labor,  and 
lirdrn)  to  gooda  in  proces?  of  manufretere  r.nd  in  finished  goods  on  harm;  cx- 


pwtyjat  | __  PHI 

mvu.t  boii:-  .utaried  at  cost.  W!  ^re  no  open  market  exists  or  where  quotations 
ft.  rioirdi"i,ui;o  to  atagnaat  market  conditions,  the  taxptysr  must  use  such 
o . j deuce  ol  a fur  mark  a',  price  at  the  dale  or  dat  3 netrun  the  inventory  as  may 
be  available,  such  aj  specific  p’jrer.i''«!  or  sales  bf  the  tlixpaysr  or  others  In  fca - 
sonable  Vfthtmo  and  made  lu  good  faith,  cr  comwaisatlou  paid  lor  cancellation  of 
contracts  for  purchase  conuuluaen'3.  W nere  the  taxpayer  in  the  regular  cciuao 
of  bus  in-.,  has  olo-rei  lot  solo  curb  rukrchandLso  at  prtcoa  lcv.er  than  the  current 
prtM  1 » above  daflaed,  tb^  inventory  may  be  valiM/l  at  such  prices  less  proper 
oiiowdt.!^  tat  selling  expense,  and  the  oonectnesa  of  such  prices  will  be  deter- 
rrj  t.  i by  reference  to  t oo  actual  sales  ol  tho  taxpayer  for  a reasonable  period 
before  and  o t the  ri  if«  cf  the  inventory.  Prices  whiob  very  materially  Lrom 
ti.c  actuvU  pricei  so  sscerialned  will  not  be  eocepled  as  raSectlng  the  market. 

/ i t.  15 So.  InvcritorlS'S  by  dealers  In  eecuridi-s^A  dea^r  in  securities 
who  io  his  books  of  account  reguhulv  lnventorits  tnxioid  securities  on  hand 
eithov-  (a>  at  cost  or  (i>)  at  cost  or  mnrlet,  wu'chever  13  lower,  or  (c)  at  market 
Taluo  rrjuy  make  bis  return  upon  the  basis  upon  which  lib  accounts  are  kept; 
provided  (hat  a o«criA'oa  of  the  method  employed  shall  be  Included  in  or 
attached  to  the  return/ that  all  the  securities  roost  be  Inventoried  by  the  suno 
moiLod,  and  that  such  method  must  be  odnered  to  in  subsequent  years,  unleo.3 
anoibcr  be  authorized  by  the  Commissioner.  For  the  purpose  of  this  rule  a 
dealer  in  securities  Is  a merchant  of  securities,  whether  aa  individual,  partner- 
ship, or  eorpo r i ' ‘ ’ ” * * '*  _ vA,"’ 

the.  pllTilUiSe  efisi 

neruheut  buys  securities  and  sells  them  to  customers  with  a view  to  the  gains 
tad  pio.lts  that  may  bo  derived  therefrom.  U such  business  is  simply  a branch 
0/  tie  actki'iefi  carried  oti  by  3uch  person,  tho  securities  inventoried  as  here 
previcVd  may  in-Jude  only  those  held  for  purposes  of  resale  and  not  for  inveet- 
inuit.  Taxpayers  who  buy  and  sell  or  hold  securities  for  investment  or  specu- 
1 itlon , 3-  : ^ not  ia  the  course  ol  an  established  business,  and  oncers  of  corpora- 
tions end  if  ‘ - . • - -1**— -* 

Sell  6‘JCUrl.K., „ — — 

dvalrv  1:  'oirittas  !•>  net  onUth  i to  the  benefits  of  soction  2X  with  reference  to 

tho  fcOin.  f .-cru  the  sale  of  seeuri ties. 

A at.  1536.  Lr.ventories  of  Uve-atoclc  raiaorj  and  other  farmers.— (l) 
F;  , nersmay  change  the  bar  is  of  their  returns  from  that  of  receipts  and  disbura- 
U. out 3 to  that  of  an  in.ootory  baslst  which  necessitated  the  ose  of  opening  and 
dc  :iig  in  1 a 1 'tics  i . r the  year  iu  winch  tho  change  is  zuede.  l'hero  should  be 
Indud  .-d  iu  the  opening  Inventory  ali  farm  oioducts  (Including  five  stock),  pur- 
& iased  or  raiv-i.v'bich  were  oa  hand  ettbedate  uftbfiinveiitcry,lmtlnventorii.3 
iuu3t  a&  iaclude  real  estate,  buildings,  permanent  improvements,  or  any  other 
assets  sv.bjftct  to  depreciation. 

(2)  Be  suso  oi  t'ne  difficulty  of  as  ceric  slniug  actual  cost  of  live  stock  and  other 
form  p.  ocl  ucte,  farmers  who  render  tiieir  returns  upon  an  Inventory  basis  may  at 
taair  option  vaiua  tl^ir  Lrvoatories  lot  the  current  taxable  year  according  to  the 
“ farm-pri  re  meth  od  ” which  provides  lor  the  valuation  ol  uivontories  at  market 
price  less  cost  of  marketing.  If  t)w  use  of  the  “farm- price  method"  of  valuing 
inventor  iec  for  any  taxable  year  involves  a change  In  method  ot  pricing  inventories 
from  tii  at  employed  In  prior  years,  the  opening  inventory  for  the  taxable  year 
Ic  which  tho  cnango  is  made  should  be  brought  1 n at  the  same  value  as  the  closing 
lavatory  far  the  mactliflg  taxable  year.  U such  valuation  of  the  opening  inven- 
tory fc;  the  taxable  year  in  which  the  change  ia  made  results  in  an  abnormally 
larvc  ir  como  for  that  year,  there  may  be  submitted  with  tlie  return  lor  suen 
tc  raole  year  an  ad  joitment  statement  for  the  preceding  year  based  on  the  “fann- 
prica  method  " oi  vaiuln,?  lxivaatories;  unoo  »bo  amount  of  which  adjustments 
tho  tax,  if  any  be  due , eh&ll  be  assessed  ana  paid  at  the  rate  of  tax  in  effect  for  such 
preceding  ;«r. 

(3 ; Wh’.ru  reriun)3  hava  bean  made  in  which  toe  tavahls  net  income  has  .been 
computed  upon  !u complete  Inventories,  two  abnormality  should  be  corrected  by 
submitting  v/i to  the  return  for  the  current  taxable  year  a statement  for  the  pre- 
ceding year  in  which  such  edjustmentsahall  bo  made  as  ere  necessary  to  bring 

— r into  agreement  with  the  opening 

' ' y to  reflect  the  in- 

, „ „ he  preceding  year. 

and  tbetax,  if  any  bedue,  shall  be  assessed  at  the  rate  of  tax  ineffect  forsuch  year. 

ART.  1587.  inventories  of  miners  and  manufacturers.— A taxpayer 
engaged  iu  mining  or  manufacturing  who  by  e single  process  or  uniform  series  of 
processes  derive  a product  of  two  or  more  kinds, sizes,  or  grades,  the  unit  cost  of 
which  Is  sub'taatially  allk?,  nrri  who  in  conformity  to  a recognized  trade  practice 
allocates  an  amount  of  cest  to  each  kind,  size,  or  grade  oi  product  which  in  the 
aggregate  will  absorb  the  total  cost  of  production,  may  usa  sncli  allocated  cost 
as  a ba-ds  for  pricing  inventories,  provided  such  allocation  bears  a reasonable 
relation  to  the  respective  selling  values  of  tho  different  kinds  ol  product. 

Art  1589.  inventories  ot  retail  merchant*^ Retail  merchants  who  em- 
ploy what  is  known  as  the 1 ■ 1 retaU  method  " ol  prierne  inventorios  may  make  their 
n 1 urns  upon  that  basis,  provided  that  the  use  of  such  method  is  designated  upon 
tlo  rct'.uu,that  aocurttoaccountsare  kept,  and  that  such  method  is  conastontlv 
adhered  to  un'ess  a change  is  outhoriied  by  tha  Commissioner.  Under  this 
method  the  goods  in  the  inventory  are  ordinarily  priced  ot  the  sailing  prices  and 
tire  i r:tai  retail  value  of  the  goods  in  each  department  or  of  each  doss  of  goods  19 
rtducwd  to  apr-rcxinuiie  cost  by  deducting  the  percentage  which  represents  tb« 
ci iile re ? ea  betw1;  a f ho  ret sd  eelilng  value  and  the  purehaw  price.  Thlsporceot- 
£s  d tenuiri^-I  by  departments  of  a store  or  by  classes  of  goods,  and  should 
represent  as  ac-jurpteJy  as  may  be  the  amounts  added  to  the  oast  prices  of  the 
gacxii  to  cover  selling  and  other  expenses  of  doing  business  and  for  the  margin  of 
profit.  Ifi  coir lb * kg 

to  made  for  a.  “ -i™  — »»'■  — ■ . w . 

A taxpoyer  maintaining  more  than  one  department  in  his  store  or  dealing  in 
class;  13  ©f  goods  carrying  different  percentages  of  gross  profit  should  not  use  a 
parvx  ntage  cf  profit  besed  upon  en  average  of  his  entire  business,  but  should 
comp'i*e  &nd  use  in  valuing  ills  inventory  tbo  p 
ttvo  department,}  or  dan**  of  goods . 


[Page  2 of  Form  1126.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  256. 


8-7-22. 


Form  10D03  {Revise*!  Jtiouary,  1922)— UNITED  STATES  INTERNAL  REVENUE  SERVICE 

ANNUAL  INFORMATION  RETURN 

PAYMENTS  CF  INTEREST  ON  BONDS  OF  DOMESTIC  AND  FOREIGN  CORPORATIONS  AND  COUNTRIES  AND 
DIVIDENDS  ON  STOCK  OF  FOREIGN  CORPORATIONS 

For  Calendar  Year  1921 


THIS  RETURN  MUST 
BE  FORWARDED  SO  AS 
'ID  REACH  THE 
COMMISSIONER  OF 
INTERNAL  REVENUE, 
SORTING  SECTION, 
WASHINGTON,  D.  C, 
ON  OR  BEFORE 
MARCH  IS,  OF  THE 
YFAR  SUCCEEDING 
THAT  FOR  WHICH 
MADE 


(Name  of  debtor  organisation.) 


(Full  posl-offloo  address.) 


(Name  of  collecting  or  paying  agent.) 
(Full  post-ofllco  address.) 


(D»U  received) 


(Line*  A tu*d  D on  Form  1096  A) 

1.  INTEREST  ON  BONDS  aND  other  similar  oblio ationd  ot 
DOMESTIC  AMD  RESIDENT  COP.FORATIONa 


Number  of  ce:tl£cat*s 


January..., 
February.. 
March 


April  . 
May ... 
June 


(Line  C on  Form  1096  A) 

2.  Interest  on  bonds  op  foreign  corporations  and  countries 

AND  DIVIDENDS  ON  STOCK  OF  FOREIGN  CORPORATIONS 


Number  of  certificates 


July- 


August  . 


September.. 
October 


November 

December 


Total $. 


This  return  must  be  made  bv  debtor  corporations,  paying  or  collecting  agents,  and  must  show,  by  months  in  which  the  income 
■was  paid  and  reported  On  monthly  returns,  the  total  number  of  exemption  certificates  filed  with  such  returns  and  the  total  inenm. 
paid  without  deduction  of  tax,  as  shown  by  such  certificates  and  returns. 

* I 8*ear  (or  affirm)  that  this  return  is  a full  and  complete  summary  of  the  number  of  exemption  certificates  and  amount  of  incoma 
of  the  classes  shown  above  (heretofore  reported  on  monthly  returns,  which  are  hereby  made  a part  of  this  return)  paid  during  the  year. 


Sworn  to  and  subscribed  befoie  me  this . 
of. , 192 


day 


(Signature.) 


(Signature.) 


(Capacity  In  which  acting.)’ 


(Address  In  fUU.) 


The  Federal  Income  Tax  Service 
Supplementary  Page  257. 


For  uso  of  Resident  and  Nonresident  Allens  as  to  United  Slates 

Form  KHOC-UNITED  STATES  INTERNAL  XI EVENT  E SERVICE 

INDIVIDUAL  INCOME  TAX  RETURN 

FOR  NET  INCOMES  OF  NOT  MORE  THAN  $5,000 
For  Taxable  Period  1922 

PRINT  NAME  AND  ADDRESS  PLAINLY  BELOW 

Name 

Address  

Subject,  of 

Occupation Rate  of  pay  per  day 


INCOME  FOR  PRIOR  YEARS 


YEAR 

AMOUNT  OF  INCOME 

AMOUNT  OF  TAX 
PAID 

DISTRICT  IN  WHICH  RETURN  WAS  FILED 

1919 

$ 

$ 

1920„ 

1921 

INCOME  FROM  SALARIES,  WAGES,  COMMISSIONS,  BONUSES,  ETC.,  FOR  1922 


NAME  AND  ADDRESS  OF  EMPLOYER 

GROSS  INCOME 

DEDUCTIONS 

NET INCOME 

TAX  WITHHELD 
AT  SOURCE 

$ 

$ 

$ 

Total 

CALCULATION  OF  TAX  FOR  1922 


!>•  col  r.nt«  here 

$ 

Da  awl  wri:«  her* 

$ 

r D . /taxable  at  8%  if  Bsareiidee! 1 

C-  rerideflt } 

$- 

G.  Aaconl  of  tax  paid  oo  sGtaiuion  of  return ... 

* ' 

AFFIDAVIT 

I swear  (or  affirm)  that  thio  return,  to  the  boat  of  my  knowledge  and  belief,  is  a true  and  complete  statement  of  all  taxable 
game,  profits,  and  income  received  by  or  accrued  to  me  (or  the  person  for  whom  this  return  is  made)  during  the  year  1922,  and 
that  all  deductions  entered  or  claimed  herein  are  allowable  under  the  law. 

(IT  return  is  made  by  agent,  the  reason  therefor  must  be  stated  on  this  line.) 

Sworn  to  and  subscribed  before  me  this clay  of , 1922.  

(Signature  of  Individual  or  agent.) 

(Signature  of  officer  administering  oath.)  (Title)  (Addre-'S  of  individual  or  agent.) 


CERTIFICATE  OF  COMPLIANCE 

This  certifies  that  the  above-named  person  has  complied  with  all  tax  obligations  with  respect  to  income  accruing  up  to  the 
end  of  the  month  just  preceding  the  date  of  this  certificate,  aa  disclosed  by  assessment  made  by  this  office,  or  proof  of  exemption 
there  furnished. 


Collector  of  Internal  Revenue, 

Mwiw.ai.M  a— U806  District, 


The  Federal  Income  Tax  Service 
Supplementary  Page  258. 


i-zo-M. 


:vkn»e 


EXEMPTION  CERTIFICATE— NONRESIDENT  ALIEN 


To  be  filed  by  nonresident  sllen  Individuals  in  connection  vritb  luterest  ui»on  bonds  and  other  similar  obligations  of  domestic 

corporations  pot  containing  tax-free  covenant  clause. 


This  certificate  should  be  filed  with  the  debtor  organization  or  its  duly  authorized  withholding  agent  with  respect  to  interest 
upon  bonds  or  similar  obligations  not  containing  a tax-free  covenant  clause,  in  cases  where  a nonresident  alien  Individual 
receives  gross  Income  from  sources  within  the  United  States  which  does  not  aggregate  an  amount  in  excess  of  *1.000.  This 
certificate  should  be  filed  with  the  debtor  organization  not  later  than  May  1 of  the  succeeding  calendar  year.  The  debtor 
organization  or  withholding  agent,  upon  receipt  of  a properly  executed  certificate  showing  that  the  individual’s  gross  income 
does  not  exceed  *1,000,  shall  release  and  pay  over  to  such  individual  upon  demand  any  tax  withheld  during  the  preceding  cal- 
endar year.  Tax  assessed  against  the  withholding  agent,  and  which  has  not  been  paid,  may  be  made  the  subject  of  a claim 
for  abatement  to  the  extent  of  the  amount  of  excess  tax  withheld  and  refunded  to  the  alien  on  the  basis  of  this  certificate. 
In  case  the  tax  so  withheld  has  been  paid  to  the  Government,  refund  of  the  tax  withheld  in  the  case  of  nontax-free  bonds  and 


DEBTOR  ORGANIZATION 


OWNER  OF  BONDS 


Name  . 


Name 


Address 


Street 


City 


State 


KIND  OF  INCOME  AND  AMOUNT 


I hereby  certify  that  I am  a nonresident  alien  as 
to  the  United  States  and  that  my  gross  income  from 
sources  within  the  United  States,  including  interest 
on  bonds  and  similar  obligations  issued  by  the  above- 
named  debtor  corporation,  does  not  exceed  $1,000. 
The  information  contained  on  this  certificate  is  true 
to  the  best  of  my  knowledge  and  belief. 


1.  Total  bond  interest  received  from  the 
above-named  debtor  organization 


during  preceding  calendar  year $ 


H Salaries,  wages,  commissions 


3.  Rents,  royalties. 


4.  Other  income. 


Total. 


similar  obligations  can  only  be  made  to  the  bond  owner  or  bis  duly  authorized  representative. 


Address  of  trustee, 
or  agent  


Signature  of 
owner,  or  agent 


Hate 


.,  192 


The  Federal  Income  Tax  Service 
Supplementary  Page  259. 


TREASURY  DEPARTMENT 
Internal  Revenue  Service 
Form  1117  — Revised  February,  1922 

Income  and  Profits  Tax  Bond 

(UNDER  SECTION  222  (b)  OF  THE  REVENUE  ACT  OF  1921) 

For  taxable  year  1921 


KNOW  ALL  MEN  BY  THESE  PRESENTS,  That  wo  

of . ....  , as  principal,  and  ...  .... i. 

of.  

as  surety,  are  hold  and  firmly  bound  unto  the  United  States  of  America  in  the  sum  of 

dollars,  lawful  .money  of  the 

United  States,  for  the  payment  whereof  we  hind  ourselves,  our  heirs,  executors,  administrators,  suc- 
cessors, and  assigns,  jointly  and  severally,  firmly  by  these  presents. 

Whereas,  at  the  time  of  filing  his  return  of  income  for  the  taxable  year  1921,  the  above-bounden 
principal  claimed  a credit  on  his  income  tax  return  for  taxes  accrued  but  not  paid  to  foreign  countries 
or  to  possessions  of  the  United  States,  and  duly  attached  thereto  Form  1116  prescribed  for  such 
purpose;  and 

Whereas,  Section  222  (b)  of  the  Revenue  Act  of  1921  provides  that  in  the  case  of  such  a tax 
accrued  but  not  paid,  the  Commissioner,  as  a condition  precedent  to  the  allowance  of  the  credit,  may 
require  the  taxpayer  to  give  bond,  with  satisfactory  sureties,  in  such  penal  sum  as  the  Commissioner 
may  require,  conditioned  for  the  payment  by  tho  taxpayer  of  any  amount  found  to  be  due,  and  the 
amount  of  this  bond  is  equivalent  to  tho  amount  of  the  credit  claimed,  which  is  in  accordance  with  tho 
Commissioner’s  requirements; 

Now,  therefore,  the  condition  of  the  foregoing  obligation  is  such  that  if  the  principal  shall,  on 
notice  and  demand  by  the  Collector,  duly  pay  any  income,  war  profits,  or  excess  profits  tax  found  by 
the  Commissioner  to  be  due  from  the  principal,  under  the  Revenue  Act  of  1921,  and  shall  otherwise 
well  and  truly  perform  and  observe  all  of  the  provisions  of  lav/  and  the  regulations,  then  this  obligation 
is  to  be  void,  but  otherwise  to  remain  in  full  force  and  virtuo. 

Witness  our  hands  and  seals,  this  day  of  , .• 1922. 

Signed,  sealed,  and  delivered  in  the  presence  of — 

[i..  a.] 

- - - a.) 

Principal. 

- -fti  R-1 

Surety. 


Bond  approved  Tnis day  of 


1922 


M3  VOW  MINT  NUN  TINS  OffTCI 


Commissioner  of  Internal  Revenue. 


The  Federal  Income  Tax  Service 
Supplementary  Page  260. 


8-20  22. 


THE A8URY  DEPARTMENT 
ImTIIXAL  RKVKNVt  8EBV1CR 
Form  1118—  Reviaad  February,  IW2 

CLAIM  FOR  CREDIT  ON  INCOME  AND  PROFITS  TAX  RETURN  OF  DOMESTIC  CORPORATION  FOR 
TAXES  PAID  OR  ACCRUED  TO  FOREIGN  COUNTRIES  OR  TO 
POSSESSIONS  OF  THE  UNITED  STATES 


Name  of  corporation  Address 

(City  or  town.) 


(Street  and  number.) 
(Bute.) 


On  behalf  of  the  above-named  domestic  corjwration,  credit  in  hereby  claimod,  on  the  attached  corporation  income  and  profit*  tax 

return,  which  is  baaed  on  income  1 for  the  taxable  year  . 

( Ri*vrlvr«1  or  accrued  ) 

of  the  above-named  corporation,  for  taxes 


(If  calendar  year,  give  year:  If  fiscal  year,  giv. 


( Paid  or  accrued.  > 


Taies  Paid  or  Accrued*  During  the  Taxable  Year  to  Possessions  of  the  United  States  on  Behalf  of  the  Corporation. 

Schedule  A1 

Name  of  possession  imposing  tax  Character  of  tax 


(Income,  war  proflu,  or  excess  profits.) 


Date  of  accrual  

Statute  impoeiug  tax 


Date  of  payment  (if  paid) 


(To  be  named  fully  and  clearly  so  as  to  be  easily  Identified--) 


1.  Amount  of  tax  payment  (evidenced  by  attached  receipt  or  return) 2 which  (converted 

(In  foreign  money.) 

at  an  exchange  rate  of 


) equals  in  dollars 
(In  foreign  mow 

) equals  in  dollars  * 


2.  Income  from  sources  in  this  possession  2 which  (converted  at  an  exchange  rate  of 

(In  foreign  money.) 


flncomt , war  profits,  or  excess  profits. ) 


Taxes  Paid  or  Accrued*  During  the  Taxable  Year  to  Possessions  of  the  United  States  on  Behalf  of  the  Corporation. 

Schedule  A2. 

Name  of  possession  imposing  tax  Character  of  tax 

Date  of  accrual  Date  of  payment  (if  paid)  

Statute  imposing  tax  

(To  be  named  fully  and  clearly  so  as  to  be  easily  identified.) 

1.  Amount  of  tax  payment  (evidenced  by  attached  receipt  or  return) 2 which  (converted 

(In  foreign  money.) 

at  an  exchange  rate  of  3)  equals  in  dollare  


2.  Income  from  sources  in  this  possession  2 which  (converted  at  an  exchange  rate  of 

(In  foreign  money.) 


..3)  equals  in  dollare  . 


Taxes  Paid  or  Accrued1  During  the  Taxable  Year  to  a Foreign  Country  on  Behalf  of  the  Corporation. 

Schedule  B1 


Name  of  foreign  country  imposing  tax  Character  ef  tax 


Date  of  accrual  

Statute  imposing  tax 


Date  of  payment  (if  paid)  . 


(Income,  war  proflu,  or  excess  profits.) 


(To  be  named  fully  and  clearly  so  as  to  be  easily  identified.) 


1.  Amount  of  tax  (evidenced  by  attached  receipt  or  return)  ~ 2 which  (converted  at  an 

"?  (In  foreign  money.) 

exchange  rate  of  3)  equals  in  dollare  $ - 

2.  Income  from  sources  in  this  foreign  country * which  (converted  at  an  exchange  rate  of 

(In  foreign  money.) 

*)  equals  in  dollare I - 


See  note*  on  page  3. 


The  Federal  Income  Tax  Service 
Supplementary  Page  261. 


The  Federal  Income  Tax  Service 
Supplementary  Page  262. 


3-22-22. 


SUMMARY*  OF  INCOME  FROM  SOURCES  WITHOUT  UNITED  STATES  AND  TAXES  PAID  OR  ACCRUED  TO  FOREIGN 
COUNTRIES  OR  POSSESSIONS  OF  UNITED  STATES  ON  BBHALF  OF  DOMESTIC  CORPORATIONS. 

Income.  Taut. 


$ 

Total  (enter  as  Item  II  below)...  $ 

Total  (enter  an  Item  I below).  $ 

$ 

S j/iilul)  - ji 

II.  Total  taxes  paid  or  accrued  to  foreign  countries  or  possessions  o(  United  States  (except  taxes  on 

dividends  received  from  controlled  foreign  corporations.) . $ ■ ... 

III.  Total  net  income  from  eourcea  without  United  States  (computed  without  deductions  for  any  income, 

war-profits  and  exces9-profits  taxes  imposed  by  any  foreign  country  or  possession  of  United  States).  $ 

IV.  Total  net  income  from  all  sources  (item  27,  Schedule  A,  Form  1120,  plus  amounts  deducted  as  income, 

war-profits  and  excess-profits  taxes  paid  to  foreign  countries) $ ua 

V.  Ratio  of  income  from  sources  without  United  States  to  total  income  from  all  sources  (Item  III  divided 

by  Item  IV) , -r~~ — $ 

VI.  Total  taxes  due  United  States  (item  13,  Schedule  D,  Form  1120) $ 


VII.  Amount  of  tax  which  may  bo  claimed  as  credit  against  total  tax  due  United  States  (amount  equal 
to  Item  VI  multiplied  by  Item  V,  unless  Item  II  is  leas  than  such  amount,  in  which  case  Item  II 

should  be  entered  here) - $ - 

VIII.  Amount  of  tax  which  may  be  claimed  as  credit  for  taxes  paid  to  a foreign  country  or  possession  by  a 

controlled  foreign  corporation  (item  10,  Schedule  0) ......J— $ 

IX.  Total  credit  which  may  be  claimed  (Item  Vlf  plus  Item  VIII)  to  be  entered  on  attached  corporation 

return  Form  1120  as  Item  14,  Schedule  D — — — $ - —i 


We,  the  undersigned,  president  and  treasurer  of  the  corporation  for  which  this  claim  is  made,  being  severally  duly  sworn,  each 
for  himself  deposes  and  says  that  this  claim  has  been  examined  by  him  and  is  to  the  best  of  his  knowledge  and  belief  a true  and  com- 
plete statement  of  facta  in  connection  with  the  credit  for  income,  war-profits,  and  excess-profits  taxes  claimed  herein. 

Sworn  to  and  subscribed  before  me  this 

day  of  U>2 

President. 


(Official  capacity . ) Treiuurer. 


\ If  attached  income  tax  return  is  based  on  income  “received  ”,  then  “paid  or  accrued’'  wherever  it  appears  in  this  form  (except  in  Schedule  C)  means  “paid  if  based 
on  indome"  accrued,  “then  “paid  or  accrued”  means  “accrued.”  (See  section  200  of  the  Revenue  Act  of  1921.) 

• State  this  item  in  terms  of  the  currency  used  in  making  the  return  on  which  this  tax  was  based  (e.  g.,  pounds,  francs,  marks). 

• Claimant  must  here  state  rate  of  exchange  used  and  must  also  attach  a statement  describing  in  reasonable  detail  why  and  how  he  determined  upon  this  particular 
rate. 

* Credit  can  be  claimed  for  taxes  paid  on  behalf  of  a foreign-eontroUed  corporation  only  in  the  taxable  year  during  which  such  taxes  are  paid.  There  is  no  such 
credit  for  taxes  accrued. 

‘ Where  this  tax  payment  was  of  taxes  accrued  during  only  one  year,  give  dates  of  beginning  and  ending  of  such  year  in  first  column  (e.  g.,  July  1, 1917— June  30, 
1918).  Where  this  tax  payment  was  of  taxes  accrued  during  more  than  one  year,  give  in  separate  columns  the  dates  of  each  annual  period  during  which  any  part  of 
this  tax  payment  accrued. 

• State  in  column  under  each  annual  period  named  in  item  1 the  amount  of  this  tax  payment  which  accrued  in  such  period. 

1 State  in  column  under  each  part  of  this  tax  payment  as  given  in  item  2 the  amount  of  the  net  income  upon  which  such  part  of  the  tax  payment  was  based. 

• Where  there  are  more  than  two  possessions  of  the  United  States  or  foreign  countries  to  which  taxes  are  paid  by  the  domestic  corporation,  or  more  than  one 

controlled  foreign  corporation,  or  more  than  ono  poasession  of  the  United  States  or  foreign  country  to  which  taxes  are  paid  on  behalf  of  a controlled  foreign  corporation, 
additional  schedules  should  be  attached,  and  tha  credit  claimed  on  each  such  schedule  should  be  written  into  this  Summary.  »— na*7 


[Page  3 of  Form  1118.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  263. 


PROVISIONS  OF  REVENUE  ACT  OF  1921. 


CREDIT  FOR  TAXES  IN  CASE  OF  CORPORATIONS. 

Sf.c.  238.  (a)  That  in  the  cose  of  a domestic  corporation  the  tax  imposed  by  this  title,  plus  the  war- 
profits  and  excess-profits  taxes,  if  any,  shall  be  credited  with  the  amount  of  any  income,  war-profits,  and  ex- 
cess-profits taxes  paid  during  the  same  taxable  year  to  any  foreign  country,  or  to  any  possession  of  the  United 
States:  Provided,  That  the  amount  of  credit  taken  under  this  subdivision  shall  in  no  case  exceed  the  same 
proportion  of  the  taxes,  against  which  such  credit  is  taken,  which  the  taxpayer’s  net  income  (computed  with- 
out deduction  for  any  income,  war-profits,  and  excess-profits  taxes  imposed  by  any  foreign  country  or  pos- 
session of  the  United  States)  from  sources  without  the  United  States  bears  to  its  entire  net  income  (computed 
without  such  deduction)  for  the  same  taxable  year.  In  the  case  of  domestic  insurance  companies  subject  to 
the  tax  imposed  by  section  243  or  240,  the  term  “net  income”  as  used  in  this  subdivision  means  net  income 
as  defined  in  sections  245  and  240  respectively. 

(h)  If  accrued  taxes  when  paid  differ  from  the  amounts  claimed  as  credits  by  the  corporation,  or  if  any 
tax  paid  is  refunded  in  whole  or  in  part,  the  corporation  shall  at  once  notify  the  Commissioner,  who  shall  re- 
determine the  amount,  of  the  income,  war-profits,  and  excess-profits  taxes  for  the  year  or  years  affected,  and 
the  amount  of  taxes  duo  upon  such  redetermination,  if  any,  shall  be  paid  by  the  corporation  upon  notice  and 
demand  by  the  collector,  or  the  amount  of  taxes  overpaid,  if  any,  shall  be  credited  or  refunded  to  the  cor- 
poration in  accordance  with  the  provisions  of  section  252.  In  the  case  of  such  a tax  accrued  but  not  paid, 
the  Commissioner  as  a condition  precedent  to  the  allowance  of  this  credit  may  require  the  corporation  to 
give  a bond  with  sureties  satisfactory  to  and  to  be  approved  by  him  in  such  penal  sum  as  he  may  require, 
conditioned  for  the  payment  by  the  taxpayer  of  any  amount  of  taxes  found  due  upon  any  such  redetermina- 
tion; and  the  bond  herein  prescribed  shall  contain  such  further  conditions  as  the  Commissioner  may  require. 

(c)  These  credits  shall  be  allowed  only  if  the  taxpayer  furnishes  evidence  satisfactory  to  the  Commis- 
sioner showing  the  amount  of  income  derived  from  sources  without  the  United  States,  and  all  other  infor- 
mation necessary  for  the  verification  and  computation  of  such  credit. 

(d)  If  a domestic  corporation  makes  a return  for  a fiscal  year  beginning  in  1920  and  ending  in  1921,  the 
credit  for  the  entire  fiscal  year  shall,  notwithstanding  any  provision  of  this  Act,  be  determined  under  the 
provisions  of  this  section;  and  the  Commissioner  is  authorized  to  disallow,  in  whole  or  in  part,  any  such  credit 
which  lie  finds  has  already  been  taken  by  the  taxpayer. 

(e)  For  the  purposes  of  this  section  a domestic  corporation  which  owns  a majority  of  the  voting  stock  of 
a foreign  corporation  from  which  it  receives  dividends  (not  deductible  under  section  234)  in  any  taxable  year 
shall  be  deemed  to  have  paid  the  same  proportion  of  any  income,  war-profits,  or  excess-profits  taxes  paid  by 
such  foreign  corporation  to  any  foreign  country  or  to  any  possession  of  the  United  States,  upon  or  with  re- 
spect to  the  accumulated  profits  of  such  foreign  corporation  from  which  such  dividends  were  paid,  which 
the  amount  of  such  dividends  bears  to  the  amount  of  such  accumulated  profits:  Provided,  That  the  credit 
allowed  to  any  domestic  corporation  under  this  subdivision  shall  in  no  case  exceed  the  same  proportion  of 
the  taxes  against  which  it  is  credited,  which  the  amount  of  such  dividends  bears  to  the  amount  of  the  entire 
net  income  of  the  domestic  corporation  in  which  such  dividends  are  included.  The  term  “accumulated 
profits”  when  used  in  this  subdivision  in  reference  to  a foreign  corporation,  means  the  amount  of  its  gains, 
profits,  or  income  in  excess  of  the  income,  war-profits,  and  excess-profits  taxes  imposed  upon  or  with  respect 
to  such  profits  or  income;  and  the  Commissioner  with  the  approval  of  the  Secretary  shall  have  full  power  to 
determine  from  the  accumulated  profits  of  what  year  or  years  such  dividends  were  paid;  treating  dividends 
paid  in  the  first  sixty  days  of  any  year  as  having  been  paid  from  the  accumulated  profits  of  the  preceding  year 
or  years  (unless  to  his  satisfaction  shown  otherwise),  and  in  other  respects  treating  dividends  as  having  been 
paid  from  the  most  recently  accumulated  gains,  profits,  or  earnings.  In  the  case  of  a foreign  corporation, 
the  income,  war-profits,  and  excess-profits  taxes  of  which  are  determined  on  the  basis  of  an  accounting  period 
of  less  than  one  year,  the  word  “year”  as  used  in  this  subdivision  shall  be  construed  to  mean  such  account- 
ing period. 

(/)  For  the  purposes  of  this  section  a corporation  entitled  to  the  benefits  of  section  262  shall  bo  treated 
as  a foreign  corporation.  j-um7 

COVIRNMCNT  MATING  O^flCC 

[Page  4 of  Form  1118.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  264. 


2-22-22. 


Form  1130  L 
If.  8.  Intrnnai,  Rsvsnu* 

LIFE  INSURANCE  COMPANY  INCOME  TAX  RETURN 

>01  C0HPIKIK  ISSUING  UFI  IN»  INNUITT  CONHUCTS.  INCIUOIJIC  COIMIMO  Ufi.  HOtlN.  AND  ACC1MXI  INSUNANCE 

FOR  CALENDAR  YEAR  1921 

(DO  NOT  WRITE  IN  THIS  SPACE) 
Eumfcadkr 

THIS  RETURN  SHOULD 
BE  FILED  WITH  THE 
COLLECTOR  OF 
INTERNAL  REVENUE 
FOR  YOUR  DISTRICT 
ON  OR  BEFORE 
MARCH  IS,  1922 

FIRST  PAYMENT 

PRINT  PLAINLY  COMPANY'S  NAME  AND  BUSINESS  ADDRESS 

CASH  CHECK  M.O.  CUT.OflHD. 

(Nam*.) 

(SU*ot  aoU  ouuibaf .) 

KIND  OF  BUSINESS-- : 

SCHEDULE  A— TAXABLE  NET  INCOME. 


r.  iitu 

7,  Lit*  DerASTMtNT 

3.  om«a  DsrasTMEKT* 

4.  Total. 

CROSS  INCOME. 

, 1... 

5 

». 

2.  Dividend*  on  stock  of  domestic  and  foreign  corporations 

3*.  Rents  (including! rental  valued  space  occupied  by  compan) ) (attach  schedule). 

1 

r 



* I 

* ..  .. 

DEDUCTIONS. 

i 

1 

7.  Dividend*  deductible  under  Section  245(a)  3 of  tho  Revenue  Act  of  1921  (attach  schedule). ... 

,_j 

....... 

. 

'T~ 

: 



i 

i 

... 

$ 

i 

! 



i 



12.  Exha-tsti-re,  wear  and  tear  (including  obsolescence)  (attach  schedule) — -v 

1 

'"“'I 

t ...  1 2 3 * * * 7 8 9 10 11 ... 

...  . . .. 

1.  . 

15.  Nst  Income  (Item  4 minus  Item  14) V ' .V ■ — 

5 — 

L” 

SCHEDULE  B — COMPUTATION  OF  TAX. 


■ . ...  ..  - . * a,  l« 

1 

1 

j 

8 

S 

a 

2 

c 

3 

$ 

1.  Net  income  (item  in,  ocnoauio  a; — 

.2.  Credit  12,000,  for  domestic  company  having  a net  income 

6.  If  net  income  of  domestic  company  does  not  exceed 
325,200,  enter  amount  in  excess  of  325,000_ 

T | | 1 

f 

1 

4.  Net  income  of  foreign  company  ( — % Item  1^,  Schedule  A). 

| _ 

8'  A— — — — 

SCHEDULE  C— RESERVE  FUNDS. 


1.  Items. 

3.  BconcHixo  or 

iiitu  Yeas. 

3.  Em>  or  T liable  Yiaj 

5 ..  .... 

— 

2.  Reswve  for  disability  and  accidental  death  benefits. — — -•  

3.  Reserve  for  supplementary  contracts - 

... 

4.  Reserve  for  incurred  disability  benefits — --  



— 

— 





6.  Roerve  for  policies  upon  which  a surrender  \alue  may  be  demanded  (not  included  elstwhrr*  i... 

1 

8.  Totals  of  Items  1 to  7 . • 

* i i ~ 

f -1 1 

L. — 

0.  Total  of  columns  2 and  3,  as  shown  in  Item  8 above : — ""  “ 

10.  Mean  of  the  reserve  funds  for  the  taxable  year  (one-half  ol  Item  9) — r ' 

11.  Four  per  cent  of  the  mean  of  the  reserve  funds,  as  shown  in  Item  .........  - - 

12.  Total  reserve  funds  of  foreign  companies  at  end  of  taxable  year  upon  business  within  the  United  States  (attach  itemized  statement)  — : $ 

13.  Percentage  which  Item  12  is  of  Item  8,  column  3 (compute  a fraction  of  one  per  cent  to  three  decimal  figures) ► J v “**  - * 

14.  Give  the  title  and  sections  of  State  Statutes  or  Insurance  Department  Rulings  requiring  the  reserves  claimed  above. 


SCHEDULE  D — INVESTED  ASSETS  (BOOK  VALUES). 


1.  Real  estate — -• 

2.  Mortgage  loans ^ — : 

3.  Collateral  loans 

«.  Policy  loans,  including  premium  notes 

b.  Bond"  and  stocks - 

5..  Bank  deposits  bearing  interest.... 

7.  Other  interest-bearing  assets  (attach  itemized  statement). 

8.  Totals  or  Items  1 to 

9.  Total  of  -columna  2 to  6,  inclusive,  as  shown  in  Item  8 above 

10.  Mean  of  the  invested  easels  for  the  taxable  year  (one-half  of  Item  9)_ 

11.  One- fourth  of  1 per  cent  of  the  mean  of  the  invested  assets— 


'c,  the  undersigned,  president  and  treasurer  of  the  company  for  which  this  return 

>m psnying  ached  ulce  znd  statements,  ha*  been  examined  by  him  and  is,  to  the  bat  of  his  knowledge 
iuted  musuant  to  tho  Revenue  Act  of  1921  and  the  regulations  issued  under  authority  thereof. 


,-erally  duly 


ly  auiy  sworu,  c».u 

and  belief,  a true  and 


himself,  deposes  and  save  that  this  return,  including 
complete  return  made  in  good  faith  for  the  taxable 


Sworn  to  and  subscribed  before 


Prmdmt. 


E 


of  oOccr  idnuiiuunng  c*Ui. ) 


'(flU.) 


C -T* 


The  Federal  Income  Tax  Service 
Supplementary  Page  265, 


INSTRUCTIONS. 


I.  COMPANIES  REQUIRED  TO  FILE  A RETURN.' 

Kv«ry  dotn<wlie  or  foreign  li(o  insurance  company  Out  derives  Income  from  sources 
within  tlio  United  States,  i/wuing  life  ami  annuity  contracts  (Including  life,  health,  ami 
accident  iueunuico),  the  reserve  funds  o(  wliich  hold  for  tho  fulfillment  of  auili  contracts 
comprU'  inure  lb«n  Wfnpt  centum  of  ituUiUtl  ri*crv*  funds.  obeli  file  a return  on  thin  form 
S««i  Articles  601  to  087,  inclusive,  Regulations  02,  and  Seel  ions  2-12  to  246,  inclusive,  of  llio 
Revenue  Act  of  1621. 

2.  ANNUAL  STATEMENT. 

copy  of  the  annual  statement  for  Ilfo  insurance)  companies  adopted  hy  tho  National 
invention  of  Insurance  Commiaeionero  for  tho  year  1621,  as  filed  with  tho  Insurance 
Department  of  the  State  in  which  tho  company  is  located,  together  with  copies  of 
hcliedulo  A (real  estate;  and  Schedulo  0 (bonds  and  stocks),  must  accompany  tins  return. 
Similar  copies  for  the  preceding  year  must  be  also  furnished,  If  not  filed  with  tbo  return 
for  tho  provlous  year 

3.  BASIS  OF  RETURN. 

A return  on  Oils  form  shall  bo  rendered  on  a cosh  receipts  aud  disbursements  basis  in 
conformity  with  tho  annual  statement  madn  to  tho  State  Insurance  Department,  instead 
of  tho  accrual  baais. 

4.  LIMITATION  OF  TAX. 

If  the  net  income  of  a domestic  company  reported  in  Item  15,  Schodule  A,  is  more  than 
125,000,  the  tax  of  10  per  centum  imposed  by  Section  213  of  the  Act  on  the  amouDt  of  tho 
net  income  shall  not  exceed  tho  tax  which  would  bo  payable  if  tho  92,000  credit  were 
allowed,  plus  the  amount  of  tho  net  income  in  excess  of  #26,000. 

6.  PERIOD  COVERED. 

The  taxable  year  is  the  calendar  year  ended  December  31,  1621,  and  this  return  must  bo 
filed  on  tho  calendar  year  basis  in  accordance  with  tho  State  laws  regulating  insurance 
companies. 

C.  TIME  AND  PLACE  FOR  FILING. 

The  return  must  bo  aent  to  the  collector  of  internal  revenue  for  the  district  in  which 
tho  company's  principal  office  is  located,  so  aa  to  reach  the  collector’s  office  on  or  before 
March  16,  1922.  In  the  cose  of  a foreign  company  Dot  having  any  offleo  or  place  of  business 
in  tho  United  States,  the  return  ahall  be  filed  with  tho  Collector  of  Internal  Revenue, 
Baltimore,  Maryland,  on  or  beforo  June  16,  1022. 

Collectors  are  authorized  to  grant  an  extension  of  not  more  than  thirty  days  for  filing 
returns  in  cases  of  absence  or  richness.  In  meritorious  casos  the  Commissioner  is  authorized 
to  grant  a further  extension. 

7.  AFFIDAVIT. 

The  return  shall  be  sworn  to  by  tho  president,  vice  president,  or  other  principal  officer, 
and  by  the  treasurer  or  assistant  treasurer.  The  return  of  a foreign  company  having  an 
agent  in  the  United  States  shall  bo  sworn  to  by  such  agent. 

8.  PAYMENT  OF  TAX. 

The  tax  should  be  paid  by  sending  or  bringing  with  the  return  a check  or  monoy  order 
drawn  to  the  order  of  “Collector  of  Internal  Revenue  at  ^insert  name  of  city  and  Stale)." 

Do  not  eend  cash  through  the  mail  or  pay  it  in  person  except  at  the  office  ol  tho  collector. 

The  total  tax  may  be  paid  at  the  time  ol  filing  the  return  or  in  four  equal  ingtallfitents, 
as  follows-. 

The  first  installment  shall  be  paid  at  the  time  fixed  by  law  for  filing  the  return,  tho 
second  installment  shall  be  paid  on  tho  16th  day  of  the  third  month,  the  third  installment 
on  the  15th  day  of  the  sixth  month,  and  the  fourth  installment  on  the  15th  day  of  the  ninth 
moDth  after  tho  time  fixed  by  low  for  filing  the  return. 

9.  PENALTIES. 

For  Making  False  or  Fraudulent  Return. 

Not  exceeding  $10,000  or  not  exceeding  one  year's  imprisonment,  or  both,  in  the 
discretion  of  the  court,  and,  in  addition,  60  per  centum  of  the  total  tax  evaded. 

For  Failing  to  Make  Return  on  Time. 

Not  more  than  $1,000,  and,  in  addition,  26  per  centum  of  the  total  amount  of  the  tax. 

For  Failing  to  Pay  Tax  When  Due  or  Understatement  of  Tax,  Through 
Negligence,  etc. 

Five  per  centum  of  the  tax  due  but  unpaid,  plus  interest  at  the  rate  of  1 per  centum 
per  month  during  the  period  in  which  it  remains  unpaid. 

10.  INFORMATION  AT  THE  SOURCE. 

Every  company  making  payments  of  salaries,  wages,  interest,  rents,  commissions,  or 
other  fixed  or  determinable  income  of  $1,000  or  more  during  tho  calendar  year,  to  any 
individual  or  partnership,  is  required  to  make  a true  and  accurate  return  to  the  Commis- 
sioner ol  Internal  Revenue,  showing  the  amount  of  such  payments  and  the  name  and  address 
of  the  recipient.  Forms  1096  and  1099,  for  reporting  such  information,  will  be  furnished 
by  any  collector  ol  internal  revenue.  Such  returns  of  information  covering  the  calendar 
year  1921  must  be  forwarded  to  the  Commissioner  of  Internal  Revenue,  Sorting  Section, 
WanhingtoD,  D.  C.,  in  time  to  be  received  not  later  than  March  15,  1922. 

INSTRUCTIONS  FOR  FILLING  IN  SCHEDULE  A. 

Report  in  column  2 all  business  transacted  in  connection  with  life  insurance,  and  iu 
column  3 any  other  class  of  insurance. 

Jnlereel  received. — Enter  os  Item  1 interest  actually  received  from  all  sources  during 
the  taxablo  year. 

Dividend*. —Enter  os  Item  2 dividends  actually  received  on  stock  of  domestic  and 
foreign  corporations. 

Rents.— Enter  as  Item  3 rents  actually  received  from  tenants,  including  the  rental 
value  of  the  space  occupied  in  any  building  owned  by  the  company.  In  cose  the  rental 
value  of  a building  so  occupied  is  not  included  in  this  amount.no  deduction  is  allowable 
for  taxes,  other  expenses,  and  depreciation  in  Items  10,  11,  and  12,  Schedule  A,  on 
account  of  such  building.  If  these  deductions  are  claimed  a schedule  similar  to  the  fol- 
lowing should  bo  furnished  for  each  building  occupied- 

1.  Location  of  bondin' — — 

3.  Orcwi  renti  for  y«*r,  including  *.  — tbe  rental  value  of  apace 

•rcupled  by  ibr  company  t— 


Interest  exempt  from  Coxa  item. — Enter  be  Item  5 the  amount  of  internal  received  on  lha 
following  obligations  which  are  exempt  from  taxation:  (1)  Obligations  of  a State,  Terri- 
tory, or  any  political  subdivision  thereof,  or  tho  District  ol  (Mumble,  (2)  securities  loaned 
under  tho  provision a ol  tho  Federal  Farm  Loan  Act  of  July  17,  1916,  and  (S)  obligations  ol 
the  United  Stales  or  its  poeui-ssion* 

Submit  a schedule  showing  separately  for  each  class  of  securities,  (a)  name  of  obliga- 
tion, (b)  amount  of  principal,  (c)  rate  of  interest,  and  (d)  interest  received. 

Ei use  oj,  4 per  eerU  of  Uu • mean  of  Uu  'reserve  fund*  o\er  Item  —Enter  as  Item  6 the 
amount  by  which  Item  11,  Schedule  C,  exceed*  Item  6,  Schedule  A. 

OiviJends  — Enter  ae  Item  7 the  total  ainouut  of  dividends  deductible  under  Section 
246 to)  3 of  the  Act,  A schedule  should  be  submitted  showing  the  amount  received  as 
dividends,  (a)  from  each  domestic  corporation  other  than  a corporation  entitled  U»  fh« 
benefits  of  Section  202  of  tho  Act,  or  (6)  from  each  foreign  corporation  when  it  is  shown  to 
tho  satisfaction  of  tho  Commissioner  that  more  than  60  pier  centum  of  tho  prom  luc nm- 
ol such  foreign  corporation  lor  tho  throe-year  period  ending  with  the  closo  of  lU  taxable 
year  preceding  tho  declaration  of  such  dividends  (or  for  such  part  of  such  period  ae  tho 
foreign  corporation  ha*  been  in  existence)  was  derived  from  sources  within  tho  United 
6utes  os  do  term!  nod  under  Section  217  of  the  Act 

Two  per  centum  of  Uu  reiene  held  Jot  deferred  dividends— Enter  a*  Item  8 an  amount 
equal  to  2 per  cent  of  tbo  reserve  hc-ld  at  tho  end  of  the  taxable  year  for  deferred  dividends, 
tho  payment  of  which  is  deferred  for  a period  of  not  lees  than  fire  years  fitg*  tbe  date  o I 
tho  policy  contract.  Do  not  include  in  aucb  reeervo  any  dividends  poyabWydurLog  the 
year  following  tho  taxable  year. 

Investment  expenses. — Enter  a*  Item  0 expenses  paid  which  are  property  chargeable 
to  invoelmcnt  expwnsea,  the  total  amount  of  which,  if  there  be  any  ol  location  of  general 
expenses  to  inveetment  expense*,  should  not  exceed  one-fourth  of  1 per  cent  of  the  mean 
of  (lie  inv«*tod  asuote  reported  in  Item  11,  Schedule  D. 

Submit  a schodule  showing  the  nature  and  amount  of  the  item*  included  herein,  the 
minor  items  being  groupod  in  one  amount.  Soe  Article  083,  Regulations  62 

Taxer  — Enter  as  Item  10  taxes  paid  exclusively  upon  real  estate  owned  by  the  com- 
pany, and  that  proportion  of  tho  taxes  aasened  against  share  holders  or  members  and  paid 
by  the  company  without  reimbursement,  as  provided  in  Article  664,  Regulations  62.  Do 
not  includo  taxes  assessed  against  local  bone  fils  of  a kind  tending  to  increelo  the  value 
M tho  property  assessed,  ue  for  piaving,  newer*,  otc 

Other  real  estate  expenses — Enter  ee  Item  11  ell  ordinary  and  necessary  building  ex- 
penses, such  as  firo  insurance,  heat,  light,  labor,  etc.,  and  the  cost  of  inddeataVropoin 
which  neither  materially  odd  to  the  value  of  tho  property  nor  appreciably  prolong  its  Hfe. 
but  keep  it  in  an  ordinary  efficient  operating  condition.  Do  not  include  any  amount  paid 
out  for  now  buildings  or  permanent  improvement*  or  betterments  mode  to  increase  the 
value  of  any  property. 

Exhaustion,  wear  and  tear  (including  obsolescence). — If  a deduction  is  made  on  account 
ol  depreciation  the  following  schedule  must ‘be  filled  in  and  the  total  amount  claimed 
therein  should  correspond  with  the  figuree  reflected  in  the  company’s  book*. 

The  amouut  deductible  on  account  ol  depreciation  is  an  amount  charged  off  which 
(airly  measures  the  loss  during  tho  year  by  reaeon  of  exhaustion,  wear,  tear,  and  obsoles- 
cence in  the  company’s  inveetment  in  property  used  in  the  business  Such  an  amount 
should  bo  determined  upon  tho  baais  of  the  coet  of  the  property,  or  if  acquired  prior  to 
March  1,  1913,  tbe  fair  morkot  value  on  that  date  and  tho  probable  number  of  Jrcara 
remaining  of  its  useful  life.  I.aud  values  must  not  be  included  in  this  schedule  Stocks, 
bonds,  and  like  securities  are  not  subject  to  depreciation  within  the  meaning  of  the  law 


Kind  of  property 
(It  buUdmib^iteie 
which  constructed  ; 

Dote^ 

acquLrnd 

Probable 

acquire- 

paired  poor  to 
fair  market  value 
oo  that  dale 

Amount  o*  depredation  darted  o3. 

T hie  yea/ 

1 

r 

1 , .. 

1 ... 

Total* 

• .. 

NoTT^-lf  obsolescence  l>  * factor  Id  dctenninln*  this  deduction  attach  * rtsummi  mowing  tbs  amount 
claimed  (or  tbs  taxable  year  and  ths  bub  upon  which  computed 


Interest  on  indebtedness. — The  amount  of  interest  deductible  as  Item  13  is  the  amount 
of  interest  paid  during  tho  taxable  year  on  the  company's  indebtedneas,  except  on  indebt- 
edness incurred  or  continued  to  purchase  or  carry  obligation*  or  securities  (other  than 
obligations  of  the  United  States  issued  after  September  24,  1917,  and  originally  sub- 
scribed lor  by  the  company),  the  interest  upon  which  is  wholly  exempt  from  taxation 
Interest  paid  on  dividends  held  on  deposit  and  surrendered  during  tho  taxable  year 
should  bo  included  in  this  item. 

QUESTIONS. 

1.  Date  of  incorporation -■  ,,, 

2.  Under  tho  laws  of  what  State? . ... 

3.  Did  the  company  file  a return  under  the  same  name  for  the  preceding  taxable 

year? If  not,  was  the  company  in  any  way  an  outgrowth,  result,  con- 

tinuation, or  reorganization  of  a business  or  businesses  in  existence  during  this  or  the 

preceding  taxable  year?  , If  answer  is  11  Yee,"  give  name  and  address 

of  each  predecessor  business 


4.  State  the  amount  of  deferred  dividend  funds  at  the  end  of  the  taxable  year,  exclu- 
sive of  any  amount  held  for  payment*  during  the  following  taxable  year  f. 

5.  Describe  tho  method  used  for  determining  the  investment  expenses  shown  in  Item 
9,  Schedule  A. 


6.  Ie  the  above  method  the  same  as  that  used  in  preparing  the  Gain  and  Loss  Ex- 
hibit for  1920  ? ;-v If  not,  state  what  change  was  mode  and  ths  reason 

therefor 


7.  Are  any  general  expanses  in  part  assigned  to  or  included  in  the  investment  cx* 
peneee  ahown  in  Item  9,  Schedule  A?  


t Depradailou 

7 Total  of  Item) «.  S,  tod  6 

0.  Neuncoma  from  rentals  ( Item  3 miaul  Item  7). 


LIST  OF  ATTACHED  SCHEDULES. 


Attach  a List  of  the  schedules  accompanying  this  return,  giving  for  each  a brief  title 
and  the  schedule  number 


[Page  2 of  Form  1120L.J 


The  Federal  Income  Tax  Service 
Supplementary  Page  266. 


3-22-22. 


TREASURY  DEPARTMENT 
Internal  Revenue  Service 
Form  1 1 18.  - Revised  Fob.,  IV22 


CLAIM  FOR  CREDIT  ON  INDIVIDUAL  INCOME  TAX  RETURN  FOR  TAXES  PAID  OR  ACCRUED 
TO  FOREIGN  COUNTRIES  OR  TO  POSSESSIONS  OF  THE  UNITED  STATES 


Name  of  Claimant  Address 


(Street  and  number  of  rural  route.) 


(City  or  town.) 


(Bute.) 


On  behalf  of  the  above-named  claimant,  who  is  a citizen  or  subject  of , and  is  a resident 

(Name  of  country.) 

of  , credit  io  hereby  claimed,  on  his  attached  income-tax  return,  which  is  baaed  on  income 


( Received  or  accrued.) 


(Nome  of  country.) 

during  the  taxable  year  . 


(If  calendar  year  give  year— If  fiscal  year  give  montha.) 


, for  taxes  paid  or  accrued  1 a a follows: 


SCHEDULE  Al. 

3 Tax  Paid  or  Accrued  1 to  a Possession  of  the  United  States  on  Behalf  of  Claimant  Individually. 

Name  of  possession  of  U.  S. Character  of  tax ..... 

(Income,  war-profits,  or  excess-profits.) 

Statute  imposing  tax  . 


(To  be  named  fully  and  dearly  so  as  to  bo  easily  identified.) 

Date  of  accrual Date  of  payment  (if  paid) 

(To  bo  given  even  if  claim  Is  based  on  payment.)  (To  be  given  even  If  claim  is  based^onaocrual.) 

1 . Amount  of  tax  3 (evidenced  by  attached  receipt  or  return) 4,  which  (converted  at  an 


exchange  rate  of  — 


_*)  equals  in  dollars 


(In  fordgn  money.) 


2.  Income  from  sources  in  this  possession 


rate  of . 


..*)  equals  in  dollars-. 


(In  foreign  money.) 


4 which  (converted  at  an  exchange 


... 


SCHEDULE  A2. 

2 Tax  Paid  or  Accrued  1 to  a Possession  of  the  United  States  on  Behalf  of  Claimant  Individually. 

Name  of  possession  of  U.  S. Character  of  tax  . 

Statute  imposing  tax 


(Income,  war-profits,  or  excess-profits.) 


(To  be  named  fully  and  dearly  so  as  to  be  easily  Identified.) 

Date  of  accrual  — Date  of  payment  (if  paid) 

(To  be  given  even  If  claim  Is  based  on  payment.)  (To  bo  given  even  If  dalin  is  based  on  accrual.) 

1.  Amount  of  tax  3 (evidenced  by  attached  receipt  or  return) 4,  which  (converted  at  an 

(In  foreign  money.) 

exchange  rate  of l)  equals  in  dollars ; $ 

2.  Income  from  sources  in  this  possession ,4,  which  (converted  at  an  exchange 

(In  foreign  money.)  ^ 

_ 6)  equals  in  dollars tillt $ 


rate  of . 


SCHEDULE  Bl. 

e Tax  Paid  or  Accrued  1 to  a Foreign  Country  on  Behalf  of  Claimant  Individually. 

Name  of  foreign  country Character  of  tax 

Statute  imposing  tax 


(Income,  war-profits,  or  excess-profits.) 


(To  be  named  fully  and  clearly  so  as  to  be  easily  Identified.) 

Date  of  accrual  — Date  of  payment  (if  paid) 

(To  be  given  even  if  claim  is  based  u.i  payment.)  (To  be  given  even  if  dalin  is  based  on accrual.)"" 

1.  Amount  of  tax  3 (evidenced  by  attached  receipt  or  return)  4t  which  (converted  at  an 

(In  fordgn  money.) 

exchange  rate  of  — 6)  equals  in  dollars $ 

2.  Income  from  sources  in  this  foreign  country  


of 8)  equals  in  dollars.. 


(In  foreign  money.) 


..4,  which  (converted  at  an  exchange  rate 


SCHEDULE  B2. 

* Tax  Paid  or  Accrued  1 to  a Foreign  Country  on  Behalf  of  Claimant  Individually. 


Name  of  foreign  country  . 
Statute  imposing  tax 


Character  of  tax  . 


(Income,  war-profits,  or  excess-profits.) 


(To  be  named  fully  and  dearly  so  as  to  be  easily  identified.) 

Date  of  accrual Date  of  payment  (if  paid) 

(To  be  given  even  if  claim  Is  based  on  payment.)  (To  be  given  even  If  claim  la  based  on  accrual.) 

1.  Amount  of  tax  3 (evidenced  by  attached  receipt  or  return)  : 4,  which  (converted  at  an 

(In  foreign  money  .) 

exchange  rate  of •)  equals  in  dollars .. $ 

2.  Ipcome  from  sources  in  this  foreign  country  4,  which  (converted  at  an  exchange  rate 

(In  fordgn  money.) 

of  — . — 5)  equals  in  dollars ! $ 


1 Sec  note  1,  page  3. 


» See  note  2,  poge3. 


* See  note  3,  page  3. 


* Bee  note  i,  page  3. 


• Bos  note  5,  page  3. 


* Bee  note  0,  page  3. 


The  Federal  Income  Tax  Service 
Supplementary  Page  267. 


(Income,  war-profits,  or  excess-profit:*.) 
fTo  be  named  /uliy  end  clearly  »o  as  to  be  easily  identified.) 


SCHEDULE  Cl. 

* Tax  Withheld  at  Source  Under  a Foreign  Income  Tax  Law,  on  Behalf  of  Claimant  Individually. 
Kama  of  foreign  country  Character  of  tax 

Statute  imposing  tax  : .4...’.... 

1 Name  of  withholding  agent  

2 Date  of  withholding  

.1  Total  income  from  which  tax  withheld  . which  (converted  at  an  exchange  rate  of 

(In  foreign  money.) 

8)  equals  in  dollars 

4 Amount  of  tax  withheld  (evidenced  by  attached  receipt*  or  statement  from  withholding  agent) 


which  (converted  at  an  exchange  rate  of  . 


})  equals  in  dollars.. 


(In  foreign  money.) 


(Income,  war-profits,  or  excess-profits.) 
(To  be  named  fully  and  clearly  so  as  to  be  easily  Identified. ) 


SCHEDULE  C2. 

6 Tax  Withheld  at  Source  Under  a Foreign  Income  Tax  Law,  on  Behalf  of  Claimant  Individually. 

Name  of  foreign  country  Character  of  tax 

Statute  imposing  tax  

1 Name  of  withholding  agent  

2 Date  of  withholding  

3 Total  income  from  which  tax  withheld  \ which  (converted  at  an  exchange  rate  of 

(In  foreign  money.) 

®)  equals  in  dollars $ . 

4 Amount  of  tax  withheld  (evidenced  by  attached  receipts  or  statement  from  withholding  agent) ♦, 

(In  foreign  money.) 

which  (converted 'at  an  exchange  rate  of 8)  equals  in  dollars _ $ . 


SCHEDULE  D. 

'Tax  Paid  or  Accrued1  to  a Possession  of  the  United  States  on  Behalf  of  a Partnership,  Estate,  or  Trust  in  Which  Claimant  Has 

an  Interest. 


Partnership,  estate,  or  trust  _ 

(Name.) 

Fiduciary  (if  estate  or  trust)  .. 

(Name.) 

Character  and  extent  of  claimant’s  interest  in  partnership,  estate,  or  trust  


(Address. ) 
(Address.) 


Name  of  possession  of  U.  S Character  of  tax  . 

Statute  imposing  tax  


(Income,  war-profits,  or  excess-profits.) 


( To  be  named  fully  and  clearly  so  as  to  be  easily  ldent  ified . ) 

Date  of  accrual  -v Date  of  payment  (if  paid)  

(To  be  given  even  if  claim  Is  based  on  payment.)  (To  be  given  even  if  claim  is  based  on  accrual.) 

1.  Total  net  income  on  which  tfyis  tax  was  based , - 


2.  Claimant’s  share  of  such  total  net  income 

3.  That  amount  of  such  total  net  income  which  was  derived  from  sources  in  that  possession 

4.  That  amount  of  such  total  net  income  derived  from  sources  in  that  possession  to  which  claimant  would  have 

been  entitled  as  partner  or  beneficiary  had  no  such  tax  accrued  or  been  paid  to  that  possession  (claimant’s 

share  of  item  3)  4,  which  (converted  at  an  exchange  rate  of 8)  equals 

\In  foreign  money.) 

in  dollars 

5.  Total  amount  of  this  tax  3 payment  or  accrual  to  that  possession  (evidenced  by  attached  receipt,  return,  or 

statement  of  fiduciary), _ . . 

6.  Ratio  of  claimant’s  share  of  total  net  income  to  total  net  income  on  which  tax  was  based  (item  2 divided  by 

item  1) . . . 

7.  That  amount  of  total  tax  which  was  based  on  claimant's  share  of  total  income  (item  5 multiplied  by  item  6) 

4,  which  (converted  at  an  exchange  rate  of 8)  equals  in  dollars $.. 

(In  foreign  money.) 


> See  note  1,  page  3. 


•See  note  2,  page  3. 


* See  note  3,  page  3. 


* Pee  note  4,  page  3. 


* Sco  note  6,  page  3. 


‘See  note 6,  page 3. 


]Page^2’of  Form  1116. 


The^Federal  Income  Tax  Service 
Supplementary  Page  2,68, 


SCHEDULE  E. 

9 Tax  Paid  or  Accrued  1 to  a Foreign  Country  on  Behalf  of  a Pariuorahlf,  Ejtate,  cr  Troat  In  Which  Claimant  Has  an  Ir.tereat. 
Partnership,  estate,  or  truat 


(Nana.) 

Fiduciary  (if  estate  or  trust)-- - 

(Name.) 

Character  and  extent  of  claimant's  interest  in  partnership,  estate,  or  trust 


(Address.) 

(Address.) 


Character  of  tax — 

(Income,  war-profits,  or  exoesa-proflu.) 


N ame  of  foreign  country - - 

Statute  impoeing  tax 

(To  be  namod  fullv  and  clearly  so  as  to  be  easUv  identified.) 

Date  of  accrual Date  of  payment  (if  paid) 

(To  be  riven  even  if  claim  is  based  on  payment.) 

1.  Total  net  income  on  which  this  tax  wao  baaed 

2.  Claimant’s  share  of  such  total  net  income 


(To  be  given  even  If  claim  is  based  on  accrual.) 


3.  That  amount  of  such  total  ne^  income  which  waa  derived  from  sources  in  that  foreign  country 

4.  That  amount  of  such  total  not  income  derived  from  sources  in  that  foreign  country  to  which  claimant  would  have 

been  entitled  as  partner  or  beneficiary  had  no  such  tax  accrued  or  been  paid  to  that  foreign  country  (claim- 
ant's 6hare  of  item  3)  - 4,  which  (converted  at  an  exchange  rate  of •) 

(In  foreign  money.) 


oquala  in  dollare.. 


5.  Total  amount  of  this  tax J payment  or  accrual  to  that  foreign  country  (evidenced  by  attached  receipt,  return,  or 

statement  of  fiduciary) - 

0.  Ratio. of  claimant’s  share  of  total  net  income  to  total  net  income  on  which  tax  was  based  (item  2 divided  by 

7 That  amount  of  total  tax  which  was  based  on  claimant’s  share  of  total  income  (item  5 multiplied  by  item 

*,  which  (converted  at  an  exchange  rate  of 5)  equals  in  dollars f 

(In  foreign  money.) . 

- Note.— If  more  space  is  required  for  any  of  the  preceding  schedules  use  a separate  eheet  of  paper  giving  information  as  indicated  on  this  form. 

SUMMARY  OF  INCOME  FROM  POSSESSIONS  OF  UNITED  STATES  AND  FOREIGN  COUNTRIES  AND  OF  TAXES  PAID 
TO  SUCH  POSSESSIONS  AND  COUNTRIES.  Column  B. 

« . Taxes  paid  or  aoerned* 

Column  A on  behalf  of  claimant 


Schedule  Al,  item  2 

Schedule  A2,  item  2 ......1.. ........ 

Schedule  Bl,  item  2...........; -..l.i.— 1 ’ 

Schedule  B2,  item  2 

Schedule  Cl,  item  2 :.... 

Schedule  C2,  item  2 

1 . . 


Schedule  D,  item  4 

Schedule  E,  item  4 

Total 


Schedule  Al,  item  1 

Schedule  A2,  item  1 

Schedule  Bl,  item  1 

Schedule  B2,  item  1 

Schedule  Cl,  item  1 

Schedule  C2,  item  1 


Individually. 


Schedule  D,  item  7 

Schedule  E,  item  7 

Total 


If  of  claimant’s 

Interest  in  partnership, 
x estate,  or  trust. 


I.  Total  income  from  sources  without  United  States  (total  Column  A) . 

II.  Total  tax  paid  or  accrued  to  possessions  of  United  States  or  foreign  countries  (total  Column  B)_.. 


III.  Total  net  income  from  sources  without  United  States  (computed  without  deductions  for  any  income,  war- 

profits,  and  excess-profits  taxes  imposed  by  any  foreign  country  or  possession  of  United  States) 

IV.  Total  net  income  from  all  sources  (computed  without  deduction  for  any  income,  war-profits,  and  excees- 

profits  taxes  imposed  by  any  foreign  country  or  possession  of  United  States) 

V.  Ratio  of  income  from  sources  without  United  States  to  total  income  from  all  sources  (Item  III  divided  by 
Item  IV) 

VI.  Total  tax  due  United  States  (item  31  of  Form  1040  or  item  21  of  Form  1040A).. 


VII.  Amount  of  tax  which  may  be  claimed  as  credit  against  total  tax  due  United  States  (amount  equal  to  Item  VI 

multiplied  by  Item  V,  unless  Item  II  is  less  than  such  amount  in  which  case  Item  II  should  be  entered  here).  

(To  belnsertod  in  the  attached  Income-tax  return  on  Fora  10v3  as  Hem  33,  or  on  Form  KMOA  as  Item  23.) 

I swear  (or  affirm)  that  the  above  is  to  the  best  of  my  knowledge  and  belief  a true  and  complete  statement  of  facta  in  connection 
with  the  credit  for  income,  war-profits,  and  excess-profits  taxes  above  claimed. 


» (If  claim  Is  made  by  agent,  the  reason  therefor  must  be  dated  on  this  line.) 

Sworn  to  (or  affirmed)  and  subscribed  before  me  this 

day  of 192  

.(Signature  of  Individual  or  agent.) 


(Address  of  individual  or  agent.) 


(Official  capacity.) -- 

1 If  attached  Income-tax  return  is  based  on  income  “received,”  then  “paid  or  accrued”  wherever  it  apnears  In  this  form  means  “paid,”  If  based  on  income  “accrued,” 
then  “paid  or  accrued”  means  “accrued.”  (See  8ection  200  of  the  Revenue  Act  of  1821.) 

2 To  secure  credit  for  taxes  paid  or  accrued  to  possessions  of  tbe  United  States,  claimant  must  be  a citizen  other  than  a citizen  entitled  to  benefits  of  section  282 
..  or  resident  of  the  United  States.  (See  Section  222  (a)  on  next  page.) 

* “Amount  of  tax”  means  tax  proper,  excluding  any  amount  that  represents  interest  or  penalties.  If  tho  tax  has  been  actually  paid  in  full,  the  amount  of  the  tax 
.(excluding  interest  and  penalties}  so  paid  is  the  amount  to  be  entered  in  this  blank,  even  though  the  claim  be  based  on  tho  accrual  of  the  tax. 

4 Stato  this  item  in  terms  of  the  currency  used  in  making  tbe  return  on  which  this  tax  was  D&sed  (e.  g.,  pounds,  francs,  marks). 

'•Claimant  must  here  state  the  rate  of  exchange  used  and  must  also  attach  a statement  describing  In  reasonable  detail  why  and  how  he  determined  upon  thia 
particular  rate. 

• To  secure  credit,  for  taxes  paid  or  accrued  to  a foreign  country,  claimant  must  be  a citizen  other  thoD  a citizen  entitled  to  benefits  of  section  262  or  resident  of  the 
United  States.  Moreover,  if  he  is  an  alien  resident,  he  must  be  a citizen  or  subject  of  a foreign  country  which  allows  "a  similar  credit  to  citizens  of  the  United  8tates 
residing  in  such  country.”  (See  Section  222  (a)  cn  next  Dage.) 

2—1  ISM  (OVER) 


[Page  3 of  Form  1116.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  269. 


PROVISIONS  OF  STATUTE 

SECTION  222  OF  REVENUE  ACT  OF  1921. 

Sec.  222.  (a)  That  the  tax  computed  under  Part  II  of  this  title  shall  be  credited  with: 

(')  to^any  foreign 

2 of  ahy  euch  taxes  Paid  durin« the 

income  (computed  without  deductiou  for  any  income  war nro^ts  ^H  ‘h  pa/,er ? net 

necessary  for  the  verification  and  computation  of  such  credits.  ’ information 

(d)  If  the  taxpayer  makes  a return  for  a fiscal  year  beginning  in  1920  and  ending  tn  ion  ...  , 

the  entire  fiscal  year  shall,  notwithstanding  any  provision  of  thiAet  h«  dete  • A j th®  Credlt  for 

btrsi  !^5tK55r*-“  “ *— ■ » » r«.  ^*-X^ysss2 


GOVERNMENT  f RINTINO  OFFIC1 

[Page  4 of  Form  1116.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  270. 


4-18-22. 


I?  Si  Isrni 


i.  It. < 


THIS  RETURN  SHOULD 
BE  riLED  NOT  LATI'.R 
THAN  THF  15TH  DAY 
OF  THE  SIXTH  MONTH 
I OLLOWINC.  THE  CLOSE 
OF  THF.  TAXABLE  PERIOD 
with  THI 

COLLECTOR  OF  INTERNAL 
REVENUE,  BALTIMORE, 
MARYLAND,  U.  9.  A..  OR 
WITH  THE  COLLECTOR 
FOR  THE  DISTRICT  IN 
WHICH  YOUR  OFFICE 
OR  PRINCIPAL  PLACE 
OF  BUSINESS  IS  LOCATED 


NONRESIDENT  ALIEN  INDIVIDUAL  INCOME  TAX  RETURN 


Or  for  period  bo^un 


FOR  CALENDAR  YEAR  1921 

, 1920,  and  ended  ._ 1921 


PRINT  NAME  AND  ADDRESS  PLAINLY  BELOW 


Do  not  write  in  this  apse. 
ITRST>AYMENT  - 

Cashier's  Stamp 


cash  great  M-0.  car,  or  wo. 


OCCUPATION,  PROFESSION,  OR  KIND  OF  BUSINF.SS 

I *woar(orntl\ra)  that  this  return,  including  tho  accompanying  scheduled  and  aUUnunio  i»I  any),  has  been  examined  by  me,  and,  to  the  best  of  my  knowledge  and  belief,  W a true 
and  complete  return  made  in  good  faith,  for  the  taxable  peitod  oj  stated,  pursuant  to  the  Revenue  Act  ol  1921  and  the  Regulations  issued  under  authority  thereof. 


( If  return  l>  mtd«  t>jr  •.••ni , lh«  reason  iberefor  m 

Sworn  to  aud  subscribed  before  mo  this day  ol 1922. 


(Signature  of  Individual  or  scant.) 


( ’miulure  ol  oflU.i  admlnnierinc  oath.) 


( Addreu  otlndiTldual  or 


3.  Ol  what  country  ai 


a citixen  or  subject?  .« 


( From  tourou  wholly  will 


INCOME. 

<1  Slatci  and  axpaajaj,  I octet,  and  other  deductiout  properly  all  orated  thereto. ) 


H 2.  Interrat  on  bonds,  notes,  or  other  interest-bearing  obligations.. 
3 Income  from  fiduciary  (state  name  and  address  ol  fiduciary): 


4.  Profit  (or  lass)  from  partnership  (state  name  and  address  of  partnership): 


. Rente  and  royalties. $ 

. Profit  (or  lues)  from  buaiuesn  or  profession  (not  including  income  from  partnerships).. 
Profit  (or  Ices)  from  wd*  of  real  estate  (located  in  United  States) 


Profit  (or  loro)  from  sale  in  United  States  ol  personal  property  purchased  by  taxpayer.. 
. Dividends 


e nature  ol  income) 


Total  I. scon*  in  leans  1 to  ltt(lcss  1 oaten  shown  therein,  if  any) 

DEDUCTIONS. 

. Interest  paid  in  connection  with  income  from  sources  in  United  States  (not  including  interest  deducted  above)— 

. Taxed  paid  iu  connection  with  income  from  sources  in  United  States  (not  including  taxes  deducted  above) 

Bad  debts  iu  Connection  with  income  from  sources  in  United  States  (not  including  debts  deducted  above) 

. Losses  in  transactions  entered  into  for  profit. — _ 

. Losaw  by  fire,  storm,  etc.  (of  property  iu  United  Staten) 

Contributions 


IS.  Other  deductions  authorized  by  law... 


Ratable  part  ol  deductions  not  definitely  allocated  to  any  class  of  gross  income.. . 

Total  or  Items  12  to  19 

Net  Income  from  Souuces  Whollt  Within  tee  United  States  (Item  11  minus  Item  20)_ 

That  Portion  ok  Net  Income  »rom  Sources  Partly  Within  and  Partly  Without  U.  S.  Attributable  to  Sources  WrrHiN  U.  S.. 


Total  Net  Income  krom  Sources  Within  United  States  (Item  21  plus  Hem  22).. 


COMPUTATION  OF  TAX. 


, 

.. 

25  l eas  Dividends  (Item  9 above) ....  $ I 

27  Total  or  Items  20  and  20  ?. 

•* 

Checks  and  itraito  will  be  accepted  only  if  payable 

t par  fit  U.  S.  money. 

U Amount  of  lax  paid  when  tiling  return  

i 

The  Federal  Income  Ta\  Service 
Supplementary  Page  271 


kin,  o.  torwr  | 1 |? uSh"SS^ 

3.  AMOUNT 

lira  ii  to. 

. ,u,^.  | t?'iSSSZ  i &2EK. 

7.  N ST  Falzii 

toa  Lose). 

, 

, 1. 1 j.  J_  . 

S 1 

| 

II  1 1 

1 

1 I 

II  i 1 ! 



State  estimated  Uio  of  property  and  how  you  figured  depredation 


SCHEDULE  B.- EXPLANATION  OF  ITEM  6,  (Bu.i...»  or  Pfof.wonj  B»  ln.uu,i .oo^) 


1 Total  income  from  business  or  profession .. 

Coat  or  Goons  8old 

2,  Labor 


I ~ 


S.  Material  and  supplies... 


4.  MercLandUe  bought  lor  sale— 

Dther  cob 
below  o 


C.  Plus  inventory  at  beginning  of  year..~..-4~- 

7 Total 

8 Leas  inventory  at  end  of  year 

9 Nit  Cost  or  Coona  Sold a.. 


Other  Business  Depuctionb: 

JO  Salaries  and  war'*  not  reported  as  'Tabor' 

on  line  (eee  Instruction  »(<i) ) V 5 

11  Rent  on  husiiip™  propnl)  in  which  taxp.  * r | 

has  no  equity...  .... 

12  lntoroel  on  buuiiuvr  indebtodiM  o.>  to  v'.hi 

13.  Taxes  on  bu..ni-®  and  bunno*®  property 
14  Repairs  wear  uud  tear.  obsolescence  deple 


i,  and  prope 


I": 


a (explain  btlow)  .. 


15.  Amortization  of  war  fitcibiies 

10.  Bad  debts  arming  from  salon  or  einiccr*,  H 
already  reported  a?  income 
17  Other  expense®  (list  principal  item*  cud  ’ 

amounts  below  or  on  separate  shift  , 

IS  Tojal  (Items  10  to  17,  inclusive)— ? 1. 

19  Net  Cost,  rtfs  Total  Deductions  (Item  9 plus  Item  18) . . 

20.  Net  Prokit  (ok  Loss)  i-rom  Buhine-ss  on  Pnot  enmon  (Item  1 rninua  IU.ru  19) . 


Explanation  of  deductions 


2.  DAT*  Aoournxo.  J.  amount  Rtctivin 

as 111  | 7 Dwmcuw*. 

8.  Oram  Eirtasrt 

*.  Nrr  Faorrr 
(oa  loss). 

l 1... 

, 1.  1, 1 , 

.!» 1 

1 , 

1 *1 

i 1 



J i 1 ...1 1 1 1 1 

.:  7 j...:. 

1 1 II  I ! 1 1 

! L. 

< 

: 1 1 J 1 l: 1 1 

....  1 1 

If  not  acquired  by  purchase,  etato  how  acqui 


SCHEDULE  D.— EXPLANATION  OF_ITEM  S._(Sole  In  U.  S.  of  Peroona!  Pro^ty  PorcH3fed  byJDxpay±r.j_ 

1 ,813-  S.  August  licit. ecu. 


"I I ' 


SCHEDULE  E.— EXPLANATION  OF  ITEM  9.  (Diyidenda.)  M-c  ir.irn.u^^ 


State  uouiee  and  addresiei  of  corpbrationa  declaring  tho  divideuda 


SCHEDULE  F.  EXPLANATION  OF  ITEM  IT  -Lores.) 


Explain  fully  nature  of  transaction  resulting  in  loss 


SCHEDULE  G.— EXPLANATION  OF  ITEM  16.  (Loatea  of  Property  Located  In  U.  S.  by  Fire.  Storm,  etc.)  See  Instruction  9(f). 

I.  Kind  or  PRorexTT  Z‘u  um^Va^oT-11  I PbevVously’taken.  I *■  Salvage  Value.  I 5.  Insurance  I o.  N*x  Loss 


SCHEDULE  H EXPLANATION  OF  DEDUCTIONS  CLAIMF.D  IN  ITEMS  1.  2.  10.  12.  1 1.  14.  17.  and  18. 


SCHEDULE  I. -EXPLANATION  OF  ITEM  19.  Ratable  Part  of  D«du< 


t Alt<* 


.ted  t 


divided  by  hem  1)  .. 


1.  Total  gross  income  from  all  sources 

2 Total  gross  income  fiom  source?  within  United  States 

3 R itio  of  gross  income  from  sources  within  United  States  to  gross  income  from  all  courci 

4 Total  deductions.. 

0 Deductions  allocated  to  income  from  sources  xvitlun  United  States  

G.  Deductions  allocated  to  income  bom  sources  witboin.  United  States  

7.  Deductions  not  allocated  to  any  class  oi  income.  

8 Amount  of  auch  deductions  i.luth  n>q\  bo  allocated  to  income  from  source?  within  l riled  St.i (Item  7 multiplied  bv  Item  7.)  . 

_ SCHEDULE  j^EXf'LANAT ION_  OF  ITEM  22.  ** » ■■  • 7 

Explain  fully  bow  amount  entered  in  lleui  22  was  di'giiuincd  ...  . 


(An  amended  return  must  bo  plainly  marked  ‘'.'mended"  across  the  face  of  the  return.)  * 

[Page  2 of  Form  1040  K. 


The  Federal  Income  Tax  Service 
Supplementary  Page  272 


'1-18-22. 


INSTRUCTIONS  FOR  NONRESIDENT  ALIEN  INDIVIDUAL  RETURN 


I.  NONRESIDENT  ALIENS  REQUIRED  TO  MAKE  A RETURN  OF  INCOME. 

An  income  fax  return  on  this  form  la  required  »o  bo  filed  by  or  (or  every  nonresident 
•Men  in  receipt  o(  taxable  income  from  source*  within  the  United  Staton,  regard  lean  of  'ho 
■mount  o(  such  income,  unleaa  tho  tax  on  euch  income  ban  been  fully  paid  at  the  nource. 

By  tumble  incomo  in  meant  income  other  than  in  corn*  exempt  from  tax  by  ilaluU  or 
fundamental  low, 

(See  Instruction  I below.) 

2.  PERIOD  TO  BE  COVERED  BY  RETURN. 

Your  return  munt  ho  (lied  lor  the  calendar  year  ending  December  31,  1921 , or  to r the 
finral  year  ending  on  tho  laat  day  o(  any  month  other  than  December  in  the  calendar  year 
1021  The  da  ten  on  which  tho  period  covered  by  tho  return  beginn  and  node,  if  ot  Par  than 
a calendar  year,  mint  bo  plainly  mated  at  the  head  of  the  return. 

In  the  cane  q( a return  (ora  i)criod  o(  loan  than  ono  year,  Uio  not  income  ehall  be  placed 
on  an  annual  Win  bv  multiplying  tho  amount  thereof  by  twclvo  and  dividing  by  tho 
number  n|  innnllin  included  in  auch  period;  and  the  tax  nhali  bn  such  part  of  a tax  computed 
on  auch  annual  Win  an  the  number  ol  monthn  in  auch  period  in  of  twelve  mnulha. 


3.  ACCRUED  OR  RECEIVED  INCOME. 


If  y 


r hooka  of  account  are  kept  on  an  accrual  ban*.  report  all  income  accrued,  even 
though  it  h«a  not  been  actually  received  or  entered  on  the  hooks,  and  expense*  incurred 
innlcnd  of  oxpcnM-e  paid. 

If  your  hooka  do  not  show  income  accrued  and  oxpc  tires  incurred,  report  all  income 
received  or  constructively  received,  auch  on  income  credited  to  your  account,  and  expenses 
(mid 

4.  ITEMS  EXEMPT  FROM  TAX. 


(o)  The  proceed*  of  Uio  insurance  policies  paid  upon  the  death  of  the  injured ; 

(6)  The  amount  received  by  tho  insured  oa  a return  of  premiuhi  or  premiums  paid  by 
him  under  life  insurance,  endowment,  or  annuity  Contracts,  either  dunug  the  term  or  at 
the  maturity  of  tho  term  mentioned  in  the  contract  or  upou  surrender  of  the  contract; 

W Gills  (not  made  as  a consideration  for  service  rendered),  and  money  and  property 
acquired  uuder  a will  or  by  inheritance  i but  tbe  income  derived  from -money  or  property 
received  by  gift,  will,  or  inheritance  is  taxable  and  must  bo  reported); 

(<f)  Interval upon  (1)  tho  obligations  ol  a Stale,  Territory,  or  any  political  subdivision 
thereof,  or  the  District  ol  Columbia;  or  (2)  aacuriliee  issued  under  the  provisions  of  the 
Federal  Farm  I-oau  Act  oi  July  17,  1910;  or  (3)  the  obligations  of  the  United  States  or  its 
pow*-.»ion»;  or  (4)  bonds  issued  by  tho  War  Finance  Corporation; 

(«)  Amounts  received  through  accident  or  health  insurance  or  under  workmen's  com- 
pensation acts,  as  compensation  for  pcreonol  injuries  or  sicknees,  plus  the  amount  of  any 
damage*  received,  whether  by  suit  or  agreement,  ou  account  of  such  injuries  or  sickness, 
(/)  Amounts  received  as  compensation,  family  allotments  and  allowances  under  the 
provisions  of  tho  War  Ri&k  insurance  and  the  Vocational  Rehabilitation  Acta,  or  as  pen- 
nons from  the  United  States  for  sorvico  of  tho  beneficiary’  or  another  iu  the  military  or 
naval  force*  of  the  United  States  in  time  of  war; 


(0  Income  which  consists  exclusively  of  esminga  derived  from  the  operation  of  a 
snip  or  oil  if  -u  documented  under  tho  laws  of  a foreign  country,  provided  such  country  grants 
an  equivalent  exemption  to  citueos  of  the  United  States  and  to  corporations  organized 
in  the  United  8tat*s; 

_U)  Interest  paid  on  deposits  with  persons,  including  individuals,  partnerships,  or 
corporations  carrying  on  the  banking  business,  to  persons— nonresident  alien  individuals— 
not  engaged  m burinees  within  the  United  States,  and  not  having  on  office  or  place  of 
business  therein;  and 

( t ) Interest  received  from  a resident  alien  individual  or  a resident  foreign  corporation 
when  it  mi  ahown  to  tb-  ratiri action  of  the  Commissioner  that  lew  than  20  per  cent  of  the 
rrces income  ot  such  resident  payor  has  been  derived  from  eon  roes  within  the  United  States 
for  the  throe- year  period  ending  with  the  cloee  of  the  taxable  year  of  such  payor,  or  for 
surh  part  of  such  period  imme<aately  preceding  the  close  of  troth  taxable  year  as  may  be 
applicable. 

Any  nonresident  alien  who  exclude*  from  grow  income  from  sources  within  the  United 
States  mourn  of  the  type  specified  in  0)  or  (k)  above  must  file  with  his  return  a statement 
,0Pil  1110  “30Uat  of  ouch  income  and  such  information  as  may  be  necessary  to  show 
that  the  income  is  of  the  type  specified  in  those  paragraphs. 

5.  CREDIT  FOR  PERSONAL  EXEMPTION. 

" *1'000  »' 
WHEN  THE  TAX  MUST  BE  PAID. 

Tho  tax  should  to  paid,  if  posable,  by  raeding  with  the  return  a check  or  money  order 
drawn  to  the  order  of  'Collector  of  Internal  Revenue  at  (insert  name  of  dty  and  8tete).“ 

Do  ndt  eerd  cash  through  tho  nail. 

Tbo  tax  may  to  paid  in  four  equal  installments,  as  follows: 

The  first  installment  shall  be  p-id  at  the  time  fixed  by  law  for  filing  the  return,  the 
second  installment  shall  to  ooid  on  the  15th  day  of  the  third  month,  ttothfrd  installment 
on  the  1-th  day  of  the  Bixih  month,  and  the  fourth  installment  on  the  15th  day  of  tbe 
moth  month,  after  tbe  time  fixed  by  few  foe  filing  tke  return. 

The  total  tax  may  be  paid  at  the  timo  of  filing  the  return,  or  if  paid  in  installments  39 
EL**  *h f,  b*L\n*\du*  “V  may  So  paid1  in  fulTon  or  before  the  date 

wl.sn  the  next  installment  is  doe.  e allure  to  pay  any  installment  on  or  before  the  date 
bird  by  taw  make*  the  taxpayer  liable  for  the  payment  of  tho  balance  of  tax  due  upon 
notice  and  demand  by  the  Collector.  ^ 

7.  PENALTIES. 

For  Making  False  or  Fraudulent  Return. 

Not  exceeding  310,000  or  not  exceeding  one  year’s  imprisonment,  or  both,  in  the 
(lsscretion  of  the  court,  and,  in  addition,  50  per  centum  of  tho  total  tax  evaded. 

Foe  Foiling  to  Male*  Return  on  Time. 

Not  more  than  31,000,  and,  in  addition,  25  per  centum  of  tho  total  amount  of  the  tax. 

Fop  Foiling  to  Pay  Tax  When  Due,  or  Understatement  of  To*  Through 
Negligence,  etc. 

ol  ******  'J'*»  *>«*  unpaid,  plus  interest  at  the  rate  of  1 p«  centum 
per  month  during  the  penod  in  which  it  remains  unpaid. 

8.  CROSS  INCOME  WHICH  LS  DERIVED  IN  FULL  FROM  SOURCES  WITHIN 

Tire  UNITED  STATES  AND  THE  DEDUCTIONS  WHICH  MAY  BE 

PROPERLY  ALLOCATED  THERETO. 

(•)  Income  from  salaries,  wages,  coirnnhuoni,  etc. 

Report  all  salaries  or  other  compensation  for  serviced  performed  within  the  United 
a ' ■ il  **  by,  °[  from  any  source.  Use  a separate  line  for  each  entry  and 

furnish  tbe  name  of  tho  person  from  whom  received. 


Traveling  exnon«o*  (including  the  entire  amount  expended  for  moils  and  lodging), 
while  away  from  homo  in  tho  pursuit  of  a trail*  or  buslmns  ore  doductlble.  Any  amount 
cluluied  os  a dod  111  lion  for  n<«.-«ary  expenses  against  salaries,  etc  , should  to  fully  sx- 
plaload  In  Schedule  II,  pifce  2 of  the  return,  or  In  an  attached  statement. 

(b)  Interest. 

Report  *11  interest  received  or  accrued,  as  the  care  may  be,  on  bond*,  note*,  or  other 
intermt-boaring  obligations  of  rosldent"  of  the  Unite,!  States,  whether  corporolo  or  other- 
wise, except  the  interest  specified  In  Instruction  4 as  iteme  (;)  and  ( k ). 

If  you  have  an  office  or  place  of  husinms  in  the  United  Stales,  include  all  intareat  on 
deposits  with  parsons  carrying  on  a banking  business  which  In  received  by  you  or  credited 
to  your  account. 

Nncnrary  axpcnw  incurred  by  you  in  collecting  taxablo  interest  are  deductible. 


(c)  Income  from  Partnerships,  Fiduciaries,  sic. 

Report  vour  share  (whether  received  or  not)  iu  the  profile  of  a partnership  doing 
business  in  the  United  Statw,  or  in  the  incomo  ol  a domestic  date  or  trust,  except  the  peri, 
of  such  share  that  consisted  of  dividends  on  stock  of  domestic  corporations,  other  I ban  on* 
entuled  to  tho  bone  fits  of  Section  202  (re  o Instruction  8(A)  below),  and  interest  on  the  ob- 
ligations  of  tbe  United  States.  The  dividends  from  such  poutco  should  bo  included  in 
Item!),  page  1 of  tho  return. 

Report  in  Item  1 salary  received  from  a partnership. 

If  the  taxable  period  on  the  basis  of  which  you  file  your  return  fails  to  coincida  with 

. •-»  -r .«. . -•«--=* — •’  'ou should  indudaiD 

1 accounting  period, 

If  the  operation  of  tho  partnership  resulted  in  a loss,  report  your  share  of  the  loos, 

(d)  Income  from  Rents  and  Royalties. 

Report  all  rents  or  royalties  from  property  located  within  tho  United  Statan  or  from 
any  interest  iu  such  properly,  induding  route  or  royalties  lor  the  use  of  or  the  privilege 
of  using,  in  the  United  Staler',  patenis,  copyrights,  secret  proeeeses  and  formulas,  good 
will,  trade-marks,  trade  brenda,  Iranchkes,  and  other  like  property.  The  income  arising 
from  tho  rental  of  property,  whether  tangible  or  intangible,  located  within  the  United 
States,  or  from  the  use  of  property,  whether  tangible  or  intangible,  within  the  United 
State*,  i.i  ftpm  sources  within  .the  United  States. 

Deductions  which  may  be  properly  allocated  to  income  irom  rents  and  royalties  are 
ne>  eeary  expense*  incurred  iu  connection  with  tho  property  for  the  use  of  which  tho 
rents  ar.d  royaltieo  are  paid,  and  depreciation  or  depletion  of  such  property.  Sudi  ex- 
pense*, include  repairs,  interest,  taxed.  fire  insurance,  fuel,  light,  labor,  and  other  nec- 
emary  expenses  of  this  character. 

Explain  in  Schedule  A tbe  deduction  claimed  against  groes  income  from  rents  and 
royalties. 

(•)  Income  from  Business  or  Profession. 

Report  in  Item  6 the  net  profit  (or  loss)  from  — 

(1)  Sale  in  the  United  State*  of  merchandise,  or  of  products  of  manufacturing  con- 

struction, mining,  aud  agriculture,  produced  by  you  wholly  within  theUnited 
States,  or  purchosed  by  jou. 

(2)  Business  service,  ruch  as  transportation,  storage,  laundering,  hotel  and  restau- 

rant service,  livery  and  garage  service,  etc.,  earned  on  wholly  within  the  United 
Stales,  if  you  owned  the  bu-itieas.  If  you  are  an  employee  of  a businees,  report 
your  salary  or  wageo  in  Item  I. 

(3)  A profession,  such  os  medidne,  law,  dentistry,  music,  dancing,  etc.,  if  you  prac- 

ticed it  on  your  own  account.  If  you  were  employed  on  a salary,  report  your 
salary  in  Item  I.  * • r—  / 

In  general,  report  in  Item  C any  income  in  the  earning  of  which  you  incurred  ex-  ‘ 
pensee  for  labor,  rent,  etc. 

Describe  the  business  or  profession  in  the  space  provided  on  pogo  I,  os  " grocery  " 

■ re^  clothing  " “drug  store.”  “laundry,"  "doctor,"  “lawyer, ,r7Pfajmer,”  etc., 
fill  in  Schcduto  I),  rage  2 of  the  return. 

ealee  or  servicee,  lees  any  dia- 


Entor  on  lino  1.  Schedule  B,  the  total  income  fi . . , „ 
counts  or  allowances  from  the  sale  price  or  sendee  charge. 

If  you  ere  engaged  in  a trade  or  business  in  which  the  production,  purchase,  or  aid* 
of  merchandise  of  an v kind  is  an  income-producing  factor,  secure  from  tho  Collector  of 
Internal  Revenue  and  file  as  a part  of  this  return  n Certificate  of  Inventory,  Form  It  ”6 


(f)  Profit  from  Sales  of  Real  Estate  Located  Within  the  United  State*. 

Describe  the  property  briefly,  as  “tann,"  “house,"  "lot.” 

State  the  actual  consideration  or  price  received,  or,  in  case  of  an  exchange,  the  lair 
market  valued  the  property  received.  8 

Enter  the  original  cost  of  the  property,  and  if  it  was  acquired  prior  to  March  1,  1813 
the  fair  market  vaiue  on  that  uate.  Attach  statement  explaining  how  value  at  March  1 
1J13,  was  determined.  Expenrcs  incidental  to  the  purchase  may  be  included  in  the  cost 
if  never  claimed  in  income  tax  returns  as  deductions  from  income. 

„ . ?3  Mno’,nt1of  w!ar  and.,ear  «nd  obsolescence,  or  depletion, 

sustained  since  March  1,  1913  (or  smeo  date  of  acquisition,  if  subsequent  to  March  1. 1913). 

202  St^R^veSue^rt  rf^iqU‘rCd  hy  ^ b°quMt’  dcv“«, 07  seo  Section 

If  the  net  result  to  be  entered  in  Item  7 is  a deductible  lew,  indicate  the  deficit  bv 
using  red  ink  or  a minus  sign. 


(g)  Profit  from  Sal*  in  the  United  State*  of  Pei 
by  Taxpayer. 

The  method  ot  computation  and  the  informati 


>al  Property  Purchased 


be  submitted  in  the  case  of  tales 


in  tho  United  States  of  personal  property  purchased  by  the  taxpayer  are  similar  to  that 
require* I *°f  ~ ■ ‘hat  euh^muent  improvemenfs  snd  depredation  ore  not  In- 

volved in  the  case  of  slocks,  bonds,  and  lifro  securities.  The  profit  (or  low,  should  bo 
computed  in  accordance  with  Instruction  Hf)  above 

(h)  Dividends. 

Import  the  amount  received  »•  dividend*  (a)  from  s domestic  corporation  other  Ibsn 
^TntT  71,111  0,1  ’to.bcnctitM s.-.  li.m  '.’02.  or  (b)  from  a forei;,,,  corporation  imlre^ 
it-s  tnan  per  centum  of  th-  fposs  incomo  of  such  foreicu  corporation  for  the  three  v*tr 
penvi  on.ling  wiiJi  the  clow,  of  Us  taxable  year  preceding  the  declaration  of  su-h  divi- 
dends (or  for  auch  part  of  eu>h  period  as  tbe  corporation  hia  boon  in  existence)  wa» 
Socfion  217™  eour'',M  ,r,th,n  lhe  1 States  as  dcfoI7l,ine<j  uodpr  th,  ^,^009  ot 

t incomo  for  purporcs  of  computing  the 

(l>  Other  Income. 

T***re>°r*  ta*aMo  *■«»«•  from  eourcre  wholly  xrithin  tho  t’nitad  Stains  in 

Item  10,  and  deduct  any  nacexsary  expense*  incurred  in  connection  with  thta  in  coma. 


[Page  3 of  Korin  1040  l>.| 


I'hc  Federal  Income  Tax  Service 
Supplementary  Page  273 


HIN  THE  UNITED  STATES  (OTHER  THAN  DEDUCTIONS  CLAIMED 
AGAINST  PARTICULAR  ITEMS  OF  CROSS  INCOME  FROM  SOURCES 
WHOLLY  WITHIN  THE  UNITED  STATES). 


(a)  Interact  Paid. 

In  order  to  claim  » deduction  for  interest  paid,  the  indebtedness  must  be  connected 
with  some  sourco  of  Uitbl*  income  within  the  United  States. 

Enter  as  Item  12  intermit  paid  ou  personal  indebted n«*  an  rlurtir.guishml  from  biuineee 
iud<'h**da«u  (which  ohouid  bo  deducted  under  Kchodolui  A,  H,  C.  or  J».  Do  not  include 
interval  on  indebtedness  incurred  or  cootiniu-d  for  the  purchase  of  bonds  and  other  obliga- 
tions, the  interest  on  which  in  wholly  exompt  from  tax. 


(b)  Taxes  Paid. 

Enter  an  Item  13  personal  taxon  paid  and  ull  taxes  on  property  liaving  a situ*  ic  the 
United  States  not  used  in  busineu*  or  profenaion,  not  including  those  areesred  against  local 
l»*ncfita  of  a kind  tending  to  increase  tho  value  of  the  property.  Do  not  include  Federal 
income  taxon  or  tax**  impraed  mion  your  in  tom::  an  nhareholaer  or  member  of  a domestic 
corporation  which  ore  paid  by  tno  corporation  without,  rvimburaoment  from  you. 


(c)  Bad  Dtbl*. 

Enter  a*  Item  H all  bad  debt*  which  ore  connected  with  sourer*  of  income  wholly 
within  tho  United  Staten  (other  than  thoeo  claimed  n*  deductions  in  Homo  1-10,  pags  1 1 

Rule  in  Schedule  II,  (n)  of  what  tho  debts  consisted,  (b)  when  they  w«*ro  created, 
(<)  when  they  becamo  due,  and  (d)  bow  they  were  actually  determined  to  be  worthier?. 

(d)  Losses. 

I^wncn  sustained  during  tho  taxable  year  and  not  compensated  for  by  iniunnee  or 
otberwire,  if  incurred  in  any  transaction  ontored  into  for  profit,  though  not  connected 
with  the  trade  or  business,  are  deductible  only  if  and  to  the  extent  that  tho  profit,  if  nuch 
tranrw/’tion  hod  resulted  in  a profit,  would  have  been  taxable  s*  income  from  sources  within 
the  United  Ntates. 

Enter  an  Item  15  only  such  losses  as  are  deductible  in  full. 


(•)  Lot— a by  Fixe,  Storm,  etc. 

Enter  an  Item  10  losses  of  property  located  within  the  United  States  not  connected  with 
your  trade,  business,  or  profusion,  sustained  during  the  year  from  fire,  storm,  shipwreck,  or 
other  casualty,  or  from  theft,  which  were  not  compensated  for  by  insurance  or  otherwise. 
( Loesre  claimed  should  be  explained  in  Schedule  G,  on  page  2 of  the  return.) 

Do  not  deduct  losses  incurred  in  transactions  which  were  neither  connected  with  your 
trade  or  business  nor  entered  into  for  profit. 

(f)  Contribution*.  * 

Enter  an  Item  17  contributions  or  drifts  made  within  tho  taxable  period  to  or  for  tho 
u«e  of.  (e)  tho  United  States,  any  State,  Territory,  or  any  political  subdivision  thereof, 
or  the  District  of  Columbia,  for  exclusively  public  purposes;  < l)  any  domestic  corporation, 
or  coihmunity  chcsf,  fund,  or  foundation,  created  in  the  United  States,  organized  abd 
operated  exclusively  for  religious,  charitable,  scientific,  literary,  or  educational  purpooes, 
including  posts  of  the  American  Legion  or  the  Women's  Auxiliary  UDits  thereof,  or  for  tho 
prevention  of  cruelty  to  children  or  animals  no  part  of  the  net  earnings  of  which  inur«i 
to  the  benefit  of  any  private  stockholder  or  individual ; or  le)  the  epecial  f uud  lor  vocational 
rehabilitation  authorized  by  section  7 of  the  Vocational  Rehabilitation  Art  , to  an  amount 
which  in  all  tho  above  cases  combined  does  not  exceed  15  pc-r  centum  of  the  taxpayer'll 
net  income  from  sources  within  tho  United  States  as  computed  without  the  benefit  of  this 
paragraph.  List  names  of  organizations  and  amounts  contributed  to  each  in  Schedule  H. 

(g)  Ratable  Part  of  Deduction*  not  Do$nitely  Allocated  to  any  Ctaaa  oi  Income. 

In  addition  to  the  deductions  which  can  bo  definitely  allocated  to  income  from  oourcee 
wjfbin  tho  United  Statoe,  there  may  be  deducted  a ratable  part  of  any  other  expenses, 
losses,  or  deductions  which  can  not  be  definitely  allocated  to  income  from  sources  within  or 
without  the  United  States.  The  ratable  part  is  based  upon  the  ratio  of  groes  income  from 
source?  within  the  United  States  to  the  total  gross  income. 

Exomvla. — A nonresident  alien  individual  derived  gross  income  from  all  sources  for 
1921  of  81HO.OOO.  There  was  included  therein: 

99.000  Interest  on  bonds  of  a domestic  corporation. 

4,000  dividends  on  stock  of  a domestic  corporation . 

12.000  royalty  for  the  use  of  patents  within  the  United  States. 

11.000  gain  from  the  sale  of  real  property  located  within  the  United  States. 

536,000  total. 

That  ■*,  one-fifth  of  the  totalgroas  income  was  from  sources  within  the  United  States.  The 
remainder  of  tho  gross  income  was  from  sources  without  the  United  States. 

The  expenses  of  the  taxpayer  for  the  year  amounted  to  $78,000.  Of  these  6xpon«w 
tho  amount  ol  $8,000,  including  ouch  items  as  commission  paid  for  tho  sale  of  the  real 
property  located  within  the  United  States  and  interest  on  indebtedness  incurred  to  pur- 
chase the  stock  ol  a domestic  corporation,  is  properly  allocated  to  income  from  sources 
within  the  United  States  and  the  amount  of  $40,000  is  properly  allocated  to  income  from 
sources  without  the  United  States. 

The  remainder  of  tho  expenses,  $30,000,  can  not  be  definitely  allocated  to  any  eta®  of 
income  A ratable  part  thereof,  based  upon  the  relation  of  groes  income  from  sources  with- 
in the  United  States  to  the  total  gro«  income,  shall  be  deducted  in  computing  net  income 
from  sources  within  tho  United  States.  Thus,  there  is  deducted  from  the  $36,000  of  grass 
income  from  oourcc-9  within  the  United  States,  in  addition  to  the  $8,000  properly  appor- 
tioned to  the  income  from  sources  within  the  United  States,  $6,000,  a ratatlo  pert  (one- 
fifth)  of  the  expenses  which  could  not  be  allocated  to  any  item  or  clam  of  gross  income. 
The  remainder,  $22,000,  is  the  not  income  from  sources  within  the  United  States. 

EDter  os  Item  19  the  ratable  port  of  any  deductions  not  definitely  allocated  to  any 
clw»  ol  gross  income  computed  as  above. 

State  in  Schedule  I the  total  gross  incomo  from  all  sources,  the  total  gross  income  from 
sources  within  the  United  Statee,  the  total  deductions,  the  amount  definitely  allocated  to 
income  from  sources  within  the  United  Stales,  the  amount  definitely  allocated  to  income 
from  sources  without  the  United  States,  and  the  amount  which  can  not  be  definitely  allo- 
cated to  any  clase  of  incomo 


10.  INCOME  FROM  SOURCES  PARTLY  WITHIN  AND  PARTLY  WITHOUT 
THE  UNITED  STATES. 

Method  of  Computing  Amount  Attributable  to  Sourc**  Within  tho  Unltod  Stnteo. 

Boction  217  of  the  Rsveotio  Act  of  1021  contain*  tho  following  provisions: 

"(r)  " • * In  the  cose  of  yr xm  Income  derived  from  source*  partly  ^itbiu  and  partly 
without  the  United  Sutcn,  too  net  income  may  first  bo  computed  by  -Ic'l  .ci.nr,  Ihs  n 
poores,  loss®  or  other  deductions  apportioned  or  Allocated  tLvreto  r.no  x ret  'bl*  part  of  an v 
expenses,  losrca  or  other  deductions  wldch  can  notdcfiuitelv  be  allocated  to  some  item  <•  i 
cl*/*  of  pro®  income,  aod  tho  portion  of  such  not  income  attributable  to  courw*  with;-  rro 
United  State*  may  be  determined  by  pro cease*  or  formulas  of  ftonoral  apportionr-.e  <>  p>> 
scribed  by  the  <x»mmu*iotirr  with  the  approval  of  the  Secretary.  «i ijnx,  profits  ' I 
incomo  from  ( 1 ) transportation  or  other  ec rvirt*  rendered  partly  within  and  font'  f without 
the  United  Plato*,  or  (2)  from  the  ante  of  pomonal  proper*  v produced  (in  whole  nr  in  part ) 
by  the  taxpayer  within  and  sold  without  tho  United  Stater,  or  produced  fi-i  whd"  or  in 
part)  by  the  taxpayer  without  and  o-.!d  within  the  United  Stated,  nV./JI  be  treat*  t &•  d ri  v«d 
partly  from  aourens  v/itifLi  and  partly  from  eou/ceo  without  the  United  State*.  * * * 
"(DA  s used  in  this  section  Um  words  ‘aale'or  'cold  ’ include  'exebango'  or  ‘exciiir.yed 
and  tho  word  'produced ' Includes  'created.’  'fabricated,'  'manufsetured,'  ‘extrected, 

' procowod , ' ' cu  rod , ' or  ‘ agod . ' " 

Itomo  of  gnen  income  not  allocated  toeourc"ti  within  or  without  the  United  8Utlc**h*U 
(unleaa  unmistakably  from  a eource  within  or  a source  without  tbn  United  State*) 
treated  as  derived  from  reurce#  partly  within  and  partly  without  tho  Uhited  8ta*re, 
according  to  ta<-  tallowing  oil®  and  o;«os 

If  the  incomo  is  rvunpansalion  ter  jserttmol  tmotu  perfnrnud  part'-  'f'.ih'n  end  < 
'rithmil  lh<  t intfd  .State ».  ire  ai.ioiint  attribi; table  to  source*  within  the  Uni*1  -u  ■-*  % 
an  amount  whit  ii  beam  tbn  isjit  r datiou  to  th*  total  compoMati.-ni  ur  he  r.utd  ~r  I ' * 

of  porforman-  o of  ihe  *<-i  1 »i  Jit  Uoirwl  ‘'te.toi  '.-com  to  i'r  -•>  oural-e:  rf  day* 

of  perform cn co  of  sarvic-M  for  who :.  compensation  is  nivln. 

Manufacturer! mud  Brod'nrr)  — C,-  r,  ir.como  lorived  from  'ho  r'»le  of  pc--»nrj  proton y 
producod  (in  whole  or  in  part)  by  »!«;•  .’rpayre  » i'.hin  a-,d  vil  - i*  *ne  Uai  .-a  3*.- to*, 
or  prixlucod  in  whole  or  in  part  b--  li^o  to-'cayer  without  and  sold  within  lbs  Uuitwi  h.s  ■* 
shall  bo  treated  as  derived  partly  from  ff.urces  w.thiu  sod  partly  fwoi  er.;.-rss  without 
tho  United  8taU>*,  under  one  ol  too  csck-i  ruiroc*'  bolow.  A used  herein,  the  -v<rd  "pro- 
duced" includee  created,  fabricated,  moaufeeturod,  extrucUsi,  nrwewwd,  ru-< J r.r  ogH 

Caso  1 Where  U>o  manufacturer  or  produever  regularly  noil*  part  of  !■.«  t*  u»  to 
wholly  indopondont  distributor?  or  other  nolUng  cow-er.'s  ;*  swh  » way  r,-.  i,  • «r.  ■ .m 
fairly  an  independent  factory  07  production  price — c*  nil- wa  to  t!.*  ■*".:.L,'a / ./■  -f  tlv* 
(kiramirnioner  that  mjch  an  independent  factory  or  product  ->  ptice  hr.*  )«eu  othxrww 
established— unaffected  by  oonaiaeratiotw  ol  r.-.x  liability,  and  t':-i  *IU- , or  «l«<ributjng 
breu>  h or  departniout  of  tnft  buriicaM  locate!  iu  a diffsnrnt  < • •-  try  thao  :V.at  in  wbu-n 
tho  factory  is  located  or  tb^ production  carried  on.  the  nr-t  iantenj  attributable  to  sou r-xrv 
Within  tho  United  Staton  shall  bo  corouutod  by  an  r>  ■our-tio^  v..-ch  treat*  the  product* 
as  sold  by  the  factor*'  or  productive  department  of  tho  b isrocai  to  tho  di.drih uting  nr 
•soiling  dupamaoat  at  Uw  independent  factory  ti.-o  co  ostablubod.  In  all  such  cases  the 
l>a*in  of  the  arcoun:  »g  nLn!l  bo  fully  exjjlainou  in  a statement  arijycl-jal  to  the  return. 

It  tho  property  i*  produc^l  (in  whoio  cu  ir:  pirt > w/hem  to*  Lnitod  States  and  sold 
within  the  Uni'.oa  Staten,  th*  portion  of  tbs  profit  attributable  to  sources  within  the 
United  Slatea  ie  an  amount,  r-.piatc1' iog  tho  diCeronce  ketwo'-n  tho  "independent  fac- 
tory or  production  price"  and  fbo  selling  price. 

If  the  property  La  produced  fin  whole  or  in  per*)  >ri:Vn  the  I'nited  States  *ud  aold 
without  the  Unite!  States,  the  portion  of  tho  profit  r : rbuteblo  to  so  iree:  within  the 
United  States  le  r.u  a-irount  representing  the  d'.ilerenca  bet*-een  the  ooet  oi  produriag  the 
property  and  the  "independent  factory  or  production  prico." 

Cans  2:  Where  an  independent  factory  or  produ-  i «a  price  ha*  not  boon  wtablisbed 
us  provided  order  ct.se  1,  the  nrt  inco:ne  shr.li  first  be  computed  hy  deducting  from  tbs 
gress  income  derived  from  sources  partly  wjth>n  and  partly  vririiout  the  United  State*  the 
expense1,  Ioj sea,  or  other  deductions  properly  apportioned  or  r:,r.-*,'-d  the  oto  aod  c ratabla 
part  of  any  expenson,  losses,  or  other  deduciiona  which  can  not  definitely  bo  allocated  to 
some  item  cr  class  of  groue  income.  Of  the  amount  of  net  income  co  dotanrdeed,  cce  bslf 
shell  be  i.Dportioned  in  accordance  with  tho  value  of  the  taxpayer's  proper^  within  end 
without  tha  United  States,  the  portion  attributabb  to  sources  within  tree  unitod  States 
being  detenniuod  bv  multiply  ingSiicb  oi  e-half  by  a fraction  the  numcrafrir  of  which  con- 
sist.-. of  the  valuo  of  th-*  tiTjv-ver'fl property  within  the  United  Stat-yi  a^d  the  deFominr.tor 
of  which  conoisto  of  the  value  of  the  taxpayer's  property  both  within  aod  wiibnut  the  V .died 
Statee.  The  remaining  one-holi  of  ouch  net  income  ohail  be  apjv-Lco~J  accordtrue 
with  the  groes  aalee  of  tiio  taxpayer  wrihin  and  without  the  United  States,  too  portion 
attributable  to  sources  within  tlo  United  States  being  determined  by  multiplying  ouch 
one-hall  by  a fraction  the  numerator  of  which  comsisls  of  the  taxpayers  gro?a  e*'«  f ir  tha 
taxable  yecr  cr  period  within  the  United  Statoe,  and  the  dor.onur.ator  cf  width  consists 
of  the  taxpayer's  gross  satos  for  the  taxable  ye at  or  period  both  within  and  without  ibe 
United  States.  "Gres?  sale*  within  the  United  States"  means  the  aggregate  amount  of 
all  aalea  made  during  tho  taxable  year  which  were  principally  r-icured,” negotiated,  or 
effected  by  employees,  agsets,  offices,  or  branches  of  the  taxp eyer'e  business  resident  or 
located  in  the  United  States. 

Tho  term  "property"  as  used  in  these  instructions  includes  only  the  property  held  or 
used  to  produce  incomo  which  is  darived  from  sources  partly  within  and  partly  without  the 
United  Statee  (excluding  &H  property  held  or  used  to  produce  income  which  >r  allocated  or 
apportioned  to  enuzcea  woolly  within  cr  wholly  without  the  United  States.  Such  property 
should  be  taken  et  its  actual  vslue,  which  in  the  case  of  property  valued  or  apprai«cd  for 
purposes  of  inventory,  depredation,  depiction,  or  other  purposes  of  the  Revenue  Aci  d 
1921  shall  be  the  htaheet  amount  at  which  eo  valued  or  appraised,  and  which  In  other  cases 
shall  be  doomed  to  be  itc  book  value  in  the  absence  of  affirmative  evidence  ehowiDg  such 
value  to  be  greater  or  lem  than  the  actual  value.  Tho  average  value  during  tho  taxable 
year  or  period  shall  be  employed.  The  average  valuo  of  property  as  abrA-o  preecrihtw!  at 
the  beginning  and  end  of  the  taxable  year  or  period  ordinarily  may  be  u»f  j,  unless  by 
reason  of  material  changes  during  the  taxable  year  or  period,  such  average  dore  ro*  fairly 
represent  the  average  for  such  year  or  period,  in  which  event  the  average  shall  bo  do  tor 
mined  upon  a monthly  or  daily  basis.  Bills  and  accounts  receivable  shall  (unless  satis- 
factory reason  for  a different  treatment  is  chorm)  bo  assigned  or  allocated  to  the.  United 
States  when  the  debtor  resides  in  tire  United  Stoteo,  unleaa  Ihc  taxpayer  has  no  office, 
branch,  or  agent  in  the  United  States. 

Case  S:  Application  for  permisden  to  base  the  return  upon  tho  taxpayer’*  books  of 
account,  will  bo  considered  by  the  Commiurlonar  in  tho  case  of  auy  taxpayer  who,  in  go«d 
faith  and  unaffected  by  considerations  of  tax  liability,  regularly  fmrloye  in  his  books 
of  account  a detailed  allocation  of  receipts  and  expenditures  which  reficcW  more  clearly 
than  tho  processes  or  formula*  proscribed  under  cases  1 and  2,  the  incomo  derive!  irom 
eources  within  the  United  6tates. 

Explain  fully  in  Schedule  J how  you  determined  amount  entered  in  Item  22  a*  portion 
of  income  attributable  to  sources  witnin  United  EUtoa. 


11.  TAELE3  OF  SURTAX  AND  INSTRUCTIONS  FOR  CALCULATION. 


TKe  Federal  Income  Tax  Service- 
Supplementary  Page  274 


S S2  .SS  BBS 


1-24-22 


Form  11S10A 
U 8.  Intehmal  Kitinoi 


THIS  RETURN  SHOULD 
BE  FILED  NOT  LATER 
THAN  THE  ISTH  DAY 
OF  THE  THIRD  MONTH 
FOLLOWING  THE  CLOSE 
OF  THE  FISCAL 
YEAR 


CORPORATION  INCOME  AND  PROFITS  TAX  RETURN 

FOR  FISCAL  YEAR  ENDINC  IN  1922 

FUcrI  y— r bfun 1921,  and  tndtd » 1922 

PRINT  PLAINLY  CORPORATION'S  NAME  AND  BUSINESS  ADDRESS 


Puuo  1 of  Itoturn 
O NOT  WHITE  IN  THEM  INUli 

*1-4  h 

r i«'»  i PAYMENT 


ICuIiIm'*  SUrapi 


CHECE  M.O.  CEBT.Orir 


KIND  OF  BUSINESS .. 


IS  THIS  A CONSOLIDATED  RETURN  T .... 


SCHEDULE  A-TAXABLE  NET  INCOME. 


1 C.N 


a sales,  less  retunui  and  allowance*... 


CROSS  INCOME. 


2.  Leas  coat  ol  good*  Hold,  exclusive  of  it*' am  called  lor  separately  below  (Irom  Schedule  A2)... 

3.  Grose  income  from  operations  other  than  trading  or  manufacturing,  law  allowances  (from  Schedule  A3). 

4.  Taxable  interest  on  liberty  Bond*,  etc.  (from  Schedule  A4) *. - 

6.  Taxable  Interest  lrom  all  other  oourcet. — ... 

0.  Rents — 

7.  Royalties 


8.  Share  of  net  income  earned  by  peraonal  service  corporation  prior  to  January  1,  1922  (whether  received  o 

9.  Dividends  on  stock  of  foreign  and  domestic  corporations : — 

10.  Other  income  (not  including  any  amount  reported  in  Item  23,  below)  (from  Schedule  A10) 

11.  Total  ©p  Itims  1 to  10 


DEDUCTIONS. 

12.  Expenses  (except  amounts  reported  in  Item  2 above,  or  called  for  separately  below)  (from  Schedule  A12)'._ 

13.  Compensation  of  officers  (in  whatever  form  paid)  (from  Schedule  A13) 

14.  Repairs  (including  labor,  supplies,  etc.)  (from  Schedule  A14) — 

16.  Interest  (see  page  2 ol  Instructions,  paragraph  9) — — - 

16.  Taxes  (from  Schedule  A16) — ...«■ - - 

17.  Bad  debts  (from  Schedule  A17)_. 


18.  Exhaustion,  wear  and  tear  (including  obsolescence)  (from  Schedule  A18) 

19.  Depletion  (from  Schedule  A19) 

Amortization  of  war  facilities  (from  Schedule  A20) 

Total  bf  Items  12  to  20 : 

Item  11  Mmoe Jtxm31  . , ... 

Profit  or  loss  on  isles  of  capital  assets  and  miscellaneous  investments  (from  Schedule  A23) 


Losses  by  fire,  storm,  etc.  (from  Schedule  A24).  (Extend  difference  between  or  sun 
Net  income  exclusive  of  deductions  for  dividends  (Item  22  plus  or  minus  Item  24,  a 


of  Items  23  and  24)_ 
i extended) 


27.  Net  Tmoome  (Item  25  minus  Item  26).  (If  return  is  for  a period  lea  than  twelve  months,  see  page  lof  Instructions,  paragraph  10) 

» . J. U 

SCHEDULE  B— INVESTED  CAPITAL. 

„ i | | fifg  | 1 i * a(  #...K]a  rinA  OrhcHnlp  p Item  1 1 1 

T 1 

“ a-"T  M.i  in  if  ulilitfTir  f*  r ^iiliili  r 

*>'  “*  TJ^  t “ yway 

« 





I 

zr 

L ilsil  ti  ^ | imrlr  [t"  ,ll  Drh«1ii?e  7) 

O T^Ta Ji?. w r ° ' 

$ 

• ! 

SCHEDULE  C— EXCESS  PROFITS  CREDIT. 

1 Eight  ( f t d 'Isl  f “ tr"***1**  period  (Tfrm  ° h-l-AmI.  r) 

_J 

P 

1- 

SCHEDULE  D— COMPUTATION  OF  TAXES. 

2.  Nn  Income  3.  Excess  Psorrra  Caxorr  b.i  .hji  sltuect  to  Tax  „ ‘ 

L Baaczna.  (Item  77,  Schedule  A).  (Item  3.  Schedule  C,.  4.  BaLaUcE  si-bvect  to  lax.  r*te. 

S.  Amoott  or  TaX. 

1.  Net  income,  not  in  exceae  of  20#  of  invested  capital.. 

2.  Balance  of  net  income 

3.  Totals  computed  at  1921  rates  under  Section  301(a) — 

4.  Excem  Profits  Tsx  at  1921  rates,  if  computed  under  Section  302,  303,  304(c)  or  337  of  the  Revenue  Act  of  1921  (see  page  2 of  Instructions,  paragraph  14) 

. 6.  Net  income  (Item  27,  Schedule  A) 


. Lmx  Taxable  Interest  on  obligation!  ol 
tba  Unite)  States  (Item  «,  Schedule  A)... 

. Excma  profits  tax  (Item  Jot  I whichever 
Is  smaller.  In  column  8,  Schedule  D);  or 
. Profits  taxes,  I (net  Income  from  Government 
contracts  prior  to  January  I,  t«23,  exceeds 

110,000  (IUm  1*.  Form  lixrf) 

. Exemption  12,00),  tor  domestic  corporation 
haring  a net  income  o < lam  than  $0,300  — 

i.  Balance  (Item  6,  lees  Items  6,7,  and9,orltems6, 8,  and  9)_ 
. Income  tax  at  1921  rates  (10#  of  Item  10) 


14.  Net  income  (Item  27,  Schedule  A).... 

15.  Lear  Taxable  interest  on  obligations  ol  1 

the  United  Stales  (Item  s,  Schedule  A)— If 

16.  ExampUoo  KfiOO,  (or  domeetlc  corporation 


. If  the  net  income  of  a domestic  corporation  is  lea  than 

$25,200,  enter  amount  in  excees  of  $25,000 

. Total  tax  for  entire  period  computed  at  1921  rates  (Item 

3 or  4 the  leaser,  or  8,  plus  Items  11  and  12). 

. Total  tax  for  fiscal  year  beginning  in  1921  and  ending  in  1922  (Item  21  plus  Item  22) 

. Lea:  Income  and  profits  taxa  paid  to  foreign  countries  or  pcaeaionB  of  the  United  States  (attach  Form  1118)— 

Taxa  paid  at  the  source  (see  Section  237  of  the  Revenue  Act  of  1921) 

. Balance  of  tax  siue  (Item  23  minus  ltem»  24  and  26)  — ■ 


17.  Balance  (Item  14  minus  Items  15  and  16) 

18.  Income  tax  at  1922  rata  (12J#  of  Item  17) 

19.  If  the  net  income  of  a domestic  corporation  is  lea  than 

$25,250,  enter  amount  in  excca  of  $25,000 

20.  Total  tax  for  entire  period  computed  at  1922  rata  ( Item 
18  plus  Item  19) 


An  encoded  return  must  be  plainly  marked  ‘'Amended.'* 


Checks  aged  drafts  will  be  accepted  only  If  payable  at  par. 


[Page  1 of  Form  1120  A. 


The  Federal  Income  Tax  Service 
Supplementary  Page  275 


!»•*«>  2 of  Return, 


r'unlly  « 


pertod  ihbiild  U entered  In  this  schedule 


lotlKelt-nllhetUI  .paid  up.  lUtool  of  shares  were  lesui 

r •>.  Thin  I'am  should  I rvlud* paid-in  surplus  V shown  by  book  • st  t Ik  arw 1 of  t Ik preceding  U»»'4s  period 
If  any  emounl  It  claimed  Un<1«r  1'ertlon  3 iWa)  2 of  the  Revenue  Act  of  1*31,  til#  amount  claimed  should  be 
entered  under  T'sm  1.  Schedule  F,  end  not  in  this  schedule 

r 7.  Keren**  whirl.  represent  allorellons  of  nrplun  end  wars  not  aceunx.leted  through  deductions  mails 

antnaa should  Iw  Idantlfl.-d  snd  I f n«r*”*ry  reconciled  with  balance-sheet  reran  vs. 

EH).  If  tba  corporal  Ion  lisd  on  lisnd  »l  sny  time  during  tho  laisbla  jKrlod  sny  traaeury  stock  copies  ufU# 

2 learury  slock  Include:,  all  slock  reacquired  by  tha  corporation  and  not  canceled,  regardless  of  th*  reason  for  t ha 


SCHEDULE  F.-ADJUSTMENTS  B 


an  addition  to  Inv 
id  of  property,  (6)  th 


Is  planned  In  llam  I.  {schedule 
h 1 1 was  paid  In,  (e)  Irom  whom 


F ADDITIONS. 

cqulrad,  explaining  hla  rela 
hen  peldln.(r)  tbc  par  val 
•red  In  tha  accounts,  (/)  the  l 


of  tho  property  w 
iatlon  sustained© 

d capital  Is 


io  to  tha  beginning  of  tha  taxable  period.  For  alt  ad 
ion  to  t lie  loginning  of  the  taxable  period, 
lltlon  to  Invested  capital  U rlalmad  In  Item  3,  Schedu 
n oil  each  year  In  the  hooka  of  the  company  and  tha  ai 
Additions  to  this  Item  ara  cumulative  to  tha  beglnnl: 


,e  taxable  period.  Were  than 
r io,  explain  wbat  adjustments 
to  surplus.  Additions  In  this 


KieXsrfaSL^ 


Additions  to  rurplus  (sea  I 
,.  Depredation  or  depletion 
disallowed  by  tbs  brp*r 


(tee  Bee  lion  32  8 (a)  3 


SCHEDULE  C.— ADJUSTMENTS  BY  WAY  C 
Cl.  Is  any  patent,  copyright,  secret  process,  or  formula,  pood  wil 
other  «in.Her  In l eligible  property,  paid  In  for  stock,  carried  ns  an  aise 
mt  enured  specifically  as  such.  Is  the  Intangible  value  merged  under 

balance  sheets  submitted  with  this  return? hit  entered 

ectualcaah  value  wLtn  paid  In?  ..... 

Is  the  aggregate  of  such  assets  acquired  prior 


■ of  lha  at 


i value  In  excess  oi 

of  the  taxable  period! 

I f tlx  answer  to  any  of  tha  foregoing  question 
to  auch  assets  acquired  (1)  before  March  3,  1917, 
value  at  that  date,  with  a complete  explanatlc 
(c)  par  value  of  the  stock  Issued  therefor;  (d)  pa 
of  total  stock  outstanding  at  the  beginning  of  th 
on  l ‘>e  books  of  tbe  corporation. 

II  all  the  intangibles  were  acquired  be  lore  March  3, 1917,  the  amount  t 
cent  of  (if),  or  25  per  cent  of  (c),  whichever  is  lowest , must  U entered  as  Item  1 

If  the  Intangibles  wore  acquired  on  or  after  March  3.  1917,  the  amount  t 
such  Intangibles  exceeds  (5)  or  (c)  relating  thereto,  or  25  per  cent  of  (0,  wh 
In  Item  I,  Schedule  C,  for  the  taxable  period:  ProrUti,  That  1 1 intangibles 


DEDUCTIONS. 


books  at  a value  I 
...  Istheaggreg 

stock  outstanding 


le  period.  (/)  tt 


t choiring  separately  with  rospecl 
, (a)  date  of  acquisition;  (5)  cash 
uch  cash  value  was  determined; 
ding  Match  3. 1917,  (r)  par  value 


which  (/I  exceeds  (6),  (c),  25  per 
chedule  G , lor  the  taxable  period, 
which  the  entry  in  (J)  relating  to 
lever  Is  lowest,  must  bolncluded 
to  acquired  before  March  3, 1917, 
deduction  shall  bo  made  sot  bet  the  amount  Included  In  Invested  capital  for  the 
iggregatc  of  Intangibles  shall  not  exceed  25  per  cent  of  the  par  value  of  the  total  stock  outstanding  at  the  beginning 
the  taxable  period. 

Niro.— 4f  the  stock  of  the  corporation  was  Issued  at  a nominal  value  or  without  per  value,  lor  tho  purpose 

>f  the  computation  under  Item  1,  thepar  value  shall  be  deemed  to  be  the  lair  merkc' 

if  Issue.  The  aggregate  value  so  determined  of  stock  outstanding  on  March  3.  19 
axeble  period,  shall  be  the  basis  lor  Ibe  computation. 


irporatlon? 


02.  Is  any  tangible  properly,  paid  In  lor  a took,  chrrtcd  as  on  asset  by 
so,  la  It  entered  on  the  books  at  a value  I n excess  of  Ha  actual  cash  value  i 

:cess  of  the  par  value  of  the  stock  paid  therefor? 

II  f he  answer  to  either  of  the  last  two  questlanela  " yes,"  submit  a statement  showing  (a)  kind  of  property, 
ecqulred,  (e)  par  value  ol  the  stock  paid  therefor,  (d)  actus  1 cash  value  of  the  property  when  paid  In, 
•)  the  basis  on  which  that  valuo  was  determined,  (/lvalue  at  which  the  property  laentered  on  tbe  corporation’s 
t-eoks,  and  (?)  amount  by  which  such  value  exceeds  tbe  allowable  value  under  Section  320  (a)  2 of  the  Revenue 
Act  of  1921  Enter  this  amount  as  Item  2,  Schedule  G,  lor  tho  laiable  period. 


W 


03.  Was  the  business  relncorp 
i ebaoge  In  ownership  of  property 
(o)  Did 


of  50  per  cent  or  morel  n the  business  or  In  tbe  property  which  changed  ownership  remain 
.mo  persons , curporullims,  associations.  or  partnerships,  or  of  aoy  ol  themf 


r otherwise  si. 


ice  for  depreciation,  depletion,  or  1 to  pair  merit  slot*  tho  date  of  acquisition  by  such  pre 
Id)  If  all  .or  substantially  all  of  the  property  was  acquired  from  a corporation  during  the  taxable  period, 
far  hereto  balance  sheets  of  such  predecessor  corporal  tons  as  at  the  beginning  of  tbe  taxable  period  nod  as  ot  the 
ite  inuned'ately  prior  to  tbe  transfer  of  the  property  to  tbe  corporation  making  the  return,  and  also  a balance 
ieet  or  statement  of  the  corporation  making  this  retom  showing  the  values  at  which  such  property  received 
transferred  were  entered  on  Ibe  books. 

Tor  the  purpose  of  determining  Invested  capital  each  asset  so  transferred sliall  be  allowed  a valna  (a)  nol 
eater  than  would  hove  been  allowed  to  the  provioos  owner.lt  a corporation;  or,  (6)  If  not  a corporation,  ai 
i cost  la  such  previous  owner,  with  proper  adjustments  lor  losses  and  Improvements. 


sbowiDg  (1)  the  cost  of  acquisition  to 
■ubscqmrnt  to  that  dstefor  betterment 
by  such  previous  owner , (3)  the  allow- 


r.t.  Is  any  property  'including  physical  property,  aacurltla*.  and  iDteng)bl#  propart  7 j paid  lor  wltbsaab 
or  with  other  tangible  properly  Mitered  bn  tbe  hooks  of  the  corporation  at  a value  In  aicaas  of  tha  amount  ol  cash 

paid  l brief'*  or  (ha  aet"o  Iraxb  value  of  (lie  tanglb.e  property  paid  therefor 7 If  so.  submit  a 

statement  showing  (a)  kind  of  property,  (b)  amount  of  cash  paid  therefor,  (<)  srt.ialcwvh  raliw  of  other  tangible 
properly  paid  therefor,  (<f)  how  that  value  was  determined,  tr)  value  s'  which  the  properly  la  antared  on  »he 
l-ooks  of  tho  corporation,  end  (J)  t icvwv  of  («)  o<er  (»)  or  (r).  Thlarxrerv  must  la  entered  as  Item  I,  Schedule  <J, 
for  the  tavablr  porM. 

nit.  live  ade-iuate  provision  bean  made  In  the  amounts  of  the  corporation  for  (e)  loaaae  of  (vary 
kind?  — (f<j  depreciation? (c)  obaolwjcvneef  (d)  depletloo  of 

If  adequate  charge  has  not  been  made  for  depredation,  depletion,  obsolescence,  and  other  losses,  and  tbe 
value  of  the  property  has  not  bean  maintained  by  replacements  that  have  been  charged  to  expense,  prayer 
additional  charges  therefor  must  be  computed  for  ell  years  In  which  they  were  not  made  on  lha  books,  and  tha 
tote!  amount  of  each  charges  must  be  entered  as  Item  5.  Fchtdule  0. 

Gfl.  Did  the  corporation  aver  reodv*  a flock  dividend  on  ftoek  owned  In  another  corporation? 

If  the  answer  la  "yes,"  aUta  In  detail  for  each  ftoek  dlrldand  received,  (a)  dale  reoalvcd,  (A)  from  whom 
received,  (c)  number  of  thane  received,  (tf)  par  value  of  therm  received,  (r)  value  at  which  entered  on  Us 
book*  of  account,  (J)  whether  or  not  surplox  was  Increased  by  this  value  Ifanawtrlo  (/>  b “ym,"  enter  Ibe 
amount  by  which  surplus  wet  Increased  as  Item  6,  Schedule  0.  If  answer  Is  "no,"  state  tbe  oocount  la 
which  it  was  Included,  (g)  dale  of  fele  of  any  of  the  share*  of  flock  reoeived  as  a sunk  dividend,  (»)  nnm her 
of  shares  told,  (I)  amount  received  therefor. 

Nero. — If  answers  to  the  foregoing  queetlous  Indicate  thet  stork  dividends  recalved  et  toy  time  have  been 
treated  as  su  Incxeaee  of  surplus,  et.d  such  liureeso  le  reflected  in  the  cun, potation  of  Invested  capital  In 

lor  such  taxable  period  or  periods  In  which  this  error  occurred. 


"«■ 

Amount. 

1.  Valuation  of  patents  copyright-.,  ercirt  (women,  or  formulae,  rood  will, 

trod*  narks,  trade  nranui,  franchise*,  or  othw  Intangible  propariy 

2.  Valuation  of  tanclhle  proprrty  paid  In  lor  stock , — ... — 

j 

a r - - ' 

7 Torsi  Dmomcue 

— 

SCHEDULE  H— CHANCES  I 


1 INVESTED  CAPITAL  DURING  TAXABLE  PUUOD. 

g tie  taxable  period  ordinarily  arise  la  one  or  more  of  the  followtag 


(e)  By  llqulr 


of  pert  oi 


capital  by  retirement  ol  • 


W by  purchase  of  traaeury  i 


(d)  By  poymentofeesh  dlvldendsot 

(r)  Ey  payment  of  Federellnoomo  or 
for  t ho  omission  should  b«  eteted . 

2.  The  following  Instructions  should  bo  followed  In  making  the  above  adjustments;  each  Item  should  bo 
designated  as  an  addition  or  deduction,  deduction  being  dralgnated  by  rod  Ini ; 

(o)  11  stock  Is  Issued  for  cash,  ite  octim I ra’h  received  (but  not  the  amount  of  discount)  rbould  b«  it,  treed 
In  Ibis  schedule.  Assets  (otber  than  cash)  paid  in  for  stock  must  be  valued  In  accordance  with  Section  SJe'ej  3 

(b)  U capital  stock  of  the  corporation  Is  reacquired  but  not  paid  lor  out  of  current  profits,  tha  toft  of  rich 
stock  should  bo  deducted  from  invested  capital. 

(r)  Report  dividends  paid  out  of  profits  ol  prior  years  but  not  dlrldands  paid  out  of  profits  of  the  taxable 
period.  Any  distribution  made  during  the  first  SO  days  of  tho  taxable  period  shall  be  deemed  to  have  ben  made 
from  earning*  orprofitf  accumulator)  during  procodlng  taxable  years;  but  ary  distribution  made  during  tha 
remainder  of  the  taxable  period  shat  I bo  deemed  to  hove  been  made  from  tbe  profits  for  that  period  to  tbe  extol 
that  such  profits  ore  so rDc lent.  (See  Section  201(  f ) of  tbe  Revenue  Act  of  1921.) 

(d)  The  amount  of  Federal  Incomo  and  profits  to  see  payable  should  be  prorated  and  deducted  at  of  lha 
dotes  when  doe  and  payable  whether  reserve*  have  been  set  up  on  tbe  books  or  not.  Tbe  average  adjusted 
deduction  to  be  entered  in  column  7 equals  total  Income  and  profits  tax  multiplied  by  0.423S. 

3.  Tbe  do'a  called  lot  In  columns  1 to  l should  be  given  for  all  transactions,  except  that  columns  1 and  4 
are  applicable  only  to  tbe  Issue  or  rcacqulsltlon  of  the  corporation's  stock. 

i.  In  column  fi  enter  I Le  Dumber  of  days  remaining  In  tho  taxable  period  (including  tho  date  ot  change). 

6.  Tho  net  changes  not  reported  I n bchedul*  L.  I f not  In  accordance  with  the  lncrteace  or  decreases  reflected 
In  the  balance  sheets,  rhould  be  fully  reconciled  I herewith. 


1.  Nature  of  additions 
and  deductions. 

4. 

acquired. 

4.  lffor 
Prtorprr 

actually  received 
or  paid  out. 

Sv 

7.  Adjusted  average. 

(SSSgSr f) 

V 

- 

j 

1 



' : 



1 

! 

, 

! 

■ 

SCHEDULE  J.— INADMISSIBLE  ASSETS. 

Has  tbe  corporation  any  Inadmissible  assets  (I.  A,  stocks,  bonds,  and  other  obligations,  except  obligation* 
of  tbe  United  States,  tbe  income  from  which  U Dot  taxable)?  

If  so,  attach  hereto  a statemeot  showing  lor  the  taxable  period  tbe  tacts  called  lot  In  Hama  (e)  to  (J)  ol  this 
schedule. 

II  the  Income  from  such  assets  consists  In  part  of  gain  or  profit  from  the  sole  or  otber  disposition  tier  oof.  or 
II  all  or  part  of  I he  Interest  derived  from  suoh  assets  lslne&ect  included  In  tbe  net  Income  because  ot  the  limitation 
on  the  deduction  ot  Interval  under  Section  234(e)  2 of  tha  Revenue  Act  oi  1921,  then  a corresponding  part  o( 
tho  capital  Invested  In  fiich  assets  Is  deemed  an  edmldbU  asset.  In  such  ease  set  forth  la  detail— 

(а)  the  various  kinds  of  Income  derived  from  such  assets  end  th*  computation  of  tbo port  of  tho  ctpltal 

Invested  therein  which  Is  deemed  an  admissible  asset. 

For  th*  purpose  of  this  schedule  Inadmissible  asset*  shall  b*  valued  at  cost  of  acquisition,  except  that  If 
the  corporation  Is  a dealer  In  securities  and  Inventories  auch  securitise  In  determining  Us  act  Income,  such 
Inventory  figure  shall  constitute  tbe  measure  of  value.  Admissible  assets  shall  be  valued  as  provided  In  Section! 
326  and  331  of  tbe  Revenue  Act  ol  1921.  The  average  amount  of  asset*  oleecb  kind-held  during  sny  year  may 
ordinarily  be  determined  by  dividing  by  2 the  turn  of  the  amount  of  auch  assalaheld  at  the  beginning  ot  tha  tax- 
able period  and  tbe  amount  held  at  tbe  end  of  th*  taxable  period.  In  such  case  the  amount  of  edmlsslble  assets 
may  best  be  determined  Irom  (l)  the  balance  ibeet  as  at  the  beginning  of  the  period  elated  with  respect  to  the 
Items  In  Schedules  Fond  G and  (2)  tha  balance  sheet  as  at  theend  of  th*  period  correspondingly  adjusted.  But 
Hat  any  time  during  tbo  taxable  period  a substantial  change  hAS  token  place  In  the  amount  of  inch  assets,  a* 
overage  amoupt  must  be  determined  as  provided  In  th*  Regulations  Issued  under  authority  ol  th*  RaVtnM 
Act  of  1921.  In  such  cose  show  In  detail— 

(б)  The  computation  of  such  amount, 

(r)  Amount  of  I nodmisslhle  assets  held  et  beginning  of  the  taxable  period; 

(g)  Amount  ol  I nadmlssible  assets  held  at  end  ol  taxable  period;  • 

(«)  Average  amount  of  Inadmissible  assets  held  during  taxable  period; 

(J)  Amount  of  admissible  assets  held  et  beginning  of  taxable  period; 

(g ) Amcunt  of  edmlmlble  assets  held  et  tbe  end  or  taxable  period; 

(1 ) Average  amount  of  admissible  assets  held  during  taxable  period; 

(0  6umof(r)plu*(I); 

0)  Percentage  which  U)  Is  of  (0. 

This  percentage  (J)  cbould  be  applied  to  the  amount  eppaorlng  on  line  7,  Ecbodul*  8. In  ride*  U obtain  the 
deduction  on  account  of  I nadmlssible  esoets,  which  should  ta 


entered  on  line  »,  Schedule  8.  1 »— III 


[Page  2 of  Form  1120  A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  276 


4-24-22. 


Pave  0 of  Return. 


QUESTIONS. 


KIND  OF  BUSINESS. 


1.  By  means  of  th«  k«iy  fatten  gi'on  below,  identify  the  corporation's  mein  income- 
prerfucing  ertlvily  with  one  ol  tho  general  rluaepw,  end  fallow  this  by  n special  description 
of  the  buidn«ee euflluont  to  gUo  tho  lnfcrmatlnn  rolled  lew  under  each  ponural  clan. 

A. — Agriculture  and  related  industries,  including  fishing,  logging,  ice  harvesting,  otc 
end  elao  tho  leafing  of  euch  property  State  tho  product  or  products  B.— Mining  and 
quarrying,  including  gas  and  ofl  well*,  and  also  tho  loaeiog  of  such  proporty.  State 
tho  product  or  proaucl*.  C.  Manufacturing.  State  tlio  product  and  aleo  the  material 
If  not  implied  hy  tho  name  of  the  produrt.  D.— Construction— excavations,  building*, 
bridge*,  railroad*,  ahipa,  etc  , ofao  equipping  and  installing  euno  with  eyetem*,  devices, 
or  machinery,  without  their  manufacture.  State  nature  of  etructure*  built,  materials 
uand,  or  kind  of  installations  El.~ Transportation  - rail  water,  local,  etc.  8tato  the 
kind  and  special  product  transported,  if  any.  E2.  -Public  utilitiue— gaa  (natural,  coal, 
or  watar);  electric  light  or  power  (hydro  or  *100111  generated),  heating  (steam  or  hot  water); 
telephone;  waterworks  or  power  18.— Storage— without  trading  or  profit  from  mien— 
(elevator*,  warehouses,  stockyard*,  etc  ) State  product  stored.  154.-  I-eaxiug  transpor- 
tation or  utilities.  State  kind  of  property,  t. — Trading  in  goods  bought  and  not  pro- 
duced by  the  trading  concern.  State  manner  of  trade,  whether  wholesale,  retail,  or  com- 
rniedoo,  and  product  handled  Sale*  with  storage  with  profit  primarily  from  sales  U. — 
Service— domestic,  including  hotels,  restaurants,  etc.:  amusements;  other  professional, 
persoual,  or  technical  eervice,  State  the  service.  H. — Finance,  including  hanking, 
real  estate,  insurance  I. — Concerns  not  falling  In  above  donee  (a)  because  of  combining 
several  of  them  with  no  predominant  business,  or  (6)  lor  other  reasons. 

2 Concerns  whose  business  involves  activity  falling  In  two  or  more  of  the  above 
general  clows,  where  tho  earn*  product  is  concerned,  should  report  buxinesx  os  ideo  tilled 
with  but  ono  of  the  abo\e  general  classes;  for  cxtmplo,  concerns  in  A or  U which  also 
transport  and  market  their  own  product  exclusively  or  mainly,  should  still  be  identified 
srith  clasuos  A or  B , concerns  In  0 f manufacturing)  which  own  or  control  their  source  ol 
material  supply  in  A or  H and  which  also  transport,  sell,  or  install  their  own  product 
exclusively  or  mainly,  ahould  be  Identified  with  manufacturing:  concerns  in  7)  may 
control  or  own  source  of  supply  ol  material*  used  exclusively  or  mainly  in  their  construc- 
tive work:  concern*  in  El  or  E2  may  own  or  coutrol  tho  source  of  their  material  or  power: 
concerns  in  F msy  transport  or  store  their  own  merchandise,  but  its  production  would 
identify  them  ailh  A,  D,  or  C. 

3.  Answers: 

) General  does  fuse  key  letter  designation,. 


sion;  state  if  inactive  or  in  liquidation).... 


OTHER  CORPORATIONS  IN  SAME  BUSINESS. 


INCORPORATION. 


6.  Date  of  incorporation  . 


6.  Under  the  laws  of  what  State  or  country.. 


REORGANIZATION  AND  ACQUISITION  OF.MIXED  AGGREGATES  OF  ASSETS. 


7.  Has  the  corpomtio 
o/t'U  prtdtcrttorr,  taken  O' 
and  intangible  property, « 


any  of  it  t pndtccuort,  been  reorganized,  or  bos  it,  or  any 
going  business  or  acquired  a mixed  aggregate  of  tangible 
lid  lor  such  property  in  whole  or  in  part  with  stock  or  other 


1 statement 

1*k  ^'^af  The  name  of  tho  concern  taken  over  (or  from  which  the  property  was  acquired); 

6)  Tho  nature  of  the  asuets  and  liabilities  so  acquired ; 
e)  The  total  par  value  ol  the  otock  iseued  thereior; 

d)  The  value  at  which  each  close  of  assets  was  carried  on  the  books  of  the  concern 
from  which  acquired  (submit  a balance  sheet  of  the  predecessor  concern  as  at  the  date  of 
acquisition  or  as  at  the  close  of  its  last  accounting  period  prior  thereto); 

(*)  The  value  at  which  each  item  was  carried  on  the  books  of  the  corporation  making 
this  return,  and  full  details  of  any  adjustments  subsequently  made  pertaining  thereto  ana 
the  basis  on  which  such  revaluation  was  made. 

0.  11  patents,  copyrights,  secret  processes  or  formula1,  good  will,  trade-marks,  trade 
brands,  franchises,  or  other  intangible  property  were  acquired,  state  the  basis  on  which 
their  value  was  determined  and  how  they  were  paid  for. 

10.  If  at  the  time  of  any  purchase  or  reorganization  as  contemplated  in  question  7,  any 
property  was  entered  on  the  books  of  the  reorganized  concern  or  any  vendee  predecessor  at 
a value  in  excees  of  that  at  which  it  was  corned  on  the  books  of  the  vendor  concern,  state 
the  basis  on  which  the  revaluation  was  made. 


another  corporation  or  of  other  corporations? 


12.  la  over  70  per  cent  of  your  outstanding  voting  capital  stock  owned  by  another  c 


o corporations  that  are  affiliated  ?_.. 


H.  If  the  answer  fa  questions  II,  1?,  and  13,  or  to  any  of  them,  is  "yes,”  answer  the 
°(<i)  ?>id  the  corporation  file  Affiliated  Corporations  Questionnaire,  Form  *1°.  tof  1917  •* 

subsequent  taxal.ln  years'’  II  tho  answer  fa  tills  quart  ion  la  "yre,"  a 

questionnaire  is  not  required,  except  under  tho  circumstance*  doocrilwxl  In  question 
(6).  Jf  the  answer  to  this  question  la  "no,”  and  the  answer  to  questions  11,  12,  and  13, 
or  to  any  of  thorn,  fa  "yre.''  procure  from  tho  Collector  of  Internal  Revcnno  for  your  dis- 
trict Form  810,  which  shall  be  flllod  out  and  ftlod  as  a part  of  this  return.  If  tho  answer 


1021  or  prior  years,  obtain  during  tho  ontire  taxable  period  ended  in  1922? — . 

11  tho  answer  to  this  question  i«  "no,"  a statement,  setting  forth  tho  particulars  in  which 
the  situation  tins  changed,  should  lie  attached  to  and  mode  a part  of  this  return.  If  there 
havo  Ix-.  ii  euliatantial  change*  in  atocklioldingn,  a coiupleto  schedule  of  such  changes 
should  lx-  submitted  in  the  form  proerrihod  in  Tables  3 and  6 of  tho  qu.xitioonaire.  If 
there  are  companies  other  than  those  covered  by  the  (luwliouualre  for  1021  or  prior  yoars 
which,  applying  tho  toeto  contained  in  questions  11,  12,  or  13,  may  have  come  loto  the 
affiliated  croup  since  1921,  a questionnaire,  Form  819,  is  required  for  tho  entire  group  for 
(J10  taxable  period. 

VALUATION  OF  CAPITAL  STOCK. 

15  What  was  tho  fair  valuo  of  the  fatal  capital  stock  of  tho  corporation  as  determined 
in  the  last  awaamoot,  if  any,  of  tho  capital  stock  tax?  $ — Dole  of  that 


lent .... 


PREDECESSOR  BUSINESS. 


Id  Did  the  corporation  filo  a return  under  tho  same  name  for  the  preceding  taxable 


If  answer  is  "yes,"  give  n 


BASIS  OF  RETURN. 

17.  Is  this  return  made  on  the  basis  of  actual  receipts  and  disbursements? ..... 

not,  describe  fully  what  other  basis  or  method  was  used  in  computing  net  income.... 


GOVERNMENT  CONTRACTS. 

18.  Have  any  adjustments  been  made  prior  to  January  1,  1922,  on  account  of  con- 
tract or  contracts  with  the  Government  or  its  agencies  or  in  any  Government  contract  or 
contracts  from  which  the  corporation  derived  income  directly  or  indirectly,  through  the 

otherwise? If  tho  answer  fa  this  question  is 

; whether  or  not  such  amounts 


operations  of  a claim  board  0 
"yes,"  state  the  amounts  involved,  $... 


are  included  in  this  return . Submit  a schedule  showing  full  particu- 

lars of  the  contract,  date  entered  into,  date  the  work  ceased  under  said  contract  or  contracts, 
and  the  amount  and  nature  of  the  adjustment. 

AMORTIZATION. 

19.  Has  amortization  been  claimed?  If  the  answer  to  this  question 

is  “yes,”  state  for  what  year  or  years  and  the  amount  for  each  year 


LIST  OF  ATTACHED  SCHEDULES. 


_.  , t of  your  outstanding  voting  capital  stock  as  well  as  over  70  per 

cent  of  the  outstanding  voting  capital  stock  of  another  corporation  or  of  other  corpora- 
tions owu.-d  or  controlled  by  the  6ame  individual  or  partnership  or  by  the  sune  individuals 

t partnerships? 


SCHEDULE  K.— BALANCE  SHEETS. 

Attach  hereto  balance  sheets  a 
should  be  prepared  I 

be  furnished  in  accordance  with  paragraph  7 of  page  1 of  Instructions. ) 

ASSSTS. 


s at  the  beginning  and  end  of  the  taxable  period  < preferably  in  parallel  columns),  showing  as  nearly  a.  r 

balance  sheets  should  be  prepared  from  the  books  and  should  be  in  agreement  therewith,  or  any  differences  ahould  be  reconciled,  and  if  this  u 


Casta  Mr.clu  Jlnf  cash  In  tank  I 
TrlOS  icmudCi  (beiondadocttlig  raw 
Ottasi  icceuBtaanO  lotos  rscclvablsri 

In. •merits: 

Kaw^maurlalf. 

^^^psodusu. 

Bond*— 

Ufa  bonds  snd  ubllraUom  < 
• Ursd  asparotaly) 


band,  otrllO- 
vs»  tor  lottos). 
.bselsulAsd). 


ASSETS— CfanllnutO. 
InTsslmtats— csnttnnsd. 

Pom'S  it 

Loans  and  advances: 

To  off)  can  snd  empkytM 
Ts  others. 

Dtlarrod  Charles  le  tutu  re  epe  redans  ( to 
Fixed  atecle  : 

Land. 

Machinery. 

Toolt  ana  minor  equipment 


ASSETS — Continue 


Net  Valve. 
Paten ta  |ssd  will,  and  el 
I'aMforln  cash  or  oc 
Created  by  stock  dlrli 
Disco  uni: 


LIABILITIES. 
Tifomcerj  and  itockboldan. 
A ccrmnle  parable: 


Accrued  even  ate  lad  reserves,  ibe 

which  are  allowable  deductions 
be  deed  led). 

Reserves^  ths^iarysa  eras  tier  which 
Reserves  lor  lo»e* 
receivable. 

Other  resvvss  (to  be  detailed). 
Capital  stock  euistandlnf  (to  be  ciaa 
Surplus  end  undivided  profile. 


from 00 ins  (to 
allow* 
1 and  aeoounia 


•lieeervee  (or  d»p  racial!  00  may  be  dedusted  from  the  respective  asset  accounts  w Itemised  on  Ibe  UablUty  Mde  of  tho  balance  sheet. 

All  corporations  engaged  in  an  interstate  and  intrastate-  trade  or  buxines*  and  reporting  to  the  Interstate  Commerce  Commisaioii  and  to  any  national.  State,  municipal,  or  other  public 
r ■ < TT?.  .*  a ■ -r  balance  sheets  prescribed  by  raid  Commission  or  Slate  and  municipal  authorities,  as  at  the  beginmug  and  end  of  the  taxable  period. 

' 1— 11004 


officer,  may  submit  in  Ecu  of  above  form,  copies  of  their  b 


[Page  3 of  Form  1120  A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  277 


Pago  1 of  Itoturu. 


SCHEDULE  L— RECONCILIATION  OP  NET  INCOME  AND  ANALYSIS  OF  CHANGES  IN  SURPLUS. 


1 

| 

1).  Unallowable  deduction:  . * * 

N on  U l able  Imtana. 

(a)  InUraat  on  obligation*  of  the  United  PtsU*  and  Its  posMasions  I 

1 

W loams  anjTproOU  tax*,  paid  to  the  Uriu d Mala,  IU  pcamw 

(1)  Inu>ae f OD'ObUgaUuux  of  SUlas,  Territorial,  and  political  sub-  , 

| 

(e)  InUraat  on  Farm  Loan  Bond*  Usuod  under  f ederal  Farm  Loan  1 

| " 

U)  DMdondx  deductible  Under  Serlloo  »Uo > 6 of  tbe  RavaiVua  Act  1 

" 1 

fr)  Replacement*  and  renawal* 

(r)  Dividend*  on  stock  of  personal  sarvlro  rorporaUona  out  el  earn- 

1 



CM  Other  llama  of  nonlexeU*  Income  do  be  detailed; 

W)  Interest  on  Indebtedness  Incurred  or  rootinued  to  purchase  or 
carry  obUsaUon*  or  securities  of  the  United  BlaUa,  the  In  ter  at 
upon  which  la  wholly  exempt  (roan  taxation,  exeapt  lateral 
PT^“  * Victory  3*%  Rout,  origlnalJy 

, eubtcrlbad  for  by  the  taxpayer 

<U 

..... 

Item  17,  Schedule  A 

Charges  agalnit  raurvm  for  b*d  debt).  If  lira  17,  $.  hedu’a  A.  1*  not  an 

other  contingencies  (to  ba  dal  ailed): 

Char  gas  again*!  rtacrvaa  for  coolingcnrta*.  tie.  (to  In  detailed) 

U)  Other  unallowable  deduction*  (to  be  detailed); 

(*) ! 



“““ 

' 1 

<») - 

1 - 

— 

NjtprofRfor  year  u shown  b j book*,  before  any  adjustments  are  made 

, 

M.  Total  of  Item  ■! 

fi.  Dividend*  paid  during  the  taxable  period  (*t»te  whether  padd In  cast 
t«ck  of  this  oompany,  or  other  property): 

(a)  Date  paid „ CUar acler 

l~  - 

Surplus^  and  undivided' profit*  **  ahown  by  boltnr*  iheet  at  clot*  of 

Other  ercdila  loaurplui  (to  ba  detailed) 

(e)  Date  paid.. Character 

.... 

re, 

$ 

Total  from  Item  17  f_ 

U* able  period  (Item  10  minus  lUm  11) 

1 

17  Total  of  Items  r,  and  Id 

« 

1 ... 

SCHEDULES  TO  BE  FURNISHED  IN  SUPPORT  OF  ITEMS  IN  SCHEDULE  A. 

Th>  lollowing  schedule*  most  be  funilihed,  Mid  thoae  prepared  on  aepnntto  eheeta  should  be  firmly  attached  to  this  return.  Enter  name,  address  of  corporation  on  each  sheet. 


SCHEDULE  K2  COST  OF  GOODS  SOLD,  EXCLUSIVE  OF  ITEMS  CALLED  FOR  SEPARATELY. 

If  I'OKugttJ  In  a l rude  or  business  la  which  the  production,  purchase,  or  salo  of  merchandise  of  uiy  kind  Is 
an  income-producing  factor,  (a)  secure  from  the  Collector  of  Interna!  Revenue,  and  file  as  a part  of  this  return. 
Ctrl  Ideate  at  Inventory,  Form  1126,  ami  (6>  dll  in  the  following  schedule,  entering  on  lines  3 end  6.  Immediately 

K bought  fi 


iwlng  principal 


ig  or  aiherwlse  producing  goods.  (Submit  sc] 
llama  of  coat,  the  minor  Items  being  grouped 


Inventories  a i 

t. 

schedule 


f J)  Inventory  at  and  of  year 

<0  Coat  of  goods  sold  _ 

SCHEDULE  A3:  GROSS  INCOME  FROM  OPERATIONS  OTHER 


TRADING  OR  MAHU- 

- — — it  of  the  principal  Items  Included  herein,  the  minor  Items 

being  grouped  In  one  amount.  (For  Insurance  companies  see  page  2 of  Instructions,  paragraphs  2 and  7.) 

SCHEDULE  At.  TAXABLE  INTEREST  ON  LIBERTY  BONDS,  ETC. 

"Tbe  Interest  on  the  obligations  listed  In  column  I of  the  lollowing  table  Is  wholly  < 

po ration  Income  tea.  and  Is  exempt  from  excess  probes  la*  only  to  the  extent 

amounts  of  the  obligations  bcld  In  i 


bought  o. 


i a onsJhdu 


exemptions,  and  in  column  o 

* renealod  .’effective” December*: 
Is  return,  even  thin 


o aggregate  principal 
• ••  e principal 


i,  each  corporation  compoilng’it 


1.  Obligations. 

(Aggrega 

mount). 

3 Principal  amoaDt 
lions  specified  in^ 

principal  ain't 

2 CO, 000 

4.  33,000 

(a)  First  Ubort^Loan^SecoDd 

1. 

<b)  First,  and  8vcond  4’s,  and 

i ... 

(c  Other  obligations  Issued  since 
September  1.  1917  (except  Vic- 

V,.-, 

: 

<rf)  Victory  Liberty  Loon  W% 
Notes,  and  Treasury  Notes.. 

-Noxx 

V,,, 

I... , 

r XXABLX  iNTnOT.. 


SCHEDULE  A10:  OTHER  C9COMB  (oat  Including  any  amount  with  respect  to  aale  of  capital  asscti 

Submit  o schedule  showing  tho  source,  nature,  and  amount  of  the  principal  Items  Included  herein, 
minor  items  being  grouped  In  one  amount-  The  total  of  the  schedule  should  be  entered  as  Item  1C,  Schedul, 
SCHEDULE  A12:  EXPENSES  (except  arc crunls  called  tor  separately  In  Schedule  A). 

Submit  a statement  allowing  character  and  amount  of  the  principal  Items  Included  herein,  the  minor  lt< 
being  grouped  In  one  amount.  (For  scheduled  to  be  submitted  by  Insurance  companies  see  page  2 of  Iosti 
tloos,  paragraphs  3 to  7.> 

SCHEDULE  A13:  COMPENSATION  OF  OFFICERS. 

of  stock  owned' or  controlled: la)  preferred.  (6)  common!  (3)  total  compensation  for  the^taubl^pcrlod!*: 
(c  amount  of,  and  reason  for  Increase,  If  any,  over  preceding  period. 

SCHEDULE  AM:  REPAIRS  (Including  labor,  supplies,  overhead,  and  ether  Items  preparly  cbx.ge.LK 
SCHEDULE  AI6:  TAXES. 


SCHEDULE  AIT:  BAD  DEBTS. 


SCHEDULE 

amount  claimed  therein 
not  be  I Deluded  In  this  u 
Act  of  1921.) 


EXHAUSTION.  WEAR  AND  TEAR  ( Including  , 
on  account  of  depreciation,  tbe  following  sch 
"ild  correspond  with  tbe  figures  reflected  In  i 
dulc.  (See  page  2 of  Instructions,  paragraph 


id  eocllnn  234(e)  7 of  the  Bevaaue 


Kind  of  property. 
(It  buildings,  stale 
tho  material  of 
which  constructed  ) 

Date 

acquired. 

wfwn 

acquired 

Probable 
li(o  alter 

acquire- 

Cot,  or  If 

A mount  of  depredation  charged  off. 

- This  year. 

Previous  yew 

Totals .• 

A 

* 

a determining  this  deduction.  attach  a 


it  ab owing  the  amount 


a taxable  period  and  (he  basis  upoo  srhich  computed. 

SCHEDULE  A19:  DEPLETION. 

If  a deduction  U claimed  oo  account  of  depletion,  secure  from  the  collector  Fora  D (minerals),  Fora  E 
fecal),  Form  F (miscellaneous  nonmetalsl,  Form  0 (oil  and  gas),  or  Form  T (llm bar),  fill  In  and  file  with 

return.  If  complete  valuation  data  hat  been  filed  with  one"'  

return  tnlormatluo  necessary  to  bring  your  depletion  schoduh 
transactions  bearing  on  deductions  or  additions  to  vsluo  of  p 
deduction  for  taxable  period  has  b 
T (timber). 

SCHEDULE  A20:  AMORTIZATION  OF  WAR  FACILITIES. 

% deduction  It  claimed  on  account  of  amortisation,  a schedule  should  be  submitted  containing 
~"cd  for  In  Guide  Form  1007M,  which  explains  In  detail  tbe  manner  in  which  a claimoft 
presented.  A^  copy  of  •*■'*  ' ■—  ~ ■*— 1 ■ — - • 

SCHEDULE  A23:  PROFIT  OR  LOSS  ON  SALES 


•r  Form  T (Umber),  \ 
ire  In  previous  years, 

iddltloni  to  value  of~pbv£cal  asset)  wlUi  explanation"! oFbow'd^ition 
determined.  In  case  ol  timber  this  should  be  dono  by  filling  la  Fora 


nformatlon  a 


INVESTMENTS. 


may  be  obtained  from 

CAPITAL  ASSETS  AND  MISCELLANEOUS 


value  of  property  received 


SCHEDULE  A24:  LOSSES  BY  FIRE,  STORM.  ETC. 

A schedule  similar  to  the  one  requested  above  should  be  submitted  with  respect  to  loses  of  property 
arising  from  fires,  storms,  shipwreck,  or  other  carnally,  or  from  theft,  and  not  compensated  for  by  Insurance 
or  otherwise,  except  that  column  3 should  show  “Insurance  and  salvage”  Instead  of  “Sale  price,” 
SCHEDULE  A26:  DIVIDENDS  (deductible  under  Section  234(a)  i el  the  Revenue  Ad  at  1921). 

Submit  a schedule  showing  tho  amount  recalved  as  dividends  (a)  from  »«fh  domestic  corporation  other 
then  a corporation  entitled  to  tbe  benefits  of  Section  202  of  the  Act,  or  (6)  from  each  foreign  corporation  when 
it  is  iboaru  to  the  satisfaction  of  the  Commissioner  that  more  than  SO  per  centum  of  the  gross  Income  of  such 
fori  ign  corporation  for  tho  three-year  period  coding  with  the  dose  of  Its  taxable  veer  preceding  tho  declaration 
ol  such  dividends  (or  for  such  part  of  such  period  as  the  foreign  corporation  has  been  In  existence)  was  derived 
from  sources  within  tbe  United  Stales  as  determined  under  Section  217  of  the  Act. 

DISCOUNT  AND  PREMIUM  ON  BONDS  SOLD. 

There  must  be  attached  to  the  return  a schedule  showing  In  detail  each  Issue  and  sale  of  bonds  of  tbe 
reporting  corporation  giving  the  following  Information:  (a)  Class;  (»)  date  of  trte;  (c)  maturity;  (<f)  amount 
Bold:  («)  amount  realued;  (/)  premium  or  discount  per  annum. 

vi.,.  - — ~«i»-  -i  .a,  * - — •-  ,K-  — ' — i period  must  be  reported  fcltber  as 

■uni  has  been  reported  as  Income  ox 


AFFIDAVIT. 

We.  the  uDdemgned,  president  and  treasurer  of  the  corporation  for  which  this  return  is  made,  being  severally  duly  sworn,  each  for  himself  deposes  and  says  that  thin  return 
including  the  accompanying  schedules  and  statements,  has  been  examined  by  him  and  is,  to  the  beet  of  his  knowledge  and  belief,  a true  and  complete  return  made  in  good  faith,  for  the 
taxable  period  as  elated,  pursuant  to  the  Revenue  Act  of  1921  and  the  Regulations  issued  under  authority  thereof. 


Sworn  to  and  subscribed  before  mo  this ,, day  of  .. 

F"~l 


(Signature  of  officer  administering  or 


President. 

Treasurer. 


(Page  4 of  Form  1120  A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  278 


4-24-02. 


Pag«  1 of  Instruction!). 


INSTRUCTIONS  FOR  CORPORATION  RETURN. 


LIABILITY  FOR  FILING  RETURNS. 

1.  Corporations  generally.  -Evory  domestic  or  resident  corporation, 
joint-stock  company,  association,  or  insurance  company  not  specifically 
exempted  by  Soction  231  of  the  Rovcnuo  Act  of  1921,  whether  or  not 
having  any  not  Income,  must  fdo  a return. 

A corporation  having  a not  incomo  of  loss  than  13,000  for  the 
taxable  period  nerfd  not  ml  in  tho  schedules  portuining  to  excess  profits 
tax,  hut  if  tho  not  incomo  is  93,000  or  more,  it,  is  suhjoct  to  the  excess 
profits  tax  and  must  file  a complete  rotum  on  this  form. 

2.  Government  Contracts. — In  addition  thereto,  if  net  income  in 
excess  of  $10,000  was  derived  during  the  calendar  year.  1921  from  a 
Government  contract,  Form  1120S  should  he  secured  from  tho  Collector 
of  Internal  Revenue  for  your  district  and  filed  as  a part  of  this  return. 

3.  Corporations  in  Possessions  of  the  United  States. — Domestic 
corporations  witlun  the  possessions  of  tho  United  States  (except  tho 
Virgin  Islands)  may  report  as  gross  incomo  only  gross  incomo  from 
sources  witliin  tho  United  States,  provided,  (a)  80  por  cent  or  more  of 
tho  total  gross  incomo  for  tho  threo-yenr  period  immediately  preceding 
tho  cloao  of  the  taxablo  year  (or  such  part  thereof  as  may  he  applicable) 
was  derived  from  sources  within  a possession  of  tho  IJmtod  States;  and 
( b ) 50  per  cent  or  moro  of  the  total  gross  inoome  for  such  throe-year 
period  or  applicable  part  thereof  was  derived  from  the  active  conduct  of 
a trade  or  business  within  a possession  of  tho  United  States. 

A corporation  entitled  to  tho  above  benefits,  however,  is  not  entitled 
to  tho  spooific  exemption  of  $3,000  in  computing  the  excess  profits  tax. 
(See  Sections  262  and  312,  Revenue  Act  of  1921.) 

4.  Foreign  Corporations. — A foreign  corporation  subject  to  the  law, 
regnrdless  of  the  amount  of  its  net  incomo,  is  required  to  file  a return  with 
the  Collector  in  whose  district  is  located  its  principal  office  or  agency 
through  which  is  transacted  the  business  in  tho  United  States.  If  it  has 
no  office  or  agency  in  tho  Unitod  States,  the  rotum  should  be  filed  with 
tho  Collector  of  Internal  Revenue,  Baltimore,  Maryland.  The  net  income 
should  be  computed  in  accordance  with  Section  217  of  the  Revenue  Act 
of  1921. 

5.  Life  Insurance  Companies. — A life  insurance  company,  as  defined 
by  Section  242  of  the  Act,  shall  file  its  return  on  Form  1120  L. 

6.  Personal  Service  Corporations. — Personal  service  corporations 
must  file  a return  on  Form  1065  B. 

CONSOLIDATED  RETURNS. 

7.  The  parent  or  principal  reporting  company  of  affiliated  corpora- 
tions as  defined  in  Section  240  of  the  Act  must  file  a consolidated  return 
on  this  form  with  the  Colloctor  of  tho  district  in  which  its  principal  offico 
is  located  and  attach  thereto  a schedule  showing  tho  names  and  addresses 
of  all  affiliated  corporations  in  the  group,  and  if  the  tax  is  apportioned 
among  these  corporations,  the  amount  allocated  to  each.  (See  paragraph 
9,  below.)  Each  of  the  other  affiliated  corporations  shall  file  Form  1122 
in  tho  office  of  the  Colloctor  of  its  district. 

Consolidated  invested  capital  must  be  computed  as  at  the  beginning 
of  the  taxablo  period  of  tho  parent  or  principal  reporting  company  and 
consolidated  income  must  be  computed  on  the  basis  of  its  taxable  period. 

All  supplementary  and  supporting  schedules  should  be  prepared  in 
columnar  form,  one  column  being  provided  for  each  corporation  included 
in  the  consolidation,  one  column  lor  a total  of  like  items  before  adjust- 
ments are  made,  one  column  for  intercompany  eliminations  and  adjust- 
ments, and  one  column  for  a total  of  like  items  after  giving  effect  to  the 
eliminations  and  adjustments.  The  items  included  in  the  column  for 
eliminations  and  adjustments  should  be  symbolized  so  as  to  roadily 
identify  contra  items  affected,  and  if  necessary,  in  order  to  give  a correct 
understanding  of  these  entries,  suitable  explanations  should  be  appended. 

8.  If  one  domestic  corporation  owns  95  per  cent  or  more  of  the 
outstanding  voting  stock  of  another,  or  if  95  per  cent  or  moro  of  the 
outstanding  voting  stock  of  two  or  more  domestic  corporations  is  owned 
by  the  same  individual  or  individuals,  partnership  or  partnerships,  in 
substantially  the  same  proportion,  a consolidated  return  must  be  filed 
by  such  corporations.  If  tne  ownership  is  less  than  95  per  cent  of  the 
outstanding  voting  stock,  but  exceeds  70  per  cent,  the  parent  or  principal 
corporation  of  any  group  of  affiliated  corporations  must  furnish  tho 
information  called  for  in  auestions  11  to  14,  page  3 of  the  return. 
Whenever  the  fiscal  year  oi  one  or  more  subsidiary  or  other  affiliated 
corporations  differs  Irom  the  fiscal  year  of  the  parent  or  principal 
corporation,  the  Commissioner  should  bo  fully  advised  by  the  taxpayer 
in  order  that  provision  may  be  mado  for  assessing  tho  tax  in  respect 
of  the  period  prior  to  the  beginning  of  tho  fiscal  year  of  the  parent  or 
principal  corporation. 

9.  The  Department  prefers  that  the  entire  tax  shown  on  a consoli- 
dated return  be  paid  by  the  parent  or  principal  reporting  corporation, 
instead  of  being  apportioned  among  tne  corporations  composing  tho 
affiliated  group. 

If  apportionment  is  made,  each  subsidiary  or  affiliated  corporation 
should  state  oh  its  Form  1122  the  amount  of  inoome  and  profits  taxes 
to  be  assessed  against  it  for  the  taxable  period. 

PERIOD  COVERED. 

10.  The  taxable  period  is  the  fiscal  year  ending  on  the  last  day  of 
any  month  other  than  December  in  the  calendar  year  1922,  and  the  net 
income  shall  be  computed  upon  the  basis  of  the  corporation's  annual 
accounting  period  in  accordance  with  the  method  of  keeping  the  books, 
unless  suen  method  does  not  clearly  reflect  the  income. 

In  the  case  of  a return  (or  a period  of  less  than  one  year,  the  net 
income  shall  be  placed  on  an  annual  basis  by  multiplying  tho  amount 
thereof  by  twelvo  and  dividing  by  the  number  of  months  included  in  such 

EBriod;  and  the  tax  shall  be  such  part  of  a tax  computed  on  such  annual 
asis  as  the  number  of  months  in  such  period  is  of  twelve  months. 


If  tho  period  for  which  tho  first  or  final  return  is  mado  includes 
fractions  of  months,  there  shall  bo  added  to  the  number  of  complete 
months  as  many  thirtieths  of  a month  ns  there  arc  days  in  the  fractional 
parts  of  months. 

11.  If  a corporation  changes  its  accounting  period,  it  shall  as  noon 
ns  possiblo  give  to  tho  Collector  for  transmission  to  the  Commissioner 
written  notice  of  duch  chango  and  of  it"-  reasons  therefor.  Upon  approval 
by  the  Commissioner,  the  corporation  shall  thereafter  make  its  returns 
upon  tho  basis  of  tho  new  accounting  period.  Tho  accounting  period 
established  for  the  taxable  year  immediately  preceding  must  be  adhered 
to  unless  permission  has  been  received  from  tho  Commissioner  to  make  a 
chango.  See  Sections  212(c)  and  226,  Revenue  Act  of  102 J . 

TIME  AND  PLACE  FOR  FILING. 

12.  Tho  return  must  bo  sent  to  tho  Collector  of  Internal  Revenue  for 
the  district  in  which  the  corporation's  principal  offico  is  located,  so  ns  to 
roach  tho  Collector's  office  on  or  before  tne  fifteenth  day  of  the  third  month 
following  tho  close  of  the  taxable  period.  In  tho  case  of  a foreign  cor- 
poration not  having  any  offico  or  pl'nco  of  business  in  tho  United  States 
tho  return  shall  be  filed  ou  or  before  the  fifteenth  day  of  tho  sixth 
month  following  the  close  of  tho  taxable  period. 

13.  The  Collector  is  authorized  to  grant  an  extension  of  not  more 
than  thirty  days  for  filing  returns  in  coses  of  absence  or  sickness.  In 
meritorious  cases  tho  Commissioner  is  authorized  to  grant  a further  ex- 
tension. 

SIGNATURES  AND  VERIFICATION. 

14.  The  return  shall  be  sworn  to  by  the  president,  vice  president,  or 
other  principal  officer  and  by  the  treasurer  or  assistant  treasurer.  The 
return  of  a foreign  corporation  haying  an  agent  in  the  United  States  .shall 
be  sworn  to  by  such  agent.  If  receivers,  trustees  in  bankruptcy,  or 
assignees  are  operating  the  property  or  business  of  the  corporation,  such 
receivers,  trustees,  or  assignees  shall  execute  the  return  for  such  corpora- 
tion, unaer  oath. 

PAYMENT  OF  TAXES. 

15.  The  tax  should  be  paid  by  sending  or  bringing  with  the  return 
a check  or  money  order  drawn  to  the  order  of  "Collector  of  Internal 
Revenue  at  (insert  name  of  city  and  State).’’ 

16.  Do  not  send  cash  through  the  mail  or  pny  it  in  person  except  at 
the  offico  of  the  Collector. 

17.  Tho  total  tax  may  be  paid  at  the  time  of  filing  the  return  or  in 
four  equal  installments,  as  follows: 

Tho  first  installment  shall  be  paid  at  the  timo  fixed  by  law  for  filing 
the  return,  tho  8ccond  installment  shull  bo  paid  on  the  fifteenth  day  of 
the  third  month,  the  third  installment  on  tne  fifteenth  day  of  the  sixth 
month,  and  tho  fourth  installment  on  tho  fifteenth  day  of  tho  ninth  month 
after  tne  time  fixed  by  law  for  filing  the  return. 

PENALTIES. 

For  Making  Falsa  or  Fraudulent  Return. 

18.  Not  exceeding  $10,000  or  not  exceeding  one  year’s  imprisonment, 
or  both,  in  the  discretion  of  the  court,  and,  in  addition,  50  per  centum  of 
the  total  tax  evaded. 

For  Failing  to  Make  Return  on  Time. 

19.  Not  more  than  $1,000,  and,  in  addition,  25  per  centum  of  the  total 
amount  of  the  tax. 

For  Failing  to  Pay  Tax  When  Due  or  Understatement  of  Tax  Through 
Negligence,  etc. 

20.  Five  per  centum  of  the  tax  duo  but  unpaid  plus  interest  at  the 
rate  of  1 per  centum  per  month  during  the  period  in  which  it  remains 
unpaid. 

WORKING  PAPERS. 

21.  Every  corporation  should  preserve,  available  for  inspection  by  a 
revenue  officer,  working  papers  showing — 

(a)  The  balance  in  each  account  on  tho  corporation’s  books  that  was 

used  in  preparing  Schedule  A. 

( b ) Tho  amount  deducted  from  each  such  balance  on  account  of  each 

class' of  nontaxablo  income,  unallowable  deductions,  and  other 
adjustments  indicated  in  Schedule  L,  with  a reference  to  tho 
number  of  the  item  in  Schedule  L in  which  each  amount  so 
deducted  was  included. 

(c)  The  remainder  of  each  such  balance,  analyzed  to  show  the 

amount  included  in  each  item  of  Schedule  A,  with  a reference 
to  the  number  of  the  item  in  Schedule  A in  which  each  such 
amount  was  included. 

INFORMATION  AT  THE  SOURCE. 

22.  Every  corporation  making  payments  of  salaries,  wages,  interest, 

rent,  commissions,  or  other  fixedi  or  determinable  income  of  $1,000  or 
more  during  the  calendar  year,  to  any  individual  or  partnership,  is  re- 
quired to  make  a true  and  accurate  return  to  the  Commissioner  of  Internal 
Revenue,  showing  the  amount  of  such  payments  and  tho  name  and  address 
of  the  recipient.  Forms  1096  and  1099,  for  reporting  such  information, 
will  be  furnished  by  any  Collector  of  Internal  Revenue.  Such  returns  of 
information  covering  tne  calendar  year  1922  must  be  forwarded  to  the 
Commissioner  of  Internal  Revenue,  Sorting  Section,  Washington,  D.  C., 
in  time  to  be  received  not  later  than  March  15,  1923.  a-iua* 


(Page  5 of  Form  1120  A.) 


The  Federal  Income  Tax  Service 
SupplementarylPagc  279 


Tago  2 of  Ioblructlonn. 


INSTRUCTIONS  REGARDING  INCOME,  CREDITS,  COMPUTATION  OF  TAX,  ETC. 


CROSS  INCOME  AND  DEDUCTIONS. 

I Railroad  corporation*,  bank*-,  insurance  companies*,  and  other  corporation*  required 
to  submit statement?  of  income  and  expense*  to  any  uulionul,  State,  municipnl.  or  other 
public  officer  may  Hiibrnit  Instead  of  Schedule  A a statement  of  income  and  o^penw  in  i 
the  form  in  which  submitted  to  such  officer.  In  such  case*  the  taxable  net  income  v. ill  , 
be  reconciled  by  means  of  Schedule  T,  with  the  net  profit  shown  by  the  income, and  expense 
statement  submitted,  nnd  should  bo  entered  a ■ Item  27,  Schedule  A.  pn('<:  1 

2.  A life  insuraueo  company  issuing  life  insurance  and  annuity  contract*  (Including 
contracts  of  combined  life,  health,  and  accident  insurance),  ns  defined  1>y  Section  242  of 
tbo  Revenue  Act  of  1921,  shall  file  its  tax  return  on  Form  1 1201,,  instead  of  Form  1120 

3.  An  insurance  company  f other  than  « company  taxed  under  Section  243  of  the  Act) 
i**uing  policies  covering  life,  health,  and  accident  insurance  combined  in  one  policy  i -tied 

on  the  weekly  premium  payment  plan,  continuing  for  life,  and  uotsubject  fo  cancellation.  | 
shall  file  its  return  on  thin  form,  and  report  os  a deduction  in  Schedule  A12  subject  to  tie  j 
approval  of  the  Commissioner,  such  portion  of  the  net  udrlilion  (not  required  by  la"  j made  1 
within  the  taxable  period,  prior  to  January  1,  1022,  to  reserve  funds  as  may  be  required 
for  the  protection  of  the  holders  of  such  policies  only 

I An  insurance  company  (other  than  a life  insurance  compauy)  should  report  as  ( 
a deduction  in  Schedule  A12  of  this  form,  (a)  the  net  addition  required  by  law  to  bemado 
within  tho  taxable  period  to  reserve  funds  (including  in  the  case  of  an  a*«e«m<-nt  insur-  j 
ance  company  the  actual  deposit  of  samo  with  State  or  Territorial  officers  pursuant  to  law 
ns  additions  to  guarantee  or  reserve  fund*),  and  (6)  the  sums  other  than  dividends  paid  I 
within  the  taxable  period  on  policy  and  annuity  contracts.  After  December  31,  1021,  | 

this  paragraph  applies  only  to  mutual  insurance  companies  other  than  life  insurance  com-  | 
panies. 

5,  A mutual  marine  insurance  company  should  report  as  Item  3,  Schedule  A,  of  this 
form,  the  gross  premiums  collected  and  received,  less  amounts  paid  for  reinsurance,  and 
report  an  a deduction  in  Schedule  A12  amounts  repaid  to  policyholdo/B  on  account  of 
premiums  previously  paid  by  them  and  interest  paid  upon  such  amounts  between  aecer-  | 
teiinroont  and  the  payment  thereof. 

<1  The  receipts  of  a shipowners'  mutual  protection  and  indemnity  association,  not 
organized  for  profit,  and  no  part  of  the  net  earnings  of  which  inures  to  the  benefit  of  any 
private  stockholder  or  member,  aro  exempt  from  taxation,  but  such  association  shall  be 
subject  as  a corporation  to  the  tax  upon  its  net  income  from  interest,  dividends,  and  rents. 

7.  A mutual  insurance  company  (including  interinsuranco  and  reciprocal  under-  i 
writers,  but  not  including  a mutual  life  or  mutual  marine  insurance  company)  requiring  its  | 
members  to  mako  premium  deposits  to  provide  for  losses  and  expenses,  should  report  in  j 
Schedule  A12  of  this  form  tho  amount  of  premium  deposits  returned  to  It*  policyholder  I 
and  the  amount  of  premium  deposits  retained  for  tho  payment  of  losses,  expenses,  and  ' 
reinsurance  reserves  (unless  otherwise  allowed  in  Schedule  A). 

8 Incidental  repairs,  which  do  not  add  to  the  value  or  appreciably  prolong  the  life  of  ; 
property,  are  deductible  as  expenses  (Item  14,  Schedule  A).  Expenditures  for  new  build- 
ings, machinery,  equipment,  or  for  permanent  improvement  or  betterments  which  increase 
the  value  of  the  property  are  chargeable  to  capital  account.  Expenditures  for  restoring  j 
or  replacing  property  are  not  deductible  under  this  or  any  other  item  of  the  return  Such 
expenditures  aro  chargeable  to  capital  account  or  to  depredotion  reserve,  depending  on  j 
the  treatment  of  depreciation  on  the  books  of  the  taxpayer. 

9.  The  amount  of  interest  deductible  in  Item  15,  Schedule  A,  is  the  amount  of 
interest  paid  within  tho  taxable  period  on  the  corporation  's  indebtedness,  except  on  in-  1 
debtednesa  incurred  or  continued  to  purchase  or  carry  obligations  or  securities  (other  than 
obligations  of  tho  United  States  issued  after  September  24,  1917,  and  originally  subscribed  | 
,for  by  the  corporation),  the  interest  upon  which  is  wholly  exempt  from  taxation.  (See 

Sections  234(a)  2 and  234(6)  of  the  Revenue  Act  of  1921) 

10.  The  amount  deductible  on  account  of  depreciation  in  Item  18,  Schedule  A,  is  an 
amount  fairly  measuring  the  portion  of  the  investment  in  depreciable  property  by  reasou 
of  exhaustion,  wear  and  tear  and  obsolescence  which  is  properly  chargeable  againstthe  opera- 
tions of  the  year.  Such  amount  should  be  determined  upon  the  basis  of  the  original  cost 
< not  replacement  cost)  of  the  property,  or  if  acquired  prior  to  March  1, 1913,  the  fair  market 
value  on  that  date,  and  the  probable  number  of  years  remaining  of  its  useful  life.  The 
capital  sum  to  be  replaced  should  be  charged  off  over  the  useful  life  of  the  property  either 
in  equal  annual  installments  or  in  accordance  with  any  other  recognized  trade  practice, 
such  as  an  apportionment  over  units  of  production.  Whatever  plan  or  method  of  appor- 
tionment is  adopted  must  be  reasonable  and  must  have  duo  regard  to  operating  conditions 
during  the  taxable  period.  The  method  adopted  should  be  described  in  the  return. 
Stocks,  bonds,  and  like  securities  are  not  subject  to  exhaustion,  wear  and  tear  within 
the  meaning  of  the  law. 

11.  If  property  is  compulsorily  or  involuntarily  converted  into  cash  or  its  equivalent 
as  a result  of  (a)  its  destruction  in  whole  or  in  part,  (6)  theft  or  seizure,  or  (r)  an  exorei?c 
of  the  power  of  requisition  or  condemnation,  or  the  threat  or  imminence  thereof;  and  if  the 
taxpayer  proceeds  forthwith  in  good  faith,  under  regulations  prescribed  by  the  t’ornnus- 
sioner  with  the  approval  of  the  Secretory,  to  expend  tbo  proceeds  of  stuh  conversion  in 
tho  acquisition  of  other  property  of  a character  similar  or  related  in  service  or  use  to  the 
property  so  converted,  or  in  the  acquisition  of  80  per  centum  or  more  of  the  slock  or 
shares  of  a corporation  owning  euch  other  property,  or  in  the  establishment  of  a replacement 
fund,  then  there  shall  be  allowed  as  a deduction  such  portion  of  the  gain  derived  as  the 
portion  of  tho  proceeds  so  expended  bears  to  tho  entire  proceeds.  The  gross  receipts  and 
deductions  claimed  should  bo  included  in  Schedule  A23.  (See  Section  234(a)  11  of  the 
Revenue  Act  of  1921.) 

CREDIT  FOR  INCOME  AND  PROFITS  TAXES  PAID  TO  FOREIGN 
COUNTRIES  OR  POSSESSIONS  OF  THE  UNITED  STATES. 

12.  If  a credit  is  claimed  in  Item  24,  Schedule  D,  a copy  oi  Form  1118,  completely 
filled  out  and  sworn  to  or  affirmed,  must  be  submitted  with  tbto  return.  If  credit  is 
sought  for  taxes  already  paid,  the  form  must  have  attached  to  it  tho  receipt  for  each  such 
tax  payment.  If  credit  is  sought  for  taxes  accrued,  the  form  must  have  attached  to  it  the 
return  on  which  each  such  accrued  tax  was  based. 

13.  When  a credit  is  claimed  for  accrued  taxes,  the  Commissioner  may,  as  a rendition 
precedent  to  the  allowance  of  this  credit,  require  the  corporation  to  give  a bond  (Form 
1119),  with  sureties  satisfactory  to  and  to  be  approved  by  him  in  eurh  penal  sura  as  he 
may  require,  conditioned  for  the  payment  by  tho  taxpayer  of  any  amount  of  taxes  found 
due  if  the  taxes  when  paid  differ  from  the  amount  claimed  in  respect  thereof. 


PROVISIONS  AFFECTING  COMPUTATION  OF  TAX. 

I t.  .Schedule  D,  "Computation  of  Tax,"  may  be  subject  to  one  or  more  of  tho  follow- 

'.a,  Hr  turn  for  a fiscal  year.— The  tax  on  a return  for  a fiscal  year  end«d  in  1922  ahould 
be  computed  in  accordance  with  Section*  205.  238(c),  and  33V6)of  the  Revenue  Actof  1921, 
i h,  Limitation  on  income  tax.— If  tho  net  income  reported  as  Item  B,  Schedule  D, 
in  more  than  $25,000  the  tax  imposed  by  Section  230  of  the  Revenuo  Act  of  1971  on  the 
amount  of  tho  net  income  shall  not  exceed  tho  tox  which  would  be  payable  if  the  »2,000 
. redit  wore  allowed,  plus  the  amount  of  the  net  income  in  exce*  of  $25,000. 

, < i Limitation*  on  excess  profits  tax.— The  maximum  excess  profit*  tax  imposed  shall 
mi  no  c.i*o  bo  morn  than  20  per  cent  of  the  net  income  in  excess  of  $3,000  and  not  in  excers 
«.f  $20,000  plus  40  per  cent  of  the  net  income  in  excess  of  $20,000  (8ection  302),  nnlees  net 
income  amounting  to  more  than  $10,000  wjuj  derived  from  a Government  contract,  when 
the  tax  on  nich  income  .hall  be  a**owd  under  flection  301(6),  fn  which  exec  the  maximum 
exceai  and  war  profit*  tax  imposed  upon  this  proportion  of  the  net  income  shall  not  be  moro 
than  30  per  cent  of  the  amount  of  net  income  in  exc era  of  $3,000  and  not  in  excess  of 
$20,000  plus  80  per  cent  of  the  amount  of  r.et  income  in  excess  of  $20,000  (See  Section  302  ) 
hi i Tsx  of  corporation  whose  income  la  derived  in  part  from  "Personal  Service."— If 
part  of  tho  net  income  (not  than  30  per  cent)  is  derived  from  a separate  trade  or  hu«ne*s 
of  the  character  of  "personal  service,"  the  tax  shall  bo  computed  in  accordance  with  the 
provisions  of  Section  303  of  the  Act. 

(*l  Tax  on  corporation  engaged  In  mining  of  gold.— If  a corporation  is  engaged  in 
tin'  mining  of  gold,  its  excess  profits  tax  shall  b«  that  proportion  of  Item  3,  Schedulo  D, 
which  tlx;  nd  income  not  derived  from  the  mining  of  gold  bears  to  the  total  net  income 

(See  Section  304(c)  of  the  Act.) 

(J)  Tax  on  profits  bom  sale  of  mineral  deposits. — In  the  case  of  a bona  fids  sale  of 
mines,  oil  or  gas  wells,  or  any  interest  therein,  where  tbo  principal  value  of  the  property 
has  been  demonstrated  by  prospecting  or  exploration  and  discovery  work  dono  by  tbo 
taxpayer,  the  portion  of  the  excess  profits  tax  attributoblo  to  such  salo  shall  not  exceed 
20  jwrr  cent  of  the  selling  price  of  such  property  or  interest  . (See  Section  337  of  tho  Act.) 

The  first  stop  is  to  find  the  exceu  profits  tax  computed  without  regard  to  Ibis  provision, 
the  second  w to  find  of  the  tax  thus  computed  such  portion  as  the  net  income  from  tbo 
sale  bears  to  the  total  net  income.  If  thm  portion  equals  or  does  Dot  exceed  20  per  cent 
of  The  selling  price,  then  no  adjustment  is  permitted.  Should  such  portion  exceed  20  per 
cent  of  the  selling  price,  the  tax  will  be  that  portion  of  the  excess  profits  tax  which  tho 
net  income  not  attributable  to  the  sale  bears  to  the  total  net  income  plus  20  per  cent  of 
the  selling  price  of  tl»o  mineral  depoeits. 

15  Statement  of  basis  of  claims.— If  a corporation  claims  the  benefit  of  any  of  the 
provisions  outlined  in  (if),  («),  or  (/),  it  should  attach  to  the  return  a complete  statement  of 
the  basis  for  such  claim  and  a computation  of  the  lax  payable  in  the  event  that  such  claim 
is  allowed.  The  amount  of  tax  bo  computed  should  be  entered  in  Schedule  D. 

SPECIAL  CASES. 

lr,  Definition  of  special  cases.— Section  327  of  the  A--t  provides  that  in  the  following 
cases  thp  tax  shall  bo  determined  as  provided  in  Section  328: 

(а)  Where  the  Commissioner  is  unable  to  determine  the  invested  capital  as  provided 
in  Section  32C. 

(б)  In  the  case  of  a foreign  corporation  or  a corporation  entitled  to  the  benefits  of 
Section  262  of  the  Revenue  Act  of  1921.  (See  paragraph  3,  page  1 of  Instructions  ) 

(c)  Where  a mixed  aggregate  of  tangible  property  and  intangible  property  has  been 
paid  in  for  stock  or  for  stock  and  bonds  and  the  Commissioner  is  unable  satisfactorily  to 
determine  the  respective  values  of  the  several  classes  of  property  at  tho  time  of  payment, 
or  to  distinguish  the  cusses  of  property  paid  in  for  stork  and  for  bonds,  respectively. 

(</)  Where,  upon  application  by  the  corporation,  the  Commissioner  finds  and  declare* 
of  record  that  the  tax  if  determined  without  benefit  of  thissoction  would,  owing  to  abnormal 
conditions  affecting  the  capital  or  income  of  the  corporation,  work  upon  the  corporation 
an  exceptional  hardship  evidenced  by  gross  disproportion  between  the  tax  computed 
without  benefit  of  tins  section  and  the  tax  computed  by  reforenco  to  the  representative 
corporations  specified  in  Section  328.  This  subdivision  6hall  not  apply  to  any  ease:  (1)  In 
which  the  tax  (computed  without  benefit  of  this  section)  is  high  merely  because  the  corpo- 
ration earned  within  the  taxable  jienod  a high  rate  of  profit  upon  a normal  investr-d  capital 
nor  (2)  in  which  60  per  centum  or  more  of  the  gross  incomo  of  the  corporation  for  the  taxable 
period  (computed  under  Section  233  of  the  Act)  consisted  of  gains,  profits,  commission?, 
or  Other  income  derived  on  a cost-plus  basis  from  a Government  contract  or  contracts 
made  between  April  6,  1917,  and  November  11,  1918,  both  dates  inclusive. 

17  Treatment  of  special  cases.— In  the  cases  specified  in  Section  327  the  tax  will  be 
specially  determined  under  the  provisions  of  Section  328.  A corporation  which  comes 
within  the  provisions  of  subdivision  (rf)  of  Section  327  (paragraph  16,  above)  may  make 
application  for  assessment  under  the  provisions  of  Section  ?28,  which  application  shall 
be  attached  to  its  return  in  the  form  of  a statement  setting  forth  in  full:  (<x)  The  reasons 
why  the  tax  should  be  so  determined;  (6)  the  facta  upon  which  such  reasons  are  based; 
(c)  an  exact  description  of  each  trade  or  business  or  important  branch  of  a trade  or  business 
carried  on  by  it;  (d)  a statement  of  tho  invested  capital  and  net  income  for  each  yearsir.ee 
the  beginning  of  tho  prewar  period  , and  (r)  a statement  showing  the  amount  of  gain?, 
profits,  commissions,  or  other  income  derived  on  a cost-plus  basis  from  Government  con- 
tracts made  between  April  5,  1917,  and  November  12,  1918,  both  date*  inclusive,  and 
showing  the  percent  which  such  incomo  is  of  the  total  incomo  of  the  corporation. 

18  Returns  in  special  cases. — Corporations  other  than  foreign  corporations  making 
claim  for  assessment  under  Section  328  of  the  Act  should  answer  all  questions  and  file  all 
schedule  as  far  as  possible  and  attach  a statement  explaining  why  it  is  impracticable  to 
fill  out  the  entire  return. 

UNDISPUTED  PROFITS  TAXABLE  TO  STOCKHOLDERS. 

19.  If  any  corporation,  however  created  or  organized,  is  formed  or  availed  of  for  the 
purpose  of  preventing  the  imposition  of  the  surtax  upon  its  stockholders  or  members  through 
tbo  medium  of  permitting  guinsand  profits  to  accumulate  instead  of  being  divided  or 
distributed,  there  . hall  be  lr\icd,  collected  and  paid  for  each  taxable  year  upon  the  not 
income  of  such  corporation  a tax  equal  to  twenty-five  per  cent  (25%)  of  the  amount  thereof, 
which  shall  be  in  addition  to  tho  tax  imposed  by  Section  230,  Revenue  Act  of  1931.  and 
hall  bo  computed,  collected,  anil  paid  upon  tho  same  basis  nnd  in  the  nmo  manner  and 
subject  to  the  samo  provisions  of  law,  including  penalties,  as  that  lax.  (See  Section  220, 
Revenue  Act  of  1921.)  a— uw 

[Page  6 of  Form  1 120  A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  280 


4-2H-22. 


TREASURY  DEPARTMENT 

iNTCnNAI.  KK  VENUE  SERVICE 
Form  1 1 IB— Reviwd  February,  M» 


Income  and  Profits  Tax  Bond 

(UNDER  SECTION  238(b)  OF  THE  REVENUE  ACT  OF  1921) 

For  taxable  year  1921 


KNOW  ALL  MEN  BY  THESE  PRESENTS,  That  wo 

- , as  principal,  and  

- , of 

ns  surety,  nre  held  and  firmly  hound  unto  the  United  States  of  America  in  the  sum  of  . 


dollars,  lawful  money  of  the 

United  States,  for  the  payment  whereof  we  bind  ourselves,  oiir  heirs,  executors,  administrators,  sue- 
cessors,  and  assigns,  jointly  and  severally,  firmly  by  these  presents. 

Whereas,  at  tho  time  of  filing  its  return  of  income  for  the  taxable  year  1921,  the  above-bounden 
principal  claimed  a credit  on  its  income-tax  return  for  income  or  war-profits  and  excess-profits  taxes 
accrued  but  not  paid  to  foreign  countries  or  to  possessions  of  the  United  States,  and  duly  attached 
thereto  Form  1118  prescribed  for  such  purpose;  and 

Whereas,  section  238  (b)  of  the  Revenue  Act  of  1921  provides  that,  in  the  case  of  such  a tax  accrued 
but  not  paid,  if  the  tax  when  paid  differs  from  the  amount  claimed,  or  if  any  tax  paid  is  refunded,  the 
Commissioner  shall  redetermine  the  amount  of  tax  due,  and,  as  a condition  precedent  to  the  allowance 
of  the  credit,  may  require  the  taxpayer  to  give  bond,  with  satisfactory  sureties,  in  such  penal  sura  as  the 
Commissioner  may  require,  conditioned  for  the  payment  by  the  taxpayer  of  any  amount  found  to  be  due 
upon  any  such  redeterinination,  and  the  Commissioner  has  required  that  the  bond  given  in  such  a rase 
snail  be  in  the  amount  of  the  credit  claimed,  and  this  bond  is  in  the  amount  of  the  credit  claimed; 

Now,  therefore,  the  condition  of  the  foregoing  obligation  is  such  that  if  the  principal  shall,  on  notice 
and  demand  by  the  Collector,  duly  pay  any  income  or  war-profits  and  excess-profits  tax  found  by  the 
Commissioner  upon  any  such  redetermination  to  be  due  from  the  principal,  under  the  Revenue  Act  of  1 92 1 
and  shaU  otherwise  well  and  truly  perform  and  observe  all  of  the  provisions  of  law  and  the  regulations 
thereunder,  then  this  obligation  is  to  be  null  and  void ; otherwise  to  remain  in  full  force  and  virtue. 


Witness  our  hands  and  seals,  this „ day  of 

Signed,  sealed,  and  delivered  in  the  presence  of — 


1922. 


[i~  s.l 


Bond  approved  this  day 


Principal. 


[i-  s.] 


Surety. 


[i-s-J 


OF — 1 , 1922 


COVUftMtHT  MUNTIN6  QffKf 


Commissioner  of  Internal  Revenue. 


The  Federal  Income  Tax  Service 
Supplementary  Page  281 


Treasury  Department, 

Chief  Clerk  . 

Form  23.  (Reilsed  April  2),  1922.) 

APPLICATION  FOR  ADMISSION  TO  PRACTICE  BEFORE  THE  TREASURY  DEPARTMENT. 

The  Honorable 

The  Secretary  of  the  Treasury. 

Sir: 

I, 

residing  at 

with  my  office  ut 

hereby  apply  for  enrollment  to  be  recognized  as : 

(Attorney  or  agent.) 

to  represent  others  before  the  Treasury  Department. 

1.  I am  a citizen  of  the  United  States  (if  naturalized,  state  where  and  when:  Place 

Date ),  and  the  date  of  my  birth  is 

2.  I am  a member  of  the  bar  of . 

and  attach  hereto  a certificate  to  that  effect  from  said  court. 

I am  now  in  active  practice  and  in  good  standing  in  said  court. 

3.1  I am - engaged  in  business  under  the  name  of 

(State  nature  of  business.) 

and  familiar  with  the  laws,  rules  and  regulations  of  the  Treasury  Department.  I am 

qualified  to  act  as  the  representative  of  others  and  render  them  valuable  service,  particularly  in  matters  relating,  to 

because  of  my  education,  training  and  business  experience, 

which  have  been  as  follows:  (State  in  chronological  order,  giving  dates.) 

Preliminary  education:  Dates. 


Professional  or  technical  education: 


Practical  business  experience: 


Professional  or  technical  experience: 


Particular  qualifications  rendering  applicant  competent  to  advise  and  assist  claimants  in  presentation  of  their  cases: 


4.  1 have  never  been  rejected,  suspended  or  disbarred  from  appearing  as  attorney  or  agent,  or  in  any  other  rep- 
rcsentative  capacity,  before  any  branch  of  the  Federal  or  any  State  Government  or  municipality,  or  any  court. 
(State  details  of  any  exception.) 


5.  1 have  never  been  an  officer  or  empluyee  of  the  United  States. 

1 have  been  an  officer  or  employee  of  the  United  States  as  follows:  (State  office  or  employment,  with  dates  of 
appointment  and  separation.) 


1 Paragraph  3 should  ho  filled  in  only  by  per  sous  applying  fur  curollmeut  as  agent. 

(») 


[Page  1 of  Form  23.) 


The  Federal  Income  Tax  Service 
Supplementary  Page  283 


6.  I have  read  and  noted  Treasury  Department  Circular  No.  230,  dated  April  25,  1922,  and  particularly  paragraph 

C thereof. 

7.  J have  made  no  previous  application  to  be  recognized  as  attorney  or  agent  before  the  Treasury  Department. 

(State  details  of  any  exception.) 


s ' , do  solemnly  swear  (or  affirm)  that  the  statements  con- 

tained in  the  foregoing  application  are  true  and  correct;  that  1 will  support  and  defend  the  Constitution  of  the  United 
States  against  all  enemies,  foreign  and  domestic;  that  I will  bear  true  faith  and  allegiance  to  the  same;  that  X take  this 
obligation  freely  without  any  mental  reservation  or  purpose  of  evasion;  and  that  if  authorized  to  represent  others  before 
the  Treasury  Department  I will  at  all  times  conduct  myself  strictly  in  compliance  with  the  laws  and  regulations  gov- 
erning practice  before  the  Department.  So  help  me  God. 

(Name) 

(Address) 

Subscribed  and  sworn  to  before  me  this day  of 192  . 

(Signature  of  officer) 

(Official  title) to.  j 

[Impress  seal  here.) 

CERTIFICATES  OF  CHARACTER. 


I hereby  certify  that  I have  known  the  within- named 

I hereby  certify  that  I have  known  the  within-named 

(Year.) 

that  during  all  that  time  I have  known  him  to  be  of  good 
moral  character  and  worthy  of  the  trust  and  confidence 
of  claimants  and  of  the  Treasury  Department. 

(Year.) 

that  during  all  that  time  I have  known  him  to  be  of  good 
moral  character  and  worthy  of  the  trust  and  confidence 
of  claimants  and  of  the  Treasury  Department. 

(Name  and  address  of  persou  not  related  to  applicant.) 

(Name  and  address  of  person  not  related  to  applicant.) 

(Date.) 

(Date.) 

INDORSEMENT. 

Washington 192 

The  attached  application  of ..... 

for  enrollment  to  be  recognized  as to  represent  others  before  the  Treasury  Department  has 

been  examined,  and  aftgr  consideration  it  is  recommended  that  the  application  be 


t 

t 


, Chairman. 


Approved  by  the  Secretary.  Committee  on  Enrollment  and  Disbarment, 

(See  Schedule  No ) ^ Treasury  Department. 

2 Note.— This  oath  may  be  taken  before  any  justice  of  tbe  peace,  notary  public,  or  other  person  who  is  legally  authorized  to  administer  an 
oath  in  the  State,  Territory  or  District  where  the  application  is  executed.  The  seal  of  the  officer  administering  the  oath  must  be  affixed,  or  if 
he  has  no  seal,  his  official  character  must  be  duly  certified  under  seal. 

‘Leave  certificates  blank  if  a member  of  the  bar. 

(10) 


WASHINGTON  : GOVE  BN  ME  NT  PRINTING  OFFICE  : 1622 

[Page  2 of  Form  23.]  „ 


♦ 

The  Federal  Income  Tax  Service 
Supplementary  Page  2S4 


S-S-22. 


1.  Cruet  sales,  lees  return*  and  allowances  ... 


SCHF.DULF  A INCOME  TO  BE  ACCOUNTED  FOR  BY  STOCKHOLDERS. 

CROSS  INCOME. 


2 Lew  cost  of  good*  told,  exclusive  of  item*  called  (or  separately  below  (attach  Schedule  A2). 

3.  Grow  income  from  services  or  operation*  artier  than  trading  *r  manufacturing,  lew  allowances  (attach  Schedule  A3) 

4 Taxable  intmstffrom  all  other  tourers  (not  Including  interest  referred  to  under  Item*  2 and  3,  Schedule  D) 

7 Shareof  net  income  earned  by  a partnorthip  or  personal  service  corporation  (whether  received  or  not) 

8.  Dividends  subject  to  surtax  only  (attach  Schedule  A8) — 

9 Dividend*  subject  to  both  normal  aad  surtax  (attach  Schedule  A9) — ■ 

iO  Other  income  (not  including  stny  amount  reported  In  Item  23  below  nur  interest  on  Liberty  Bonds)  (attach  Scbedulo  A 10). 

11.  Total  of  Items  1 to  10 — 

DEDUCTIONS. 

12.  Expenses  ^sxco^t  amounts  reported  in  Item  2 above,  or  called  (or  separately  below)  (attack  Schedule  A12) 

IS  Compensation  of  stockholders  in  whatever  form  paid  (attach  Schedule  A 13) 

14.  Repairs  (Including  labor,  supplies,  etc  ) {attach  Schedule  Alt) - 

16.  Interest  (attach  Schedule  AIS) 

16.  Taxes  (attach  Schedule  A16)..._ 

17.  Bad  debt*  (attach  Schedule  A17) - 

18  Exhaustion,  wear,  and  leas  (including  obsolescence)  (attach  Schedule  A18)  — — 

19  Depletion  (attach  Schedule  A19). 

20  Amortisation  of  war  facilities  (attach  Schedule  A20) — 

21.  Total  of  Items  12  to  20. — 

22.  Item  11  Mixes  Item  21 — - 

J3.  Profit  or  low  oo  sales  ol  capital  assets  and  miscellaneous  invrstmente  (attach  Schedule  A23)  „ 

24.  Losses  sustained  by  fire,  storm,  etc.  (attach  Schedule  A24).  Extend  difference  between  or  eu 
V>.  Net  Income  (Item  22  rppg  or  minds  Item  24  as  extenoed)  


......... 

I 

i 

i " 

r 


>f  Items  2i  and  24 


"i  i 


.L-jari- 


Enter  below  the  share  of  i 


SCHEDULE  B-STOCKHOLDERS*  SHARES  OF  INCOME  AND  CREDITS, 
t income  attributable  to  1921  (whether  distributed  or  not)  of  each  stockholder  of  record  on  December  31, 1921,  of  t! 


interest  on  obligations  ol  the  "United  States),  each  stockholder's  share  ol  any  income  tax  paid  at  source  on  tax-free  covenant  bonds,  and  any  income  a 
ration  to  a foreign  country  or  to  a powesaJon  of  the  United  Slates-  (See  page  2 of  Instructions,  paragraphs  9 to  12,  inclusive.) 


If  the  distributable  interest*  In  the  net  income  are  determined  od  a basis  other  than  a percentage  basis,  attach  an  explanatory  statement. 


1 Namx  and  Address  or  Each  Stocmoid**. 
(Desionat*  xciwmDENT  ahe.n*). 

1.  N I'M  BILK  or 
SBARK3  HKLD^Di 

3 Dividends  ScaizcT  to 
(Enter  portion  or 
AT7RIBVTASLX  TO  1921). 

4,  Other  Income 
(Exm  Portion  or 
Item  26  Mixes  I«u  S 

4.  Tax  Paid  at 
toy  act  oh  Ttz-raxE 

ATiaiBUTAitK  TO  l».*l. 

#.  Income  and  Pnom* 
Forew.x  f OCW wf  OK 
TO  A POSSESSION  or 
THE  ll«IW  SlAlU 
ATraiBtf ABLE  TO  1421- 

1 _i. 

1* 

1 - 



’ - a 

!.  _ 

1 

1 

— 

■ 

1 

■ cz 



ZZk 

c 

SCHEDULE  C— COMPUTATION  OF  TAX. 


A 1 

2.  Leas:  Dividends  (Item  8,  Schedule  A)J| I 

3 Exemption  *2,000,  if  net  income  b 1 

lees  than  *25,250 ^rv 1 

6.  If  net  income  b lew  than  125,250,  enter  amount  in  excess  of 

7 Total  tax  for  entire  period  computed  at  1922  rates  (Item  6 

....  t__L  

9 Income  and  profits  Iaxos  paid  to  foreign  countries  or  possessions  of  the  United  St 

ates  (attack  Form  1118) |.  . .. 

, 

11.  Tax  due  (that  proportion  of  Item  10  which  the  number  of  months  in  1922  is  of  the  number  of  month^p  the  entire  period) — .. 

*. 

AFFIDAVIT* 

We,  the  undersigned,  president  and  treasurer  of  tho  corporation  for  which  this  return  b made,  being  severally  duly  sworn,  saoh  for  himself  deposes  and  says  that  this  return, 
udin&tbe  accompanying  schedules  and  etaierhenta,  has  been  examined  by  him  and  b,  to  the  beet  of  hb  knowledge  and  belief,  a true  otrd  complete  return  made  in  good  faith,  for 
taxable  period  as  stated,  pursuant  to  the  Revenue  Art  of  1921  and  the  Regulations  issued  under  authority  thereof. 

Sworn  to  and  subscribed  before  me  thb day  of . 192 


GED 


(Blgnslur*  ot  «nic*r  AdfiiU.  Uterine  o*Ui.)  (Tula) 

(An  amended  return  mutt  be  plainly  marked  “Amended"  acre**  the  face  of  the  return.) 


Prtridml 

Trearurfi. 


[Page  1 of  Form  1065B.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  285 


^.uv^^^grg^’KS^xaaaasta  age^^^^wsj^aegs: 

isssw 


,„.  r»  ;ar;»:, 


• -1*1  *“- — * -“sa:-— 


[Page  2 of  Form  1065B.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  286 


.-S-M 


r,„  | ,f  1nitru<lio<i*.  SCHEDULES  TO  BE  FURNISHED  IN  SUPPORT  OF  ITEMS  IN  SCHEDULE  A. 

The  tcll«Uuk»  cailod  for  Mow  «l>oulJ  bo  piopuiod  awl  lirmly  ultad'cd  Id  Uio  n-lurn  Do-igm.lo  nub  aolioilulo  will.  Ilia  uunikor  of  ilia  item  in 

•Selioilulo  A wlucil  il  explain*.  MakoKlloilulnoii  |>np»r  of  uniform  ai«o,  ho  fur ticalil.-.  awl  pillar  thn  mania  .ltd  n.Urc- » on  aarl.  .lu-l  AUaeb 

„ IihI  of  aobodulol  accompanying  Hie  rolurn,  gi  inn  for  ciuli  a brirl  lillo  mol  nclieiluli'  numbci. 


XCIIEDUO  A2i  COST  OF  COOPS  SOLD.  F.XCI.USIVF  or  FXITNSFS. 
RFPAIRS.  ANI»  OTHER  ITEMS  CALLED  FOR  SEPARATELY. 

II  you  are  engaged  in  a trado  or  luminous  in  which  the  f»roduc|ion.  puri  liun-,  or  rate 
of  wearliandiM  la  an  Incomeprodiicing  factor.  (<0  *»'uro  from  llwi  Colh"  tor  of  I nternu I 

Itm  pi i up  and  filu  ax  a part  of  this  return  Certificate  of  Inrontory,  Form  1120.  anil  (ft)  submit 
a schedule  showing  — 

(1)  Coat  of  niorchandian  bought  for  sale 

(2)  Coat  of  manufacturing  or  otherwise  producing  Rood*  i Ltat  principal  items  of 

coal,  grouping  minor  itoma  in  on#  amount  i 

(3)  Plua  Inventor)-  at  boginning  of  year 

(4)  Total  ol  I tenia  1 to  3,  iuduolve 
15)  L cat  inventory  at  end  of  year 

(R)  Coat  of  goodi  nold,  Item  4 miout  Item 

SCHEDULE  A3i  CROSS  INCOME  FROM  SERVICES  OR  OPERATIONS 
OTHER  THAN  TRADING  OR  MANUFACTURING.  LESS  ALLOWANCES. 

Submit  a schedule  showing  the  nature  and  amount  >>f  tho  principal  itema  included 
herein,  the  minor  iteoia  being  grouped  in  one  amount 

SCHEDULE  ASi  DIVIDENDS  SUBJECT  TO  SURTAX  ONLY. 

Submit  a schedule  showing  tho  amount  received  s*  dividend*  u>  from  each  domestic 
corporation  other  than  a corporation  entitled  to  the  bouelils  of  Socti  <n  262  of  tho  Revenue 
Act  ot  1921,  or  (6)  from  each  foreign  corporation  when  it  le  shown  to  thu  satisfaction  of  the 
Coromimioner  that  roore  than  50  per  centum  of  the  grow  income  of  such  foreign  corporation 
for  the  threo-yoar  period  ending  with  the  close  of  its  taxable  year  preceding  the  declaration 

of  such  dividends  (or  for  gUch  part  of  such  period  as  the  corporation  has  l in  exi**.  n.  - 

was  derived  from  source*  within  the  United  States  as  determined  under  the  provision*  of 
S«ction  217  of  tho  Act 

SCHEDULE  A9:  DIVIDENDS  SUBJECT  TO  BOTH  NORMAL  AND  SURTAX. 

Submit  a schedule  showing  dividend#  subject  lo  both  normal  and  -urtux  whether 
received  from  foreign  or  domestic  corporation*,  and  which  are  not  allowed  a*  a credii 
under  Section  218  of  the  Revenue  Act  of  1921. 

SCHEDULE  AIO:  OTHER  INCOME  (not  including  any  amount  with  respect  to 
aalea  of  capital  assets  or  miscellaneous  investments  nor  Interest  on  Liberty 
Bonds). 

Submit  a schedule  allowing  liic  source,  nature,  and  am>unt  of  the  principal  items 
included  herein,  tlio  mirror  item*  being  grouped  in  one  amount. 

SCHEDULE  AI2:  ORDINARY  AND  NECESSARY  EXPENSES  (s.cepl  smoent. 
called  for  separately  In  Schedule  A). 

Submit  a schedule  showing  character  and  amount  of  the  priucipal  items  included 
herein,  the  minor  items  being  grouped  in  one  amount. 

SCHEDULE  A13:  COMPENSATION  OF  STOCKHOLDERS. 

Submit  a schedule  showing  for  each  stockholder  who  was  performing  < u r ei  ■ i 
or  who  received  compensation  in  any  form  (ram  the  corporation,  (ol  name,  (1)  duties,  <• 
time  devoted  to  such  dutie?.  and  ('fl  total  compensation  for  the  Gwal  year;  also  explain 
fully  the  manner  and  degree  in  which  the  earning*  of  the  corporation  are  dependent  on 
the  activities  of  the  stockholder. 


SCHEDULE  AI4i  REPAIRS  (including  labor,  supplies,  overhead,  and  other 

Items  properly  chargeable  to  repairs). 

Submit  a schedule  showing  the  naturo  and  amount  of  the  principal  item-  included 
herein,  the  minor  items  being  grouped  in  one  amount. 

Incidental  repairs,  which  do  not  add  to  the  value  or  appreciably  prolong  the  life  of 
property,  are  deductible  as  expenses.  Expenditures  for  new  building-  fur  permanent 
improvements  or  betterments  which  inereate  the  value  of  the  property  are  chargeable 
to  capital  account.  Expenditures  for  restoring  or  replacing  property  are  nol  deductible 
under  this  or  any  other  item  of  the  return.  Such  expenditures  are  chargeable  to  capital 
account  or  to  depreciation  reserve#,  depending  on  the  treatment  of  depreciation  on  the 
books  of  the  taxpayer 


SCHEDULE  AISi  INTEREST. 

Submit  a detailed  schedule  with  respect  to  interest  paid  or  credited  to  any  stockholder 
State  the  character  and  origin  of  the  principal  on  whkb  the  interest  wa a computed,  and 
whether  «ucb  principal  is  evidenced  by  notee  or  other  forms  of  contract.  Describe  fully. 

The  amount  of  interest  deductible  under  Item  13.  Schedule  A,  is  the  .-'.mount  of  interest 
paid  or  accrued  within  the  taxable  year  on  indebtedness,  except  on  indebtedness  incurred 
or  continued  to  purchase  or  carry  obligations  or  securities  (other  thao  obligations  ol  tho 
United  States  issued  after  September  21.  1917,  and  originally  subscribed  for  by  the  tax- 
payer) the  interest  upon  which  is  wholly  exempt  from  taxation. 

SCHEDULE  A16.  TAXES. 

Submit  a schedule  showing  taxes  paid  or  accrued  within  the  fiscal  year  except 
(ol  income,  war  prof.ts  and  excess  proGte  taxes  imposed  by  the  authority  of  the  United 
States,  (b)  so  much  of  the  income,  war  profits  end  etce®  profits  taxes,  imposed  by  the 
authority  of  any  foreign  country  or  powc«3>on  of  tho  United  Slates,  as  is  allowed  as  a 
credit  un  j-r  Section  233.  Revenue  Art  ol  1921.  <c)  taxes  assessed  against  local  benefits  of 
a t .nd  lending  to  increase  tho  value  of  the  property  asecMid.  and  (</)  taxes  imposed  upon 
ih«  tax  paver  upon  lus  intereel  as  shareholder  or  member  of  a corporation,  which  are  paid 
by  the  corporation  without  reimbursement  from  the  taxpa\ef 


SCHEDULE  AI7.  BAD  DEBTS. 

Submit  u schedule  : lowing  dobts,  or  portions  thereof,  arising  from  scissor  professional 
service*  that  havo  boon  reported  as  incoras,  which  hnvo  been  definitely  ascertain od  to 
bu  worthless  ami  rhntgrel  off  within  tho  fi."  si  year,  or  such  reasonable  amoufit 
ai  bai  been  added  to  a rewrvo  (or  had  debts  within  tho  year. 

If  tho  amount  entotod  tu  Item  17,  Schedule  A,  is  an  addition  to  a rcsorvo,  furnish 
proof  of  tho  reasonableness  of  tho  amount  (8oo  Section  234  (it)  5 of  (ho  Rnvenu*  Act 
of  1921  ) 

SCHEDULE  AlHi  EXHAUSTION.  WEAR,  AND  TEAR  (including  obsolsscenca). 

Submit  a schedulo  In  columnar  form  showing  for  each  class  of  property  the  following 
information 

(1)  Kind  of  property  nl  budding",  stale  material  of  which  constructed). 

(2)  Date  acquired. 

(3)  Ago  when  acquired.  . 

(4)  Cost,  or  if  acquired  prior  to  March  1,  1913,  tho  fair  market  value  on  that  date. 

(6)  Proboblo  life  after  acquirement 

(ft)  Amount  of  depreciation  charged  off  this  year 

(7)  Total  amount  of  depreciation  charged  off  provioua  to  this  year. 

Tho  total  amount  claimed  in  this  schedule  should  correspond  with  the  figures  redacted 
in  tbo  balancu  sheet. 

If  obsolescence  is  a factor  in  determining  this  deduction,  attach  a statement  showing 
the  amount  claimed  for  the  fiscal  year  and  tho  basis  upon  which  computed. 

Tho  amount  deductible  on  nccount  of  depreciation  Is  an  amount  fairly  measuring 
the  portion  of  the  investment  in  depreciable  property  by  reason  of  oxhaustion,  wear 
and  tear,  and  obsolescence  which  b properly  chargeable  against  the  operations  of  the 
year.  Such  an  amount  should  be  determined  upon  the  basis  of  tho  original  cost  (not 
replacement  cost)  of  the  property,  or  if  acquired  prior  to  March  1,  1913,  the  fair  market 
value  on  that  date  and  the  probable  number  of  years  remaining  of  its  usoful  Uio.  Tho 
capital  sum  to  be  replaced  should  bo  charged  off  over  the  useful  life  of  the  property 
either  in  equal  auuual  installments  or  iu  accordance  with  any  othor  recognised  trade 
practice,  such  as  an  apportionment  over  units  of  production  Whatever  plan  or  method 
of  apportionment  is  adopted  must  bo  reasonable  and  must  have  due  regard  to  operating 
conditions  during  the  tuxable  period  The  method  adopted  should  be  described  in  the 
return  Stocks,  bonds,  and  like  securities  are  not  subject  to  exhaustion,  wear  and  tear 
within  the  moaning  of  tho  law 

SCHEDULE  A19:  DEPLETION. 

If  a deduction  is  claimed  on  account  of  depletion,  secure  from  the  Collector  Form  D 
(minerals).  Form  E (coalb  Form  F (miscellaneous  n^nmetals),  Form  0 (oil  and  gas),  or 
Form  T(  timber  ',  Gil  id  and  file  with  return.  If  complete  valuation  data  have  been  filod 
with  questionn.ure  in  previous  years,  then  lilo  with  this  return  information  necessary  to 
bring  your  depletion  schedule  up  to  date,  cettiug  forth  in  full  statement  of  all  transactioiu 
i bearing  on  deductions  or  additions  to  value  of  physical  assets  with  explanation  of  how 
depletion  deduction  for  the  accounting  period  has  boon  determined.  Io  case  of  timber 
| this  should  ba  done  by  filling  in  Form  T (limber). 

SCHEDULE  A20:  AMORTIZATION  OF  WAR  FACILITIES. 

lo  case  a deduction  is  churned  on  account  of  amortization,  a schedule  should  bo  sub- 
mitted containing  the  information  called  for  in  Guide  Form  1007M,  which  explains  in 
d-tai!  the  manner  in  which  a claim  of  this  nature  should  ba  presented.  A copy  of  this 
form  may  be  obtained  from  tho  Commissioner  'Sec  Section  234  'o)  8 of  the  Rovenuo  Act 
j of  1921  ) 

SCHEDULE  A 23:  PROFIT  OR  LOSS  ON  SALES  OF  CAPITAL  ASSETS  AND 

MISCELLANEOUS  INVESTMENTS. 

Submit  a schedulo  in  columnar  form  showing- the  following  information  for  each  asset 
eold  (sec  Sections  202,  231  (a)  1 and  234  (a)  14  of  the  Reveuue  Act  of  1921); 

(1)  Kind  oi  property. 

(2)  Date  acquired. 

(3)  Sale  price. 

(4)  Cost. 

(5)  Fair  market  value  on  March  1,  1913,  if  acquired  prior  to  that  data- 

(tij  Cost  of  subsequent  improvements. 

(7)  Depreciation 

(8)  Net  profit  (or  loiii. 

(9)  Amount  in  column  5 which  represents  good  will,  if  any. 

If  any  of  the  assets  wero  acquired  prior  to  March  I,  1913,  state  how  the  fair  market 
value  on  that  date  was  determined. 

10  caso  of  exchange  of  property,  fubuiit  evidence  substantiating  the  basis  used  in 
arriving  at  the  Lair  market  value  of  the  property  recofvtd. 

SCHEDULE  A24:  LOSSES  SUSTAINED  BY  FIRE,  STORM,  ETC. 

I a schedule  similar  to  the  ono  requested  above  should  be  submitted  with  respect  to 
| losses  of  property  arising  from  fires,  storms,  shipwreck,  or  other  casualty,  or  from  theft, 

and  not  compensated  for  by  insurance  or  otherwise,  except  that  column  3 should  show 
" Insurance  and  salvage"  instead  of  "Sale  price." 

CAPITAL  EMPLOYED  IN  BUSINESS. 

11  the  balance  sheets  (Schedule  E)  of  a personal  service  corporation  indicate  that  » 
1 subaUntial  amount  of  capital  (invested  or  borrowed)  b employed  in  the  business,  submit  a 
r (tatement  explaining  why  the  employment  of  =uch  capital  b incidental  and  not  necessary 

WORKING  PAPERS. 

Every  personal  service  corporation  should  preserve,  available  (or  inspection  by  a 
revenue  officer,  working  papers  showing— 

1.  The  balance  in  each  account  on  the  corporation^  boolm  that  was  used  in 

preparing  Schedule  A. 

2.  The  amount  doducted  from  each  such  balance  on  account  of  each  class  of  non 

taxable  income,  unallowable  deduction),  and  other  adjustments  indicate! 
in  Schedule  D,  with  a reference  to  the  number  of  the  item  In  Schedule  D iu 
which  each  amount  so  deducted  was  included. 

3.  Tho  remainder  of  each  eucb  balance,  analyzed  to  show  the  amount  included 

Id  each  item  of  Schedule  A,  with  a reference  to  tbe  number  of  the  Stem  in 
Schedule  A.  s— iims 


[Page  .3  of  Form  1 065 B .] 


The  Federal  Income  Tax  Service 
Supplementary  Page  287 


2 of  Instruction..  INSTRUCTIONS  FOR  PERSONAL  SERVICE  CORPORATION  RETURN. 


PERSONAL  SERVICE  CORPORATIONS  REQUIRED  TO  MAKE  A 
RETURN  OF  INCOME. 

I Personal  service  corporations.  Every  personal  ervice  corpora- 
tion  must  inuko  a return  of  income  ou  this  form  regard  lean  of  the  amount 
of  its  groi*s  or  net  income.  The  portion  of  the  corporation’s  not  earnings 
ut  trilnilablo  to  the  calendar  year  1021  (whether  distributed  or  not)  uro 
taxable  (o  the  etockholdep  and  should  bo  reported  on  their  individual 
returns.  The  portion  of  the  earnings  attributable  to  tho  calendar  year 
1022‘nro  taxable  to  the  corporation  as  an  ordinary  corporation  is  taxed, 
and  are  only  taxable  to  the  stockholders  when  distributed  os  dividends. 
(See  insthielion®  below  for  filling  in  .Schedules  B and  C,  and  Sections  205 
and  218  of  the  Revenue  Act  of  1921.) 

2.  Personal  service  corporation  defined. — The  term  “personal 
service  corporation " means  a corporation,  not  expressly  excluded,  tho 
income  of  which  is  derived  fr«n  a profession  or  business  (a)  which  consists 
principally  of  rendering  personal  w-rvico,  (b)  t he  earnings  of  wliieh  arc  to 
be  ascribed  primarily  to  the  activities  of  the  principal  OWbers  or  stock- 
holders, and  (i  ) in  wliieh  the  employment  of  capital  is  not  necessary  or 
is  only  incidental.  (See  Section  200,  paragraph  5,  Revenue  Act  of  1921.) 

3.  Corporation*  excluded.  The  following  classes  of  oorporatione 
are  expressly»«xcludcd  from  classified! ion  as  persomd  sorviec  corporations: 
(n)  Foreign  corporations;  (/»)  corporations  50  per  cent  or  moro  of  whose 
gross  income  consists  of  gains,  profits,  or  incoma  derived  from  trading  as  a 
principal;  and  (c)  corporations  50  per  cent  or  moro  of  whose  gross  income 
consists  of  guina,  profits,  commissions,  or  other  income  derived  from  u 
Government  contract  or  contracts  made  between  April  C,  J.917,  and 
November  11,  1918,  inclusive. 

4.  A corporation  is  not  a personal  service  corporation  merely  hccuuso 
less  than  50  per  cent  of  its  gross  income  was  derived  from  trailing  as  u 
principal  or  from  Government  contracts.  A corporation  con  not  be 
considered  a personal  service  corporation  when  another  corporation  (not 
itsolf  a personal  service  corporation)  owns  or  controls  substantially  ah 
of  its  slock,  or  when  substantially  all  of  its  stock  and  of  the  stock  of 
another  corporation  (not  itself  a personal  service  corporation)  forming 
part  of  the  same  business  enterprise  is  owned  or  controlled  by  tho  same 
interests.  (Seo  Sections  200  and  210  of  the  Revenue  Act  of  1921.) 

5.  More  than  one  business. — A corporation  engaged  in  two  or 
more  professions  or  businesses  which  arc  more  or  less  related,  one  of  which 

.does  not  consist  of  rendering  personal  service,  is  not  a personal  service 
corporation  unless  the  nonpcrsonal  service  dement  is  negligible  or  merely 
incidental  and  no  appreciable  part  of  its  earnings  are  to  bo  ascribed  to 
such  sources.  (See  also  Section  303  of  the  Revenue  Act  of  1921.) 

6.  Activities  of  stockholders. — In  determining  whether  a corpora- 

‘ion  is  a personal  service  corporation,  no  weight  can  ho  given  to  the  fact 
that  it  fenders  personal  services  unless  (a)  the  principal  owners  or  stock- 
holders  are  regularly  engaged  in  the  active  conduct  of  its  ufftiirs,  and  aro 
engaged  in  such  u manner  that  the  earnings  are  to  he  ascribed  primarily 
to  their  activities,  and  (i)  its  affairs  are  conducted  principally  by  such 
owners  or  stockholders.  If  employees  contribute  substantially  to  tho 
services  rendered  l>3'  a corpm^vtion,  it  is  not  a personal  service  corporation 
unless  in  every  case  in  which  services  are  so  rendered  the  value  of  and  the 
compensation  charged  for  such  services  are  to  he  attributed  primarily  to 
tbc  experience  or  skill  of  the  principal  owners  or  stockholders.  ^ 

a 7.  Stock  interest  of  active  members. — No  corporation  or  its  owners 
or  stockholders  shall  make  a return  in  the  first,  instance  on  the  basis  of  its 
being  a personal  service  corporation  unless  at  least  80  per  cent  of  its  stock 
is  held  by  those  regularly  engaged  in  tho  active  conduct  of  its  affairs. 

fc-  8.  Capital. — In  determining  whether  a corporation  is  a personal 
service  corporation,  no  weight  can  he  given  to  the  fact  that  the  invested 
capital  of  the  corporation  under  Title  III  of  the  Act  or  the  actual  invests 
ment  of  the  principal  owners  or  stockholders  is  comparatively  small. 
If  the  use  of  capital  is  necessary  or  more  than  incidental,  capital  is  a 
material  income-producing  factor  and  the  corporation  is  not  a personal 
service  corporation. 

INSTRUCTIONS  FOR  FILLING  IN  SCHEDULE  B. 

9.  This  schedule  is  to  ho  used  for  showing  tho  sharo  (whether  dis- 
tributed or  not)  of  each  stockholder  of  tho  corporation  in  the  net  incomo 
attributable  to  the  calendar  year  1921.  The  net  income  attributable  to 
calendar  yeaf  1921  is  that  portion  of  the  net  income  for  tho  fiscal,  year 
which  the  part  of  the  fiscal  year  falling  within  the  calendar  year  19£1 
bears  to  the  entire  fiscal  year.  The  amount  of  dividends  reported  as 
Item  8,  Schedule  A,  and  the  balanco  of  the  net  income  for  the  fiscal  year 
should  be  allocated  and  the  portion  of  each  attributable  to  1921  cutered 
on  line  (h)  as  the  totals  of  columns  3 and  4,  respectively. 

10.  Enter  on  lines  (a),  (b),  (c),  etc.,  the  propor l innate  amount  of  tho 
totals  shown  in  columns  3 and  4 to  which  each  stockholder  is  entitled, 
whether  distributed  or  not.  If  the  amount  to  be  entered  in  column  4 is 
a loss,  the  amount  should  be  indicated  by  red  ink  or  a minus  sign.  \Yhcro 
the  ownership  of  a personal  service  corporation  has  changed  during  the 
fiscal  yepr,  the  distributed  portion  of  the  net  income  is  taxable  to  tho 
recipients,  while  the  undistributed  portion  is  taxable  to  tho  owners. 

1 1.  If  the  personal  service  corporation  received  directly  or  through  a 
partnership,  fiduciary,  or  another  personal  service  corporation  interest 
on  corporation  bonds  containing  acluo'se  by  which  the  debtor  corporation 
agrees  to  pay  the  interest  without  any  deduction  for  taxes,  and  there  wero 
filed  with  such  interest  coupons  a white  certificate,  Form  1000,  not  dunn- 
ing exemption,  a tax  of  2 per  cent  was  paid  at  the  source.  Tho  portion 
of  this  tax  attributable  to  1921  should  be  allocated  to  the  stockholders 
in  column  5.  (See  Section  221  of  the  Revenue  Act  of  1921.) 


12.  If  a credit  in  claimed  in  column  0,  it  should  be  the  amount 
attributable  to  1921,  and  a copy  of  Form  1118,  completely  filled  in  and 
sworn  to  or  affirmed,  must  bo  Bubmittcd  with  this  return.  If  auch  taxes 
have  been  paid,  Form  1118  must  have  attached  toil  the  receipt  #r 
other  evidence  of  each  such  tax  payment.  If  such  taxes  have  been 
accrued,  Form  1118  must  have  attached  to  it  a copy  of  tho  return  on 
which  each  such  accrued  tax  wuh  baaed,  or  other  evidence  aa  to  the  accrual 
of  taxcw.  (See  Section  238  of  the  Revenue  Act  of  1921.) 

INSTRUCTIONS  F<&  FILLING  IN  SCHEDULE  C. 

13.  This  schedulo  is  for  the  purposo  of  determining  the  amount  of 
tax  to  bo  paid  by  the  corporation  on  tho  net  income  attributable  tb  the 
calendar  year  1922. 

Enter  as  Item  1,  the  total  amount  of  tho  net  income  reported  ee 
Item  25,  Schedule  A,  and  compute  the  tax  thereon  as  if  it  were  for  the 
calendar  year  1922.  The  amount  to  be  paid  is  that  proportion  of  the 
tux  computed  for  tho  year  1922  which  tlie  part  of  tho  fiscal  year  falling 
within  the  calendar  year  1922  bears  to  the  entire  fiscal  year.  If  a credit 
is  claimed  on  account  of  taxes  paid  at  the  source,  or  to  another  country 
as  stated  on  Form  1118,  the  total  amount  paid  in  cither  case  during  the 
fiscal  year  should  bo  reported  os  Item  8 or  9 in  this  schedule. 

In  case  the  net  incomo  of  a domestic  corporation  is  more  than 
825,000  the  tax  of  12 §%  imposed  by  Section  230  of  tho  Act  on  the  net 
income  shall  not  oxcood  the  tax  which  would  bo  payable  if  the  82,000 
erodit  wore  allowed,  plus  the  amount  of  tho  net  income  in  excess  of 

INTEREST  ON  LIBERTY  BONDS,  ETC. 

14.  Jn  case  tho  corporation  owned  Liberty  Bonds  or  other  obliga- 

tions t>i  the  United  States  issued  sinco  September  1,  1917  (except 
Victory  Liberty  Loan  3|%  Notes  and  postal  savings  certificates  of 
deposit),  or  a sharo  of  these  obligations  heM  by  a partnership,  fiduciaty, 
or  another  personal  sorvice  corporation,  tho  corporation  should  advise 
each  stockholder  as  to  his  proportionate  amount  of  these  obligations  and 
the  interest  thereon,  as  of  December  31,  1 921,  in  order  that  ho  may  deter- 
mine whether  such  interest  is  subject  to  surtax  on  his  individual  income- 
tax  return.  ; 

Inasmuch  as  the  excess  profits  tax  has  been  repealed,  effective 
December  31,  1921,  interest  received  after  that  dute  on  these  obligations 
is  not  taxable  to  the  corporation  and  need  not  bo  included  in  this  return. 

PERIOD  COVERED. 

15.  The  taxable  period  is  the  fiscal  year'ending  on  the  last  day  of 
any  month  other  than  December  in  the  calendar  your  1922.  The  account- 
ing period  established  for  the  year  immediately  preceding  must  be  adhered 
to,  unless  permission  was  received  from  tho  Commissioner  to  make  a 
change.  - 

16.  If  a corporation  changes  its  accounting  period,  it  shall  as  soon 
ns  possible  give  to  the  collector  for  transmission  to  the  Commissioner 
written  notice  of  such  change  and  of  its  reasons  therefor.  Upon  approval 
by  the  Commissioner,  the  taxpayer  shall  thereafter  make  his  returns  upon 
the  basis  of  the  new  accounting  period.  (See  Sections  212  (c)  and  226, 
Revenue  Act  of  1921.) 

TIME  AND  PLACE  FOR  FILINC. 

17.  Returns  must  be  sent  to  tbc  Collector  of  Internal  Revenue  for  the 
district  in  which  tho  corporation’s  principal  place  of  business  is  located, 
so  as  to  reach  the  Collector’s  office  on  or  before  tho  15th  day  of  the  third 
month  following  the  close  of  tho  taxable  period. 

SIGNATURES  AND  VERIFICATION. 

v 18.  The  return  shall  be  sworn  to  by  tho  president,  vice  president,  or 
other  principal  officer  and  by  tho  treasurer  or  essistont  treasurer  of  the 
corporation.  I f receivers,  trustees  in  bankruptcy,  or  assignees  are  operat- 
ing  the  property  or  business  of"  the  corporation,  such  receivers,  trustees, 
or  assignees  shull  execute  the  return  under  oath. 

PENALTIES. 

For  Making  Fal*«  or  Fraudulent  Return. 

19.  Not  exceeding  $10,000  or  not  exceeding  one  3-ear’s  imprisonment, 
or  both,  in  tho  discretion  of  tho  court,  and,  in  addition,  50  per  centum  of 
the  total  tax  evaded. 


For  Failing  to  Make  Return  on  Time. 

20.  Not  more  than  $1,000,  and,  in  addition,  25  per  centum  of  tho  total 
itmount  of  tho  tax. 

For  Failing  to  Pay  Tax  When  Due  or  Undemtatement  of  Tax  Through 
Negligence,  etc. 

21.  Five  per  centum  of  the  tax  due  but  unpaid  plus  interest  at  the 
rate  of  1 per  centum  por  month  during  the  period  in  which  it  remains 
unpaid. 

. INFORMATION  AT  THE  SOURCE. 


22.  Every  corporation  making  payments  of  salaries,  wages,  interest, 
rent,  commissions,  or  other  fixed  or  determinable  income  of  $1,000  or 
more  during  the  calendar  year,  to  uny  individual  or  partnership,  is  re- 
quired to  make  a true  and  accurate  return  to  tho  Commissioner  of  Internal 
Revenue,  showing  the  nature  and  amount  of  such  payments  and  the  name 
and  address  of  tho  recipient.  Forms  1096  and  1099,  for  reporting  such 
Information,  will  be  furnished  by  any  collector  of  iuternal  revenue.  Such 
returns  of  information  covering  the  culendar  year  1922  must  be  forwarded 
to  the  Commissioner  of  Internal  Revenue,  Sorting  Section,  Washington, 
D.  C.,  in  time  to  be  received  not  later  than  March  15,  1923. 


v t_n#ei 


«*«**»,  romilf  «rnti 


[Page  4 of  Form  1 065 B .] 


The  Federal  Income  Tax  ‘Service 
Supplementary  Page  -.288 


5-26-22; 


Form  lOtifl  A 
U.  8.  Inti rmai  Revenue 

THIS  RETURN  SHOULD 
BE  FILED  NOT  LATER 
THAN  THE  15TH  DAY 
OK  THE  THIRD  MONTH 
FOLLOWING  THE  CLOSE 
OF  THE  FISCAL  YEAR 


PARTNERSHIP  RETURN  OF  INCOME 


FOR  FISCAL  YF.AR  ENDING  IN  1922 


Do  not  write  in  iKia  spec* 

Eumined  l>; 


Fiscal  y— r lupin  . 1921,  tad  andad 

PRINT  PLAINLY  NAME  ANO  OUMNISS  ADORM3  Or  PARTNERSHIP 


(NWoiV) 

\ffimcssarmaisit  > 

iftAl'l  


MINI)  OF  UIN1NESS 


u— 


INCOME  TO  BE  ACCOUNTED  FOR  BY  PARTNERS. 


‘ 

B 

C 

D 

B 

B 

N.Iw>  INCOME. 

, p , n . r lXf  „ 

4.  Irrvnte  from  a Partnership  or  Pcrsuual  Service  Corporation.  (State  name  and  address  ) 

,ilif,ni<iiili 

7,  Other  Income  (including  dividends  received  on  stock  of  foreign  corporations).  (State  nature  of  income.) 

(Do  not  Include  any  Icilcroet  ou  Liberty  Bonds,  elf.) 

DEDUCTIONS. 



f 

. 

in  T p t<1  ( ( . . , ^ ^ ^ o) 

1 7„  :.r;r,  .\ 17777  J "7 

15.  Net  Income  (Item  8 minus  Item  14) ■*— - ^ 

PARTNERS*  SHARES  OF  INCOME  AND  CREDITS. 

Enter  below  in  the  proper  columns  the  share,  whether  distributed  or  not,  of  the  net  income  of  each  member  of  the  partnership  attributable  to  the  calendar  years  1921  and  1922  (except 
interest  on  obligations  of  the  United  States),  each  partner's  share  of  any  income  tax  paid  at  source  on  tax  free  covenant  bonds,  and  any  income  and  profile  taxes  paid  by  the  partnership 
to  a foreign  country  or  to  a possession  of  the  United  States.  (See  paragraphs  5 and  6 of  Instructions.) 


If  the  distributable  interests  in  the  net  income  are  determined  on  a basis  other  than  a percentage  basis,  attach  an  explanatory  statement. 


1.  Name  amo  Annatos  or  Each  Paetner. 

Drntr* o'  CfBirc tto  Surtax  Osar 

( I TXM>l?VLn«o «° Item  «). 

Soctcx^ic^rAX-rEii 

Cotxsawt  Boirw. 

FOOCIOK  Cooxtxt  o» 
to  a PoAjEsaow  or 
THE  Uicrxn  State®. 

smr. 

3.  AUritatUUs 

4.  AUritaUbU 

a.  AttriboUUa 

S.  Attributable 

1- 

1 

( 5 

1 I 1 

(i)  Tor  air 

s 

J, L 

. 

, 1 i, JL J, 

AFFIDAVIT. 


I swear  (or  affirm)  that  this  return,  including  the  accompanying  schedule'  and  statements  ( iL  any),  has  been  examined  by  me,  and.  to  the  beet  of  my _ knowledge  and  belief,  i»  i 
d complete  return  made  in  good  laitb  for  the  accounting  period  ia’  stated,  pursuant  to  the  Revenue  Act  of  1921  and  the  Regulations  issued  under  authority  thereof. 


Sworn  to  and  subscribed  be/ore  me  this 

| SEAL  | 


IMuaber  of  Partnership.) 


(Signature  otonoerndmi&UtcrUixaaUi.)  (Title.)  (Addis*  ol  partner.) 

(An  amended  return  must  be  plainly  marked  "Amended”  acroas  tha  face  of  tha  return.) 


[Page  1 of  Form  1 065 A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  289. 


SCHEDULE  A.  EXPLANATION  OF  ITEM  I.  o,  p„r.„l0„., 


1 Total  income  Iron  biwinew  or 
Co»t  or  Goods  8old 

2.  Uhnr 

3.  Material  and  euppliae 

< Merchnndiae  bought  for  .aalo. 


fl.  Plu*  Inventory  at  beginning  of  year.. 

7.  Total 

8.  I a»»  Inventory  at  end  of  year... 

0.  Nrr  Corr  or  Poona  Bold 


Oman  Pt.’Hisra*  Demjctioxb: 

1°  Sa^'iw  and  iraj,-.  nrt  repotted  m ••/ahor" 

11.  Hcnt  oo  hum.e  - property.  

12.  Ir.to'ent  on  bijBincK)  in'lcbtednoo. 

* * I**'*  00  ‘DC**  led  bueineu  property 

It  Rcp«in.  rear  and  tear.  obaclaMcoce.  deple- 
tion. and  property  tome*  (ciplain  below) 

15.  Amortintion  of  war  fnoilidwi 

I®  U*'l  dibui  arudno  from  aalm  or  *crvicee  if 
alriudy  reported  a*  income  _ ’ 

17.  Other  • ipem.ee  (lint  principal  I'enm  ’and 
amour  w below  or  on  acp&nto  cheat) 


18.  Totai,  (Iteme  10  to  17,  inclu«ive)..„ f.  | 

19.  NrrCoyr.  rtus Total DsDucriONu(Iu-m  8 plu*  Item  W) 

j.0j_Nt:T-  1>linriT  fon  f mo**  Bumxrep  on  Pnoreeaiow  (Item  1 minue  I 


Explanation  of  deductiona  .. 


[Page  2 of  Form  1065A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  290. 


s-ae-aa. 


(Dotnrh  and  Jlofrvln  thin  Nhcet.) 
INCOME  TO  BE  ACCOUNTED  FOB  BY  PARTNERS. 


>W  INCOME. 

Profit  (or  lew)  from  Buolnrea  or  Profreaioo - . - 

!.  Interest  no  Hank  Deposits,  Corpnretkn  Bond*,  Notes,  and  Mortfngr* 

I.  Root*  and  Roytlllau 

1,  Ineuins  from  a Partcerebip  or  Poroonsl  H*rvdor  Corporation.  iSute  name  and  aridn-sn  i 

i.  Profit  (or  low)  from  Sale*  of  Capital  >»<■'•  and  Miscellaneous  Investments...  .. 

Pi vidmdn  on  Stock  of  Domretfr  Corp>.ratlnca ,...  - .. .._ 

. Other  Fnc-nrno  (including  dividend*  received  on  steel  of  foreign  corporation*),  (State  nature  of  income. 

. Torn  Ihcomr  in  Itbw*  J to  7 (Ires  loam  shown  tharoin,  IF  any)  

DEDUCTIONS. 

. Interest  Paid  (not  including  interest  deducted  above)  

. Taxes  Paid  (not  including  taxes  deducted  above) 

loanee  by  Fire,  Storm,  etc.  (not  including  loose*  deducted  above) 

. Bad  Debt*  (not  including  bad  debt*  deducted  above) 

. Other  Deduction*  Authorised  by  Lew „ 

. Total  or  Irina  9 to  13 

Nrr  Income  (Item  9 mtnue  Item  H).._ 

SCHEDULE  A.— EXPLANATION  OF  ITEM  T ~fBu^ne7.  c 


1.  Total  income  from  burinew  o; 
Cost  or  Good*  Sold: 

2.  Labor 

Material  and  supplies 


Orsin  BcoiNrsa  Dcdlttios'b: 

10.  Salaries  and  wage*  not  reported  u "Labor" 

on  line  2 

11.  Kent  on  business  property 

12.  Interest  on  buaneas  indebtedness 

13.  Taxes  on  business  and  business  property 

H.  Bepaire,  wear  and  tear,  obsolescence  deple- 
tion, and  property  loeeos  (explain  below) 

15.  Amortirotion  of  war  (oolitic*. 

I*lu»  inventory  at  beginning  of  year.. ‘ IP  Bad  debts  arising  from  oalnt  or  service*,  if 

already  reported  a*  income  ...  ... 

17.  Other  expenses  (list  principal  item*  and 

Total — amounts  below  or  on  reparatc  sheet) 


Merchandise  bought  for  asle 

and  amounts 


IS.  Total  (Items  10  to  17.  inclusive)... 

19.  NetC-owt,  flobTotal Dxdcctioxs (Item  6 plus  Item  IB • 


, IyTr„„ 

DlVCiSJTM 

•'■csrorr  to  Surtax  Only 
Item  ft  Ai-ror.i. 

^ OTJM^IWCWI*^  ^ 

7.  Tax  Pajp  at 

_ Taxes  Paid 

«Ef 

3.  AH*1buUM« 

}.  AttribuuiMe 

‘ tS82M‘ 

i 

. L_ 

(&)  _ 

(tf) _ 

, 

(FI)  Total* 

I 

* .... 

t.  - - 

S..  

— 

1 



[Page  3 of  Form  1065A.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  291. 


INSTRUCTIONS  FOR  PARTNERSHIP  RETURN 


J.  RETURNS  BY  PARTNERSHIP. 

IWI.J  ,,',,nMlic  or  ,oroiffn.  «*™«g  buaincfi  ill  this  United  Buu-a 

' n on  Hi. ton  roprdlcm 

mi  'it  Hi*  gi cm  or  mi  income.  (Hoc  Socliena  218  and  224  of  Revenue  Act  o(  1021  ) 

2.  PERIOD  COVERED. 

, M1A. 1 ",on  thr  ,Mt  day  of  any  month  ether  then  December  in  the  calendar 

L^hL  l *"'*  <«•'*«”« — 

u - M r vod  from  the  Commianonor  to  make  a change, 

, *.»  - «. « *„  „ L 

«■  >ho  Cnmmimiouer  written  I ch.nee.nd  .1 

r^X'L,  ‘ r„  / *■ a.  Zi £££ 

3.  ACCRUED  OR  RECEIVED  INCOME. 


oJL7£*  If  l"P‘  ""  “ *"xu.i  bto,  tape*  .11  incom.  Meted,  even 

, toll 1, ” <‘W"'  “ lh' "W  toutred 

wceivcd°or  not  ah<wr  incj&m"  ftr€rue<1  hI“l  "xpennoe  inr.irita,  report  all  income 

' oipcnece  paid.  V*  V ft,COTveJ'  ,n,c,,  a*  h#nk  credited  to  your  account,  and 

4.  INSTALLMENT  SALES. 

I **  inBUl,ment  ,nclhwJ  in  computing  income  from  installment 

• ml  S iS2  6rrV Tn  a ^M' hbcwl"«  ”'*'"*'*  ,or  ^ ^ ms‘ 

. y ,n^ruiaUon  (a>  Grc~  *»«:  <*>  cwt  Of  poods  sold; 
F U ^ “,C8;  W ft:n0UQl  (/)  gro«  profit 

5.  DISTRIBUTION  OP  INCOME. 

tnbS  S*. T ‘ “ “ "»d  '«  the  ehme.  mheth.  dto 

" °M'.lfch,"'“b,r  c(  the  lettnorohip  In  lb,  net  income  MOibnubl.  M tho 

,,  , )«tra  21  on.  1922  3 be  net  income  attaibiit»ble  to  IhehcolonJro  year  1821 

Jf“°"  01 . *'  “•«  f«»>  r>»  which  lb.  p*n  cl  tb.  Ibol  y-u  am™ 

wtubin Uvo c.ltn<W yntr mi  be.™  to ibn ,ntw 6«.l you.  „„d  th. .lira, .tttibuaM. 

£nrfu£ete|>C''  ,*?  " ““  •■“  h"  A*  tbe  bub  yu  which  lb. 

'7%  , 1 ><■"  13Z=  1“»™  b>  th.  entit,  rcml  yee, 

ccd  Thl  ™ dlSd"f ' r'p0rW  “ ‘bjn  e,  W 1 Ol  the  tetuxn,  »b«ild  be  Ul«.t«l 

“hnl™  rZT  thc  > •»  '*21  “h  na  entered  u the  auk  ot 

' “T'  *«<l  the  balance  el  the  net  income  Aould  be 

apjOTOoiied  in  , mnuUr  »„,J  cnbm  I m .be  teuk  ol  mlumn.  6 .nd  6 

1 1 rzr.*r&?>-  ■ "» **«*««•  ““»<  «<  *»>•  i«a.«i»w.  ionnuu. 

3.  d,  6 and  > u,  which  ,ac„  beetle, uy  i„  entitled,  whether  MboM  or  net  It  the 

HSZ.  ZlZ  1‘  ”"I““  5 “*•**  •-•  -«“  “ «<•«  by  J 

'"cived  ir.tercot  directly  « tlironjh  .nether  puMrabin,  o,  . 
tr»rnry*H/v  ^ ”*Porfct-‘',n  on  corporation  louiie  containing  a clause  by  which  tho  debtor 
n i 6rM  PSy  tl‘-  lDU‘re‘t  wi'i,out  a“v  dwlBCtion  for  tnx«.  and  tl.cr.-  were 

lilcd  with  auch  usterc.it  coupoii"  a r, hiic  certificR*/.  Kon»  ltvm  , • 

i'wlumnT  ^ P“d  Jt  thC  S°Urce'  and  **•“  '*x  Bhou,d  Lo  ^oc^uihT^^s 

W.tt  the, aa  ii „,ch  i„„  L,e  ,1“  “j  7Z  n,»  r h • 
receipt  for  each  coil-  lei  payment  Usueh  teres  hove  1 ce,  e ' . ned  "t  .cwTlih' 
attached  .etc  . e:py  :ho  ntm  m ^ 

nT.  ccei,  "T1  'T  ^ S‘Cli°”  “ - ‘h“  "•**■"»  *««" 

' be°  B CMdlt  “ cUim,?d  on  *OTO  1040  or  Form  1040A  for  accrued  taws,  the  Conuuis- 

STS-SICSS1  c,Mt’  'ke  m. payor  u, 

psc  a hon.i  o . eras -117.  withsureticsseUafactory  to  and  to  be  approved  by  him  in  such 

of  laxee  foi^du^f  th  1)Ure’  co?,nuoa(^',  ‘"T  tho  P »y™ent  by  the  uxpaver  ol  anv  amount 
of  far.ee  found  due  if  tbc  taxes  when  paid  differ  from  the  amount  claimed  in  respe-t  therS 

6.  INTEREST  ON  LIBERTY  BONDS,  ETC. 

In  rw  the  partnership  owned  Uheny  Bond,  or  ether  obligation..!  the  United 
State.  lulled  moo,-  d idetnbrr  1.  ,317  (r«cPt  Victory  Liberty  Lenity.  “„£» 

7.  TIME  AND  PLACE  FOR  FILING. 

U,.  b.e  ^r,V°  the  Collector  cl  Internal  P.nvcnue  for  the  district  in  which 

U.c  , «to«rt,p  e principal  place  of  bueine*  Li  located,  so  as  to  reach  the  cXctoFa  offic* 
or  before  the  15th  day  of  the  third  month  following  the  eksc  of  the  accounting  pJILi. 

S.  AFFIDAVIT. 

9.  PEN.\LTY  FOR  FAILING  TO  MAKE  RETURN  ON  TIME. 

A penalty  of  not  more  than  $1,000  attaches  for  failure  to  file  the  return  within  th. 

.,1  .u  . , uui  more  man  or  imprisonment  for  not  ma*  than  on*  v/v,. 

or  both,  together  with  costa  ot  Jwosc-i  ution  ’ ’ 

10.  INFORMATION  AT  THE  SOURCE. 

nlblS' ’Setnd  "*  CJ  «««.  "»»,  corumiieions  „ 

pL  ;A“„  * Z - til* -7  1 mo"  ^ <•»  W.  y..„.  io  another 

i ^ re  j.  or  io  in,i.vKiual  is  required  to  make  a tr-c  . . , 

the  Commissioner  of  internal  Revenue,  showing  th-  amount  of  h Z v‘  !!,  ? , 

ji.  1 •- 

0 W “y  Collector  cl  internal  revenue.  Such  Wn  Utobwr™  „ ■, 

6 «.  sctunjxn,  C it  tune  to  be  received  not  later  than  March  15,  1923. 

II.  INCOME  FROM  BUSINESS  OR  PROFESSION. 

"re^^ecb-dtr.lr"'T"  !°  '!  7T"  * W *.  » "grocery,” 

Ml  in  ScieSffi,  page  2 of  !bc  ««  , «4 

Enter  on  line  1 Schedule  A,  the  total  tncome  from  aalee  or  rorvir™  1™  „v 
or  allowance  hem  t be  Bole  price  or  service  charge.  (F.r , n.tallmTnT^  !Tl^en““ 


If  you  are  engaged  in  a trade  or  buainrxu  in  whi<  h the  production,  purehaae,  or  «*!« 
I ,n,ri han<Jiao  of  *"y  k<nd  IS  income-producing  farter,  aurure  from  tho  Coll«tx>r  of 
Internal  Revenue  and  file  a»  a purl  of  this  return  a Cm.ji  nu  of  Uirnlory,  Form  MS. 
tfalori*.—E nter  on  lino  10  all  salaries  and  wage#  not  reported  aa  “Labor” on  line  2. 
font  -Enter  on  line  11  rent  on  burinees  property  Do  not  include  rent  for  dwelling 
occupied  by  any  partner  for  residential  purposes 

hfoM.-Y.0Ur r on  lino  12  interest  on  bueine®  indebtedness.  Do  not  include  internet 
on  capiUI  invested  In  or  advanced  to  the  business  by  any  member  of  the  partnership, 
/"f".  ,T  cn  ,,D®  13  U:xo"  on  bu«n«»  property  or  for  carrying  on  business.  Do 
not  include  Uxm  atwewd  against  local  benefits  of  r kind  tending  to  mcrea*  the  va'uo  of 
the  property  wwl,  as  for  paving,  acwem,  etc. 

Rrpairi,  wtor  and  Uar,  obtolmcenrt,  dtpUlion,  and  properly  lourt  (other  than  vurchan- 
aZL  J'lT,  u°  M'  ^ rCp:"n‘  ro<*uired  10  kP«P  property  in  usable  condition. 

<b)  reasonable  allowance  tor  exhaustion,  wear  and  tear  of , .perty  used  ln  the  trade  or  bus.- 
nsas,  including  a reasonable  allowance  for  obsolescence,  and  (c)  I owes  of  business  property 
/ c,  storm,  or  other  casualty,  or  theft,  not  compensated  for  by  insurance  or  otherwise 
"hoIbde^A  K ^ tiiPlin  Cla‘“-,J  " ‘Joduction‘  l these  deductions  under 

, "r,~T  -'"T1  k"  t'b'Pticiatan,;,  tnclniing  «««  ,b.,lW 

S iST? m r",'  . m'  f1  r""  ' ""  pmr"  ">'  11  eeqelerf  pner  to 

h , ir  ”",k’i ”»  lb*'  <b“',  iieit'yi  by  ,u  urolnl  lil,  i„ 

Jem.  I!  cboolero™.  , „ cl., mod,  m,  why  n.Au!  lil,  „ |„,  ,h»„  yfc.  Wll,„ 

he  amount  ol  depreciation  and  obroloace.re  .llo.wi  o<j-..!s  U,.  fMt  o!  the  proptUy  0r 
i,  eejutred  pn.r  I.  Much  1,  1813,  ,b,  lair  rn.il.et  value  on  that  d.te,  no  litbr,  Jitm 
should  be  made. 

Do  net  claim  any  deduction  for  depreciation  in  the  value  of  a building  occupied  bv 
any  partner  as  a dwelling,  or  of  other  prepay  boM  for  p-re  nsl  uso.  nor  Z Zd  fexJZ 
•ive  of  improvements  thoreonj,  her  on  stocks,  bonds,  and  other  «<unUes 
oUlro,fZUUUUj'1  0j  ‘T,U-  "JPWhU-  *'  *pl<tion  Of  mint,,  tie -It  a deduction  a 
cwmedon  sccouat  of  depreciation  in  tho  value  of  patents,  copyrights,  fmnchltw,  and 

^ul^TiTJTXZlZIiX^  ‘r  ■“  “d «“  -“*•  - *— 

A"M  1821,  and  Article.  181  lo  IDS,  inclusive,  „!  Itrvr„U'a,,:,r  tv 

ee rvit?th«  h,  T °° lhmo1'  "““8 lrom  “ pto,«aon.l 
b"” ''P0""'  “ ‘«"«e.  which  ha.  c b,<  n deliniiely  ^ominoj  m b. 
wonbleeahnd  chafed  oB  with,,  the  yat,  n,  eutfc  rearoueble  amount  aa  Ime  bee.  added  to 
p b,*d,‘1'b“  *"bl“  !he  re"  A hebt  p.evioualy  choroed  o It  mi  bod,  t,  .Sro- 
quently  collected,  must  be  returned  as  income  for  the  year  in  which  collected. 

cloJfi 1EDtf  00  lin<’  17  8,1  ordilJtry  anJ  nwee«ry  bwinew  expense  , not 
classified  above,  such  as  fire  insurance,  heat,  and  light 

i ?“  “*“,'l,;de  ““  ol  bueineee  equipment o,  lum.turo,  e.penditure.  lor  teetomenl. 
to  p^cnt  .mprovemcet.  to  proper^,,  „ Lvtn*  end  lamtl,  epemn,  „y  ^ 
Dtfial.  11  line  20  ahowe  a deficit,  indicate  by  titling  red  inb  or  o minue  oign. 

12.  INCOME  FROM  RENTS  AND  ROYALTIES. 

?'  **«•  2-  "Wtab  depreei.tioa,  d^letinn,  .„d  „tbe,  „p,cv, 
Otbe.  c.rcMTO  mr-lude  tnterrot,  Uxa.  bre  immra.ce,  luel,  l.gbt,  Ubor  and  .’her 
nccc-mary  expenses  of  this  character.  . “•»  , «.ner 

13.  INCOME  FROM  A PARTNERSHIP  OR  PERSONAL  SERVICE  CORPORATION. 

f ,lh'  "b,re  (whether  received  or  not)  in  the  net  incomeof  ..other  rot 
th,  ,,,  i 1D  ' .Cl  cf " PoroonH  eero-ice corporotiea  .tutbuuble  to  1821  except 

c'  - — »■ 

14.  PROFIT  FROM  SALE  OF  CAPITAL  ASSETS. 

Deecribe  the  property  briefly,  a.  ''Iron,  ” ''houee,''  'lot  " ' .leek.  •'  ''i,.d. ..  ... 

exclmne*  ‘th  ‘,,'.Scb',)"''  C'  lbe  "‘“-1  “neideration  o,  pnee  received,  or,  in  ciee  o!  ro, 
exchange,  the  fair  market  value  of  tho  property  received 

Enter  the  origin.}  coot  el  the  property  ii  purchoaed  by  the  protnenhip,  end  ii  ,1  ron, 
•cqmred  pn»  u>  March  1.  1813,  the  to  market  value  on  that  d!T  'ExpU  “how  ^T. 
in  ^xPcnr|*r  incidental  to  ,h.  purchrou,  may  bo  included 

in  the  coot  it  net  or  claimed  ,u  income  tu  retum.  u deduction.  Irotn  income 

depreciation  the  .mount  ol  rrero  and  tea,  „d  obrolrocence  or  depletion 
Sto^p'teo*  aro ''  ‘813,: 

15.  OTHER  INCOME. 

Report  as  Item  7 all  other  tarablc  income  for  which  no  place  is  provided  etawhore  on 
page  1 of  the  return,  including  dividends  received  on  stock  of  foreign  conxiraUons  and 
corporations  eatisfying  the  conditions  provided  in  Section  262  of  the  Rcven^ Act  of  mi. 

16.  INTEREST  PAID. 

-•ndpSllr  “ ITl  ivtert!t  piid  00  0lher  indeb'^““9  as  distinguished  from  busxn«s 
mdebredness  (which  should  be  deducted  under  Schedules  A,  or  B)  Do  not  include 

■browner  in ter^T  " “d,“c"i  “ *ie  b'“««  by  any  member  ol  Uie  panned 

tti  LtoJonth  h h^.°'~'”0"ed  P“,cht*  01  b»»d»">d  other  obi  iPhone, 

he  HiUaeat  on  whivh  is  wholly  exempt  from  tax,  except  interest  on  indebtednea  inclined 
.o^mhnee  or  cror,  Yichmy  Liberty  Loan  3„  N.roe,  odgi.,11 , 

17.  TAXES  PAID. 

. . ,g“*'  10  U«f  P“J  «”  Prepeny  not  need  dirocUy  in  the  bnmne.  not  includ- 

mg  thorn  ememed  ogainet  local  beneflla  ol  a kind  tending  tn  increroe  the  ialue  M?h. 
properly.  Do  ootmdude  taxeeimpoeed  upon  the  partnerehip  on  it.  ,nte,„t  „ .mckholdcr 

vZ twi '"e.PTid  by  lb'  -<b0htNimbn*m«.C1r^: 

pa,  er,  nor  tncome  .nd  prohte  Ux.e  reported  in  tolnmn  »,  at  loot  ol  page  1 o!  th,  rein™. 

IS.  LOSSES  BY  FIRE,  STORM,  ETC. 

Enter  roi  Item  11  loaeeeef  property  not  connected  with  the  trade  orbtuineee  wuL.ncl 

dixntu;  the  year  Iron,  Fire,  Norm.  ,h,pw,v  k,  or  other  caeuxlty,  or  iron,  *££££ 
ITh^dT1  oy  fT’**"  Pikerwi*.  Lout-  , luir  cd  ehnuld  he  explained  in 

Schedule  D,  on  page  2 ol  tie  return.  (See  Section  211(a,8  o!  the  Revenue  Actot  1821  1 
19.  BAD  DEBTS. 

Ent*f  “ V*m2.Z  :tl]  d<b“  other  than  thooe  rlsiw^d  as  n deduction  in  items  above 
State  in  Schedule  E,  (a)  Pf  what  the  debts  conslolod,  (ft)  v hen  they  were  created  ( :)  when 
they  became  duo,  and  (a)  how  they  were  actually  determined  to  be  w0,  thl« 
t 20-  OTHER  AUTHORIZED  DEDUCTIONS. 

Enter  as  Item  13  all  other  deductions  authoriiod  by  law  for  which  no  place  is  provi.led 

w ro  nmth  " P,Se  0,J ‘T"-  “•  d«"'"  >“«»  ieeerrrt  m Z^tZ  rt.cl 

ere  neither  connoctcd  mtb  the  tmd,  or  bur, net.  nor  entered  into  lor  proflt  Any 
deduction  claimed  should  be  explained  in  Schedule  E.  a-usa*  * 


[Page  4 of  Form  1065 A.] 


T he  I* edcral  Income  Tax  Service 
Supplementary  Page  292. 


9-22. 


SCHEDULE  FOR  CITIZEN  ENTITLED  TO  BENEFITS  OF  SECTION  262 

(To  bo  filed  with  the  Collector  of  Internal  Revenue  with  Form  1040A  or  Form  1040) 

FOR  THE  YEAR  1921 


Name  of  taxpayer . 
Add  re  .6  3 


. 1 Total  groan  iucome  from  all  sources . 4... 

2.  Tefal  gTow  income  from  oouroea  within  poesoaeions  of  the  United 

Staten _ 

3 Gro*3  income  derived  from  the  active  conduct  of  a trade  or  burn- 
n««  within  a pospearion  of  United  States  either  on  your  own 

account  or  as  employee  or  agent  of  another 

i Total  gross  income  from  sources  other  than  sources  within  the 

United  States  and  possessions  of  the  United  States 

5 What  portions  of  Items  2 and  4 wore  received  within  the  United 
States 

3.  Did  you  file  a Federal  income-tax  return  for  1919? 

"7  If  no.  In  what  district  were  such  returns  filed?  1919  1 

1920  ; 

8 What  was  your  address  for  the  year  1919? 

1920  . 

SECTIONS  OP  THE  RS’.r£WUE  ACT  OF  1121  WHICH  ARE  APPLICABLE 
Net  taooKs  or  Crnxxrra  EwmiEa  to  BEvrrrw  or  Sectioh  2d2. 

Bee.  2)7.  (e)  That  la  the  case  of  a nonresident  alien  Individual  cr  of  a eltleen  en- 
titled to  the  baucftU  of  srction  >-2,  the  following  Items  ol  gross  Income  sbs!  1 bo  treats 
as  Income  fr  ore  sources  within  the  United  States: 

(tpinteeatoo  bond*,  notes,  or  other  Interest-bearing  obligations  of ‘•eeider,  i ». 
corporate  or  otherwise,  not  including  (A.)  interest  on  deposits  with  persons  carrying 
pa,lfa«  banking  business  paid  to  persons  not  cngfcfcrd  In  business  within  the  United 
StaUs  end  not  having  an  office  or  place  of  business  therein,  or  (B  i int..re;t  receiv-1 
from  a resident  alien  Individual  or  a resident  foreign  corporation  ''ben  U is  shown 
to  tba  aetufurtion  of  the  Commissioner  that  less  then  20  w c-ctutn  of  tbn  gross 
income  of  such  resident  payor  has  been  derived  from  sources  wtthla  the  Un.;-1 
Slates,  as  determined  under  the  previsions  of  (Ws-section . f.  r the  three-veer  period 
endine  with  tho  close  ol  the  taxable  jest  of  such  payor , or  lor  such  part  o'  sorb  period 
Unmedtetely  preceding  the  close  of  such  taxable  year  as  may  te  npplirehle: 

(2)  The  amount  received  as  dividends  (A)  from  a & me  tic  cor;,  oration  other  than 
a corporation  entitled  to  the  benefits  of  section  2 02,  or  ( l>,  from  a foreign  .ryorarion 
unless  less  than  50  per  centum  of  the  gross  lucerne  of  such  foreign  eorp-’catton  for  the 
threo-yeer  period  ending  with  the  close  of  its  taxable  year  prt-.-oling  i u,  dert:  ra- 
tion of  such  dividends  for  for  such  part  of  such  re  nod  as  the  c r,..?rotion  has  Vcn 
in  existence)  was  derived  from  sources  within  ilio  Uiuccd  Suites  os  determined 
under  tho  provisions  of  this  section: 

(1)  Compensation  for  labor  or  personal  sendees  per  farmed  «n  the  United  States. 

(♦)  Rentals  cr  royalties  from  property  located  ibtco.DfUwd  States  <>i  from  ar.v  in- 
terest In  rocb  property  Including  rentals  or  royalties  to:  the  use  ■>:  o-  ur  the  pri-  ‘lege 
of  using  in  the  United  States,  patents,  copyrights,  secret  pn  c.rses  and  formulas, 
good  will,  trad«fm»7fci,  trade  trends,  franchises,  erd  ciair  lL.e  proper  v;  osd 

(5)  Gains,  profits,  and  Income  from  the  rale  of  real  property  kesfw  lr.  fho  united 
Stales. 

(I>)  From  tbs  Items  of  gross  income  specified  Ip  euhllvbi ol  (;)  there  stall  be  de- 
ducted the  expenses,  losecs,  and  other  deduction?  prcporl v apportioned  or  allocate- 1 
there 'o  and  a retable  pert  of  any  expenses,  losses,  or  orher  deduction?  which  can 
not  definitely  be  allocated  to  some  Item  or  class  of  grt*:.  income.  Tit*  rem'ir ’.er, 
if  any  shall  be  included  la  full  as  net  income  from  source*  wllliia  the  United  Stauv- 
(c)  i he  following  Items  of  gross  income  shall  bo  treated  x Income  from  sources 
without  the  United  States: 

(!)  Interest  other  than  that  derived  from  sources  within  the  United  States  as  pro- 
vided iD  n&reCTeph  (1)  of  subdivision  (a): 

(2)  Dividends  other  than  those  derived  from  sources  within  tho  United  States 
as  presided  In  paragraph  (2)  of  subdivision  (o): 

(3i  Compensation  for  labor  or  personal  service  performed  without  tho  United 
States; 

(i)  Rentals  or  royalties  from  property  located  without  the  United  Wites  or  from 
any  Interest  in  such  property,  fiicludini  rentals  or  royalties  for  the  uso  ei  or  for  the 
privilege  of  using  without. tne  United  Steles,  patents.  eopyrUhts.  secret  processes 
and  formulas,  good  will,  trade-mark*,  trad 6 brands,  franchises,  and  other  like 

p'ST3f^  . profits,  and  tneome  from  the  sale  of  reel  property  located  without  the 
United  States; 

(<f)  From  the  Items  of  gross  income  specified  In  subdivision  (c)  there  Shall  be  de- 
ducted the  expenses,  losses,  and  other  ooductioaa properly  apportioned  or  allocat'd 
thereto^  and  a ratable  part  of  any  expenses,  losshs,  or  other  deductions  which  can 
not  definitely  bo  allocated  to  some  item  or  class  of  gross  Income.  The  remainder,  if 

shall  be  treated  In  full  as  net  Income  from  sources  without  the  United  States. 

irthaD  those  si 


1 not  defijiltely  bo  allocated  to 


u pin rr-'.  loSse ; or  other  dcductii 
s'lmoi:?!.)  or  class  of  kttxis  income.  The 

nci  Income  from  sources  within  the  United  States.  Id  tho  case  of  gross  li 
deilvcd  from  sources  partly  within  and  partly  without  tbe  United  Stawi,  t , 

In  - true  wry  first  be  computed  by  deducting  the  expenses,  lo3sw  or  other  Jodi), 
sp-  o'  uoed  or  alloca'ed  th  relo  end  a ratable  part  of  eny  expenses,  losses  or 
deduct  luos  which  can  not  definitely  be  allocated  to  some  Item  or  class  o.'gr  win: 

Snd  The  jKitrbn  of  such  not  Inrou:-.  attributable  to  sources  within  the  United  .« 

itmnissio:  . 

— n ft)  trarv  portal  i 

the  Unit.:  i 6 tat  S',  o:  (2;  from  ihes&iocf  persona!  property  produced  Iln  whole  or  In 
r-n  I cy  tne  taxpayer  within  ai;d  w.d  without  th*  United  stales.  or  produced  an 
whole  o.-  in  pirt)  07  the  taxpayer  without*  d *oid  within  th*  United  States,  shall 
h--  treated  as  uenvod  partly  from  sources  within  ar.d  nartlv  from  sources  without  tho 
Umrel  States  Gains,  profits  uut  Income  derived  from  tho  purehnso  of  personal 
property  within  aou  lt3  sn  « -vuhout  the  United  prates  or  from  the  pur 'base  of  rxv- 
i-r.nai  property  Without  and  Its  sslo  within  the  United  States,  shall  he  treaW  M 
dorlv>;  entirely  from  the  ecus  try  is  which  sold. 

(D  AS  usM  in  thLy  sertt.-.o  fho  words  "rale"  c-r  "sold"  include  "oichange"  or 
fzcaaaKou'  ; and  the  word  "proceed"  Includes ''cruued,"  ■ ■fabricate.!,  "“manu- 
Mcfuied,  ’ "extracted."  ' proete  .cd,’",curid,"  or  "need  " 

(?)  A ooBreai  Jon  t aU.-c  lr.divi-j.i:  l or  a chi  ion  «n  titled  t o the  benefl  ts  of  section  262 
*“?1‘  -Ccvirc-  tho  uenefit  o'  tho  d'duxtions  end  credits  allowed  in  this  title  only  bv 
Oling  rr  causing  ic  he  '-  d vri’t  ’he  eollcelcr  u trie  end  accurate  return  of  his  total 
meoroo  received  from  » i .cprfyra w orc'Jier .vt.se Li  tbe  United  SUtej,  in  the 
Etaur.er  crefvritxd  In  ft1 * 3 * 5 * * 8.,  title:  1 . ludLng  tt-:ein  ell  the  information  which  >;,* 
ComajiSslOTer  may  dew.  uwessary  In.  uc  caK  ularicin  oi  such  deduction?  an 


(t) Items  of  gross  Income,  expenses,  losses  and  deductions,  other  than  thceespe 
fied  in  subdivisions  (o)  and  («;,  shall  be  allocated  or  apportioned  to  sources  witl 
or  without  the  United  States  under  rules  and  regulati--  — 
tsissioncr  * **--  " 


withholding  agent..  la  casts  of  failure  to  C!<-  a return,  tne  collector  ehaU  collect  - he 
tnx  cn  sn  .-L  income,  end  aU  property  t-l-mrinp  \ ,wh  nearesldent  alien  IndivUual 
or  foreign  trmier  shah  bo  11a  ole  to  uis  train  t lor  ih--  tax. 

Iscrotn  doe  3oraccn  Witbw  Possession's  07  Untted  STAies 

Stc.a-.fi.  fa,  Tt^i  In  the  cm*  of  citlttrs  of  the  United  States  or  domestic  <hwpora- 

l™'  «ai'*ri't.-i»tb.iioijowuir.n5ad,,i'"'*  — — • * — 

i*  United  ptete-1— 
stumor  me  re  oKl 

, without  tho  benei . 

•hotx.y  prtcod'.-.c  - be  of  the  t'xob'n  rer-r  (*jt  for  such  per  of  such  evned  iruir>v 
dufc'.y  prycedL-n- the  dose  of  such  taxable  y:af  as  re.-.-  haappUxbU/  mu  derived 
from  totraes  « itiJn  a jywsocslon  of  the  United  Stat«:  and 

(2)  If.  in  the  casw  Of  such  corporaU.m,  Hi  per  re utuxa  or  more  of  its  gross  Inform 
fcoci}  u'C.1  rrlthbut  tho  benefit  of  fl.ls  'rt  u-in)  for  such  pcrlo)  or  such  port  thereof 
was  <i.-ri  .-tj  from  Urn  active  conduct  of  a trade  or  bum  us  within*  possession  ot  th- 
United  States;  or 

(3)  If.  in  the  cese  of  such  cltiien,  5h  per  centum  or  more  of  his  gros3  Income  (com- 
puted without  the  benefit  of  this  - xtioo)  Tor  aucti  period  cr  s-jch  part  thei-uf  was 
derived  from  the  active  conduct  of  a trade  or  business  within  a posscealon  of  the 
U nited  States  either  on  his  own  account  or  as  au  employee  or  agent  ot  another 

(ft)  Notwithstanding  the  proidslor.s  of  subdivision  fa)  there  shall  be  included  in 
gross  income  all  amounts  received  by  such  dtitens  or  ec.-poratlcns  within  the  United 
States,  whether  derived  from  sources  within  or  without  the  Unl’od  8tates. 

(o  as  used  In  thLs i section  the  term  " possession  of  the  Umtod  States"  does  no* 
incladc  the  \ irgin  Islands  of  the  United  States  2— i*oso 


[Page  1 of  Form  1040E.] 


The  Federal  Income  Tax  Service 
Supplementary  Page  293. 


* 

INSTRUCTIONS 


1.  Person*  on  titled  to  the  benefits  of  flection  262.— A citizen 
of  the  United  States  who  receivea  income  from  sources  within  a 
possession  oi  the  United  Statea  ia  entitled  to  the  benefit*  of  Section 
262,  provided— 

Eighty  per  cent  of  his  total  gToaa  income  from  all  sources  for  the 
three -year  period  immediately  preceding  the  cloee  of  the  taxable 
year  (or  for  euch'  part  of  euch  period  immediately  preceding  the 
cloee  of  euch  taxable  year  a*  may  be  applicable)  was  derived  from 
sources  within  a possession  of  the  United  Statea;  and 

Fifty  per  cent  of  his  total  grow  income  for  such  period  or  such  part 
thereof  was  derived  from  the  active  conduct  of  a trade  or  business 
within  a possession  of  the  United  States  on  hja  own  account  or  as 
an  employee  or  agent  of  another. 

2.  When  a return  should  be  filed.— If  a citizen  of  the  United 
States  entitled  to  the  benefits  of  Section  26?  is  in  receipt  of  any  in- 
come  from  sources  within  the  United  States,  a return  of  euch  income 
is  required  to  be  filed  in  the  United  States,  regardless  of  amount,  in 
order  that  he  may  receive  the  benefit  of  tho  deductions  and  credits 
allowed  him  in  computing  his  Federal  tax  liability. 

No  return  is  required  to  bo  filed  if  such  citizen  receivea  no  income 
from  sources  within  the  United^tates  and  does  not  receive  within 
• the  United  States,  either  directly  or  through  an  agent  in  the 
United  States,  any  income  from  sources  without  the  United  States. 

3.  Form  to  be  used. — Form  1040 A should  be  used  by  a citizen 
^rhose  net  income  from  sources  within  the  United  States  Is  not  more 
than  $5,000., 

Form  1040  should  be  u^ed  by  a citizen  whose  net  income  from 
sources  within  the  United  States  is  more  than  $3,000. 

The  schedule  on  the  reverse  side  should  be  filled  in  and  attached 
to  the  return  on  Form  1040A  or  1040. 

4.  Income  to  be  reported  on  Form  1040 A or  1040.— Report 
on  Form  1040A  or  1040  the'  gross  Income  from  sources  within  the 
United  States,  determined  finder  the  provisions  of  Section  217,  and 
any  income  derived  from  sources  without  the  United  States  which 
is  received  within  the  United  Stales- 

5.  Credit  for  personal  exemption. — A citizen  entitled  to  the 
benefits  ol  8ection  262  ia  entitled  to  a pereonal  exemption  of  only 
*1,000,  regardless  of  hia  marital  status,  and  ia  not  entitled  to  a credit 
for  dependents. 

Enter  $1,000  on  line  19,  Form  1040A,  or  on  line  23,  Form  1040. 

6.  Credit  for  taxes. — Since  no  credit  for  income  and  profits  taxes 
paid  to  foreign  countries  and  possessions  of  the  United  States  may 
be  claimed  by  a citizen  entitled  to  the  benefits  of  Section  262,  do 
not  enter  any  amount  on  line  23,  Form  1040A,  or  line  33,  Form  1040. 

7.  Items  exempt  from  tax.— In  addition  to  the  items  listed  as 
exempt  from  tax  in  the  instructions  attached  to  Forms  1040A  and 
1040,  the  following  items  are  exempt  when  received  by  a citizen 
entitled  to  the  benefits  of  Section  262: 

(a)  Interest  on  deposits  in  the  United  States  with  pereons  carrying 
on  the  banking  business  paid  to  such  citizen  who  ia  not  engaged  in 
business  in  the  United  States  and  who  has  no  effice  or  place  of 
business  therein. 

i*>»o 


(b)  Interest  received  from  n resident  alien  individual  or  resident 
foreign  corporation  when  it  is  shown  to  the  satisfaction  of  the  Com- 
missioner that  lees  than  20  per  cent  of  tho  gross  income  of  eurh 
resident  payor  has  been  derived  from  oources  within  the  United 
States  es  determined  under  t.be  provisions  of  Section  217,  for  the 
three-year  period  ending  with  the  close  of  the  taxable  year  of  such 
payor,  or  for  euch  part  of  such  period  immediately  preceding  the 
close  of  such  taxable  year  as  may  be  applicable. 

8.  Income  from  salaries,  wagee,  commissions,  etc.— Since 
the  place  where  services  are  performed  is  tho  source  of  the  compen- 
sation received  for  such  services,  there  should  be  reported  on  Form 
1040A  or  Form  1040  tho  compensation  received  for  services  per- 
formed in  the  United  States.  Compensation  for  services  or  labor 
performed  without  the  United  States  is  income  from  sources  without 
the  United  States,  regardless  of  the  fact  that  euch  compensation 
may  be  paid  by  a person  in  the  United  States.  However,  a citizen 
entitled  to  the  benefits  of  Section,  262  who.  receivea  within  tho 
United  States  compensation  for  personal  services  performed  without 
the  United  States  is  required  to  report  such  compensation  in  gross 
i ncome. 

9.  Contributions. — The  fcontributions  epocifled  in  8ection 
214(a)ll  which  are  deductible  by  a citizen  entitled  to  the  benefits 
of  Section  262  are  only  such  contributions  or  gifts  oa  are  made  to 
domestic  corporations  or  to  community  chests,  funds,  or  founda- 
tions created  in  the  United  States,  or  to  the  vocational  rehabilitation 
fund. 

10.  Meaning  of  terms  “United  States’*  and  “possession  of 
United  States.’’— The  term  “United  States”  includes  only  the 
States,  the  Territories  of  Alaska  and  Hawaii,  and  the  District  of 
Columbia. 

The  term  “possession  of  the  United  States”  includes  Porto  Rico, 
the  Philippine  Islands,  the  Panama  Canal  Zone,  Guam,  Tutuila* 
Wake,  and  Palmyra.  It  does  not  include  the  Virgin  Islands. 

11.  Extension  of  time  for  filing  returns.— Treasury  Decision 
3284,  dated  February  11,  1922,  grants  an  oxtension  of  time  for  filing 
returns  of  income  for  1921  and  subsequent  years  and  for  paying  the 
tax,  up  to  aud  including  the  fifteenth  day  of  the  sixth  month  fol- 
lowing the  close  of  the  taxable  year  in  the  case  of  American  citizens 
residing  or  traveling  abroad,  including  persons  in  the  military  or 
naval  service  on  duty  outside  the  United  States.  The  installments 
of  tax  which  are  actually  due  must  be  paid  at  the  time  of  filing  the 
return  and  the  other  installments  shall  be  paid  as  they  fall  due.  In 
all  such  cases  an  affidavit  must  be  attached  to  the  return  stating  the 
cause  of  the  delay  in  filing.  Taxpayers  who  take  advantage  of  this 
extension  are  charged  with  interest  at  the  rate  of  one-half  of  1 per 
cent  a month  on  the  first  installment  of  tax  from  the  original  due 
date  thereof. 

The  term  "abroad “ as  used  above  includes  the  possessions  of  the 
United  States  named  in  Instruction  10. 

12.  When  instructions  on  Forms  1040A  and  1040  should 
be  followed.— The  instructions  on  Forms  1040A  and  1040  which 
are  not  inconsistent  with  these  instructions  and  with  the  provisions 
of  Sections  217  and  262  should  be  followed  by  a citizen  entitled  to 
the  benefits  of  Section  262  when  making  these  returns. 


[Page  2 of  Form  1040E.I 


The 


Federal  Income  Tax  Service 
Supplementary  Page  294. 


Form  1087. 
Revised  Jan.,  1922. 


The  next  page  is  Supplementary  Page  301,  opposite. 


cr 


The  Federal  Income  Tax  Service 
Supplementary  Pages  296  to  300. 


-28-22. 


INTERNAL  REVENUE  COLLECTION  DISTRICTS. 

Including 

NAMES  AND  ADDRESSES  OF  COLLECTORS  and  LOCATION  OF 
BRANCH  OFFICES. 

(Corrected  to  February  1,  1922) 


ALABAMA  (Comprising  the  State  of  Alabama), 

Collector:  William  E.  Snead,  Birmingham. 

Dlv.  Hdqrs.  at:  Mobile,  Montgomery. 

ALASKA  (See  Washington). 

ARIZONA  (Comprising  the  State  of  Arizona), 

Collector:  Alfred  Franklin,  Phoenix. 

ARKANSAS  (Comprising  the  State  of  Arkansas), 

Collector:  Harmon  L.  Remmel,  Little  Rock. 

Dlv.  Hdqrs.  at:  Fort  Smith,  Helena. 

CALIFORNIA 

Firs!  District. — Comprising  the  following  counties  In  California:  Alameda,  Alpine, 

Amador,  Butte,  Calaveras,  Clousa,  Contra  Costa,  Del  Norte,  Eldorado,  Fresno,  Glenn, 
Humboldt,  Inyo,  Kings,  Lake,  Lass  n,  Madera,  Marin,  Mariposa,  Mendocino,  Merced, 
Modoc,  Mono,  Monterey,  Napa,  Nevada,  Placer,  Plumas,  Sacramento,  San  Benito,  San 
Francisco,  San  Joaquin,  San  Mateo,  Santa  Clara,  Santa  Cruz,  Shasta,  Sierra,  Siskiyou, 
Solano,  Sonoma,  Stanislaus,  Sutter,  Tulare,  Tehama,  Trinity,  Tuolumne,  Yolo  and  Yuba. 

Collector:  John  P.  McLaughlin,  San  Francisco. 

Div.  Hdqrs.  at:  Sacramento,*  Oakland,*  Stockton. 

Stamp  Office  at:  Fresno. 

Sixth  District. — Comprising  that  part  of  California  Included  In  the  following  counties:  Imperial, 
Kern,  Los  Angeles,  Orange,  Riverside,  San  Bernardino,  San  Diego,  San  Luis  Obispo, 
Santa  Barbara  and  Ventura, 

Collector:  John  P.  Carter,  Los  Angeles. 

Div.  Hdqrs.  at:  San  Diego,*  San  Bernardino,  Santa  Barbara. 

COLORADO  (Comprising  the  State  of  Colorado), 

Collector:  Frank  W.  Howbert,  Denver. 

CONNECTICUT  (Comprising  the  State  of  Connecticut), 

Collector:  Robert  0.  Eaton,  Hartford. 

Div.  Hdqrs.  at:  Bridgeport,*  New  Haven,*  Waterbury,  New  London. 

DELAWARE  (Comprising  the  State  of  Delaware), 

Collector:  Henry  T.  Graham,  Wilmington. 

DISTRICT  OF  COLUMBIA  (See  Maryland). 

FLORIDA  (Comprising  the  State  of  Florida), 

Collector:  Daniel  T.  Gerow,  Jacksonville. 

Div.  Hdqrs.  at:  Tampa,*  Pensacola,  Miami. 

Stamp  Office  at:  Key  West 

GEORGIA  (Comprising  the  State  of  Georgia), 

Collector:  Josiah  T.  Rose,  Atlanta. 

Div.  Hdqrs.  at:  Macon  and  Savannah 

HAWAII  (Comprising  the  Territory  of  Hawaii), 

Collector:  J.  Walter  Jones.  Honolulu. 

Stamp  Office  at:  Hilo. 

'Stamps  sold. 


Crpyrigh  1 lilt,  by  Tht  CTforutUn  Trust  C smfruy. 
THU  FEDERAL  I If  COME  TAX  SERVICE 

Supplementary  Page  301. 


1-28-22. 


INTERNAL  REVENUE  DISTRICTS  AND  COLLECTORS. 


IDAHO  (Comprising  the  State  of  Idaho), 

Collector:  Evan  Evans.  Boise. 

Div.  Hdqrs.  at:  Pocatello. 

ILLINOIS 

Pint  District.— Comprising  that  part  of  the  State  of  Illinois  included  In  the  followln  counties : 
Roone,  Bureau,  Carroll,  Cook,  Dekalb,  Dupage,  Grundy,  Henderson,  Henry,  Jo  Daviess 
Kane,  Kankakee,  Kendall,  Knox,  Lake,  LaSalle,  Lee,  McHenry,  Marshall,  Mercer’ 
Ogle,  Peoria,  Putnam,  Rock  Island,  Stark,  Stephenson,  Warren,  Whiteside,  Will,  and 
Winnebago. 

Collector:  John  C.  Cannon,  Chicago. 

Div.  Hdqrs.  at:  Chicago  (five),  Joliet,  Rock  Island,*  Peoria,*  Rock- 

ford, Aurora. 

Klghtb  Dletrlct.— Comprising  that  part  of  the  State  of  Illinois  included  In  the  following  counties : 
Adams,  Alexander,  Bond,  Brown,  Calhoun,  Cass,  Champaign,  Christian.  Clark,  Clay,  Clin- 
ton,  Colei,  Crawford,  Cumberland,  Dewitt,  Douglas,  Edgar,  Edwards,  Effingham,  Payette, 
Ford,  Franklin,  Fulton,  Gallatin,  Greene,  Hamilton,  Hancock,  Hardin,  Iroquois,  Jackson, 
Jasper,  Jefferson,  Jersey,  Johnson,  Lawrence,  Livingston.  Logan,  McDonough,  McLean, 
Macon,  Macoupin,  Madison,  Marion,  Mason,  Massac,  Menard,  Monroe,  Montgomery. 
Morgan,  Moultrie,  Perry,  Platt,  Pike,  Pope.  Pulaski,  Randolph,  Richland,  St.  Clair 
Saline,  Sangamon,  Schuyler,  Scott,  Shelby,  Tazewell,  Union,  Vermilion,  Wabash,  Washing- 
ton, Wayne,  White,  Williamson,  and  Woodford. 

Collector:  George  W.  Schwaner,  Springfield. 

Div.  Hdqrs.  at:  East  St.  Louis,*  Cairo,  Centralia,  Danville,*  De- 
catur,* Bloomington,  Quincy.* 

Stamp  Offices  at:  Pekin,  Jacksonville,  Canton. 

INDIANA  (Comprising  the  State  of  Indiana), 

Collector:  M.  Bert  Thurman,  Indianapolti. 

Div.  Hdqrs.  at:  Gary,  South  Bend,*  Ft.  Wayne,*  Logansport, 

Lafayette,*  Muncie,  New  Albany,  Evansville,*  Terre  Haute.* 

Stamp  Office  at:  Lawrenceburg. 

IOWA  (Comprising  the  State  of  Iowa), 

Collector:  Lars.  E.  Bladine,  Dubuque. 

Div.  Hdqrs.  at:  Davenport,*  Des  Moines,*  Ottumwa,*  Sioux  City,* 
Cedar  Rapids,  Council  Bluffs,  Mason  City. 

Stamp  Office  at:  Burlington. 

KANSAS  (Comprising  the  State  of  Kansas), 

Collector:  Harvey  H.  Motter,  Wichita. 

Div.  Hdqrs.  at:  Kansas  City,*  Parsons,  Topeka,  Salina. 

KENTUCKY  (Comprising  the  State  of  Kentucky), 

Collector:  Robert  H.  Lucas,  Louisvi'-e. 

Div.  Hdqrs.  at:  Ashland,  Paducah,*  Owensboro,*  Lexington,*  Cov- 
ington.* 

Stamp  Offices  at:  Danville,  Frankfort. 

LOUISIANA  (Comprising  the  State  of  Louisiana), 

Collector:  Joseph  H.  Hynson,  Jr.  (Acting),  New  Orleans; 

Div.  Hdqrs.  at:  Shreveport,  Baton  Rouge. 

MAINE  (Comprising  the  State  of  Maine), 

Collector:  Frank  J.  Ham,  Augusta. 

Div.  Hdqra.  at:  Portland,  Bangor. 

MARYLAND  (Comprising  the  State  of  Maryland  and  the  District  of  Columbia), 
Collector:  Galen  L.  Ta’t,  Baltimore. 

Div.  Hdqrs.  at:  Washington,  D.  C..*  Hagerstown,  Salisbury, 
•Stamps  sold. 


Copyright  1971,  Py  Tkt  Corporation  Tmtt  Compmy. 
THE  FEDERAL  INCOME  TAX  tUTtOI 

^ SupplementaryjPagte  302. 


1-28-22. 


INTERNAL  REVENUE  DISTRICTS  AND  COLLECTORS. 


MASSACHUSETTS  (Comprising  the  State  of  Massachusetts), 

Collector:  Malcolm  E.  Nichols,  Boston. 

Div.  Hdqrs.  at:  Springfield,  Worcester,  Fall  River,  Lawrence. 

MICHIGAN 


First  District.  -Comprising  that  part  ol  the  State  ot  Michigan  included  in  the  following 
counties:  Alcona,  Alpena,  Arenac,  Bay,  Branch,  Calhoun,  Cheboygan,  Clare  Clinton 
Crawford,  Genesee,  Gladwin,  Gratiot,  Hillsdale,  Huron,  Ingham,  Iosco,  Isabella*  Jackson 
Lapeer,  Lenawee,  Livingston,  Macomb,  Midland,  Monroe,  Montmorency  ’Oakland 
Ogemaw,  Oscoda,  Otsego,  Presque  Isle,  Roscommon,  Saginaw,  Sanilae.  Shiawassee* 
St.  Clair,  Tuscola,  Washtenaw  and  Wayne. 

Collector:  Fred  L.  Woodworth,  Detroit. 

Div.  Hdqrs.  at:  Bay  City,*  Jackson,  Flint. 

Stamp  Office  at:  Saginaw. 

Fourth  District.— Comprising  that  part  of  the  State  of  Michigan  included  in  the  following 
counties:  Alger,  Allegan,  Antrim,  Baraga,  Barry,  Benzie,  Berrien,  Cass,  Charlevoix 
Chippewa,  Delta,  Dickinson,  Eaton,  Emmet,  Gogebic,  Grand  Traverse.  Houghton* 
toma,  Iron,  Kalamazoo,  Kalkaska,  Kent,  Keweenaw,  Lake,  Leelanau,  Luce  Mackinac* 
Manistee,  Marquette,  Mason,  Mecosta,  Menominee,  Missaukee,  Montcalm ' Muskegon’ 
Newaygo,  Oceana,  Ontonagon,  Osceola,  Ottawa,  St.  Joseph,  Schoolcraft,  Van  Buren’ 
Wexford. 

Collector:  Emanuel  J.  Doyle,  Grand  Rapids. 

Div.  Hdqrs.  at:  Kalamazoo,  Marquette. 

MINNESOTA  (Comprising  the  State  of  Minnesota), 

Collector:  Levi  M.  Willcuts,  St.  Paul. 

Div.  Hdqrs.  at:  Minneapolis,*  Duluth,*  Winona,  Mankato,  St.  Cloud. 


MISSISSIPPI  (Comprising  the  State  of  Mississippi), 
Collector:  George  L.  Donald,  Jackson. 
Div.  Hdqrs.  at:  Meridan,  Greenwood. 


MISSOURI 

First  District.— Comprising  that  part  of  the  State  of  Missouri  Included  in  the  following  countie. 
Adair,  Audrain,  Bollinger,  Boone,  Butler,  Callaway,  Cape  Girardeau  Carter  Cl.rV 
Crawford  Dent  Dunklin  Franklin  Gasconade,  Howard,  Iron,  Jefferson,  Knox,  Lewis 
Lincoln,  Linn,  Macon,  Madison,  Maries,  Marion,  Mississippi,  Montgomery  Monroe 
New  Madrid,  Oregon,  Osage,  Pemiscot,  Perry,  Phelps,  Pike,  Pulaski  Ralls  Randolnh 
Reynolds,  Ripley.  St.  Charles  St.  Francois,  Ste.  Genevieve,  St.  Loutof Schuyler  Scot 
land,  Scott,  Shannon,  Shelby,  Stoddard,  Warren,  Washington,  and  Wayne. 

Collector:  John  S.  Leahy,  St.  Louis. 

Div.  Hdqrs.  at:  Hannibal,  Cape  Girardeau. 

Sixth  District.— Comprising  that  part  of  the  State  of  Missouri  included  in  the  following 
counties:  Andrew,  Atchison,  Benton,  Barry , Barton  Bates,  Buchanan,  Caldwell,  Camden, 
Carroll,  Cass,  Cedar,  Charlton,  Christian,  Clay,  Clinton,  Cole,  Cooper,  Dade  Dallas 
Daviess  Dekalb,  Douglas,  Gentry  Greene  Grundy,  Harrison,  Henry,  Hickory,  Holt 
Howell,  Jackson,  Jasper,  Johnson,  Laclede,  Lafayette,  Lawrence,  Livingston  McDonald’ 
Mercer,  Miller,  Moniteau,  Morgan,  Newton,  Nodaway,  Ozark,  Pettis,  Platte  Polk' 
Putnam,  Ray,  St.  Clair,  Saline,  Stone,  Sullivan,  Taney,  TexaB,  Vernon  Webster  Worth* 


Collector:  Geo.  F.  Crutchley,  Kansas  City. 

Div.  Hdqrs.  at:  St.  Joseph,*  Springfield. 
Stamp  Office  at:  Joplin. 

MONTANA  (Comprising  the  State  of  Montana), 

Collector:  Charles  A.  Rasmusson,  Helena. 

Div.  Hdqrs.  at:  Butte,*  Great  Falls,  Billings. 


NEBRASKA  (Comprising  the  State  of  Nebraska), 

Collector:  Arthur  B.  Allen,  Omaha. 

Div.  Hdqrs.  at:  Lincoln,  Grand  Island. 


NEVADA  (Comprising  the  State  of  Nevada), 

Collector:  Louis  A.  Spellier,  Reno. 


NEW  HAMPSHIRE  (Comprising  the  State  of  New  Hampshire), 
Collector:  John  H.  Field,  Portsmouth. 

Stamp  Office  at:  Manchester. 

•Stamps  sold. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDEEAL  INCOME  TAX  SERVICE 

Supplementary.Page  303. 


1-2H-22. 


INTERNAL  REVENUE  DISTRICTS  AND  COLLECTORS. 


NEW  JERSEY 

Firm  District.  -Comprising  that  part  of  the  State  of  New  Jers.v  Included  in  the  following 
counties:  Atlantic,  Lurlington,  Camden,  Cape  May,  Cumberland,  Gloucester,  Mercer 
Monmouth,  Ocean,  and  Salem.  ’ 

Collector:  Edward  L.  Sturgess,  Camden. 

Div.  Hdqrs.  at:  Trenton. 

Fifth  District.  -Co.  '.rising  that  put  of  the  State  of  New  Jersey  included  in  the  following 
count. e»  Bergc,  , Essex,  Hudson,  Hunterdon,  Middlesex,  Morris.  Passaic.  Somerset 
huseex,  union,  Warren.  ' 

Collector:  Frank  C.  Ferguson,  Newark. 

Div.  Hdqrs.  at:  Jersey  City,*  Paterson,*  Elizabeth,  Morristown. 

Stamp  Office  at:  New  Brunswick. 

NEW  MEXICO  (Comprising  t lie  State  of  New  Mexico), 

Collector:  Benigno  C Hernandez,  Albuquerque 

NEW  YORK 

First  District.  -Comprising  that  part  of  the  State  of  New  York  included  in  the  following 
counties;  Kings,  Nassau,  Queens,  Richmond  and  Suffolk.  * 

Collector:  John  T.  Rafferty  Brooklyn. 

Div.  Hdqrs.  at:  Patchogue. 

Second  tt  1st  rich  , Cemprisinp  the  County  of  New  York,  N.  Y.,  and  those  three  certain  island. 
Island***  *n  ^a8t  R,vpl  known  ss  Randalls  Island,  Wards  Island  and  Rlackwell. 

Collector:  Frank  K.  Bowers,  New  York. 

Div.  Hdqrs.  at:  4 Union  Square,  1416  Broadway,  1819  Broadway  * 

310  Lenox  Ave.* 

Stamp  Office  at:  San  Juan,  P.  R. 

Fourteenth  District.— Comprising  that  part  of  the  State  of  New  York  included  in  the  following 
CiSomMo  AT,:a?: V,’  r,roTnA  (forSe,r,!y  the  23rd  and  24th  wards  of  New  York  City),  Clinton* 
olumbia,  Dutchess,  Essex,  Fulton,  Greene,  Hamilton,  Montgomery,  Orange  Putnam’ 

WashTngtom  ^ ntCtady'  Sch°harie-  Su,,ivan-  Ulatcr'  Warren! 

Collector:  Cyrus  Durey,  Albany 

Div.  Hdqrs.  at:  Schenectady,  Troy,  Newburgh,  Bronx,*  1937  \rtluir 

Avc.,  X.  Y.  City,  Poughkeepsie. 

Stamp  Office  at:  Peekskill. 

Twenty-first  District.— Comprising  that  part  of  New  York  included  in  the  following  counties 
Sf?P8’  ('nyu,zu'  (nhena?K°'  Cortland,  Delaware,  Franklin,  Herkimer,  Jefferson  LewlS 
Tompk^,^nd%ayne°?tfa8‘‘’  °8WeEO'  °tSe"°'  St'  T'awrenop’  Schuyler,  Seneca,  Tioga! 

Collector:  Jesse  W.  Clarke,  Syracuse. 

Div.  Hdqrs.  at:  Utica,*  Binehamton,*  Watertown. 

Twenty-eighth  District.— Comprising  that  part  of  New  York  included  in  the  following  counties 
VI«M™ir'fh!f ttaraugus,  Chautauqua,  Chemung,  Erie,  Genesee,  Livingston,  Monrce 
Niagara,  Ontario,  Orleans,  Steuben,  Wyoming,  anr!  Yates. 

•CoL'ector:  Bert  P.  Gage,  Buffalo. 

Div.  Hdqrs.  at:  Rochester,*  Elmira,*  Jamestown. 

NORTH  CAROLINA  (Comprising  the  State  of  North  Carolina), 

Collector:  Gilliam  Grissom,  Raleigh. 

Dlv-  Hdqrs.  i at:  Washington,  Wilmington,  Charlotte,  Asheville 

v\  inston-Salem. 

Stamp  C Sees  at:  Durham,  Reidsville,  Statesville,  Greensboro. 

NORTH  DAKOTA  (Comprising  the  State  of  North  Dakota), 

Collector:  Gunder  Olson,  Fargo. 

Div.  Hdqrs.  at:  Grand  Forks. 

*S tamps  sold. 


Copyright  1922,  by  1 he  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  304, 


1-28-22, 


INTERNAL  REVENUE  DISTRICTS  AND  COLLECTORS. 


OHIO 


Flrst’DIetrlct.  — Comprisi  ng  that  part  ot  the  State  of  Ohio  included  in  the  following  counties: 
Brown,  Butler,  Clarke,  Clermont,  Clinton,  Fayette,  Greene,  Hamilton,  Highland,  Miami 
Montgomery,  Preblo,  and  Warren. 

Collector:  Charles  M.  Dean,  Cincinnati. 

Div.  Hdqrs.  at:  Dayton.* 

Stamp  Offices  at:  Middletown,  Hamilton. 

Tenth  District.— Comprising  that  part  of  the  State  of  Ohio  included  in  the  following  counties' 
Allen.  Auglaize,  Champaign,  Crawford,  Darke,  Defiance,  Erie,  Fulton,  Hancock 
Hardin,  Henry,  Huron,  Logan,  Lucas,  Mercer,  Ottawa,  Paulding,  Putnam,  Sandusky’ 

don  r.oo  C U ol  L tr  \/ ■■  n ITT  ill*  — X 17  ^ a J VXT - . - . J . x * 


,<Jil  iW  . 


Seneca,  Shelby,  Van  Wert,  Williams,  Wood,  and  Wyandot. 


Collector:  Charles  H.  Nauts,  Toledo. 

Eleventh  District.— Comprising  that  part  of  the  State  of  Ohio  Included  in  the  following 

em  1 n t iou  ■ Ada  m a A thnno  HnaliAotAn  1 loluuro  rn  li’nii.Cnl  J t1...  „ l.l:_  1 1 • n 


.xelO 


Collector:  Newton  M.  Miller,  Columbus. 
Div.  Hdqrs.  at:  Portsmouth,  Zanesville. 


Eighteenth  District.— Comprising  that  part  of  the  State  of  Ohio  included  in  the  following 
counties:  Ashland,  Ashtabula,  Belmont,  Carroll,  Columbiana,  Cuyahoga  Geauga 
Harrison,  Holmes,  Jefferson,  Lake,  Lorain,  Mahoning,  Medina,  Monroe.  Portage  Rich- 
land, Stark,  Summit,  Trumbull,  Tuscarawas,  and  Wayne. 

Collector:  Carl  F.  Routzahn,  Cleveland. 

Div.  Hdqrs.  at:  Akron,  Canton,  Youngstown,  Steubenville. 

OKLAHOMA  (Comprising  the  State  of  Oklahoma), 

Collector:  Acel  C.  Alexander,  Oklahoma. 

Div.  Hdqrs.  at:  Tulsa,  Muskogee,  JVlcAlester,  Enid. 

OREGON  (Comprising  the  State  of  Oregon), 

Collector:  Clyde  G.  Huntley,  Portland. 

Div.  Hdqrs.  at:  Eugene,  Pendleton. 

PENNSYLVANIA 

First  District.— Comprising  that  part  of  the  State  of  Pennsylvania  included  in  the  following 
counties:  Adams,  Bedford,  Berks,  Blair,  Bucks,  Chester,  Cumberland,  Dauphin  Dela- 
ware, Franklin,  Fulton,  Huntingdon,  Juniata,  Lancaster,  Lebanon,  Lehigh  klfflin 
Montgomery,  Perry,  Philadelphia,  Schuylkill,  Snyder,  and  York.  ’ 

Collector:  Blakely  D.  McCaughn,  Philadelphia. 

Div.  Hdqrs.  at:  Philadelphia  (2),  Allentown,*  Altoona,  Chester, 

Harrisburg,*  Lancaster,*  Norristown,  Pottsville,*  Reading,* 

Twelfth  District.— Comprising  that  part  of  the  State  of  Pennsylvania  Included  in  the  following 
counties:  Bradford,  Carbon,  Center,  Clinton,  Columbia,  Lackawanna,  Luzerne  Lycoming 
Monroe,  Montour,  Northampton,  Northumberland,  Pike,  Potter,  Sullivan.  Susauehanna’ 
Tioga,  Union,  Wayne,  Wyoming.  M 

Collector:  David  W.  Phillips,  Scranton. 

Div.  Hdqrs.  at:  Wilkesbarre,*  Easton,*  Shamokin. 

Twenty-third  District.— Comprising  that  part  of  the  State  of  Pennsylvania  included  in  the 
following  counties:  Allegheny,  Armstrong,  Beaver,  Butler,  Cambria,  Cameron,  Clarion 
Clearfield,  Crawford,  Elk,  Erie,  Fayette,  Forest,  Green,  Indiana,  Jefferson.  Lawrence 
McKean,  Mercer,  Venango,  Warren,  Washington,  and  Westmoreland. 

Collector:  Daniel  B.  Heiner,  Pittsburgh. 

Div.  Hdqrs.  at:  Erie,*  Uniontown,*  New  Castle,  Du  Bois,  Johnstown. 

RHODE  ISLAND  (Comprising  the  State  of  Rhode  Island), 

Collector:  Frank  A.  Page,  Providence, 


TH  CAROLINA  (Comprising  the  State  of  South  Carolina), 
Collector:  Wm.  R.  Bradley  (Acting),  Columbia. 

SOUTH  DAKOTA  (Comprising  the  State  of  South  Dakota), 
Collector:  Leslie  Jensen,  Aberdeen. 

Div.  Hdqrs.  at:  Sioux  Falls. 

TENNESSEE  (Comprising  the  State  of  Tennessee), 

Collector:  Louis  P.  Brewer,  Nashville. 

Div.  Hdqrs.  at:  Memphis,*  Chattanooga,*  Knoxville.* 
'Stamps  sold. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary.Page  305. 


1-28-22. 


INTERNAL  REVENUE  DISTRICTS  AND  COLLECTORS. 


TEXAS 

Flr8^®iS‘riCt-T;Compri3inK.that,,parjt  of  ‘he  state  of  Texas  included  in  the  following  counties- 
Aransas,  Atascosa,  Austin.  Bandera,  Bastrop,  Bee,  Bell  Bexar  Blanco  Rnsrme 

Brazos,  Brewster,  Brooks,  Burleson,  Burnet  Caldwell  Calhoun 

Colorado,  Comal,  Coryell,  Culberson,  Dewitt,  Dimmit,  Dunn  Duval  Edwards  El^Paso* 
Falls,  Fayette,  Fort  Bend,  Freestone,  Frio,  Galveston,  Gillespie  Goliad  Gonzales  r-rt' 
Guatia'upe,  Hamilton,  Hardin,  Harris,  Hays,  Hidalgo^r&uto^,fcS!S 
Jell  Davis,  Jefferson,  Jim  Hogg,  Jim  Wells,  Karnes,  Kendall,  Kerr,  Kimble  ’Kinney’ 
Kleberg,  Lampasas,  La  Salle,  Lavaca,  Lee,  Leon,  Liberty.  Limestone,  Live  Oak  Llano’ 
McCulloch,  McLennan,  McMullen,  Madison,  Mason,  Matagorda,  Maverick  Medina’ 
Milam,  Montgomery,  Newton,  Nueces,  Orange,  Pecos,  Polk,  Presidio,  Real,  Reeves’ 
Refugio,  Robertson,  San  Jacinto,  San  Patricio,  San  Saba,  Somervell,  Starr,  Terrell’ 

Wha iron  r*w^n  ’ fy  5,r7  ,yva  de’  er^^g  v*ctoria.  Walker,  Waller,  Washington,  Webb’ 
Wharton,  Willacy,  Williamson,  Wilson,  Zapata,  Zavalla.  s 

Collector:  James  W.  Bass,  Austin. 

Div.  Hdqrs.  at:  San  Antonio,*  Houston,*  El  Paso,  Waco.* 

Second  District.— Comprising  that  part  of  the  State  of  Texas  included  in  the  following  counties- 
Anderson,  Andrews,  Angelina,  Archer,  Armstrong,  Bailey,  Baylor,  Borden  Bowie' 
Briscoe,  Brown,  Callahan,  Camp,  Carson,  Cass,  Castro,  Cherokee,  Childress  Clay’ 
Cochran,  Coke,  Coleman,  Collin,  Collingsworth,  Comanche,  Concho,  Cooke  Cottle’ 
Dallam,  Dallas,  Dawson,  Deaf  Smith,  Delta,  Denton,  Dickens! 
Donley  .Eastland,  Ector,  Ellis,  Erath,  f'  annin,  Fisher,  Floyd,  Foard,  Franklin,  Gaines’ 
Garza,  Glasscock,  Gray,  Grayson  Gregg,  Hale,  Hall,  Hansford,  Hardeman,  Harriso^’ 
?auke  ’ Hemphill,  Henderson,  Hockley,  Hood,  Hopkins,  Houston,  Howard’ 
I/  ™,llinSun’TIn“n’  Jack,  Johnson,  Jones,  Kaufman,  Kent,  King,  Knox,  Lamar,’ 
k°Xing’  Duhhock,  Lynn,  Marion,  Martin,  Menard,  Midland,  Mills 
Oldham  ’ tp?Ut  ’ ’ tioore,’  M°rr,.s«  Motley,  Nacogdoches,  Navarro,  Nolan,  Ochiltree! 

R™,  »’  Parker,  Parmer,  Potter,  Rains,  Randall,  Reagan,  Red 

iS?je  cu  Rock?;all>  Run”e,s- ,R"?k.  Sabine,  San  Augustine,  Schleicher  Scurry, 
Shackelford,  Shelby,  Sherman,  Smith,  Stephens,  Sterling,  Stonewall,  Sutton  Swisher 
Tarrant,  Taylor,  Terry,  Throckmorton,  Titus,  Tom  Green,  Upshur,  Upton  Van  Zandt’ 
Ward,  Wheeler.  Wichita,  Wilbarger,  Winkler,  Wise,  Wood,  Yoakum  and  Young.  ' 

Collector:  George  C.  Hopkins,  Dallas. 

Div.  Hdqrs.  at:  Wichita  Falls,  Fort  Worth,  Abilene,  Tyler. 

UTAH  (Comprising  the  State  of  Utah), 

Collector:  James  H.  Anderson,  Salt  Lake  City. 

Stamp  Office  at:  Ogden. 

VERMONT  (Comprising  the  State  of  Vermont), 

Collector:  Robert  W.  McCuen,  Burlington. 

VIRGINIA  (Comprising  the  State  of  Virginia), 

Collector:  John  C.  Noel,  Richmond. 

Div  Hdqrs.  at:  Norfolk,*  Lynchburg,*  Roanoke,*  Alexandria.* 
Stamp  Offices  at:  Petersburg,  Martinsville,  Danville. 

WASHINGTON  (Comprising  the  State  of  Washington  and  the  Territory  of 
Alaska), 

Collector:  Burns  Poe,  Tacoma. 

Div.  Hdqrs.  at:  Seattle,*  Spokane. 

WEST  VIRGINIA  (Comprising  the  State  of  West  Virginia), 

Collector:  Albert  B White,  Parkersburg. 

Div.  Hdqrs.  at:  Wheeling,*  Charleston,  Huntington,*  Clarksburg. 
Stamp  Offices  at:  Fairmont.  *** 

WISCONSIN  (Comprising  the  State  of  Wisconsin), 

Collector:  Alonzo  H.  Wilkinson,  Milwaukee. 

Hdqrs.  at:  Madison,*  Green  Bay,  Oshkosh,  Superior,  La  Crosse, 
Racine. 


WYOMING  (Comprising  the  State  of  Wyoming), 

Collector:  Marshall  S.  Reynolds,  Cheyenne. 
*Stamps  sold. 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  306. 


3-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX 

TO  THE  LAW  AND  REGULATIONS 

THE  REFERENCES  ARE  TO  PARAGRAPH  NUMBERS 


COMMENT. 

This  index  is  very  comprehensive  and  it  is  believed  that  by  means  of  it  any  subject  embraced 
within  the  Service  may  readily  be  found.  It  is  to  be  borne  in  mind,  however,  that  in  many 
cases  immediately  succeeding  paragraphs  of  a group  treat  of  the  same  phase  of  an  identic  sub- 
ject. Obviously  a reference  to  the  first  paragraph  of  such  a group  is  all  that  is  necessary.  To 
do  more  would  serve  no  helpful  purpose,  and  would,  indeed,  prove  confusing. 


Abatement  claims:  (See  “Claims  for  abatement”  at  1,  Index  Page  7.) 

Absence:  agent  may  make  return . . 926,  2486 

Absence  as  cause  for  extension  of  time  for  filing  returns.  .2562,  2566 
Accident  insurance,  combined  with  life  and  health  in  one  policy.  .1354 
Accident  insurance  companies:  losses.  .1353 
Accident  insurance:  proceeds  of  exempt.  .1552,  1557 
Accounting:  charging  off  depreciation.  .1851 
Closing  depreciation  account.  .1859 
Accounting  for  gross  income.  .1072,  1260 
Accounting  methods  regularly  employed.  .1044,  1049,  2091 
Changing.  . 1050 

Asking  authority  to  change.  .1051,  1183 
In  case  of  installment  sales.  . 1238 
In  case  of  inventories.  .1511 

If  no  accounting  method  has  been  employed.  .1045,  1059 
No  specified  method  prescribed.  . 1053 
To  reflect  true  income.  .1045,  1053 
Accounting  period:  annual.  .1044,  1054,  1060 
Change  of.  .1051,  1065,  2567 
Keturns.  .2567,  2574 
Net  income  based  on.  . 1044 
Nonresident  aliens.  .2091 

Accounts  current:  withholding  tax  on  interest  on.  .2218 

Accounts  of  two  or  more  related  businesses  may  be  consolidated.  .2560 

Accounts  payable  as  income  determining  factor.  . 1042 

Accounts  receivable  as  income  determining  factor.  1042 

Accounts  receivable  purchased:  uncolleclible,as  bad  debts.  .1814 

Accrual  of  income.  .1049 

As  opposed  to  constructive  receipt.  .1271 
Accrued  to  cash  receipts  basis:  change.  .1050,  1051 
“Accrued  or  paid”.  .1047 
Accruing  foreign  taxes  to  be  paid.  .1733-1758 

Accumulated  profits  of  foreign  corporation  controlled  by  domestic  corporation.  .1764 
Accumulations  of  profits  beyond  reasonable  needs  of  the  business.  .733 
Actions.  (See  “Suits”  at  2,  Index  Page  43.) 

Acts:  constitutionality  of 

Act  of  1909:  “recent  cases”.  .See  Supplementary  Page  138,  * S58 
Act  of  1913.  .2971 

Acts  of  1916,  1917,  1918.  .2994,  3000 
Acts  of  1916,  of  1917,  of  1918,  of  1921,  entitling  of.  .2770 
Actual  vs.  record  owner  of  stock.  .1083 
Ad  valorem  penalties.  .2599 

Abatement  claims  stay.  .2726 
Collected  as  part  of  the  tax.  .2621,  2629 
Deficiency  in  tax  due  to  negligence,  etc. . . 2600 
Due  to  fraud.  .2601,  2603 
Delay  in  payment  of  tax.  .2725 

When  extension  of  time  for  paying  deficiency  was  granted.  .2607 
Failure  to  file  return.  .2618 
False  return.  .2601,  2603,  2620 
Leaving  country  (evading  taxes).  .2785 
dd  tional  tax  (See  “Surtax”  at  1,  Index  Page  44.) 

. dditional  tax  payments.  Foreign  taxes:  overestimating  accruals.  .1741,  1751 
Additions  and  betterments.  .1056,  1628,  1642 
Made  by  lessee  or  tenant.  .1252,  1683 
Administration  of  act.  .2942 
Administration  of  estate.  .874 

Amounts  paid  or  credited  to  legatees  during.  .891,  899 
Expenses. . 1630 

“Period  of  administration”  defined.  .875 
Administrative  provisions  of  law,  general:  are  applicable.  .2709 
Administrative  review:  limitation  of.  .2866 

Administrator  included  in  term  "fiduciary”  (See  “Executor”  at  2,  Index  Pagej;17.) 
Advertising  expenses.  .1640,  1675 

Other  than  trade  advertising.  .1675 
Sale  of  Liberty  Bonds,  etc.  . 1675 

Advisory  Tax  Board  succeeded  by  Committee  on  Review  and  Appeal.  .2921 
^Personnel  of„Committee.  .2923 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDEEAL  INCOME  TAX  SERVICE 

Index  Page  1 


E 8-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Affiliated  corporations.  .2552 
Assessment  of  tax.  .2649 
“By  the  same  interest”  defined.  .2555 
Change  in  ownership  during  year.  .2556 
Consolidated  returns  of.  .2539,  2542,  2544 

Credit  ccfounts  of  two  or  more  related  businesses.  .2560 

^n?l&^rJ?^8C0rp0ratlOn-  •141#‘  1762 

.T762ed  t0  benefits  of  Section  262  •• 2558 
Specific  credit  of  $2,000.  .2550 
Agency:  personal  service  corporation  827 
Borrowed  capital.  .834 

Agent ^ffiductery 924  aPP®ar  bef°re  Bureau  of  Internal  Revenue.  .2932 

AKenReturn°byeSi2182  a'*en:  what  constitutes.  .2182 

entire  charge  of  property  is  not  a fiduciary.  .924 
Agent  may  make  return.  .925,  2486  * 

For  nonresident  alien  . .2182 

Agents,  income  tax:  duties  of.  .2584 

Agents  of  foreign  corporations.  .1423,  1426 

Agricultural  colleges:  compensation  of  certain  employees  1599 

Agricultural  o^n^aUon^'ioOS  °f  ““  employees . . 1599 

Clubs.,  1036  ' ’ 

i'  Contributions  to  fairs.  .1676 
Alaska  included  in  "United  States”.  .1399 
Income  accruing  to.  . 1596 
, Interest  on  obligations.  .1560,  1564 
Aliens- : Balar‘es  °I  Government  employees.  .1068 

All  aliens  presumed  to  be  nonresidents.  .758,  2205 
Change  of  status.  .2214 

c/oUnt,^T°r  concealing  self  or  property.  .2784,  2786 
Nonresident  (See  Nonresident  aliens”  at  2,  Index  Page  30.) 

Resident:  what  income  of,  is  liable  to  tax.  .746 
Credit  as  head  of  family.  .2049,  2050 
Credit  for  certain  foreign  taxes.  .1736 
Form  1078  should  be  filed  by  all.  .761 
Loss  of  residence.  .759,  2217 
Proof  of  residence.  .758,  2206 
Reliance  on  Form  1078  by  employer.  .760.  2206 
Seamen.. 756,  2096 

on  last  day  of  taxable  year  governs  as  to  tax  liability.  .759 
...  Withholding  against,  unless  proof  of  residence  i3  furnished.  .760 
Alimony.  .1559,  1623  ■» 

Allocation  of  assessments  for  construction  and  maintenance  of  local  benefits.  .1716 
Allocation  of  deductions  to  particular  source.  .732 
Foreign  corporations.  .1412,  1414 
Nonresident  aliens.  .2169 
Allocation  of  dividends  to  particular  years . . 1081 
Allocation  of  income  to  particular  source.  .732 
Allowance  for  amortization  . . 1860 
Redetermination  of.  .1877 

Allowance  for  credit  for  foreign  taxes  paid  or  accrued  1750 
Allowances  to  one’s  own  children.  .1623 
Ambassadors,  foreign.  .1595 
Amended  returns: 

Banks  on  account  of  method  of  handling  discounts.  .1052 
Losses  discovered  in  later  year.  .1057 
Refunded  taxes  paid  in  prior  years.  .1705,  1713 
American  Legion  Posts:  gifts  to.  .2001 
Women’s  Auxiliary  units.  .2001 
Amortization  allowances:  special,  due  to  war  1860 
Computation  of.  .1870,  1874 
Corporations.  . 1861 
Costs  in  connection  with.  .1867 
Depreciation  vs.  amortization.  .1864 
Information  to  be  furnished  by  taxpayer.  .1879 
Redetermination  of.  .1862,  1877 
Salvage  values.  .1869,  1870 
Scope  of  provision.  .1864,  1874 
Amortization  of  life  estate  or  terminable  interest.  .914 
Analysis  of  credit  for  taxes  paid  or  accrued.  .1747 
Ancillary  administrator:  return  liability.  .954 
Annual  and  periodical  payments.  .2203,  2343 
Annual  report  of  Commissioner.  .2707 
Annuities.  .1251,  1554,  1555 

Charged  upon  devised  land.  .1251 
Paid  to  retired  employees.  .1153 
Purchase  by  civil  service  employees.  .1152 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  2 


3-7-22. 


IMPORTANT. — CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 

Apartment  house,  depreciation  of:  court  case.  .1845 

Appeal  from  collector’s  increase  of  taxable  income  on  return.  .2578,  2768 
Application  to  change  method  of  accounting.  . 1051 
Apportionment  of  deductions: 

Foreign  corporations  .1412,  1414 
Nonresident  aliens.  .2169 
Appreciation  in  value  of  assets 

Accrual  of  income;  appreciation  is  not.  .1049 
Decedent  prior  to  death.  .941 

Executor’s  custody  prior  to  distribution  in  kind.  .941 
Appropriation  to  satisfy  granted  refund  claims.  .2919 
Architect’s  services  as  part  of  cost  of  building.  .1630 
Army  and  navy: 

Compensation.  . 1156 
Compensation  allowances.  .1555 
Equipment.  . 1623 

Salaries  paid  by  employers  during  war.  .1674 
Army  Nurse  Corps,  Female:  compensation  allowances.  .1556 
Assessment  districts,  special:  exempt  interest.  .1564 
Assessment  insurance  companies.  .1319 
Assessment  of  the  tax.  .2747 

Continuing  effect  of  1918  Act.  .2774 
First  installment.  .2728 
Notice  of  may  be  sent  by  mail.  .2740 
Relief  provisions  extended  to  1917  and  1918  acts.  .2787 
Subsequent  installments.  .2729,  2731 
Suits  to  restrain  assessment  or  collection  of  tax.  .2870 
| Assessment  of  the  tax:  deficient  taxes: 

10  days’  notice  and  demand.  .2760,  2763 
30  days’  notice  and  hearing.  .2757,  2763 

But  not,  if  collection  would  be  jeopardized  thereby.  .2762 
Amortization  cases  and  deferred  settlement  of  tentatively  allowed  deductions.  .2747,  276  6 
Death  during  taxable  year.  .2747,  2753 

False  or  fraudulent  returns,  or  failure  to  file.  .2617,  2747,  2764 
On  notice  and  demand.  .2623 
Final  determinations  and  assessments.  .2862 
Five  year  limitation.  .2744,  2747 
Four  year  limitation.  .2742,  2747 
Second  assessments:  abatement  and  refund.  .2881 
Under  1921  Act.  .2742,  2747 
Under  prior  acts.  .2744,  2747 
Waiver  of  limitations.  .2746,  2747 
Assessments  for  local  benefits.  . 1214 
Assessments  on  stock.  .1278,  1630 

Assignees  operating  business  or  property  of  a corporation.  .2499 
Associated  charities:  gifts  to.  .2013 

2 Associations  are  "corporations”.  .987,  988 

Common-law  trusts.  .988,  990,  2987 
Partnership  vs.  association. . . 989 
Trust  vs.  association . . 990 
Attorney  General’s  opinions: 

Community  property.  .2391,  2423 

Depletion  in  case  of  discovery  by  taxpayer  subsequent  to  March  1,  1913.  .1918 
Apportionment  between  lessor  and  lessee.  .1918 
Dividends  paid  in  Liberty  bonds.  .1085 

Liberty  bonds  as  medium  for  payment  of  debt  or  dividend.  .1085 
National  banks  may  not  lawfully  declare  stock  dividends.  .1144 
Salaries  of  U.  S.  judges.  .1157 
Attorney-in-fact  is  not  a “fiduciary” . . 924 

Attorneys:  enrollment  of,  to  appear  before  Bureau  of  Internal  Revenue.  .2932 
Attorney’s  fees: 

Administration  of  estate.  .1630 
Organization  of  corporation.  .1634 
Refunds,  deductions.  .1709 
Auction:  personal  service  corporation.  .827 
Automobile  insurance  companies,  mutual.  .1037 
Automobiles: 

Excise  tax  on  sale  of:  deductibility.  .1704,  1710,  1711 

Farmers.  .1196 

License  fees. .1703 

Pleasure:  depreciation ..  1832 

Professional  men.  .1643 

Statement  as  to  estimated  life  of.  .1844 

3 Bad  debts: 

Banks.  .1813 

Charged  off  in  part.  .1808,  1811 
Compromises. . 1817 
Deductibility.  .1806 
Examples  of.  .1814 
Recoveries.  .1260,  1811 
Reserve  for.  .1820,  1822 

Additions  to.  .1820,  1822 
Worthless  mortgages.  .1815 
Worthless  securities.  .1818 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  3 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Baltimore:  place  for  filing  returns  if  no  domicile  or  place  of  business  in  the  U.  S.  2531  2533 
Bankruptcy  in  connection  with  bad  debts.  .1812,  1814 
Bankruptcy:  liability  of  trustee  in.  .956,  1294,  1296,  2499 
Banks: 

Assessments  paid  by  stockholders.  .1630 
Bad  debts.  . 1813 
Cooperative  banks.  .1008,  1028 
Dealers  in  securities.  .1522 
Depositors’  guaranty  fund  .1647 
Discounts:  method  of  handling.  .1052 
Federal  Land  Banks.  . 1017 

Income  from  securities  of.  .1561,  1565 
Federal  Reserve  Bank:  dividends  on  stock.  .1556 
Member  banks  .1556 
Interest: 

Deduction  of.  .1690 
Nonresident  aliens.  .2191,  2197 
Release  of  tax  withheld.  .2199 
Savings  deposits.  . 1272 

National  banks:  assessments  on  stockholders.  .1630 
Stock  dividends  not  lawful.  .1144 
Payment  of  tax  on  behalf  of  stockholders: 

The  bank.  .1719 

The  stockholder.  .1717,  1720 

Private:  association,  partnership  or  corporation.  .989,  1098 
Income  from;  if  considered  corporation,  is  dividend.  .1098 
Income  from:  if  not  considered  corporation.  1185 
Proper  employment  of  income.  .744 
Shrinkage  in  value  of  securities.  .1802 
Basis  for  determining  gain  or  loss.  (See  “Gain”  at  1,  Index  Page  22.) 

Beneficial  association  of  employees  as  insurance  company.  .1348 
Beneficiaries: 

Accident  insurance.  .1552,  1555 
Credits  allowed  to.  .917 

Distributive  shares  to  be  listed  in  fiduciary’s  return.  .938 
Health  insurance.  .1552,  1555 

Income  and  excess  profits  taxes  paid  to  other  jurisdictions  by  estates  or  trusts.  .1738 
Income  received  through  fiduciaries  subject  to  surtax.  .716 
Including  dividends.  . 718 

Income,  tax-paid  by  fiduciaries,  is  free  of  tax  when  received  by  beneficiaries.  .888 

Legatees:  amounts  credited  to,  during  administration.  .891,  898 

Liability  for  direct  payment  of  tax.  .890,  913 

Liability  for  payment  of  tax  follows  the  estate.  .878 

Life  estate  or  terminable  interest.  .914 

Life  insurance.  .1553,  1555,  1 G93 

Corporation  beneficiaries.  1074,  1639 
Policies  insuring  lives  of  officers  or  employees.  .1631,  1639 
Losses  sustained  by  estate  or  trust.  .914 
Nonresident  alien:  return  by  fiduciary.  .933,  960 
Returns.  .921,  939 

Stock  dividend  distributable  to  life  tenant.  .3010 
Taxable  year  differing  from  that  of  estate  or  trust.  .893 
Taxation  to.  .894 

Ultimate  beneficiary  exempt  from  tax:  effect  of  on  taxability  of  income  accruing  to  estate. . 
879,  880 

United  States  bond  exemptions.  .1587 
Bequests.  . 1558 

No  deductible  loss  to  decedent.  .1783 
Valuing  on  subsequent  disposition.  .1454 
Betterments.  .1056  1628.1631,1642 
Betting.  .1794 

Bill  in  equity:  enforcement  of  tax  lien.  .2781 
Bills  receivable:  source  of  income  within  the  U.  S..  .2150 
Board  and  lodging  as  part  of  salary.  .1177 
In  lieu  of  cash  rent.  . 1256 
Board  of  Tax  Simplification.  .2961 
Boards  of  trade.  .1011,  1034 
Bond,  fidelity:  premium  on.  .1644 

Bond  in  connection  with  credit  for  accrued  foreign  taxes.  .1742,  1750,  1758 
Bond  in  connection  with  establishment  of  replacement  fund  with  compensation  for  losses.  .2037 
Bondholders:  assessments  on,  by  agreement.  .1630 
of  tax  paid  by  obligor.  .1075 

Amortization  1280 
Assignee  assuming  payment  of.  .2265 
Discount:  sold  at.  . 1281 

District  of  Columbia:  interest  on.  .1560,  1564 
Exchange;  gain  or  loss.  . 1466 

Exemption  of  income  from,  collected  by  foreign  government.  .1595 
Foreign  countries:  information  at  source.  .2357,  2368 
Foreign  owned;  usufruct  of.  .2287 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
I ndex  Page  4 


Credit 

Bonds: 


8-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Bonds. — Concluded. 

Interest  on: 

Deductions.  .1684,  1688,  1695 
Nonresident  aliens.  .2103,  2106,  2125  . 

Returns  of  information.  .2355 

Withholding  at  the  source.  .2197,  2233.  2244,  2260,  2255 
Liberty  bonds.  (See  '‘United  States  bonds’*  at  1,  Index  Page  47.) 

Losses  from  sale  and  repurchase.  .1792 
Municipal:  interest  on.  .1560,  1564 
Penal:  U.  S.  bonds  in  lieu  of  surety.  .1770 
To  secure  payment  of  deficiency.  .2611 
Purchase  between  interest  dates.  .1211,  2333 
Sale  and  retirement  of,  by  corporation.  .1279,  1696,  2284 
Shrinkage  in  value  of.  .1802,  1818,  1835 
State  bonds:  interest  on.  .1660,  1564 

Tax-free  covenant  (See  “Tax-free  covenant  bonds”  at  1,  Index  Page  45.) 
United  States  (See  “United  States  bonds”  at  1,  Index  Page  47.) 

War  Finance  Corporation:  interest  on.  .1563,  1568 
Worthless  as  bad  debts.  .1818 

Bonus  common  stock  in  connection  with  sale  of  preferred  or  bonds.  .1219 
Bonus  stock  to  employees.  .1168,  1271,  1670 
Bonuses  generally.  .1163,  1667 
Bookkeeping: 

Change  of  method.  .1050,  1051 

In  case  of  installment  sales.  .1237 
In  case  of  inventories.  .1511,  1525 
If  no  books  have  been  kept.  .1045,  1059 
Method:  no  specified  method  prescribed.  .1053 
Nonresident  aliens.  .2091 
Taxable  year.  .1046,  1055 
Change  of.  .1065 

To  reflect  true  income.  .1044,  1053 
Books  and  papers:  examination  of.  .2593,  2711 
Jurisdiction  of  courts.  .2595 
One  inspection  for  each  year.  .2594 
Unnecessary  examinations.  .2594 
Books  and  papers  to  be  maintained.  .2709 
Borrowed  capital:  personal  service  corporations.  .834 
Branch  banks  or  offices:  licenses  for  the  collection  of  foreign  items.  .2376 
Branch  offices  to  make  returns  of  information.  .2343 
Branches  of  foreign  insurance  companies  in  the  United  States.  .1410 
Brokerage:  personal  service  corporation.  .827,  828 
Borrowed  capital.  .834 
Interest  received  and  paid.  .1213 
Brokers: 

Acting  for  nonresident  aliens.  .2182,  2183 
Interest  received  and  paid.  .1213 
Returns  of  information.  .2380 

Building  and  land  acquired  for  lump  sum:  depreciation.  .1840 
Building  and  loan  associations:  domestic.  .1008,  1023 
Amounts  credited  to  shareholders.  .1272 
Exempt  dividends  or  interest.  .1603,  1607 
Maturity  of  shares.  .1272 

Building:  architect’s  services  as  part  of  cost  of.  .1630 
Buildings: 

Amortization  allowance,  computation  of.  .1867 
Demolition  or  razing  of  . 1800 
Expenditures  for  new.  .1628 

By  lessees  on  leased  ground.  .1252,  1683 
Loss  of  useful  value.  .1801 
Statement  as  to  estimated  life.  .1844 
Voluntary  removal  of.  .1800 
Business  expenses.  .1640 
Business:  income  from.  .1069,  1179 
Business  insurance:  premiums  on.  .1639,  1640,  1645 
Reserves  in  lieu  of  insurance.  .1646 
Business  leagues.  .1011,  1034 
Business  losses.  .1776 

Losses  outside  of  business.  .1778,  1779,  1794 
Net  losses.  .1527 

Business  of  a corporation:  scope.  .743 
Calendar  year  as  basis  for  computing  income.  .1059,  1064 
Change  to  or  from  fiscal.  .1065 
California  irrigation  assessment  districts.  .1716 
California  special  partnership.  .992 
Campaign  contributions.  .1675 
Canceled  contracts:  claims  for  compensation.  .1260 
Cancellation  of  debt.  .1259 
Canvas  of  districts  by  collectors.  .2583 
Capital  assets: 

Defined..  149  7,  1503 

In  connection  with  capital  net  gain.  .1497 

In  connection  with  net  losses.  .1528 

Loss  of  useful  value.  .1801 

Sale  of:  income  from.  .1069,  1074,  1292,  1696 

Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  5 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


1 


Capital  deductions  defined.  . 1494,  1503 

Capital  expenditures  vs.  expense  1055,  1628,  1630 

Construction  and  maintenance  of  local  benefits:  assessments  1716 
Estates  and  trusts.  . 1630 

Excessive  compensation  to  officers,  etc.  .1651,  1663 
Farmers.  1195 

Items  to  be  depreciated.  .1056,  1629,  1630,  1642 
Mines  . 1970 

Organization  fees  of  a corporation.  .1624 
Professional  men.  .1643 
Public  utilities  . 1632 
Railroads.  . 1633 

Sale  of  its  capital  stock  by  a corporation.  .1635 
Timber  1989,  1990 
Wells:  oil  and  gas  .1972 
Capital  gain  defined  .1492,  1503 
Capital:  interest  on,  is  not  deductible.  .1695 
Capital  loss  defined.  .1493,  1503 
Capital  net  gain.  .1495 

Capital  assets  in  connection  with.  .1497 
Citizen  entitled  to  benefits  of  Section  262.  .1505 
Corporations:  provision  does  not  apply  to.  .1499 
Defined.  .1495,  1503 

Election  of  taxpayer  as  to  rate  of  tax.  .1499,  1503 

Estates  and  trusts.  .1507 

Nonresident  aliens.  .1505 

Partnerships.  .1507 

Returns.  .1506 

Special  tax  in  lieu  of  other  taxes.  .1499 
Computation.  .1500 

Stock  dividends  in  connection  with.  .1503 
Trusts.  . 1507 
Capital  stock: 

Additional  assessments  on.  .1278 
Exchange  of  property  for.  .1463 
Expenses  incident  to  sale  of.  1635 
Sale  of,  at  premium  or  discount.  .1275,  1636,  1696 
Capital  stock  tax.  .1703,  1704,  1712 
Car-trust  certificates:  interest  paid  on.  .1691 
Trustees:  status  of.  . 1692 


Cases  (See  Table  of  Cases  beginning  on  Supplementary  Page  115.) 

Supreme  Court  cases.  .2971,  2994,  3000 
Cash:  gross  income  and  deductions  not  necessarily  ‘‘in  cash”.  .1046,  1075 
Salaries  and  wages.  .1168 
Cash  receipts  to  accrual  basis:  change.  .1050,  1051 
Casualty  insurance  companies:  losses.  .7353 
Casualty  losses.  .1777,  1780,  1783,  1786 

Compensated  for:  replacement  fund.  .1257 
Nonresident  aliens.  .2166,  2168 
Cemetery  companies.  .1009,  1029 
Cent:  fractional  part  of.  .2788 
Certificates  of  indebtedness: 

Exempt  status  of  interest.  .1570,  1576,  1584 
Payment  of  taxes  by  means  of.  .2789 

Certificates  of  ownership  (See  “Ownership  certificates”  at  1,  Index  Page  32.) 

Chambers  of  commerce.  .1011,  1034 
Charitable  purposes: 

Corporations  organized  for.  .1010,  1030 

Gifts  on  account  of  (See  "Gifts”  at  2,  Index  Page  22.) 

Chautauquas.  .1031 

Checks,  uncertified:  payment  of  taxes  by  means  of.  .2789,  2796 
Dishonored  checks.  .2797 
Children:  allowance  for.  .2051 

None  for  nonresident  aliens  and  citizens  entitled  to  the  benefits  of  Section  262.  .898,52176 
Churches  and  church  funds:  gifts  to.  .2009,  2013 
Citizen  entitled  to  benefit  of  Section  262 . . 893,  2070 

Allowance  of  deductions  and  credits  dependent  on  making  complete  return  of  income  from 
U.  S. . . 2177 


Capital  net  gain.  .1505 
Compensation.  .2117,  2127 

Credit  for  other  income  and  excess  profits  taxes  not  allowed.  .1739 
Deductions.  .2123,  2130,  2167,  2170 
Dependents:  no  allowance  for.  .2175 
Dividends.  .2110,  2126 

Gross  income  from  sources  within  the  U.  S..  .2102 

Gross  income  from  sources  within  and  without  the  U.  S..  .2137 

Gross  income  from  sources  without  the  I).  S. . .2124 

Interest.  .2103,  2126 

Personal  exemption  of  $1,000  only.  .2175 

Personal  property  produced  or  sold  partly  within  or  without  the  U.  S..  .2146, ‘2160 
Personal  property  purchased  or  sold  partly  within  or  without  the  IDS..  .2158 
Virgin  Islands.  .2076 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page_6 


3-7-22. 


IMPORTANT— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX.  • 

The  references  are  to  paragraph  numbers. 


Citizens  defined.  .748 

Leaving  the  country.  .2783,  2786 
Residing  abroad  . . 748,  761 

Extension  of  time  for  filing  returns.  . 1032 
Residing  in  Porto  Rico  or  the  Philippines.  .610,  543,  2582 
Serving  foreign  governments.  .1596 
What  income  of  is  subject  to  tax.  .746 
Citizenship.  .760 

Civic  leagues  or  organizations.  .1012,  1036 
Civil  service  employees:  annuities.  .1152 
Claim:  unconditional  on  March  1,  1913.  .1611 
Claims  for  allowance  of  net  loss.  .1545 
1 Claims  for  abatement.  .2822 

Effect  on  collection  of  the  tax.  .2822 

Effect  on  interest  on  delayed  tax  payments.  .2726 

Erroneously  assessed  taxes . . 2822 

Where  equivalent  amount  due.  .2822 
Nonresirjent  alien:  excess  tax  withheld.  .2255 

Not  allowed  where  opportunity  to  file  appeal  had.  .2748,  2761,  2816 
Not  necessary  in  certain  cases.  .2836 
Reduction  of  assessment.  .2817 
Second  assessments.  .2881 

Suit  against  U.  S.;  claim  for  refund  is  essential  precedent  step.  .2882 
Uncollectible  taxes:  by  collector.  .2824 
Claims  for  credit  because  of  overpayment.  .2598,  2817,  2825,  2830 
Claim  essential  for  allowance  of  interest,  if  any.  .2854 
Claim  essential  to  establish  right  to  bring  suit.  .2882 
Claim  to  be  made  within  4 years  generally.  .2827 

Claim  to  be  made  within  5 years  where  examination  of  return  is  involved . . 2826 
Exception.  .2850 

Foreign  taxes:  incorrectly  estimated  accruals.  .1741,  1751 
Claims  decided;  limitation  on  review.  .2866 
Claims  for  refund.  .2813,  2817,  2835,  2836 

Amounts  found  to  be  due  on  examination  of  returns  of  prior  years.  .2825 
Amounts  recovered  by  suit.  .2920 

Claim  for  essential  for  allowance  of  interest,  if  any.  .2854 
Claim  for  essential  to  right  to  bring  suit.  .2882,  2887 
Claims  to  be  made  within  4 years  generally.  .2827 

Claims  to  be  made  within  5 years,  where  examination  of  return  is  involved.  .2826 
Exception.  .2850 

Commissioner’s  authority  to  grant.  .2811 
Interest  on . . 2854 

Nonresident  aliens;  excess  amounts  withheld.  .2182,  2255 
Not  necessary  in  certain  cases.  .2836 
Second  assessments.  .2881 
Claims  unsettled:  war  contracts,  etc.  .1260 
Clearing  house  associations.  .1034 
Clergymen;  fees  paid  to.  .1156 

Rental  value  of  dwelling.  .1604,  1608 
Clothing,  private  and  professional;  depreciation.  .1432 
Clubs:  pleasure,  recreation,  etc.  .1013,  1036 
Coast  Guard:  compensation  allowances.  .1555,  1557 
Coastwise  trade:  resident  or  nonresident  aliens.  .756 
Collection  Districts.  Supplementary  Pages.  .301-306 
Collector: 

Dead  who  collected  taxes:  suits  to  recover.  .2915 
Defined.  .742 

May  correct  returns.  .2504,  2577 
May  extend  time  for  filing  returns.  .2562 
May  make  return.  .2612 

Commissioner  may  amend.  .2614 
When  tax  is  due  under  such  returns . . 2623 
Names  and  addresses.  .Supplementary  Pages  301-306 
Render  assistance  and  answer  questions.  .25l9 
Report  violations  of  law.  .2777 
Suits  for  collection  of  tax.  .2749 
To  make  canvas  of  district.  .2583 
Colleges:  compensation  of  certain  employees.  .1599 
Commerce:  income  from.  . 1069 
Commercial  men’s  associations.  .981 
Commercial  net  income  as  statutory  net  income.  .1042 
Commission  business:  personal  service  corporation.  .827 
Borrowed  capital.  .834 
Commissioner  defined.  .741 
Annual  report  of.  .2707 

Authorized  to  make  rules  and  regulations.  .2942 

Certifying  as  to  unreasonable  accumulation  of  profits.  .736,  738 

Compromise  of  tax  cases . . 2632 

Extension  of  time  for  filing  returns.  .2565 

Government  contracts:  access  to.  .821,  822 

List  of  individuals  making  returns  to  be  posted  by.  .2706 

May  make  return.  .2614 

When  tax  is  due  under  such  return.  .2623 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  7 


8-7-22. 


IMPORTANT— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Commissions  (Sec  "Compensation”  at  I,  below) 

Commissions  of  nonresident  aliens:  withholding  at  the  source.  .2202 
Commissions  of  receivers  appointed  by  State  courts.  .1599 
Commissions  on  purchase  and  sale  of  securities.  .1630 
Committee  of  property  of  incompetent  is  a fiduciary.  .923 
Return.  .958 

Committee  on  Review  and  Appeal.  .2921 
Method  of  procedure  before.  .2924 
Common  law  partnerships.  .778 
Common  law  receivers.  .956 
Common  law  trusts.  .988,  990,  991 
Common  stock  as  bonus.  .1219 
Community  chests:  exemption.  .1010,  1030 
Gifts  to.  .2001,  2003 

Community  property  of  husband  and  wife.  .845,  1075,  2391,  2482 
Arizona.  .2432,  2469 
California.  .2458,  2473 
Idaho. .2434,  2468 
Louisiana.  .2443,  2472 
Nevada.  .2453,  2470 
New  Mexico.  .2449,  2471 
Texas. .2391,  2419 
Washington.  .2456,  2467 
Commuters’  fares.  .1625,  1678 

Compensation  for  loss:  replacement  fund.  .1257,  2022,  2037 
I Compensation  for  personal  services(income.  .1166);  (expense.  .1648,  1654) 
1 Alaska:  Government  employees. . 1068 

Bonuses.  .1163,  1667 
Commissions:  executor’s.  . 1630 
Commissions  on  insurance  premiums.  .1156,  1166 
Commissions  paid:  buying  and  selling  securities.  .1630 
Commissions  paid  salesmen.  .1156,  1671 
Credited  but  not  drawn.  .1162 
Paid  in  stock.  .1673 
Contingent.  .1652 
Deduction  as  expense.  .1648 

District  of  Columbia:  government  employees.  .1068 
Dividend:  payment  may  be  in  nature  of.  .1651 
Excessive:  treatment  of.  .1161,  1162,  1663 
Exempt  corporations:  salaries  paid  by.  .1165 
Fixing:  form  or  method  not  decisive.  .1652 
Foreign  government  employees.  . 1595 
Government  employees.  .1068,  1156,  1169 
Gross  income.  .1068 
Hawaii:  government  employees.  .1068 
Information  at  source.  .2336,  2345 
Insurance  premiums  paid  by  employer.  .1168 
Judges  of  United  States  Courts.  .1068,  1156,  1157 
March  1,  1913;  services  rendered  prior  to.  .1611 
Military  or  naval  forces;  pay  of  persons  in.  .1156 
Ministers;  fees  paid  to.  .1156 

Minors:  allowances  or  wages  to  one’s  own  children.  .1623 
Municipal  officers  and  employees.  .1599 
Nonresident  aliens:  earned  abroad.  .2117,  2127 
Not  determined  until  completion  of  services.  .1156,  1161 
Notaries  public:  fees  of..  1599 
Paid  other  than  in  cash.  .1168,  1177 
Information  at  the  source.  .1177 
Paid  in  notes.  .1178 
Paid  in  stock.  .1168,  1271,  1670,  1673 
Pensions.  .1166,  1674 
Percentage  of  profits.  .1166 
President  of  the  United  States.  .1068,  1156 
Priests;  fees  paid  to. . 1156 

Property:  salary  as  part  payment  for.  .1651,  1663 
Public  school  teachers.  .1699 
Quarters,  mileage,  expenses,  per  diem,  etc.  .1169 
Reasonable:  to  be  deductible,  must  be.  .1650,  1653,  1654 
Receivers  appointed  by  State  courts:  commissions.  .1599 
Retired  pay  of  Federal  officers.  .1156 
Retiring  allowances.  .1156,  1674 
Soldiers  and^sailors  (Army  and  Navy).  .1156,  1555 
Salaries|paid  by  employers  during  the  war.  .1674 
State  officers  and  employees.  .1699 

Certain  college  and  university  employees.  .1599 
Stockholdings  abased  on.  .1613,  1651,  1665 
Tips. . 1156 
Trustee. . 1161 
Uncollectible.  . 1814 


Copyright  1922,  by  The  Corporation  Trust  Company 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  8 


3-7-22. 


IMPORTANT— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Compromises  of  indebtedness.  . 1817 
Compromises  of  penalties.  .2632,  2648 
Computation  of  amortization  claim.  .1874 
Computation  of  depletion  . .1942,  1944,  1987 
Computation  of  depreciation.  .1841,  1848,  1861 
Computation  of  net  income.  .1046,  1049 
Computation  of  net  loss.  .1635 
Computation  of  surtax.  .724,  728 

In  case  of  sale  of  mine  or  well.  .731 
Computation  of  tax.  .710,  873,  972 

Computation  of  taxable  interest  on  U.  S.  obligations.  .1567,  1570,  1583,  3037 
Condemnation  of  real  estate  for  public  purposes.  .1257,  2034 

Deduction  of  proportionate  part  of  profit  from  compensation.  .2022 
Replacement  fund.  .1257,  2034,  2037 
Congressmen:  mileage.  . 1678 
Conservator  included  in  term  “fiduciary”.  .922 
Consolidated  returns  of  affiliated  corporations.  .2539,  2642 

Consolidation  of  accounts  of  two  or  more  related  businesses . . 2560 
Domestic  corporations  entitled  to  benefits  of  Section  262.  .2658 
Foreign  corporations.  .2547 
Forms  for  making.  .2544 

Mandatorv  for  taxable  year  beginning  prior  to  Jan.  1,  1922.  .2542 
Optional  for  taxable  year  beginning  on  or  after  Jan.  1,  1922.  .2539 
Personal  service  corporations.  .2546 
Purpose  of.  .2543 

Consolidation  of  accounts  of  two  or  more  related  businesses.  .2560 
Consolidations:  gain  or  loss  resulting  from.  .1461,  1467 
Profit  or  loss  from  subsequent  sale  of  securities.  .1477 
Constitutionality  of  Act  of  1909  “recent  cases”.  .Supplementary  Page,  138,  fS58 
Constitutionality  of  Act  of  1913:  cases  in  Supreme  Court.  .2971 
Constitutionality  of  Acts  of  1916,  1917:  cases  in  Supreme  Court.  .2994 
Constitutionality  of  Act  of  1918:  cases  in  Supreme  Court.  .3000 
Construction  of  local  benefits:  assessments  for.  .1716 
Constructive  receipt  of  income.  .1049,  1271 
As  opposed  to  accrual  of  income.  .1271 
By  decedent  prior  to  death.  .940 
Commissions  paid  salesmen.  .1162 
Consuls,  foreign.  .1595 
Contingent  compensation.  .1652 
Contracts,  canceled. . 1260 
Contracts;  long  term.  . 1180 

Contracts:  State:  independent  contractors.  .1184 
Contributions  (See  “Gifts”  at  2,  Index  Page  22.) 

Control  of  a corporation;  when  a person  is,  or  persons  are  in.  .1465 
Co-operative  associations.  .1014,  1037 
Dairies.  .1037 

Co-operative  telephone  companies.  .1014,  1037 

Co-owners  of  oil  lands.  .994 

Co-owners  of  vessels:  of  other  property . . 994 

Copyrights: 

Amounts  expended  for  securing.  .1630 
Depreciation  of.  .1834,  1849 
Determination  of  cost  of.  .1849 
Sale  of.  .1235 
Corporations.  .972 

Advertising:  trade  and  other.  .1640,  1675 
Affiliated  corporations.  .2542,  2552 

Consolidation  of  accounts  of  two  or  more  related  businesses.  .2560 
Domestic  corporations  entitled  to  benefits  of  Section  262.  .2558 
Returns  by.  .2539,  2542 
Amortization  of  war  facilities.  .1861 
Assessments  on  stockholders.  .1278 
Assignees  operating  business  or  property.  .2499 
Bonds:  sale  and  retirement  of.  .1279 
Bonus  paid  to  employees.  .1163 
Stock.  .1168,  1271,  1670 
Business  of:  scope.  .743 
Campaign  contributions.  .1675 

Cancellation  of  indebtedness  to  or  by  stockholder.  .1258 

Capital  assets:  sale  of.  .1292,  1696 

Capital  expenditures.  .1634 

Capital  stock:  sale  of  its  own.  .1276,  1635,  1696 

Capital  stock  tax:  1703,  1712 

Change  of  name.  .2498 

Charitable  contributions.  .1617,  1675 

Consolidated  returns.  .2539 

Consolidations:  profit  or  loss . . 1461,  1467 

Created  or  availed  of  to  avoid  surtaxes.  .733 

Credits  against  income.  .2056,  2067 

For  return  of  less  than  12  months  ($2,000).  .2573 
Credits  against  the  tax.  .776,  1752,  1756,  1767 
Deductions  allowed.  .1617  (See  “Deductions"  at  2,  Index  Page  12.) 
Disallowed . . 1621 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  9 


8-7-22. 

IMPORTANT.— CONSULT  THE  PINK  SHEET. 

GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Corporations. — Continued. 

Defined.  .986 

Dissolution:  distributions  on.  .1125 

Assets  distributed  followed  into  hands  of  stockholders  for  tax,  if  need  be.  .2492.  2493 
*‘)8o  * * 

Receiver  or  trustee.  .956,  1294 
Returns.  .2490,  2535,  2537 
Dividends  received  are  deductible.  .1824 

Received  from  foreign  corporations  taxable  on  their  net  income  1826 
Domestic  corporation  defined.  .2059 
| Domestic,  entitled  to  benefits  of  Section  262 . . 2070 

Affiliation  for  purposes  of  consolidated  return.  .2547.  2558 
Credit  for  taxes.  .1768 
Deductions.  . 1412 

Extension  of  time  for  filing  return.  .3032 
Gross  income.  . 1073 
Net  income.  . 1406 

Vkgineis?andseifo7C5rPOrati°n  W‘th  respect  to  income  and  profits  tax  credit.  .1768 

Earnings:  statement  of,  distributed  or  to  be  distributed  included  in  return  2508 
Employment  of  income  of.  .743 

Excess  profits  taxes  paid  to  the  United  States.  .2062 

Excess  profits  taxes  paid  to  other  jurisdictions.  .775,  776,  1734  1752 

Exempt  corporations.  .1004 

Corporation  owned  by  an  exempt  corporation . . 983 
Information  at  source  to  be  supplied  by.  .2344 
Proof  of.  . 1019 
Salaries  paid  by.  .1165 
Withholding  by.  .2228 

Expenses  deductible  or  otherwise  (See  “Expenses”  at  1.  Index  Page  18  ) 

Family..  982 

Foreign  (See  “Foreign  Corporations”  at  2,  Index  Page  19.) 

Forgiveness  of  indebtedness  by  stockholders.  .1258 
Gifts  made  by.  .1617,  1675,  2004,  2015 
Gross  income  of.  . 1073 
Holding  company.  .733,  743 

Income  taxes  paid  to  other  jurisdictions.  .776,  1702,  1752 
Income:  what  income  is  taxable.  .987 
Incorporation  fees.  .1634 

Incorporation  of  individual  or  partnership  business  within  4 months  after  Nov.  23,  1921. . 

Insurance  of  employees  (or  officers)  for  benefit  of  corporation.  .1074,  1631,  1638 

Insurance  of  employees  (or  officers)  for  benefit  of  employees.  .1168,  1348.  1639 

Interest  deductions.  .1686 

Liability  to  tax.  .987 

Limited  partnership  as  corporation . . 993 

Liquidating.  .1294,  2492,  2493,  2535,  2537 

Lobbying  expenses.  .1675 

Losses.  .1777,  1783,  1786 

Majority  of  voting  stock  of  foreign  corporation  owned.  .1762 

Mergers;  profit  or  loss.  .1461,  1467 

Net  income;  how  computed.  .1041,  1043 

Net  losses:  computation  of.  .1537 

Organization  expenses.  .1634 

Ownership  certificates  not  required.  .2265,  2318 

Responsibility  of  debtor  corporation  and  paying  agents.  .3045 
Partnership:  corporations  as  members  of.  .994 
Payment  of  taxes.  .2712 
Pension  fund:  contributions  to.  . 1674 
Personal  service  corporations  (See  1,  at  Index  Page  34.) 

Persons:  corporations  are  considered  as.  .703 

Philippine  Islands:  taxes  paid  in.  .774,  776 

Porto  Rico:  taxes  paid  in.  .774,  776 

Preferred  stock:  redemption  of.  .1277 

Principal  place  of  business.  .2536 

Public  utility  operating  State  owned  property.  .985 

Receiver  for.  .956,  1294,  2499 

Reorganizations:  profit  or  loss.  .1461,  1467 

Reserves  for  insurance.  .1646 

Returns  by ..  2487 

Accounting  period  changed.  .2573 

Consolidated  by  affiliated  corporations.  .2539,  2542 

Extension  of  time  for  filing.  .2564 

Domestic  corporations:  Special  for  calendar  year  1921  and  for  fiscal  year  ending 
Jan.  31,  1922,  or  Feb.  28.  1922.  .3041 
Domestic  corporations  transacting  business  abroad.  .3032 

Domes tic^corporations  whose  principal  income  is  from  sources,in  u.  S. (possessions 

Statement  of  current  earnings  distributed  or  to  be  distributed.  .2508 
Tentative  return  (1922).. 3041 
When  filed.  .2523,  2535 
Salaries.  .1648,  1654  j 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  10 


K 8-7-22 


IMPORTANT.- CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Corporations. — Concluded. 

Sale  of  own  stock.  .1275,  1635 
Sinking  fund:  income  from.  .1274 

Sources  within  the  U.  S.,  tax  on  income  from.  .2095,  2189 
Specific  credit  of  $2,000.  .2058,  2061,  2650 
Accounting  period  changed.  .2573,  2576 
Statement  of  current  earnings  distributed  or  ordered  to  be  distributed.  .2508 
Stockholders’  liability:  assets  distributed  on  dissolution  may  be  followed  for  corporation 
tax. .2492,  2493 

Surtax:  corporations  not  liable  to.  .717 
Tax  on.  .972,  2493 
Taxes  deductible.  . 1700 

Taxes  paid  on  stock  for  stockholders.  .1329,  1717,  1721 
Treasury  stock.  . 1275 
Trustees  in  bankruptcy.  .2499 
Undistributed  profits.  .733 

United  States  bonds:  application  of  exemptions  to  stockholders.  .1592 
United  States  bonds:  interest  on,  not  subject  to  income  tax.  .2057,  2067 
Wash  sales  of  stock.  .1789 

Withholding  at  source  against  domestic  and  foreign  resident:  none.  .2201 
Withholding  at  source  against  nonresident  foreign  corporations.  .2220 
Correction  of  returns.  .2502,  2579 
Cost: 

Basis  for  determining  gain  or  loss.  .1431 

Where  cost  cannot  be  determined.  .1437 
Goods  sold.  .1179,  1640 

Import  or  tariff  duties.  .1704,  1705 
Inventories.  .1511,  1512 

Cost  or  market.  .1612,  1516 
Patents  or  copyrights.  .1849 
Costumes:  depreciation.  .1832 
Cotton  exchanges:  incorporated.  .1034 
Cotton  exchanges  may  not  be  exempt.  .1034 

Countries  which  do  or  do  not  satisfy  income  and  excess  profit  credit  requirement.  .1787 
County  fairs.  .1020 

Gifts  to  by  certain  corporations.  .1676 
Coupons 

Constructive  receipt  of  interest.  .1272,  2234 
Exchanged  for  other  property.  .1272 
For  funding  bonds.  .2283 
Interest:  information  at  the  source.  .2354 
Joint  owners.  .2277 

March  1,  1913:  due  and  payable  prior  to.  .2234 
Matured  but  not  collected.  .1272,  2234 
Maturity  dates:  differing.  .2278 

Ownership  certificates  (See  “Ownership  certificates”  at  1,  Index  Page  32.) 

Presented  without  ownership  certificates.  .2315,  2366 
Purchased  abroad.  .2237 

Withholding  at  source  on  interest.  .2231,  2240 

(See  “Withholding  at  the  source”  at  1,  Index  Page  49.) 

Court  costs:  expenses  of  administration.  .1630 

Court  decisions  (See  Table  of  Cases  beginning  on  Supplementary  Page  116.) 

Courts,  district:  jurisdiction  of.  .2595,  2915 
Credit  against  the  tax,  for  other  taxes  paid.  .2354 

Amounts  withheld  at  the  source.  .1427,  2327,  2330 
Foreign  corporations.  .1427 
Domestic  corporations.  .1752 

Domestic  corporation  entitled  to  benefits  of  Section  262 . . 1768 
Fiscal  year  1920-1921.  .1760 

Majority  of  voting  stock  of  foreign  corporation  owned.  .1416,  1762 
Maximum  allowance.  .1753 
Estates  and  trusts:  beneficiaries  of.  .1738 
Evidence  in  support  of  claim.  .1743 
Individuals.  .1733,  1737 

Analysis  of  credit.  .1747 
Conditions  of  allowance  of  credit.  .1750 
Fiscal  year  1920-1921.  .1744 
Maximum  allowance.  .1740 

Not  allowed  to  citizens  entitled  to  benefits  of  Sec.  262.  .807,  1739 
Resident  aliens.  .1736,  1737 
Partnerships:  members  of.  .807,  1738 
Personal  service  corporations:  stockholders.  .851 
Porto  Rico  and  Philippines:  individuals  and  corporations.  .776,  776 
Redetermination  of  tax  when  credit  proves  incorrect.  .1761 
Credit  allowed  corporations  against  income.  .2066 
$2,000  if  income  is  $25,000  or  less.  .2058 

Over  $25,000  but  less  than  $25,200.  .2061 
For  return  for  less  than  12  months.  .2573 
Apportioning  on  change  of  accounting  period.  .2573,  2676 
Consolidated  returns  of  affiliated  corporations.  .2550 
Domestic  insurance  companies.  .1754 
Excess-profits  tax  (U.  S.) . .2062 
Fiscal  year  1920-1921.  .1760 
F oreign, corporations . .1415,  2067 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  11 


3-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Credit  allowed  individuals  against  income.  .2038 
Beneficiaries  of  estates  and  trusts.  .917 
Dividends.  .2039 

Exception  in  the  case  of  dividends  from  certain  Porto  Rican  and  Philippine  corpora- 
tions. . 775 

Foreign  corporation  dividends.  .1826,  2041,  2358 
Estates  and  trusts.  .919 
Interest  on  United  States  bonds.  .2042 
Net  loss  of  preceding  year.  .1542 
Nonresident  aliens  .2175,  2176 
Allowed  conditionally.  .2177 
Partnerships:  members  of.  .806 
Specific  exemption.  .2044 

Surtax:  these  credits  not  applicable  to.  .714,  2043 
Credit  because  of  overpayments.  .2598,  2825 

Claim  essential  for  allowance  of  interest,  if  any.  .2854 
Claim  essential  to  right  to  bring  suit.  .2882,  2887 
Claim  to  be  made  within  4 years  generally.  .2827 

Claim  to  be  made  within  5 years  where  examination  of  return  is  involved.  .2826 
Exception.  .2850 
Interest  on.  .2854 
Credit  unions . . 1 028 
Criminal  prosecutions.  .2630 
Crop  losses.  .1196 
Crop  shares.  .1188 

Crops  taking  more  than  year  to  produce.  .1188,  1195 
Customs  duties.  .1704,  1705 

Cyclone  insurance  companies,  mutual.  ,1014,  1037,  1353 
Dairies,  cooperative,  1038 
Damages  paid:  when  deductible.  .1057 
Damages  received:  injuries  or  sickness.  .1552,  1555 
Dealers  in  securities:  inventories.  .1521 
Banks  as.  . 1522 
Death  during  taxable  years: 

Payment  of  tax;  penalty.  .2725 

Personal  exemption  and  allowance  for  dependent.  .2054 

Tax  to  be  determined  and  assessed  within  one  year  after  request  by  executor.  .2753 
Debtor  defined.  .2259 

Debts:  bad.  .1806  (See  “Bad  debts,”  at  3,  Index  page  3.) 

Forgiveness  of.  .1258 
Recoveries.  .1260,  1811 
Decedent 

Appreciation  in  value  of  assets  prior  to  death.  .941 

Assessment  of  taxes  on  income  received  during  lifetime.  .2747,  2763 

Basis  of  determining  gain  or  loss  on  sale  of  assets  of  estate  of.  .941 

Constructive  receipt  of  income  prior  to  death.  .940 

Creditor  of:  bad  debts.  .1814 

Death  between  March  1,  1913,  and  October  3,  1913.  .942 
Delay  in  payment  of  tax.  .2725,  2727 
Dividends  declared  prior  to  death . . 940 
Dividends  earned  and  accumulated  during  his  life.  .903 
Interest  accrued  prior  to  death.  .940 

No  deductible  loss  to,  through  divesting  of  property.  .1783 
Property  of,  passing  to  executor.  .875,  941 
Return  of  income  to  time  of  death.  .939,  954,  2055 
Specific  exemption.  .875,  939,  2055 

Decisions  of  Courts  (See  Tables  of  Cases  beginning  on  Supplementary  Page  115.) 

Decisions  of  Commissioner:  limitation  on  review  thereof.  .2866 
Declaration  of  intention  to  become  citizen:  effect  on  citizenship.  .511 
As  proof  of  residence.  .519 
Declaration  of  dividend  is  not  a distribution.  .850 
Declaration  of  termination  of  taxable  period.  .2325 

Deduction  of  tax  at  the  source  (See  “Withholding  at  the  source”  at  1,  Index  Page  49.) 
Deductions  . 1615 

Allocation  of  to  particular  source.  .732 
Nonresident  aliens.  .2169 
Amortization  allowance.  .1860 
Bad  debts.  .1806 

Cash:  deductions  not  necessarily  actual  cash  disbursements.  .1046 
Charges;  when  deductible.  . 1057 
Charitable  contributions.  .2001 

Corporations.  .1617,  2001,  2003,  2015 
Other  gifts  by  corporations.  .1675 
Estates  or  trusts . . 898,  2003 
Individuals.  .2001 
Partnerships.  .786,  2004 
Personal  service  corporations.  .841 
Citizen  entitled  to  benefit  of  Section  262.  .2162 
Compensation  for  loss:  deduction  of  part  of  profit.  .2022 
Corporations.  .1617 
Depletion.  .1881,  1944,  1947,  1986 

Depreciation  of  improvements  of  wells,  mines,  etc.  .1881,  1973,  1980,  1991 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

index  Page  12 


8-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  arc  to  paragraph  numbers. 


Deductions. — Concluded. 

Depreciation . .1827 

Improvements:  mines,  wells,  timber  properties.  .1881,  1973,  1980,  1991 
Disallowed . . 1620 

Dividends  by  corporations.  .1824  

Exception  in  the  case  of  certain  Porto  Rican  and  Philippine  corporations.  .774 
Foreign  corporation  dividends.  .1826,  2758 
Domestic  corporations  entitled  to  benefits  of  Section  262.  .1412 
Estates  and  trusts.  .896,  897,  910 
Depreciation.  .910 
Losses  .910 

Excess  profits  taxes  paid  to  foreign  countries.  .1699,  1702 

Expenses.  .1618 

Farmers.  .1195,  1196,  1197 

Foreign  corporations.  .1412 

Apportionment  and  allocation  of.  .1412,  1414 
Foreign  steamship  companies.  .2099 
Income  taxes  paid  to  foreign  countries.  .1699,  1702 
Individuals . . 1615 
Inheritance  taxes.  .1726 
Insurance  companies.  .1351,  2989,  2990 
Interest  payments.  .1684 
Items  not  deductible.  .1620 
Life  insurance  companies.  .1316 
Losses  . .1776,  1783 

Net  losses  deducted  from  net  income  of  succeeding  years.  .1542 
Nonresident  aliens.  .2123,  2130,  2162 
Allowed  conditionally . .2177 

Prior  years  inadequate  (invested  capital  having  been  decreased);  claims  for  refund.  .2850 
Rents  and  rentals.  .1681 
Salaries.  . 1648 
Taxes..  1697 

Default  in  installment  or  deferred  payments.  .1237,  1240,  1249,  1250 
Deferred  payment  plan  sales  on.  .1237,  1240,  1245,  1249,  1250 
Deficiency  in  tax  payments  made.  .2599,  2603,  2726 

Appeals  on  notice  of  contemplated  further  assessment.  .2757,  2758 
Due  to  fraud.  .2601,  2603 
Due  to  negligence.  .2600,  2603 
Extension  of  time  for  paying.  .2604,  2608 
Deficit  of  one  year:  effect  on  next  year.  .1057,  1542 
Definitions.  (See  “Terms  defined’’  at  1,  Index  Page  46.) 

Demand  for  tax.  .2730 

First  installment.  .2728 

Dependents:  specific  exemption  on  account  of.  .2051 

None  for  nonresident  aliens  or  for  citizens  entitled  to  benefits  of  Section  262.  .2175 
Depletion  of  mines,  oil  and  gas  wells,  and  timber.  .1881,  1944,  1947,  1986 
Charges  to  capital  and  expense.  . 1970,  1972,  1989,  1990 
Combined  holdings  of  oil  and  gas  wells.  .1947 
Corporations.  .1882 

Depreciation  of  improvements.  .1881,  1973,  1980,  1981 
Determination  of  fair  market  value.  . 1929,  1934,  1993 
Discovery  after  March  1,  1913.  .1885,  1918,  1957 
Effect  to  be  given  to,  in  computing  gain  or  loss.  .1783 
Forms,  special ..  1982 

Gross  income:  depletion  in  connection  with.  .1179 
Lessor  and  lessee:  aportionment.  .1891,  1911 

But  not  under  prior  Acts.  .Supplementary  Page  138,  KS60. 

Maximum  depletion  allowance.  .1887,  1904 
Net  losses:  in  connection  with.  .1929,  1934,  1993 
Reserve:  dividends  from..  1126 
Statements,  special.  .1953,  1956,  1992 
Stockholder  may  not  claim.  .1895 
Timber.  .1980,  1985 
Depositors’  guaranty  fund.  .1647 
Deposits  in  banks: 

Constructive  receipt  of  interest.  .1272 
Interest  payments  on,  are  deductible.  .1690 
Nonresident  aliens.  .2191,  2197 
Release  of  tax  withheld  from  interest.  .2199 
Withholding  tax  on  interest  not  required.  .2191 
1 \ Depreciation.  .1827 

* » Amortization  vs.  depreciation ..  1864 

Apartment  houses;  court  decisions.  .1845 
Automobiles.  .1844 

Capital  sum  recoverable  through.  .1840 
Charging  off  on  books.  .1851 
Closing  depreciation  account.  .1859 
Clothing:  private  and  professional.  .1832 
Copyrights.  .1834,  1849 
Corporations.  .1829 
Costumes.  .1822 
Court  case.  .1845 
Defined.  .1832 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  13 


C 3-7-22. 


IMPORTANT.-CONSULT  THE  PINK  SHEET. 

GENERAL  INDEX. 

G‘c  references  are  to  paragraph  numbers. 


Depredation. — Concluded. 

Drawings.  . 1850 

Effect  to  be  given  to  in  computing  gain  or  loss  1437  1783 

Farms' ^nTflrme'rs.^lioS,  im”8  ‘ ^ °f  prop«rty  ■ • lbs6«  1629-  1642 

Franchises. . 1834 

Fruit  trees.  . 1209 

Furniture  in  home.  .1832 

Good  will.  .1834 

Gross  income:  depreciation  in  relation  to.  .1179 
Improvements  to  mines,  wells,  timber  holdings  1881  1882 
Income  determining  factor.  .1042  ’ 

Intangible  property.  .1834 

Inventories:  depreciation  does  not  apply  to.  1832 

Land  apart  from  buildings  thereon . . 1832 

Lessees"**  buildings  acquired  for  lump  sum.  .1840,  1841 

1 mpro vemen ts : mines,  wells,  timber.  . 1891,  1973,  1980,  1991 
tv.t  ij  prior  Acts.  .Supplementary  Fage  138  1JS60 
New  buildings  built  on  leased  ground  1683  ' 

Licenses.  .1834 

Life  estate  or  terminable  interest.  914 

Machinery ..  1844 

March  1,  1913  valuation.  .1828 

Market  values:  change  in.  .1848 

Method  of  computing.  .1841,  1848,  1851 

Mines:  improvements.  . 1881,  1980 

Models.  . 1850 

Nonresident  aliens.  .2162 

Patents.  .1834,  1849 

Permanent  discontinuation  of  use  of  property  1859 
Property  subject  to.  .1832 

Rates  for  computing.  .1842 
Rental  value:  loss  of  or  increase  of  1848 
Reserve:  dividends  from.  .1126 
Residence:  taxpayer’s  own.  . 1832 
Secret  processes  or  formulae.  1834 
Securities.  .1802,  1818,  1835 
Dealers  in ..  1521 

Shifts:  working  plant  in  two  or  more.  .1847 
Stock  in  trade:  depreciation  does  not  apply  to  1832 

Timber:  improvements.  . 1881,  1980  P * 

Trade  brands.  . 1834 
Trademarks.  . 1834 
Trees.  . 1209 

Useful  value:  loss  of.  .1801 
Wells,  oil  and  gas:  improvements.  .1881,  1980 
Descent:  amounts  received  by.  .1454,  1558 

Life  estate  or  terminable  interest:  deductions.  .914 
No  deductible  loss  to  decedent.  .1783 
Devise:  amounts  received  by.  .1454,  1558 
No  deductible  loss  to  decedent.’.  1783 
DUcount-annUlty  payments  charged  upon  devised  land.  .1261 

Bonds  issued  or  retired  at.  . 1279  1696 
Capital  stock  sold  at.  . 1275,  1686 
FjOIl^ajll:,i?come  and  caPital  account.  .1217 
Method  of  handling  by  banks.  .1052 
Notes:  accounting  for  proceeds.  . 1178 
Discovery  of  mine  or  oil  or  gas  well.  .1885,  1918,  1967 
Disposition  (See  ‘Gain  or  Loss”  at  1,  Index  Page  22.) 

Dissolution  of  corporation:  receiver  or  trustee.  .956,  1294 
Distribution  of  assets.  .1125,  2492  2493 

Returns.  .2490,  2535,  2537 
Dissolution  of  partnership.  .1490 
Distraint:  collection  of  tax  by.  .2779 

Long  since  dissolved  corporation.  .2535 
tv  Property  subject  to,  for  tax:  nonresident  aliens.  .2188 
District  courts:  jurisdiction  of.  .2595 

tv  Suits  against  U.  S.  for  refund  of  taxes  paid  to  deceased  collector  291  s 
District  of  Columbia  included  in  “United  States”  1399  c .2915 

Bonds  of:  interest  on.  .1560,  1564 
Income  accruing  to.  . 1596 
Salaries  of  employees  of . .1068 
Ditch  companies,  mutual.  .1014,  1037 
Dividends.  .1077 

Actual  vs.  record  owner.  .1083 

A s m c o me ° " 1 07 0,"  108 1 * Capital  assets;  capitalizing.  .1104,  1127 
For  year  in  which  paid . . 1081 

Bank  stock:  taxes  paid  for  stockholders  by  bank.  .1717.  1719 
Banks  may  not  declare  stock  dividends  lawfully.  .1144  ’ 

Beneficiaries:  dividends  received  through  fiduciaries.  .718 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  14 


8-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Dividends. — Concluded. 

Compensation:  dividend  in  lieu  of.  .1651,  1663 
Constructive  receipt  of..  1272 

By  decedent  prior  to  death.  .940 
Corporations:  received  by.  .1824 

Return  of  payments  by  paying  corporation.  .2378 
Credit  for  normal  tax.  .2039 
Beneficiaries.  .917 

Dividends  from  certain  corporations  taxed  in  Porto  Rico  or  the  Philippines  excepted. . 
775 

Estates  and  trusts.  .919 
Foreign  corporation  dividends.  .2041,  2368 
Nonresident  aliens.  .2176 
Not  applicable  to  surtax.  .712,  2042 
Partnerships:  members  of.  .806 
Personal  service  corporations:  stockholders  of.  .861 
Decedent:  constructive  receipt  of  prior  to  death.  .940 
Decedent:  earned  and  accumulated  during  life  of.  .903 
Declaration  of,  is  not  distribution  of.  .1080,  1082,  1266 
Deductible  by  corporations.  .1824 

Foreign  corporation  dividends . . 1826 
Depreciation  or  depletion  reserve:  dividends  from.  .1126 
Dissolution:  distribution  in.  .1125 
Federal  Farm  Land  Bank  stock.  .1565 
Federal  Reserve  Bank  stock.  .1566. 

Federal  Reserve  Member  Bank  stock.  .1566 
First  60  days  of  year  and  subsequently.  .1106 
Foreign  corporations:  dividends  of.  .1826,  2041,  2358 
Good  will:  capitalizing.  .1104,  1127 
Information  at  the  source.  .2350,  2358,  2378 
Interest  on  indebtedness  to  purchase  or  carry.  .1689 
Leased  line  certificates.  .1218 
Liberty  bonds  distributed  as  dividends.  .1085,  1110 
Valuing  the  dividend.  .1096 
Life  insurance  policies:  paid  up.  .1251 
Otherwise . . 1554 

Liquidating  dividends.  .1114,  1119,  1125,  1127 
March  1,  1913:  accrued  prior  to.  .1611 
March  1,  1913:  from  prior  earnings.  .1112 
March  1,  1913:  from  subsequent  earnings.  .1077 
National  Farm  Loan  Associations.  .1566 

Nonresident  aliens:  dividends  as  income.  .2110,  2126,  2133,  2168 
Personal  service  corporation:  when  distribution  by,  is  a dividend.  .1078,  1109 
Private  banks;  income  from  as  dividends.  .1098 
Property:  dividends  paid  in.  .1084 
Rates  at  which  taxed.  .1108 
Record  vs.  actual  owner.  .1083 
Rental:  dividends  in  lieu  of.  .1293 
Scrip  dividends.  .1084 
Interest  on.  .1690 

Sixty  days  of  taxable  year,  distributions  during  first.  .1105 
Subsequent  thereto.  .1106 

Source  of  distribution;  presumption  as  to.  .1104,  1110 
State  securities,  interest  on:  distributed  as  dividend.  .1080 
f Stock  dividends.  .1127 

Allocation  to  different  years.  .890 
Capital  net  gain.  .1503 

Cash  and  stock  dividend  simultaneously;  allocating  surplus  involved.  .1133 

Cash  dividend  declared  but  payment  in  corporation’s  stock. by  agreement.  .1145 

Cash  dividend  under  agreement  that  proceeds  be  invested  in  stock.  .1132 

Cash  dividend  with  option  to  buy  stock  with  proceeds.  .1131 

Declaration  and  subsequent  redemption.  .1151 

Macomber  vs  Eisner  case.  .Supplementary  Page  173,  U S244 

National  banks  may  not  lawfully  declare.  .1144 

Received  by  trust  estate  with  life  tenant  to  whom  such  dividend  is  distributable. . 3010 
Sale  of  stock:  basis  for  determining  gain  or  loss.  .1135,  1136,  1141 
Towne  vs.  Eisner  case.  .Supplementary  Page  137,  HS54 
Under  former  acts.  .1128 

What  constitutes  a true  stock  dividend.  .1128 
Stock  of  another  company:  dividends  paid  in.  .1084,  1134 
Stock  trust  certificates.  .1218 

Subsidiaries:  dividends  guaranteed  by  holding  company.  .1634 
Surplus  and  undivided  profits  as  source  of.  .1104 

When  United  States  bonds  are  distributed.  .1110 
Tax-free  dividends.  .1104,  1112 

Effect  of,  on  sale  of  stock.  .1114 
Withholding  at  source:  none  in  any  case.  .2200 
Domestic  corporation  and  partnership  defined.  .2059 

Domestic  corporation  entitled  to  benefits  of  Sec.  262.  (See  “Corporations",  at  1,  Index  Page  10.) 
Domicile;  nonresident  aliens.  .754 
Donations  (See  “Gifts”  at  2,  Index  Page  22.) 

Drainage  districts:  assessments  for.  .1716 
Interest  on  bonds  of.  .1564 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  15 


8-7-22. 


IMPORTANT.  - CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Drawings  and  models:  depreciation.  .1849,  1850 
Dwelling  house: 

Depreciation . . 1832 

Minister  of  gospel,  rental  value.  .1604,  1608 
Rent  as  deductible  expense.  . 1622 
Dry  goods  dealers:  inventories.  . 1525 
Due  date,  last:  of  returns.  .2538 
Duties:  import  or  customs  .1704,  1705 

Educational  purposes:  gifts  on  account  of.  .2001  (See  "Gifts”  at  2,  Index  Page  22.) 

Corporations  organized  for.  .1010,  1030 
Effective  date  of  the  Revenue  Act  of  1921.  .3005 
Income  tax  title.  .3004 
Emancipation  of  a minor.  .957 

Embezzlement,  loss  from:  when  deductible.  .1057,  1786,  1788 
Eminent  domain:  transfer  of  property.  .1257,  2034,  2037 
Employees;  association  of,  as  insurance  company.  .1348 
Employees,  insurance  of:  by  corporation.  .1168,  1348 
For  direct  benefit  of  employer  as  beneficiary.  .1631 
Employers:  duty  in  connection  with  withholding  the  tax.  .2190,  3022 
Duty  to  determine  status  of  alien  employee.  .760 
Endowment  contracts.  .1251,  1554,  1555 
Engineering:  personal  service  corporation.  .828 
Equipment  of  army  officers.  .1623 
Equipment  trust  certificates.  .1691 
Trustees:  status  of.  .1692 
Equity:  bill  in,  to  enforce  tax  lien  .2781 
Estate  taxes  paid.  .1697,  1726 
| Estates  and  trusts.  .873,  910 

Basis  for  determining  gain  or  loss  on  sale  of  decedents’  estate.  .941 

Beneficiary,  ultimate;  being  a person  exempt  from  tax.  .879,  880 

Capital  expenditures  vs.  expense.  .1630 

Capital  net  gain.  . 1507 

Car  and  equipment  trusts.  .1692 

Charitable,  etc.,  gifts  provided  for  by  will  or  deed.  .898,  2004 
Credits  allowed  to.  .919 
Deductions  allowed.  .896,  898,  910 

Allowed  estate  but  denied  to  beneficiary  by  law  of  local  jurisdiction.  .914 
Depreciation  sustained  by:  bearing  on  taxable  income  of  beneficiaries.  .910 
Estate  during  period  of  settlement.  .874,  878 
Completion  of  administration.  .954 
Period  of  administration  or  settlement  defined.  .875 
Estate  taxes  paid.  .1726 
Expenses  of  administration.  . 1630 
Income  accumulated  in  trust.  .876,  878 

Accumulated  or  distributed  in  discretion  of  trustee.  .879 
Income  collected  by  guardian  for  infant.  .889 
Income  distributable  to  beneficiaries.  .889,  910 
Income  held  for  future  distribution.  877,  878,  910 
Income  of;  how  computed.  .896,  900 
Inheritance  taxes  paid.  .1726 

Insane  or  insolvent  persons:  delay  in  payment  of  tax.  .2725,  2727 

Insurance,  proceeds  of:  received  by  estate  of  insured.  .1553,  1557 

Law  provisions  applicable  to  individuals  apply  to  estates  and  trusts . . 966 

Legatees:  amounts  paid  or  credited  to  during  administration.  .891,  899 

Liability  to  tax  as  entities  under  the  1913  Act.  .3048 

Liability  to  tax  follows  the  estate.  .888 

Life  estate  or  terminable  interest;  amortization  of.  .914 

Losses  sustained  by:  bearing  on  taxable  income  of  beneficiaries.  .910 

Net  income.  . 896 

Net  losses:  allowance  to  beneficiaries.  .1546 

Partnership  regulations  applicable  to  estate  or  trust  taxed  to  beneficiaries.  .894 
Profit  sharing  or  stock  bonus  plan  for  employees.  .968 
Returns . . 928,  939 

Death  of  decedent  or  termination  of  trust.  .954 
Guardian  or  committee.  .958 
Minor.  .957 

Nonresident  alien  beneficiary.  .960 
Receiver.  .956 
Two  trusts.  .955 

Residuary  legatee  a person  exempt  from  tax.  .879,  880 

Stock  dividend  received  by  trust-estate  with  life-tenant  to  whom  such  dividend  is  dis- 
tributable. .3010 

Tax  not  paid  by  fiduciary . . 890,  912 

Tax  paid  by  fiduciary.  .878,  910 

Taxable  year  differing  from  that  of  beneficiary.  .893 

Termination  of  trust.  .954 

Two  trusts:  same  creator:  different  creators.  .965 
Unit;  estates  and  trusts  which  cannot  be  treated  as.  .910 
United  States  bonds:  application  of  exemptions.  .1587 
Examination  of  books,  papers,  and  persons.  .2593,  2711 
Unnecessary  examination.  .2594 
Excess  profits  tax:  persona  1 service  corporation.  .843 
Credit  to  stockholders.  .851 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  16 


S-7-22. 


IMPORTANT— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  arc  to  paragraph  numbers. 


Excess  profits  taxes  paid  to  other  jurisdictions.  . 1734-1758 

Affiliated  domestic  and  foreign  corporations.  .17b2,  1 Ibl  

Countries  which  do  or  do  not  satisfy  the  similar  credit  requirements  in  case  of  resident 
aliens..  1737  , 

Estates  and  trusts:  beneficiaries  of.  .1738 
Fiscal  year  ending  in  1921.  .1744 
Foreign  corporations.  .1416,  1762 

Limitation  on  amount  of  credit. . 1740  ...  c.  , .. 10Ko 

Not  allowed  to  citizen  or  corporation  entitled  to  the  benefits  of  Section  262.  .1268 
Partnerships:  members  of.  .807,  1738 
Personal  service  corporations:  stockholders  ol.  .851 
Porto  Rico  and  the  Philippines.  .775.  776,  1733 
Excess  profits  taxes  paid  to  possessions  of  the  United  States: 

As  a credit.  .775,  776,  1734 

Affiliated  domestic  and  foreign  corporations.  .1762 
As  a deduction.  .1699,  1703 
Excess  profits  taxes  paid  to  the  United  States: 

Credit  to  corporations  for  income  tax  purposes . . 2062 
Fiscal  years.  .2063,  2066 
Not  deductible.  .1698,  1703 
Excessive  compensation.  .1653,  1661,  1662 
Exchange  of  property  for  other  property.  .1456,  1474,  1480 
Consolidations,  mergers,  or  reorganizations.  .14b2 
Farm  produce  for  merchandise,  etc.  .1187 

For  different  kinds  of  property.  .1480  ....  , , ..on 

For  property  of  no  market  value,  together  with  property  having  market  value..  1480 
For  property  having  readily  realizable  market  value.  .14oi,  1459 
No  gain  or  loss  in  certain  cases.  .1459 
For  property  of  like  kind  or  use.  .1460,  1467 
For  stock  of  corporation.  .1463,  1469,  1473 
Held  for  investment  for  like  property.  .1460,  1467 
No  gain  or  loss  resulting.  . 1466 
Other  property  and  money . . 1482 
Other  than  stock  in  trade  for  likejproperty . .1460 
Subsequent  sale:  gain  or  loss.  . 1474 
Exchanges  as  exempt  organizations.  .1034,  103/,  1U3B 
Excise  taxes  deductible.  .1704,  1710,  1711 
Executor: 

Commissions.  . 1630  . 

Delivery  of  property  to  legatee  in  kind.  .875 
Included  in  term  fiduciary . . 922 
Liability  to  pay  attaches  to  person.  .888 
Property  passing  to,  from  decedent.  875 
Return  for  decedent  to  time  of  death.  .939,  954 
Exempt  income.  .1550 

Damages:  payments  on  account  of.  .1552 
Farm  loan  securities:  income  from.  .1561,  1565 
Gifts,  bequests,  etc.  .1558 
Government  bond  interest.  .1562,  1567,  1583 
Insurance. .1552-1557 

Nonresident  aliens.  .2097,  2098  , 

Return  of . .1651  , 

State  securities;  interest  and  discount  on  .1560,  15b4 
War  Finance  Corporation  bonds:  interest  on.  .1563,  15b7,  156b 
War  Risk  Insurance  and  Vocational  Rehabilitation  allowances,  .looo 
Exempt  organizations . . 1 004 

Corporation  owned  by.  .983 

Foreign  corporations.  .1402 

Information  at  source  to  be  supplied.  .2344 

Insurance  companies.  .1349 

Proof  of  exemption.  .1019 

Salaries  paid  by.  .1165 

ExeSndSst^'h^s^rce'ifee  -Withholding  at  the  source”  at  1,  Index  Page  49.) 
Exemption  for  dependents.  .2051 

Death  during  taxable  year.  .2054  ..  ORO  „17c 

Nonresident  aliens  and  citizens  entitled  to  the  benefits  of  Section  262.  .-175 

Status  on  last  day  of  taxable  period  governs.  20o3  ....  _ lfi1„ 

Exemption  from  tax  on  proceeds  of  sale  of  vessels  under  certain  conditions.  ,lbl3 
Exemption,  personal: ,2044 

Death  during  taxable  year.  .2054 
Estates  and  trusts  taxed  as  entities  . .919 

May  be  claimed  at  source  (tax-free  covenant  bond  interest) . .2252 
Nonresident  aliens  and  citizens  entitled  to  benefits  of  Section  262.  ,21fo 
May  be  claimed  at  source  by  non-resident  alien.  .2179,  2254 
Status  on  last  day  of  taxable  period  governs.  .2053 
Exemption,  specific  (See  “Specific  exemption  at  1,  Index  Page  42.) 

Exhaustion  of  property  (See  “Depreciation”  at  1,  Index  Page  13.) 

Expatriation,  presumption  of . .751 
Expense  vs.  capital  account.  .1055,  1628,  1630 

(See  “Capital  expenditures  vs.  expense”  at  1,  Index  Page  6.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  17 


8-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


1 Expenses:  deductible  or  otherwise.  .1618,  1623,  1640 
Advertising.  . 1640,  1675 
Alimony.  .1623 

Allowance  or  wages  to  own  children.  .1623 
Architect’s  services.  .1630 

Attorney’s  fees  and  costs  in  connection  with  claims  for  refund,  etc  1709 
Bonds  retired  for  amount  in  excess  of  issuing  price.  .1279  1696 
Business.  .1640  • ' 

Capital  stock:  sale  of  its  own  by  a corporation.  .1635,  1696 

Commissions  paid  in  purchasing  securities.  . 1630 

Commissions  paid  in  selling  securities.  . 1630 

Commuters’  fares.  .1625,  1678 

Compensation  for  personal  services.  . 1648 

Copyright  and  plates.  .1630 

Corporations.  . 1620 

Depositors’  guaranty  fund.  . 1647 

Experimental  expenses.  .1489 

Family  expenses.  .1622 

Farmers.  . 1195 

Fire  insurance  on  own  house.  .1623 
Import  or  tariff  duties.  .1704,  1705 
Insurance:  business.  . 1640,  1645 
Interest.  . 1684 

Leaseholds:  purchase  of ..  1683 
Life  insurance  on  own  life.  .1623 
Living  expenses.  .1622 
Lobbying  expenses.  . 1676 
Management:  expenses  of ..  1640 

Ordinary  and  necessary  business  expenses  deductible  from  income  from  whatever 
source . . 1640 

Organization  expenses  of  a corporation.  . 1634 

Personal  expenses.  . 1622 

Professional  man.  . 1623, 1643 

Public  utilities.  .1632 

Railroads.  . 1633 

Rent  and  rentals.  .1681 

Repairs.  .1642 

Salaries.  .1643,  1654 

Sample  room:  use  of.  .1678 

Selling  expenses.  .1179,  1640 

Separation  agreement:  amounts  paid  under.  .1623 
Soldiers  and  sailors.  .1623 
Tariff  duties.  .1704,  1705 
Title:  cost  of  perfecting  or  defending.  .1630 
Traveling  expenses.  .1624,  1678 
Wages.  .1648,  1654 
Experimental  expenses.  .1849,  1850 

Exploration  work  alone:  in  connection  with  sale  of  mine  or  well.  .731 
Extension  of  time  for  filing  returns.  .2562 
By  collector.  .2562 
By  commissioner.  .2563,  2565 

Corporations;  special  for  calendar  year  1921  or  fiscal  year  ending  Jan.  31  or  Feb.  28,  1922 . . 

8041 

Domestic  corporations  transacting  business  abroad  or  whose  income  is  derived  from  sources 
within  U.  S.  possessions.  .3032 
Effect  on  tax  payments.  .2722 
Foreign  corporations.  .3032 
Foreign  partnerships.  .3032 

Information  re  tax  paid  at  source;  special  for  calendar  year  1921.  .3044 
Interest.  .2724 

Partnership,  personal  service  corporations  and  fiduciaries  for  1922  3009 

Persons  abroad.  .2563,  3032 
Persons  in  military  or  naval  service.  .3032 
Extension  of  time  for  paying  tax.  .2722 
Payment  of  deficiency.  .2604,  2608 
Fac-simile  signature  on  certificates  of  ownership.  .2273 
On  substitute  certificates.  .2314 
Failure  to  make  return.  .2612,  2618,  2623,  2625,  2627,  2628 
Fair  market  value: 

Accrual  of  income  prior  to  March  1,  1913;  determination  of  gain.  .1611 
Basis  for  determining  gain  or  loss  from  sale.  .1437,  1455 
In  connection  with  sale  of  gifts  and  bequests.  .1453,  1454 
March  1,  1913.  .1437 

In  case  of  stock.  . 1445 
Sale  of  stock.  .1219 
Fairs:  contributions  to.  . 1020 
False  returns.  .2577,  2601,  2612,  2620,  2627,  2628 
No  limitation  on  collection  of  tax.  .2754 
Refunds  and  suits  in  case  of.  .2881 
Family  corporation . . 982 
Family  expenses.  .1622 
Farm  loan  associations.  .1017 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  18 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


1 Farms  and  farmers ..  1 186 

Agricultural  and  horticultural  organizations  that  are  not  exempt.  .1020 

Capital  expenditures.  .1195 

Depreciation.  .941,  1844 

Expenses.  .1195 

Gross  income  .1186 

Inventories  . 1192 

Losses.  .1196 

Pleasure:  farms  run  for,  at  continual  loss.  .1186,  1189,  1191,  1196,  1197 
Farmers’  associations  acting  as  sales  or  purchasing  agents.  .1015,  1038 
Farmers’  mutual  hail,  cyclone  or  fire  insurance  companies.  .1014,  1037 
Federal  employees:  salaries  of.  .1068,  1156 
Pensions  or  retiring  allowances.  .1156 
Quarters,  mileage,  subsistence,  etc.  .1169 
Federal  Farm  Loan  Bank: 

Exemption . . 1017 
Securities  of.  .1561 
Federal  land  banks.  .1017 
Securities.  .1561,  1565 

Federal  Reserve  Banks:  dividends  on  stock.  .1556 
Federal  taxes  deductible.  .1698,  1703-1716 
Fees : 

Architects.  .1630 

Attorneys:  administration  of  estate.  .1630 
Capital  expenditure  .1634 
Automobile  license.  .1703 
Incorporation . . 1634 
Marriage.  . 1156 
Notary  public.  .1599 
Fidelity  bond:  premium  on ..  1644 

Fiduciaries:  returns  by  (See  “Returns  by  Fiduciaries”  at  1,  Index  Page  38.) 

Fiduciaries:  taxes  to  be  paid  by.  .878 

Liability  attaches  to  person  of  fiduciary.  .888 
Fiduciary  defined.  .922 

“Agent”  vs.  “fiduciary”.  .924 

Committee  of  property  of  incompetent.  .923,  958 

Estate  or  inheritance  taxes  paid.  .1726 

Extension  of  time  for  filing  returns  for  year  1921.  .3009 

Foreign  fiduciaries.  .961 

Information  at  the  source:  returns  of.  .2336 

Law  of  individuals  applicable  to  fiduciaries.  .966 

Liability  for  payment  of  tax.  .878,  888 

Ownership  certificates  to  be  used  by  fiduciaries.  .965,  2310,  2317 
Power  of  attorney.  .924 
Withholding  at  the  source.  .2190 
Final  determinations  and  assessments.  .2862 
Final  returns.  .2489,  2535,  2537 
Fire  insurance  companies,  mutual.  .1014,  1037 
Fire  insurance  companies;  unearned  premium  fund.  .1353 
Fire  insurance  on  own  house.  . 1623 
Fire  losses  compensated  for.  .989,  2022,  2037 
Fire  losses  deductible.  .1777-1783 
First  taxable  year . . 1063 
Fiscal  year  1920-1921: 

Apportionment  of  net  loss.  . 1548 
Computation  of  tax.  .861,  870 
Credits.  .871 

Against  income  for  U.  S.  excess-profits  tax . . 2063 
Credits  against  tax  for  other  taxes  paid.  . 1744,  1758 
Corporations.  .1760 
Partnerships . . 808 

U.  S.  bond  interest  exemption.  .1589 
Fiscal  year  1921-1922: 

Computation  of  tax.  .865,  872 

Credit  against  income  for  U.  S.  excess-profits  tax.  .2066 
Partnerships.  .808 
Personal  service  corporations.  .840 
Fiscal  year  defined.  . 1062 

Change  to  calendar  or  to  other  fiscal.  .1065,  2567,  2574 
Differing  in  case  of  affiliated  corporations.  .2548 
Must  be  definitely  established . . 1064 
Fixed  and  determinable  annual  payments.  .2202,  2343 
Foreclosure  proceedings:  status  of  bad  debt  deduction.  .1815 
Bonds  of  insolvent  corporation,  secured  by  mortgage.  .1818 
Foreign  ambassadors.  .1595 
Foreign  consuls.  .1595 
2 Foreign  corporations.  .1398 

Accounts  current:  interest  on.  .2218 
Agent  of.  .1420.  1424 
Commissions  on  sales  made  abroad.  .1087 
Consolidated  returns  not  allowed.  .2547 

Consolidation  of  accounts  with  those  of  domestic  corporation  in  certain  cases.  .2660 
Credit  for  amounts  withheld  at  source.  .1427 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  19 


8-7-22. 

IMPORTANT.—CONSULT  THE  PINK  SHEET. 

GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Forel 


!len  corporations. — Concluded. 
Credits  against  income.  . 1415,  2067 


Credits  against  tax.  .1415 
Deductions  allowed.  .1895,  1412 

Apportionment  and  allocation  of.  .1412.  1414 

Dividends  of.  .1826,  2041,  2358 

Domestic  corporation  owning  majority  of  voting  stock  1762 

Exempt  organizations.  .1071 

Exemption  claims  at  the  source.  .2225 

Extension  of  time  for  filing  returns.  .3032 

Gifts  to.  .2007 

Gross  income  of.  . 1407 

Income:  what  income  is  taxable.  .978 

Interest  deductions.  . 1396 

Interest  on  accounts  current.  .2218 

Interest  on  domestic  securities.  .2331 

Net  income  of.  .1405 

Nonresident: 

Agent  for.  . 1423 

Credit  for  tax  withheld  at  source.  .1427 
Returns  by.  .2628,  2535 
Withholding  against.  .2250 
Ownership  certificates.  .2303,  2310 
Personal  service  corporations.  .816,  826 
Principal  office  of.  .1424 
Returns  by.  .1418,  1421,  1422 

Extension  of  time  for  filing.  .3032 
Ship  documented  under  laws  of  foreign  country.  .2098 
Steamship  companies.  .2097,  2099 
Tax  on.  .1397 

Tax-free-covenant  bonds:  O.  S.  fiscal  agent.  .2250,  2362 
Taxes  deductible.  .1395 
United  States  bonds;  interest  on.  .2100 
Withholding  at  the  source.  .2220,  2231,  2246 
_ None  in  case  of  resident  corporation.  .2201 
Foreign  diplomatic  ministers.  .1695 
Foreign  fiduciaries.  .961 

No  exemption  claims  at  source.  .965 
Foreign  governments:  income  from  United  States  sources.  .1594 
American  citizens  serving.  . 1595 
Officials  of.  .1595 

Foreign  insurance  companies.  .1368,  1395,  1410 

Life  insurance  companies:  distinctive  tax  for.  .1312,  1344 
Foreign  items:  collection  of.  .2356 
Information  at  the  source.  .2356 
Branch  offices.  .2376 
License  required.  .2371 
Ownership  certificates  2361,  2362 

When  none  accompanies  item.  .2366 
Penalties.  .2373 
Returns  of  information.  .2368 

None  required  in  certain  cases.  .2357 
Source  of  information.  .2357 
Substitute  certificates  not  permitted.  .2368 
Foreign  partnerships.  .1400 

Accou-ns  current,  interest  on:  withholding.  .2218 
Extensm.i  of  time  for  filing  returns.  .3032 
Interest  on  bank  deposits.  .2191,  2199 
Ownership  certificates.  .2303 
Withholding  not  necessary  in  certain  cases.  .2196 
Foreign  steamship  companies.  .2099 
Foreign  taxes  paid . . 709 
Foreign  trade:  sales  in.  .1075 

Foreign  trade,  vessels:  resident  and  nonresident  aliens.  .756 
Forgiveness  of  indebtedness.  .1258 

Forms  and  their  uses:  (See  also  Supplementary  Page  203.) 

17 — Notice  and  demand  for  tax.  .2734 
668 — Notice  of  enforcement  of  tax  lien.  .2781 

843 — Claims  for  refund  of  taxes  and  penalties  erroneously  collected.  .2835 
843 — Claim  for  abatement  of  taxes  erroneously  assessed.  .2822 
843 — Claim  for  credit  against  future  installments  of  the  tax.  .2830 
843 — Claim  for  refund  of  tax  recovered  by  suit.  .2920 
1000 — General  use  of.  .2303 

1000 — Personal  service  corporations  in  connection  with  tax-free  covenant  bond 
interest.  .2304 

108° — Bank  receiving  coupon  without  ownership  certificate  attached.  .2315,  236< 
1000 — Registered  bonds:  no  ownership  certificate  filed  by  owner.  .2317 

1000 —  Foreign  tax-free-covenant  bond  interest.  .2361.  2362 

1001 —  General  use  of.  .2310 

J801 — Exemption  claims  by  citizens  and  residents  on  tax-free  covenant  bond  interes 
1001 — Partnership  with  member  having  personal  exemption  in  excess  of  taxabl 

income.  .2307 

1001 — Registered  bonds:  no  ownership  certificate  filed  by  owner.  .2317 
Copyright  1922,  by  7 he  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  20 


.2253 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Forms  and  their  uses. — Concluded. 

1001 A — Ownership  certificate  in  connection  with  foreign  items.  .2361,  2362 
1001A — Foreign  tax-free-covenant  bond  interest.  .2361,  2362 

1001B — Exemption  claims  by  nonresident  aliens  on  tax-free-covenant  bond  interest . .2254 
1001C — Exemption  claims  by  nonresident  aliens  on  interest  on  bonds  other  than  those 
containing  a tax-free  covenant . . 2255 
1010 — License  for  collecting  foreign  items.  .2374 

1012 — Monthly  return  of  amounts  withheld  at  source  on  bond  interest.  .2322 

1012 —  Monthly  return — foreign  items.  .2368 

1013 —  Annual  return  of  amounts  withheld  at  source  on  bond  interest.  .2254,  2322 
1013 — Annual  return — foreign  items.  .2368 

1017 — Application  for  license  for  collection  of  foreign  items.  .2374 

1040 —  Annual  return  by  individual:  net  income  of  more  than  $5,000.  .2486 
— Same:  by  minor..  957 

— Same:  by  fiduciary  for  individual  or  estate  or  trust.  .939 
— Same:  by  fiduciary  for  decedent  to  time  of  death.  .939,  954 
— Same:  by  receiver  for  individual.  .956 

— Same:  by  guardian  of  minor  or  committee  for  incompetent.  .958 
1040A — Annual  return  by  individual:  net  income  of  $5,000  or  less.  .1983 
— Same:  by  minor.  .957 

— Same:  by  fiduciary  for  individual  or  estate  or  trust.  .939 
— Same:  by  fiduciary  for  decedent  to  time  of  death.  .939,  954 
— Same:  by  receiver  for  individual . . 956 

— Same:  by  guardian  of  minor  or  committee  for  incompetent.  .958 
1040B — Annual  return  by  fiduciary  for  nonresident  alien  beneficiary.  .960 
• — Same:  by  fiduciary  for  each  nonresident  alien  beneficiary.  .960 
— Same:  by  foreign  fiduciary.  .962 
— Same:  by  alien  member  of  foreign  partnership.  .2161 
— Same:  by  nonresident  alien.  .2182 
1040F — Schedule  of  farm  income  and  expenses.  .1190 

1041 —  Annual  return  by  fiduciary  of  distributed  or  distributable  income.  .939 
— Same:  by  foreign  fiduciary.  .961 

— Same:  two  trusts.  .955 

— Same:  two  or  more  nonresident  beneficiaries . . 960 

1042 —  Annual  return  of  amounts  withheld  at  source  on  other  than  bond  interest.  .2322 

1042 — Return  of  information  covering  payments  to  nonresident  aliens  and  certain  foreign 
JE  i corporations.  .2180 

1058 —  Substitute  certificate  of  ownership:  tax  not  to  be  paid  at  source.  .2311 

1059 —  Substitute  certificate  of  ownership:  tax  to  be  paid  at  source.  .2311 
1065 — Partnership  annual  return.  .794 

1065 — Personal  service  corporation  annual  return.  .841 
1065 — Annual  return  by  receiver  for  partnership.  .956 
1078 — Certificate  for  use  by  alien  to  show  residence.  .758,  2206 
Disposition  of  by  withholding  agents.  .761,  763 
Records  thereof  to  be  made  by  employers.  .763 
Reliance  on  by  employers.  .760,  2206 
Resident  aliens  should  file  to  avoid  inconvenience.  .761 
Substitutes  for.  .760,  2206 

Use  of  is  proof  of  residence  unless  rebutted.  .756,  2206 
1087 — Disclosing  that  record  owner  is  not  actual  owner  of  stock.  .1083 

1096 —  Annual  list  return  of  information  at  the  source  (miscellaneous  payments  aggregat- 

ing $1,000) . .2343 

— Same:  by  partnerships,  personal  service  corporations  and  fiduciaries.  .2343,  3009 
1096A — Monthly  list  return  of  bond  interest  where  there  has  been  no  withholding.  .2323 
1096B — Annual  list  return  of  bond  interest  where  there  has  been  no  withholding.  .2323 
1096B — Annual  list  return  of  foreign  items.  .2368 

1097 —  Returns  of  information  relating  to  dividends.  .2379 

1099 —  Annual  slip  return  of  information  at  the  source  (miscellaneous  payments  aggre- 

gating $1,000) . .2343 

— Same:  by  partnerships,  personal  service  corporations  and  fiduciaries.  .2343,  3009 

1100 —  Returns  of  information  by  brokers.  .2381 

1114 —  Application  for  permission  to  establish  a replacement  fund  for  losses  compensated 

for.. 2037 

1115 —  Specific  exemption  claimed  at  source  by  nonresident  alien  employee.  .2180 

1116 —  Claim  for  credit  for  foreign  taxes  paid — individuals.  .1750 

1117 —  Bond  for  use  in  connection  with  Form  1116.  .1750 

1118 —  Claim  for  credit  for  foreign  taxes  paid — corporations.  .175# 

— Same:  foreign  corporations ..  1416 

1119 —  Bond  for  use  in  connection  with  Form  1118.  .1758 

1120 —  Annual  return  by  corporations  generally.  .2489 
— Same:  foreign  corporations.  .1423 

— Same:  consolidated  return  by  affiliated  corporations.  .2754 
— Same:  Insurance  companies  except  life.  .1362 

— Same:  personal  service  corporation  having  fiscal  year  ending  in  1922.  .845 
— Same:  receiver  for  corporation.  .2500 
1120L — Annual  return  by  life  insurance  companies.  .1362 

1122 —  Return  by  affiliated  corporations  in  connection  with  consolidated  returns.  .2544 

1123 —  Notice  and  demand  for  tax — 2730 

1127— Application  for  extension  of  time  for  payment  of  deficiency  in  tax.  .2730 
Forms:  table  of  current,  and  reproduction  of  (See  Supplementary  Page  203.) 

Forms  to  be  supplied  to  taxpayers.  .2501 
Foundations;  exemption.  . 1010,  1030 
Fractional  part  of  cent.  .2787 

Copyright  1922,  by  The  Corporation  Trust  Company, 

THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  2 1 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 

GENERAL  INDEX. 

Tlie  references  are  to  paragraph  numbers. 


Fractional  part  of  year:  return  covering.  .2576 

Franchises:  depreciation  on  account  of.  1834 

Fraternal  beneficiary  societies.  .1007,  1022 

£v, ™ ,ats:  certain  associations  organized  to  carry.  1034 

growers  associations  acting  as  sales  agents.  1015  1039 

Fruit  growing  organizations  .1020 

"Farms  and  farmers”  at  1,  Index  Page  19.) 

Fruit  trees,  depreciation  and  loss  by  death.  .1209 
Funds  for  certain  purposes:  exemption.  . 1010,  1030 
Furniture  in  home:  depreciation.  .1832 
| Gain  or  loss,  basis  for  determining,  on  disposition . 1431  1437  1783 
Assets  of  decedent’s  estate.  941  *'  14,1 '»  1 

Bequests . .1454 

Bonds:  sale  and  retirement  of.  .1279 
Bonus  stock.  . 1219 
Capital  assets.  . 1292 
Consolidations.  1461,  1467 
Copyrights.  . 1235 
Cost.  . 1431 

Depletion  to  be  given  consideration.  .1783 
Depreciation  to  be  given  consideration.  .1783 
Exchange  of  property  for  other  property.  . 1456,  1474  1480 
Subsequent  sale.  .1474  ’ * u 

Where  property  has  readily  realizable  market  value  1457 
No  gain  or  loss  in  certain  cases.  .1459 

Gifts: 

Acquired  after  Dec.  31,  1920.  .1449 
Acquired  before  Jan.  1,  1921  1453 

Good  will.  .1236 
Insurance  policies.  .1611 
Inventories . . 1432 
Mergers . . 1461,  1467 

Partial  liquidating  dividend:  sale  of  stock.  .1126 
Partnerships:  readjustment  of  interests  1490 
Patents . . 1235 

Personal  property  on  installment  plan  1237 
Property  acquired  after  Feb.  28,  1913  1431 

Property  acquired  before  March  1,  1913.  .1433  1437 
Loss  by  destruction  of  or  damage  to.  .1781,  1783 
Real  estate  in  lots.  .1244 

Real  estate  on  deferred  payment  plan.  .1245,  1250 
Real  estate  on  installment  plan.  .1245,  1249 
Reorganizations.  .1461,  1467 
Rights.  .1219,  1220 

Stock:  sale  or  other  disposition  of  shares.  1219 
Exchanged.  .1456,  1468,  1477 
On  redemption.  .1114,  1119,  1127 

On  which  stock  dividends  have  been  received.  .1114,  1127 
On  which  tax-free  distributions  have  been  received  1114 
Wash  sales.  . 1787 

, ,.  Valuing  stock  or  securities  in  connection  with.  .1476 
Stock  dividends:  sale  of  stock  received ..  1135  1136  1141 

r . »8«. 

Gain  or  profit  from  every  source  is  taxable.  .1067.  1071  ’ 

Capital  net  gain.  .1491 
Gambling.  . 1794 
Gas  district  bonds  .1564 
Gas  Wells  (See  “Wells”  at  2,  Index  Page  48  ) 

General  administrative  provisions  of  law  applicable  2709 
Gentlemen  farmers.  .1186,  1189,  1191,  1196,  1197 
2 Gifts.  .1558,  2001 

Associated  charities:  to.  .2013 
Churches  and  church  funds:  to.  .2009,  2013 
Corporations:  by.  .1617,  1675,  2004,  2015 

For  benefit  flowing  directly  to  the  corporation.  .1675 
Employees:  employers  to.  .1164,  1667 
Estates  or  trusts?  by.  .898,  2004 
Individuals:  by.  .2001 
Loss  suffered  by  donor;  none.  .1783 
Needy  family:  to.. 2014 
Nonresident  aliens:  by.. 2165 
Partnerships:  by.  .786,  2004 

Benefit  of,  taken  by  members.  .788,  2004 
Personal  service  corporations:  by.  .841 
Property  other  than  money  given:  valuing.  .2004 
No  taxable  profit  accrues  to  donor.  .2004 
Real  estate  to  city  for  public  park.  .2004 
Red  Cross:  to.  .2008,  2013,  2015 
Sale  of,  when  acquired  after  Dec.  31,  1920.  .1449 
Sale  of,  when  acquired  before  Dec.  31,  1920.  .1453 


Copyright  1922,  by  The  Corporation  Trust  Company . 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  22 


£ 3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Gifts. — Concluded. 

Stockholders  to  corporation: 

Forgiveness  of  indebtedness . . 1258 
Stock  for  resale.  .1275 
Voluntary  assessment  on  stock.  .1278 
War  chests.  .2003 
Y.  M.  C.  A.  .2013 
Good  will: 

Considered  in  valuing  stock  as  of  March  1,  1913..  1448 
Depreciation  of.  .1834 
Sale  of.  .1236 

Government  amortization  claims:  recent  unsettled  conditions.  .1260 
| Government  contract  defined . . 820 
Canceled:  compensation . . 1260 
Commissioner  to  have  access  to.  .821,  822 
Personal  service  corporations.  .819,  826 
Returns  in  connection  with.  .821,  822 
Unenforcible  contracts  subsequently  ratified.  .821 
Government  employees:  salaries  of.  .1068,  1156 
Pensions  and  retired  pay.  .1156 
Quarters,  mileage,  subsistence,  etc.  .1169 
Gram  growing  organizations.  .1020 

(See  “Farms  and  farmers”  at  1,  Index  Page  19.) 

Gratuities  to  employees.  .1163,  1649 
Gross  income.  .1067,  1075 

As  of  what  period  of  time.  .1260 

Corporations.  . 1073 

Exclusions  from.  .1550 

Farms  and  farmers.  .1186 

Foreign  corporations.  .1407 

Foreign  insurance  companies.  .1407,  1408 

From  business.  .1179 

Gift,  bequest,  devise,  descent:  income  from  property  received.  .1449,  1453,  1454.  1558 
Income  on  which  tax  withheld  included.  .2326,  2330 
Income  taxes  paid  by  another  to  be  included.  .1151 
Insurance  companies  generally.  .1371,  1378 
Life  insurance  companies.  .1314 
Long  term  contracts.  .1180 
Mutual  marine  insurance  companies.  .1073,  1356 
Need  not  be  in  cash.  .1046,  1075 
Nonresident  alien  individuals.  .2092,  2093,  2102 
When  accounted  for.  .1072,  1260 
■Ground  rents;  payments  not  deductible.  .1688 
Group  insurance:  premiums  on.  .1168 
Guam:  taxation  of  certain  citizens  of.  .766,  770 
Guardian  included  in  term  "fiduciary”.  .922 
May  make  return.  .926,  957,  958 
Guardian:  income  collected  by,  for  infant.  .889 
Hail  insurance  companies:  mutual.  .1014,  1037,  1353 
Harbor  district  bonds.  .1564 
Hawaii  included  in  “United  States”.  .1399 
Income  accruing  to.  .1596 
Interest  on  obligations  of.  .1560,  1564 
Salaries  of  Government  employees.  .1068 
Hawaiian  partnerships.  .783 
Head  of  family:  defined.  .2049 
Return  requirements.  .2390 
Specific  exemption.  .2045,  2049 
Head  tax  as  proof  of  residence.  .756 

Health  insurance,  combined  with  life  and  accident  in  one  policy.  .1354 
Health  insurance  receipts:  exempt.  .1552,  1555 
Hearings.  .2757,  2763 
Holding  companies: 

For  exempt  organizations.  .1016 
Guaranteed  dividends  for  subsidiaries.  .1634 
Withholding  profits  from  stockholders.  .735 
Holiday  in  connection  with  filing  return.  .2538 
Horticultural  organizations.  .1005,  1020 
Clubs.  .1036 

Horse  race  winnings  and  losses.  .1794 
Husband  and  wife: 

Returns  by.  .2386 

Community  property.  .2391 
Delinquency  of  one  return.  .2626 
Specific  exemption.  .2045,  2050 
Divisible  as  they  please.  .2055 
United  States  bond  exemptions.  .1591 
Wife  abroad,  in  case  of  resident  alien.  .758 
Wife  of  nonresident  alien.  .749 
Hypothetical  questions:  rulings  on.  .2945 
Illegal  transactions:  losses  in.  .1794 
Illinois  limited  partnerships.  .992 
Illness  (See  “Sickness”  at  1,  Index  Page  41.) 

Import  duties.  .1704,  1705 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  23 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

1 lie  references  arc  to  paragraph  numbers. 


Improvements: 

MXeby^"e1.\“25“’l683and  *"  wells'  1881'  1973>  IU8°.  ^ 

Permanent.  .1072,  1628,  1631,  1642 
Income: 

Accounted  for,  when.  . 1072,  1260 
Accruing  prior  to  March  1,  1913.  . 1611 
Accumulated  in  trust.  .876,  878 

Accumulated  or  distributed  in  discretion  of  trustee.  .879 
Collected  by  guardian  for  infant.  .889 
Constructive  receipt  of.  .1049,  1271 
As  opposed  to  accrual . . 1271 
By  decedent  prior  to  death ..  940 
Distributable  to  beneficiaries.  .889 
Held  for  future  distribution.  .877,  878 
Net  (See  “Net  Income”  at  1,  Index  Page  30.) 

Taxable  generally.  .1067,  1071 
Income  Tax  Unit:  organization  chart.  .2960 
Income  taxes  in  Porto  Rico  and  Philippine  Islands.  .771 
Income  taxes  paid  for  another.  .1154,  1722,  1723 

lnc°me  taxes  paid  to  foreign  countries  or  to  possessions  of  the  U.  S.'  credit  against  tax- 
Affiliated  domestic  and  foreign  corporations.  . 1416,  1762  1767 

COUaufnsW17C3V00rd0n0tSatisfy  thesimi,ar  credit  re<luirement3  in  case  of  resident 
Domestic  corporations.  .776,  1752 
Deduction . . 1702 

Domestic  corporation  entitled  to  benefits  of  Sec.  262  1768 

Fiscal  year  1920-1921.  .1760 

Majority  of  voting  stock  of  foreign  corporation  owned.  .1762 
Maximum  allowance.  .1753 
Effect  on  liability  to  U.  S.  income  tax.  .709 
Estates  and  trusts;  beneficiaries.  . 1738 
Individuals.  .775,  1733 
Deduction.  . 1699 
Fiscal  year  1920-1921.  .1744 
Maximum  allowance.  . 1740 

Not  allowed  to  citizens  entitled  to  benefits  of  See.  262  1739 

Partnerships:  members  of.  .807,  1738 
Personal  service  corporations:  stockholders  of.  .851 
Porto  Rico  and  Philippine  Islands.  .775,  776,  1733 
Income  taxes  paid  to  the  United  States:  not  deductible.  .1698,  1703 
Incompetent:  return  for.  . 963 
“In  control”  defined.  .1465 
Incorporation: 

Fees.  .1634 

Individual  or  partnership  business  within  4 months  of  Nov.  23,  1921  995 

To  evade  surtaxes.  .733 
Incurred  or  paid.  .1047 
Indebtedness:  forgiveness  of ..  1258 
Indemnifying  of  withholding  agents.  .2325 

Individual’s  business  incorporated  within  4 months  of  Nov.  23,  1921  995 

Individuals,  tax  on 
Normal  tax.  .710 
Surtax.  .713 

Information  at  the  source  (See  “Returns  of  Information  at  Source”  at  1,  Index  Pace  40  1 
Inheritance  taxes.  . 1726  ' 6 ' 

Injunctions: 

To  restrain  collection  of  penalty.  .2880 
To  restrain  collection  of  tax.  .2870 
Injuries:  amounts  paid  to  employees  on  account  of.  .1674 
Injuries:  amounts  received  on  account  of.  .1552,  1555 
Insane  person:  return  for.  .958 

Delay  in  payment  of  tax.  .2725,  2727 
Insolvent  persons:  delay  in  payment  of  tax.  .2725,  2727 
Inspection  of  returns.  .2660,  2662 
State  officials.  .2682 
Stockholders.  .2674,  2691 
Inspectors,  income  tax:  duties  of.  .2584 
Installment  sales: 

Bearing  on,  of  provision  for  basis  for  determining  gain  or  loss  on  sale  of  proDertv  1488 
Changing  method  of  accounting.  . 1237 
Personal  property.  .1237 
Real  Estate.  . 1240 

Installments:  payment  of  tax  in.  .2712 

Does  not  apply  in  case  of  failure  to  make  return.  .2718 
Effect  of  extension  for  filing  return.  .2722 
First  installment  (assessment  and  notice  and  demand).  .2728 
If  installments  are  not  paid  when  due  all  of  tax  is  payable.  .2731 
Interest  and  ad  valorem  penalty.  .2725 
Installments  after  first  (assessment  and  notice  and  demand)  2729 
Recomputation  of.  .2597 

Insurance,  accident  and  health:  exempt.  .1552,  1557 
Insurance  agents  and  agencies:  information  at  the  source.  .2347 

Copyright  1922,  by  7 lie  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  24 


3-7-22. 


IMPORTANT.- CONSULT  THE  PINK  SHEET. 


t 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Insurance  companies: 

Are  corporations.  .987 

Capital  net  gain;  not  entitled  to.  .1369 

Companies  generally: 

1921 —  other  than  life.  .1348 

Deductions  same  as  in  case  of  corporations  generally.  .1352 
Net  addition  to  reserve  fund.  .1353 
Subject  to  same  taxes  as  ordinary  corporation.  .1369 

1922 —  other  than  life  and  mutual.  .1366 
Deductions  allowed.  . 1379 
Distinctive  tax.  .1366 

Domestic  companies.  .1367 
Foreign  companies.  .1368 
Expenses  incurred.  .1381 
Foreign  corporation.  .1368,  1395,  1398 
Exempt  corporations  included.  . 1402 
Gross  income.  .1371,  1378 
Investment  income.  .1373 
Losses  incurred . . 1386 
Net  income. . 1372 

Premiums  earned  on  insurance  contracts.  .1376 
Returns.  . 1369 
Specific  credit  allowed.  .1392 
Underwriting  income.  .1375 
Credits  against  tax;  domestic  companies.  .1754 
Exempt  companies.  .1037 
Foreign  companies.  .1407,  1408 
Life.  .1407,  1408 

Other  than  life  or  mutual.  . 1368,  1395 
1 Life  insurance  companies.  . 1309 

Credit  for  taxes.  .1341 
Defined . . 1309 
Deductions: 

Depreciation  . . 1332,  1342 
Dividends.  . 1321 
Interest  on  indebtedness.  .1334 
Interest — tax-free.  .1317 
Investment  expenses.  .1325 
Reserve  for  dividends.  .1323 
Reserve  funds,  in  part.  .1318 
Taxes  on  real  estate.  .1328,  1342 
Taxes  paid  for  stockholders.  .1329 
Distinctive  tax.  .1310 
Foreign  companies.  .1312,  1344 
Gross  income.  .1314 

Rental  value  of  own  premises.  .1342 
Life,  health  and  accident  insurance  combined  in  one  policy.  1318 
Net  income.  .1316 
Net  losses.  .1346,  1546 
Reserve  for  dividends.  .1323 
Reserve  funds  required  by  law.  .1319 
Returns  by.  .1362 

Specific  deduction  for  domestic  companies.  .1338 
Tax: 

Domestic.  .1311 
Foreign.  .1312,  1344 

Mutual  insurance  companies  (See  at  1 above.) 

Certain  exempt.  .1014,  1037 
Gross  income.  .1350,  1410 
Special  deductions.  .1359 

Subject  to  same  taxes  as  ordinary  corporations.  .1369 
Mutual  marine  insurance  companies.  .1356 
Deductions:  special.  .1357 
Net  losses;  entitled  to  benefit  of.  .1369,  1547 
Payment  of  tax.  .1365 
Returns.  .1362 

Insurance:  compensation  for  losses.  .1776-1788 
Insurance  fund  for  benefit  of  employees.  .1348 
Insurance,  life  (See  “Life  Insurance”  at  2,  Index  Page  28.) 

Insurance  on  life  of  officer  or  employee  for  benefit  of  employer.  .1631.  1638,  1639 
Insurance  on  own  house.  .1623 

Insurance  policy:  surrender  value  as  of  March  1,  1913.  .1611 
Insurance  premiums:  commissions  on.  .1156,  1166 
On  own  policy  by  agent.  .1167 
Insurance  premiums,  business:  as  expense  items.  .1639,  1645 
Reserves  in  lieu  of.  . 1646 

Insurance  premiums  paid  by  employer.  .1168,  1631,  1638 
Insurance  receipts: 

Accident.  . 1552 

Health.  .1552 

Life.  .1553,  1554 

War  Risk  .1555,  1557 

Workmen’s  Compensation.  .1552 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  25 


3-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Intangible  property;  depreciation.  . 18:34 
Interest  accrued  prior  to  March  1,  191:3.  .1611 
Interest  as  income.  . 1070 

Accrued  on  bonds  purchased  between  interest  dates.  .1211 
Brokers:  carrying  securities  for  customers.  .1213 
Computation  of  taxable  interest.  .3037 
Constructive  receipt  of.  . 1272 

By  decedent  prior  to  death . . 940 
Domestic  building  and  loan  associations;  payments  by.  .1603 
March  1,  1913:  accrued  prior  to.  .2234 
Nonresident  aliens.  .2103,  2125 
State  and  municipal  obligations.  .1560 

United  States  bond  interest  (See  United  States  bonds  at  2,  Index  Page  47.) 

Summary  of  tax  exemptions.  . 1583 
War  Finance  Corporation  bonds.  .1563,  1567 
Year  of  accrual.  .2234 
Interest  deductions.  1684 
Banks  on  deposit.  .1690 
Capital:  interest  on ..  1695 
Car-trust  certificates.  . 1691 
Corporations.  . 1686 
Equipment  trust  certificate.  .1691 
Foreign  corporations.  . 1395 
Mortgage  indebtedness.  .1684,  1688 
Nonresident  aliens.  .2103 
Preferred  stock.  . 1690 

Purchasing  and  carrying  tax-free  obligations.  .1685,  1688 
Dividend  paying  stock.  .1689 
Scrip  dividends.  . 1690 

Tax-free  covenant  bond  interest:  State  tax  paid  by  debtor.  .1723 
Interest  on  accounts  current'  withholding.  .2218 
Interest  on  domestic  securities:  information  at  source.  .2354 
Interest  on  domestic  securities:  withholding  of  tax.  .2231 

(See  “Withholding  at  the  source”  at  1,  Index  Page  49.) 

Interest  on  refunds  and  judgments . . 2854 
Interest  on  tax: 

Abatement  claim  reduces  rate.  .2726 
Deficiency  in  tax  payment;  ordinary.  .2599,  2603 
Due  to  fraud.  .2601,  2603 
Due  to  negligence.  .2600,  2603 
Delay  in  payment  of  tax.  .2724,  2725,  2727 

When  extension  of  time  for  paying  deficiency  was  granted.  .2607 
Extension  of  time  for  paying  deficiency  having  been  granted.  .2606 
Installment  tax  payment  when  extension  of  time  for  filing  return.  .2724 
Leaving  country  or  concealing  self  or  property  (evading  taxes) . . 2785 
Interest  paid  in  lieu  of  rental.  .1283 
Interest,  tax-free:  when  distributed  as  dividend.  .1080 
Internal  revenue  agents,  inspectors,  etc.:  duties  of.  .2584 
Internal  Revenue  Collection  Districts.  .Supplementary  Pages  301-306 
*13*  Names  and  addresses  of  collectors.  . SuDDlementary  Pages  301-306 
I ntestate’s  real  estate . . 879 
Invalidating  clause.  .2970 
Inventories.  .1054,  1509 

Accrual  method  necessary  where  inventories  are  used.  . 1049 
Bank;  merchandising  securities . .1522 
Basis  adopted  to  be  applied  to  each  item.  .1511 
Basis  for  determining  gain  or  loss.  . 1432 

Capital  net  gain  provisions  exclude  inventory  property . . 1498 

Changes  in  method  of  valuing.  .1513 

Clearly  reflect  income.  . 1511 

Conform  to  best  accounting  practice.  .1511 

Cost.  . 1512,  1516 

Cost  or  market,  whichever  is  lower.  .1512 
Dealers  in  securities.  .1521 
Dry  goods  dealers.  . 1525 
Farmers.  .1186,  1192,  1196,  1208,  1519 
Income  determining  factor.  . 1042 

Investment  of  funds  in,  is  proper  employment  of  income.  .744 
Live  stock  raisers.  .1192 
Market.  .1520 
Materials.  . 1510,  1641 
Methods  not  allowed.  .1515 
Miners  and  manufacturers.  .1519,  1524 
Retail  merchants.  .1525 
Supplies.  .1510,  1641 
Unidentifiable  goods.  .1513 
Valuation  of.  . 1511 
What  to  be  included  in.  .1510 
Invested  capital:  affiliated  corporations.  .2543 

Invested  capital  reduced  on  account  inadequate  deductions  taken.  .2850 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  26 


8-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Investment;  sale  or  other  disposition  of  propertyjacquired]as’an: 

Capital  net  gain  provisions  apply.  .1497 
Exchanged  for  like  property.  .1460,  1467 
Losses:  specifically,  wash  sales.  .1787 
Corporations.  . 1789 

Iowa  drainage  district  assessments  .1716 
Irrigation  companies,  mutual.  .1014,  1037 
Irrigation  districts: 

Assessments  for.  .1716 
Bonds  of:  shrinkage  in  value.  .1803 
Interest  on  bonds  of.  .1564 
Joint  adventure  or  venture.  .994 
Joint  fiduciaries:  returns  by .. 936 
Joint  owners  of  bonds.  .2277 

Joint  owners  of  property  not  necessarily  partners.  .994 
Joint  returns  by  husband  and  wife.  .2389,  2390 
Community  property.  .2391 
Joint-stock  companies  are  “corporations” . . 987 
(See  “Associations”  at  2,  Index  Page  3.) 

Judges  of  United  States  Courts:  salaries  of.  .1068,  1156,  1157 
Judgments: 

In  connection  with  bad  debts.  .1810 
Interest  on.  .2916 
Paid:  when  deductible.  .1057 
Received:  when  included  in  gross  income.  .1260 
Judicial  code  amended.  .2915,  2916 
Jurisdiction  of  district  courts.  .2595,  2915 
Kind: 

Compensation  paid  in.  .1168,  1177 
Dividends  paid  in . . 1084 
Exchanges  generally.  .1456 
Farm  produce  exchanged.  .1188 
Partnership  distributions  on  dissolution.  .1490 
Property  passing  to  legatee.  .875,  941 
Labor  as  expense  item.  .1640,  1648 
Labor  organizations.  .1005 

Land  and  buildings  acquired  for  lump  sum:  depreciation.  .1840 
Land  apart  from  buildings:  no  depreciation.  .1832 
Land:  sale  of,  in  lots.  .1244 

Land:  sale  of,  on  installment  or  deferred  payment  plan.  .1246 
Landlord  (See  “Lessees  and  Lessors”  at  1 below.) 

Last  due  date.  .2538 

Laws  made  applicable  to  income  tax  title.  .2709 
Leased  line  certificates:  dividends.  .1218 

Leased  property:  dividends  and  interest  in  lieu  of  rental.  .1293 
Leasehold,  purchase  of:  apportioning  the  expense.  .1683 
Leaseholds,  mines  and  oil  and  gas  wells:  depletion.  .1891,  1906,  1911 
Leaving  country:  declaration  of  termination  of  taxable  period.  .2782 
Penalty  for,  or  concealing  self.  .2785,  2786 
Legacies  or  bequests.  .1558 

Sale  of  property  acquired  as  such . . 1454 
Legacy  taxes  paid.  .1726,  1727 

Legal  holiday  in  connection  with  last  due  date.  .2538 

Legatees:  amounts  paid  or  credited  to  during  administration.  .891,  899 

Legislation:  expenses  for  promotion  or  defeat.  .1675 

Lessees  and  lessors:  _ '• 

Depreciation  allowances  to  lessee  who  has  erected  a building  on  leased  ground.  .1683 
Improvements  made  by  lessee.  .1252,  1683 
Leased  line  certificates:  dividends.  .1218 
Leaseholds:  apportioning  the  expense.  .1683 

Mines,  oil  and  gas  wells:  depletion  apportioned.  .1891,  1905-1918 
But  not  under  prior  Acts.  .Supplementary  Page,  *1860. 

New  buildings:  cost  of  erecting  by  lessee.  .1252,  1683 
Payments  made  to  another  than  the  lessor.  .1252,  1293 
Rent  and  rentals  as  items  of  expense.  .1681 
Rent  and  rentals  as  items  of  income.  .1069,  1252,  1291 
Repairs  made  by  lessee.  .1683 
Royalties.  .1252 

Stock  trust  certificates:  dividends.  .1218 
Taxes  paid  by  tenant.  .1683 
Levee  districts: 

Assessments  for.  .1716 
Interest  on  bonds  of.  .1564 
Tennessee.  .1716 
Liabilities:  assuming.  . 1292 

Liabilities  of  one  year:  effect  on  next  year.  .1057 
Liability  of  fiduciaries.  .934 
Liability  of  withholding  agent.  .2324 
Liability  to  tax,  generally.  .707 

Aliens:  status  on  last  day  of  taxable  year  governs.  .759 
Beneficiaries:  for  payment  by ..  890 
Citizens  and  resident  aliens.  .746 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  27 


3-7-22. 


IMPORTANT. — CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Liability  to  tax  generally. — Concluded. 

Citizens  of  U.  S.  possessions  not  residing  in  U.  S.  .766.  770 

Corporations.  .972,  976,  978 

Estates  and  trusts . . 873 

Fiduciaries:  for  payment  by ..  878 

Foreign  corporations.  .1405 

Insurance  companies.  .1309 

Nonresident  aliens.  .746,  2087 

Partnerships.  .778,  784 

Personal  service  corporations.  .836 

t ,Noi  distinguished  from  other  corporations  after  Dec.  31,  1921.  .839 

Liberty  bonds  (See  “United  States  bonds"  at  1,  Index  Page  47.) 

Summary  of,  for  exemptions.  .1583 
License  fees  or  taxes.  .1704 

Automobile  licenses.  . 1703 

License:  none  required  for  use  of  substitute  certificates.  .2313 
L|cense  required  for  collection  of  foreign  items.  .2371 
Licenses:  depreciation  on  account  of.  .1834 
Lien;  unpaid  tax.  .2781 

Life  estate  or  terminable  interest;  shrinkage  in  value.  .914 

L;fe,  health,  and  accident  insurance  combined  in  one  policy.  .1318 

L;fe  insurance  companies.  . (See  “Insurance  Companies”  at  1,  Index  page  25.) 

Life  insurance:  premiums  on  groups.  .1168 

Life  insurance  policy:  surrender  value  as  of  March  1,  1913.  .1611 
Life  insurance:  premiums  on  own.  .1623 
Return  of.  .1554,  1565 

Life  insurance:  premiums  on,  when  a beneficiary  under  the  policy.  .1631,  1638,  1639 
1 Life  insurance:  proceeds  of.  .1553,  1555 

Annuity  and  endowment  contracts.  . 1251 
Corporation  beneficiaries.  .1074,  1639 
Distributions  on  paid  up  policies.  .1251 
Dividends.  . 1251,  1554 
Estate  of  insured.  .1553,  1557 
Individual  beneficiaries.  .1553,  1557,  1639 
War  Risk.  1555 

Life  tenant  to  whom  stock  dividend  is  distributable.  .3010 

Light  district  bonds.  .1504 

Limitation  on  administrative  review.  .2866 

Limitation  on  assessment  of  taxes.  .2742,  2747 

Limitation  on  prosecutions  for  violations  of  internal  revenue  laws.  .2630 
Limitation  on  suits  for  collection  of  taxes.  .2749,  2751,  2756 
Final  determinations  and  assessments  by  agreement.  .2862 
Limitation  on  suits  for  refund  of  taxes.  .2882 

Claim  for  refund  or  credit  essential  to  establish  right  to  bring  suit.  .2882 
Final  determinations  and  assessments  by  agreement.  .2862 
Interest  on  judgments.  .2916 
Limited  partnerships.  .992 

Certain,  held  to  be  corporations.  .993 
Liquidating  corporations:  gross  income  of.  .2194 
Distribution  of  assets.  .1125 
Returns.  .1295,  2492,  2535,  2537 

Liquidating  dividends  (redemption  of  shares).  . 1114,  1119,  1125,  1127 
List  of  individuals  making  returns  to  be  posted.  .2706 
Literary  purposes: 

Corporations  organized  for.  .1010,  1030 
Gifts  on  account  of.  .2001 
Livestock:  farmers ..  1186-1208 
Living  expenses.  . 1622 
Living  quarters  furnished  employees.  .1168 
Lobbying  expenses.  .1675 

Local  benefits:  assessments  or  taxes  for.  .1703,  1714 
Construction  vs.  maintenance.  .1716 
Lodge  system  defined.  .1022 
Lodging  in  lieu  of  cash  rent.  .1256 
Loss,  capital:  defined.  .1493 
Losses.  .1776,  1778,  1783,  1784 

As  of  what  period  of  time  .1784 

Basis  for  determining  on  sale  or  other  disposition.  .1431 
Business.  .1776,  1783 

Outside  of  business.  .1778-1780,  1783 
Buildings:  voluntary  removal  or  demolition  of.  .1800 
Capital  stock:  sale  of  own  by  corporation.  .1275,  1636,  1696 
Compensation  for  .1257 
Corporations.  .1777 

Depreciation:  effect  to  be  given  to,  in  computing  .1437,  1783 
Destruction  of  or  damage  to  property  acquired  prior  to  March  1,  1913.  .1781 
Discovered  in  later  year.  .1057,  1786 
Embezzlement:  when  deductible ..  1057,  1783 

Estates  and  trusts:  bearing  on  taxable  income  of  beneficiaries.  .910 
Farmers.  .1196 
Gambling.  . 1794 

Gifts  made:  no^loss  to'donor.  .1783 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

I ndex  Page  28 


8-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

Hie  references  are  to  paragraph  numbers. 


Losses. — C on  eluded . 

Gross  income:  losses  in  connection  with.  .1179 

Illegal  transactions.  .1794 

Insurance. . 1777-1783 

Machinery:  scrapping  of  old.  .1800 

Net  losses.  .1527 

Nonresident  aliens.  .2163 

Replacement  fund:  compensation  forilosses.  .1257.  2037 
Residence:  individual’s  own.  .1783 
Retirement  of  bonds.  .1289 

Stocks  and  bonds:  shrinkage  of  value.  .1802.  1818  1835 
Wash  sales.  . 1787 

Theft:  when  deductible.  .1057,  1783 
Trees  by  death . . 1209 
Useful  value:  loss  of.  .1801 
Losses:  net..  1527 

Machinery'.0  ^ ^ determinin8  (See  "Gain  or  loss”  at  1,  Index  Page  22.) 

Amortization  of:  war  purposes.  .1860 
Scrapping  of  old.  .1800,  1801 
Statement  as  to  estimated  life  of.  . 1844 
Maintenance  of  local  benefits:  assessments  for  1716 
Manufacture  and  disposition  of  goods  in  U.  S.:  profits  of  2150 
Manufacturers;  inventories  of . . 1524  v ou 

Manufacturing  business:  income  from  1179 
March  1,  1913: 

Bad  debts  existing  prior  to.  .1810 
Bequests  acquired  prior  to:  sale  of  .1455 
Depletion  allowance.  .1883 
Depreciating  property:  basis  for.  .1831 

Discovery  of  mines,  oil  and  gas  wells  subsequent  to.  .1911,  1918  1957 
Dividends  accrued  prior  to.  .1611  imo, 

Dividends  from  prior  earnings.  . 1112 
Dividends  from  subsequent  earnings.  .1077 
Gain  or  loss  based  on  value  on.  .1433,  1692  1783 
Income  accruing  prior  to.  . 1611 
Insurance  policy:  surrender  value.  1611 
Interest  accrued  prior  to.  .2234 
Loss  by  destruction  of  or  damage  to  property  1781 
Services  rendered  prior  to.  . 1611 
Stock;  determination  of  value  as  of.  .1445 
Value  on,  how  determined.  .1433,  1437 
. Has  no  bearing  on  invested  capital.  . 1437 
Marine  Corps:  compensation  allowance.  .1555,  1557 
Marine  insurance  companies:  mutual  1856 
Mariners.  .756,  2096 
Market:  inventories ..  1512,  1520 

‘‘Ma,rk5t  v.alue”  ‘3  connection  with  exchange  of  property  for  stock  1457 
Market  values:  effect  on  depreciation . . 1848  P y -.140/ 

Marriage  settlement:  amount  paid  under.  .1559 
Married  persons:  returns  by.  .2386,  2387,  2626 
Married  persons:  specific  exemption.  .2045,  2050 
Divisible  as  they  please.  .2055 

M«r,5ia°^eSldentaalien  or  citizen  entitled  to  benefits  of  Sec.  262  2175 

Maryland  ground  rents:  payments  made  for.  1688 
Massachusetts  savings  bank  . 1021 
Massachusetts  Trusts.  .990,  991 
Material  as  expense  item:  manufacturer ..  1640  1641 
Inventories  in  connection  with ..  1641 

Meals  and  lodgings  while  traveling.  . 1624,  1678 

Mor?hi^ria-tS’  ?olleges:  compensation  of  certain  employees.  .1699 

Merchandising  business:  gross  income  from  1179 

Merchants;  retail,  inventories.  .1525 

Merchant  Marine  Act,  1920  (Sec.  23).  .1613 

Mergers:  profit  or  loss  resulting  from.  .1461,  1467 

„.  Profit  or  loss  from  subsequent  sale  of  securities.  .1477 

Michigan  limited  partnerships . . 992 

Michigan  partnership  association . . 993 

Mileage.  .1169 

Military  and  naval  forces  of  the  United  States:  defined.  . 1556 
Compensation  of.  .1156,  1555,  1557 
Extension  of  time  for  filing  returns  3032 
Pensions.  .1557 
Mines: 

Depletion  of.  .1881,  1893 

Maximum  depletion  allowance.  .1887,  1904 
Depreciation  of  improvements.  .1881,  1973 
Determination  of  fair  market  value  1929 
Discovery  of.  .1885,  1918,  1957 
In  connection  with  net  losses.  . 1534,  1536 
...  >ale  of:  maximum  surtax.  .730 
Mining  business:  gross  income  from.  .1179 


Copyright  1922.  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  29 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Ministers:  fees  received  by ..  1156 

Rental  value  of  dwelling.  .1604,  1608 
Ministers,  foreign  diplomatic.  .1595 

Minors:  allowances  or  wages  to  one’s  own  children.  .1623 
Minors:  return  and  tax  liability.  .957 
Income  of,  as  parents’  income.  .957 

No  credit  as  dependents  in  case  of  citizens  entitled  to  benefit’d  Sec.  262.  .898,  2176 
Return  for,  by  guardian.  .926,  957,  958 
Minors:  United  States  bond  interest  exemptions.  .1591 
Models:  depreciation . . 1850 

Mortgage  foreclosure  in  relation  to  bad  debts.  .1815 
Mortgage  foreclosure:  return  by  receiver.  .2500 
Mortgage  indebtedness:  interest  paid  on.  .1684,  1688 
Mortgage  on  property  purchased  by  State:  interest  on.  .1564 
Mortgaged  real  estate:  receiver  of  rents,  etc.  .956 
Municipal  bonds:  interest  and  discount  on.  .1560,  1564 
Interest  on  indebtedness  to  purchase  or  carry.  .1685 
Ownership  certificates  not  required.  .2265 
Municipal  income.  . 1596 

Public  utility  contracts.  . 1597 
Municipal  officers  and  employees:  compensation.  .1599 
Special  counsel.  . 1602 
Municipal  taxes  deductible.  .1697 

Except  local  benefits  assessments.  .1714 
Mutual  automobile  insurance  companies.  .1037 

Mutual  beneficial  and  protective  associations;  exemption.  .1014/1016 
Mutual  ditch  or  irrigation  companies.  .1014,  1037 
Mutual  hail,  cyclone  or  fire  insurance  companies.  . 1014,?1037 
Mutual  insurance  companies  taxable.  .1348,  1356 
Mutual  marine  insurance  companies.  .1356 
Mutual  savings  banks.  .1006,  1021 
Mutual  telephone  companies.  .1014,  1037 
National  banks:  assessments  on  stockholders  of.  .1630 
National  banks:  stock  dividends  not  lawful.  .1144 
National  farm  loan  associations.  .1017 
Income  from  securities.  .1561,  1565 
National  Red  Cross:  gifts  to.  .2001,  2008,  2013 
Naturalized  citizens  residing  abroad.  .748,  751 
Navy,  Army  and:  compensation.  .1156,  1555,  1557 
Navy  Nurse  Corps.  Female:  compensation.  .1156,  1555,  1557 
Net  income  defined.  .1042,  2090 
Ordinary  net  income.  .1496 
Net  income:  how  computed.  .1040,  1046,  1049 
Accounting  methods.  .1044 

Change  of  accounting  period.  . 1065 
To  reflect  true  income.  .1045,  1046 
Affiliated  corporations.  .2551 
Corporations.  .1041,  1043 

Domestic  entitled  to  the  benefits  of  Section  262.  .1406 
Estates  and  trusts.  .896 
Foreign  corporations.  .1405 
Individuals . . 1040 

Life  insurance  companies.  . 1316  . 

Nonresident  aliens  and  citizens  entitled  to  the  benefits  of  Section  262.  .2090,  2123,  -130, 
2138,  2142 
Partnerships.  .786 

Personal  service  corporations.  .786,  839,  841,  852 
Statutory  vs.  commercial  net  income.  .1042 
Net  income  is  based  on  annual  accounting  period.  .1044,  1059 
Change  of  accounting  period.  .1065 
Net  income  of  affiliated  corporations.  .2539,  2551 
Net  losses.  . 1527 

Beneficiaries  of  estate  or  trust.  .1546 
Capital  assets  in  connection  with.  .1528 
Claim  for.  .1545 
Computation  of.  .1525 
Corporations.  1537 
Fiscal  year  1920-1921.  .1548 
Illustration  of  computation.  .1541 
Individuals.  .1536 
Insurance  companies.  .1546 
Partnerships  and  trust  estates.  .800.  1546 
New  buildings:  expenditures  for.  .1628,  1631 
By  lessees  on  leased  ground.  .1252,  1683 
New  York  limited  partnerships.  .992 
Nonresident  aliens.  .746,  754,  2086,  2102 
Actual  vs.  record  owner  of  stock . . 1083 
Agents  of.  .2182 

AU  aliens  presumed  to  be  nonresidents.  .768,  2205 
American  wife  of.  .748 
Annual  accounting  period.  .2091 
Brokers  acting  for.  .2182,  2183 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  30 


8-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Nonresident  aliens. — Concluded. 

Capital  net  gain  . .1505 
Change  of  status.  .2214 

Citizens  of  XI.  S.  possessions  not  residing  in  U.  S.  treated  as.  .770 
Commissions;  withholding.  .2190 
Compensation.  .2117,  2127 
Withholding.  .2190 

Contributions  to  charitable,  etc.,  institutions  2165 
Credits.  .2175,  2176,  2180 

Allowed  conditionally.  .2177 

Source:  credits  may  not  be  claimed  at  generally.  .2178 
Source:  specific  exemption  on  claimed  at.  .2179 
Deductions  allowed.  .2123,  2130,  2162,  2166,  2167 
Allowed  conditionally.  .2177 
Apportionment  and  allocation  of.  .2169 
Source:  may  not  be  claimed  at  source  generally.  2178 
Defined . . 754,  2086 
Dependents;  no  credit  for.  .2175 
Distraint:  property  subject  to,  for  tax.  .2188 
Dividends  on  stocks.  .2109,  2110,  2126 
Exempt  income  of.  .2097,  2098 

Exemption  claims  in  connection  with  bond  interest  2264 
Gross  income  of . .2092,  2093 

Income  not  subject  to  tax.  .2092,  2093,  2097,  2219 
Sources  within  the  U.  S.  .2103,  2139 
Sources  within  and  without  the  U.  S.  .2137,  2144 
Computation  of  income.  .2142 
Sources  without  the  U.  S.  .2124 
Income  of  not  subject  to  tax.  .2092,  2093,  2097,  2219 
Interest.  .2103 

Interest  on  accounts  current  and  on  bank  deposits.  .2104,  2191,  2197.  2218 
Interest  on  securities.  .2103,  2125 
Leaving  the  country.  .2784,  2786 
Losses  deductible.  .2163 

Manufacture  and  disposition  of  goods  in  United  States.  2150 
Net  income  of.  .2090 
Normal  tax  on.  .710,  2087 

Ownership  certificates  for  use  by.  .2254,  2303,  2317 
Partnerships,  foreign.  .2192 

Personal  property  produced  or  sold  partly  within  and  without  the  U.  S.  .2146  2150 
Personal  property  purchased  or  sold  partly  within  and  without  the  U.  S.  .2158 
Property  of,  subject  to  distraint  for  tax.  .2188 
Real  property;  gains  from  sale  of.  .2121,  2129 
Record  vs.  actual  owner  of  stock.  .1083 

Refund  by  government  of  excess' amounts  withheld  .2182,  2255 
Rents  and  royalties.  .2119,  2128 
Returns.  .2182,  3022 
By  agents.  .2182 
By  fiduciaries.  .932,  960 

Deductions  and  credits  allowed  only  if  full  return  is  made  2177 
When  filed.  .2526,  2527 
Where  filed.  .2530,  2531 
Salaries  of:  withholding  of  tax.  .2190 
Seamen.  .2096 

Ship  documented  under  laws  of  foreign  country . . 2098 
Specific  exemption.  .2175 

Claiming" at  source.  .2179,  2254 
Status  determined  on  last  day  of  taxable  year . . 759 
Stock:  profit  from  sale  of.  .2158 
Surtax.  .714,  2088 
Tax:  payment  of.  .2189,3022 
Tax  withheld  at  source.  .2190,  2231,  2240 
Taxes  deductible.  .2162 

Transportation  or  other  services  performed  within  and  without  the  U.  S.  .2145 

United  States  bond  interest.  .2100 

Wages  of:  withholding  of  tax.  .2190 

Withholding  of  tax  at  source.  .2190,  2231,  2240,  3022 

(See  “Withholding  of  tax  at  source”  at  1,  Index  Page  49.) 

Nonresident  foreign  corporation  defined.  . 1069 

(See  “Foreign  corporations”  at  2,  Index  Page  19.) 

Nonr^ident  foreign  corporations:  withholding  at  the  source.  .1767,  1771,  1783 
(See  Withholding  at  the  source”  at  1,  Index  Page  49.) 

Normal  tax  on  citizens  and  residents.  .710,  711 
Credits  (See  “Credits”  at  1,  Index  Page  12.) 

Special  rate  of  first  $4,000  applies  to  each  individual.  .712 
Normal  tax  on  estates  and  trusts.  .873 
Normal  tax  on  nonresident  aliens . . 712,  2087 
Credits  (See  “Credits"  at  1,  Index  Page  12.) 

Notaries  public:  fees  received  by.  .1599 

Notes  (See  “Promissory  notes”  at  1,  Index  Page  35.) 

Notes  (U.  S.): 

In  payment  of  taxes.  .2789,  3016 

Security  in  connection  with  penal  bonds.  .1770 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  31 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Notice  and  demand  for  tax.  .2730 

Ad  valorem  penalty  and  interest  and  10  days’  notice  and  demand.  .2725 
All  of  unpaid  tax,  if  any  installment  not  paid  when  due.  .2731 
Deficiency  in  tax  payments,  generally.  .2599 
Due  to  fraud.  .2601 
Due  to  negligence.  .2600 
False  return  or  failure  to  file.  .2623 
First  installment.  .2728 

Subsequent  installments.  .2709  (See  2731  and  2725) 

Leaving  country  or  concealing  self  or  property.  .2782 
Second  assessment  after  30  days’  notice  and  hearing.  .2760 
Notice  in  connection  with  change  of  accounting  period.  .1066 
Oath:  returns  to  be  made  under: 

Corporations.  .2510 
Fiduciaries.  .928,  934,  936 
Individuals.  .2382 
Partnerships.  .793 

Revenue  officers  may  administer  oaths.  .2710 
Obsolescence  of  business  property.  . 1827 

Failure  to  take  into  consideration  prior  to  1918.  .1848 
Good  will,  trade  names,  brands,  etc.  .1834 
(See  "Depreciation”  at  1,  Index  Page  13.) 

“Of  a purely  local  character”.  .1037 
Offers  in  compromise.  .2632,  2648 
Officers:  insurance  on  lives  of.  .1631,51638 
Oil  lands:  co-owners  of.  .794 
Oil  wells  (See  “Wells”  at  2,  Index  Page  48.) 

Orchards:  depreciation  and  death  of  trees.  .1209 
Orchestral  music  organizations.  .1031 
Ordinary  net  income  defined.  . 1496 
Organization  expenses  of  a corporation.  . 1634 
Overassessment;  certificate  of,  and  refund.  .2836 
Overpayments.  .2598,  2811,  2825 

Owner  unknown:  withholding  on  bond  interest.  .2232,  2248 
1 Ownership  certificates.  . 2265 
Addresses  on.  .2271 

Agent:  no  stamp  “Satisfied  as  to  identity”  required.  .2280 

Corporations:  not  required  of  domestic  and  resident  foreign  corporations.  .2265,  3045 

Fac-simile  signatures.  .2273,  2314 

Fiduciaries:  use  of  proper  certificates  by.  .2303,  2310 

Foreign  items.  .2361 

Furnished  by  Government.  .2291 

Improper  form,  substitution  of  proper  certificate)by'collecting  agent.  .2266 
Indorsement  on  back  not  required.  .2281 
Initials.  .2275 

Interest  dates:  purchase  and  sale  of  bonds  between.  .2333 
Interrogatories  to  be  answered  fully.  .2269 
Joint  owners.  .2277 

Language:  may  be  printed  in  more  than  one.  .2295,  2366 
Maturity  dates:  differing.  .2278 
Necessity  for.  .2279 

None:  coupons  presented  without  certificates.  .2315 
Non  tax  free  bonds.  .2239,  2255,  2265,  2317 
Number  of  bonds  not  required.  .2270 
Old  forms  acceptable.  .2298,  3047 

Partnership  with  member  having  personal  exemption  in  excess'of  taxable’income.  .2305 

Privately  printed.  .2292 

Registered  bonds.  .2303,  2310,  2317 

Retirement  of  bonds.  .2284 

Return  of  monthly.  .2322 

Signatures.  .2273-2276 

Size,  color,  etc.  .2289 

Substitute  certificates.  .2266,  2312 

Use  of  not  permitted  when.  .2312,  2368 
Tax-free  bond  interest:  no  certificate  required.  .2265 
Tax-free-covenant  bond  interest.  .2253,  2254,  2265,  2303,  2310, [2317 
Trusts:  more  than  one.  .2277 

United  States  bond  interest:  no  certificate  required.  .2265 
Usufruct  of  foreign  owned.  .2287 
Withholdinglnot  required.  .2310 
Withholding.required . . 2303  % 

Paid  oriaccrued:  paid  or  incurred.  .1047J 
Parent) of  minor.  .957 
Park;? gif t[ofireal  estate  for.  .2004 
Parsonage;  rentalivalue  exempt.  ,1604,|1608  [J 
Partition! proceedings,  receiver  in.  .966 
Partnerships.  .778,  784J 

Accounting  period  of  member  and  firm  differing.  . 799J 
Association  vs.  partnership.  .989 
Capital; net  gain.  . 1607 
Contributions.  . 787(|SB 

Corporations  as  members  of[partnership.  .994 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  32 


3-7-22. 


IMPORTANT. — CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Partnerships. — Concluded. 

Credits  allowed  members.  .806,  1738 
Defined.  .1398,  2059 
Dissolution  of.  .1490 
. Distributive  shares  of  members: 

Accounted  for  by  member.  .798 
Constructive  receipt  of.  .798,  1272 
Shown  on  return  of  firm.  .792,  795 
Domestic  partnership  defined.  .2069 
Fiscal  year.  .808 
Foreign . . 1400 

Extension  of  time  for  filing  returns.  .3032 
Gifts  or  contributions . . 787,  2004 

Benefit  of,  taken  by  members.  .787,  2004 
Gross  income.  . 786 
Hawaiian  partnerships.  .783 
Income  of,  how  computed.  .786 

Incorporation  within  4 months  after  Nov.  23,  1921.  .995 

Information  at  the  source:  returns  of.  .2326 

Joint  owners  of  property.  .994 

Joint  ventures.  .994 

Limited.  .992,  993 

Net  income. . 786 

Net  losses.  .800,  1546 

New  partner  admitted.  .1490 

Ownership  certificates.  .2303,  2310,  2317 

Persons:  partnerships  considered  as.  .705 

Private  banks.  .989 

Readjustment  of  partnership  interests.  .1490 

Receiver  for.  . 956 

Returns  required.  .784,  789,  2524 

As  agent  for  nonresident  alien  member.  .2198 
Contents  of.  .790,  795,  1490 
Extension  of  time  for  filing  (1922) . .3009 
,..®x^ens*on  °f  time  for  filing  in  case  of  foreign  partnerships.  .3032 
belhng  out  to  corporation:  future  salaries  as  part  of  purchase  price.  .1651 
btOCshipde733  corporation  which  withholds  its  profits  taxed  as  members  of  partner- 

Tax  liability  of  member.  .778,  784 
Fiscal  year  partnerships . 808 

Taxable  year  embracing  parts  of  calendar  years  with  differing  rates  or  law  provisions 

. . 808, 812 

Taxable  year  of  member  and  firm  differing.  .799 
United  States  bonds:  application  of  exemptions.  .1588 
Withholding  in  case  of  one  or  more  nonresident  alien  members.  .2192 
None  required  if  office  is  maintained  in  the  U.  S.  .2198 
Withholding  in  case  of  tax-free  covenant  bond  interest.  .2190 
Patent  infringement,  judgment  paid:  when  deductible. . 1057 
Patent  infringement,  judgment  received.  .1260 
Patents: 

Corporation  whose  income  derived  from,  personal  service  corporation.  835 
Cost  of,  determination . . 1849 
Depreciation.  .1834,  1849 
Sale  of.  .1235 

Paying  agents  may  be  appointed  by  debtors.  .2260 
Payment  of  taxes.  .2712 

tatik.  Assessment  of  deficiencies.  (See  “Assessment  of  deficient  taxes”  at  1,  Index  Page  3.) 
Capital  net  gain  being  involved.  . 1502 
Estates  of  insane,  deceased  or  insolvent  persons.  .2725 
Evasion  of  surtaxes  by  incorporation.  .733 

Extension  of  time  for  filing  return;  effect  on  payment  of  tax.  .2722 
Interest  on  installment.  .2724 

First  installment  (assessment  and  notice  and  demand).  .2728 
Subsequent  installments  2729  (See  2725  and  2731.) 

Fractional  part  of  cent.  .2788 

Installment  not  paid  all  unpaid  tax  becomes  due.  .2731 

Manner  of  payment.  .2789 

Recomputations.  .2597 

When  withheld  at  source.  .2319 

Payments  made,  on  account  of  creditor  to  another.  .1154,  1683,  1717,  1719,  1722 
Penal  bonds:  U.  S.  bonds  as  security.  .1770 
Penalties.  .2577 

Ad  valorem;  assessed  and  collected  as  part  of  tax.  .2629 
Compromises.  .2632 

Deficiencies  in  return:  ordinary.  .2599,  2603 
Due  to  fraud.  .2601,  2603,  2608 
Due  to  negligence.  .2600,  2603 

Delayed  tax  payment  due  to  granted  extension  of  time.  .2724 
Delayed  tax  payments  generally.  .2725 
Disclosure  of  contents  of  returns.  .2696 

By  stockholder  of  corporation  after  inspection.  .2692,  2695 
Evasion  of  surtaxes  by  incorporation . . 733 
Failure  to  make  return.  .2612,  2623,  2625,  2627 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  33 


3-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Penalties. — Concluded. 

Failure  to  pay  tax.  .2628,  2725 

Failure  to  supply  information  relative  to  Government  contracts  on  request.  .823 
False  returns.  .2577,  2601,  2612,  2627 
Refunds  and  suits,  in  cases  of.  .2881 
Foreign  items;  collection  of.  .2373 
Information  at  source.  .2628 
Refund  of  penalties  erroneously  collected.  .2811 
Specific  penalties.  .2627 
Suits  to  enjoin  collection  of.  .2880 
Tax:  neglect  or  refusal  to  pay.  .2627,  2628,  2725 
Tax  payments:  delay  in  making  .2725 
Understatements  in  returns.  .2577,  2612,  2627 
Withholding  at  source.  .2628 

Failure  to  make  return  and  pay  tax  by  debtor  or  creditor  when  other  has  done  so . .2329 
Pennsylvania  ground  rents:  payment  for.  .1688 
Pennsylvania  partnerships . . 993 
Pension  funds:  contributions  to . . 1674 
Pension  from  U.  S.  for  war  service.  .1555,  1657 
Pensions  paid  by  employer.  .1156,  1674 
Per  diem  allowance  in  lieu  of  subsistence.  .1176 
Percentage  of  profits:  salary  based  on.  .1156 
Permanent  improvements.  .1056,  1628,  1631 
On  leased  property.  . 1252,  1683 
"Person"  defined . . 705 

Personal  expenses  vs.  business  expenses.  .1622 
Personal  property  sold  on  installment  plan.  .1237 
Personal  service  corporations.  .836,  1018 
Activities  of  stockholders.  .829 
Alternative  tax  on,  for  1918  to  1921.  .852 
Capital  of.  .833 

Borrowed  capital.  .834 
Change  of  ownership.  .832 
Consolidated  returns.  .2546 
Defined.  .815,  825 
Dividend  distributions.  .1080,  1824 

Credits  to  stockholders.  .851,  2039 
Distributions  that  are  not  dividends.  .1113 
Excess  profits  tax.  .843 

Exempt  as  corporation  to  Dec.  31,  1921.  .842/1018 

Fiscal  year  ending  in  1921 . .844 

Fiscal  year  ending  in  1922.  .845 

Foreign  corporation  not  included.  .816,  826 

Gifts  made  by.  .841 

Government  contracts.  .819,  826 

Income  of,  how  computed . . 841 

Information  at  the  source:  returns  of.  .2336 

Net  losses.  .1546 

Ownership  certificates.  .2304 

Partial  personal  service.  .828 

Patents;  income  from.  .835 

Personal  service  defined . . 827 

Returns  by.  .843,  845 

Extension  of  time  for  filing  (1922) . .3009 
Stock  owned  by  another  corporation . . 826 
Stockholders: 

Activities  of . . 829 
Capital  invested  by . . 834 

Distributive  shares  to  be  returned  by.  .838,  847 
Fiscal  year  corporations.  .840 
Tax  liability.  .836,  847 
Tax  liability.  .836,  839 

Fiscal  years  beginning  in  1921.  .841,  843 
Tax  rates  differing:  application  of  different  rates  to  particular  income.  .634 
Taxable  years  embracing  parts  of  calendar  years  with  different  provisions  of  law.  .613 
Test  as  to  what  is  a personal  service  corporation.  .825 
Trading  as  a principal.  .818,  826 

United  States  bonds:  application  of  exemptions.  .1588 
Philippine  Islands:  income  taxes  in.  .766,  770,  771 

Credit  for  income  and  excess  profits  taxess.  .775,  776,  1783 
Dividends  of  corporations  there  taxed . . 772 
Taxation  of  certain  citizens  of.  .766,  771 
Taxation  of  certain  corporations.  .771,  776 

Taxation  of  citizen  of  United  States  resident  in  Philippines.  .776 
Withholding  against  Philippine  corporations.  .776 
Photographer:  personal  service  corporation.  .828 
Pipe  extensions:  public  utilities.  . 1632 
Plates  ^expenditures  for.  .1630 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  34 


3-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Political  subdivision  of  State  or  Territory: 

Defined.  .1564 

Gifts  to,  for  public  purposes.  .2001 
Income  accruing  to.  .1598 
Interest  on  obligations  of.  . 1564 
Officers  and  employees?  compensation.  .1599 
Port  improvement  bonds.  .1564 
Porto  Rico:  income  taxes  in.  .766,  771 

Credit  for  income  and  excess  profits  taxes.  .775,  776,  1733 
Dividends  paid  by  corporations  there  taxed . . 772 
Taxation  of  certain  corporation.  .771,  776 
Taxation  of  certain  citizens  of  Porto  Rico.  .766,  771 
Taxation  of  citizen  of  the  United  States  resident  in  Porto  Rico.  .775 
Withholding  against  Porto  Rican  corporations.  .776 
Possessions  of  the  United  States;  citizens  of.  .766 
Possessions  of  the  United  States  defined.  .770,  1740 
Credit  for  taxes  paid  to.  .775,  776,  1733 
Income  taxes  in  Porto  Rico  and  the  Philippines.  .771 
Tax  liability  of  citizens  of.  .766 

Possessions  of  the  United  States;  income  from  sources  within  received  by  citizens  of  U.  fc>., 
or  domestic  corporations  (Sec.  262) . .2070  . 

(See  “Citizens  entitled  to  benefits  of  Section  262”  or  “Domestic  corporations  entitled  to 
benefits  of  Sec.  262.”) 

Possessions  of  the  United  States;  taxes  in: 

Porto  Rico  and  Philippines . . 771 
Virgin  Islands.  .768 
Postage  is  not  a tax.  .1703 

Postal  savings  bank  accounts:  interests  on.  .1567,  1570 
Posting  of  names  of  persons  making  income  tax  returns.  .2706 
Poultry  raising  organizations.  .1020 

(See  “Farms  and  farmers”  at  1,  Index  Page  19.) 1 
Power  of  attorney  does  not  create  fiduciary  relationship . . 924 
Preferred  stock:  dividends  vs.  interest.  .1690 
Preferred  stock:  redemption  of . . 1277 
Premium:  bonds  issued  or  retired  at.  .1279 
Premium:  capital  stock  sold  at.  .1275 
Premium  coupons:  subtraction  for  redemption  of.  .1612 
Premium:  fidelity  bond.  .1644 
Premium:  preferred  stock  redeemed  at.  .1277 

Premiums,  life  insurance:  when  a beneficiary  under  the  policy.  .1631,  1638 
Premiums:  on  own  life  insurance.  .1623 
Return  of . .1554,  1555 
Premiums  on  group  insurance.  .1168 
President  of  the  United  States:  salary.  .1068,  1156 

Prevention  of  cruelty  to  children  or  animals:  gifts  (See  "Gifts”  at  2,  Index  Page  22.) 

Corporations  organized  for.  .1010,  1030 
Priests:  fees  received  by.  .1156 
Principal  office  of  foreign  corporation . . 1424 
Principal  place  of  business.  .2536 

Prior  laws:  continuing  effect  of  parts  of^l918  act.  .2774 
Private  banks.  .989,  1098,  1185 
Privilege  taxes  deductible.  . 1704 
Produced  defined.  .2150,  2160 

Productive  use;  property  held  for,  exchanged.  .1460 
Professions: 

Capital  expenditures  incident  to.  .1643 
Expenses  incident  to.  .1623,  1643 
Income  from  .1069 

Profit  or  loss  (See  “Gain  or  loss”  at  1,  Index  Page  22.) 

Profit  sharing  trust  fund  for  benefit  of  employees.  .968 
Distributions  to  employees.  .969 
| Promissory  notes: 

1 As  compensation ..  1178 

Discounted:  accounting  for  proceeds.  .1178 
Sales  of  personal  property.  .1837 
Sales  of  real  property . . 1249,  1250 

Valuing  in  connection  with  allowance  for  bad^debts.  .1810,  1814 
Proof  of  residence  by  aliens.  .758,  760 
Propaganda:  expenditures  for  exploitation  of.  .1675 
Property: 

Acquired  by  descent.  .1558 

Amortization:  property  used  for  war  purposes.  .1860 
Depreciation  of.  .1827 

(See  “Depreciation”  at  1,  Index  Page  13.) 

Dividends  paid  in . . 1084 
Exchanged  for  other  property.  .1456 
Exhaustion  of . . 1827 

(See  “Depreciation”  at  1,  Index  Page  18.) 

Income  from  dealings  in.  .1069 

Loss  of  useful  value  .1801 

Losses  on  account  of.  .1776,  1779,  1783 

Compensation  for:  replacement  fund.  .1257,  2037 

C opyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  35 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Property. — Concluded. 

Obsolescence  of.  .1827 

Salary  as  part  payment  for.  .1651,  1663 

Sales,  generally.  . 1068,  1069 

State  purchasing  property  subject  to  mortgage.  .1564 
Title  to:  cost  of  defending  or  perfecting.  .1630 
Use  of  permanently  discontinued.  .1859 
Protest  on  payment  of  tax: 

Bar  to  final  determination  and  assessment  by  agreement.  .2862 
Bearing  on  payment  of  interest  on  refunds  and  judgments  2855 
Public  purposes:  gifts  for.  .2001 
Public  records:  returns  are ..  2659 
Public  school  teachers  compensation.  .1599 
Public  utility: 

Operating  State  owned  property.  .985 
Privately  operated  under  contract  with  State.  .1597 
Service  connections  or  pipe  extensions.  .1632 
Purchasing  agents:  farmers  or  fruit  growers  associations  acting  as.  .1015,  1039 
I urpose  to  avoid  surtax:  undistributed  profits  of  corporations  733 
Evidence  of.  .743 

Quarters:  federal  employees.  . 1169 
Quarters  furnished  employees.  .1168 
Race  or  race  track  associations.  .1020 
Race  track  winnings  and  losses.  .1794 
Railroad  fares.  .1625,  1678 

Railroads:  interest  on  car-trusts  or  equipment  trust  certificates  1691 
Rates  for  computing  depreciation.  .1842 
Rates  for  1921: 

Corporations.  .973 

Foreign  corporations:  withholding  at  source.  .2222 
Life  insurance  companies.  .1310 
Normal  tax  on  individuals.  .710,  2087 
Surtax  on  individuals.  .722 
Rates  for  1922: 

Capital  net  gain.  .1499 
Corporations.  .974 

Foreign  corporations;  withholding  at  source.  .2056 
Insurance  companies,  other  than  life  and  mutual.  .1366 
Life  insurance  companies.  .1310 
Normal  tax  on  individuals.  .710,  2087 
Surtax  on  individuals.  .727 
Razing  of  old  buildings.  .1435 
Readily  realizable  market  value.  .1457 
Real  estate  agents:  commissions  paid  to.  .1672 

Real  estate  apart  from  improvements:  depreciation.  .1832,  1840,  1841 
Real  estate  sold  in  lots . . 1244 

Real  estate  sold  on  instalment  or  deferred  payment  plan.  .1240,  1245 

Real  estate  transferred  by  exercise  of  right  of  eminent  domain  orjin  anticipation  thereof.  .1257 
rteceipts  for  tcixos.  . 2798 

Amounts  withheld  at  source.  .2810 
Receiver  appointed  by  State  court:  commissions.  .1699 
Receiver  in  partition  proceedings.  .956 
Receiver  of  corporation  in  liquidation.  .1294 
Receiver  of  rents  and  profits  of  mortgaged  parcel.  .956,  2500 
Receiver  operating  business  or  property  of  a corporation.  .2499 
Receivers:  returns  by.  .956,  2500 
Common  law.  .956 

In  possession  of  part  only  of  property  of  individual.  .921,  956 
Statutory . . 956 

Reclamation  district  bonds.  .1564 
Recomputation  of  tax  installments.  .2597 
Record  V3.  actual  owner  of  stock.  . 1083 
Records  to  be  kept.  .2709 

By  employers,  of  Form  1078  received.  .763  , 

Recoveries  of  bad  debts  or  accounts  charged  off.  .1260 
Recoveries  on  judgments.  .1260 
Recoveries  on  patent  infringements.  .1260 
Red^Cross:  gifts  to.  .2001.  2008,  2013,  2021 
By  corporations.  .1329,  1592,  1603,  2588 
Redemption  of  bonds  by  corporations.  .1279 
Redemption  of  preferred  stock..  1277 
Redemption  of  trading  stamps:  subtraction  for.  .1612 
Refund  claims.  .2598,  2825 
Appropriation  for.  .2919 

Claim  for  (or  for  credit)  essential  for  allowance  of  interest,  if  any.  .2854 
Claim  for  (or  for  credit)  essential  to  right  to  bring  suit.  .2882 
Claims  to  be  made  within  4 years,  generally.  .2827 

Claims  to  be  made  within  5 years,  where  examination  of  return  is  involved.  .2826 
Exception . .2850 

Commissioner’s  authority  to  grant.. 2811 
Interest  on.  .2854 

Refund  by  employers  of  excess  amounts  withheld  against  nonresident  aliens.  .2212,  2216 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  36 


3-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  arc  to  paragraph  numbers. 


Refund  of  amounts  found  to  be  due  the  taxpayer  as  result  of  examination  of  returns  of  prior 
years.  .2825,  2836 

Refund  of  excess  amounts  paid  on  account  of  underestimating  accruals.  .1741,  1761 
Refund  of  excess  amounts  paid  on  installment  tax  payments.  .2698,  2836 
Refund  of  taxes  paid  in  prior  years:  effect  on  income.  .1706,  1713 
Refund:  right  to,  tax  having  been  paid  without  specific  protest.  .2847 
Registered  interest:  no  ownership  certificate  filed  by  owner.  .2317 
Registered  interest:  return  of  information  at  source.  .2364 
Regulations:  Commissioner  authorized  to  make.  .2942 
Retroactive  and  non-retroactive . .2944 
Regulations  No.  62  (For  complete  table  of  contents  to  Reg.  62,  see  page  93.) 

Religious  purposes:  gifts  on  account  of.  .2001  (See  “Gifts”  at  2,  Index  Page  22.) 

Corporations  organized  for.  .1010,  1030 
Removal  of  old  buildings.  .1800 
Renewal  premiums:  commissions  on  .1166 
Rent  as  expense. .1681 

Leasehold:  purchase  of ..  1683 
Professional  men.  .1623,  1624 
Rent  as  income.  .1070,  1252 

Improvements  by  lessee  as  rental.  .1252 
Nonresident  aliens.  .2119 
Payments  in  lieu  of  rental.  .1252,  1256 
Rental  value,  loss  of  or  increase  of:  effect  on  depreciation.  .1848 
Rental  value  of  minister’s  house  exempt.  .1604,  1608 
Rents  and  royalties:  nonresident  alien.  .2119,  2128 
Reopening  of  cases.  .2868 
Reorganizations: 

Defined . . 1462 

Exchange  of  stock  or  securities  in  connection  with.  .1461 
Profit  or  loss  from  subsequent  sale.  . 1485 
Profit  or  loss  resulting  from.  .1461,  1468 
Reorganization  of  partnership.  .1490 

Repairs  as  deductible  or  nondeductible  item.  .1629,  1631,  1642 
Lessees.  .1683 

Local  benefit  assessments.  .1716 
Replacement  fund  for  loss.  .1257,  2022,  2037 
Valuing  property  acquired.  .1475 

Reserve  for  bad  debts.  .1820,  1822 
Replacements:  expense  vs.  capital  investment.  .1056,  1628,  1642 

Repossessing  property  sold  on  installments  or  on  deferred  payment  plan.  .1237,  1249,  1260 
Reserve  funds;  insurance  companies.  .1351 
Net  decrease,  as  income.  .1350 
Reserves  in  lieu  of  insurance.  .1646 
Residence  abroad:  citizen ..  746,  748,  751 
Residence:  depreciation  on.  .1822 
Residence:  insurance  on.  . 1623 
Residence,  loss  of  status:  by  alien.  .759,  2217 
Residence,  loss  of  individual’s  own  by  fire,  etc.  .1783 
Sale  of.  .1783 

Residence,  proof  of:  by  alien.  .756,  758,  760 
By  use  of  Form  1078.  .756,  758,  760 
Resident  aliens:  taxable  status  of.  .746 

Credit  for  income  and  excess  profits  taxes  paid  to  foreign  countries.  .1736 
With  children  abroad  is  not  “head  of  family”.  .2049 

With  wife  abroad  is  not  “living  with  wife”  for  purposes  of  specific  exemption.  .2050 
Resident  foreign  corporation  defined.  .1400 

(See  “Foreign  corporations”  at  2,  Index  Page  19.) 

Retailers:  inventories.  .1509,  1525 
Retired  pay  or  retiring  allowances.  .1156,  1674 
Retirement  of  bonds,  by  corporation.  .1279,  1696 
Losses.  . 1289 

Ownership  certificates.  .2283 
Sinking  fund.  .1274 
Returns.  .2382 

Absence.  .926,  2562,  2566,  3032 

Accounting  period:  calendar  year  or  fiscal  year.  .1064,  2574 
Change  of.  .1065,  2567 
Affiliated  corporations.  .2539,  2544 
Agent  may  make.  .925,  2486 

Amended  returns  (See  “Amended  returns”  at  1,  Index  Page  2.) 

Assignees.  .2500 

Assistance  from  collectors  in  preparing.  .2519 

Basis  for  making.  . 1064 

Beneficiaries  of  trust  estates.  .878,  910 

Bond  interest  where  no  withholding.  .2323 

Brokers:  special ..  2380 

Calendar  year  or  fiscal  year  basis.  .1064 

Capital  net  gain.  .1506 

Collectors  may  make.  .2612 

When  tax  is  due  under  such  return.  .2626 
Commissioner  may  make.  .2614 

When  tax  is  due  under  such  return.  .2623 
Community  property.  .2391,  2482 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  37 


8-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Returns. — Continued. 

Consolidated  returns  of  affiliated  corporations.  .2539,  2544 
Affiliated  corporations  defined.  .2552 
Assessment  of  tax.  .2549 

Consolidation  of  accounts  of  two  or  more  related  businesses.  .2660 
Different  fiscal  years.  .2548 

Domestic  corporation  entitled  to  the  benefits  of  Section  262.  .2558,  3032 

Foreign  corporations . . 2547,  3082 

Forms  for  making,  .2544,3532 

Mandatory  prior  to  1922.  .2642 

Net  income.  .2561 

Optional  for  1922  and  thereafter.  .2539 
Personal  service  corporation.  .2546 
Purpose  of . . 2543 
Specific  credit  of  $2,000.  .2550 
Corporations:  annual  tax  returns  by.  .2487 
Affiliated  corporations.  .2539,  2544 
Assignees  operating  business  or  property.  .2499 
Change  of  corporate  name . . 2498 
Consolidated  returns.  .2539,  2544 
Dissolved  prior  to  October  4,  1917.  .2491 
Dissolved  prior  to  passage  of  Revenue  Act  of  1921.  .2489 
Dissolved  prior  to  Lime  for  filing  return.  .2490,  2537 

Domestic  corporation  transacting  business  abroad  or  whose  income  is  derived  from 
sources  in  U.  S.  possessions:  extension.  .3032 
Extension  of  time  for  filing;  domestic:  for  calendar  year  1921  and  fiscal  years  ended 
Jan.  31  or  Feb.  28, 1922. .3041 

Extension  of  time  for  filing:  foreign:  for  1921  and  subsequent  years.  .3032 

Foreign  corporations  . 1418 

Forms  for  making.  .2489 

In  existence  during  any  part  of  year.  .2489 

In  liquidation.  .1295,  2492,  2535,  2537 

Organization  not  perfected  and  no  income.  .2489 

Receivers,  trustees  in  bankruptcy  and  trustees  in  dissolution.  .956,  1294,|1295,  2499 
Statement  of  current  earnings  distributed  or  ordered  distributed.  .2508 
Tentative  for  calendar  year  1921  or  fiscal  year  ending  Jan.  31,  1922  or  Feb.  28, 
1922. .3041 

Correct  returns  essential . . 1057 
Correction  of.  .2502,  2579 
Decedent  to  time  of  death.  .939,  954 
Disclosing  contents  of . . 2696 

(See  “Inspection  of  returns”  at  1,  Index  Page  24.) 

Dividend  payments.  .2378 
Dividends:  actual  vs.  record  owner.  .1083 
Each  year's  return  to  be  complete  in  itself.  .1057 
Examination  of  persons  and  books.  .2593,  2597 
Extension  of  time  for  filing.  .2562 

By  collector  on  account  of  absence  or  sickness.  .2562 
By  Commissioner  in  his  discretion.  .2563 

Domestic  corporations:  special  for  calendar  year  1921  and  for  fiscal  year  ended 
Jan.  31  and  Feb.  28,  1922.  .3041 

Domestic  corporation  transacting  business  abroad  or  whose  income  is  derived  from 
sources  in  U.  S.  possessions . . 3032 
Effect  on  tax  payments . . 2722 

Fiduciaries,  partnerships  and  personal  service  corporations  for  1922.  .3009 

Foreign  corporations.  .3032 

Foreign  partnerships.  .3032 

Persons  in  military  or  naval  service . . 3032 

Persons  living  abroad.  .3032 

Special  for  year  1921  for  returns  of  tax  to  be  paid  at  source.  .3044 
Failure  to  make  return.  .2612,  2618,  2623,  2625,  2627,  2628 
False  returns.  .2577,  2601,  2612,  2627,  2628 
1 Fiduciaries:  returns  by.  .900,  921,  928,  935,  939 

Administration  of  estate  completed.  .954 
Beneficiaries’  distributive  shares  to  be  listed . . 938 
Contents  of . . 937 

Extension  of  time  for  filing  (1922) . .3009 
For  nonresident  alien . . 933,  960 
Foreign  fiduciaries.  .961 
Forms  to  be  used . . 939 
Guardian  or  committee.  .958 
Income  of  minor.  .957 
Receiver.  .956 
Termination  of  trust.  .954 
Two  or  more  joint  fiduciaries.  .936 
Two  trusts.  .955 
Final  returns.  .2489,  2535,  2537 

Fiscal  or  calendar  year  basis.  .1064,  2523,  2524,  2526 
Foreign  corporations.  .1418,  1421,  2533 
Extension  of  time  for  filing.  .3032 
Having  no  office  or  place  of  business  in  U.  S.  .2528 
Foreign  items.  .2366 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  38 


r 8-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Returns. — Continued. 

Foreign  partnerships.  .3032 
Forms  for  making  returns.  .1998,  2501 
Corporations.  .2489 

Consolidated  returns.  .2545 
Fiduciaries . . 939 
Foreign  corporations.  .1419 
Individuals.  .2486 

Information  at  the  source.  .2343,  2352,  2355 
Nonresident  aliens.  .2182 
Partnerships.  .794 
Personal  service  corporations . . 843 
Withholding  at  the  source . . 2322 
Fractional  part  of  year.  .2576 
Furnishing  copies  of  returns.  .2180 
Government  contracts.  .821,  822 
Head  of  family.  .2390 
Husband  and  wife.  .2386,  2390 
Community  property.  .2391 
Delinquency  of  one  return.  .2626 
Incompetents.  .958 
Increases  by  collector.  .2577 
Individuals.  .2382,  2390 

Forms  for  making.  .2486 
Information  at  the  source.  .2336 

(See  “Returns  of  information  at  the' source”  at  1,  Index  Page  40.) 

1 Inspection  of  generally.  .2660,  2662 

State  officials.  .2682 

Stockholders  of  corporation.  .2674,52691 
Insurance  companies . . 1362 
Last  due  date . . 2538 
Legal  holiday.  .2538 
List  of  individuals  making.  .2706 
May  be  requested  of  any  person.  .2592 
Minors.  . 857,  858 
Nonresidence.  .927 

, Nonresident  aliens:  by.. 2182 

Deductions  and  credits  allowed  only  if  full  return  be  made.  .2177 

For  nonresident  by  agents.  .2182 

For  nonresident  by  fiduciaries . . 933,  960 

Forms  for  making.  .2182 

When  filed.  .2526 

Oath:  returns  to  be  made  under.  .2510,  2514 
Partnerships.  .784,  789,  2305,  2524 
Accounting  period  changed.  .794 
Contents  of.  .790,  795,  1490 
Extension  of  time  for  filing  (1922) . .3009 
Foreign  partnerships  extension  of  time  for  filing.  .3032 
Form  for  making.  .794 
Period  covered  by.  .789,  794 
Period  covered  by . . 1064,  2574 
Change  of.  .1065,  2567 

Personal  service  corporations.  .837,  841,  789,  793,  2487 
Extension  of  time  for  filing  (1922) . . 3009 
Place  of  filing.  .2530,  2532 
Person  in  military  or  naval  service.  .3032 
Person  living  abroad.  .3032 
Public  records.  .2659 
Receivers.  .921,  956,  1294,  1295,  2499 
Secrecy  of.  .2696 

(See  “Inspection  of  returns”  at  1,  above.) 

Sickness.  .685,  2058 
Soldiers  and  sailors.  .2534,  2566 
Sunday. .2538 
Sworn  to: 

Corporations.  .2005 
Fiduciaries.  .934,  2513 
Inditiduals.  .2006 
Partnerships.  .2512 
Tentative  returns.  .2501,  2565 
Corporations  (1922).  .3041 
Time  for  filing.  .2523 

Trustees  in  dissolution  and  in  bankruptcy.  .921,  956,  1294,  1295,  2499 
Understatements.  .2577,  2599,  2612,  2627 
Verification  of.  .2510 
When  filed: 

Citizens  and  residents.  .2524,  2525,  3032 
Domestic  corporations.  .1418,  2523,  3032 

Special  extension  for  calendar  year  1921  or  fiscal  year  ending  Jan.  31,  or  Feb.  28, 
1922. .3041 

Fiduciaries.  .2524,  2525,  3009 

Foreign  corporations  having  office  or  place  of  business  here.  .1419,  3082 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  39 


8-7-22. 


IMPORTANT.  -CONSULT  THE  PINK  SHEET. 

general  index. 

The  references  are  to  paragraph  numbers. 


1 


Returns. — Concluded. 

Informat1onPreturnsS  .^mfsoog0^6  °r  plaCe  °f  busines3  here.  .1418,  2623,  3032 
Nonresident  aliens.  .2526,  2527 
Partnerships.  .2524,  2525,  3009 
foreign  partnerships.  .3032 
WtS/rV,C!  corporations.  .2524,  2525,  3009 
c!*1??  d‘nB  returns.  .2320, ,3044  Uy 

w*ltru  t!i?d-  1421>  1422,  2530-2533 

Withholding  at  the  source.  .2319,  2322,  3044 

^etu$i  ooo-'n^T™'a  * ” ^"a^e  49‘^ 

Annu?Ues  2350a3  t0  payments  aggregating.  .2343 

etc--235° 

BrokersT customers,Stran8actionsr?2?80OUn^r*eS ' " 2339 

^rporatnins:  payments  made  to.  .2350 

Dividends.  .2350,  2378 

Fiduciary  returns . . 2336 

Extension  of  time  (1922) . .3009 
Foreign  items.  .2356 

License  required.  .2371 

0“'‘  °n  demand'  -2369 
Penalties  ",  2373  accomPanies  item.  .2366 
Return  of  information.  .2368 

required  in  certain  cases.  .2357 
source  of  information.  .2357 

' titute  certificates  not  permitted.  2368 
Forms  for  making  returns.  .2343,  2352,  2355 
Government  salaries  to  employees.  .2350^ 

Insurance  agents  and  agencies.  .2347 
I,,™1  on  corporate  obligations.  .2353 

Nonresident  aliens.  .2350,  2352  35°’  2358 

P^tnershupCreturSteS2336S^*^U^e  r6tUrnS'-in  case  °f  bond  interest. . 2355 

Extension  (1922).  .3009 

Penalties  °f  inC°m<2'  2370 

Personal  service  corporation  returns . . 2343 

Extension  (1922).  .3009 

Kiece-work  payments.  .2349 

Kent  payments.  .2350 

Wav!?  States  bond  interest.  .2350,  2351 

WhL3fi1enlS2!4rr3O00lT044yeeS'  -2345’  2349 
Where  filed.  .2343 

Review  ^1A-P!leal:  Committee  on-  2921 

Revised  Stftnr»10n| ofJhe  Commissioner.  .2866 

l!  Set  Il64  2777ectl0ns  amended  or  ree"acted  without  change: 

Sec.  3165.  .2710 

Sec.  3167.  .2696 
Sec.  3172,  .2583 
Sec.  3176.  .2612 
Sec.  3220.  .2811 
Sec.  3225.  .2881 
Sec.  3226.  .2882 
Sec.  3227  (Repealed).  .2885 
Sec.  3228.  .2827 
Sec.  3689.  .2919 
Rights,  sale  of.  .1219,  1220 
Road  district  bonds.  .1564 
S .8!33  income.  .1074,  2119,  2128 

Retroa^  tivee^danon3ret?oacti1^Si0294/U^b0r'Zed  t0  make'  ‘2942 
SatrPosPirboaxb3reX\qUl1|i7°nS ' ' ^ 2954 

EquSmenroVmi623:  reSideDt  °r  n°nre3ident  aliena-  -756.  2096 
May  file  at  Baltimore.  .2534 

Naval  forces  of  the  United  States:  compensation  use 
Salary  paid  by  employer  during  war.  .1674  **  ’ 388 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  40 


3-7-22. 


ORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Salaries: 

As  item  of  expense.  . 1648,  1654 
As  item  of  income.  .1068,  1156 

(See  ‘‘Compensation  for  personal  services"  at  1,  Index  Page  8.) 

Sale  defined.  .2160 
Sale  of: 

Bonds  (its  own)  by  a corporation.  .1279,  1696 
Capital  assets:  income  from.  .1069,  1074,  1292,  1696 
Capital  stock  by  a corporation.  .1275,  1635,  1696 
Good  will.  . 1236 
Patents  and  copyrights.  .1235 

Plant,  machinery,  equipment,  etc.,  installed  or  acquired  on  or  after  April  6,  1917: 
losses. . 1525 

Property  acquired  prior  to  March  1,  1913.  .1438 
Property  to  corporation  for  its  stock.  .1463 
Stock  and  rights.  .1219,  1220,  1787 

Stock  received  as  stock  dividend.  .1135,' 1136,  1141,  3010 
Sales  agents:  farmers’  or  fruit  growers’  associations  acting  as.  .1859 
Sales:  income  from.  .1069 

Basis  for  determining  profit  or  loss.  .1421,  1433,  1783 
Deferred  payment  sales.  .1237-1250 
In  foreign  commerce.  .1075 
Installment  sales.  .1237-1250 
Personal  credit  of  vendee.  .1237 
Salvage  values:  amortization  claims.  .1869,  1870 
Salvage  values:  gain  or  loss  on  sale  of  depreciable  property.  .1859 
Sample  room:  use  of.  .1578 

Saving  clause  in  event  of  unconstitutionality.  .2970 
Savings  bank  interest  credited  but  not  drawn . . 1272 
School  district  bonds.  . 1564 

Scientific  purposes;  gifts  on  account  of.  .2001  (See  “Gifts”  at  2,  Index  Page  22.) 

Corporations  organized  for.  .1010,  1030 
Scrapping  of  old  machinery.  .1800 
Scrip  dividends . . 1084 
Interest  on.  .1690 

Seamen  alien  or  otherwise.  .756,  2096 

Status  of  board  and  lodging  furnished.  .1177 
Second  assessments:  abatement  and  refund.  .2881 
Secrecy  of  returns.  .2659,  2696 

(See  “Inspection  of  returns”  at  1,  Index  Page  24.) 

Secret  formulae  or  processes:  depreciation  of.  .1834 
Secretary  defined.  .740 
Secured  debts  taxes.  .1703 
Securities: 

Commissions  paid,  for  buying  or  selling.  .1630 
Dealers  in:  inventories.  .1521,  1792 
Banks  as.  .1522 

Exchange  of,  in  connection  with  reorganizations.  .1461 
Profit  and  ioss  from  subsequent  sale.  . 1485 
Gifts  of,  to  charitable,  etc.,  institutions;  valuing.  .2004 
Income  from  as  gross  income.  .1070,  1074,  1179 
Foreign  corporations.  .1407 
Nonresident  aliens.  .2110 

Purchase  of  by  corporation  not  employment  of  income  in  its  business.  .743 
Purchased  and  carried  for  customers:  interest  paid  and  received.  .1213 
Sale  of:  profit  or  loss.  .1219,  1485,  1783,  1787 
Shrinkage  in  value  of,  or  worthless.  1802,  1818,  1835 
State:  interest  and  discount  on.  .1212,  1217 
United  States  (See  “United  States  bonds”  at  1,  Index  Page  47.) 

Wash  sales.  .1787 

Corporations.  .1789 

Selling  expenses  in  connection  with  gross  income.  .1179 
In  connection  with  net  income.  .1640 
Separation  agreement:  amount  received  by.  .1559,  1623 
Service  connections:  public  utility.  .1632 
Sewer  district  bonds.  . 1564 

Shareholders  (See  “Stockholders”  at  1,  Index  Page  43.) 

Shifts:  operation  of  plants  in;  depreciation.  .1847 

Shipowners’  mutual  protection  and  indemnity  association:  receipts  by.  .1605,11609 
Ships  (See  “Vessels”  at  1,  Index  Page  48.) 

Shipwreck  losses.  .1776,  1779,  1783,  1786 
Compensated  for  1257,  2022,  2037 

Shrinkage  in  value  of  stock  in  trade  deductible  only  in  year  sustained.  . 1786 
| Sickness: 

Agent  may  make  return.  .927,  2486 

Amounts  received  on  account  of:  insurance,  etc.  .1552,  1557 
Cause  for  extension  of  time  for  filing  returns.  .2562 
Simplification  Board.  .2961 
Single  person:  specific  exemption.  .2044 
Sinking  fund.  . 1274 

Additions  to;  bearing  on  undistributed  profits  provision.  .744 
Trustee  in  control  of.  1274 

Investment  of  fund  in  bonds.  .1274 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  41 


net 


3-7-22. 


important.-consult  the  pink  sheet. 


general  index. 

The  references  are  to  paragraph  numbers. 


Smith-Lev^^Acf^c^Tmpensati^o^colWe  i Supplementary  Page  1|S10 
Sold  defined.  .2160  mpei n8aUon  ol  college  employees.  1599 
Soldiers: 

Compensation  of.  .1156,  1555 

Equipment  of.  . 1626 

May  file  at  Baltimore.  .2524 

Salaries  paid  by  employers  during  the  war  167a 

Source:  withholding  at  flee  ‘‘ WRKdfn^^th31*0"  at,10uree”  at  1.  index  Page  40.) 

Special  assessment  districts:  holding  at  the  source  at  1,  Index  Page  49. ) 

Exempt  interest  on  obligations  of.  .1560 
Taxes  for  benefit  of.  .1714 
1 Special  counsel  to  a municipality.  .1602 
1 (|  Specific  exemption  . .2044 

Citizens  entitled  to  benefits  of  Sec.  262  2175 
Claiming  at  source.  .2179 
Corporations.  .2058,  2061 
Affiliated.  .2550 

Date  determining  Btatus'lor.  °2055ng  penod'  -2573’  2576 
D^ndemsyin|o5iring  taXaWe  year'  -2054’  2055 

Estates  and  trusts. al*en  °r  Cltizen  entltle<i  to  benefits  of  Sec.  262.  .2175 
Fiduciaries  for  beneficiaries.  .925,  937  950 
Heads  of  families.  .2045,  2049  ’ 

Married  persons.  .2045,  2050 

Divisible  as  they  please.  .2055 
Nonresident  aliens.  .2175,  2180 
Claiming  at  source.  .2179 
Single  persons.  .2043 

Surtax:  specific  exemption  does  not  apply  to  719 
Tax-free-covenant  bond  interest:  withholding  ' 2252 
Nonresident  aliens.  .2254 

Specific  penalties.  .2627 

Recoverable  by  suit  only.  .2629 

Stamp  taxes  are  deductible  . 1704,  1711 
State  contracts:  income  from.  .1184 
State,  etc.;  gifts  to,  for  public  purposes.  .2001 
State:  income  accruing  to ..  1596 

Public  utilities  operated  under  contract  1597 
<5tot<w,^men’sfomp?nsation  insurance  funds.  .1598 
Itote  8 and  emPIoyees:  compensation.  .1599,  1601 
State  officers,  inspection  of  income  tax  returns  2687 

State  securities:  interest  on.  .1560,  1564 

Dividends  by  corporations  receiving  such  tax  free  interest  1 080 
Interest  payments  on  indebtedness  to  purchase  or  carrv  1685 
Ownership  certificates  not  required.  .2265  carry.  -168o 

State  Ux^deduefffiTe6  °l7o3°Perty  SUbjeCt  t0  . 1564 

Tax-free-covenant  bond  interest.  . 1723 
Statement  as  to  net  losses  sustained.  . 1545 

?s  t°  redemption  of  trading  stamps.  . 1612 

s?urce  yH°29eign  corpora«<>ha  when  claiming  refund  of  excess  amounts  withheld  at 
StatsourncebL8n2°nreSident  aUenS  when  claimipS  refaad  of  excess  amounts  withheld  at 
Statement  (?ffidavit)  to  be  filed  by  exempt  organizations  1019 

by  corporation  2682  distributed  °r  °rdered  to  be  distributed  to  be  included  in  return 

IStSSS  tmoabdeesubPmftte0d  l°  inSpection  of  2666 

Government  contract  data.  .821,822 
StatemeCntScff?.fiIlnretS0“ii4.blJe  accu“nlation  of  profits  by  corporation  737 
Statements  to  be  Submitted  wUTturm8  3Uth°rity  t0  Change  meth°d  of  anting.  . 1061 

Depletion  o°f  “ 1953d  in"e  t0  particular  sour«-  ■ 732 
Depletion  of  oil  and  gas  wells.  .1956 
Depletion  of  timber.  .1992 

Statutorv  npt°tn^ati°n  t0  be  reported  annually  by  Commissioner.  .2707 

btatutory  net  income  vs.  commercial  net  income  . 1042 

Statutory  receivers . . 956 

Steamship  companies;  foreign.  .2099 

Stock:  actual  vs.  record  owner  of  .1083 

Stock,  bank:  taxes  paid  by  bank.  .1717,  1719 

Stock-  honlf  ‘n  common  >n.  connection  with  sale  of  preferred  or  bonds  1219 
bonus  or  compensation  to  employees.  .968,  1168,  1670 
otocx,  capital:  sale  of  its  own  by  a corporation.  . 1275,  1635,  1696 
Expenses  incident  to  sale  of.  . 1635 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  42 


8-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to^paragraph  numbers. 


Stock:  commissions  paid  in.  . 1673  _ _ ... 

Stock  dividends  (See  ‘‘Stock  dividends  at  1,  Index  Page  16.) 

Stock  exchanged  for  other  property.  .1463 

Mergers,  consolidations  and  reorganizations.  .1461,  14b/,  1480 
Stocks  and  bonds  exchanged  for  stocks  or  bonds.  . 1461 
Stock:  gift  of,  to  charitable,  etc.,  organization;  valuing.  .2003 
Stock  insurance  companies.  . 1348 
Stock  in  trade:  no  depreciation  of . . 1832 

Shrinkage  in  value  deductible  only  in  year  sustained.  178b 
Stock  of  other  companies:  dividends  paid  in . .1084,  1134 
Stock  paid  and  received  by  way  of  compensation.  .1168,  1271,  lb  10,  io/o 
Stock,  preferred:  dividends  vs.  interest.  .1690 

IK  <*« •* 

By  a corporation  of  its  own.  .1275,  1635,  1696 

Expenses  incident  to  sale  of  by  a corporation.  . 163b 
Rights  .1219,  1220 
Wash  sales.  .1787,  1789 
Stock  raising  corporations.  . 1020 

(See  “Farms  and  Farmers”  at  1,  Index  Page  19.) 

Stock  received  as  gift.  .1433,  1453 

Stock  (original  issue)  received  in  payment  for  property . . I4b3 
Stock  returned  to  corporation  for  resale.  .1275 
Stock;  tax  on,  paid  by  corporation  for  stockholder: 

The  corporation.  .1719 
The  stockholder.  .1329,  1717,  1720 
Stock:  treasury. .1275 
Stock  trust  certificates:  dividends.  1218 
Stock:  value  as  of  March  1,  1913.  .1445 
Good  will  considered.  .1448 
Stock:  worthless,  as  a deduction.  .1802,  1818 
Stockholders:  , . . lnoo 

Actual  vs.  record  owners  of  stock . . 1083 

Assessments  on  stock ..  1278,  1630  oaqa 

Assets  distributed  may  be  followed  for  corporation  s tax  .2492,  2408 
Building  and  loan  associations:  amounts  credited  to.  . 12  1- 
Canceling  debt  of,  or  to,  corporation.  .1258 
Consolidations:  profit  or  loss.  .1481,  1467 
Exchange  of  property  for  stock.  .1461 

Profit  and  loss  from  subsequent  sale.  . 1485 
“In  control”  of  corporation.  .1465 

In  corporation  failing  to  distribute  profits . 733  731 

In  corporation  owning  mine  or  well  in  connection  with  sale  there  • . 

Inspection  of  corporation's  return.  .2674,  2691  9109  oxqq 

Liquidating  corporation:  tax  collectible  from  stockholders.  .24  , 

Mergers:  profit  or  loss.  .1461,  1467 

Mines  and  wells:  no  depletion  allowance  1895  .-uj  bv  corporation  on 

Names  and  addresses,  and  distributive  shares  to  be  furnished  Dy  corpora 

request.  .737 

National  bank;  assessments  on.  .1630 
Personal  service  corporation . . 829 
Credits  allowed.  .851 
Tax  liability ..  836,  847 

United  States  bond  interest  exemptions.  .1588 
Reorganizations:  profit  or  loss.  .1461,  1467 
Returning  stock  to  corporation  for  resale.  .1275 
Salaries  as  officers.  .1651,  1663,  1665  ,999 

Taxes  paid  for  by  corporation.  .1329,  1717,  172U 
United  States  bond  interest  in  relation  to  the  corporation.  .1592 

Personal  service  corporations ..  1588  , chlication  to  ascertain 

Unreasonable  accumulations  of  profits:  stockholder  under  n g 

facts . . 739 

Stockholdings:  salaries  based  on.  .1651,  1663,  1665 

Stocks  and  bonds:  shrinkage  in  value  of,  or  worthless.  .1802.  1818,  1830 
Storm  losses.  .1776,  1780,  1783,  1786 
Compensated  for.  .1257 

SubsSaries^dWMends  on  stock  of  guaranteed  by  holding  company r.  743 

Subsidiary  relationship:  reasonable  expenditure  of  income  in  stock  of  subsidiary.  . <43 
Substitute  certificates.  .2266,  2311 

Fac-simile  signatures.  .2273,  2314 
License:  none  required.  .2313 
Use  of  not  permitted.  .2311,  2368 
Subtraction  for  redemption  of  trading  stamps.  .1612 
Succession  taxes  paid.  .1726,  1727 
2 Suits:  claim  for  refund  of  amount  recovered  by.  .2920 
Suits;  criminal  prosecutions.  .2630 

Suits  for  collection  of  taxes.  .2749,  2751,  2756  ,, 

Final  determinations  and  assessments  by  agreement  2862 
Suits  for  refund  in  case  of  false  or  fraudulent  return.  .2881 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  43 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

I he  references  are  to  paragraph  numbers. 


SuiU  for  refund  of  taxes: 

sstfsssfiaasB* ri!ht  * “■* 

, 2r  fraudulent  returns.  .2881 

^WIn^OT™d^0e“tan2“m“t  bY  agreement-  -2862 
Limitation  . .2882 

2870 

Sunday  "m  'connection*  *wi  th*1as  t VietMy  -1583 

Supertax  (See  “Surtax”  below.)  ' 588 

Supplies  as  expense  item.  . 1640,  1641 

Inventories  in  connection  with  1641 
Professional  man.  .1643 
Supreme  Court  decisions:  Act  of  1913.  .2971 

ActSnffiqnq6b‘1917’  ,?918  '2508-  2r,1°’  2994-  3009 

Surplus:  dividend  Sbutfons  5 Page  138-  ^S58 

Surtax  . 713 

Beneficiaries:  income  received  through  fiduciaries.  .716 
Dividends  received  through  fiduciaries.  .718 
Citizens  and  residents.  .713 
Computation  of  surtax.  .724,  728 

In  case  of  sale  of  mine  or  well  731 
Corporations  not  liable  to.  .717 

to  relieve  stockholders  of  tax.  .733 
Estates  ind". * 87?°'  aPP''Cab,e  l°  SUrtax-  7U'  2043 

Nonresident" aliens ."714,  2^)88°^:  maximUm  Citation ..  730 
Rates  for  1921.  .722,  725 
Rates  for  1922  and  thereafter.  .727 
Sword,  cost  of:  army  officer.  . 1623 
Tangible  property:  depreciation.  .1832 
Tariff  duties.  .1704,  1705 
Tax: 

All  individuals.  .746 

Capital  net  gain.  .1499 
Normal  tax.  .710,  711,  2087 
Surtax.  .713,  2088 

Rates  for  1921 . .722,  725 
tt  for  1922  and  thereafter.  .727 

Undistributed  profits  of  corporations.  733 
Capital  net  gain  . . 1499 

COTpomtionsCre9a7t2d  °''  aVai'ed  °f  t0  aV°id  individual  surtaxes ..  733 
Foreign  corporations.  .1397 
Personal  service  corporations  after  1921  839 

tt,  . . Alternative  tax  on,  for  1918  to  1921  .852 
Estates  and  trusts . . 873 

Paid  by  beneficiaries . . 890 
Paid  by  fiduciaries  . .878 
Foreign  corporations.  . 1397 

Insurance  companies  other  than  life  or  mutual  for  1922  and  thereafter  1366 
Life  insurance  companies  for  1921  and  thereafter  1309  1311  1344 
Nonresident  aliens.  .746,  754,2086  ' ’ ld44 

Capital  net  gain.  . 1505 
Normal  tax.  .712,  2087 
Surtax.  .713,  2088 
Partnerships;  members  of.  .778,  784 
Personal  service  corporations.  .836 

Alternative  tax  on,  for  1918  to  1921 . . 852 
lax.  collection  and  payment  of.  .2712 
Assessment  of.  .2728,  2747 

Four  year  limitation.  .2742,  2747 
Five  year  limitation.  .2744,  2747 
Notice  of  may  be  sent  by  mail.  .2740 
Claims  for  abatement:  effect  of.  .2726  2822 
Distraint.  .2779,  2780 

Enforcement  of  tax  lien  by  bill  in  equity  2781 

Extension  of  time ..  2722 
Fractional  part  of  cent.  .2788 
In  full.  .2719,  2731 
In  installments.  .2728 

Assessment  of  first  installment.  .2728 
Credit  or  refund  for  excess  payments . . 2598 

in,case  °f  failure  to  make  return.  .2624,  2718 
If  not  paid  when  due  all  of  tax  becomes  payable  2731 
Notice  and  demand  for  first  installment.  2728 
Recomputation  of.  .2597 
Interest  on.  .2724,  2725,  2727 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  44 


3-7-22. 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


* 

♦ 


Tax:  collection  and  payment  of. — Concluded. 

Payment  to  unauthorized  deputy  collector;  effect  of.  .2721 

Penalties.  .2627,  2725 

Receipts.  .2798,  2810 

Suits  for.  .2749,  2751,  2756,  2882 

Suits  to  restrain  collection  of.  .2780,  2870 

Treasury  certificates  of  indebtedness.  .2789,  2790,  2791 

Uncertified  checks.  .2789 

U.  S.  notes  in  payment.  .2789,  2790,  3015 

When  paid  .2712,  2731 

When  withheld  at  source.  .2221 

Where  paid.  .2720 

Tax  in  case  of  return  for  period  of  less  than  12  months.  .2072,  2574,  2576 
Tax:  interest  on.  .2724,  2725,  2727 
Tax  lien:  enforcement  of  by  bill  in  equity.  .2781 
Tax  notice  and  demand.  .2730 
First  installment.  .2728 
In  case  of  no  return  or  false  return.  .2623 
May  be  sent  by  mail.  .2740 
Tax' rates  differing  for  parts  of  taxable  year . . 861 
Tax  rates.  (See  “Tax”  at  2,  Index  Page  44.) 

Tax  rates:  withholding  at  source.  .2196,  2224,  2244,  2250 
Tax  receipts.  .2798 

Amounts  withheld  at  source.  .2810 
Tax:  recomputation  of.  .2597 
Tax  Simplification  Board.  .2961 

Tax  withheld  at  source  (See  "Withholding  of  tax  at  the  source”  at  1,  Index  Page  49.) 

Credit  for.  .1427,  2327 

If  paid  by  creditor  then  not  re-collected  from  debtor.  .2328 
Taxable  year.  .1046,  1060 
Change  of.  . 1065 

Declaration  of  termination  of.  .2782 
First  taxable  year.  .1063 

Taxable  year  embracing  parts  of  calendar  years  with  different  rates  or  law  provisions.  .861 
Taxes,  additional:  payment  of.  .2599,2623 

Foreign  taxes:  overestimated  accruals.  .1741,  1751 
Taxes:  credit  for  excess  profits  taxes  payable  to  United  States.  .2062 
Taxes:  credit  for  income  and  excess  profits  taxes  paid  or  accrued  to  other  jurisdictions.  . 
775,  776,  1733 

Taxes  deductible  or  not  deductible.  .1697,  1700 
Bank  stock:  taxes  paid  by  bank.  .1717,  1719 
Capital  stock  tax.  . 1703,  1712 
Estate  taxes.  .1697,  1726 
Federal  excise,  etc.  . 1704,  1711 
Foreign  corporations.  .1395 
Foreign  taxes.  .1699,  1702 

Income  and  excess  profits  taxes:  other  jurisdictions.  . 1699,  1702 
Income  and  excess  profits  taxes:  United  States.  .1698,  1703 
Inheritance  taxes.  .1726 

Insurance  companies;  taxes  paid  for  stockholders.  .1329 
Local  benefit  taxes  or  assessments.  .1703,  1714 
Construction  vs.  maintenance.  .1716 
Municipal  taxes.  .1703,  1716 
Nonresident  aliens.  .2162 

Paid  for  or  on  account  of  another:  deductible.  .1683,  1717,  1722,  1723 
Postage  is  not  a tax.  .1703 

Refund  of  taxes  paid  in  prior  years:  effect  on  income.  .1705,  1713 
Secured  debt  taxes.  .1703 
Stamp  taxes.  .1704,  1711 
State  taxes.  . 1703 

Tax-free-covenant  bond  interest:  tax  paid  by  obligor.  .1722,  1723 
United  States  taxes.  .1698,  1703 
Taxes,  foreign.  .1733-1758 

Payment  not  to  relieve  of  U.  S.  tax  liability.  .709 
Taxes  paid  for  another  as  additional  income  to  him.  .1154,  1683 
Taxes  payable.  .2712 

Amounts  withheld  at  source.  .2319 
Capital  net  gain  being  involved.  . 1502 
Evasion  of  surtaxes  by  incorporation.  .733 
Manner  of  payment.  .2789,  3015 

Taxes,  penalties,  etc.;  limitation  on  suits  for  collection.  .2749,  2751 
Final  determinations  and  assessments  by  agreement.  .2862 
Taxes,  penalties,  etc.:  suits  for  refund  of: 

Claim  for  refund  or  credit  essential.  .2882 
Final  determination  and  assessments  by  agreement.  .2862 
Interest  on  judgments.  .2916 
Limitation.  .2882 
Tax-free-covenant  bond  interest: 

Bonds  not  containing  covenant  may  not  be  considered  tax-free.  .2236 
Car  or  equipment  trust  certificates.  . 1694 
Court  case.  .2258 
Exemption  claims.  .2252 

Foreign  corporation  with  United  States  fiscal  agent.  .2250,  2362 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  45 


8-7-22, 


IMPORTANT.— CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Tax-free-covenant  bond  interest. — Concluded. 

Form  of  covenant  which  relieves  debtor  of  obligation  to  withhold.  .2257 
Old  1%  covenant.  .2247 
Partnership.  .2303 

Tax  paid  by  obligor  credit  to  obligee.  .2327 
Tax  paid  by  obligor  not  income  to  obligee.  .1076,  1728 
Tax  paid  by  obligor  not  deductible  by  him.  .1722 
Except  in  case  of  State  taxes  so  paid . . 1723 
Tax  withheld  in  any  case  unless  owner  is  known.  .2248 

Withholding  tax  at  source  (See  “Withholding  at  the  source”  at  2,  IndexJPage'49.) 
Tax-free  obligations.  .1560,  1664 

Consolidation  of  Liberty  bond  tax  exemptions.  .1671 
Interest  payments  on  indebtedness  to  purchase  or  carry.  .1685,  1687 
Dividend  paying  stock.  .1689 
Taxpayer  defined.  .703 

Teachers,  public  school:  compensation.  .1599 
Telephone  companies,  mutual  or  cooperative.  .1014,  1037 
Tenants  (See  "Lessees  and  lessors”  at  1,  Index  Page ,27.) 

Tennessee  levee  districts:  assessments.  .1716 
Tentative  returns.  .2501,  2565 
Corporations  (1922).. 3041 
Terminable  interest:  amortization  of.  .914 
Termination  of  taxable  period:  declaration  of.  .2782 
| Terms  defined: 

Affiliated  corporations.  .2552 
By  the  same  interests.  .2555 
Capital  assets.  . 1497 
Capital  deductions.  .1494 
Capital  gain.  .1492 
Capital  loss.  . 1493 
Capital  net  gain.  .1495 
Citizen.  .748 
Collector . . 742 
Commissioner.  .741 
Corporation . . 986 
Debtor.  .2259 
Deficiency.  .2599 
Dividend. . 1077 
Domestic  corporation.  .2059 
Domestic  partnership . . 2059 
Farm.  .1189 
Farmer.  . 1189 
Fiduciary . . 922 
Fiscal  year . . 1062 

Foreign  corporation  or  partnership.  .1398 

Foreign  country . . 1749 

Government  contract.  .820 

In  control . . 1465 

Insurance  companies.  .1370 

Life  insurance.  . 1309 

Lodge  system . 1022 

Market  value . . 1457 

Military  and  naval  forces.  .1556 

Net  income.  .1042 

Net  loss . .1527 

Nonresident  alien.  .754,  2086 

Paid . . 1047 

Paid  or  accrued.  .1047 

Paid  or  incurred.  . 1047 

Period  of  administration  or  settlement.  .875 
Person  .705 

Personal  service  corporation.  .815,  825 
Political  subdivision  of  state  or  territory.  .1564 
Possession  of  the  United  States.  .1749 
In  connection  with  Sec.  262.  .2078 
Produced. .2150,  2160 

Reasonable  cause  for  delay  in  filing  return.  .2626 

Reasonable  compensation  as  salary.  .1650,  1654 

Reorganizations.  .1462 

Sale.  .2160 

Secretary.  .740 

Sold.  .2160 

Taxable  year.  .1060 

Taxes  paid  during  taxable  year:  in  connection  with  credit  for  taxes.  .1749 
Taxpayer.  .703 
Undue  hardship.  .2608 
United  States.  .1399 
Withholding  agent.  .2226 
Territories:  income  accruing  to.  .1696 
Territories:  obligations  of.  .1560,  1564 
Territories:  officers  or  employees  of.  .1068 
Texas:  community  property  of  husband  and  wife.  .2391 
Theatrical  properties  and  costumes:  depreciation.  .1832 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Index  Page  46 


8-7-22. 


IMPORTANT.  - CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


+ 


Theft,  loss  from:  when  deductible.  .1057,  1428,  2022,  2037 
Compensation  for.  . 1257 
Tips. .1156 

Title  to  property:  cost  of  perfecting  or  defending.  . 1630 
Timber:  depletion.  .1881,  1980,  1985 

Depreciation  of  improvements.  .1991 
Fair  market  value;  determination  of.  .1993 
Lessees.  . 1891,  1892  . . 

Trade  marks,  brands  and  names:  depreciation  of.  .1834 
Trades:  income  from.  .1069 

Net  losses  in  connection  with.  . 1528 
Trading  as  a principal:  personal  service  corporations.  .575,  584 

Trading  stamps:  redemption  of . . 1270  j on  \ 

Transfers  of  property  (See  “Gain  or  Loss:  basis  for  determining  at  1,  Index  Page  22.) 
Traveling  expenses.  .1624,  1678 
Treasury  Certificates  of  Indebtedness: 

Exempt  status  of  interest.  .1570,  1576,  1579,  1586 
Payment  of  taxes  by  means  of.  .2789 
Treasury  stock.  . 1275 

Trees:  depreciation  and  loss  by  death.  .1209 

Truck  farms  (See  “Farms  and  Farmers”  at  1,  Index  Page  19.) 

Trust  deeds  with  tax-free-covenant:  bonds  issued  under.  .2250 
Trustee:  car-trust  or  equipment  trust  certificates.  .1692 
Trustee:  compensation  over  period  of  years.  .1161 
Trustee  in  bankruptcy.  .956,  1294,  2500 
Trustee  in  dissolution  of  corporation . . 956,  1294 
Trustee  included  in  term  “fiduciary”.  .921 

Trustee  to  trustee:  transfer  of  property;  appreciation  in  value.  .941 
Trustee  who  is  also  executor.  .875 
Trusts:  common-law . . 988,  990 

Trusts  (See  “Estates  and  trusts”  at  1,  Index  Page  16.) 

Trusts,  Massachusetts .. 990  ....  .nr, a 

Trusts:  sinking  fund  for  redemption  of  corporation  s bonds.  .1274 
Uncertified  cheeks:  payment  of  taxes  by  means  of.  .2789,  2796 
Uncompleted  contracts.  .1180 

Unconstitutionality:  . , , , . , ■ ,■  a-o 

Possibility  of,  in  connection  with  tax  on  stockholders  of  personal  service  corporation . . 862 
Saving  clause  .2970 

Underpayments.  .2599,  2725  _ 

Appeals  on  notice  of  contemplated  further  assessment.  .2757,  2/58 
Extension  of  time  for  paying.  .2604 
Understatements  in  returns.  .2577,  2599,  2612,  2627 
False  returns.  .2601,  2628 

Undistributed  profits  of  corporations:  tax  liability.  .733 
Undivided  profits  and  surplus:  dividends.  .1104,  1110 
Undue  hardship  defined.  .2608 
United  States  bonds: 

Dividends  paid  in.  .1085,  1110 
Valuing  the  dividend.  . 1096 
Interest  on  (See  at  1,  below.) 

Medium  for  payment  of  debt  or  dividend  . 1085 
Security  in  connection  with  penal  bonds.  .1770,  2611 

Undistributed  profits  invested  in.  .745  . . ^ . .,eo  ,-OQ 

United  States  bonds  (including  Liberty  and  Victory  notes):  interest  on.  .1562,  lob<,  lo83 
Advertising  sale  of  during  the  "drives”:  expense  of.  .1675 
Application  of  exemption: 

Corporations  and  their  stockholders.  .1592 
Estates  and  trusts  and  beneficiaries.  .1587 
Husband,  wife,  and  children.  .1591 
Partnership  and  members . . 1589 
Computation  of  taxable  interest.  .1567,  1570,  1583,  3037 
Consolidation  of  Liberty  bond  tax  exemptions.  .1571 
Corporations  not  subject  to  income  tax  on.  .2057,  2067 
Credit  against  income  for  corporations.  .2057,  2067 
Credit  for  individual  normal  tax.  .2042 
Beneficiaries  of  estate  or  trust.  .917 
Estates  and  trusts.  .919 
Nonresident  aliens.  .2176 
Partnerships:  members  of.  .806 
Information  at  the  source.  .2350,  2351  . 

Interest  payments  on  indebtedness  to  purchase  or  carry  certain.  .lb8o,  lb88 
Mutual  organization  receiving.  .1037 
Nonresident  aliens.  .2100 
Ownership  certificates  not  required.  .2265 
Return  for  fiscal  year  ending  in  1921 . . 1589 
Treasury  certificates  of  indebtedness.  .1570,  1576,  1586 
Victory  Liberty  Loan  notes.  .1580,  1583 
War  Savings  Certificates.  .1570,  1576,  1579,  1586 
United  States  certificates  of  indebtedness  in  payment  of  taxes.  .2789 
United  States  employees;  salaries.  .1068 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 


Index  Page  47 


3-7-22. 


IMPORTANT  — CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

rhe  references  are  to  paragraph  numbers. 


United  States  contracts  (See  “Government  contracts”  at  1 , Index  Page  23.) 

United  States  courts: 

Jurisdiction  of  District  Court.  .2595,  2915 
Salaries  of  judges.  . 1069,  1156 
“United  States”  defined.  .1399 

Gifts  to,  for  public  purposes.  .2001 
United  States  notes: 

Exempt  status  of  interest  on.  .1562,  1567,  1570,  1580,  1586 
In  payment  of  taxes.  .2789,3015 
Security  in  connection  with  penal  bonds.  .1770 
United  States  possessions;  citizens  of.  .766 

United  States  possessions;  income  from  sources  within  received  by  U.  S.  citizens  or  domestic 
corporations  (Sec.  262).. 2070 

(See  “Citizens  entitled  to  benefits  of  Sec.  262"  or  "Domestic  Corporations  entitled  to 
benefits  of  Sec.  262.”) 

United  States  possessions;  taxes  in: 

Porto  Rico  and  Philippines.  .771 
Virgin  Islands.  .768 

United  States:  taxes  imposed  by  authority  of.  .1698,  1704,  1711 
Unnecessary  examination.  .2594 

Unreasonable  accumulation  of  profits  by  a corporation.  .733 
Evidence  of.  . 743 

Stockholders  under  no  obligations  to  ascertain  facts.  .739 
United  States  bonds:  investment  in.  .745 
What  constitutes  "unreasonable  accumulation”.  .744 
Use  of  forms  (See  “Forms”  at  1,  Index  Page  20.) 

Useful  value.  .1801 
Validating  clause.  .2970 

| Vessels:  amortization  of,  war  purposes ..  1860 
Vessels:  co-owners  of ..  994 

Vessels:  foreign  steamship  companies  or  nonresident  aliens.  .2099 
Vessels:  residence  of  seamen.  .756 

Vessels:  special  exemption  on  proceeds  of  sale  of  under  certain  conditions.  . 1613 
Victory  Liberty  Loan  notes: 

Exempt  status  of  interest  of.  . 1562,  1567,  1570,  1580,  1586 
In  payment  of  taxes.  .2789,3015 
Security  in  connection  with  penal  bonds.  . 1770 
Violations  of  law  to  be  reported  by  collectors.  .2777 
Virgin  Islands:  taxation  of  certain  citizens  of.  .766,  770 

Credit  for  income  and  excess  profits  taxes  paid  to.  .1733,  1749 
Not  a “possession”  within  meaning  of  Section  262.  .2075 
Vocational  Rehabilitation  Fund: 

Contributions  to.  .2001 
Receipts  by  beneficiaries  .1555 
Vocations:  income  from.  . 1069 
Voluntary  assessments  on  stock.  .1278 

Wages  (See  “Compensation  for  personal  services,”  at  2,  Index  Page  8.) 

Waiver  of  limitation  of  period  for  assessment  of  tax.  .2746 

War:  amortization  of  buildings,  equipment,  vessels,  etc.,  used  for  war  purposes.  .1860,  2755 
War  chests:  gifts  to.  .2003 

War  Finance  Corporation  bonds:  interest  on.  .1563,  1567,  1568 
Credit  for  corporation  tax.  .2057 
Credit  for  normal  tax.  .2042 

War  profits  tax  (See  “Excess-profits  taxes”  at  1,  Index  Page  17.) 

War  Risk  Insurance.  .1555,  1557 

War:  salaries  paid  to  absent  employees  during.  .1674 

War  Savings  Certificates:  exempt  status  of  interest.  .1570,  1576,  1579,  1586 
Wards:  return  for.  .958,  959 
Warrants  received  for  public  work  done.  .1184 
Wash  sales  of  stock  or  securities.  . 1787 
Corporations.  .1789 

Valuing  stock  or  securities  acquired  in  connection  with.  .1476 
Water  district  bonds.  .1564 

Wear  and  tear  of  property  (See  “Depreciation”  at  1,  Index  Page  13.) 

2 Wells,  oil  and  gas:  depletion.  .1881,  1893 
Combined  holdings.  .1947 
Depreciation  of  improvements.  .1881,  1980 
Determination  of  fair  market  value.  .1934 
Discovery.  .1885,  1918,  1963 
In  connection  with  net  losses.  .1534,  1536 
Lessees.  .1891,  1906-1918 

Under  prior  Acts.  .Supplementary  Page  138,  liS60. 

Maximum  depletion  allowance.  .1887,  1904 
Wells,  oil  and  gas:  discovery  of.  .1385,  1962,  1965 
Wells,  oil  and  gas:  sale  of:  maximum  surtax  limitation.  .730 
Widow: 

Allowance  paid  to.  . 879 
Salary  of  husband  continued.  . 1328 
Wife  (See  "Husband  and  wife”  at  2,  Index  Page  23.) 

Wife  of  nonresident  alien.  .749 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  48 


3-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Withholding  agents: 

Defined.  .2226 
Held  liable.  .2324,  3045 
Indemnified.  .2325,  3022 
May  be  appointed  by  debtors.  .2260 
Returns  by.  .2262,  2310,  2322 
Withholding  at  the  source.  .2100 
1 Assignee  assuming  payment  of  bonds.  .2265 

Rank  deposits.  .2191,  2100 

Release  of  tax  withheld.  .2100 
Certificates  required.  .2303,  2310 

Citizens  and  residents:  no  withholding  except  on  tax-free-covenant  bond  interest.  2238, 
2240 

Corporations,  domestic  and  foreign  resident:  no  withholding  against  .2201 
Coupons  exchanged  for  funding  bonds.  .2283 
Coupons  purchased  abroad.  .2237 
Credit  for  amounts  withheld.  .2327,  2330 
Foreign  corporations.  .1427,  2331 
Creditor  paying  the  tax  it  is  not  recollected  from  debtor.  .2328 
Debtor  only  withholds  the  tax.  .2264 
Dividends:  no  withholding  in  any  case.  .2197,  2200 
Employers:  duties  of.  .2ly0,  2203 
i Exempt  organizations;  withholding  by.  .2228 

Exemption  claims  at  the  source.  .2310 

Bond  interest;  other  than  tax-free  covenant.  .2255 

Foreign  corporations  having  office  or  place  of  business  here.  .2225' 

Nonresident  aliens  for  specific  exemption.  .2180,  2254 

Ownership  certificates  (See  "Ownership  certificates"  at  1,  Index  l’age  32.) 
Tax-free-covenant  bond  interest:  citizens  and  residents.  .2252,  2310 
Tax-free-covenant  bond  interest:  nonresident  aliens.  .2254 
Fixed  or  determinable  annual  or  periodical  income  defined.  .2202 
Foreign  bonds:  tax-free-covenant  bond  interest.  .2361,  2362,  2366 
Foreign  corporations.  .2220 

Credit  for  amounts  withheld . . 1427 

Foreign  corporation  having  no  office  or  place  of  business  in  the  U.  S.  .2220,  224  6 
Porto  Rican  and  Philippine  corporations  are  foreign  corporations.  .776 
Resident  corporation;  none..  2201 

Income  on  which  tax  is  withheld  included  in  creditor’s  return . . 2326,  2330 
Interest  on  accounts  current.  .2191,  2197 
Interest  on  domestic  securities.  .2231 

March  1,  1913:  interest  due  prior  to.  .2234 
Rates  in  force  during  year  of.collection  apply.  .2234 
Unknown  owners.  .2232,  2248 
March  1,  1913,  interest  due  prior  to,  no  withholding.  .2234 
Miscellaneous  income.  .2190,  2202 
Nonresident  aliens.  .2190,  2240 

Interest  on  domestic  securities . . 2231 
Specific  exemption  claimed  at  source.  .2180,  2254,  3022 
Wages  or  salaries  of.  .2191,  2203-2217 
Ownership  certificates.  .2303,  2310,  2317 

(See  "Ownership  certificates”  at  1,  Index  Page  32.) 

Partnerships . . 2240 

Having  one  or  more  nonresident  alien  members.  .2190 
No  withholding,  if  office  maintained  in  U.  S.  .2198 
Paying  or  withholding  agents  may  be  appointed  by  debtors.  .2260 
Payment  of  tax  withheld.  .2319 
Penalties.  .2627 
Rates.  .2196,  2224,  2244,  2250 
Receipts  for  amounts  paid.  .2810 

Refunds  by  employer  of  excess  amounts  withheld  against  nonresident  aliens.  .2216 
Refund  by  Government  of  excess  amounts  withheld: 

Foreign  corporations . . 1429 
Nonresident  aliens.  .2182 

Retirement  of  bonds  within  an  interest  period.  .2284 
Returns  of  amounts  withheld.  .2319,  2322,  3044 
Salaries  of  aliens  unless  proof  of  residence  is  furnished.  .760 
Specific  exemption  claims  at  the  source  by  nonresident  alien  employees.  .2180 
By  nonresident  alien  owners  of  tax-free-covenant  bonds.  .2254 
Substitute  certificates.  .2266,  2311 
Tax-free-covenant  bond  interest.  .2240,  2246 
P Amount  of  tax  withheld  not  income  to  the  obligee.  .1724 

^ Bonds  not  containing  covenant  may  not  be  treated  as  tax-free.  .2236 

Car  or  equipment  trust  certificates.  . 1694 
Court  case.  . 1258 

Exemption  claims  by  citizens  and  residents.  .2252 
Exemption  claims  by  nonresident  aliens.  .2254 
Foreign  bonds.  .2361,  2362,  2366 

Foreign  corporations  with  United  States  fiscal  agent.  .2250,  2362 
Old  1%  covenant.  .2247 

Partnership  with  member  having  personal  exemption  in  excess  of  taxable  income . . 2305 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

Index  Page  49 


3-7-22. 


IMPORTANT.  CONSULT  THE  PINK  SHEET. 


GENERAL  INDEX. 

The  references  are  to  paragraph  numbers. 


Withholding  at  the  source. — Concluded. 

Tax-free-covenant  bond  interest. — Concluded. 

Tax  is  not  deductible  by  debtor.  . 1722 

Creditor  does  not  include  tax  in  gross  income.  . 1723,  1724 
Debtor  may  deduct  State  tax  paid.  .1723 
Trust  deeds  with  covenant.  .2250 
Unknown  owners.  .2232,  2248 
'fax  paid  to  Covernment  by  withholding  agent.  .2321,  2322 
Receipts  for.  .2810 

Unknown  owners  of  domestic  securities.  .2232,  2248 
Women’s  Auxiliary  units  of  American  Legion  posts;  gifts  to  2001 
Working  capital:  employment  of  funds  as  .744 
Workmen's  compensation;  accident  or  sickness.  .1552,  1555 
Workmen's  compensation  insurance  funds,  State:  income  accruing  to  1508 
Worthless  debts  1800 

Recoveries.  .1200,  1811 

Worthless  securities:  deductibility ..  1802,  1818,1835 
Y.  M.  C.  A.:  gifts  to.  .2013 
Year:  accounting  .1045,  1059 
Changing.  . 1065,  2567 
Year  taxable.  .1046,  1060 
Change  of.  . 1065 

Declaration  of  termination  of.  .2782 

First  taxable  year  1063 

Period  of  less  than  12  months  .2567 

Year;  taxable:  embracing  parts  of  calendar  years  with  different  rates  .861 


Copyright  to??  tv  Thr  Corporation  T'-url  Company. 
THF  FFPFPAT  TNTOMF  TAX  SFRV1CF 

Index  Page  50 


12-13-22. 


TABLE  OF  CASES.— Concluded. 


Paragraph 

Smictanka  vs.  Indiana  Steel  Company  (257  U.  S.  1) 2911 

Smietanka:  Kohlhamer  vs.  (239  Fed.  408) 2880 

Smietanka:  Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs. 

(255  U.  S.  509) Sup.  Page  186,  1[S313 

Southern  Pacific  Company  vs.  I.owe  (247  U.  S.  330) Sup.  Page  149,  1fSl21 

Stanton  vs.  Baltic  Mining  Co.  (240  U.  S.  103) Sup.  Page  133,  TfS38 

Stockton:  Lederer  vs.  (266  Fed.  676) 880 

Affirmed  U.  S.  Supreme  Court  (43  Sup.  Ct.  5) 3355 

Thorne  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  HS31 

Towne  vs.  Eisner  (245  U.  S.  418).../. Sup.  Page  137,  1[S54 

Towne  vs.  McElligott  (274  Fed.  960). 721,  1141 

Turrish:  Lynch  vs.  (247  U.  S.  221).; Sup.  Page  144,  1fS92 

Tyee  Realty  Company  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  1fS31 

Union  Hollywood  Water  Company  vs.  Carter  (238  Fed.  329) 985,  1632 

U.  P.  Coal  Co.  vs.  Skinner  (252  U.  $.  470) Sup.  Page  161,  i[S200 

U.  P.  Railroad'C^mpany:  Brushabpr  vs.  (240  U.  S.  1) Sup.  Page  125,  ^Sl 

U.  S.:  Anderson  vs>(^82  Fed.  851U 3361 

U.  S.:  Chicago  & Alton^Railroad  Co.  vs.  (53  C.  of  C.  41) 1283 

U.  S.  vs.  General  Inspection!  & Loading  Co.  (192  Fed.  223) 2490 

U.  S.  vs.  General  Inspection^  Loading  Company  (204  Fed.  657) 2740 

U.  S.:  Greenport  Basin  & Conduction  Co.  vs.  (269  Fed.  58) 2847 

U.  S.  vs.  Levy  (271  Fed.  942).. 2582 

U.  S.  vs.  McHatton  (266  Fed.  60id 2493 

U.  S.:  Maryland  Casualty  Company. vs.  (251  U.  S.  342).  . .Sup.  Page  157,  ^Sl59 

U.  S.  vs.  Mellon  (279  Fed.  910) ....  1 145 

Affirmed  C.  C.  of  A.  (281  Fed  645) 3293 

U.  S.:  Merriam  vs.  (282  Fed.  85])  . . . . A. 3361 

U.  S.  vs.  Oregon-Washington  R.  k Nav.  Go.  (251  Fed.  211) 1259 

U.  S.:  Phellis  vs.  (257  U.  S.  156)) \. Sup.  Page  167,  1fS219 

U.  S.  vs.  Pittaro  (U.  S.  District  Court)  (T.  D.  2874) 2800 

U.  S.  vs.  Rockefeller  (257  U.  S.  106) \ Sup.  Page  170,  1fS237 

U.  S.:  R.  I.  A.  and  L.  R.  R.  Co.'vs.  (254  U.  S'.  141) 2887 

U.  S.  vs.  San  Juan  County  (280  fed.  120) . . . . ,\ 3085 

U.  S.:  Woodward,  et  al.  vs.  (256  iU.  S.  632) . . . . A Sup.  Page  201,  TJS413 

U.  S.:  Young  vs.  (269  Fed.  58).  \ 2847 

Urquhart  vs.  Marion  Hotel  Company  (194  S.  W.  1)\ 2258 

Walsh:  Brewster  vs.  (255  U.  S.  536) .' Sup.  Page  191,  1fS364 

Walsh:  Plant  vs.  (280  Fed.  722).! 3127 

Wardell:  Lawrence  vs.  (T.  D.  3 1 1)2)  (T.  D.  3178 — 273  Fed.  405) 747 

Williams:  Schuster  & Co.,  Inc.  (^83  Fed.  115) , 3213 

Wilson  vs.  Eisner  (282  Fed.  38) . 3392 

Woodward,  et  al.  vs.  U.  S.  (256  1).  S.  632) Sup.  Page  201,  1fS413 

Young  vs.  U.  S.  (269  Fed.  58).  . . 1 2847 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Pages  117  and  118. 


• .’i  i . • ,.V ; I 

■ 


12-13-22. 


TABLE  OF  CASES. 


Paragraph 

Allen:  Altheimcr  & Rawlings  Investment  Co.  vs.  (248  Fed.  688) 1213 

Altheimer  & Rawlings  Investment  Co.  vs.  Allen  (248  Fed.  688) 1213 

Anderson:  Brady  vs.  (240  Fed.  665) 942 

Anderson:  Jacobs  and  Davies  (Inc.)  vs.  (228  Fed.  505) 1666 

Anderson:  Thorne  vs.  (240  U.  S.  115) Sup.  Page  132,  HS31 

Anderson:  Tyee  Realty  Company  vs.  (240  U.  S.  115) Sup.  Page  132,  *[S31 

Anderson  vs.  U.  S.  (282  Fed.  851) 3361 

Baldwin  Locomotive  Works  vs.  McCoach  (221  Fed.  59) 1288 

Baltic  Mining  Co.:  Stanton  vs.  (240  U.  S.  103) Sup.  Page  133,  ^[S38 

Brady  vs.  Anderson  (240  Fed.  665) 942 

Brady:  Dodge  vs.  (240  U.  S.  122) Sup.  Page  132,  flS35 

Brewster  vs.  Walsh  (255  U.  S.  536) Sup.  Page  191,  1JS364 

Brushabcr  vs.  U.  P.  Railroad  Company  (240  U.  S.  1) Sup.  Page  125,  HSl 

Carter:  Union  Hollywood  Water  Company  vs.  (238  Fed.  329) 985,  1632 

Chapin  vs.  Irwin  (U.  S.  D.  C.,  July  29,  1921) 1203 

Chicago  & Alton  Railroad  Co.  vs.  U.  S.  (53  C.  of  C.  41) 1283 

Cohen  vs.  Lowe  (234  Fed.  424) 20,  1845 

Commercial  Health  and  Accident  Co.  vs.  Pickering  (281  Fed.  539) 311  1 


Hurst  vs.  Lederer  (273  Fed.  174) 2721 

Indiana  Steel  Company:  Smietanka  vs.  (257  IJ.  S.  1) 2911 

Iredell:  De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  (268  Fed.  377).  . . 835 

Irwin:  Chapin  vs.  (U.  S.  D.  C.,  July  29,  1921) . . : 1203 

Irwin:  Fish  vs.  (U.  S.  D.  C.,  July  29,  1921) 1198 

Irwin:  Harder  vs.  (U.  S.  D.  C.,  Nov.  29,  1922) 3455 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  115. 


TABLE  OF  CASES— Continued 


Paragraph 

Jacobs  and  Davies  (Inc.)  vs.  Anderson  (228  Fed.  505).  . i.  1666 

J.  Mcnist  Co.,  Inc.  (U.  S.  D.  C.,  Dec.  5,  1922) 3439 

Johnstone:  llaiku  Sugar  Co.  et  al.  vs.  (249  Fed.  103) 7S3 

Kirlcendall:  Markle  ct  al.  vs.  (267  Fed.  498) 2780 

Kohlhamcr  vs.  Smietanka  (239  Fed.  408) 2880 

Lawrence  vs.  Wardell  (T.  D.  3102)  (T.  D.  3178—273  Fed.  405) 747 

Lcderer:  De  Ganay  vs.  (250  U.  S.  376) Sup.  Page  155,  ^jSl49 

Ledcrer:  Hurst  vs.  (273  F'ed.  174) 2721 

Ledcrer:  Massey  vs.  (277  Fed.  123) 3113 

Ledercr:  Penn  Mutual  Life  Ins.  Co.  vs.  (252  U.  S.  523). ..Sup.  Page  161,  ^[S20 1 
Ledcrer:  Philadelphia,  Harrisburg  & Pittsburgh  R.  R.  Co.  vs.  (242  Fed.  492)  . 2904 

Ledcrer  vs.  Stockton  (266  F’ed.  676) 880 

Affirmed  U.  S.  Supreme  Court  (43  Sup.  Ct.  5) 3355 

Levy:  U.  S.  vs.  (271  Fed.  942) 2582 

Lewellyn:  Gulf  Oil  Corporation  vs.  (Example  of  procedure) 2890 

U.  S.  Supreme  Court  Decision  (248  U.  S.  71) Sup.  Page  152,  *JS  1 36 

Lilley  Building  & Loan  Co.  vs.  Miller  (T.  D.  3355) 3289 

Lowe:  Cohen  vs.  (234  Fed.  474) 720,  1845 

Lowe:  Peck  vs.  (247  U.  S.  165) Sup.  Page  140,  S 70 

Lowe:  Roberts  vs.  (236  Fed.  604) 2902 

Lowe:  Southern  Pacific  Company  vs.  (247  U.  S.  330) Sup.  Page  149,  1JS121 

Lynch  vs.  Hornby  (247  U.  S.  339) Sup.  Page  141,  1JS78 

Lynch  vs.  Turrish  (247  U.  S.  221) Sup.  Page  144,  ^[S92 

McCoach:  Baldwin  Locomotive  Works  vs.  (221  Fed.  59) 1288 

McElligott:  Towne  vs.  (274  Fed.  960) 721,  1141 

Macomber  vs.  Eisner  (252  U.  S.  189) Sup.  Page  173,  ^S244 

McHatton:  U.  S.  vs.  (266  Fed.  602) 2493 

Mager:  Darlington  vs.  (256  U.  S.  682) Sup.  Page  200,  1JS412 

Mager:  Eldorado  Coal  and  Mining  Co.  vs.:  (255  LI.  S.  522)  Sup.  Page  190,  ^[S360 
Malley  vs.  Alvah  Crocker,  et  al.,  Trustees  (249  U.  S.  223) . .Sup.  Page  153,  ‘jjSMO 

Marion  Hotel  Company:  Urquhart  vs.  (194  S.  W.  1) 2258 

Markle  et  al.  vs.  Kirkendall  (267  Fed.  498) 2780 

Maryland  Casualty  Company  vs.  U.  S.  (251  U.  S.  342) ....  Sup.  Page  157,  fSl59 

Massey  vs.  Lederer  (277  Fed.  123) 3113 

Mellon:  U.  S.  vs.  (279  Fed.  910) 1145 

Affirmed  C.  C.  of  A.  (281  Fed.  645) 3293 

Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs.  Smietanka,  former  Collec- 
tor (255  U.  S.  509) Sup.  Page  186,  ^fS313 

Merriam  vs.  U.  S.  (282  Fed.  851) 3361 

Miles,  Collector:  Safe  Deposit  & Trust  vs.  Co.  (273  Fed.  822) 1220 

U.  S.  Supreme  Court  (42  Sup.  Ct.  483) 3217 

Miller:  Lilley  Building  and  Loan  Co.  vs.  (T.  D.  3355) 3289 

New  York  Trust  Co.,  Executors,  etc.,  vs.  Edwards  (257  U. 


Oregon-Washington  R.  & Nav.  Co.:  U.  S.  vs.  (251  Fed.  211) 1259 

Osborn:  Dodge  vs.  (240  U.  S.  118) 2872 

Park  vs.  Gilligan  (U.  S.  Fist.  Ct.,  June  11,  1921) 1261 

Peabody  vs.  Eisner  6 247  U.  S.  347) Sup.  Page  148.  1JS119 

Peck  vs.  Lowe  (247  U.  S.  165) Sup.  Page  140,  1JS70 

Penn  Mutual  Life  Insurance  Co.  vs.  Lederer  (252  U.  S.  523).  Sup.  Page  161,  1JS201 

Phellis  vs.  United  States  (257  U.  S.  156) Sup.  Page  167,  1JS219 

Philadelphia,  Harrisburg  & Pittsburgh  R.  R.  Co.  vs.  Lederer  f 242  Fed.  492) . . 2904 
Pickering:  Commercial  Health  and  Accident  Company  vs.  (281  Fed.  539) ...  31 1 1 

Pittaro:  U.  S.  vs.  fU.  S District  Court).  (T.  D.  2874) 2800 

Plant  vs.  Walsh  (280  Fed.  722) 3127 

Roberts  vs.  Lowe  (236  Fed.  604) 2902 

Rockefeller:  U.  S.  vs.  (257  U.  S.  176) Sup.  Page  170,  *[fS237 

R.  I.  A.  and  L.  R.  R.  Co.  vs.  U.  S (254  U.  S.  141) 2887 

Safe  Deposit  and  Trust  Co.  vs.  Miles,  Collector  (273  Fed.  822) 1220 

U.  S.  Supreme  Court  (42  Sup.  Ct.  483) 3217 

San  Juan  County:  U.  S.  vs.  f?80  (280  Fed.  120) 3085 

Schuster  & Co.,  Inc.  vs.  Williams  (283  Fed.  115) 3213 

Skinner:  U.  P.  Coal  Co.  vs.  (252  U.  S.  470) Sup.  Page  161,  ^[S200 

Smietanka  vs.  First  Trust  and  Savings  Bank,  Trustee  (257  U.  S.  602) 3048 


THE  EEUERAT.  INCOME  TAX  SERVICE 
Supplementary  Page  116. 


12-21-22. 


CUMULATIVE  INDEX-DIGESTS— NOV.  6 TO  DEC.  31,  1922. 


Art.  1711. — Aids  to  collection  of  tax  (1f2711). 

Permament  books  of  account:  the  maintaining  and  production  of..U3396. 


Committee  on  Appeals  and  Review:  new  chairman  (Dec.  15,  1922).  .113512. 

Committee  on  Appeals  and  Review:  personnel  increased  to  13  members;  organiza- 
tion of  a Special  Committee  on  Appeal^  and  Review  to  meet  emergency  on  account 
1917  tax  cases.  .H3397. 

Continuing  effect  of  1918  Act  for  assessm  :nt  and  collection  of  taxes  accrued  there- 
under (see  U2776):  here,  rate  of  interest  chargeable  on  rejected  claims  for  abate 
ment  for  inventory  losses  (1-46-595:  I,  T.  1500)  . .Bull.  I (’22)-46,  p.  12. 

¥ Power  of  attorney  to  represent  taxpayer  should  contain  the  specific  request  of  the 
attorney  that  the  correspondence  be  directed  to  him  (1-51-651:  I.  T.  1537).. 
Bull.  I (’22)-51,  p.  15. 

¥ Sec.  229.— Incorporation  of  individual  business  and  limited  election  to  be  taxed  as 
a corporation:  Treatment  of  withdrawals  by  individual,  particularly  amount 
withdrawn  to  pay  his  1920  income  tax:  1921  Act  (1-51-643:  I.  T.  1532).. Bull 
I (’22)-51,  p.  1.  \ 

Secretary  of  Treasury’s  ann  port:  fexcerpt  of  matter  relating  to  taxation  and 
revenue  (Dec.  4,  1922). 


Miscellaneous. 


Tax  Simplification  Board;  pe  lei  (Nov.  29,  1922).  .1(3416. 

Tax  Simplification  Board;  fii  ual  report  to  Congress  (Dec 


\ 


There  are  no  Supplementary  Pages  44  to  114  at  present. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  43. 


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12-21-22. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  1005.  Deficiency  in  payment.  — Interest  and  penalty  (1[2603). 

Interest  begins  to  run  from  wl.ut  date  ton  failure  to  pay  witliin  10  days  after  notice 
and  demand):  (1)  regular  tax  installment  as  shown  by  return,  I rom  date  install- 
ment becomes  due,  and  mi  amount  demanded  only;  (2)  additional  assessments, 
on  amount  demanded  (which  includes  interest  under  Sec.  250  (b))  from  time 
demand  is  made:  1921  Act  (1-50-642:  Sol.  Op.  147).  .Hull  I (’22)-50,  p.  4. 


Art.  1006. — Appeals  and  hearings  ^||2763). 

Art.  1006  amended.  .113406. 

Special  in  1917  tax  cases  to  meet  emergency.  .*[[3397. 


Art.  1012. — Assessment  of  tax  (<H2747). 

¥ Practicing  before  the  Bui*eau:  power  of  attorney  to  represent  taxpayer  should  con- 
tain specific  request  of  the  attorney  that  the  correspondence  be  directed  to  him 
(1-51-651:  I.  T.  1537)  ...Bull.  I (’22)-51,  p.  15. 


Art.  1031. — Authority  for  refund,  credit,  and  abatement  of  tax  H[2813). 

¥ Claims  may  be  allowed  if  filed  within  four  years  after  payment  of  tax,  though  not 
filed  until  after  expiration  of  five  years  from  date  return  was  due:  1921  Act 
(T.  D.  341 6).. f 3518- 


Art.  1034. — Claims  for  credit  of  taxes  erroneously  collected  (Tf2829). 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (1917  Act):  O.  D.  1103,  Dec.  1921  Cum.  Bull.  p.  248 
overruled.  Here,  foreign  corporation  and  amounts  withheld  on  dividends  also 
involved  (1-45-585:  L.  O.  ^107) . .(Bull.  I (’22)-45,  p.  11. 

f 

Art.  1036. — Claims  for  refund  of  taxes  erroneously  collected  (^[2835). 

Tax  withheld  and  paid  to  Government  in  excess  of  liability  (See  “Tax  withheld,  etc.,’’ 
under  Art.  1034  above.) 


Art.  1503. — Association  distinguished  from  partnership  (f989). 

Unincorporated  bank  under  Indiana  law;  special:  1917  and  1918  Acts  (1-47-598:  I.  T. 
1501).  .Bull.  I (’22)-47,  p.  1. 


Art.  1541. — Dividends  (^[1080). 

Crediting  capital  stock  account  (debiting  profit  and  loss)  with  an  amount  sufficient 
to  make  total  credit  to  capital  stock  equal  to  aggregate  of  par,  thus  rendering 
stock  fully  paid  that  was  theretofore  partially  paid  and  subject  to  call,  is  in 
effect  a cash  distribution  and  not  a stock  dividend:  1916-1917  Acts  (1-45-575: 
A.  R.  R.  1127).  .Bull.  1 (’ 22)-45,  p.  1. 

¥ Incorporation  of  individual’s  business  “within  4 months”  after  Nov.  23,  1921  (Sec. 
229);  treatment  of  withdrawals  by  individual,  particularly  amount  withdrawn 
to  pay  his  income  tax  for  1920:  1921  Act  (1-51-643:  I.  T.  1532).. Bull.  I (’22)- 
51,  p.  1. 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  41. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  1542. — Source  of  distribution  (!|1107). 

Dividends  paid  by  corporations  in  1917  (o'ccpt  a;  to  distributions  made  prior  to 
August  6 from  profits  accrued  prior  to  March  1,  1913)  are  conclusively  presumed, 
for  purposes  of  determining  rates  at  which  taxable  to  the  stockholders,  to  have 
been  paid  from  the  most  recently  accumulated  prohts  including  the  profits  of 
1917  to  dale  of  declaration:  U.  S.  District  Court  decision  under  the  1917  Act 
(Nov.  29,  1922).  .1(3455. 

¥ Dividends  paid  by  a corporation  in  1917  (except  as  to  distributions  made  prior  to 
August  6 from  profits  accrued  prior  to  March  1,  1913)  are  conclusively  pre- 
sumed to  have  been  paid  from  the  most  recently  accumulated  profits,  including 
those  of  1917  to  date  of  distribution,  even  though  declared  to  be  from  depletion 
reserve,  at  least  when  there  was  no  concurrent  and  corresponding  reduction  of 
capital  or  of  capital  stock  liability:  U.  S.  District  Court  decision  under  1917 
Act  (Dec.  18,  1922).  .1(3519. 

Art.  1548. — Sale  of  stock  received  as  dividend  (If  1136). 

Trust  estate  with  life-tenant  to  whom  stock  dividend  is  distributable  under  the  Penn- 
sylvania or  American  rule:  1918  Act  (1-47-604:  I.  T.  1506).. Bull.  1 (’22)-47, 
p.  6.  Again,  1918  and  1921  Acts  (1-47-605:  1.  T.  1507).. Bull.  I (’22)-47,  p.  8. 

[Note  that  the  ruling  at  U3010  is  revoked  by  the  above.) 

Art.  1561. — Basis  for  determining  gain  or  loss  from  sale  (If  1437). 

Depreciation  to  be  given  full  weight  in  establishing  both  “cost”  and  “March  1,  1913, 
value,”  for  purposes  of  joint  comparison  with  selling  price  of  depreciable  prop- 
erty acquired  prior  to  March  1,  1913:  1917  Act  (1-46-586:  I.  T.  1494).. Bull. 
I (’22)-46,  p.  1. 

Real  estate;  benefit  of  deduction  for  taxes,  interest,  etc.  (carrying  charges)  paid, 
lost  over  period  of  years  as  insufficient  income;  not  to  be  added  to  cost  (sustaining 
conclusions  stated  in  I.  T.  1188,  June  1922  Cum.  Bull.  p.  28,  and  overruling 

0.  D.  398,  June  1920  Cum.  Bull.  p.  112):  1921  Act  (1-49-621:  I.  T.  1517).  .Bull. 
I (’22)-49,  p.  1. 

Art.  1563. — Sale  of  property  acquired  by  gift  on  or  before  December  31,  1920, 
or  by  bequest,  devise,  or  inheritance  (^J 1455). 

Life  tenant  sells  trust-estate’s  stock-dividend  stock  distributable  to  him,  the 
surplus  out  of  which  the  stock  dividend  was  declared  being  earned  prior  to  March 

1,  1913:  1918  and  1921  Acts  (1-47-605:  I.  T.  1507).. Bull.  I (’22)-47,  p.  8. 

Art.  1566. — Exchange  of  property  which  results  in  no  gain  or  loss  (If  1466). 

95%  of  stock  of  one  corporation  having  been  turned  in  by  stockholders  within  a short 
time  to  another  corporation  for  its  stock  of  equal  par  value  in  acceptance  of 
offer  made  by  latter,  the  exchange  is  in  connection  with  a reorganization  and 
hence  no  profit  or  loss  results  to  exchanging  stockholders:  1921  Act  (1-48-611: 
I.  T.  1508).  .Bull.  I (’22)-48,  p.  1. 

Art.  1583. — Inventories  at  cost  (If  15 16). 

“Cost”  of  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the  inventory 
price  of  such  goods  in  a “cost  or  market  whichever  is  lower”  inventory . .K4004. 

Art.  1601. — Net  losses,  definition  and  computation  (If  1535). 

Capital  assets;  losses  from  sale  of,  by  corporation  in  liquidation  are  not  within  the 
law  provisions:  1918  Act  (1-45-576:  A.  R.  M.  185).. Bull.  I (’22)-45,  p.  3. 

Art.  1602. — Claim  for  allowance  of  net  loss  (If  1545). 

New  corporation  (Nov.,  1918)  sustains  net  loss  during  first  two  months  of  operation, 
and  during  calendar  year  1919;  adopts  basis  of  fiscal  year  beginning  Sept.  1, 
1920:  how  to  apply  net  loss  (1921  Act)  (1-48-612:  I.  T.  1509).. Bull.  I (’22)- 
48,  p.  1. 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  42. 


12-21-22. 


CUMULATIVE  INDEX-DIGESTS— NOV.  6 TO  DEC.  31,  1922. 


Art.  223. — Charges  to  capital  and  to  expense  in  the  case  of  oil  and  gas  wells 


* Cost  of  drilling  well  not  deductible  as  expense  on  any  basis  of  bookkeeping  when 
lump  payment  (in  the  instant  case,  in  stock)  is  made  for  completed  well  which 
included  the  drilling:  1918  Act  (1-51-647:  A.  R.  R.  1234).. Bull.  I (’22)-5I,  p.  7. 

Art.  291. — Personal  and  family  expenses  (1(1623). 

Naval  officers;  expenses  incident  to  visits  home  from  port  and  subsistence  afloat  of 
single  man  having  no  home  are  not  deductible:  1921  Act  (1-46-590:  I.  T.  1497) 
. .Bull.  1 (’22)-46,  p.  5. 

Teacher’s  special  research  work  (to  better  fit  for  life  work);  expenses  incident  to 
printing  results,  books  and  instruments  purchased  (depreciation),  traveling 
(meetings  of  scientific  societies)  are  personal  and  so  not  deductible:  1921  Act 
(1-49-625:  I.  T.  1520).  .Bull.  I (’22)-49,  p.  8. 

Art.  294. — Premiums  on  husiness  insurance  (1(1639). 

Life,  policy  assigned  to  creditor  as  security  for  loan;  premiums  paid  by  creditor  to 
p ' >an  are  deductible  the  debtor  not  being  an  officer,  employee,  etc.:  1921 

A -615:  I.  T.  1512).  .Bull.  I (’22)-48,  p.  4. 


Art.  316.-  me  from  sources  within  the  United  States  (1(2094). 

Spain  commuiBjty  property;  wife’s  interest  is  expectancy  merely,  hence  husband  should 
return  incOipe  in  its  entirety  from  U.  S.  partnership:  1921  Act  (1-48-616:  I.  T. 
1513). . BulhVi  (’22)-48,  !p.  5. 


Art.  327(a). — Transportation  services  (1(3324). 

Art.  327(a)  applies  unde?  1 L Act  only  (1-45-582:  I.  T.  1492).. Bull.  I (’22)-45,  p.  8. 


Art.  342.  —Estates  and  trus^  io  fiduciary  (1(879). 

Stock  dividends  (See  “Stock  dividends”  under  Art.  347  below.). 

Art.  345. — Estates  and  trusts  taxe\  to  beneficiaries  (1(894). 

Federal  estate  tax  paid  by  trustee  cu^  of  residuary  trust  funds,  all  distributable  to 
beneficiaries,  because  not  paid  and  no  provision  made  for  paying  prior  to  clos- 
ing of  administration  is  npt  deductible  in  determining  income  of  the  trust  (1-46- 
592:  A.  R.  R.  1020).  .Bull.  1 (’22)-46,\p.  7. 

Self  beneficiary  of  income  of  trust  to  extent  demanded  is  taxable  on  amount  actually 
received  only.  This  ruling  which  revokes  S.  1344,  June  1920  Cum.  Bull.  p.  176, 
is  confined  strictly  to  the  1916-17  Act.  (1-46-593:  Sol.  Op.  146).. Bull.  1 (’22)- 
46,  p.  9. 

Stock  dividends.  (See  “Stock  (dividends”  under  Art.  347  below.) 


•¥■  Dividends  received  by  trust-estate:  No  allocation  of  a proportionate  part  thereof 
to  shares  distributable  to  beneficiaries:  1916-1917  Acts  (1-51-648:  I.  T.  1535).. 
Bull.  I (’22)-51,  p.  9. 


Art.  347. — Estates  and  trusts  with  income  which  is  distributed  periodically 
and  other  income  (1(913). 

Stock  dividends  distributable  to  life  tenant:  profit  or  loss  on  sale  of  stock  received 
andol  that  (held  by  hduciary)  in  respect  of  which  received;  1918  Act  (1-47-604: 
1.  T.  1506).  Bull.  1 (’22)-47,  p.  6.  Again,  1918  and  1921  Act  (1-47-605:  I.  T. 
1507).  .Bull.  1 (’22)-47,  p.  8. 

(Note  that  the  ruling  at  Tf 30 10  is  revoked  by  above.) 


(K 1972). 


\ 


Art.  346. — Credits  to  trust  or  beneficiary  (1(920). 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  39. 


CUMULATIVE  INDEX-DIGESTS.-  NOV.  6 TO  DEC.  31,  1922. 


Art.  361. — Withholding  tax  as  source  (^[2197). 

Tax-free  covenant  bond  interest;  tax  (1917)  withheld  and  paid  to  Government 
though  creditor  not  liable  to  normal  tax:  refund  or  credit  to  creditor . ().  D. 

1103,  Dec.  1921  Cum.  Bull.  p.  248,  overruled.  Here,  creditor  is  a corporation, 
against  which  there  had  also  been  withholding  on  account  of  dividends  (1-45- 
585:  L.  O.  1107).. Bull.  I (’22)-45,  p.  11. 

Art.  364.— Exemption  certificate  of  nonresident  aliens  (^2254-112255). 

Members  of  a nonresident  alien  partnership  and  beneficiaries  of  an  estate  or  trust 
having  a nonresident  alien  fiduciary  may  not  use  Forms  1001  B arid  1001 C in 
connection  with  payments  made  to  the  partnership  or  estate  or  trust  (though 
the  estate  or  trust  may):  1921  Act  (1-45-584:  I.  T.  1493).  .Bull.  I (’22)-45,  p.  10. 

Art.  365. — Ownership  certificates  for  interest  coupons  (1[2265). 

Interrogatories  to  be  answered  fully:  1921  Act  (1-50-639:  f.T.1529)  Bull  I (’22)-50 
p.  3.  See  H2269. 

Art.  401. — Individual  returns  (1f2390). 

Community  property:  failure  to  compute  surtax  on  joint  return  is  not  sufficient  evidence 
to.  disclose  intent  to.  file  on  community  basis:  when  such  intent  is  disclosed  on 
joint  return  or  by  evidence  subsequently  submitted  taxpayers  should  be  requested 
to  file  amended  separate  returns:  1921  Act  (1-50-640:  I.T.  1530).  .Bull.  1 (’22)-50 
P-  3. 

Joint  returns  by  husband  and  wife,  one  on  calendar  year  the  other  on  fiscal  year  basis 
not  permitted:  here,  effort  was  to  apply  net  loss  of  one  against  income  of  other: 
1921  Act  (1-48-617:  I.  T.  1514).  .Bull.  I (’22)-48,  p.  5. 

Art.  421. — Fiduciary  returns  (1[939). 

Life  tenant  (subject  to  annuity  payments)  dies  in  1922,  the  annuitants  surviving 
property  vests  in  trustee:  executor  not  trustee  makes  fiduciary  return  for  1921 
1921  Act  (1-48-618:  I.  T.  1515).  .Bull.  I (’22)-48,  p.  6. 

Transfers  in  contemplation  of  death  (so  determined  for  Federal  estate  tax  purposes): 
here  Florida  and  property  being  real  estate;  income  therefrom  is  income  of  the 
transferees  and  not  that  of  the  estate:  1918  and  1921  Acts  (1-50-641:  I.T.  1531) 

. .Bull.  I (’22)-50,  p.  4. 

Art.  514. — Fraternal  beneficiary  societies  1 022) . 

Definition;  full  discussion;  O.  D.  690  'overruled:  1918  and  1921  Acts  (1-48-619: 
I.  T.  15 16).. Bull.  I (’22)-48,  p.  6. 

Art.  522. — Cooperative  Associations  (^[  1038). 

Buying  and  selling  on  own  account;  deductibility  of  so-called  rebates;  necessity  for 
making  return  through  no  tax  due:  1917  and  1918  Acts  (1-46-594:  I.  T.  1499) 

. .Bull.  I (’22)-46,  p.  10. 

Art.  601. — Withholding  in  case  of  nonresident  foreign  corporations  (1[2225). 

Royalties  accrued  over  period  of  years;  withholding  is  at  rate  prevailing  for  year 
paid:  1921  Act  (1-49-626:  I.  T.  1521).  .Bull.  I (’22)-49,  p.  8. 

Art.  611. — Credit  for  foreign  taxes  (^f  1 758). 

Cuba;  8%  tax  imposed  by  Act  of  July  31,  1917  may  be  credited:  1918  and  1921 
Acts  (1-49-627:  I.  T.  1522).. Bull.  I (’22)-49,  p.  8. 

Art.  1003. — Nonpayment  of  tax — Interest  and  penalty  (1|2727). 

Abatement  claims  rejected  when  claims  based  on  inventory  lossc:  under  19)8  Act; 
1%  per  month  rate  still  applies:  1918  and  1921  Acts  (1-46-595:  1 T 1500) 
Bull.  1 (’22)-46,  p.  12. 

Bankrupt:  1%  per  month  “interest”  on  delinquent  taxes  for  period  prior  to  insolvency 
held  to  be  a “penalty”  within  meaning  of  Bankruptcy  Act:  U.  S.  District  Court 
decision  under  1916-1917  Acts.. ^[3439. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  40. 


12-21-22. 


CUMULATIVE  INDEX-DIGESTS— NOV.  6 TO  DEC.  31,  1022. 


CUMULATIVE  INDEX-DIGESTS 

of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of  * 

itters  issued  in  the  Service  since  November  6,  1922. 


New 


t 


Art.  4. — Who  is  a citizen  (^[748). 

Military  deserter,  \convicted  by  court-martial  and  findings  approved,  forfeits  citizen- 
ship: 1921  Ac\ (1-47-599:  I.  T,  1502).. Bull.  I (’22)-47,  p.  2. 


/ 


Art.  22. — Computation  of  net  income  (If  1046). 

31,  1922:  1921  Act  (1-46-588:1.  T.  1495)..  Bull.  I (’22)-46, 


rates 


Foreign  exchange 

England;  as  of  Ai 
p.  4. 

France;  as  of  Aug.  31,  19£2:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)-46, 
p.  4. 

Germany;  as  of  Aug.\3l,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)- 
46,  p.  4. 

\f 

i 

Art.  24. — Methods  of  accounting  1053). 

" Permanent  books  of  account;  the  keeping  and  production  of:  1921  Act.  .^3396. 

Art.  51. — When  included  in  gross  income  (^[  1260). 

Government  contract  canceled;  satisfaction  of  claim:  last  sentence  of  Art.  51,  Reg. 

62,  equally  applicable  to  1918  Act  (1-45-579:  I.  T.  1489).  .Bull.  I (’22)-45,  p.  7. 
Lease  held  to  be  a sale  under  very  special  circumstances;  option  to  purchase;  loan 
(non-interest  bearihg  note)  assignment  of  lease  as  collateral;  etc.:  1918  Act  (1-47- 
600:  A.  R.  M.  189).. Bull.  l\(’22)-47,  p.  2. 

On  approval  or  on  trial  “sales;”  when  is  sale  consummated  and  when  does  gross  income 
arise:  1921  Act  (1-48-613:  I.  T.  15 10).. Bull.  I (’22)-48,  p.  3. 

Art.  89. — Additional  exclusions  from  gross  income  under  the  Revenue  Act 
of  1921  (If  1606,  If  1725,  1f2099). 

Foreign  countries  which  do  not  satisfy  equivalent  exemption  provision  (1921  Act): 
Finland  (1-47-601:  I.  T.  1503).. Bull.  I (’22)- 47,  p.  5. 

Great  Britain  (1-46-589:  I.  T.  1496).. Bull.  I (’22)-46,  p.  5. 

New  Zealand  (1-50-634:  I. T.  1525) .. Bull.  I (’22)-50,  p.  1. 

Art.  94. — Income  of  nonresident  aliens  from  United  States  bonds  (1f2100). 

4 J4%  1947-52  Treasury  bonds  beneficially  owned  by  a nonresident  alien  individual, 
or  by  a foreign  corporation,  partnership  or  association  not  engaged  in  business  in  the 
U.  S.;  interest  is  exempt:  1921  Act  (1-50-635:  I. T. 1526).  .Bull.  I (’22)-50,  p.  1. 


Art.  101. — Business  expenses  (^f  1640). 

Insurance  on  life  of  debtor  (not  an  officer,  etc.),  policy  assigned  to  creditor  who  pays 
premiums  to  protect  loan;  premiums  are  deductible:  1921  Act  (1-48-614:  I.  T. 
1511).  .Bull.  I (’22)-48,  p.  4. 

Art.  101(a). — Traveling  expenses  (^f  1678). 

“Home”;  single  traveling  salesmen  on  the  road  365  days  in  the  year:  1921  Act 
(f-45-580:  I.T.  1490).. Bull.  I (’221-45,  p.  7.  See  O.  D.  905,  June  1921  Cum. 
Bull.  p.  212.  • ( 

Naval  officers;  subsistence  of  single  man  while  afloat  deductible  if  he  has  a “home,” 
otherwise  not;  but  expense  incident  to  visits  to  home  not  deductible:  1921  Act 
([.46-590:  1.  T.  1497).  .Bull.  I f’22)-46,  p.  5. 

State  Department  foreign  service  officers;  monetary  allowances  and  transportation 
orders  in  lieu  thereof:  1921  Act  (1-49-622:  I.  T.  1518).  .Bull.  I (’22)-49,  p.  4. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementaryii.Paget37. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922 


Art.  109.— Rentals  (If  1683). 

Annual  deduction  on  account  of  amortization  of  leasehold  acquired  prior  to  March 
1,  1913  to  be  determined  without  consideration  of  value  as  of  that  date  (T.  D. 
3414).  43415. 

Art.  111. — When  charges  deductible  (^[1057). 

Carrying  charges  on  property  purchased  and  held  for  profit;  O.  D.  398,  June  1920 
Cum.  Bull.  p.  112,  overruled:  1921  Act  (1-49-621:  I.  T.  1517).  .Bull.  I (’22)-49, 

p.  1. 

* Price  reduction  guarantees:  deduction  allowed  for  year  contingent  credit  becomes 
an  actuality  though  covering  goods  sold  in  prior  year:  1921  Act  (1-51-644:  I.  T. 
^ K 1533).  .Bull.  I (’22)-51,  p.  2. 

South  Carolina  income  tax  (law  passed  March  13,  1922,  retroactive  for  1921):  1921 
Act  (I-46-.591 : I.  T.  1498)..  Bull.  I (’22)-46,  p.  6. 

Art.  131.— Taxes  (If  1703). 

New  York  franchise  tax:  1917-1918  Acts  (1-43-558:  A.  R.  R.  1153..  Bull.  I (’22)-43, 
p.  3. 

Art.  134. — Federal  estate  and  inheritance  taxes  (^[f  1728). 

Art.  134,  amended.  43414. 


¥ Complete  list  to  Dec.  14,  1922  stating  the  rule  as  to  the  deductibility  of  estate  and 
inheritance  taxes  of  the  States  and  other  jurisdictions:  1921  Act.  43513. 


¥ Accrual  and  due  dates  of  State  estate  and  inheritance  taxes  in  the  respective  juris- 
dictions: 1921  Act..  1(3515. 

¥•  Date  as  of  which  deductible;  State  estate  and  inheritance  taxes;  cash  and  accrual 
basis:  1921  Act.  43516. 

* Due  date  of  Federal  estate  tax  is  one  year  after  decedent’s  death  regardless  of  any 
extension  of  time  for  payment  (the  regulations  have  been  amended  to  accord 
with  this  opinion,  1(3414):  1918  and  1921  Acts  (1-51-645:  Sol.  Op.  148).. Bull. 
I (’22)-51,  p.  3. 

Federal  estate  tax  paid  subsequent  to  settlement  of  estate  out  of  residue  of  estate 
placed  in  trust,  not  deductible  by  trustees  in  determining  net  income  of  trust: 
1918  Act  (1-46-592:  A.  R.  R.  1 020)  ..  Bull.  I (’22)-46,  p.  7. 

Reg.  45,  Art.  134  amended  (1918  Act).  43414. 

Remainderman  and  life  tenant;  California,  Kansas,  New  Jersey,  New  York,  and  Ohio 
inheritance  taxes  are  deductible  by  beneficiaries  only  but,  in  all  but  Kansas, 
those  imposed  in  respect  to  the  life  interest  being  payable  from  corpus  without 
reimbursement  to  the  remaindermen  are  not  deductible  by  the  life  tenant  (the 
Kansas  tax  is),  nor  by  any  person  now  in  being  with  contingent  remainder  interest: 
1921  Act  (1-49-624:  I.  T.  1519).  .Bull.  I (’22)-49,  p.  5. 

Art.  141— Losses  flf  1783)1 

Expense  incident  to  establishing  a business  by  one  not  in  business,  the  venture  being 
abandoned,  is  a deductible  loss  in  a transaction  entered  into  for  profit:  1921  Act 
(1-47-603:  I.  T.  1505).. Bull.  I (’22)-47,  p.  6. 

Art.  151. — Bad  debts  (If  1810). 

¥ Heir  pays  off  incumbrance  existing  on  property  when  inherited:  no  reimbursement 
from  estate:  payment  may  not  be  charged  off  as  bad  debt:  1918  Act  (1-51-646: 
I.  T.  1534) . .Bull.  I (’22)-5 1,  p.  6. 

Russian  bonds:  no  general  rule  on  all  classes  may  be  laid  down;  no  loss  may  be  claimed 
on  5}^%  dated  Dec.  1,  1916,  due  Dec.  1,  1921,  nor  on  6J^%  3-year  due  June  18, 
1919,  until  sold  or  otherwise  disposed  of:  1918  Act  (1-50-638:  1.T.1528) . .Bull.  1 
(’22)-50,  p.  2. 

Art.  164. — Capital  sum  recoverable  through  depreciation  allowances  (If  1840). 

Leasehold  acquired  prior  to  March  1,  1913  (T.  D.  3414).  43415. 


THE  FEDEBAL  INCOME  TAX  SEETICE 
Supplementary  Page  38. 


12-21-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS— (Concluded). 


T.  D.  Date  Subject  Paragraph 

Report  No.  74,  December  21,  1922. 

Decision  Dec.  18,  1922  U.  S.  District  Court.  Dividends  paid  by  cor- 
poration in  1917  are  conclusively  presumed  to 
have  been  paid  from  the  most  recently  accumu- 
lated profits,  including  the  1917  profits  to 
date  of  distribution,  even  though  declared  to 

be  from  depletion  reserve 3519 

(Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  1 nlernal  Revenue  Bulletin  No.  5 1 of  the 
1922  Series,  and  to  new  matters  in  the  Service.] 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  35. 


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12-21-28. 


case.  Calling  the  distribution  of  corporate  assets  a distribution  of  depletion 
reserve  does  not  make  it  a payment  of  capital  instead  of  income  when  there 
are  net  earnings  or  accumulated  surplus  sufficient  to  meet  it.  And  in  my 
judgment,  the  Act  is  correctly  interpreted  in  paragraph  26  of  Regulation  33 
of  the  Treasury,  issued  thereunder  in  January  1918,  reading  as  follows: 

“ Dividends  from  depletion  reserve.  A reserve  set  up  out  of  gross 
receipts  and  maintained  by  a corporation  for  the  purpose  of  making 
good  any  loss  or  wasting  of  capital  assets  on  account  of  depletion  is  not  to 
be  considered  a part  of  the  earned  surplus  of  the  company,  but  a reserve 
for  the  return  or  liquidation  of  capital.  A dividend  paid  from  such 
reserve  will  be  considered  a liquidating  dividend  and  will  not  constitute 
taxable  income  to  the  stockholder  except  to  the  extent  that  the  amount 
so  received  is  in  excess  of  the  capital  actually  invested  by  the  stockholder 
in  the  shares  o him,  and  with  respect  to  which  the  dis- 
tribution was  r lend  will , however,  be  deemed  to  have  been 

paid  from  such  > the  extent  that  such  dividend  exceeds  the 

surplus  and  uno  the  corporation  at  the  time  of  such  payment, 

ana  unless  the  l ublished  statements,  etc.,  of  the  corporation 


such  payment .” 

3646  Inasmuch  rnings  for  1917  were  at  the  time  of  these 

distribute  -e  stated,  more  than  sufficient  to  meet  them, 


therefore  be  direc 

3647  Since  this  epared,  my  attention  has  been  called  by  the 

defendan  he  opinion  of  Judge  Cooper  in  Harder  v. 

Irwin , fl[3455  hei  srted,  an  opinion  in  which  I entirely  concur. 


clearly  indicate  reduction  of  capital  assets  resulting  from 


the  claim  for  ref  rly  rejected.  A verdict  for  defendant  will 


V 


\ 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
791 


•82-IS-SI 


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12-6-23.  (2)  12-13-22. 

CUMULATIVE  INDEX-DIGESTS —NOV.  6 TO  DEC.  31,  1922. 


Art.  1005.— Deficiency  in  payment.— Interest  and  penalty  (^[2603). 

¥ Interest  begins  to  run  from  what  date  (on  failure  to  pay  within  10  days  after  notice 
and  demand):  (1)  regular  tax  installment  as  shown  by  return,  from  date  install- 
ment becomes  due,  and  on  amount  demanded  only;  (2)  additional  assessments, 
on  amount  demanded  (which  includes  interest  under  Sec.  250  (b))  from  time 
demand  is  made:  1921  Act  (1-50-642:  Sol.  Op.  147).  .Bull  T (’22)-50,  p.  4. 

Art.  1006. — Appeals  and  hearings  (^[2763). 

Art.  1006  amended.  . 1[3406. 

Special  in  1917  tax  cases  to  meet  emergency.  .^3397. 

Art.  1034. — Claims  for  credit  of  taxes  erroneously  collected  (^[2829). 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (1917  Act):  O.  D.  1103,  Dec.  1921  Cum.  Bull.  p.  248 
overruled.  Here,  foreign  corporation  and  amounts  withheld  on  dividends  also 
involved  (1-45-585:  L.  O.  1107).. Bull.  1 (’22)-45,  p.  11. 

Art.  1036. — Claims  for  refund  of  taxes  erroneously  collected  (T[2835). 

Tax  withheld  and  paid  to  Government  in  excess  of  liability  (See  “Tax  withheld,  etc.,” 
under  Art.  1034  above.) 

Art.  1503. — Association  distinguished  from  partnership  H[989). 

Unincorporated  bank  under  Indiana  law;  special:  1917  and  1918  Acts  (1-47-598:  I.  T. 
1501).. Bull.  1 (’22)-47,  p.  1. 

Art.  1541. — Dividends  1080). 

Crediting  capital  stock  account  (debiting  profit  and  loss)  with  an  amount  sufficient 
to  make  total  credit  to  capital  stock  equal  to  aggregate  of  par,  thus  rendering 
stock  fully  paid  that  was  theretofore  partially  paid  and  subject  to  call,  is  in 
effect  a cash  distribution  and  not  a stock  dividend:  1916-1917  Acts  (1-45-575: 
A.  R.  R.  1127).. Bull.  I (’22)-45,  p.  1. 

Art.  1542. — Source  of  distribution  (^[  1 107) . 

Dividends  paid  by  corporations  in  1917  (except  as.  to  distributions  made  prior  to 
August  6 from  profits  iccrued  prior  to  March  1-,  1913)  are  conclusively  presumed, 
for  purposes  of  determining  rates  at  which  taxable  to  the  stockholders,  to  have 
been  paid  from  the  frtost  recently  accumulated  profits  including  the  profits  of 
1917  to  date  of  decliration:  U.  S.  District  Court  decision  under  the  1917  Act 
(Nov.  29,  1922).  .f 3455. 

Art.  1548. — Sale  of  stoclf  received  as  dividend  1 136). 

Trust  estate  with  life-tenant  to  whom  stock  dividend  is  distributable  under  the  Penn- 
sylvania or  American  rule:  1918/Act  (1-47-604:  I.  T.  1506).. Bull.  I (’22)-47, 
p.  6.  Again,  1911^  and  1921  Aces  (1-47-605:  1.  T.  1507).  .Bull.  I (’22)-47,  p.  8. 

[Note  that  the  ruling  ^t  1[3010  is  revoked  by  the  above.] 

■< 

Art.  1561. — Basis  for  determining  gain  or  loss  from  sale  (T[  1437). 

Depreciation  to  be  given  full  \^ight  in  establishing  both  “cost”  and  “March  1,  1913, 
value,”  for  purposes  of  bcint  comparison  with  selling  price  of  depreciable  prop- 
erty acquired  pfior  to  filarc h 1,  1913:  1917  Act  (T46-586:  I.  T.  1494).. Bull. 
1 (’22)-46,  p.  1. 

Real  estate;  benefi 
lost  over  period 
conclusions  star 
O.  D.  398,  June! 

I (’22)-49,  p.  1. 


of  deduction  for  taxes,  interest,  etc.  (carrying  charges)  paid, 
>f  ye/rs  as  insufficient  income;  not  to  be  added  to  cost  (sustaining 
ed  in  I.  T.  1188,  June  1922  Cum.  Bull.  p.  28,  and  overruling 
vpo  Cum.  Bull.  p.  112):  1921  Act  (1-49-621:  I.  T.  1517).  .Bull. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  41. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  1563. — Sale  of  property  acquired  by  gift  on  or  before  December  31,  1920, 
or  by  bequest,  devise,  or  inheritance  CH 1455). 

Life  tenant  sells  trust-estate’s  stock-dividend  stock  distributable  to  him,  the 
surplus  out  of  which  the  stock  dividend  was  declared  being  earned  prior  to  March 
1,  1913:  1918  and  1921  Acts  (1-47-605:  I.  T.  1507).. Bull.  I (’22)-47,  p.  8. 

Art.  1566. — Exchange  of  property  which  results  in  no  gain  or  loss  (1(1466). 

95%  of  stock  of  one  corporation  having  been  turned  in  by  stockholders  within  a short 
time  to  another  corporation  for  its  stock  of  equal  par  value  in  acceptance  of 
offer  made  by  latter,  the  exchange  is  in  connection  with  a reorganization  and 
hence  no  profit  or  loss  results  to  exchanging  stockholders:  1921  Act  (1-48-611: 
I.  T.  1508).  .Bull.  I (’22)-48,  p.  1. 

Art.  1583. — Inventories  at  cost  (1(1516). 

"Cost”  of  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the  inventory 
price  of  such  goods  in  a “cost  or  market  whichever  is  lower”  inventory.  .K4004. 

Art.  1601. — Net  losses,  definition  and  computation  (1(1535). 

Capital  assets;  losses  from  sale  of,  by  corporation  in  liquidation  are  not  within  the 
law  provisions:  1918  Act  (1-45-576:  A.  R.  M.  185).  .Bull.  I (’22)-45,  p.  3. 

Art.  1602. — Claim  for  allowance  of  net  loss  (1(1545). 

New  corporation  (Nov.,  1918)  sustains  net  loss  during  first  two  months  of  operation, 
and  during  calendar  year  1919;  adopts  basis  of  fiscal  year  beginning  Sept.  1, 
1920:  how  to  apply  net  loss  (1921  Act)  (1-48-612:  I.  T.  1509).. Bull.  I (’22)- 
48,  p.  1. 

Art.  1711. — Aids  to  collection  of  tax  (1(2711). 

Permament  books  of  account:  the  maintaining  and  production  of.  .K3396. 


Miscellaneous. 

* Committee  on  Appeals  and  Review:  new  chairman  (Dec.  15,  1922).  . H 3 5 12. 

Committee  on  Appeals  and  Review:  personnel  increased  to  13  members;  organiza- 
tion of  a Special  Committee  on  Appeals  and  Review  to  meet  emergency  on  account 
1917  tax  cases.  .U3397. 

Continuing  effect  of  1918  Act  for  assessment  and  collection  of  taxes  accrued  there- 
under (see  ^2776):  here,  rate  of  interest  chargeable  on  rejected  claims  for  abate 
ment  for  inventory  losses  (1-46-595:  I.  T.  1500).. Bull.  I (’22)-46,  p.  12. 

Secretary  of  Treasury’s  annual  report:  excerpt  of  matter  relating  to  taxation  and 
revenue  (Dec.  4,  1922).  .1(3440. 

Tax  Simplification  Board;  personnnel  (Nov.  29,  1922) . .1(3416. 

Tax  Simplification  Board;  first  annual  report  to  Congress  (Dec.  2,  1922).  .1(3417. 


There  are  no  Supplementary  Pages  43  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  42. 


11-15-22.  (2)  11-22-22.  (3)  11-29-22.  (4)  12-6-22.  (6)  12-13-22J 

CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  141. — Losses  (If  1783). 

Expense  incident  to  establishing  a business  by  one  not  in  business,  the  venture  being 
abandoned,  is  a deductible  IcrjV  fn  a Transaction  entered  into  for  profit:  1921  Act 

(1-47-603:  I.  T.  1505)..  Bull.  I (’22)-47,  p.  6. 

Art.  151. — Bad  debts  (If  1810). 

•V  Russian  bonds:  no  general  rule  on  all  classes  may  be  laid  down;  no  loss  may  be,  claimed 
on  ,s'  V dated  lee.  1,  1916.  due  Dec.  1,  1921.  nor  on  6)4%  3?year  due  tune  18, 
1919,  until  sold  or  otherwise  disport'd  of:  1918  Act  (1-50-6381  1.T.1528)"1.  .Lull.  I 
(’22)-50  n.  2.  W*10™11  n9,,B  Jnsfciasinon  B gmvflfl 

Art.  164. — Capital  sum  recoverable  through  depreciation  allowances  (If  1840). 

Leasehold  acquired  prior  to  March  1,  1913  (T.  D.  3414).  .1)3415. 

Art.  291. — Personal  and  family  expenses  (If  1623). 

Naval  officers;  expenses  incident  to  visits  home  from  port  and  subsistence  afloat  of 
single  man  having  no  home  are  not  deductible:  1921  Act  (1-46-590:  I.  T.  1497) 
. .Bull.  I (’22)-46,  p.  5. 

Teacher’s  special  research  work  (to  better  fit  for  life  work);  expenses  incident  to 
printing  results,  books  and  instruments  purchased  (depreciation),  traveling 
(meetings  of  scientific  societies)  are  personal  and  so  not  deductible:  1921  Act 
(1-49-625:  I.  T.  1520).  .Bull.  I (’22)-49,  p.  8. 

need  T*iy  Isosn  i mo  no  sno ,5Iiw  boa  bands ud  Jmo(, 

Art.  294. — Premiums  on  business  insurance  (If  1639). 

Life,  policy  assigned  to  creditor  as  security  for  loan;  premiums  paid  by  creditor  to 
protect  loan  are  deductible  the  debtor  not  being  an  officer,  employee,  etc.:  1921 
Act  (1-48-615:  I.  T.  1512).. Bull.  I (’22)-48,  p.  4. 

IS9I  tol  iiii  T.i 

Art.  316. — Income  from  sources  within  the  LJnited  States  (1f2094). 

Spain  community  property;  wife’s  interest  is  expectancy  merely,  hence  husband  should 
return  income  in  its  entirety  from  U.  S.  partnership:  1921  Act  (1-48-616:  I.  T. 
1513).  .Bull.  I (’22)-48,  p.  5. 

.1*  .q  ,0c-(L'_'  j . I J : 1 . 

Art.  327(a)— Transportation  services  (^324). 

.p,d  Art.  327(a)  applies  under  1921  Act  only  (1-45-582:  I.  T.  1492).  .Bull.  I (’22)-45,  p.  8. 

i.  i®  .a  .8M££')  I .lluS.  .(diei  .T  .1 

Art.  342.  —Estates  and  trusts  to  fiduciary  ("879). 


Stock  vidends  (See  “Stock  dividends’/  under  Art.  347  below.). 


Art.  345. — Estates  and  trusts  taxed  to  beneficiaries  (If 894). 

Federal  estate  tax  paid  by  trustee  out  of  residuary  trust  funds,  all  distributable  to 
beneficiaries,  because  not  paid  and  no  provision  made  for  paying  prior  to  clos- 
ing of  administration  is  not/deductible  in  determining  income  of  the  trust  (1-46- 
i6oy  t 592:  A.  R.  R.  1020).  .Bull.  4 (’22)-46,  p.  7o  boheq  ievo  b9inoaB 

Self  beneficiary  of  income  of  trust  to  extent  demanded  is  taxable  on  amount  actually 
received  only.  This  ruling  which  revokes  S.  1344,  June  1920  Cum.  Bull.  p.  176, 
is  confined  strictly  to  t/e  1916-17  Act.  (1-46-593:  Sol.  Op.  146)., Bull.  1 (’22)- 

Stock  dividends.  (See  “Su5ck  dividends”  under  Art.  347  below.) 

Art.  347. — Estates  apd  /rusts  with  income  which  is  distributed  periodically 
and  othefc/ncome  (1(913).  ,rfw  jii3m9jndA 

Stock  dividends  distributable  to  life  tenant:  profit  or  loss  on  sale  of  stock  received 
and  of  that  (held  by  fiduciary)  in  respect  of  which  received;  1918  Act  (1-47-604: 
I.  T.  1506)..  Bull.  1 (’22)-47,  p.  6.  Again,  1918  and  1921  Act  (1-47-605:  I.  T. 
1507).  .Bull.  I (’22)-47,  p.  8. 

[Note  that  the  ruling  at  U3010  is  revoked  by  above.) 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  39. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  361. — Withholding  tax  as  source  (^2197). 

Tax-free  covenant  bond  interest;  tax  (1917)  withheld  and  paid  to  Government 
though  creditor  not  liable  to  normal  tax:  refund  or  credit  to  creditor.  O.  D. 
1103,  Dec.  1921  Cum.  Bull.  p.  248,  overruled.  Here,  creditor  is  a corporation, 
against  which  there  had  also  been  withholding  on  account  of  dividend*  (1-45- 
585:  L.  O.  1107)..  Bull.  I (’22)-45,  p.  11. 


Art.  364. — Exemption  certificate  of  nonresident  aliens  (*[12254-^2255). 

Members  of  a nonresident  alien  partnership  and  beneficiaries  of  an  estate  or  trust 
having  a nonresident  alien  fiduciary  may  not  use  Forms  1001  B and  1001C  in 
connection  with  payments  made  to  the  partnership  or  estate  or  trust  (though 
the  estate  or  trust  may):  1921  Act  (1-45-584:  1.  T.  1493) . . Bull.  1 (’22)-45,  p.  10. 

Art.  365. — Ownership  certificates  for  interest  coupons  (^[2265). 

■*  Interrogatories  to  be  answered  fully:  1921  Act  (1-50-639:  I. T.  1529) . .Bull.  I (’22)-50, 
p.  3.  See  2269. 

Art.  401. — Individual  returns  (1f2390). 

♦ Community  property : failure  to  compute  surtax  on  joint  return  is  not  sufficient  evidence 
to  disclose  intent  to  file  on  community  basis:  when  such  intent  is  disclosed  on 
joint  return  or  by  evidence  subsequently  submitted  ta  payers  should  be  requested 
to  file  amended  separate  returns:  1921  Act  (:-50-640:  ;.i.  1530).  .Bull.  1 (’22)-50, 
p.  3. 

Joint  returns  by  husband  and  wife,  one  on  calendar  year  the  other  on  fiscal  year  basis 
not  permitted:  here,  effort  was  to  apply  net  loss  of  one  against  income  of  other: 
1921  Act  (1-48-617:  I.  T.  1514).  .Bull.  I (’22)-48,  p.  5. 

Art.  421. — Fiduciary  returns  (^[939). 

Life  tenant  (subject  to  annuity  payments)  dies  in  1922,  the  annuitants  surviving 
property  vests  in  trustee:  executor  not  trustee  makes  fiduciary  return  for  1921 
1921  Act  (1-48-618:  I.  T.  1515).. Bull.  I (’22)-48,  p.  6. 

¥ Transfers  in  contemplation  of  death  (so  determined  for  I cderal. estate  tax  purposes): 
here  Florida  and  property  being  real  estate;  income  therefrom  is  income  of_the 
transferees  and  not  that  of  the  estate:  1918  and  1921  Acts  (1-50-641:  I.T.  1531) 

. .Bull.  I (’22)-50,  p.  4. 


Art.  514. — Fraternal  beneficiary  societies  (1fl022). 

Definition:  full  discussion;  O.  D.  690  overruled:  1918  and  1921  Acts  (1-48-619: 
I.  T.  1516) . .Bull.  I (’22)-48,  p.  6. 

Art.  522. — Cooperative  Associations  (^[1038). 

Buying  and  selling  on  own  account;  deductibility  of  so-called  rebates;  necessity  for 
making  return  through  no  tax  due:  1917  and  1918  Acts  (1-46-594:  I.  T.  1499) 

. .Bull.  I (’22)-46,  p.  10. 

Art.  601. — Withholding  in  case  of  nonresident  foreign  corporations  (^[2225). 

Royalties  accrued  over  period  of  years;  withholding  is  at  rate  prevailing  for  year 
paid:  1921  Act  (1-49-626:  I.  T.  1521).  .Bull.  I (’22)-49,  p.  8. 


Art.  611.— Credit  for  foreign  taxes  (If  175 8). 

Cuba;  8%  tax  imposed  by  Act  of  July  31,  1917  may  be  credited:  1918  and  1921 
Acts  (1-49-627:  I.  T.  1522).  .Bull.  I (’22)-49,  p.  8. 


Art.  1003. — Nonpayment  of  tax— Interest  and  penalty  (^2727). 

Abatement  claims  rejected  when  claims  based  on  inventory  losses  under  1918  Act; 
1%  per  month  rate  still  applies:  1918  and  1921  Acts  (1-46-595:  I.  T.  1500).. 
Bull.  I (’22)-46,  p.  12. 

Bankrupt:  1%  per  month  “interest”  on  delinquent  taxes  for  period  prior  to  insolvency 
held  to  be  a “penalty”  within  meaning  of  Bankruptcy  Act:  U.  S.  District  Court 
decision  under  1916-1917  Acts.  .^[3439. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  40. 


1 1 e 22  (2)11-16-22.  (8)11-22-22.  (4)11-27-22  (6)  11-29-22.  (6)12-6-22.  (7)  12-13-22. 

CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


CUMULATIVE  INDEX-DIGESTS 

of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922. 

Art.  4. — Who  is  a citizen  (1f748). 

Mi'itiry  deserter,  convicted  by  court-martial  and  findings  approved,  forfeits  citizen- 
ship: 1921  Act  (1-47-599:  I.  T.  1502).. Bull.  I (’22)-47,  p.  2. 


Art.  22. — Computation  of  net  income  (If  1046). 

Foreign  exchange  rates: 

England;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:1.  T.  1495).. Bull.  I (’22)-46, 
p 4. 

France;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)-46, 
p.  4. 

Germany;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)- 
46,  p.  4. 


Art.  24. — Methods  of  accounting  (^[  1053) . 

Permanent  books  of  account;  the  keeping  and  production  of:  1921  Act.. ^[3396. 


Art.  51. — When  included  in  gross  income  1260) . 

Government  contract  canceled;  satisfaction  of  claim:  last  sentence  of  Art.  51,  Reg. 

62,  equally  applicable  to  19L8\Act  (1-45-579:  I.  T.  1489).. Bull.  I (’22)-45,  p.  7. 
Lease  held  to  be  a sale  undeiyvery  special  circumstances;  option  to  purcha  e;  loan 
(non-interest  bearing  not  J)  assignment  of  lease  as  collateral;  etc.:  1918  Act  (1-47- 
600:  A.  R.  M 189)  I f22)-47,  p.  2. 

On  approval  or  on  trial  “sai'es;”  when  is  sale  consummated  and  when  does  gross  income 
arise:  1921  Act  (I-4/-613:  I.  T.  1510).. Bull.  I (’22)-48,  p.  3. 

Art.  89. — Additional  exclusions  from  gross  inepme  under  the  Revenue  Act 
of  192 1 (111606,  1fl725,  “ 

Foreign  countries  which  do  not  sa  fuivalent  exemption  provision  (1921  Act): 

Finland  U-/7-601:  1.  T.  1503),  I_  (’22)-47,  p.  5. 

Great  Brii 
■k  New  Zssl 


Art.  94. — Inco 


1 406)  .Bull.  I f ’224-46,  p.  5. 
.1525).  .Bull.  I (’22)-50,  p.  1. 


nonresident  aliens  from  United  States  bonds  (^[2 100). 


* 4’34%  1947-52  Treasury  bonds  beneficially  owned  by  a nonresident  alien  individual, 
or  by  a foreign  corporation,  partnership  or  association  not  engaged  in  business  in  the 
U.  S.;  interest  is  exempt:  1921  Act  (1-50-635:  I. T.  1526).  .Bull.  I (’22)-50,  p.  1. 


Art.  101. — Business  expenses  (If  1640). 

Insurance  on  life  of  debtor  (not  an  officer,  etc.),  policy  assigned  to  creditor  who  pays 
premiums  to  protect  loan;  premiums  are  deductible:  1921  Act  (1-48-614:  I.  T. 
1511).  .Bull.  I (’22)-48,  p.  4. 

Art.  101(a). — Traveling  expenses  (1fl678). 

“Home”;  single  traveling  salesmen  on  the  road  365  days  in  the  year:  1921  Act 
(1-45-580:  I.T.  1490).. Bull.  I (’22)-45,  p.  7.  See  O.  D.  905,  June  1921  Cum. 
Bull.  p.  212. 

Naval  officers;  subsistence  of  single  man  while  afloat  deductible  if  he  has  a “home,” 
otherwise  not;  but  expense  incident  to  visits  to  home  not  deductible:  1921  Act 
(1-46-500:  1 T 1 497) . Bull.  I f’22)-46,  p.  5. 

State  Department  foreign  service  officers;  monetary  allowances  and  transportation 
orders  in  lieu  thereof:  1921  Act  (1-49-622:  I.  T.  1518).  .Bull.  I (’22)-49,  p.  4. 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Pagej37. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922 


Art.  109.— Rentals  (If  1683). 

Annual  deduction  on  account  of  amortization  of  leasehold  acquired  prior  to  March 
1,  1913  to  be  determined  without  consideration  of  value  as  of  that  date  (T.  D. 
3414).  43415. 

Art.  111. — When  charges  deductible  (If  1057). 

Carrying  charges  on  property  purchased  and  held  for  profit;  O.  D.  398,  June  1920 
Cum.  Bull.  p.  112,  overruled:  1921  Act  (1-49-621:  I.  T.  1517).. Bull.  I (’22)-49, 
p.  i. 

South  Carolina  income  tat  (law  passed  March  13,  1922,  retroactive  for  1921):  1921 
Act  (1-46-591:  l.  T.  1498)..  Bull.  1 (’22)-46,  p.  6. 

Art.  131. — Taxes  (If  1703). 

New  York  franchise  tax:  1917-1918  Acts  (1-43-558:  A.  R.  R.  115 ’-..Bull.  I (’22)  43, 
p.  3. 

Art.  134. — Federal  estate  and  inheritance  taxes  (^f  1728). 

Art.  134,  amended.  43414. 

Alaska  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (i-47-602: 
I.  T.  1504).  .Bull.  I C22)-47,  p.  6. 

Arkansas  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581 : I.  T.  1491).  . Bull.  I (’22)-45,  p.  8. 

California  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-49- 
624:  I.  T.  1519).  .Bull.  I (’22)-49,  p.  5. 

Connecticut  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (I- 
45-581:  I.  T.  1491).. Bull.  1 (’22)-45,  p,  8. 

Federal  estate  tax  paid  subsequent  to  settlement  of  estate  out  of  residue  of  estate 
placed  in  trust,  not  deductible  bv  trustees  in  determining  net  income  of  trust: 
1918  Act  (1-46-592:  A.  R.  R.  1020}.. Bull  I (’22)-46,  p.  7. 

Georgia  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-48-615: 
I.  T.  1512).. Bull.  1 (’22)-  48,  p.  4. 

Illinois  inheritance  taxes  arc  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602: 
I.  T.  1504).  .Bull.  I (|22)-47,  p.  6. 

Indiana  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  ( I -4.5- 
581:  I.  T.  1491).  .Bull.  I (”22)-45,_p.  8. 

Louisiana  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47- 
602:  I.  T.  1504).  .Bull.  1 (’22)-47,  p.  6 ' 

Maine  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-48-615: 
I.  T.  1512).  .Bull.  I (’22)-48,  p.  4. 

Massachusetts  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act 
(1-45-581:  I.  T.  1491).  .Bull.  I (’22)-45,  p.  8. 

Michigan  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47- 
602:  I.  T.  1504).. Bull.  I (’22)-47,  p.  6. 

Missouri  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).  .Bull.  I (’221-45,  p.  8. 

Ohio  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (I-4/-602: 
I.  T.  1504).  .Bull.  I (’22)-47,  p.  6.  . 

Oklahoma  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).  .Bull.  I (’22)-45.  p.  8. 

Reg.  45,  Art.  134  amended  (1918  Act).  ^3414. 

Remainderman  and  life  tenant;  California,  Kansas,  New  Jersey,  New  York,  and  Ohio 
inheritance  taxes  are  deductible  by  beneficiaries  only  but,  in  all  but  Kansas, 
those  imposed  in  respect  to  the  life  interest  being  payable  from  corpus  without 
reimbursement  to  the  remaindermen  are  not  deductible  by  the  life  tenant  (the 
Kansas  tax  is),  nor  by  any  person  now  in  being  with  contingent  remainder  interest: 
1921  Act  (1-49-624:  I.  T.  1519) . .Bull.  I (’22)-49,  p.  5. 

Tennessee  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (I- 
47-602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

>(■  Texas  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-50-637: 
I.T.1527).  .Bull.  I.  (’22)-50,  p.  2.  ... 

Virginia  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).  .Bull.  I C22)-45,  p.  8. 

Wisconsin  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1- 
47-602:  I.  T.  1504).. Bull.  I (’22)-47,  p.  6. 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  38. 


12-18-23. 


(T.  D.  3416.) 


35 1 8 Credit  or  refund  claims  filed  within  four  years  after  payment  of  tax 
2813  may  be  allowed  though  not  filed  until  after  expiration  of  five  yeari 
from  date  return  was  due. — A claim  for  credit  or  refund  of  an  amount 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

785 


FOR  CUMULATIVE  INDEX-DIGESTS 
of 


Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922 

see  the 

Cumulative  Index  Unit 
beginning  on 
Supplementary  Page  37 
in  the 

“T.  D.  Finder”  division  of  the  Service. 


In  the  Cumulative  Index  Unit  the  Article  number  of  Regulations 
No.  62  is  the  key  number.  All  digests  of  rulings  bearing  on  a par- 
ticular Article  are  placed  under  that  particular  Article’s  number. 
The  Article  numbers  (to  the  extent  that  they  appear  at  all)  run 
sequentially,  beginning  with  number  1. 


Insert  this  page  to  face  page  91. 


% 

% 

% 

Over. 

% 

♦ 

% 


Insert  this  sheet  immediately  following  the 
yellow  guide  card  marked  “The  Compilation.” 


1-SI 


12-13-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENT3.- 


-(Continued.) 


T.  D. 


3401 

3402 

1403 


II  w 


Date 


Subject 


Paragraph 


Oct. 


18,  1922 
18,  “ 

18,  “ 


Special  Oct.  21-21,  1922 


3404 

3405 

44 

25, 

25, 

3406 

<4 

28, 

Memo. 

Nov. 

2, 

3407 

44 

2, 

3408 

<4 

2, 

Special 

44 

7, 

Special 

< 1 ? 

44 

4, 

3409 


Nov.  13,  1922 


Report  No.  62,  October  21,  1922. 

(Excise  Taxes. — War  Tax  Series,  1(4 795.) 

Art.  39,  Rep.  45,  amended.  -Sale  of  the  right  to 

subscribe  to  stock  3372 

Art.  39,  Reg,.  62,  amended.  -Sale  oi  the  right  to 

subscribe  to  stock 337.S 

R'port  No.  63,  November  6,  1922. 

[Pages  for  substitution  on  account  change  of 
all  index-digest  references  from  page  numbers  in 
weekly  Internal  Revenue  Bulletins  1 to  26  of  the 
1922  Series  to  page  numbers  in  Cumulative  Bul- 
letin 1-1  (Jsnuary-June,  1922),  and  on  account 
index-digest  references  to  new  matters  and  the 
rulings  in  weekly  Bulletins  Nos.  41  to  44.) 

Report  No.  64,  November  6,  1922. 

Placing  of  income  for  taxable  period  of  less 
than  12,  months  on  an  annual  basis:  (1)  in 
gcneraL'dccedcnt  dying  during  year  and  estates 
of  decejdents;  and  (2)  special,  calendar  year 
decederft-member  of  fiscal  year  partnership.  . . 3378 
(Prohibition.) 

Decision  pf  court:  Bankruptcy  Act. — Taxes  due 
the  United  States  take  priority  over  claims 
against  the  estate  of  a bankrupt  for  wages.  ..  3383 
An  Act  relative  to  the  naturalization  and  citizen- 
ship of  married  women 3384 

Decisio4  of  Court,  1913  Act. — Expenses  in  con- 
nection with  the  breeding  of  blooded  horses 
and  (he  incidental  racing  thereof,  in  a par- 
ticular case 3392 

D.  designation  for  U.  S.  Supreme  Court  de- 
cision: Lederer  vs.  Stockton  H[3355) 3395 

Oirvthe  keeping  and  production  of  permanent 
bopks  of  account 3396 

Report  No.  65,  November  9,  1922 . 
Appeals\and  hearings  on  1917  tax  cases  specif- 
ically:\  special  Committee  on  Appeals  and 

Review V 3397 

In  a “costxor  market  whichever  is  lower”  in- 
ventory th\“cost”  of  merchandise  on  hand  at 
the  beginning  of  the  taxable  year  is  the  in- 
ventory price\f  such  goods 3404 

[Supplementary.  Pages  (“T,  D.  Finder”  div- 
ision) showing  indas-digest  references  to  rulings 
in  Internal  RevenueSBulletin  No.  45,  of  the  1922 
Series,  and  to  new  masters  in  the  Service.] 

Report  No.  66\Notrv  her  15,  1922. 

Art.  1006,  Reg.  62,  amended. — Appeals  and 

hearings 3406 

[Supplementary  Pages  (!‘T/D.Finder”division) 
showing  index-digest  references  to  rulings  in 
Internal  Revenue  Bulletin  No.  46,  of  the  1922 
Series,  and  to  new  matters  in  the  Service.] 

Report  No.  67,  November  22,  1922. 
[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  47, 
of  the  1922  Series.] 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33. 


12-13-22. 

T.  D.  FINDER  AND  RUNNING  TAET.E  OF  CIO  '."TENTS.  -(Continued.) 


T.  D. 


3410 

3411 


3412 

3413 

3414 
Special 


Special 

3415 


Decision 


Special 


Decision 


Special 


atC  Subject  Paragraph 

Report  No.  68,  November  27,  1922 
Nov.  22,  1922  (Prohibition.) 

24,  “ Art.  134,  Reg.  62,  amended.— Period  as  of  which 

I'ederal  Estate  Tax  is  deductible 3414 

Ait.  134,  Reg.  45  (1918  Act),  amended. — Period 
as  of  which  I'ederal  Estate  Tax  is  deductible..  3414 


Report  No.  69,  November  29,  1922. 

Nov.  24,  1922  (Excise  Taxes. — War  Tax  Service,  1(4796  ) 

„ oe’  <!  (Occupations  Tax.— War  Tax  Service,  1(7674.) 

25,  Depreciation  of  leaseholds 3415 

29,  Personnel  of  the  Tax  Simplification  Board.  3416 

[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  48 
of  the  1922  Series.] 


Report  No.  70,  December  6,  1922. 

Dec.  2,  1922  hirst  annual  report  of'  the  Tax  Simplification 

Board 

2>  “ (Excise  Taxes. — War  Tax  Service,  1(4800.) 

[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  49  of 
the  .1922  Series,  and  to  new  matters  in  the 
Service.] 


Dec.  5,  1922 


Nov.  29,  “ 


Report  No.  71,  December  9,  1922. 

ET.  S.  District  Court  — 1%  per  month  “interest” 
on  amount  of  delinquent  taxes  held  to  be  a 
penalty  within  meaning  of  the  Bankruptcy  Act  3439 
Excerpt  from  the  report  of  the  Secretary  of  the 
Treasury  for  . the  fiscal  year  ended  June  30, 

1922.— Taxation  and  revenue 3440 

U.  S.  District  Court. — Dividends  paid  by  corpo- 
rations in  1917  are  conclusively  presumed  to 
have  been  paid  from  the  most  recently  accumu- 
lated profits  including  the  1917  profits  to  date 
of  declaration 3455 


Report  No.  72,  December  13,  1922. 

Dec.  13,  1922  New  chairman  of  Committee  on  Appeals  and 

Review 351 

[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  50  of  the 
1922  Series,  and  to  new  matters  in  the  Service.] 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Pages  34  to  36. 


12-9-22.  (2)  12-13-22. 


3508 


3509 


3506  This  construction  is  in  entire  harmony  with  the  views  herein  set 

forth.  > 

3507  When  the  meaning  of  a statute  is  doubtful,  great  weight  should  be 
given  to  the  construction  placed  upon  it  by  the  department  charged 

with  its  execution. 

U.  S.  v.  Herman,  209  U.  S.,  339. 

It  is  not  necessary,  however,  in  this  case  to  resort  to  the  construction 
by  the  Department. 

Any  other  construction  would  make  great  confusion  in  respect  to  all 
the  quarterly  and  semi-annual  dividends  paid  in  1917  and  intended  to 
be  distributed  from  the  earnings  of  that  year,  upon  which  tax  at  the  war  rate 
of  1917  has  undoubtedly  been  paid  by  multitudes  of  taxpayers  for  the 
year  1917. 

3510  Despite  the  inhibition  contained  in  the  statute  against  distribution 
of  profits  accrued  before  March  1,  1913,  until  the  most  recently 

accumulated  undivided  profits  or  surplus  were  disposed  of,  the  corporation 
allocated  $366,189.19  of  the  earnings  and  profits  accrued  prior  to  March  1 
1913  to  the  payment  of  the  $700,000  dividend  declared  and  distributed  in 
December,  1917.  The  plaintiff  taxpayer  made  a like  proportionate  allo- 
cation. The  pro-rated  earnings  of  1917  to  December  20th,  the  date  of  the 
distribution  of  the  aforesaid  dividend,  \fre re  $410,987.29,  and  yet  the  claim 
is  that  no  part  of  these  earnings  were  ufeed  in  the  payment  of  the  dividend. 
It  cannot  under  a fail  constiuction  of  the  statute  be  denied  that  the  earnings 
and  profits  for  the  ysar  1917  were  undivided  profits,  nor  can  it  be  disputed 
that  they  were  the  mok  recently  accumulated  earnings  and  profits  which  had 
accrued  since  March  1,  1913.  The  dividend  must  be  conclusively  presumed 
to  have  been  paid  from  these  profits  of  the  year  1917  to  the  extent  thereof, 
up  to  the  date  of  declaration  of  dividend,  regardless  of  the  language  of  the 
resolution  or  the  intent  of  the  company. 

3511  The  assessment  was  properly  levied  against  the  plaintiff  and  her 
complaint  must  be  dismissed.  (Harder  vs.  Irwin,  U.  S.  D.  C.  N.  D 

of  N.  Y.,  Nov.  29,  1922.  Not  yet  reported.) 


3512 

2923 

3397 


Chairman  of  Committee  on  Appeals  and  Review. — Effective  Decem- 
ber 15,  1922,  Mr.  Kingman  Brewster  succeeds  Mr.  N.  T.  Johnson, 
as  Chairman  of  the  Committee  on  Appeals  and  Review. — The* 
Corporation  Trust  Company)  \ 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

783 


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11-27-22. 


TABLE  OF  CASES.— Concluded. 


Paragraph 

Smietanka:  Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs. 


(255  U.  S.  509) J Sup.  Page  186,  1[S313 

Southern  Pacific  Company  vs.  Lo\ye  (247  U.  S.  330) Sup.  Page  149,  1|S121 

Stanton  vs.  Baltic  Mining  Co.  (240  U.  S.  103) Sup.  Page  133,  1[S38 

Stockton:  Lederer  vs.  (266  Fed.  676) 880 

Affirmed  U.  S.  Supreme  Cou'rt  (43  Sup.  Ct.  5) 3355 

Thorne  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  11S31 

Thorne  vs.  Eisner  (245  U.  S.  4L;8) Sup.  Page  137,  1fS54 

Towne  vs.  McElligott  (274  Fed.  960) 721,  1141 

Vurrish:  Lynch  vs.  (247  U.  S.'221) Sup.  Page  144,  1[S92 

lyee  Realty  Company  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  ^fS31 

Uhion  Hollywood  Water  Company  vs.  Carter  (238  F’ed.  329) 985,  1632 

U.VL  Coal  Co.  vs.  Skinner  (252  U.  S.  470) Sup.  Page  161,  ifS200 

U.  If.  Railroad  Company:  Brushaber  vs.  (240  U.  S.  1) Sup.  Page  125,  1|Sl 

U.  Sse  Anderson  vs.  (282  Fed.  851) 3361 

U.  SA  Chicago  & Alton  Railroad  Co.  vs.  (53  C.  of  C.  41) 1283 

TT  C dL™  1 T j.  O.  T _ _ J*  _ "MCIA 


U.  S.  vV  General  Inspection  & Loading  Company  (204  Fed.  657) 2740 

U.  S.:  Gheenport  Basin  & Construction  Co.  vs.  (269  Fed.  58) 2847 

U.  S.  vs.Y,evy  (271  Fed.  942) 2582 

U.  S.  vs.  McHatton  (266  Fed.  602) 2493 

U.  S.:  Maryland  Casualty  Company  vs.  (251  U.  S.  342).  . .Sup.  Page  157,  ^[S 1 59 

U.  S.  vs.  Mall  on  (279  Fed.  910) • 1145 

Affirmed\C.  C.  of  A.  (281  Fed.  645) 3293 

U.  S.  Merriam\vs.  (282  Fed.  851) 3361 

IP'S.  vs.  OregoivWashington  R.  & Nav.  Co.  (251  Fed.  211) 1259 

U.  S.:  Phellis  vs\(257  U.  S.  156) Sup.  Page  167,  ^fS219 

U.  S.  vs.  Pittaro  (\j.  S.  District  Court)  (T.  D.  2874) 2800 

U.  S.  vs.  Rockefeller  (257  U.  S.  196) Sup.  Page  170,  HS237 

U.  S.:  R.  I.  A.  and  L\  R.  R.  Co.,  vs.  (254  U.  S.  141) 2887 

U.  S.  vs.  San  Juan  Co\nty  (280  Fed.  120) 3085 

U.  S.:  Woodward,  et  al!\vs.  (256  U.  S.  632) Sup.  Page  201,  ^[S413 

U.  S.:  Young  vs;  (269  Fed.  58) 2847 

Urquhart  vs.  Marion  Hot^I  Company  (194  S.  W.  1) 2258 

Walsh:  Brewster  vs.  (255  t),  S.  536) Sup.  Page  191,  1fS364 

Walsh:  Plant  ^s.  (280  Fed.  722) 3127 

Warded:  Lawrence  vs.  (T.  D.\3102)  (T.  D.  3178 — 273  Fed.  405) 747 

Williams:  Schuster  & Co.,  Inc.'fT.  D.  3330) 3213 

Wilson  vs.  Eisner  (282  Fed.  38)\ 3392 

Woodward,  et  al.  vs.  U.  S.  (256  U.  S.  632) Sup.  Page  201,  <[fS413 

Young  vs.  \J.  S.  (269  Fed.  58) 2847 


<[  THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Pages  117  and  118. 


i'"- 

' 

. 

; 


. 


. «£'  ; 


11-27-22. 


TABLE  OF  CASES. 


Paragrapli 

Allen:  Althcitner  A Rawlings  Investment  Co.  vs.  (248  l ed.  C88) 1218 

Altheimer  & Rawlings  Investment  Co.  vs.  Allen  (248  Fed.  688) 1213 

Anderson:  Brady  vs.  (240  Fed.  665) 942 

Anderson:  Jacobs  and  Davies  (Inc.)  vs.  (228  Fed.  505) 1666 

Anderson:  Thorne  vs.  (240  U.  S.  115) Sup.  Page  132,  H S3 1 

Anderson:  Tyec  Realty  Company  vs.  (240  U.  S.  115) Sup.  Page  132,  4[S31 

Anderson  vs.  U.  S.  (282  Fed.  851) 3361 

Baldwin  Locomotive  Works  vs.  McCoach  (221  Fed.  59) 1288 

Baltic  Mining  Co.:  Stanton  vs.  (240  U.  S.  103) Sup.  Page  133,  lfS38 

Brady  vs.  Anderson  (240  Fed.  665) 942 

Brady:  Dodge  vs.  (240  U.  S.  122) Sup.  Page  132,  4[S35 

Brewster  vs.  Walsh  (255  U.  S.  536) Sup.  Page  191,  1fS364 

Brashaber  vs.  U.  P.  Railroad  Company  (240  U.  S.  I) Sup.  Page  125,  'JSl 

Carter:  Union  Hollywood  Water  Company  vs.  (238  Fed.  329) 985,  1632 

Chapin  vs.  Irwin  (U.  S.  D.  C.,  July  29,  1921) 1203 

Chicago  & Alton  Railroad  Co.  vs.  U.  S.  (53  C.  of  C.  41) 1283 

Cohen  vs.  Lowe  (234  Fed.  424) v 20,  1845 

Commercial  Health  and  Accident  Co.  V*s.  Pickering  (281  Fed.  539) 3111 

Crocker,  ct  ah,  Trustees:  Malley  vs.  (249  U.  S.  223) Sup.  Page  153,  '[Sl40 

Darlington  vs.  Mager  (256  U.  S.  682) Sup.  Page  200,  *f S 4 1 2 

Dayton  Bronze  Bearing  Co.:  Gilligan  vs.  (281  Fed.  709) 3268 

DeGanay  vs.  Lcdcrer  (250  U.  S.  376) Sup.  Page  155,  ^fS  149 

De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  Iredell  (268  Fed.  377) ....  835 
Digest  of  Recent  Decisions  of  the  Supreme  Court  (Acts  of  1909  and  1913) 

(The  opinions  in  the  cases  involving  the  1909  Act  are  not  included, 
herein.  But  see  Digest,  Sup.  Page  138,  1JS58.) 

Dodge  vs.  Brady  (240  U.  S.  122) Sup.  Page  132,  4JS35 

Dodge  vs.  Osborn  (240  U.  Si  |'1S) 2872 

Doyle:  Grand  Rapids  and  Indiana  Railway  Co.  vs.  (245  Fed.  792) 1683 

DuPont  vs.  Graham  (|U,  JS.  C.,  June  13,  1922) 3239 


4252 


Edwards:  Fox  vs.  (2$C 
Edwards:  Goodrich  vj 
F.dwards:  New  Yorl/  • 

IT.  S.  176)..  ...Aj 
Eisner:  Macomber/g^. 
Eisner:  Peabody  vgg  (242 
Eisner:  Towne  vs.  (245 
Eisner:  Wilson  vs.  (28,2 
Eldorado  Coal  & Alining 
ICvans  vs.  Gore  (253  ,U.  f 
First  Trust  and  Savjhgs 
Fish  vs.  Irwin  (U.  Si  D.  C 
Fox  vs.  Edwards  (280  Fed. 
General  Inspection  & Load 
General  Inspection  & Loadi 


ed/413) 3100 

U25,g  U.  S.  527) Sup.  Page  189,  4JS346 

’ru^'t  Co.,  Executors,  etc.,  vs.  (257 

Sup.  Page  170,  1jS237 

U.  S.  189 Sup.  Page  173,  1jS244 

U.  S.  347) Sup.  Page  148,  i[Sll9 

. S.  418) Sup.  Page  137,  ^TS54 

ed.  38) 3392 

vs.  Alager  (255  U.  S.  522)..  Sup.  Page  190,  *(S360 

245) Sup.  Page  193,  1TS375 

nk,  Trustee:  Smietanka  vs.  (257  U.  S.  602) 3048 

July  29,  1921) 1198 

13) 3100 

Co.:  U.  S.  vs.  (192  Fed.  223) 2490 

Company:  U.  S.  vs.  (204  F'ed.  637) 2740 

June  11,  1921) 1261 

Gilligan  vs.  Daytbn  Bronze  Bearing  Co.  (281  Fed.  709) 3268 

Goodrich  vs.  Edwards  (255  U.  b.  527) Sup.  Page  189,  1JS346 

Gore:  Evans  vs.  (253  U.  S.  245\ Sup.  Page  193,  1(S375 

Gould  vs.  Gould  (245  U.  S.  1 5 1 ) \ Sup.  Page  136,  4fS47 

Graham:  DuPont  vs.  (U.  S.  D.  UL,  June  13,  1922) 3239 

Grand  Rapids  & Indiana  Railway tjCompany  vs.  Doyle  (245  Fed.  792) 1213 

~b.  vs.  U.  S.  (269  Fed.  58) 2847 

Example  of  procedure 2890 

48  U.  S.  71) Sup.  Page  152,  *[JS  1 36 

249  Fed.  103) 783 

1296 


Gilligan:  Park  vs,  (U.  S.  DisfiCt. 


Greenport  Basin  and  Construction ' 
Gulf  Oil  Corporation  vs.  Lewellyr 
U.  S.  Supreme  Court  Decision 
Haiku  Sugar  Co.  et  al.  vs.  Johnstone1' 
Heller,  Hirsh  & Co.:  In  re  (258  Fed. 


Hornby:  Lynch  vs.  (247  U.  S.  339)... \ Sup.  Page  141,  1JS78 

Hurst  vs.  Ledoier  (273  Fed.  174) V 2721 

Indiana  Steel  Company:  Smietanka  (25 7.  U.  S.  1) 2911 

Iredell:  De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  (268  Fed.  377).  . . 835 

Irwin:  Chapin  vs.  (U.  S.  D.  C.,  July  29,  1'921) 1203 

Irwin:  Fish  vs.  (U.  S.  D.  C.,  July  29,  1 9 2 1 X- 119S 

Jacobs  and  Davies  (Inc.)  vs.  Anderson  (228  Fed.  505) 1666 

Johnstone:  Haiku  Sugar  Co.  et  al.  vs.  (249  Fed.  103) 783 

THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  115. 


TABLE  OF  CASES-  Continued 


Paragraph 

Kirkendall:  Markl.e  et  al.  vs.  (207  Fed.  498) 2780 

Kohlhamer  vs.  Smietanka  (239  Fed.  408) 2880 

Lawrence  vs.  Warded  (T.  D.  3102)  (T.  D/3178-  273  Fed.  405). 747 

Lcdcrer:  De  Ganay  vs.  (250  U.  S.  376) Sup.  Page  155,  1[S149 

Lederer:  Hurst  vs.  (273  Fed.  174) 2721 

Lcdcrer:  Massey  vs.  (277  Fed.  123) .3113 

Lcdcrer:  Penn  Mutual  File  Ins.  Co.  vs.  (252  L.  S.  523)..  .Sup.  Page  161,  S 2 0 1 
Lcdcrer:  Philadelphia,  Harrisburg  L Pittsburgh  R.  R.  Co.  vs.  (242  Fed.  492). 2904 

Lederer  vs.  Stockton  (266  Fed.  676) 880 

Affirmed  U.  S.  Supreme  Court  (43  Sup.  Ct.  5) 3355 

Levy:  U.  S.  vs.  (271  Fed.  942) 2582 

Lewellyn:  Gulf  Oil  Corporation  vs.  (Example  of  procedure).  . . .2890 

U.  S.  Supreme  Court  Decision  (248  U.  S.  71) Sup.  Page  152,  *5136 

Lilley  Building  & Loan  Co.  vs.  Miller  (T.  D.  3355) 3289 

Lowe:  Cohen  vs.  (234  Fed.  474) 720,  1845 

Lowe:  Peck  vs.  (247  U.  S.  165) Sup.  Page  140,  S 7 0 

Lowe:  Roberts  vs.  (236  Fed.  604) 2902 

Lowe:  Southern  Pacific  Company  vs.  (247  U.  S.  330) Sup.  Page  149,  S 1 2 1 

Lynch  vs.  Hornby  (247  U.  S.  339) Sup.  Page  141,  1[S78 

Lynch  vs.  Turrish  (247  U.  S.  221) ■ -Sup.  Page  144,  1[S92 

McCoach:  Baldwin  Locomotive  Works  vs.  (221  Fed,  59) 1288 

McElligott:  1'ownc  vs.  (274  Fed.  960) 721,  1141 

Macombcr  vs.  Eisner  (252  U.  S.  189) Sup.  Page  173,  ^S244 

McHatton:  U.  S.  vs.  (266  Fed.  602) 2493 

Mager:  Darlington  vs.  (256  U.  S.  682) Sup.  Page  200,  :iS412 

Mager:  Eldorado  Coal  and  Mining  Co.  vs.:  (255  U . S.  522)  Sup.  Page  190,  * 8360 
Malley  vs.  Alvah  Crocker,  et  al.,  Trustees  (249  U.  S.  223) . .Sup.  Page  153,  *[Sl40 

Marion  Flotel  Company:  Urquhart  vs.  (194  S.  W.  1) 2258 

Markle  et  al.  vs.  Kirkendall  (267  ted.  498) 2780 

Maryland  Casualty  Company  vs.  U.  S.  (251  U.  S.  342) . . . . Sup.  Page  157,  <[S159 

Massey  vs.  Lederer  (277  Fed.  123) 3113 

Mellon:  U.  S.  vs.  (279  Fed.  910) 1145 

Affirmed  C.  C.  of  A.  (281  ted.  645) • • • • -3293 

Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs.  Smietanka,  former  Collec- 
tor (255  U.  S.  509) Sup.  Page  186,  HS313 

Merriam  vs.  U.  S.  (282  Fed.  851) : 3361 

Miles,  Collector:  Safe  Deposit  & Trust  Co.  (273  Fed.  822) 1220 

U.  S.  Supreme  Court  (42  Sup.  Ct.  483) 3217 

Miller:  Lilley  Building  and  Loan  Co.  vs.  (T.  D.  3355) 3289 

New  York  Trust  Co.,  Executors,  etc.,  vs.  Edwards  (257  U. 

S.  176) Sup.  Page  170,  H&237 

Oregon-Washington  R.  & Nav.  Co.:  U.  S.  vs.  (251  ted.  211) 

Osborn:  Dodge  vs.  (240  U.  S.  118) 

Park  vs.  Gilligan  (U.  S.  Dist.  Ct.,  June  11,  1921) • ■ ■ • ■ v ■ -|261 

Peabodv  vs.  Eisner  (247  U.  S.  347) Sup.  Page  148  ,,S119 

Peck  vs.  Lowe  (247  U.  S.  165) ■ ■ •••  ••  Sup.  Page  140,  fS70 

Penn  Mutual  Life  Insurance  Co.  vs.  Lederer  (252  L . S.  5 23).  Sup.  1 age  161,  i!o20l 

Phellis  vs.  United  States  (257  U.  S.  156) Sup.  Page  167  rS219 

Philadelphia,  Harrisburg  & Pittsburgh  R.  R.  Co.  vs.  Lederer  (242  Fed  492) . . 2904 
Pickering:  Commercial  Health  and  Accident  Company  vs.  (281  ted.  539).  ..311  1 

Pittaro:  U.  S.  vs.  (U.  S.  District  Court).  (T.  D.  2874) 2800 

Plant  vs.  Walsh  (280  Fed.  722) 3127 

Rockefeller:  U.  S.  vs.  (257  U.  S.  176) Sup.  Page  170,  1fS237 

R.  I.  A.  and  L.  R.  R.  Co.  vs.  U.  S.  (254  U.  S.  141) 2887 

Safe  Deposit  and  Trust  Co.  vs.  Miles,  Collector  (273  ted.  822) 1220 

U.  S.  Supreme  Court  (42  Sup.  Ct.  483) j^l/ 

San  juan  County:  U.  S.  vs.  (280  (280  Fed.  120) 3085 

Schuster  & Co.,  Inc.  vs.  Williams  (T.  D.  3330) .rnxH 

Skinner:  U.  P.  Coal  Co.  vs.  (252  U.  S.  470) Sup.  Page  161,  1[S200 

Smietanka  vs.  First  Trust  and  Savings  Banks,  Trustee  (257  U.  S.  602) ^048 

Smietanka  vs.  Indiana  Steel  Company  (257  U.  S.  1) -211 

Smietanka:  Kohlhamer  vs.  (239  Fed.  408) 2880 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  116. 


12-6-23. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  1561. — Basis  for  determining  gain  or  loss  from  sale  (If  1437). 

Depreciation  to  be  given  full  weight  in  establishing  both  “cost”  and  “March  I,  1913, 
value,”  for  purposes  of  ioint  comparison  with  selling  price  of  depreciable  prop- 
erty acquired  prior  to  March  1,  1913:  1917  Act  (1-46-586:  I.  T.  1494).  Pull. 
I (’2 2)-46.  p.  1. 

★ Real  estate;  benefit  of  deduction  for  taxes,  interest,  etc.  (carrying  charges)  paid, 
lost  over  period  of  years  as  insufficient  income;  not  to  be  added  to  cost  (sustaining 
conclusions  stated  in  I.  T.  1188,  June  1922  Cum.  Bull.  p.  28,  and  overruling 
0.  D.  398,  June  1920  Cum.  Bull.  p.  112):  1921  Act  (1-49-621:  I.  T.  1517).  .Bull. 
I (’22)-49,  p.  1. 


Art.  1563. — Sale  of  property  acquired  by  gift  on  or  before  December  31,  1920, 
or  by  bequest,  devise,  or  inheritance  1455) . 

Life  tenant  sells  trust-estate’s  stock-dividend  stock  distributable  to  him,  the 
surplus  out  of  which  the  stock  dividend  was  declared  being  earned  prior  to  March 
1,  1913:  1918  and  1921  Acts  (1-47-605:  I.  T.  1507).. Bull.  T (’22)-47,  p.  8. 

Art.  1566. — Exchange  of  property  which  results  in  no  gain  or  loss  (If  1466). 

95%  of  stock  of  one  corporation  having  been  turned  in  by  stockholders  within  a short 
time  to  another  corporation  for  its  stock  of  equal  par  value  in  acceptance  of 
offer  made  by  latter,  the  Exchange  is  in  connection  with  a reorganization  and 
hence  no  profit  or  loss  results  to  exchanging  stockholders:  1921  Act  (1-48-611: 
I.  T.  1508).  .Bull.  I (’22)-48,  p.  1. 

Art.  1583. — Inventories  at  cost  (^f  1516). 

“Cost”  of  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the  inventory 
price  of  such  goods  in  a “cost  or  market  whichever  is  lower”  inventory.  .^4004. 

\ 

Art.  1601. — Net  losses,  definition  and  computation  (If  1535). 

Capital  assets;  looses  from  sale  of,  by  corporation  in  liquidation  are  not  within  the 
law  provisions:  1918  Act  (1-45-576:  A.  R.  M.  185).. Bull.  I (’22)-45,  p.  3. 

\ 

Art.  1602. — Claim  for  allowance  of  net  loss  (If  1545). 

[New  corporation  (Nov.,  J918)  sustains  net  loss  during  first  two  months  of  operation, 
and  during  calendar  year  1919;  adopts  basis  of  fiscal  year  beginning  Sept.  1, 
1920:  how  to  apply  net  loss  (1921  Act)  (1-48-612:  I.  T.  1509).. Bull.  I (’22)- 
48,  p.  1.  X 

Art.  1711. — Aids  to  collect! 

Permament  books  of  acco 


>n  tax  (Tf271 1). 

it:  tli*  maintaining  and  production  of..H3396. 


Miscellaneous. 

Committee  on  Appeals  and  Review:  personnel  increased  to  13  members;  organiza- 
tion of  a Special  Committee  on  Appeals  and  Review  to  meet  emergency  on  account 
1917  tax  cases.  _1]3397. 

Continuing  effect  of  1918  Act  for  assessment  and  collection  of  taxes  accrued  there- 
under (see  ^2776):  here,  rate  of  interest  chargeable  on  rejected  claims  for  abate- 
ment for  inventory  losses  (1-46-595:  I.  T.  1500).. Bull.  I (’22)-46,  p.  12. 

Tax  Simplification  Board;  personnnel  (Nov.  29,  1922).  .^[3416. 

★ Tax  Simplification  Board;  first  annual  report  to  Congress  (Dec.  2,  1922).  .1f3417. 


There  are  no  Supplementary  Pages  42  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary,  Page  41. 


11-16-22.  (2)  11-22-22.  (8)  11-29-22.  (4)  12-6-22. 

CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  291. — Personal  and  family  expenses  (f  1623). 

Naval,  officers;  expenses  incident  to  visits  home  from  port  and  subsistence  afloat  of 
single  man  having  no  borne  ore  not  deductible:  1921  Act  fI-46-590:  I T 14971 
Bull.  T f’2?l-46.  p.  5. 

★ Teacher's  special  research  work  (to  better  fit  for  life  work);  expenses  incident  to 
printing  results,  books  and  instruments  purchased  (depreciation),  traveling 
(meetings  of  scientific  societies)  are  personal  and  so  not  deductible:  1921  Act 
(1-49-625:  T.  T.  1520).  .Bull.  I (’22)-49,  p.  8. 

Art.  294. — Premiums  on  business  insurance  (5(1639). 

Life,  policy  assigned  to  creditor  as  security  for  loan;  premiums  paid  by  creditor  to 
protect  loan  are  deductible  the  debtor  not  being  an  officer,  employee,  etc.:  1921 

Act  (1-48-615:  I.  T.  1512).. Bull.  I (’22)-48,  p.  4. 

Art.  316. — Income  from  sources  within  the  United  States  (5(2094). 

Spain  community  property;  wife’s  interest  is  expectancy  merely,  hence  husband  should 
return  income  in  its  entirety  from  U.  S.  partnership:  1921  Act  (1-48-616-  I T 
15 13).. Bull.  I (’22)-48,  p.  5. 

Art.  327(a). — Transportation  services  (5(3324 )./ 

Art.  327(a)  applies  under  1921  Act  only  (1-45-582*  I.  T.  1492).  Bull.  I (’22)-45,  p.  8. 

Art.  342. — Estates  and  trusts  to  fiduciary  (5(8/9). 

Stock  vidends  (See  “Stock  dividends”  under  Ah.  347  below.). 

Art.  345.*— Estates  and  trusts  taxed  to  benefi claries  (5(894). 

Federal  estate  tax  paid  by  trustee  Aut  of  residbery  trust  funds,  all  distributable  to 
benef ciaries,.  because. not  paid  a\d  no  provision  made  for  paying  prior  to  clos- 
ing of  administration  is  not  deductible  in  determining  income  of  the  trust  (1-46- 
592:  A.  R.  R.  10201 . .Bull.  T (’22)-46,  p.  7/ 

Self  beneficiary  of  income  of  trust  to  extent  demanded  is  taxable  on  amount  actually 
received  only.  This  ruling  which  revM-es/S.  1344,  June  1920  Cum.  Bull.  p.  176, 
is  confined  strictly  to  the  1916-17  Ack  (1-46-593:  Sol.  Op.  146).. Bull.  I (’22)- 
46,  p.  9.  \f 

Stock  dividends.  (See  “Stock  dividends”  under  Art.  347  below.) 

Art.  347.— E states  and  trusts  with  incorrie  Vhich  is  distributed  periodically 
and  other  income  (5(913).  / \ 

Stock  dividends  distributable  to  life  tenant:  prolu  or  loss  on  sale  of  stock  received 
and  of  that  (held  byfiducian)  in  respdfct  of  winch  received;  1918  Act  (1-47-604: 
I.  T.  1506).. Bull.  I (’22)-47,  p.  6.  $gain,  1^18  and  1921  Act  (1-47-605:  I.  T. 
1507).  .Bull.  T (’22)-47,  p.  8.  / \ 

[Note  that  the  ruling  at  1f3010  is  revoked  by  above.]  . 

1 \ 

Art.  361. — Withholding  tax  as  source  (5(2197). 

Tax-free  coverp.rt  bond  interest;  tax  ff  1917)  withheld  and  paid  to  Government 
though  creditor  not  liable  to  normal  tax:  refund  ofc  credit  to  creditor.  0.  D. 
1103,  Dec.  .1921  Cum.  Bull.  p.  248 jf  overruled.  Her^  creditor  is  a corporation, 
against  which  there  had  also  been,  withholding  on  account  of  dividends  (1-45- 
585:  L.  O.  1107).. Bull.  I (’22)-4»  p.  11. 

Art.  364. — Exemption  certificate  of  nonresident  aliens  (5(2254-5(2255). 

Members  of  a nonresident  alien  partnership  and  beneficiaries  of  an  estate  or  trust 
having  a nonresident  alien  fiduciary  may  not  use  Forms  1001  B and  1001 C in 
connection  with  payments  made-' to  the  partnership  or  estate  or  trust  (though 
the  estate  or  trust  may):  1921  Act  (1-45-584:  I.  T.  1493).  .Bull.  I (’22)-45,  p.  10. 

Art.  401. — Individual  returns  (5(2390). 

Joint  returns  by  hushand  ard  wife,  one  on  calendar  year  the  other  on  fiscal  year  basis 
not  permitted:  here,  effort  was  to  apply  net  loss  of  one  against  income  of  other: 
1921  Act  (1-48-617:  I.  T.  1514).  .Bull.  I (’22)-48,  p.  5. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  39. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  421. — Fiduciary  returns  (If 939). 

Life  tenant  (subject  to  annuity  payments)  dies  in  1922,  the  annuitants  surviving 
property  vests  in  trustee:  executor  not  trustee  makes  fiduciary  return  for  1921 
1921  Act  (1-48-618:  I.  T.  1515).  .Bull.  I (’22)-48,  p-.  6. 

Art.  514. — Fraternal  beneficiary  societies  (If  1022). 

Definition;  full  discussion;  O.  D.  690  ’overruled:  1918  and  1921  Acts  (1-48-619: 
I.  T.  1516).  .Bull.  I (’22)-48,  p.  6. 

Art.  522. — Cooperative  Associations  1038). 

Buying  and  selling  on  ov.n  account;  deductibility  of  so-called  rebates;  necessity  for 
making  return  through  no  tax  due:  1917  and  1918  Acts  (1-46-594:  I.  T.  1499; 

. .Bull.  I (’22)-46,  p.  10. 

Art.  601. — Withholding  in  case  of  nonresident  foreign  corporations  (1f2225). 
~k  Royalties  accrued  over  period  of  years;  withholding  is  at  rate  prevailing  for  year 
paid:  1921  Act  (1-49-626:  1.  T.  1521).  .Bull.  I (’22)-49,  p.  8. 


Art.  611  —Credit  for  foreign  taxes  (fl 758). 

'k  Cuba:  8%  tax  imposed  bv  Act  of  luly  31,  1917  may  be  credited:  1918  and  1921 
Acts  (1-49-627:  I.  T.  1522).  .Bull.  I (’22)-49,  p.  8. 


Art.  1003. — Nonpayment  of  tax — Interest  and  penalty  (^272?;. 

Abatement  claims  rejected  when  claims  based  on  inventory  losses  under  19)8  Act; 
1%  per  month  rate  still  applies:  1918  and  1921  Acts  (1-46-595:  I.  T.  1500).. 
Bull.  I (’22)-46,  p.  12. 


Art.  1006. — Appeals  and  hearings  (1f2763). 

Art.  1006  amended.  . 1(3406. 

Special  in  1917  tax  cases  to  meet  emergency.  .1(3397. 


Art.  1034 —Claims  for  credit  of  taxes  erroneously  collected  (112829). 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  anv  normal  tax  (1917  Act):  O.  D.  1103,  Dec.  1921  Cum.  Bull.  p.  2 8 
overruled.  If  ere,  foreign  corporation  and  amounts  withheld  on  dividends  also 
involved  (1-45-585:  L.  O.  1107).. Bull.  I (’22)-45,  p.  11. 


Art.  1036.— Claims  for  refund  of  taxes  erroneously  collected  (1f2835). 

Tax  withheld  and  paid  to  Government  in  excess  of  liability  (See  “Tax  withheld,  etc.,” 

under  Art.  1034  above.) 


Art.  1503.— Association  distinguished  from  partnership  fl[989). 

Unincorporated  bank  under  Indiana  law;  special:  1917  and  1918  Acts  (1-47-598:  I.  T. 
1501).  .Bull.  T (’22)-47,  p.  1. 

Art.  1541. — Dividends  (If  1080). 

Crediting  capital  stock  account  (debiting  profit  and  loss)  with  an  amount  sufficient 
to  make  total  credit  to  capital  stock  equal  to  aggregate  of  par,  thus  rendering 
stock  fully  paid  that  was  theretofore  partially  paid  and  subject  to  call,  is  in 
effect  a cash  distribution  and  not  a stock  dividend:  1916-1917  Acts  (1-45-575: 

■ A.  R.  R.  1127).  .Bull.  I (’22)-45,  p.  1. 

Art.  1548. — Sale  of  stock  received  as  dividend  (If  1136). 

Trust  estate  with  life-tenant  to  whom  stock  dividend  is  distributable  under  the  Penn- 
sylvania or  American  rule:  1918  Act  (1-47-604:  I.  T.  1506) . .Bull.  I ( 22)-47, 
p 6.  Again,  1918  and  1921  Acts  (1-47-605:  I.  T.  1507).. Bull.  I ( 22)-47,  p.  8. 

[Note  that  the  ruling  at  1f3010  is  revoked  by  the  above.l 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  40. 


1 1-9-2?.  (2)  11-16-22.  (3)  11-22-22.  (4)  11-27-22  (6)  11-2#  22 . (6'  12-6-22. 

CUMULATIVE  INDEX-DIGESTS —NOV.  6 TO  DEC.  31,  1922. 


# 


CUMULATIVE  INDEX-DIGESTS 

of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922. 


Art.  4. — Who  is  a citizen  (If  748). 

Military  deserter,  convicted  by  court-martial  and  findings  approved,  forfeits  citizen- 
ship: 1921  Act  (1-47-599:  I.  T.  1502)..  Bull.  I (’22)-47,  p.  2. 


Art.  22. — Computation  of  net  income  (If  1046). 

Foreign  exchange  rates: 

England;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:1.  T.  1495).. Bull.  1 (’22)-46, 
p.  4.  / 

France;  as  of  Aug.  31,  1922:  1921  Act  (1-46-5(63:  1.  T.  1495).. Bull.  I (’22)-46, 

P-  4-  , / 

Germany;  as  of  Aug.  31,  1922:*  1921  Act  (I-A6-588:  I.  T.  1495).. Bull.  1 (’22)- 

46,  p.  4.  \ I 


Art.  24. — Method#  of  accounting  (If  1063).  / 

Permanent  books  of  account;  the  keeping  and /production  of:  1921  Act.  .^3396. 

Art.  51. — When  included  in  gross  incomA(Y1260). 

Government  contract  canceled;  satisfactionyif  claim:  last  sentence  of  Art.  51,  Reg. 

62,  equally  applicable  to  1918  Act  (1-4^79:  I.  T.  1489).. Bull.  I (’22)-43,  p.  7. 
Lease  held  to  be  a sale  under  very  special  circumstances;  option  to  purchase;  loan 
(non-interest  bearing  note)  assignment  of  (ease  as  collateral;  etc.:  1918  Act  (1-47- 
600:  A.  R.  M.  189).. Bull.  I (’22)-43(  p.  * 

On  approval  or  on  trial  “sales;”  when  is  sile  consummated  and  when  does  gross  income 
arise:  1921  Act  (1-48-613:  I.  T.  15/0).  .Bull,  I (’22)-48,  p.  3. 

Art.  89. — Additional  exclusions  from  gross  income  under  the  Revenue  Act 
of  1921  (If  1606,  If  17/5,  1f2099). 

Foreign  countries  which  do  not  satisfy  equivalent  exemption  provision  (1921  Act)- 
Finland  (1-47-601:  I.  T.  1503)  ./Bull.  I (’22)-47,  p.  5. 

Great  Britain  (1-46-589:  1.  T.  1496).  .Bull.  I (’22)-46,  p.  5 

Art.  101. — Business  expenses  (1flp40). 

Insurance  on  life  of  debtor  (not  in  officer,  etc.),  policy  assigned  to  creditor  who  pays 
premiums  to  protect  loan;  premiums  are  deductible:  1921  Act  (1-48-614:  I.  T. 
1511).  .Bull.  I (’22)-48,  p.  4. 

Art.  101(a). — Traveling  expenses  (If  1678). 

“Home”;  single  traveling  salesmen  on  the  road  365  days  in  the  year:  1921  Act 
(1-45-580:  I.T.  1490).. Bull.  I (’22)-45,  p.  7.  See  O.  D.  905,  June  1921  Cum. 
Bull.  p.  212.  / 

Naval  officers;  subsistence  of  single  man  while  afloat  deductible  if  he  has  a “home,” 
otherwise  not;  but  expanse  incident  to  visits  to  home  riot  deductible:  1921  Act 
(1-46-590:  I.  T.  1497).  .Bull.  1 (’22)-46,  p.  5. 

★ State  Department  foreign  service  officers;  monetary  allowances  and  transportation 
orders  in  lieu  thereof:  1921  Act  (1-49-622:  I.  T.  1518).  .Bull.  I (’22)-49,  p.  4. 

Art.  109— Rentals  (If  1683). 

Annual  deduction  on  account  of  amortization  of  leasehold  acquired  prior  to  March 
1,  1913  to  be  determined  without  consideration  of  value  as  of  that  date  (T.  D 

3414).  43415. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  37. 


une  1920 
22)-49, 


CUMULATIVE  INDEX-DIGE3T3. — NOV.  6 TO  DEC.  31,  1922. 

Art.  111.— When  charges  deductible  Of  1057). 

*•  Carrying  charges  on  property  purchased  and  held  for  profit;  0.  D.  398,  Jun 
Cum.  Bull.  p.  112,  overruled:  1921  Act  (1-49-621:  I.  T.  1517).. Bull.  I (’ 

Soutn  Caroliaa  income  tax  (law  passed  March  13,  1922,  retroactive  for  1921):  1921 
Act  (1-46-591:  I.  T.  1498).. Bull,  i (’22)-46,  p. 

Art.  134.— Federal  estate  and  inheritance  taxes  0fl728). 

Art.  134,  amended . 45414. 

Alaaaa  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602: 

I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Arkansas  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  1.  T.  1491).  .Bull,  i (’22J-45,  p.  8. 

* California  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-49- 
624:  I.  T.  1519).  .Bull.  I (’22)-49,  p.  5. 

Connecticut  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1- 
45-581:  I.  T.  1491).. Bull,  i (’22)-45,  p,  8. 

Federal  estate  tax  paid  subsequent  to  settlement  of  estate  out  of  residue  of  estate 
placed  in  trust,  not  deductible  by  trustees  in  determining  net  income  of  trust: 
1918  Act  (1-46-592:  A.  R.  R.  1020).. Bull.  I (’22)-46,  p . 7. 

Georgia  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-48-615: 

Illinois Tnhe^Uanc’e  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602: 

Indiana'inherttance11  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).  .Bull.  1 (’22)-45,  p.  8. 

Louisiana  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47- 
602:  I.  T.  1504).  .Bull.  1 (’22)-47,  p.  6.  . 

Maine  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-48-613: 

Massachusetts  inhentance^xe^  are  deductible  by  the  beneficiaries  only:  1921  Act 
(1-45-581:  I.  T.  1491)..  Bull.  1 (’22J-45,  p.  8. 

Michigan  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47 ; 
602:  I.  T.  1504).  .Bull,  i (’22)-47,  p.  6.  . . n .. 

Missouri  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 

Ohi05 fnheritance^taxes  ^are'dlductible’  by  the  beneficiaries  only:  1921  Act  (1-47-602: 

Oklahoma^  inheritance  tax^irY  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).  .Bull.  I (’22)-45,  p.  8. 

Reg.  45,  Art.  134  amended  (1918  Act) . 43414.  T _T  v i n nu- 

★ Remainderman  and  life  tenant;  California,  Kansas,  New  Jersey,  New  York  and  Ohio 
inheritance  taxes  are  deductible  by  beneficiaries  only  but,  in  all  but  Kansas, 
those  imposed  in  respect  to  the  life  interest  being  payable  from  corpus  without 
reimbursement  to  the  remaindermen  are  not  deductible  by  the  life  tenant  (the 
Kansas  tax  is),  nor  by  any  person  now  in  being  with  contingent  remainder  interest. 
1921  Act  (1-49-624:  I.  T.  1519) . .Bull.  I (’22)-49,  p.  5.  . 

Tennessee  inheritance  taxes  are  deductible  by  the  beneficiaries  only.  1921  . ( 

47-602:  I.  T.  1504). .Bull.  I (’22)-47,  p.  6.  . ..  ,,  « 

Virginia  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).  .Bull.  I (’22)-45,  p.  8.  . . . . . , /, 

Wisconsin  inheritance  taxes  are  deductible  by  the  beneficiaries  only.  1921  Act  (I- 
47-602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 


Art.  141. — Losses  (If  1783). 

Expense  incident  to  establishing  a business  by  one  not  in  business,  the  venture  being 
P abandoned,  is  a deductible  loss  in  a transaction  entered  into  tor  proht.  1921  Act 
(1-47-603:  I.  T.  1505).  .Bull.  I (’22)-47,  p.  6. 

Art.  164. — Capital  sum  recoverable  through  depreciation  allowances  (1fl840). 
Leasehold  acquired  prior  to  March  1,  1913  (T.  D.  3414) . 43415. 


the  federal  income  tax  service 
Supplementary  Page  38. 


12-6-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 


3401 

3402 

3403 


Special 


3404 

3405 


3406 
Memo. 

3407 

3408 

Special 

Special 


3409 


Date  Subject  Paragraph 

Report  No.  62,  October  21,  1922. 

Oct.  18,  1922  (Excise  Taxes. — War  Tax  Series,  *J4705.) 

“ is,  “ Art.  39,  Reg.  45,  amended.— Sale  of  the  right  to 

subscribe  to  stock 3372 

“ |8t  “ Art.  39,  Reg.  62,  amended. — Sale  of  the  right  to 

subscribe  to  stock  . ....  3375 

Report  No.  63,  November  6,  192 2. 

[Pages  for  substitution  on  account  change  of 
all  index-digest  references  from  page  numbers  in 
weekly  Internal  Revenue  Bulletins  1 to  26  of  the 
1922  Series  to  page  numbers  in  Cumulative  Bul- 
letin 1-1  (January-June,  1922),  and  on  account 
index-digest  references  to  new  matters  and  the 
rulings  in  weekly  Bulletins  Nos.  41  to  44.) 

Report  No.  64,  November  6,  1922 

Oct.  21-21,  1922  Placing  of  fncome  for  taxable  period  of  less 
than  12  months  on  an  annual  basis:  (1)  in 
general,  deqtdent  dying  during  year  and  estates 
of  decederyts;  and  (2)  special,  calendar  year 
decedent-member  of  fiscal  year  partnership  . 3378 
“ 25,  “ (Prohibition!) 

“ 25,  “ x Decision  of  court:  Bankruptcy  Act. — Taxes  due 

the  United  States  take  priority  over  claims 
against  the  estate  of  a bankrupt  for  wages.  . . 3383 
28,  “ AnNAct  relative  to  the  naturalization  and  citizen- 

snip  of,  married  women _ 3384 

Nov.  2,  “ Deciaon/of  Court,  1913  Act. — Expenses  in  con- 

nectoctfi  with  the  breeding  of  blooded  horses 
and'yfhe  incidental  racing  thereof,  in  a par- 
ticular case 3392 

“ 2,  “ T.  D.  Assignation  for  U.  S.  Supreme  Court  de- 

cisioh:\Lederer  vs.  Stockton  (1[3355) 3395 

2,  “ On  the  keeping  and  production  of  permanent 

boosts  oa  account 3396 

eport  No.  65,  November  9,  1922. 

7,  “ Appeals  and  hearings  on  1917  tax  cases  specif- 
ically: sptecial  Committee  on  Appeals  and 

Review...  L ; ■ 3397 

“ 4(  “ In  a “cost  ot  market  whichever  is  lower”  in- 

ventory the\“cost”  of  merchandise  on  hand. at 
the  beginning  of  the  taxable  year  is  the  in- 
ventory priedof  such  goods .. .. . 3404 

(Supplementary  Pages  (“T.  D.  Finder”  div- 
ision) showing  ii^dex-digest  references  to  rulings 
in  Internal  Revenue  Bulletin  No.  45,  of  the  1922 
Series,  and  to  net^  matters  in  the  Service.] 

Report  No.  66,  November  15,  1922. 

Nov.  13,  1922  Art  1006,  Reg.  62,  amended.— Appeals  and 

hearings \ _ 3406 

i [Supplementary  Pages  (“T.D.Finder”division) 
showing  index-digest  references  to  rulings  in 
Internal  Revenue  Bulletin  No.  46,  of  the  1922 
Series,  and  to  new  matters  in  the  Service.] 

Report  No.  67,  November  22,  1922. 
[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  47, 
of  the  1922  Series.] 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  33. 


12-6-22. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS. — (Continued.) 


T.  I).  Date 


Subject 


Paragraph 


Report  No.  68 , November  27 , 1022. 

3410  Nov.  22,  1 ‘222  (Prohibition.) 

341  1 “ 24,  “ Art.  134,  Reg.  62,  amended.  —Period  as  of  which 

Federal  Estate  Tax  is  deductible 3414 

Art.  134,  Reg.  45  (1918  Act),  amended. — Period 

as  of  which  Federal  Estate  Tax  is  deductible..  3414 


Report  No.  69,  November  29,  1922. 

3412  Nov.  24,  1922  (Excise  Taxes. — War  Tax  Service,  1f4796.) 

3413  “ 24,  “ (Occupations  Tax. — War  Tax  Service,  7674.) 

3414  “ 25,  “ Depreciation  of  leaseholds 3415 

Special  “ 29,  “ Personnel  of  the  Tax  Simplification  Board 3416 

[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  48, 
of  the  1922  Series.] 


Report  No.  70,  December  6,  1922. 

Special  Dec.  2,  1922  First  annual  report  of  the  Tax  Simplification 

Board 3417 

3415  “ 2,  “ (Excise  Taxes. — War  Tax  Service,  Tf 4800.) 

[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  49  of 
the  1922  Series,  and  to  new  matters  in  the 
Service.] 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Pages  34  to  36. 


12-9-22. 


3506  This  construction  is  in  entire  harmony  with  the  views  herein  set 

forth.  , , 

3507  When  the  meaning  of  a statute  is  doubtful,  great  weight  should  be 
givbn  to  the  construction  placed  upon  it  by  the  department  charged 

with  its  execution. 

U.  S.  v.  Herman,  209  U.  S.,  339. 

3508  It  is  not  necessary,  however,  in  this  case  to  resort  to  the  constiuction 
by  the  Department. 

3509  Any  other  construction  would  make  great  confusion  in  respect  to  all 
the  quarterly  and  semi-annual  dividends  paid  in  1917  and  intended  to 

be  distributed  from  the  earnings  of  that  year,  upon  which  tax  at  the  war  rate 
of  1917  has  undoubtedly  been  paid  by  multitudes  of  taxpayers  for  the 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

783 


• 


. 


- 

. 


' - '■  ... 


c 


c 


12-R -an. 


,i nd  numerous  suggestions  have  been  made  to  the  Commissioner  of  internal 
Revenue  and  to  the  responsible  heads  of  sections  and  divisions  to  llu;  end 
that  formalities,  delays  and  duplication  of  work  might  be  eliminated.  Prac- 
tically all  of  these  recommendations  and  suggestions  have  been  adopt*  .1 
and /put  into  effect.  Some  of  the  more  basic  recommendations  have  required 
time  to  work  out.  and  arc  in  process  of  being  made  effect ivc.  The  more  im- 
portant changes  inaugurated  in  the  Bureau  in  pursuance  of  those  recom- 
mendations and  suggestions  are,  as  foWows.  [Except  as  reproduced . below 
the  recommendations  referred  to  hav;  to  do  with  Bureau  organization 
matters'.] 

Fori  is 

3435  A careful  study  has  been  made  A the  various  printed  forms  adopted 
by  the  Bureau  and  used  in  tha  administration  of  the  Revenue  Act, 
particularly  of  the  forms  of  return  upon/which  a taxpayer  is  required  to  report 
his  income.  It  is  desirable  on  the  oie  hand  to  make  forms  of  return  .as 
simple  and  clear  as  possible,  so  that  they  may  be  understood  and  made  out 
by  the  ordinary  taxpayer  without  tlJe  services  of  an  expert;  on  the  other 
hand,  the  forms  should  clearly  outttne  the  requirements  for  information 
fully  enough  to  make  possible  an  accurate  audit  of  the  return  without  the 
necessity  of  requesting  further  facti  from  the  taxpayer.  The  itemization 
of  income  and  deductions  contained  In  the  forms  of  return  follows  a similar 
itemization  thereof  in  the  Revenue  /Act  of  1921.  Endeavor  has  been  made 
to  simplify  and  clarify  the  forms  to  ks  great  an  extent  as  possible  consistent 
with  the  considerations  above Vnenfioned  and  with  this  in  view  numerous 
taxpayers  and  their  representatives! were  consulted.  The  forms  now  in  the 
hands  of  the  printer  for  use  in  tlse  rear  1923  are  the  result  of  the  combined 
judgment  of  the  Board  working  i?)J  consultation  with  the  representatives  of 
the  Bureau  having  charge  of  the  dlafting  of  the  forms  of  return. 

Expedi^ii^  of  Work 

343  6 The  Board  has  given  particulXf  attention  to  the  completion  of  the 
audits  of  income  tax  returns.  \The  importance  of  this  work  with 
respect  to  such  of  the  audits  of  191f  returns  as  remain  unfinished  is  especially 
pressing  on  account  of  the  runnfig  of  tl^e  statute  of  limitations.  In  this 
emergency  everything  possible,  |onsistenb  with  fairness  to  the  taxpayer, 
should  be  done  to  expedite  the  a|dit  of  there  returns.  They  are  now  being 
given  the  right  of  way.  This  courfe,  coupled  \idth  the  elimination  of  a number 
of  sources  of  delay,  has  resulted!  in  a marked  increase  in  the  dispatch  of 
business.  The  determination  of-;  invested  capital  under  the  excess  profits 
tax  law  and  the  valuation  of  natural  resources  Have  been  the  chief  obstacles 
in  the  way  of  completing  the  audits  of  1917  returns.  With  these  elements 
established  for  the  year  1917,  the  work  of  auditing  the  returns  of  subsequent 
years  will  be  greatly  facilitated.  Generally  speaking,  the  audit  of  a 1917 
return  and  the  audits  of  the  returns  of  the  same  taxpayer  for  later  years 
are  made  concurrently.  When  the  difficult,  but  temporary,  problems  arising 
under  former  revenue  acts  have  been  disposed  of,  there  is  every  reason  to 
believe  that  the  Bureau  can  keep  practically  current  with  the  audit  of  re- 
turns and  the  decision  of  claims.  This  is  a consummation  devoutly  to  be 
wished  and  earnestly  to  be  sought. 

Decentralization 

3437  Suggestions  have  come  from  various  sources  regarding  decentraliza- 
tion of  the  administration  of  the  revenue  acts.  After  a careful  con- 
sideration of  these  suggestions  and  of  the  proposition  generally,  the  Board 

Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 
769 


12-6-23. 


if  of  the  opinion  that  any  general  plan  of  decentralization  is  open  to  serious 
objections  which  makes  the  adoption  of  such  a plan  of  doubtful  expediency. 

1 Tpon  the  recommendation  of  the  Board,  however,  the  Bureau  is  about  to  adopt 
the  experiment  of  transferring  a committee  to  some  central  point  at  a dis- 
tance from  Washington  to  hear  and  determine  cases  arising  in  that  locality 
and  now  pending  or  which  would  come  before  the  Committee  on  Appeals 
and  Review.  Many  taxpayers  find  it  necessary  or  desirable  to  come  to 
Washington  or  send  their  representatives  here  to  attend  the  hearings  on 
their  appeals.  If  these  hearings  were  conducted  at  or  near  the  residence 
of  the  taxpayer,  this  necessity  would  be  eliminated.  If  the  experiment  is 
successful,  the  plan  will  be  gradually  enlarged. 

3438  The  Board  takes  satisfaction  in  reporting  that  the  spirit  of  the 
Bureau  is  admirable.  There  is  an  evident  desire  on  the  part  of  all 
concerned  that  the  accumulation  of  work  be  disposed  of  at  the  earliest  pos- 
sible date  and  that  the  Bureau  should  be  so  conducted  as  to  win  and  main- 
tain the  confidence  of  the  taxpayers.  All  suggestions  of  the  Board  have  been 
cheerfully  received,  duly  considered  and  made  operative  sympathetically  by 
the  Bureau  of  Internal  Revenue. 

Respectfully  submitted, 

Wm.  S.  Moorhead, 

J.  E.  Sterrett, 

Henry  H.  Hilton, 

Representing  the  Public. 

Charles  P.  Smith, 

E.  W.  Chatterton, 

Carl  A.  Mapes, 

Representing  the  Bureau. 

(First  annual  report  of  the  Tax  Sim- 
plification Board,  December  2,  1922.) 


Copyright  1922,  by  The  Corporation  Trust  Company. 
THE  FEDERAL  INCOME  TAX  SERVICE 

770 


1 1-1 6-22.  (2)  11-22-22.  (3)  11-2D-22. 

CUMULATIVE  INDEX-DIGESTS.-  NOV.  6 TO  DEC.  31,  1922. 


Art.  345.— Estates  and  trusts  taxed  to  beneficiaries  (^1 894). 

Federal  estate  tax  paid  by  trustee  out  of  residuary  trust  funds,  all  distributable  to 
beneficiaries,  because  nol  paid  and  no  provision  made  for  paying  prior  to  clos- 
ing of  administration  is  not  deductible  in  determining  income  of  the  trust  (1-46- 
592:  A.  R.  R.  1020).  .Bull.  I (’22)-46,  p.  7. 

Self  beneficiary  of  income  of  trust  to  extent  demanded  is  taxable  on  amount  actually 
received  only.  This  ruling  which  revokes  S.  1344,  June  1920  Cum.  Bull.  p.  176, 
is  confined  strictly  to  the  1916-17  Act.  (1-46-593:  Sol.  Op.  146).. Bull.  1 (’22)- 
46,  p.  9. 

Stock  dividends.  (See  “Stock  dividends”  under  Art.  347  below.) 

Art.  347. — Estates  and  trusts  with  income  which  is  distributed  periodically 
and  other  income  (1(913). 

Stock  dividends  distributable  to  life  tenant:  profit  or  loss  on  sale  of  stock  received 
and  of  that  (held  by  fiduciary)  in  respect  of  which  received;  1918  Act  (1-47-604: 
I.  T.  1506).. Bull.  I'(’22)-47,  p.  6.  Again,  1918  and  1921  Act  (T-47-605 : I.  T. 
1507).  .Bull.  I (’22)-47,  p.  8. 

[Note  that  the  ruling  at  ^[3010  is  revoked  by  above.] 

Art.  361. — Withholding  tax. as  source  (1(2197). 

Tax-free  covenant  bond  interest;  tax  (1917)  withheld  and  paid  to  Government 
though  creditor  not  liable  to  normal  tax:  refund  or  credit  to  creditor.  O.  D. 
1103)  Dec.  1921  Cum.  Bull.  p.  248,  overruled.  Here,  creditor  is  . a.  corporation, 
against  tJbich  there  hail  also  been  withholding  on  account  of  dividends  (1-45 - 
585:  L.  ONl  107).  .Bull.  I (’22)-45,  p.  11. 

Art.  364. — Exemption  certifi 

Members  of  a nonresident 
having  a nonresident  al 
connection  with  pWme 
the  estate  or  trust  rtVay): 


i lien 


r ts 


Art.  401.— Individual  retu 
* Joint  returns  by  husband  an 

not  permitted:  here,  effi 
1921  Act  (1-48-617:  I.  T 

Art.  421. — Fiduciary  returns 


ate  of  nonresident  aliens  (1(2254-1(2255). 

partnership  and  beneficiaries  of  an  estate  or  trust 
en  fiduciary  may  not  use  Forms  1001  B and  1001 C in 
made  to  the  partnership  or  estate  or  trust  (though 
1921  Act  (1-45-584:  I.  T.  1493).  .Bull.  I (’22)-45,  p.  10. 

(112390). 

wife,  one  on  calendar  year  the  other  on  fiscal  year  basis 
was  to  apply  net  loss  of  one  against  income  of  other: 
14).  .Bull.  I (’22)-48,  p.  5. 

:ite. 

* Life  tenant  (subject  to  annuity  payments)  dies  in  1922,  the  annuitants  surviving: 

property  vests  in  trustee  1 executor  not  trustee  makes  fiduciary  return  for  1921: 
1921  Act  (1-48-618:  I.  T.  11515)  \Bull.  I (’22)-48,  p.  6. 

Art.  514. — Fraternal  ben&ficiary  societies  (1(1022). 

★ Definition;  full  discussion;  01  D.  690  overruled:  1918  and  1921  Acts  (1-48-619: 

I.  T.  1516).  .Bull.  I (’22)-®,  p.  6. 

Art.  522. — Cooperative  Associations  (Kl0(*8). 

Buying  and  selling  on  own  account;  deductibility  of  so-called  rebates;  necessity  for 
making  .return  through  no  fax  due:  1917  \^d  1918  Acts  (1-46-594:  1.  T.  1499) 

. .pulh  I (’22)-46,  p.  10. 

Art.  1003.— Nonpayment  of  ta> 

Abatement  claims  rejected  whei! 

1%  per  month  rate  still  apt 
Bull.  I C22)-46,  p.  12. 

Art.  1006. — Appeals  and  hearing^  (1(2763). 

Art.  1006  amended.  .^3406. 

Special  in  1917  tax  cases  to  meet  emergency.  .^3397. 

Art.  1034. — Claims  for  credit  of  taxes  erroneously  collected  (1(2829). 

Tax  withheld  and  paid  to  Government  on  tax-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (1917  Act):  O.  D.  1103,  Dec.  1921  Cum.  Bull.  p.  248 
overruled.  Here,  foreign  corporation  and  amounts  withheld  on  dividends  also 
involved  (1-45-585:  L.  O.  1107).. Bull.  I (’22)-45,  p.  11. 


-Interest  and  peh-ajty  (1(2727). 
claims  based  on  inventory  losses  under  1918  Act; 
tlies:  1918  and  1921  Acts  (1-46-595:  I.  T.  1500).. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  39. 


CUMULATIVE  INDEX-DIGESTS.  NOV.  6 TO  DEC.  31,  1922. 


Art.  1036. — Claims  for  refund  of  taxes  erroneously  collected  (^[2835). 

Tax  withheld  and  paid  to  Government  in  excess  of  liability  (See  “Tax  withheld,  etc.,” 

under  Art.  1034  above.) 

Art.  1503. — Association  distinguished  from  partnership  (^[989). 

Unincorporated  bank  under  Indiana  lav/;  special:  1917  and  1918  Acts  (1-47-598:  I.  T. 
1501).  .Bull.  I (’22)-47,  p.  1. 

Art.  1541. — Dividends  (If  1080). 

Crediting  capital  stock  account  (debiting  profit  and  loss)  with  an  amount  sufficient 
to  make  total  credit  to  capital  stock  equal  to  aggregate  of  par,  thus  rendering 
stock  fully  paid  that  was  theretofore  partially  paid  and  subject  to  call,  is  in 
effect  a cash  distribution  and  not  a stock  dividend:  1916-1917  Acts  (1-45-575: 
A.  R.  R.  1127).  .Bull.  I (’22)-45,  p.  1. 

Art.  1548. — Sale  of  stock  received  as  dividend  C^f  1 1 36) . 

Trust  estate  with  life-tenant  to  whom  stock  dividend  is  distributable  under  the  Penn- 
sylvania or  American  rule:  1918  Act  (1-47-604:  1.  T.  1506).. Bull.  I (’22)-47, 
p.  6.  Again,  1918  and  1921  Acts  (1-47-605:  I.  T.  1507).  .Bull.  I (’22)-47,  p.  8. 
[Note  that  the  ruling  at  ^3010  is  revoked  by  the  above.] 

Art.  1561. — Basis  for  determining  gain  or  loss  from  sale  (If  1437). 

Depreciation  to  be  given  full  weight  in  establishing  both  “cost”  and  “March  1,  1913, 
value,”  for  purposes  of  joint  comparison  with  selling  price  of  depreciable  prop- 
erty acquired  prior  to  March  1,  1913:  1917  Act  (1-46-586:  I.  T.  1494).. Bull. 

I C22)-46.  p.  1. 

Art.  1563. — Sale  of  property  acquired  by  gift  on  or  before  December  31,  1920, 
or  by  bequest,  devise,  or  inheritance  (If  1455). 

Life  tsiant  soils  trust-estate’s  stock-dividend  stock  distributable  to  him,  the 
surplus  out  of  which  the  stock  dividend  was  declared  being  earned  prior  to  March 
1,  1913:  1918  and  1921  Acts  (1-47-605:  1.  T.  1507)..  Bull,  i f’22)-47,  p.  8. 

Art.  1566. — Exchange  of  property  which  results  in  no  gain  or  loss  (Tf  1466) . 

* 95' , of  stock  of  one  corporation  having  been  turned  in  by  stockholders  within  a short 

time  to  another  corporation  for  its  stock  of  equal  par  value  in  acceptance  of 
offer  made  by  latter,  the  exchange  is  in  connection  with  a reorganization  and 
hence  no  profit  or  loss  results  to  exchanging  stockholders:  1921  Act  (1-48-611: 
I.  T.  1508) . .Bull.  I (’22)-48,  p.  1. 

Art.  1583. — Inventories  at  cost  (If  15 16). 

“Cost”  of  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the  inventory 
price  of  such  goods  in  a “cost  or  market  whichever  is  lower”  inventory.  .^4004. 

Art.  1601. — Net  losses,  definition  and  computation  (^f  1535). 

Capital  assets;  losses  from  sale  of,  by  corporation  in  liquidation  are  not  within  the 
law  provisions:  1918  Act  (1-45-576:  A.  R.  M.  185).  .Bull.  I (’22)-45,  p.  3. 

Art.  1602. — Claim  for  allowance  of  net  loss  (^[1545). 

* New  corporation  (Nov.,  1918)  sustains  net  loss  during  first  two  months  of  operation, 

and  during  calendar  year  1919;  adopts  basis  of  fiscal  year  beginning  Sept.  1, 
1920:  how  to  apply  net  loss  (1921  Act)  (1-48-612:  I.  T.  1509).. Bull.  I (’22)- 
48,  p.  1. 

Art.  1711.— Aids  to  collection  of  tax  (1f2711). 

Permament  books  of  account:  the  maintaining  and  production  of.  ,^J3396. 

Miscellaneous. 

Committee  on  Appeals  and  Review:  personnel  increased  to  13  members;  organiza- 
tion of  a Special  Committee  on  Appeals  and  Review  to  meet  emergency  on  account 
1917  tax  cases.  ,^]3397. 

Continuing  effect  of  1918  Act  for  assessment  and  collection  of  taxes  accrued  there 
under  (see  ^[2776):  here,  rate  of  interest  chargeable  on  rejected  claims  for  abate- 
ment for  inventory  losses  (1-46-595:  I.  T.  1500).  .Bull.  I (’22)-46,  p.  12. 

There  are  no  Supplementary  Pages  41  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary]  Page  40. 


11-9  22  (2)  11  16-22.  (3)  11  22-22  (4)  11-27-22  (6)  11-29-22. 

CUMULATIVE  INDEX-DIGESTS —NOV.  6 TO  DEC.  31,  1922. 

CUMULATIVE  INDEX-DIGESTS 

of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922. 


Art.  4.— Who  is  a citizen  (1J748). 

Military  deserter,  convicted  by  court-martial  and  findings  approved,  forfeits  citizen- 
ship: 1921  Act  (1-47-599:  I.  T.  1502).. Bull.  I (’22)-47,  p.  2. 

Art.  22. — Computation  of  net  income  (If  1046). 

Foreign  exchange  rates: 

England;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:1.  T.  1495).  .Bull.  I (’22)-46, 

p.  4.  , 

France;  as  of  Aug.  31,  1922:  1921  Act  (T-46-588:  I.  T.  1495).. Bull.  I (’22)-46, 

Germany;  as  of  Au^  31,  1922:/  1921  Act  (T-46-588:  I.  T.  1495).. Bull.  I (’22)- 
46,  p.  4.  n.  / 

Art.  24. — Methods  of  accounting  (Hi  1053). 

Permanent  books  of  account;  tbltJteeping  and  production  of:  1921  Act.  ,^f3396. 

Art.  51. — When  included  in  gross/ irt^ome  (^f  1260). 

Government  contract  canceled;  satisfaction  of  claim:  last  sentence  of  Art.  51,  Reg. 

62,  equally  applicable  to  1918  Act  (\45-579:  I.  T.  1489).  .Bull.  I (’22)-45,  p.  7. 
Lease  held  to  be  a sale  under  \jc ry  speend  circumstances;  option  to  purchase;  loan 
(non-interest  bearing  note)  assignment Nof  lease  as  collateral;  etc.:  1918  Act  (1-47- 
600:  A.  U.  \1.  1 89) . . Bull. /I  (’22)-47.  p\2. 

★ On  approval  or  on  trial  “sales;”/when  is  sale  consummated  and  when  does  gross  income 

arise:  1921  Act  (1-48-613:/  I.  T.  15lO)..BuY  I (’22)-48,  p.  3. 

Art.  89. — Additional  exclusions  from  gross  incotne  under  the  Revenue  Act 
of  1921  (1fl(#6,  If  1725,  1f2099). 

Foreign  countries  which  d</not  satisfy  equivalent  exemption  provision  (1921  Act): 
Finland  (1-47-601:  I.  T.  1503)..  Bull.  I (’22)-47,  p.  5. 

Great  Britain  (1-46-589:  1.  T.  1496).. Bull.  I (’22J-46,  p.  5. 

Art.  101. — Business  expenses  (If  1640). 

★ Insurance  on  life  of  debtor  (not  an  officer,  etc.),  policy  assigned  to  creditor  who  pays 

premiums  to  protect  loan;  premiums  are  deductible:  1921  Act  (1-48-614:  I.  T. 
1511).  .Bull.  I (’22)-48,  p.  4. 

Art.  101(a). — Traveling  expenses  (If  1678). 

“Home”;  single  traveling  salesmen  on  the  road  365  days  in  the  year:  1921  Act 
(1-45-580:  I.T.  1490)..  Bull,  f (’22)-45,  p.  7.  See  O.  D.  905,  June  1921  Cum. 
Bull.  p.  212. 

Naval  officers;  subsistence  of  single  tnan  while  afloat  deductible  if  he  has  a “home,” 
otherwise  not;  but  expense  incident  to  visits  to  home  not  deductible:  1921  Act 
(1-46-590:  1.  T.  1497).  .Bull.  I (’22)-46,  p.  5. 

Art.  111. — When  charges  deductible  (If  1057). 

South  Carolina  income  tax  (law  passed  March  13,  1922,  retroactive  for  1921):  1921 
Act  (1-46-591:  I.  T.  1498).  .Bull.  I (’22)-46,  p.  6. 


THE  EEDEIAL  INCOME  TAX  SEBVICT 

Supplementary  Page  37. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  134. — Federal  estate  and  inheritance  taxes  (1|1728). 

Art.  134,  amended.  . K3414. 

Alaska  inheritance  taxes  arc  deductible  by  the  bcnehciaries  only:  1921  Act  (1-47-602: 
I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Arkansas  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  1.  T.  1491).. Bull.  I (’22)-45,  p.  8. 

Connecticut  inheritance  taxes  arc  deductible  by  the  beneficiaries  only:  1921  Act  (I- 
45-581:  1.  T.  1491).  .Bull.  I (’22)-45,  p,  8.  ■ 

Federal  estate  tax  paid  subsequent  to  settlement  of  estate  out  of  residue  of  estate 
placed  in  trust,  not  deductible  by  trustees  in  determining  net  income  of  trust: 
1918  Act  (1-46-592:  A.  R.  R.  1020) ..  Bull.  1 (’22)-46,  p.  7. 

★ Georgia  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-48-615. 
I.  T.  1512).  .Bull.  I (’22)-  48,  p.  4. 

Illinois  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602: 
1.  T.  1504).  .Bull.  I (’22)-47,  p.  6.  . 

Indiana  inheritance  taxes  arc  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).  .Bull.  1 (’22)-45,  p.  8. 

Louisiana  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (l-4<- 
602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6.  . . „ AO 

■k  Maine  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-48-615. 
I.  T.  1512)..  Bull.  I (’22)-48,  p.  4.  . . , . 

Massachusetts  inheritance  taxes  are  deductible  by  the  beneficiaries  only.  1921  Act 
(1-45-581:  1.  T.  1491).  .Bull.  I (’22)-45,  p.  8. 

Michigan  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47 
602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6.  . . 

Missouri  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).  . Bull.  I (’22)-45,  p.  8. 

Ohio  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602: 
I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Oklahoma  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  L T.  1491).  .Bull.  I <’22)-45,  p.  8. 

Reg.  45,  Art.  134  amended  (1918  Act).  .113414. 

Tennessee  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  \ )2\  Act  (. 

47-602:  I.  T.  1504).  jBull.  I (*22)-47,  p.  6.  . , f 

Virginia  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491).. Bull.  I (’22)-45,  p.  8.  . . 10,.  . „ n 

Wisconsin  inheritance  taxes  are  deductible  by  the  beneficiaries  only.  19^1  , c l 
47-602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Art.  141. — Losses  (1(1783). 

Expense  incident  to  establishing  a business  by  one  not  in  business,  the  venture  being 
abandoned,  is  a deductible  loss  in  a transaction  entered  into  for  profit:  1921  Act 
(1-47-603:  I.  T.  1505).  .Bull.  T (’22)-47,  p.  6. 

Art.  291. — Personal  and  family  expenses  (1(1623). 

Naval  officers',  expenses  incident  to  visits  home  from  port  and  subsistence  afloat  of 
single  man  having  no  home  are  not  deductible:  1921  Act  (1-46-590:  I.  T.  14  7) 

. .Bull.  I (’22)-46,  p.  5. 

Art.  294. — Premiums  on  business  insurance  (1(1639). 

★ Life,  policy  assigned  to  creditor  as  security  for  loan;  premiums  paid  by  creditor  to 

protect  loan  are  deductible  the  debtor  not  being  an  officer,  employee,  etc..  1 - 
Act  (1-48-615:  I.  T.  1512).  .Bull.  I (’22)-48,  p.  4. 

Art.  316. — Income  from  sources  within  the  United  States  (1(2094). 

* Spain  community  property;  wife’s  interest  is  expectancy  merely,  hence sl\oui^ 

return  income  in  its  entirety  from  U.  S.  partnership:  1921  Act  (1-48-616:  I.  T. 
1513).  .Bull.  I (’22)-48,  p.  5. 

Art.  327(a). — Transportation  services  (1(3324). 

Art.  327(a)  applies  under  1921  Act  only  (1-45-582:  I.  T.  1492).  Bull.  I (’22)-45.  p.  8. 

Art.  342.— Estates  and  trusts  to  fiduciary  (K879). 

Stock  1 vidends  (See  “Stock  dividends”  under  Art.  347  below.). 

TBS  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page  38, 


11-27-22.  (2)  11-29-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS— (Continued.) 


T.  D. 

Date 

Subject 

Paragraph 

Report  No.  62,  October  21,  1922. 

3401 

Oct.  18,  1922 

(Excise  Taxes. — War  Tax  Series,  ^4795.) 

3402 

“ 18,  “ 

Art.  39,  Reg.  45,  amended. — Sale  of  the 

right  to 

subscribe  to  stock 

3372 

3403 

“ 18,  “ 

Art.  39,  Reg.  62,  amended. — Sale  of  the 

right  to 

Special  Oct.  21-21,  19; 


3404 

3405 


3406 
Memo. 

3407 

3408 

Special 

Special 


25, 

25, 


“ 28, 

Nov.  2, 

“ 2, 

“ 2, 

“ 7, 

“ 4, 


subscribe  to  stock 3375 

Report  No.  63,  November  6,  1922. 

[Pages  for  substitution  on  account  change  of 
all  index-digest  references  from  page  numbers  in 
weekly  Internal  Revenue  Bulletins  1 to  26  of  the 
1922  Series  to  page  numbers  in  Cumulative  Bul- 
letin 1-1  (January-June,  1922),  and  on  account 
index-digest  references  to  new  matters  and  the 
rulings  in  weekly  Bulletins  Nos.  41  to  44.] 

Report  No.}  64,  November  6,  1922. 

Placing  of  income  for  taxable  period  of  less 
than  12  months  on  an  annual  basis:  (1)  in 
general,  decedentoying  during  year  and  estates 
of  decedents;  and  (2)  special,  calendar  year 
decedent-member  of  fiscal  year  partnership. . . 3378 
Prohibition.) 

decision  of  court^  Bankruptcy  Act. — Taxes  due 
1 the  United  States  take  priority  over  claims 
against  the  estate  of  a bankrupt  for  wages.  ..  3383 
Aji  Act  relative  to  the  naturalization  and  citizen- 
ship of  mairied  women 3384 

Decision  of  Court,  1913  Act. — Expenses  in  con- 
nection wath  the  breeding  of  blooded  horses 
jand  the /incidental  racing  thereof, §in  a par- 
ticular case 3392 

T.  D.  designation  for  U.  S.  Supreme  Court  de- 

cisionyLederer  vs.  Stockton  (^3355) 3395 

/keeping  and  production  of  permanent 
book/  of  account 3396 


Report  No.  65,  November  9,  1922. 
als  and  hearings  on  1917  tax  cases  specif- 
(lly:  special  Committee  on  Appeals  and 

'eview 3397 

‘cost  or  market  whichever  is  lower”  in- 
:ntory  the  “cost”  of  merchandise  on  hand  at 
e beginning  of  the  taxable  year  is  the  in- 
ventory price  of  such  goods 3404 

[Supplementary  Pages  (“T.  D.  Finder”  div- 
ision!) showing  index-digest  references  to  rulings 
in  Iiiternal  Revenue  Bulletin  No.  45,  of  the  1922 
Serie|,  and  to  new  matters  in  the  Service.] 

i Report  No.  66,  November  15,  1922. 

3409  Nov.  13,  19/2  Art.  1006,  Reg.  62,  amended.  — Appeals  and 

hearings 3406 

[Supplementary  Pages  (“T.D.Finder”division) 
showing  index-digest  references  to  rulings  in 
Internal  Revenue  Bulletin  No.  46,  of  the  1922 
Series,  Vnd  to  new  matters  in  the  Service.] 

Report  No.  67,  November  22,  1922. 
[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  47, 
of  the  1922  Series.] 


THE  nCBMAJL  INCOME  tax  service 

Supplementary  Page  33. 


11-27-22.  (2)  11-29-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 


3410 

3411 


3412 

3413 

3414 
Special 


Date 


Subject 


Paragraph 


Report  No.  68,  November  27,  1922 . 

Nov.  22,  1922  (Prohibition.) 

“ 24,  “ Art.  134,  Reg.  62,  amended. — Period  as  of  which 

Federal  Estate  Tax  is  deductible 3414 

Art.  134,  Reg.  45  11918  Act),  amended. — Period 
as  of  which  Federal  Estate  Tax  is  deductible..  3414 


Report  No.  69,  November  29,  1922. 

Nov.  24,  1922  (Excise  Taxes. — War  Tax  Service,  1J4796.) 

24,  “ (Occupations  Tax. — War  Tax  Service,  If 7674.) 

“ 25,  “ Depreciation  of  leaseholds 

“ 29,  “ Personnel  of  the  Tax  Simplification  Board 

[Supplementary  Pages  (“T.  D.  F’indcr” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  48, 
of  the  1922  Series.] 


3415 

3416 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Pages  34  to  36. 


11-27-22.  (21  1 1-29-22. 


(T.  D.  3411.) 


3414  Period  as  of  which  Federal  Estate  Tax  is  deductible:  Article  134, 


E.  W.  Chatterton 
C.  M.  Napes 

Appointed  by  the  Secretary  of  the  Treasury  to  rep- 
resent the  Bureau  of  Internal  Revenue. 


Copyright  1922,  by  The  Corporation  Trust  Company. 

THE  FEDERAL  INCOME  TAX  SERVICE 

765 


3299 

3331 

3343 


Joseph  E.  Sterrett 
Henry  H.  Hilton 


Appointed  by  the  President  to  represent  the  public. 
Charles  P.  Smith 


i'J',  '• 

•;  . . •' 

;j  jl.  y.'OV' 


c, 

■ 

jUJV) /‘i/’1  < >:R1t  * ' o • jfc  ! J 


11-15-22.  (2)  11-22-22. 

CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  347. — Estates  and  trusts  with  income  which  is  distributed  periodically 
and  other  income  (*[[913). 

* Stock  dividends  distributable  to  life  tenant:  profit  or  loss  on  sale  of  stock  received 
and  of  that  (held  bv  fiduciary)  in  respect  of  which  received;  1918  Act  (1-47-604: 

I.  T.  1506) . . Bull.  I (’22)-47,  p.  6.  Again,  1918  and  1921  Act  (1-47-605:  I.  T. 
1507).  .Bull.  I (’22)-47,  p.  8. 

[Note  that  the  ruling  at  3010  is  revoked  by  above., 

/ . n »j  •.  ioi  hibf.U  .Idci  .tiA 

Art.  361. — Withholding  tax'as  source  (1/2197 )/ 

Tax-free  covenant  bond  interest;  tax  (1917)  /withheld  and  paid  to  Government 
though  creditor  not  liable  to  normal  tax: /refund  or  credit  to  creditor.  O.  D. 
1103,  Dec.  1921  Cum.  Bull.  p.  248,  overruled.  Here,  creditor  is  a corporation, 
against  which  there  had  also  been  withholding  on  account  of  dividends  (1-45- 
585:  L.  O.  11 07).. Bull.  I (’22)-45,  p.  11./ 

Art.  364. — Exemption  certificate  of  nonresident  aliens  (1/2254-1/2255). 

Members  of  a nonresident  alien  partnership  and  beneficiaries  of  an  estate  or  trust 
having  a nonresident  alien  fiduciary  maty  not  use  Forms  1001  B and  1001 C in 
connection  with  payments  made  to  thq  partnership  or  estate  or  trust  (though 
the  estate  or  trust  may):  1921  Act  (I-45/-584:  I.  T.  1493).  .Bull.  I (’22)-45,  p.  10. 

Art.  522. — Cooperative  Associations  (1/10/38). 

Buying  and  selling  o\own  account;  dedqjfctibility  of  so-called  rebates;  necessity  for 
making  return  through  no  tax  due:  /1 9 1 7 and  1918  Acts  (1-46-594:  I.  T.  1499) 

. .Bull.  I (’22)-46,  p?\0. 

Art.  1003. — Nonpayment  of  tax — Interest  and  penalty  (1/2727). 

Abatement  claims  rejected  when  claim/  based  on  inventory  losses  under  1918  Act; 
1%  per  month  rate  still  ap\iies:  / 918  and  1921  Acts  (1-46-595:  L T.  1500).. 
Bull.  I (’22)-46,  p.  12. 

Art.  1006. — Appeals  and  hearings  (1/2763). 

Art.  1006  amended.  .1/3406. 

Special  in  1917  tax  cases  to  meet  emergency.  . 113397. 

Art.  1034. — Claims  for  credit  of  tapes  erroneously  collected  (1/2829). 

Tax  withheld  and  paid  to  Government  on  tkx-free  bond  interest,  though  creditor  not 
liable  for  any  normal  tax  (191/  Act):  OL  D.  1103,  Dec.  1921  Curm  Bull.  p.  248 
overruled.  Here,  foreign  corporation  arid  amounts  withheld  on  dividends  also 
involved  (1-45-585:  L.  O.  110/1).  .Bull.  I (!22)-45,  p.  11. 

I \ 

Art.  1036. — Claims  for  refund  of  taxes  erroneously  collected  (1/2835). 

Tax  withheld  and  paid  to  Governihent  in  excess  of  liability  (See  “Tax  withheld,  etc.,” 
under  Art.  1034  above.) 

Art.  1503. — Association  distinguished  from  partnership  (1/989). 

¥ Unincorporated  bank  under  Indiana  law;  special:  1917  and  1-918  Acts  (1-47-598:  I.  T. 
1501).  .Bull.  I (’22)-47,  p.  j. 

Art.  1541. — Dividends  (1/1080). 

Crediting  capital  stock  account  (debiting  profit  and  loss)  with  an  amount  sufficient 
to  make  total  credit  to  capital  stock  equal  to  aggregate  of  par,  thus  rendering 
stock  fully  paid  that  was  theretofore  partially  paid  and  subject  to  call,  is  in 
effect  a cash  distribution  and  not  a stock  dividend:  1916-1917  Acts  (1-45-575: 
A.  R.  R.  1127).  .Bull.: I (’22)-45,  p.  1. 


THE  FEDEXAL  INCOME  TAX  SERVICE 

Supplementary  Page  39. 


CUMULATIVE  INDEX-DIGESTS.-  NOV.  6 TO  DEC.  31,  1922. 


Art.  1548.— Sale  of  stock  received  as  dividend  (1|1136). 

* Trust  estate  with  life-tenant  to  whom  stock  dividend  is  distributable  under  the  Penn- 

sylvania or  American  rule:  1918  Act  (1-47-604:  I.  T.  1 506)  Bull  I (’22)  47 
p.  6.  Again  1918  and  1921  Acts  (1-47-605:  I.  T.  1507) . . Bull.  I (’22)-47,  p 8 ’ 
[Note  that  the  ruling  at  1(3010  is  revoked  by  the  above.]  . 

Art.  1561.  Basis  for  determining  gain  or  loss  from  sale  (If  1437). 

Depreciation  to  be  given  full  weight  in  establishing  both  “cost”  and  “March  1 1913 
value,  for  purposes  of  joint  comparison  with  selling  price  of  depreciable  prop- 

w>y^C?,U,rcd  pnor  t0  March  '>  1913:  1917  (f -46-5 86:  T.  T.  1494)  Bull 

i ( 22)-46,  p.  1 . 

Art.  1563.  Sale  of  property  acquired  by  gift  on  or  before  December  31,  1920 
or  by  bequest,  devise,  or  inheritance  CH 1455). 

* Life  tenant  sells  trust-estate’s  _ stock-dividend  stock  distributable  to  him,  the 

-1  • rUri9m  OIU)l°R  Wh‘lCfA-vP  !^lki1Y‘d^d  was  declared  being  earned  prior  to  March 
1,  1913.  1918  and  1921  Acts  (1-47-605 : !.  T.  1507) ..  Bull.  I (’22)-47,  p.  S. 

Art.  1583. — Inventories  at  cost  (If  15 16). 

C°S5-°pf  merchandise  on  hand  at  the  beginning  of  the  taxable  year  is  the  inventory 
p e of  such  goods  in  a cost  or  market  whichever  is  lower”  inventory.  .K4004. 

Art.  1601.  Net  losses,  definition  and  computation  (If  1535). 

Capital  assets;  losses  from  sale  of,  by  corporation  in  liquidation  are  not  within  the 
law  provisions:  1918  Act  (1-45-576:  A.  R.  M.  185).  .Bull.  I (’22)-45,  p.  3. 

Art.  1711. — Aids  to  collection  of  tax  (^f27 11). 

Permament  books  of  account:  the  maintaining  and  production  of..K3396. 


Miscellaneous. 

Committee  on  Appeals  and  Review:  personnel  increased  to  13  members:  organiza- 
tion  of  a bpecial  Committee  on  Appeals  and  Review  to  meet  emergency  on  account 
1917  tax  cases.  .1(3397. 

Continuing  effect  of  1918  Act  for  assessment  and  collection  of  taxes  accrued  there- 
under (see  1(2776):  here,  rate  of  interest  chargeable  on  rejected  claims  for  abate- 
ment for  inventory  losses  (1-46-595:  I.  T.  1500).  .Bull.  1 (’22)-46  p 12 


There  are  no  Supplementary  Pages  41  to  114  at  present. 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  40. 


11-9-22.  (2)  11-16-22.  (8)  11-22-22.  (4)  11-27-22. 

CUMULATIVE  INDEX-DIGESTS. — NOV.  6 TO  DEC.  31,  1922. 

CUMULATIVE  INDEX-DIGESTS 

of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922. 


Art.  4. — Who  is  a citizen  (If 748). 

Military  deserter,  convicted  by  court-martial  and  findings  approved,  forfeits  citizen- 
ship: 1921  Act  (1-47-599:  I.  T.  1502).  .Bull.  I (’22)-47,  p 2. 

Art.  22. — Computation  of  net  income  (^[  1046). 

Foreign  exchange  rates: 

England;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:1.  T.  1495).. Bull.  I (’22)-46 
p.  4.  \ > 

France;^  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)-46, 

Germany;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).  Bull  I (’22)- 
46,  p.  4.  v ' 

Art.  24. — Methods  of  accounting  (^7 1053).  / 

Permanent  books  of  account;  the  keeping  a)id  production  of:  1921  Act.  .^[3396. 

Art.  51.— When  included  in  gross  income 1260). 

Government  contract  canceled;  satisfactioii  of  claim:  last  sentence  of  Art.  51  Reg 
62,  equally  applicable  to  1918  Act  (1-46-579:  I.  T.  1489).. Bull.  I (’22)-45  d.  7 
Lease  held  to  be  a sale  under  very  special  circumstances;  option  to  purchase-  loan 

gZTa'T M !eia89n)s  "jfin.  iBC22H?/p.f  2.ase  as  collateral:  etc':  1918  Act  (I-47- 

\ 

Art.  89.  Additional  exclusions  from  dross  income  under  the  Revenue  Act 
of  f921  (If  1606,  If  1 725  J If 2099). 

Foreign  countries  ^ich  do  not  satisfy  /equivalent  exemption  provision  (1921  Act)- 
Finland  (1-47-60*:  I.  T.  1503).. Bi/l.  I (’22)-47,  p.  5.  1 

Great  Britain  (146-589:  I.  T.  149®.  .Bull.  I (’22)-46,  p.  5. 

Art.  101(a). — Traveling  expenses  flfl^78). 

“Home”;  single  traveling  salesmen  the  road  365  days  in  the  vear-  1921  Art 

LI  P82:12  ' ,490)'\“n-  1 <'p>-45,  r-  See  O.^d!  905  /»„.  ,92?  cjm. 

Naval  officers;  subsistence  ofWle  ian  while  afloat  deductible  if  he  has  a “home  ’’ 
(1-46-590:  *L  ^ .^14 9 7 ^ P JS  uSuf  U22)-46,  pff*  t0  h°me  not  deductible:  1921  Act 

Art.  111. — When  charges  deductible  (^f  1057). 

"22>  re,,oactiv' ,or  ,92,,:  1921 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  37. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  134. — Federal  estate  and  inheritance  taxes  (If  1728). 

¥ Art.  134,  amended.  .1(3414. 

Alaska  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602: 
I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Arkansas  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45 - 
5S1 : I.  T.  1491).  .Bull.  I (’22)-45,  p.  8.' 

Connecticut  inheritance  taxes  are  deductible  bv  the  bdrfeificiarks  only:  1921  Act  (1- 
45-581:  I.  T.  1491).  .Bull.  I (’22)-45,  p,  8. 

Federal  estate  tax  paid  subsequent  to  settlement  of  estate  out  of  residue  of  estate 
placed  in  trust,  not  deductible  by  trustees  in  determining  net  income  of  trust: 
1918  Act  (1-46-592:  A.  R.  R.  1020).. Bull.  I (’22)-46,  p.  7. 

Illinois  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602: 
I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Indiana  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491)..  Bull.  1 (’22)-45,  p.  8. 

Louisiana  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47- 
602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Massachusetts  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act 
(1-45-581 : I.  T.  1491)..  Bull.  I (’22)-45,  p.  8. 

Michigan  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47 
602:  I.  T.  1504) . .Bull.  I (’22)-47,  p.  6. 

Missouri  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45 - 
581:  I.  T.  1491).  .Bull.  I (’22)-45,  p.  8. 

Ohio  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602: 
I.  T.  1504).  .Bull.  I (’22)-47,  p.  6.  ' 

Oklahoma  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  1.  T.  1491).  .Bull.  I (’22)-45,  p.  8. 

¥ Reg.  45,  Art.  134  amended  (1918  Act).  .1(3414. 

Tennessee  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (I- 
47-602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Virginia  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  l.  T.  1491).. Bull.  I (’22)-45,  p;  8. 

Wisconsin  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (I- 
47-602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Art.  141. — Losses  (If  1783). 

Expense  incident  to  establishing  a business  by  one  not  in  business,  the  venture  being 
abandoned,  is  a deductible  loss  in  a transaction  entered  into  for  profit:  1921  Act 
(1-47-603:  I.  T.  1505).  .Bull.  I (’22)-47,  p.  6. 

Art.  291. — Personal  and  family  expenses  (If  1623). 

Naval  officers;  expenses  incident  to  visits  home  from  port  and  subsistence  afloat  of 
single  man  having  no  home  are  not  deductible:  1921  Act  (1-46-590:  I.  T.  1497) 

. .Bull.  I (’22)-46,  p.  5. 

Art.  327(a). — Transportation  services  (1f3324). 

Art.  327(a)  applies  under  1921  Act  only  (1-45-582:  I.  T.  1492) . .Bull.  I (’22)-45,  p.  8. 

Art.  342. — Estates  and  trusts  to  fiduciary  Hf879). 

Stock  dividends  (See  “Stock  dividends”  under  Art.  347  below.). 

Art.  345— Estates  and  trusts  taxed  to  beneficiaries  (1f894). 

Federal  estate  tax  paid  by  trustee  out  of  residuary  trust  funds,  all  distributable  to 
beneficiaries,  because  not  paid  and  no  provision  made,  for  paying  prior  to  clos- 
ing  of  administration  is  not  deductible  in  determining  income  of  the  trust  (1-46- 
592:  A.  R.  R.  1020).  .Bull.  I (’22)-46,  p.  7. 

Self  beneficiary  of  income  of  trust  to  extent  demanded  is  taxable  on  amount  actually 
received  only.  This  ruling  which  revokes  S.  1344,  June  1920  Cum.  Bull.  p.  176, 
is  confined  strictly  to  the  1916-17  Act.  (1-46-593:  Sol.  Op.  146).. Bull.  I (22)- 
46,  p.  9. 

Stock  dividends.  (See  “Stock  dividends”  under  Art.  347  below.) 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  38. 


11-27-22, 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D. 

3401 

3402 

3403 


Special 

3404 

3405 

3406 
Memo. 

3407 

3408 

Special 

Special 

3409 


Date 


Subject 


Paragraph 


Report  No.  62,  October  21,  1922. 

Oct.  18,  1922  (Excise  Taxes. — War  Tax  Series,  1)4795.) 

“ 18,  “ Art.  39,  Reg.  45,  amended. — Sale  of  the  right  to 

subscribe  to  stock 3372 

“ 18,  “ Art.  39,  Reg.  62,  amended. — Sale  of  the  right  to 

subscribe  to  stock 3375 


Oct.  21-21,  1922 


28, 


Nc 


2, 

2, 


7, 


4, 


Nov.  13,  1922 


Report  No.  63,  November  6,  1922. 
[Pages  for  substitution  on  account  change  of 
all  index-digest  references  from  page  numbers  in 
weekly  Internal  Revenue  Bulletins  1 to  26  of  the 
1922  Series  to  page  numbers  in  Cumulative  Bul- 
letin I-l\ (January-June,  1922),  and  on  account 
index-digpst  references  to  new  matters  and  the 
rulings  in  weekly  Bulletins  Nos.  41  to  44.] 

j Report  No.  64,  November  6,  1922. 

Placing  of  income  for  taxable  period  of  less 
than  lx  months  on  an  annual  basis:  (1)  in 
general,  decedent  dying  during  year  and  estates 
of  decedents;  and  (2)  special,  calendar  year 
decedent-member  of  fiscal  year  partnership.  . . 
(Prohibition.) 

Decision  i if  court:  Bankruptcy  Act. — Taxes  due 
the  United  States  take  priority  over  claims 
against)  the  estate  of  a bankrupt  for  wages.  . . 
An  Act  relative  to  the  naturalization  and  citizen- 
ship of  married  women 

Decision/  of  Court,  1913  Act. — Expenses  in  con- 
nection with  the  breeding  of  blooded  horses 
and  tme  incidental  racing  thereof, Jin  a par- 
ticular case ' 

T.  D.  Resignation  for  U.  S.  Supreme  Court  de- 
cision: Lederer  vs.  Stockton  (D3355) 

thR  keeping  and  production  of  permanent 
s of  account 

Report  No.  65,  November  9,  1922. 
Appeals  \nd  hearings  on  1917  tax  cases  specif- 
ically: fecial  Committee  on  Appeals  and 
Review. 

In  a j“cost  oP-market  whichever  is  lower”  in- 
ventory.the  “host”  of  merchandise  on  hand  at 
thd  beginning  Of  the  taxable  year  is  the  in- 
ventory price  of  such  goods 

[Supplementary  Pages  (“T.  D.  Finder”  div- 
ision showing  index-digest  references  to  rulings 
in  In  :ernal  Revenue  BiMletin  No.  45,  of  the  1922 
Series,  and  to  new  mattes  in  the  Service.) 

\ Report  No.  66,  \ November  15,  1922. 

Ait.  j006,  Reg.  62,  amended. — Appeals  and 
hearings. 

[Supplementary  Pages  (“T.DCFinder”division) 
showing  index-digest  references.  to  rulings  in 
Internal  Revenue  Bulletin  No.  4(L  of  the  1922 
Series,  and  to  new  matters  in  the  Service.] 

\ 

Report  No.  67,  November  22,  1922. 
[Supplementary  Pages  (“T.  D.  Finder” 
division)  showing  index-digest  references  to 
rulings  in  Internal  Revenue  Bulletin  No.  47, 
of  the  1922_Series.] 


3378 

3383 

3384 

3392 

3395 

3396 


3397 

3404 


3406 


TO  FEDERAL  INCOME  TAX  SERVICE 

SupplementarvsPaget33. 


11-27-22. 


T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS.— (Continued.) 


T.  D.  Date  Subject  Paragraph 

Report  No.  68,  November  27,  1922. 

3410  Nov.  22,  1922  (Prohibition.) 

3411  “ 24,  “ Art.  134,  Reg.  62,  amended  . — Period  as  of  which 

Federal  Estate  Tax  is  deductible 3414 

Art.  134,  Reg.  45  (1918  Act),  amended. — Period 
as  of  which  Federal  Instate  Tax  is  deductible..  3414 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Pages_34_to  36. 


11-27-22. 


(T.  D.  3411.) 


3414  Period  as  of  which  Federal  Estate  Tax  is  deductible:  Article  134, 
1728  Regulations  No.  45  (1920  Edition),  and  Article  134,  Regulations 

3116  No.  62,  amended. — Article  134,  Regulations  No.  45  (1920  Edition), 
as  amended  by  T.  D.  3316  [1f3 115]  and  Regulations  No.  62,  Article 
134,  are  hereby  amended  by  substituting  for  the  first  paragraph  thereof  the 
following: 

Federal  estate  taxes,  paid  or  accrued  during  the  taxable  year,  are  an 
allowable  deduction  from  the  gross  income  of  the  estate  in  computing 
the  net  incomes  thereof,  subject  to  tax.  The  whole  amount  of  such 
taxes,  irrespective  of  when  paid,  is  deemed  to  have  accrued  on  the  due 
date  thereof,  narttely,  one  year  after  the  decedent’s  death  (Sec.  406, 
Title  IV,  Revenue^  Act  of  1921  [Federal  Estate  Tax  Law,  If 449,  1922 
War  Tax  Service]), 'and,  if  the  accounts  of  the  estate  are  kept  on  an 
accrual  basis,  are  deductible  from  gross  income  of  the  taxable  year  in 
which  such  due  date  fads,  or  for  the  taxable  year  in  which  paid,  if  paid 
before  the  due  date.  If  the  accounts  are  kept  on  the  basis  of  cash 
receipts  and  disbursements,  deduction  may  be  taken  from  gross  income 
of  the  taxable  year  or  years  in  which  the  payment  or  payments  may 
have  been  made.  (T.  D.  3411,  signed  by  Commissioner  D.  H.  Blair, 
and  dated  November  24,  1922.) 


\ 


Copyright  1922,  by  The  Corporation  Trust  Company, 
THE  FEDERAL  INCOME  TAX  SERVICE 

765 


(.a’  .c  .r 


. 

- 


i ,* 


2-27-22  (2)  4-10-22.  (8)  10-21-22. 

.REGULATIONS  62  RELATING  TO  THE  INCOME  TAX. 

| Promvlgot/d  February  IS,  1922. — Released  for  Publiration,  Mareb  1,  1922. | 


TABLE  OF  CONTENTS. 

(Always  up-to-date.) 

Comment; — The  following  table  lists  all  of  the  Articles  of  the  Regulations  62,  (1922 
Edition)  (except  those  relating  specifically  to  the  excess-profits  tax),  by  numbers,  giving 
the  caption  of  each,  showing  general  subject  content,  and  referring -to  th<-  paragraph  in  the 
bool;  at  which  each  is  reproduced.  The  fable  is  always  up-to-date. 

Caution. — The  numerals  inserted  marginally  on  the  left  sboyr  the;  numbers  of  the 
respective  corresponding  Articles  (in  context)  of  Regulations  45  (1918  Act).  “New" 
indicates  that  there  is  no  corresponding  Article  (in  context)  in  Regulations  45.  Otherwise 
the  numbering  of  the  Articles  of  the  two  series  of  Regulations  correspond.  For  cross 
reference  table  of  Articles  of  Regulations  45  to  corresponding  Article#  fin  context)  of 
Regulations  62,  sec  page  102. 


INCOME  TAX  ON  INDIVIDUALS 

Paragraph 

Normal  tax 

Income  tax  on  individuals 707 

Normal  tax / ' 712 

Persons  liable  to  tax. . j.  . • 746 

Who  is  a citizen 748 


1 


Section  210. 

Article  1. 

IT  2. 

3. 

4. 

Section  211.  Surtax 
Article  11.  Surtax 

12.  Computation  of 

13.  Surtax  on  sale  o 
Section  212.  Net  income  of  indi 

Article  21.  Meaning  of  net 

22.  Computation  of 

23.  Bases  of  computa 

24.  Methods  of  acco 


714 


fax . 724,  728 

aeral  deposit* 731 

aals  defined 

Dme 1042 

income . 1046 

1049 

ting 1053 

25.  Accounting  periofi. \ 1064 

26.  Change  in  accounting  period 1066 

Section  213(a).  Gross  income  difin^d:  inclusions 

Article  31.  What  included  fn  grqss  income 1075 

>r  personal  service* 1156 

Said  other  than  in  cash 1168 

said  in  notes 1178 

torn  business 1179 


32.  Compensation 

33.  Compensation 

34.  Compensation 

35.  Gross  income 

36.  Long-term  co 


tracts 1180 


oi. 

52. 

53. 

54. 


37.  State  contract* t tf84 

38.  Gross  income  Jbf  farmer* 1186 

39.  Sale  of  stock  ind  rights! 1219;  A,  3373 

40.  Sale  of  patents  and  copyrights 1235 

41.  Sale  of  good  ^ill . 1236 

42.  Sale  of  personal  property  on  installment  plan 1237 

43.  Sale  of  real  estate  in  lots 1244 

44.  Sale  of  real  ettate  involving  deferred  payments 1245 

45.  Sale  of  real  eitate  on  installment  plan 1249 

46.  Deferred-payment  sales  of  real  estate  not  on  installment  plan 1250 

47.  Annuities  an  1 insurance  policies . 1251 

48.  Improvemcn  s by  lessees.. 1252 

49.  Compensation  for  loss 1257 

.50.  Forgiveness  if  indebtedness 1258 

.51.  When  included  in  gross  income 1260 

.52.  Income  not  reduced  to  possession 1271 

53.  Examples  of  Constructive  receipt  , 1272 


Section  213(b).  Gross  income  defined:  exclusions 

Article  71.  What  excluded  from  gross  income 1551 

72.  Proceeds  of  insurance — Compensation— War  pensions 1557 

73.  Gifts  and  bequests 1559 

74.  Interest  upon  State  obligations 1564 

75.  Dividends  and  interest  from  Federal  land  bank  and  national  farm 

loan  association . 1565 

Copyright  1922,  by  The  Corporation  Trust  Company 

THE  FEDERAL  INCOME  TAX  SERVICE 
93 


3-87-28 


(2)  4-10-22.  (8)  10-21-22. 

TABLE  OE  CONTENTS  TO  REGULATIONS  62. 


Nf 


78 


New.  . . 

.80. 

’ 79 

.81. 

80 

82. 

80a .. . 

.83. 

81,  82.. 

.84. 

79,  80. 

85. 

83  . . . . 

.86. 

34 

.87. 

• 85...':. 

.88. 

New . . . 

.89. 

• 87 

.90. 

'88 

91. 

Section  213(c). 

91. .Article  92. 

; 92a  . . . 

.9.3. 

93 

.94. 

Section  214(a). 

Article  101 

Section  213(b).  Gross  income  defined:  exclusions — Concluded.  Paragraph 

Article  76.  Dividends  from  Federal  reserve  bank 1566 

77.  Interest  upon  United  States  obligations J570 

78.  Liberty  bond  exemptions,  as  amended  and  supplemented  by  the 

Revenue  Act  of  1921 1575 

.79  Liberty  bond  exemption  under  Second,  Third,  and  Fourt  Liberty 

■ Bond  Acts — Treasury  (war)  savings  certificates 1576 

80.  Liberty  bond  exemption  under  Supplement  to  Second  Liberty  Bond 

Act,  as  amended  by  the  Revenue  Act  of  1921  1578 

Exemptions  on  Victory  notes 1580 

Interest  accrued  upon  conversion  of  Victory  notes 1581 

.83.  Summary  of  tax  exemptions  of  Liberty  bonds  and  Victory  notes, 

as  amended  and  supplemented  by  the  Revenue  Act  of  1921 . . . . 1583 

Liberty  bond  exemption  in  the  case  of  trusts  or  partnerships 158' 

Return  for  fiscal  year  ending  in  1921 1589 

Income  of  foreign  governments 1595 

Income  of  States! [598 

Compensation  of  State  officers  and  employees I 599 

.89.  Additional  exclusions  from  gross  income  under  the  Revenue  Act  of 

1921 1606,  1725,  2099 

Income  accrued  prior  to  March  1,  1913 1611 

Subtraction  for  redemption  of  trading  stamps 1612 

Gross  income  defined:  nonresident  alien  individual 

91. .Article  92.  Gross  income  of  nonresident  alien  individuals 2093 

.93.  When  the  wages  of  a nonresident  alien  seaman  are  derived  from 

sources  within  the  United  States 2096 

Income  of  nonresident  aliens  from  United  States  bonds  2100 

1.  Deductions  allowed:  business  expenses 

. Business  expenses 1640 

29 2 101(a).  Traveling  expenses 1625,  1678 

Cost  of  materials 1641 

Repairs 1642 

Professional  expenses 1643 

Compensation  for  personal  services 1650 

Treatment  of  excessive  compensation 1662 

Bonuses  to  employees 1667 

Pensions — Compensation  for  injuries 1674 

Rentals 1683 

Expenses  of  farmers 1195 

When  charges  deductible 1057 

Deductions  allowed:  interest 

Article  121.  Interest 1688 

1 \ l 122.  Interest  on  capital 1695 

Section  214(a)  3.  Deductions  allowed:  taxes 

Article  131.  Taxes :. 1703 

132.  Federal  duties  and  excise  taxes 1704 

133.  Taxes  for  local  benefits 1716 

134.  Federal  estate  and  State  inheritance  taxes 1728 

New ....  135.  Tax  on  stock 1718 

Section  214(a)  4,  S,  and  6.  Deductions  allowed:  losses 

Article  141.  Losses 1783 

142.  Voluntary  removal  of  buildings 1800 

143.  Loss  of  useful  value 1801 

144.  Shrinkage  in  value  of  stocks ...  1802 

145.  Losses  of  farmers 1196 

. . New.  . . . 146.  Accounting  for  losses  to  reflect  income 1786 

New. . , . 147.  Losses  from  the  sale  and  repurchase  of  securities 1792 

Section  214(a)  7.  Deductions  allowed:  bad  debts 

Article  151.  Bad  debts..,, 1810 

• 152.  Examples  of  bad  debts 1814 

153.  Uncollectible  deficiency  upon  sale  of  mortgaged  or  pledged 

property. 1815 

154.  Worthless  securities. . 1818 

155.  Reserve  for  bad  debts 1822 

Copyright  1922,  by  The  Corporation  Trust  Company 

THI  FEDERAL  INCOME  TAX  SERVICE 
94 


102 

103. 

104. 

105. 

106. 

107. 

108. 
109. 

no. 

111. 

Section  214(a)  2 


New , 


11-15-22. 

T.  D.  FINDER  AND  RUNNING  TABLE  OF  CONTENTS. — (Continued.) 


T.  D. 


3401 

3402 

3403 


Special 


3404 

3405 


3406 

Memo. 

3407 

3408 

Special 

Special 


3409 


Date  Subject  Paragraph 

Report  No.  62,  October  21,  1922. 

Oct.  18,  1922  (Excise  Taxes. — War  Tax  Series,  |4795.) 

>8,  “ Art.  39,  Reg.  45,  amended. — Sale  of  the  right  to 

subscribe  to  stock 3372 

>8,  “ Art.  39,  Reg.  62,  amended. — Sale  of  the  right  to 

subscribe  to  stock 3375 

Report  No.  63,  November  6,  1922. 

[Pages  for  substitution  on  account  change  of 
all  index-digest  references  from  page  numbers  in 
weekly  Internal  Revenue  Bulletins  1 to  26  of  the 
1922  Series  to  page  numbers  in  Cumulative  Bul- 
letin 1-1  (January-June,  1922),  and  on  account 
index-digest  references  to  new  matters  and  the 
rulings  in  weekly  Bulletins  Nos.  41  to  44.] 

\ Report  No.  64,  November  6,  1922. 

Oct.  21-21,  1922  Placing  of  income  for  taxable  period  of  less 
than  12,  months  on  an  annual  basis:  (1)  in 
general,  decedent  dying  during  year  and  estates 
of  decedents;  and  (2)  special,  calendar  year 
„ decedent-member  of  fiscal  year  partnership  . . 3378 

25,  (Prohibition.) 

25,  “ Decision  of  court:  Bankruptcy  Act.— Taxes  due 

the.  United  States  take  priority  over  claims 
u <(  against  the  estate  of  a bankrupt  for  wages.  ..  3383 

28,  ‘ An  Act  relative  to  the  naturalization  and  citizen- 
ship of  married  wometj 3384 

Nov.  2,  Decision  of  Court,  1913  Act. — Expenses  in  con- 

nection with  the  breeding  of  blooded  horses 
and  the  incidental  racing  thereof,  in  a par- 
ticular case \j 3392 

T.  D..  designation  for  U.  S.  Supreme  Court  de- 

„ „ cision:  Lederer  vs.  Stockton  (^3355) 3395 

On  the  keeping  and  production  of  permanent 
books  of  account j. 3396 

Report  No.  65,  November  9,  1922. 

7,  “ Appeals  and  hearings  on  1917  tax  cases  specif- 
ically: special  Comrjiittee  oA  Appeals  and 

Review j 3397 

In  a cost  or  market  whichever  is  lower”  in- 
ventory the  “cost”  of  merchandise  on  hand  at 
the  beginning  of  the  taxable  year\js  the  in- 
ventory price  of  such  goods \ 3404 

[Supplementary  Pages  (“T.  D.  Finder”  div- 
ision) showing  index-digest  references  to  rulings 
in  Internal  Revenue  Bulletin  No.  45,  of  the  1922 
Series,  and  to  new  matters  in  the  Service.] 

Report  No.  66,  November  15,  1922. 

Nov.  13,  1922  Art.  1006,  Reg.  62,  amended. — Appeals  anm 

; 3406 

[Supplementary  Pages  (“T.D. Finder”  division 
showing  index-digest  references  to  rulings  in 
Internal  Revenue  Bulletin  No.  46,  of  the  1922 
Series,  and  to  new  matters  in  the  Service.] 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Page*  33  to  36. 


•SS-U-ll 

el  I VI K U X i ' 'A  A ASGVltf  .CT  .1 


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soh 


11  ,#i 


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it 


11-9-22.  (2)  1 1-16-22.  (3)  11-22-22. 

CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


CUMULATIVE  INDEX-DIGESTS 

of 

Rulings  in  Internal  Revenue  Bulletins  Nos.  45  to  52,  1922  Series 

and  of 

New  Matters  issued  in  the  Service  since  November  6,  1922. 


Art.  4. — Who  is  a citizen  (1[748). 

* Military  deserter,  convicted  by  court-martial  and  findings  approved,  forfeits  citizen- 
ship: 1921  Act  (1-47-599:  I.  T.  1502).. Bull.  1 (’22)-47,  p.  2. 

\ 

Art.  22. — Computation  of  net  income  (If  1046). 

Foreign  exchange  rates: 

England;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:1.  T.  1495).. Bull.  I (’22)-46, 

p.  4. 

France;  as  of  Aug.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)-46, 
p.  4. 

Germany;  as  of  Aiig.  31,  1922:  1921  Act  (1-46-588:  I.  T.  1495).. Bull.  I (’22)- 
46,  p.  4. 


Art.  24. — Methods  of  accounting  (If  1053). 

Permanent  books  of  account;  the  keeping  and  production  of:  1921  Act. . U3396. 

Art.  51. — When  included  in  gross  income  (If  1260). 

Government  contract  canceled;  satisfaction  of  claim:  last  sentence  of  Art.  51,  Reg. 
62,  equally  applicable  to  1918  Aqt  (1-45-579:  I.  T.  1489).  .Bull.  I (’22)-45,  p.  7. 

Lease  held  to  be  a sale  under  very  specif  circumstances;  option  to  purchase;  loan 
(non-interest  bearing  note)  assignment  of  lease  as  collateral;  etc.:  1918  Act  (1-47- 
600:  A.  R.  M.  189).  .Bull.  I (’22)\7,  p.  2. 

Art.  89. — Additional  exclusions  from  grdes  income  under  the  Revenue  Act 
of  1921  (If  1606,  1fl725,  1f2099). 

Foreign  countries  which  do  not  satisfy  equivAent  exemption  provision  (1921  Act): 
* Finland  (1-47-601:  I.  T.  1503).. Bull.  I (’22V47,  p.  5. 

Great  Britain  (1-46-589:  1.  T.  1496) '.Bull.  l\^2)-46,  p.  5. 

Art.  101(a). — Traveling  expenses  (1fl678).  \ 

“Home”;  single  traveling  salesmen  on  fthe  road  365  Says  in  the  year:  1921  Act 
(1-45-580:  I.T.  1490).. Bull.  I (’22)^45,  p.  7.  See  (X  D.  905,  June  1921  Cum 
Bull.  p.  212. 

Naval  officers;  subsistence  of  single  man'  while  afloat  deductible  if  fie  has  a “home,” 
otherwise  not;  but  expense  incident  to  visits  to  home  notideductible:  1921  Act 
(1-46-590:  I.  T.  1497).  .Bull.  I (’22)r46,  p.  5. 

Art.  111. — When  charges  deductible  (^f  1057). 

South  Carolina  income  tax  (law  passed/March  13,  1922,  retroactive  for  1921):  1921 
Act  (1-46-591:  I.  T.  1498).  .Bull.  I (’22)-46,  p.  6. 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  37. 


CUMULATIVE  INDEX-DIGESTS.— NOV.  6 TO  DEC.  31,  1922. 


Art.  134. — Federal  estate  and  inheritance  taxes  (^1728). 

¥ Alaska  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602- 
1.  T.  1504).  .Hull.  I (’22)-47,  p.  6.  V 

Arkansas  inhtritadce  taxes  are  deductible  by  the  beneficiaries  only  1921  Act  (I-4S- 
581:  1.  T.  1491).  .Bull.  1 (’22)-45,  p.  8. 

Connecticut  inheritance  taxes  are  deductible  by  the  beneficiaries  only  1921  Act  (I- 
45-581:  I.  T.  1491).  Bull.  I (’22)-45,  p,  8. 

Federal  estate  tax  paid  subsequent  to  settlement  of  estate  out  of  residue  of  estate 
placed  in  trust,  not  deductible  by  trustees  in  determining  net  income  of  trust- 
1918  Act  (1-46-592:  A.  R.  R.  1020).  .Bull.  I (’22)-46,  p.  7. 

¥ Illinois  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602- 
_ I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Indiana  inheritance  taxes  are  deductible  by  the  beneficiaries  onlv:  1921  Act  (1-4.5- 
581:  I.  1.  1491).  .Bull.  I (’22)-45,  p.  8. 

¥ Louisiana  inheritance  taxes  are  deductible  by  the  beneficiaries  onlv:  19?1  Act  (1-47- 
602:  I.  T.  1504).  .Bull.  1 (’22)-47,  p.  6. 

Massachusetts  inheritance  taxes  are  deductible  by  the  beneficiaries  onlv-  1921  Act 
(1-45-581:  I.  T.  1491)..  Bull.  1 (’22)-45,  p.  8. 

¥ Michigan  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47- 
602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Missouri  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  I.  T.  1491) . . Bull.  1 (’22)-45,  p.  8. 

¥ Ohio  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-47-602- 
I.  T.  1504) . . Bull.  I (’22)-47,  p.  6. 

Oklahoma  inheritance  taxes  are  deductible  by  the  beneficiaries  only:  1921  Act  (1-45- 
581:  f.  T.  1491).  .Bull.  1 (’22)-45,  p.  8. 

¥ Tennessee  inheritance  taxes  arc  deductible  by  the  beneficiaries  only:  1921  Act  (I- 
.47-602:  I.  T.  1504).. Bull.  I (’22)-47,  p.  6. 

Virginia  inheritance  taxes  are  deductible  by  the  beneficiaries  onlv:  1921  Act  (1-45- 
581:  LT.  1491).  .Bull.  I (’2?.)-45,  p.  8. 

¥ Wisconsin  inheritance  taxes  are  deductible  by  the  beneficiaries  onlv:  1921  Act  (I- 
47-602:  I.  T.  1504).  .Bull.  I (’22)-47,  p.  6. 

Art.  141—  Losses  (^1783). 

¥ Expense  incident  to  establishing  a business  by  one  not  in  business,  the  venture  being 
abandoned,  is  a deductible  loss  in  a transaction  entered  into  for  profit:  1921  Act 
(1-47-603:  I.  T.  1505).  .Bull.  I (’22)-47,  p.  6. 

Art.  291. — Personal  and  family  expenses  (If  1623). 

Naval  officers;  expenses  incident  to  visits  home  from  port  and  subsistence  afloat  of 
single  man  having  no  home  are  not  deductible:  1921  Act  (1-46-590:  I.  T.  1497) 

. .Bull.  I (’22)-46,  p.  5. 


Art.  327(a). — Transportation  services  (^[3324). 

Art.  327(a)  applies  under  1921  Act  only  (1-45-582:  I.  T.  1492).  .Bull.  I (’22)-45,  p.  8. 

Art.  342. — Estates  and  trusts  to  fiduciary  H[879). 

¥ Stock  dividends  (See  “Stock  dividends”  under  Art.  347  below.). 

Art.  345. — Estates  and  trusts  taxed  to  beneficiaries  (^[894). 

Federal  estate  tax  paid  by  trustee  out  of  residuary  trust  funds,  all  distributable  to 

beneficiaries,  because  not  paid  and  no  provision  made  for  paying  prior  to  clos- 
ing of  administration  is  not  deductible  in  determining  income  of  the  trust  (1-46- 
592:  A.  R.  R.  1020).  .Bull.  I (’22)-46,  p.  7. 

Self  beneficiary  of  income  of  trust  to  extent  demanded  is  taxable  on  amount  actually 
received  only.  This  ruling  which  revokes  S.  1344,  June  1920  Cum.  Bull.  p.  176, 
is  confined  strictly  to  the  1916-17  Act.  (1-46-593:  Sol.  Op.  146).. Bull.  I (’22)- 
46,  p.  9. 

¥ Stock  dividends.  (See  “Stock  dividends”  under  Art.  347  below.) 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary~Page~38. 


10-18-22. 


TABLE  OF  CASES. 


Paragraph 

Allen:  Altheimer  & Rawlings  Investment  Co.  vs.  (248  Fed.  688) ...  1213 

Altheimer  & Rawlings  Investment  Co.  vs.  Allen  (248  Fed.  688) 1213 

Anderson:  Brady  vs.  (240  Fed.  665) 942 

Anderson:  Jacobs  and  Davies  (Inc.)  vs.  (228  Fed.  505) 1666 

Anderson:  Thorne  vs.  (240  U.  S.  115) Sup.  Page  132,  TJS31 

Anderson:  Tyee  Realty  Company  vs.  (240  U.  S.  115) Sup.  Page  132,  ^S31 

Anderson  vs.  U.  S.  (2d.  C.  C.  of  A.,  April  3,  1922) 3361 

Baldwin  Locomotive  Works  vs.  McCoach  (221  Fed.  59) 1288 

Baltic  Mining  Co.:  Stanton  vs.  (240  U.  S.  103) Sup.  Page  133,  Tf S38 

Brady  vs.  Anderson' (240  Fed.  665) 942 

Brady:  Dodge  vs.  (240  U.  S.  122) Sup.  Page  132,  1[S35 

Brewster  vs.  Walsh  (255  U.  S.  536) Sup.  Page  191,  ^S364 

Brushaber  vs.  U.  P.  Railroad  Company  (240  U.  S.  1) Sup.  Page  125,  ^Sl 

Carter:  Union  Hollywood  Water  Company  vs.  (238  Fed.  329) 985,  1632 

Chapin  vs.  Irwin  (U.  S.  D.  C.,  July  29,  1921) 1203 

Chicago  & Alton  Railroad  Co.  vs.  U.iS.  (53  C.  of  C.  41) 1283 

Cohen  vs.  Lowe  (234  Fed.  474) / 720,  1845 

Commercial  Health  and  Accident  Co.  vs.  Pickering  (T.  D.  3313) 3111 

Crocker,  et  al.,  Trustees:  Malley  vs i (249  U.  S.  223) Sup.  Page  153,  ^JS 1 40 

Darlington  vs.  Mager  (41  Sup.  Ct.  i33) Sup.  Page  200,  fS412 

Dayton  Bronze  Bearing  Co.:  Gilligan  vs.  (281  Fed.  709) 3268 

DeGanay  vs.  Lederer  (250  U.  S.  336) Sup.  Page  155,  US149 

De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  Iredell  (268  Fed.  377). . ..  835 
Digest  of  Recent  Decisions  of  ther  Supreme  Court  (Acts  of  1909  and  1913) 

(The  opinions  in  the  cases  Involving  the  1909  Act  are  not  included 
herein.  But  see  Digest*  Sup.  Page  138,  1JS58.) 

Dilley  Building  and  Loan  Co.  vs.  Miller  (T.  D.  3355) 3289 

Dodge  vs.  Brady  (240  U.  S.  1Z2) Sup.  Page  132,  1JS35 

Dodge  vs.  Osbolvp  (240  U.  S.  ll£) 2872 

Doyle:  Grand  Ra'pids  and  Indi/na  Railway  Co.,  vs.  (245  Fed.  792) 1683 

DuPont  vs.  Graham  (U.  S.  D.  C.,  June  13,  1922) 3239 

Edwards:  Fox  vs.  (?$0  Fed.  41jh) 3100 

Edwards:  Goodrich  v»,  (255  li  S.  527) Sup.  Page  189,  ^[S346 

Edwards:  New  York  Trust  Go.,  Executors,  etc.,  vs.  (42 

Sup.  Ct.  68) \. ..  J Sup.  Page  170,  ^S237 

Eisner:  Macomber  vs.  (25>2  II.  S.  189) Sup.  Page  173,  ^S244 

Eisner:  Peabody  vs.  (247  UL  fc.  347) Sup.  Page  148,  ^S119 

Eisner:  Towne  vs.  (245  U.  St418) Sup.  Page  137,  ^|S54 

Eldorado  Coal  & Mining  Co f ys.  Mager  (255  U.  S.  522).  .Sup.  Page  190,  ^S360 

Evans  vs.  Gore  (253  U.  S.  245\ Sup.  Page  193,  ^S375 

First  Trust  and  Savings  Banjc,  Trustee:  Smietanka  vs.  (42  Sup.  Ct.  223).  . .3048 

Fish  vs.  Irwin  (U.  S.  D.  C.,iJuly329,  1921) 1198 


Fox  vs.  Edwards  (280  Fed. 
General  Inspection  8c  Lo 
General  Inspection  & Lo 
Gilligan:  Park  vs.  (U.  S. 
Gilligan  vs.  Dayton  Bronzi 
Goodrich  vs.  Edwards  (25 
Gore:  Evans  vs.  (253  U.  S 
Gould  vs.  Gould  (245  U. 
Graham:  DuPont  vs.  (U. 
Grand  Rapids  & Indiana 


U3)i.  ,\. 3100 

S.  vs.  (192  Fed.  223) 2490 

ny:  U.  S.  vs.  (204  Fed.  637) 2740 

ell,  1921) 1261 

Bearing  C3^(281  Fed.  709) 3268 

Sup.  Page  189,  TJS346 

245)  . \ Sup.  Page  193,  fS375 

Sup.  Page  136,  T[S47 


D.  C.,  June  13\1922) .3239 


. Railway  Company  Vs.  Doyle  (245  Fed.  792) .....  1213 

Greenport  Basin  and  Construction  Co.  vs.  U.  (269  Fed.  58) 2847 

Gulf  Oil  Corporation  vs.  Lewellyn:  Example  of  procedure 2890 

U.  S.  Supreme  Court?  Decision  (248  U.  S.  71).\ Sup.  Page  152,  ^Sl36 

Haiku  Sugar  Co.  et  al.  vS.  Johnstone  (249  Fed.  103). 783 

Heller,  Hirsh  & Co.:  In  re  (258  Fed.  208) ' 1296 

Hornby:  Lynch  vs.  (247  U.  S.  339) Sup.  Page  141,  ^[S78 

Hurst  vs.  Lederer  (273  Fed.  174) 2721 

Indiana  Steel  Company:  Smietanka  vs.  (42  Sup.  Ct.  1) 2911 

Iredell:  De  Laski  & Thropp  Circular  Woven  Tire  Co.  vs.  (268  Fed.  377)..  835 

Irwin:  Chapin  vs.  (U.  S.  D.  C.,  July  29,  1921) 1203 

Irwin:  Fish  vs.  (U.  S.  D.  C.,  July  29,  1921) 1198 

Jacobs  and  Davies  (Inc.)  vs.  Anderson  (228  Fed.  505) 1666 

Johnstone:  Haiku  Sugar  Co.  et  al.  vs.  (249  Fed.  103) 783 


THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  115. 


/ 


TABLE  OF  CASES— Continued 


Paragraph 

Kirkendall:  Markle  et  al.  vs.  (267  Fed.  498) , 2780 

Kohlhamer  vs.  Smietanka  (239  Fed.  408) '. 2880 

Lawrence  vs.  Wardell  (T.  D.  3102)  (T.  D.  3178—273  Fed.  405) 747 

Lederer:  De  Ganay  vs.  (250  U.  S.  376) Sup.  Page  155,  HS149 

Lederer:  Fiurst  vs.  (273  Fed.  174) 2721 

Lederer:  Massey  vs.  (277  Fed.  123) 3113 

Lederer:  Penn  Mutual  Life  Ins.  Co.  vs.  (252  U.  S 523).  .Sup.  Page  161,  5fS201 
Lederer:  Philadelphia,  Harrisburg  & Pittsburgh  R.  R.  Co.  vs.  (242  Fed.  492) . 2904 

Lederer  vs.  Stockton  (266  Fed.  676) 880 

Affirmed  U.  S.  Supreme  Court  (Oct.  16,  1922) 3355 

Levy:  U.  S.  vs.  (271  Led.  942) 2582 

Lewellyn:  Gulf  Oil  Corporation  vs.  (Example  of  procedure) 2890 

U.  S.  Supreme  Court  Decision  (248  U.  S.  71) Sup.  Page  152,  5JS136 

Lowe:  Cohen  vs.  (234  Fed.  474) 720,  1845 

Lowe:  Peck  vs.  (247  U.  S.  165) Sup.  Page  140,  <JS70 

Lowe:  Roberts  vs.  (236  Fed.  604) 2902 

Lowe:  Southern  Pacific  Company  vs.  (247  U.  S.  330) Sup.  Page  149,  IfS  1 2 1 

Lynch:  Great  Northern  Railway  Company  vs.  (T.  D.  3147) 2838 

Lynch  vs.  Hornby  (247  (J.  S.  339) Sup.  Page  141,  ^JS78 

Lynch  vs.  Turrish  (247  U.  S.  221) Sup.  Page  144,  ^S92 

McCoach:  Baldwin  Locomotive  Works  vs.  (221  Fed.  59) 1288 

McElligott:  Towne  vs.  (274  Fed.  960) 721,  1141 

Macomber  vs.  Eisner  (252  U.  S.  189) Sup.  Page  173,  H S244 

McHatton:  U.  S.  vs.  (266  Fed.  602) 2493 

Mager:  Darlington  vs.  (41  Sup.  Ct.  533) Sup.  Page  200,  TfS412 

Mager:  Eldorado  Coal  and  Mining  Co.  vs.:  (255  U.  S.  522)  Sup.  Page  190,  ^JS360 

Malley  vs.  Alvah  Crocker,  et  al.,  Trustees  (249  U.  S.  223).  .Sup.  Page  153,  tSl40 

Marion  Hotel  Company:  Urquhart  vs.  (194  S.  W.  1) 2258 

Markle  et  al.  vs.  Kirkendall  (267  Fed.  498) 2780 

Maryland  Casualty  Company  vs.  U.  S.  (251  U.  S.  342).  .Sup.  Page  157,  HS159 

Massey  vs.  Lederer  (277  Fed.  123) 3113 

Mellon:  U.  S.  vs.  (279  Fed.  910) 1145 

Affirmed  C.  C.  of  A.  (281  Fed.  645) 3293 

Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs.  Smietanka,  former  Collec- 
tor (255  U.  S.  509) Sup.  Page  186,  ^S313 

Merriam  vs.  U.  S.  (2d.  C.  C.  of  A.,  April  3,  1922) 3361 

Miles,  Collector:  Safe  Deposit  & Trust  Co.  (273  Fed.  822) 1220 

U.  S.  Supreme  Court,  May  29,  1922 3217 

Miller:  Dilley  Building  and  Loan  Co.  vs  (T.  D.  3355) 3289 

New  York  Trust  Co.,  Executors,  etc.,  vs.  Edwards  (42  Sup. 

Ct.  68) Sup.  Page  170,  ^fS237 

Oregon-Washington  R.  & Nav.  Co.:  U.  S.  vs.  (251  Fed.  211) 1259 

Osborn:  Dodge  vs.  (240  U.  S.  118) 2872 

Park  vs.  Gilligan  (U.  S.  Dist.  Ct.,  June  11,  1921) 1261 

Peabody  vs.  Eisner  (247  U.  S.  347) Sup.  Page  148,  S 1 1 9 

Peck  vs.  Lowe  (247  U.  S.  165) Sup.  Page  140,  ^S70 

Penn  Mutual  Life  Insurance  Co.  vs.  Lederer  (252  U.  S.  523)  Sup.  Page  161,  S20 1 

Phellis  vs.  United  States  (42  Sup.  Ct.  63) Sup.  Page  167,  HS219 

Philadelphia,  Harrisburg  & Pittsburgh  R.  R.  Co.  vs.  Lederer  (242  Fed.  492).  2904 
Pickering:  Commercial  Health  and  Accident  Company  vs.  (T.  D.  3313)...  3111 

Pittaro:  U.  S.  vs.  (U.  S.  District  Court).  (T.  D.  2874) 2800 

Plant  vs.  Walsh  (280  Fed.  722) 3127 

Roberts  vs.  Lowe  (236  Fed.  604) 2902 

Rockefeller:  U.  S.  vs.  (42  Sup.  Ct.  68) Sup.  Page  170,  HS237 

R.  1.  A.  and  L.  R.  R.  Co.  vs.  U.  S.  (254  U.  S.  141) 2887 

Safe  Deposit  and  Trust  Co.  vs.  Miles,  Collector  (273  Fed.  822) 1220 

U.  S.  Supreme  Court,  May  29,  1922 3217 

San  Juan  County:  U.  S.  vs.  (280  Fed.  120) 3085 

Schuster  & Co.,  Inc.  vs.  Williams  (T.  D.  3330) ••  • ; • • 3213 

Skinner:  U.  P.  Coal  Co.  vs.  (252  U.  S.  470) Sup.  Page  161,  US200 

Smietanka  vs.  First  Trust  and  Savings  Banks,  Trustee  (42  Sup.  Ct.  223) . . .3048 

Smietanka  vs.  Indiana  Steel  Company  (42  Sup.  Ct.  1) 2911 

Smietanka:  Kohlhamer  vs.  (239  Fed.  408) 2880 

Smietanka:  Merchants’  Loan  & Trust  Co.,  Trustee,  etc.,  vs. 

(255  U.  S.  509) Sup.  Page  186,  JJS313 

Southern  Pacific  Company  vs.  Lowe  (247  U.  S.  330) Sup.  Page  149,  TJS121 

THE  FEDERAL  INCOME  TAX  SERVICE 
Supplementary  Page  116. 


10-18-22. 


TABLE  OF  CASES. -Concluded. 


Paragraph 

Stanton  vs.  Baltic  Mining  Co.  (240  U.  S.  103) Sup.  Page  133,  ^S38 

Stockton:  Lederer  vs.  (266  Fed.  676) 880 

Affirmed  U.  S.  Supreme  Court  (Oct.  16,  1922) 3355 

Thorne  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  TJ S3 1 

Towne  vs.  F.isner  (245  U.  S.  418) Sup.  Page  137,  ^S54 

Towne  vs.  McElligort  (274  Fed.  960) 721,  1141 

Turrish:  Lynch  vs.  (247  U.  S.  221) Sup.  Page  144,  US92 

Tyee  Realty  Company  vs.  Anderson  (240  U.  S.  115) Sup.  Page  132,  ^S31 

Union  Hollywood  Water  Company  vs.  Carter  (238  Fed.  329) 985,  1632 

U.  P.  Coal  Co.  vs.  Skinner  (252  U.  S.  470) Sup.  Page  161,  1JS200 

U.  P.  Railroad  Company:  Brushabcr  vs.  (240  U.  S.  1) Sup.  Page  125,  H S l 

U.  S.:  Anderson  vs.  (2d.  C.  C.  of  A.,  April  3,  1922) 3361 

U.  S.:  Chicago  & Alton  Railroad  Co.,  vs.  (53  C.  of  C.  41) 1283 

U.  S.  vs.  General  Inspection  & Loading  Co.  (192  Fed.  223) 2490 

U.  S.  vs.  General  Inspection  & Loading  Company  (204  Fed.  657) 2740 

U.  S.:  Greenport  Basin  & Construction  Co.  vs.  (269  Fed.  58) 2847 

U.  S.  vs.  Levy  (271  Fed.  942) 2582 

U.  S.  vs.  Mcllatton  (266  Fed.  602) 2493 

U.  S.:  Maryland  Casualty  Company  vs.  (251  U.  S.  342)... Sup.  Page  157,  TfS  1 59 

U.  S.  vs.  Mellon  (279  Fed.  910) 1145 

Affirmed  C.  C.  of  A.  (281  Fed.  645) .a 3293 

U.  S.  Merriam  vs.  (2d.  C.  C.  of  A.,  Aprils,  1922)./ 3361 

(251  f' 


U.  S.  vs.  Oregon- Washington  R.  & Nav. 

U.  S.:  Phellis  vs.  (42  Sup.  Ct.  63) 

U.  S.  vs.  Pittaro  (U.  S.  District  Court)  (T. 

U.  S.  vs.  Rockefeller  (42  Sup.  Ct.  68) 

U.  S.:  R.  I.  A.  and  L.  R.  R.  Co.,  vs.  (254  U 
U.  S.  vs.  San  Juan  County  (280  Fed.  120)...  . 

U.  S.:  Woodward,  et  als.  vs.  (41  Sup.  Ct.  615) 

U.  S.:  Young  vs.  (269  Fed.  58) 

Urquhart  vs.  Marion  Hotel  Company  (194  S.  W. 

Walsh:  Brewster  vs.  (255  U.  S.  536) 

Walsh:  Plant  vs.  (U.  S.  D.  C.,  April  12,  1922).. 
Wardell:  Lawrence  vs.  (T.  D.  3102)  (T.  D.  3178 
Williams:  Schuster  & Co.,  Inc.  (T.  D.  3330).  .. 
Woodward,  et  al.  vs.  U.  S.  (41  Sup.  Ct.  615). . . . 
Young  vs.  U.  S.  (269  Fed.  58) 


ed.  211) 1259 

Sup.  Page  167,  US219 

2874) 2800 

Sup.  Page  170,  S23 7 

l4l) 2887 

3085 

..  .Sup.  Page  201,  HS413 

2847 

2258 

..  .Sup.  Page  191,  ‘!S364 

3127 

Fed.  405) 747 

3213 

Sup.  Page  201,  ^S413 

2847 


THE  FEDERAL  INCOME  TAX  SERVICE 

Supplementary  Pages  117  and  118. 


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I rulings.  Supreme  Court  decisions,  and 


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/ICE — Reports  the  Federal  Income  Tex  Law  and  the 
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£KV  ICE — Reports  the  Excess  Profits  Tax  Law  and  prac- 
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i,  etc.,  bearing  thereon.  (Does  not  cover  the  Tax 
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ACT  SERVICE  Reports  the  Federal  Reserve 

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GUIDE  AND  SERVICE— Reports  require; 


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REPORT  AND  TAX  DEPARTMENT— Notifies  attorneys  of  the  time  to  file  co 
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